UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
180 VARICK STREET, NEW YORK, NY 10014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 645-1405
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $ .001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 27, 1997 was $154,961,887.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 27, 1997
- ------------------------------- --------------------------------
Common Stock, par value $.001 23,693,199
Documents Incorporated by Reference: The registrant's definitive Proxy Statement
for the Annual Meeting of Stockholders scheduled to be held on June 3, 1997 to
be filed with the Commission not later than 120 days after the close of the
registrant's fiscal year, has been incorporated by reference, in whole or in
part, into Part III, Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.
<PAGE>
IMCLONE SYSTEMS INCORPORATED
1996 Form 10-K Annual Report
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 25
------------------------
Those statements contained herein that do not relate to historical information
are forward-looking statements. There can be no assurance that the future
results covered by such forward-looking statements will be achieved. Actual
results may differ materially due to the risks and uncertainties inherent in the
Company's business, including without limitation, the risks and uncertainties
associated with completing preclinical and clinical trials of the Company's
compounds that demonstrate such compounds' safety and effectiveness; obtaining
additional financing to support the Company's operations; obtaining and
maintaining regulatory approval for such compounds and complying with other
governmental regulations applicable to the Company's business; obtaining the raw
materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
developing the capacity to manufacture, market and sell the Company's products,
either directly or with collaborative partners; developing market demand for and
acceptance of such products; competing effectively with other pharmaceutical and
biotechnological products; obtaining adequate reimbursement from third party
payors; attracting and retaining key personnel; protecting proprietary rights;
and those other factors set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview and Risk Factors."
(i)
<PAGE>
Item 1. Business.
GENERAL
ImClone Systems Incorporated (the "Company" or "ImClone") is a
biopharmaceutical company engaged primarily in the research and development of
therapeutic products for the treatment of cancer and cancer-related disorders.
The Company's product candidates include interventional therapeutics for cancer
and cancer vaccines. The Company was incorporated in Delaware in 1984.
The Company's principal executive offices and laboratories are located at
180 Varick Street, New York, New York 10014 and the telephone number is (212)
645-1405.
DEVELOPMENT PROGRAMS
C225 Cancer Therapeutic. The Company's lead interventional therapeutic for
cancer is a chimerized (part mouse, part human) antibody that acts to block the
Epidermal Growth Factor receptor ("EGFr"). EGFr is expressed in select normal
human tissues and has been shown to be over-expressed in the cells of
approximately one-third of all solid cancers. Extensive in vivo animal studies
with human tumors have shown that C225 in combination with various
chemotherapeutic agents (doxorubicin, cisplatin or paclitaxel) demonstrates a
pronounced enhancement of the anti-tumor effect of the chemotherapeutic agents,
resulting in the complete destruction of human tumors in substantially all the
animals in these studies. The studies have demonstrated long-term tumor-free
survival of animals.
Since December 1994, the Company has initiated several Phase Ib/IIa
clinical trials of C225 at Memorial Hospital (the patient care arm of Memorial
Sloan-Kettering Cancer Center) ("Sloan-Kettering"), Yale Cancer Center,
University of Virginia, MD Anderson Cancer Center and the University of
Alabama. The first study, involving a single injection of C225 at escalating
doses in 13 patients, was completed in March 1995. Subsequent studies have been
initiated with escalating doses of C225 both with and without chemotherapy. A
multi-injection study of C225 alone in 17 patients was completed in November
1995. A study of the drug in conjunction with cisplatin in head and neck cancer
patients began in May 1995 and was completed in November 1996 with 22 patients.
No dose limiting toxicities were demonstrated in these studies. Studies with
doxorubicin in advanced prostate cancer patients and with paclitaxel in breast
cancer patients were initiated in January 1996 and March 1996, respectively. The
Company expects to commence enrollment shortly of patients in studies using C225
alone, with chemotherapy or with radiation in head and neck cancer patients. The
Company produces C225 for its clinical trials at its manufacturing facility in
Branchburg, New Jersey.
105AD7 Cancer Vaccine. 105AD7 is a human monoclonal antibody which mimics
an antigen known as gp72 which is common in cancers of the gastrointestinal
tract, including colorectal carcinoma. This human monoclonal antibody has been
shown to stimulate cellular immune anti-tumor responses in animal models and has
been tested in a Phase I human clinical study in the United Kingdom in 13
patients with advanced colorectal carcinoma. The results of that study indicate
that in a majority of patients 105AD7 stimulated a cellular immune response and
significantly increased the overall mean survival time compared to patients not
immunized, with no discernible toxicity related to the drug. Based on these
results, late stage colorectal carcinoma patients have been enrolled in the
United Kingdom in a 162-patient Phase II clinical trial. The study has been
fully enrolled and patients are being evaluated for survival.
1
<PAGE>
BEC-2 Cancer Vaccine. BEC-2 is a monoclonal anti-idiotypic antibody which
the Company believes may be useful to prevent or delay the onset of recurrent
primary tumors or metastatic disease. The antibody, which mimics the ganglioside
GD3, has been tested since 1991 in Phase I clinical trials at Sloan-Kettering
against certain forms of cancer, including small-cell lung carcinoma and
melanoma. BEC-2 has shown statistically significant prolonged survival of
patients with small-cell lung carcinoma in a pilot study at Sloan-Kettering. The
Company has granted Merck KGaA, formerly E. Merck ("Merck"), a German-based
pharmaceutical company, rights to manufacture and market BEC-2 worldwide, except
in North America, in return for research support, potential milestone fees and
royalties on future sales, if any. ImClone expects that pivotal studies for
BEC-2 for use in treatment of small cell lung carcinoma will commence within the
next 12 months.
Interleukin-6 Mutein ("IL-6m"). The Company has developed a recombinant
molecular variant of Interleukin-6, a naturally occurring hematopoietic growth
factor. IL-6m has been shown in animal tests to significantly stimulate the
production of platelets and has been shown by others in pre-clinical trials to
be a critical factor in liver cell regeneration. A pilot human clinical trial of
IL-6m was initiated at Hadassah Hospital in Jerusalem, Israel in early 1994 in
pre-chemotherapeutic patients with ovarian or lung cancer which trial was
discontinued. In addition, IL-6m is being supplied to outside academic
laboratories.
RESEARCH PROGRAMS
In addition to concentrating on its products in clinical development, the
Company performs ongoing research in a number of related areas.
Interventional Therapeutics
ImClone conducts an interventional cancer therapeutic research program in
the development of inhibitors of tyrosine kinase receptors (growth factor
receptors) associated with tumor cell regeneration and support.
Inhibitors of Angiogenesis
The Company is seeking to develop inhibitors of angiogenesis, which is the
formulation of new blood vessels necessary for tumor growth. The Company has
acquired proprietary rights to the recombinant mouse form of a key tyrosine
kinase receptor involved in angiogenesis, FLK-1. The receptor, which was
discovered, cloned and expressed by ImClone scientists and collaborators, is
stimulated by the growth factor called Vascular Endothelial Cell Growth Factor
("VEGF"). The Company has developed various antibodies with high affinity for
the receptor and its human form, which block the activation of the receptor and
thereby inhibit angiogenesis. The Company has also initiated a program to
develop small molecule inhibitors of angiogenesis and to identify and validate
new targets for anti-angiogenic drug intervention. These inhibitors of the FLK-1
receptor may represent a future treatment for inhibiting tumor growth in those
cancers that use this molecular pathway to stimulate blood vessel development.
FLK-2
FLK-2 is a tyrosine kinase receptor which is expressed on a sub-population
of human hematopoietic stem cells, acute myeloblastic leukemia and acute
lymphoblastic leukemia, and possibly human neural and neural-like tumors. The
goals of the FLK-2 monoclonal antibody
2
<PAGE>
program are to develop therapeutic antibodies that can be used to treat FLK-2
expressing tumors.
Hematopoiesis
The Company is conducting research in hematopoiesis (growth and development
of blood cell elements) aimed at discovering factors to support hematopoietic
stem cells and to control the proliferation, differentiation and functional
deterioration of hematopoietic elements.
The Company has obtained an exclusive license from The National Institutes
of Health ("NIH") to the delta-like ("DLK") protein and gene for use in stem
cell and gene therapy. DLK is a member of a family of proteins which appear to
have the ability to maintain cells in an undifferentiated state. The Company
also has entered into a non-exclusive license and supply agreement with Immunex
Corporation ("Immunex") for use of the FLK-2/FLT-3 ligand for ex vivo cell
therapies. Immunex has a license from the Company to the FLK-2 receptor, limited
to the use by Immunex in the manufacture of the FLK-2/FLT-3 ligand.
Cancer Vaccines
ImClone seeks to discover potential cancer vaccines as another route to
cancer treatment. Cancer vaccines would activate immune responses to tumors to
protect against local spread, distant metastases or recurrence of cancer.
Choosing appropriate cancer cell targets and generating effective immune
responses are the focus of ImClone's cancer vaccine program. For example,
research is being conducted on a possible melanoma vaccine based on the tumor
associated antigen known as gp75.
LICENSED DIAGNOSTICS AND INFECTIOUS DISEASE VACCINES
The Company has licensed its diagnostic and infectious disease vaccine
product areas, based on its earlier research, to corporate partners for further
development and commercialization. The Company has granted the Wyeth/Lederle
division of American Home Products Corporation ("American Home") a worldwide
license to manufacture and market its infectious disease vaccines, which are in
development. The Company has also entered into a strategic alliance with Abbott
Laboratories ("Abbott") pursuant to which the Company has licensed certain of
its diagnostic products to Abbott on a worldwide basis. In mid-1995, Abbott
launched in Europe its first DNA-based test, using the Company's technology, for
the diagnosis of the sexually transmitted disease chlamydia. Abbott has advised
the Company that it has added tests for gonorrhea and mycobacteria, and has
launched sales in the U.S. as well. The Company is entitled to receive potential
milestone payments and royalties in connection with sales of such diagnostic
products. In December 1996, the Company and Abbott modified this agreement to
provide for an exclusive sublicensing agreement with Chiron Diagnostics
("Chiron") for the Company's patented DNA signal amplification technology,
AMPLIPROBE. Under the terms of the agreement all sales of Chiron branched DNA
diagnostic probe technology in countries covered by Company patents will be
subject to a royalty to Abbott to be passed through to the Company.
RESEARCH AND DEVELOPMENT
ImClone initiated its in-house research and development in 1986. The
Company has assembled a scientific staff with a variety of complementary skills
in a broad base of advanced research technologies, including oncology,
immunology, cell biology and protein and synthetic chemistry. The Company has
also recruited a staff of technical and professional employees to
3
<PAGE>
carry out manufacturing of clinical trial materials at its Branchburg, New
Jersey manufacturing facility. In addition to its research programs pursued
in-house, ImClone collaborates with certain academic institutions to support
research in areas of ImClone's product development efforts. The Company has also
entered into collaborations with major pharmaceutical companies in order to
obtain funding and product development and commercialization assistance for
certain of its therapeutic product candidates in exchange for specific product
licensing rights. The Company intends to enter into additional agreements of
this nature with appropriate pharmaceutical company partners with the resources
and experience to assist the Company financially and in successfully bringing
its products to market, both in the U.S. and abroad. There can be no assurance,
however, that the Company will be successful in consummating any such
arrangements.
The Company has recorded expenses of approximately $11,482,000, $8,768,000
and $11,816,000 for research and development in the years ended December 31,
1996, 1995 and 1994, respectively.
ACADEMIC COLLABORATIONS
The Company's primary academic collaborations which are non-clinical in
nature are the following.
Princeton University. The Company has entered into several agreements with
Princeton University pursuant to which ImClone has supported specific research
under the direction of certain faculty members. The Company supports the
research of Dr. Arnold Levine, Chairman of Princeton's Department of Molecular
Biology, in the area of the p53 tumor suppressor gene. The Company has an
exclusive license to the results of this research, which license is terminable
by the university if the Company does not meet certain milestones in connection
with the development of the licensed technology.
The Company has also funded research of Dr. Ihor Lemischka of Princeton
University on tyrosine kinase receptors, including FLK-2, antibodies and ligands
to such receptors, and hematopoietic stem cells. The Company has an exclusive
license from Princeton to the results of this research, which license is
terminable by the university if the Company does not meet certain developmental
milestones.
The University of California at San Diego. In April 1993, the Company
obtained an exclusive worldwide license from the University of California to a
United States patent covering monoclonal antibodies that bind to the EGFr. The
Company's C225 product is the chimerized form of one such antibody.
The University of North Carolina at Chapel Hill. The Company has supported
research at The University of North Carolina at Chapel Hill in a number of
areas, including work of Dr. P. Frederick Sparling in connection with vaccine
candidates for N. gonorrhea and N. meningitidis, the results of which are
exclusively licensed to the Company.
Hadassah Medical Organization. ImClone has entered into two supported
research agreements with Hadasit Medical Research Services & Development, Ltd.,
the organization that licenses research programs on behalf of Hadassah Medical
Organization. Pursuant to one agreement, the Company has funded research at
Hadassah in the development of an inhibitor of cytokines, which funding was
discontinued by the Company as of January 1993. ImClone has also funded research
at Hadassah in the development of a recombinant form of heparanase, which
funding was discontinued by the Company as of March 1994. Under each agreement,
the Company has an exclusive license to the proprietary rights of the research.
4
<PAGE>
Two additional collaborations which are not academic in nature, but which
have resulted in the transfer of intellectual property rights to the Company are
the following:
National Cancer Institute. In October 1996, the Company obtained an
exclusive, worldwide patent license from the NIH for the DLK protein and gene.
The agreement provides the Company with an exclusive license to stem cell and
gene therapy applications of the DLK protein and gene, as well as related
diagnostic uses.
Rhone-Poulenc Rorer. In June 1994, the Company obtained an exclusive
worldwide license from the pharmaceutical company, Rhone-Poulenc Rorer, Inc.
("Rhone-Poulenc Rorer") to pending patent applications covering the use of EGFr
monoclonal antibodies in combination with specific chemotherapeutic regimens.
Generally, subject to earlier termination provisions contained in the
agreements, the licenses described above terminate upon the expiration of the
life of any patent or a related period on unpatented technology.
CLINICAL COLLABORATIONS
The Company's principal collaborations that are related to its clinical
trials are the following:
The Cancer Research Campaign Technology, Limited. In April 1994, the
Company entered into an exclusive worldwide license with Cancer Research
Campaign Technology, Limited ("CRCT") for a human monoclonal anti-idiotypic
antibody called 105AD7, and its use as a cancer vaccine. CRCT licenses potential
products on behalf of Cancer Research Campaign ("CRC"). CRC is performing a
double-blind Phase II clinical study on 105AD7 in the United Kingdom. This study
focuses on increased survival time of patients with late-stage colorectal
cancer.
The license agreement provides that ImClone shall manufacture 105AD7 for
CRC to be used in the clinical trials other than the current Phase II trial in
the United Kingdom, which is supported wholly by CRC and is being performed with
CRC material. As licensee, ImClone has commercial development obligations in
connection with the product, based on sound clinical results. ImClone is to pay
CRCT licensing fees, milestone fees and royalties on the sale of the
commercialized product. The license can be terminated by CRCT if ImClone fails
to carry out its obligation to develop and commercialize the product.
In July 1996, the Company, CRCT and the University of Nottingham entered
into a research agreement pursuant to which the Company agreed to support a
one-year renewable research program at the University of Nottingham, the
objective of which is to elucidate the mechanism of action of 105AD7 in order to
interpret the results of the clinical trial and to guide ImClone's commercial
development of 105AD7.
Memorial Sloan-Kettering Cancer Center. In March 1990, the Company entered
into an agreement with Sloan-Kettering to support research in several areas,
including the study of potential cancer vaccine products BEC-2 and gp75. The
Company has an exclusive license to the results of the research in the areas
covered by the agreement. The BEC-2 antibody has been tested since 1991 in Phase
I clinical trials at Sloan-Kettering against certain forms of cancer, including
small cell lung carcinoma and melanoma.
5
<PAGE>
The Company also has agreements with certain institutions by which such
institutions serve as sites for certain of the Company's clinical trials. For
example, for its C225 trials, the Company has entered into such agreements with
Yale Cancer Center, Sloan-Kettering, and the University of Virginia, MD
Anderson Cancer Center and the University of Alabama.
CORPORATE COLLABORATIONS
To facilitate commercialization of certain of its products, ImClone has
entered into agreements with major pharmaceutical companies. Although the terms
of each agreement differ, these agreements generally provide for ImClone to
receive license fees, research funding and royalties on net sales of any future
products during the life of any relevant patent. In some cases, license fees
include payments related to the achievement of regulatory or product development
milestones.
Merck KGaA (Darmstadt, Germany)
The Company entered into a research and license agreement with Merck in
December 1990, which was extended and modified in May 1996. The original
agreement provided Merck the exclusive license to manufacture, sell and
distribute in Europe, Australia and New Zealand, if developed, the Company's
BEC-2 product, and its recombinant gp75 antigen, for all indications. The
modified agreement expands Merck's rights to the world, except for North
America.
The Company reserves the right in the agreement to sell and distribute such
products in North America. The modified agreement also requires the Company to
give Merck the opportunity to seek to acquire North American distribution rights
for the licensed products if the Company intends to grant such rights to any
third party. Each party is responsible for conducting clinical trials and
obtaining regulatory approvals in order to market the licensed products in the
territory under which such party has marketing rights under the agreement. Merck
will also share in the development costs for the United States, Europe,
Australia and New Zealand and will pay all development costs in all other
territories.
The modified agreement requires Merck to make research support and
milestone payments to ImClone based on milestones achieved in the licensed
products' development, and to make royalty payments to ImClone on all sales of
the licensed products, if any, with a portion of the earlier funding received by
the Company under the agreement being creditable against the amount of royalties
due to the Company. Such research support and milestone payments under the
modified agreement may total up to $11.7 million. ImClone will owe no royalties
to Merck on any sales by ImClone of the licensed products in North America
unless Merck significantly enhances the product, in which case compensation may
be negotiated. The modified agreement also provides that it is the intent of
ImClone and Merck that ImClone be the manufacturer for the product worldwide.
The agreement terminates upon the later of the last to expire of any patents
issued and covered by the technology or fifteen years from the date of the first
commercial sale, after which such license shall survive without further royalty
payment and is irrevocable. The agreement may be terminated earlier by ImClone
in the event Merck fails to pursue in a timely fashion regulatory approval or
sale of a licensed product in a country in which it has the right to do so. It
also may be terminated earlier by Merck if milestones are not achieved.
In the year ended December 31, 1996, the Company recorded no revenue under
the Merck agreement.
6
<PAGE>
Abbott Laboratories
The Company entered into a research and license agreement with Abbott in
December 1992, which provides Abbott an exclusive worldwide license to
manufacture and distribute diagnostic products arising out of certain of
ImClone's research in diagnostics, including but not limited to ImClone's Repair
Chain Reaction and p53 technologies for cancer detection and prognosis. This
agreement requires Abbott to exercise its best reasonable efforts to develop and
commercialize products incorporating the Repair Chain Reaction technology,
failing which it can lose its exclusive license to this technology. Abbott has
the right on 30 days notice to ImClone to terminate a product license in a
particular country. In mid-1995, Abbott launched in Europe its first DNA-based
test, using the Company's technology, for the diagnosis of the sexually
transmitted disease chlamydia. Abbott has advised the Company that it has added
tests for gonorrhea and mycobacteria, and has launched sales in the U.S. as
well. Under the agreement Abbott has paid ImClone up-front fees and research
support, and is obligated in the future to pay milestone fees and royalties on
sales. The agreement terminates upon the later of the last to expire of any
patents issued covered by the technology or, if no patents are granted, twenty
years, subject to certain earlier termination provisions contained in the
agreement.
In December 1996, the Company and Abbott modified this agreement to provide
for an exclusive sublicensing agreement with Chiron for the Company's patented
DNA signal amplification technology, AMPLIPROBE. Under the terms of the
agreement all sales of Chiron branched DNA diagnostic probe technology in
countries covered by Company patents will be subject to a royalty to Abbott to
be passed through to the Company.
In the year ended December 31, 1996, the Company recorded revenue under the
Abbott agreement in the amount of $225,000.
American Home Products
In December 1987, the Company entered into a vaccine development and
licensing agreement with American Cyanamid Company ("Cyanamid") that provided
Cyanamid an exclusive worldwide license to manufacture and sell vaccines
developed during the research period of the agreement. In connection with the
agreement, Cyanamid purchased 410,001 shares of Common Stock of the Company.
During the three-year research period of the agreement, which period expired in
December 1990, the Company developed two vaccine candidates, the first of which
was for N. gonorrhea based on recombinant proteins, and the second of which was
for Herpes Simplex Virus based on recombinant glycoproteins B and D.
In September 1993, the Company and Cyanamid, through its Lederle-Praxis
Biologicals division, entered into a research collaboration agreement which by
its terms supersedes the earlier agreement as to N. gonorrhea vaccine
candidates, but not as to Herpes Simplex Virus vaccine candidates. The successor
to Cyanamid, American Home, has the responsibility under this agreement to pay
research support to the Company, as well as milestone fees and royalties on
sales of any N. gonorrhea vaccine that might arise from the collaboration.
American Home has the responsibility under both agreements for conducting
pre-clinical and clinical trials of the vaccine candidates, obtaining regulatory
approval, and manufacturing and marketing the vaccines. There are penalties
payable by American Home in the event it fails to have filed for the
commencement of clinical trials by certain dates yet intends to continue to
develop the product, otherwise the product will revert to ImClone. American Home
is required to pay royalties to ImClone in connection with sales of the
vaccines.
7
<PAGE>
In the year ended December 31, 1996, the Company recorded revenues of
$300,000 under the American Home agreements.
Immunex Corporation
In December 1996, the Company entered into technology cross-licensing
agreements with Immunex relating to FLK-2/FLT-3 ligand and its receptor. FLT-3
ligand is a hematopoietic growth factor. Under the terms of the agreements, the
Company has granted to Immunex an exclusive worldwide license to the receptor
for use in the manufacture of the ligand. In return, the Company will receive an
initial payment and a royalty based on the sales of the ligand by Immunex and
its sub-licensees. In addition, Immunex has granted the Company a non-exclusive
license in the United States and Canada to use its patented FLK-2/FLT-3 ligand,
manufactured by Immunex, for ex-vivo stem cell expansion together with an
exclusive license to distribute the ligand with its own proprietary products for
ex-vivo expansion. Immunex has agreed to seek to obtain the consent of its
parent company, American Home, to expand the territory of this license to
include the world outside North America. Immunex will also supply FLK-2/FLT-3
ligand to ImClone. The Company has been advised that Immunex has begun Phase I
studies with FLK-2/FLT-3 ligand for stem cell mobilization in vivo. Subject to
earlier termination provisions contained in the agreements, ImClone's license
terminates in December 2001, subject to a five year renewal period and Immunex's
license terminates thirteen years after the first commercial sale of the
product.
In the year ended December 31, 1996, the Company recorded $75,000 as
license fee revenue from Immunex under this agreement.
Cadus Pharmaceutical Corporation
In January 1992, the Company participated in the founding of Cadus
Pharmaceutical Corporation ("Cadus") with scientists from Princeton University.
Prior to founding Cadus, ImClone had funded research at Princeton University in
the field of yeast-based drug screening systems. The Company also had identified
at Princeton research related to chemical compounds shown to block signal
transduction events within cells. The Company determined that these technologies
were sufficiently significant and distinct from its own protein-based
technologies to merit the founding of a separate company.
The Company supported the initial growth and development of Cadus, and
until December 1994 owned approximately 28% of Cadus' common and preferred
stock. In December 1994, an agreement was reached for the Company to sell 50% of
its total Cadus stock to High River Limited Partnership ("High River") for total
consideration of $3,000,000. Following this transaction the Company's investment
in Cadus was accounted for under the cost method, as the Company's investment in
Cadus had fallen below 20%. At December 31, 1994 and December 31, 1993 the
Company had approximately a 14% and 28% investment in Cadus, respectively. The
gain in 1994 on sale of the Cadus shares is recorded in the Statement of
Operations as other income for the year ended December 31, 1994. The cash
consideration was received by the Company on January 4, 1995.
In April 1995, the Company completed the sale of the remaining one-half of
its shares of capital stock of Cadus for $3,000,000 to High River. The Company
had a right to repurchase all such remaining shares of Cadus anytime prior to
October 27, 1996 for $5.25 per share which it did not exercise. In exchange for
such right, the Company granted to High River two options to purchase shares of
the Company's common stock, $.001 par value (the "Common Stock"). One option is
to purchase 150,000 shares at a price of $2.00 per share, subject to adjustment
under certain circumstances, and the other option is to purchase 300,000 shares
at a price of $0.69 per
8
<PAGE>
share, subject to adjustment under certain circumstances. Both options became
exercisable on April 27, 1995 and will expire on April 26, 2000.
CLINICAL MANUFACTURING
For the Company to support its ongoing research and development it must
maintain, supply and staff a facility to support the preparation, analysis and
distribution of clinical supplies to various study centers. Toward that end, the
Company has operations in Branchburg, New Jersey that include laboratories,
storage areas, mechanical systems and qualified staff for the production of and
analysis of parenteral materials according to the appropriate Federal, state and
local regulations. At this facility the Company is currently producing C225, the
EGFr antibody to supply its clinical trials.
In addition, ImClone has established relationships with qualified contract
vendors to perform specialized testing and manufacturing operations not
performed by ImClone. The Company has in the past and expects to continue to
establish defined development and manufacturing arrangements with third party
qualified contract vendors to perform bulk and final product development and
production to support ImClone clinical program needs.
The materials that are used to manufacture the Company's products include
qualified cell lines developed by the Company and specially qualified raw
materials and components which the Company can obtain from a number of sources.
ImClone maintains necessary Quality Control and Quality Assurance oversights of
all materials used in the manufacture of the Company's clinical supplies.
PATENTS AND TRADE SECRETS
The Company seeks patent protection for its proprietary technology and
products, both in the United States and abroad. Patent applications have been
submitted and are pending in the United States, Canada, Europe and Japan as well
as other countries. The patent position of biopharmaceutical firms generally is
highly uncertain and involves complex legal and factual questions.
The Company currently is exclusive licensee or assignee of 42 issued
patents world-wide, 24 of which are issued United States patents. The Company
has the exclusive right to develop certain anti-EGF receptor antibodies with
potential anti-tumor activity under a United States patent owned by the
University of California. Nine of the Company's U.S. patents are licensed from
Princeton University. Six of the Princeton patents relate to hematopoietic
receptor genes and the proteins they encode, such as the tyrosine kinase
receptors FLK-1 and FLK-2. The other three Princeton patents relate to a DNA
signal amplification system and p53 detection systems.
To date, the Company is the assignee or exclusive licensee of approximately
35 families of United States and foreign patent applications. The patent
applications relate to a number of technologies including the use of EGFr
antibodies with chemotherapeutic agents; anti-idiotypic antibodies for treating
cancer, such as BEC-2 and 105AD7; antibodies to receptor tyrosine kinases, such
as FLK-1 and FLK-2; methods for amplifying and detecting DNA, such as the Repair
Chain Reaction; and hematopoietic factors.
With respect to C225, the Company's EGFr cancer inhibiting antibody, the
Company is the exclusive licensee of an issued patent from the University of
California covering certain monoclonal antibodies that inhibit epidermal cell
growth. The Company is also the exclusive licensee from
9
<PAGE>
Rhone-Poulenc Rorer of a family of patent applications seeking to cover
antibodies to EGFr used in conjunction with certain chemotherapeutic agents. The
EGFr antibodies being developed by the Company are "chimerized" monoclonal
antibodies. Chimerized monoclonal antibodies are the subject of patent
applications and patents held by third parties.
ImClone also has pending patent applications covering the chimeric and
humanized form of the antibody and fragments thereof, in synergy with
anti-neoplastic agents, such as doxorubicin and cysplatin. Additionally,
humanized forms of the antibody and antibody fragments, are claimed, as well as
methods of inhibiting human tumors with C225 alone.
With respect to cancer vaccine candidate 105AD7, the Company is the
exclusive licensee from CRCT of a family of patent applications claiming
anti-idiotypic monoclonal antibodies, including 105AD7.
The Company's proprietary position with respect to its anti-tumor BEC-2
monoclonal anti-idiotypic antibody is based on a patent application filed by
Sloan-Kettering and exclusively licensed to the Company. The Company is aware
that patents have been issued in the United States and Europe to a third party
covering anti-idiotypic antibodies and/or their use in the treatment of tumors.
With respect to the Company's research on inhibitors to angiogenesis based
on the FLK-1 receptor, the Company is the exclusive licensee of a family of
patents and patent applications covering the FLK-1 receptor and antibodies
thereto, and is also the assignee from Company scientists of patent applications
covering antibodies to the FLK-1 receptor that inhibit angiogenesis.
A patent has been granted by the United States Patent and Trademark Office
for the Company's IL-6 molecular variant, IL-6m. A U.S. Patent has been received
from the U.S. Patent and Trademark Office for a patent application covering the
DNA that encodes IL-6m. The patent and patent applications are co-owned by the
Company and the University of North Carolina. The Company is the exclusive
licensee of the university's rights to such patent and patent application. The
Company is aware of patents issued to a third party in the United States and
Europe covering cysteine depleted proteins. In addition, the Company is aware of
a third-party patent for recombinant IL-6 and methods for its production. The
Company is aware of a European Patent for the DNA encoding for human recombinant
IL-6 and methods for its production, which has been exclusively licensed. The
Company is aware of third-party patents for native recombinant IL-6 and methods
for its production. The Company is aware of a European patent for the DNA
encoding for human recombinant IL-6 and methods for its production, which has
been exclusively licensed on a worldwide basis to a pharmaceutical company. The
Company has entered into a Settlement Agreement with the pharmaceutical company
whereby the pharmaceutical company has agreed to not enforce its patent against
the Company based on the Company's use of its IL-6m patent or patent
applications.
The Company is also aware of U.S. patents that cover various aspects of
IL-6. The U.S. patents are licensed to the same pharmaceutical company as the
European patent mentioned above. They may be construed to cover the Company's
IL-6m.
The Company's diagnostics program has been licensed for commercial
development to Abbott. The program includes target amplification and detection
methods, such as Repair Chain Reaction, signal amplification methods, such as
AMPLIPROBE, and p53 mutation detection for assisting in cancer diagnosis. The
Company's proprietary position with respect to its diagnostics program is based
on numerous families of patents and patent applications, of which ImClone is
either the assignee or exclusive licensee. The Company has been notified of the
European Patent Office's intent to issue a patent to the Company's licensor to
the Repair Chain Reaction target amplification technology. The Company currently
is exclusive licensee of an issued patent
10
<PAGE>
assigned to Princeton University related to the underlying technology for its
AMPLIPROBE DNA amplification and detection system. The Company is aware that
patent applications have been filed by, and that patents have been issued to,
third parties in the fields of signal amplification technology and PCR
technology for DNA assays. Patent applications have also been filed by third
parties for p53 gene mutations.
With respect to certain aspects of its technology, such as methods of
isolating and purifying antibodies and other proteins, collections of plasmids
in viable host systems, and antibodies that are specific for proteins that are
of interest to ImClone, the Company currently relies on, and intends to continue
to rely on, trade secrets, unpatented proprietary know-how and continuing
technological innovation to protect its competitive position. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information or techniques.
Relationships between ImClone and its employees, scientific consultants and
collaborators provide these persons with access to ImClone's trade secrets,
know-how and technological innovation under confidentiality agreements with the
parties involved. Similarly, ImClone employees and consultants have entered into
agreements with ImClone which require that they do not disclose confidential
information of ImClone and that they assign to ImClone all rights to any
inventions made while in ImClone's employ relating to ImClone's activities.
GOVERNMENT REGULATION
The research and development, manufacture and marketing of human
pharmaceutical and diagnostic products are subject to regulation primarily by
the Food and Drug Administration ("FDA") in the United States and by comparable
authorities in other countries. These national agencies and other federal, state
and local entities regulate, among other things, research and development
activities and the testing, manufacturing, safety, handling, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of the
products that the Company is developing. Noncompliance with applicable
requirements can result in refusal to approve product license or other
applications, or revocation of approvals previously granted. Noncompliance also
can result in fines, criminal prosecution, recall or seizure of products, total
or partial suspension of production or refusal to allow the Company to enter
into supply contracts.
The process of obtaining requisite FDA approval has historically been
costly and time consuming. Current FDA requirements before a new human drug,
biological product or new diagnostic product (a medical device for which
efficacy must be proven) may be marketed in the United States include (i) the
successful conclusion of pre-clinical laboratory and animal tests, if
appropriate, to gain preliminary information on the product's safety, (ii)
filing with the FDA of an IND (Investigational New Drug) application to conduct
human clinical trials for drugs or biologics, (iii) the successful completion of
adequate and well-controlled human clinical investigations to establish the
safety and efficacy of the product for its recommended use, (iv) filing by a
company and approval by the FDA of a New Drug Application ("NDA") for a drug
product or a Product License Application ("PLA") for a biological product, and
(v) filing by a company and approval by the FDA of an Establishment License
Application ("ELA") or amendment, if the facility is FDA-licensed, to allow
commercial manufacturing of the drug or biologic. An establishment license
cannot be issued unless a company's manufacturing procedures and facilities
comply with strict FDA standards and a PLA has been filed. The FDA is currently
modifying regulations that would consolidate the PLA and the ELA into one
application for defined biological products, the Biological License Application
("BLA"). Other modifications that would affect this industry are also under
consideration.
11
<PAGE>
Pre-clinical tests include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the pre-clinical tests are submitted to the FDA
as part of an IND.
Clinical trials involve the administration of the product to patients under
the supervision of a qualified principal investigator. Such trials are typically
conducted in three sequential phases, although the phases may overlap. In Phase
I, the initial introduction of the drug into human subjects, the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. Phase II involves studies in a limited patient population to (i)
determine the biological or clinical activity of the product for specific,
targeted indications, (ii) determine dosage tolerance and optimal dosage, and
(iii) identify possible adverse effects and safety risks. If Phase II
evaluations indicate that a product is effective and has an acceptable safety
profile, Phase III trials may be undertaken to further evaluate clinical
efficacy and to further test for safety within an expanded patient population at
multiple clinical study sites. The FDA reviews the results of the clinical
trials and may order the temporary or permanent discontinuation of clinical
trials at any time if it believes that clinical subjects are being exposed to an
unacceptable health risk. Investigational products used in both pre-clinical and
clinical tests must be produced in compliance with current Good Manufacturing
Practices regulations pursuant to FDA regulations.
In October 1988, the FDA issued new procedures designed to speed the
availability of new therapies to patients suffering from life-threatening
diseases such as AIDS and cancer. These procedures permit early consultation
with and commitment from the FDA regarding pre-clinical and clinical studies
necessary to gain market approval and to permit NDA's and PLA's to be approved
on the basis of expanded Phase II clinical data results.
Under current law, each domestic and foreign drug product manufacturing
establishment must be registered with, and determined to be adequate by, the FDA
before product approval. Domestic manufacturing establishments are subject to
inspections by the FDA for compliance with current Good Manufacturing Practices
regulations and licensing specifications after an NDA, PLA or PMA has been
approved. Domestic and foreign manufacturing facilities are subject to periodic
FDA inspections and inspections by the foreign regulatory authorities where
applicable.
Sales outside the United States of products the Company develops also will
be subject to regulatory requirements governing human clinical trials and
marketing for drugs and biological products. The requirements vary widely from
country to country, but typically the registration and approval process takes
several years and requires significant resources. Products that have not been
approved by the FDA for sale in the United States may be exported for sale
outside of the United States only if they have been approved in any one of the
following countries: the European Union, Canada, Australia, New Zealand, Japan,
Israel, Switzerland and South Africa.
The Company's research and development programs involve the use of
biohazardous materials. Accordingly, the Company's business is subject to
regulations under federal, state and local laws regarding work force safety,
environmental protection and hazardous substance control, and to other present
and possible future federal, state and local regulations. The Company believes
that its safety procedures for handling hazardous materials comply with the
requirements of such laws and regulations.
The Company's ability to earn sufficient returns on its products may depend
in part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health coverage insurers and other organizations.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available.
12
<PAGE>
COMPETITION
Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors, the availability of
patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. The Company competes with
specialized biopharmaceutical firms in the United States, Europe and elsewhere,
as well as a growing number of large pharmaceutical companies that are applying
biotechnology to their operations. Many biopharmaceutical companies have focused
their development efforts in the human therapeutics area, including cancer, and
many major pharmaceutical companies have developed or acquired internal
biotechnology capabilities or made commercial arrangements with other
biopharmaceutical companies. These companies, as well as academic institutions,
governmental agencies and private research organizations, also compete with the
Company in recruiting and retaining highly qualified scientific personnel and
consultants. The Company's ability to compete successfully with other companies
in the pharmaceutical field will also depend to a considerable degree on the
continuing availability of capital to the Company.
The Company is aware of certain products under development or manufactured
by competitors that are used for the prevention, diagnosis or treatment of
certain diseases the Company has targeted for product development. Various
companies are developing biopharmaceutical products that potentially directly
compete with the Company's product candidates, including in areas such as the
use of small molecules to EGFr or antibodies to those receptors to treat cancer,
the use of anti-idiotypic antibody or recombinant antigen approaches to cancer
vaccine therapy, the development of inhibitors to angiogenesis, and the use of
hematopoietic growth factors to treat blood system disorders to or for stem cell
or gene therapy. Some of these product candidates are in advanced stages of
clinical trials.
The Company's products under development and in clinical trials are
expected to address major markets within the cancer sector. The Company's
competition will be determined in part by the potential indications for which
the Company's compounds are developed and ultimately approved by regulatory
authorities. Additionally, the timing of market introduction of some of the
Company's potential products or of competitor's products may be an important
competitive factor. Accordingly, the relative speed with which the Company can
develop products, complete pre-clinical testing, clinical trials and approval
processes and supply commercial quantities to market are expected to be
important competitive factors. The Company expects that competition among
products approved for sale will be based on various factors, including product
efficacy, safety, reliability, availability, price and patent position.
HUMAN RESOURCES
ImClone initiated its in-house research and development in 1986. The
Company has assembled a scientific staff with a variety of complementary skills
in a broad base of advanced research technologies, including oncology,
immunology, cell biology and protein and synthetic chemistry. The Company has
also recruited a staff of technical and professional employees to carry out
manufacturing of clinical trial materials at its Branchburg, New Jersey
manufacturing facility. Of the Company's 93 full-time personnel on March 14,
1997, 38 were employed in its product development, clinical and manufacturing
programs, 29 in research and 26 in administration. The Company's staff includes
15 persons with Ph.D.s and 2 with M.D.s.
13
<PAGE>
Item 2. Properties.
RESEARCH FACILITY--NEW YORK, NEW YORK
The Company currently occupies two contiguous leased floors at 180 Varick
Street in New York City, in which it is using approximately 30,000 of a total
available 40,000 square feet on the two floors. The Company's leases on these
premises extend into 1999.
The acquisition, construction and installation of the Company's New York
research and development facilities were financed principally through the sale
of Industrial Development Revenue Bonds issued by the New York City Industrial
Development Agency. These facilities secure the payment of debt service on these
outstanding Industrial Development Revenue Bonds.
MANUFACTURING FACILITY--BRANCHBURG, NEW JERSEY
In June 1992, the Company acquired certain property and a building in
Branchburg, New Jersey at a cost to the Company of approximately $4,665,000,
including expenses. The Company has retrofitted the building to serve as its
clinical-grade manufacturing facility. When purchased, the facility had in place
various features, including clean rooms, air handling, electricity and water for
injection systems and administrative offices. The cost for completion of
facility modifications was approximately $5,400,000.
Currently the facility is being operated to develop and manufacture
materials for the Company's clinical trials. Under certain circumstances, the
Company also intends to use the facility for the manufacturing of commercial
products. The timing and any additional costs of adapting the facility for
commercial manufacturing depend on several factors, including the progress of
products through clinical trials.
Item 3. Legal proceedings.
There is no material legal proceeding pending against the Company or any of
its property, nor was any such proceeding terminated during the fourth quarter
of the year ended December 31, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
14
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded in the over-the-counter market and
prices are reported on the NASDAQ National Market tier of The NASDAQ Stock
Market under the symbol "IMCL".
The following table sets forth, for the periods indicated, the range of
high and low sale prices for the Common Stock on the NASDAQ National Market, as
reported by The NASDAQ Stock Market. The quotations shown represent inter-dealer
prices without adjustment for retail mark-ups, mark downs or commissions and may
not necessarily reflect actual transactions.
High Low
---- ---
Year ended December 31, 1996
First Quarter.................................. $ 9 3/8 $ 6
Second Quarter................................. $ 17 3/8 $ 7 1/4
Third Quarter.................................. $ 9 7/8 $ 5 3/4
Fourth Quarter................................. $ 11 $ 6 7/8
High Low
---- ---
Year ended December 31, 1995
First Quarter.................................. $ 1 1/8 $ 5/16
Second Quarter............................. $ 2 3/8 $ 3/8
Third Quarter................................. $ 4 7/16 $ 1 11/16
Fourth Quarter...................................$ 9 1/16 $ 2 15/16
As of the close of business on March 14, 1997, there were 207 holders of
record of the Company's Common Stock. The Company estimates that there are
approximately 4,700 beneficial owners of its Common Stock.
The Company has never declared cash dividends on its Common Stock and has
no present intention of declaring such cash dividends in the foreseeable future.
15
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
(In thousands, except per share data) 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Operating revenues ......................... $ 600 $ 800 $ 950 $ 5,403 $ 2,142
Operating expenses:
Research and development ................ $ 11,482 $ 8,768 $ 11,816 $ 13,876 $ 9,948
General and administrative .............. $ 3,961 $ 3,739 $ 3,348 $ 4,375 $ 4,659
Interest and other income .................. $ (918) $ (3,120) $ (3,186) $ (573) $ (1,169)
Interest and other expense ................. $ 823 $ 1,054 $ 821 $ 587 $ 321
Equity in loss of affiliate ................ $ -- $ -- $ 342 $ 1,140 $ 526
--------- --------- --------- --------- ---------
Loss before extraordinary item ............. $ (14,748) $ (9,641) $ (12,191) $ (14,002) $ (12,143)
Extraordinary loss on extinguishment of debt $ 1,267 $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
Net loss ................................... $ (16,015) $ (9,641) $ (12,191) $ (14,002) $ (12,143)
========= ========= ========= ========= =========
Net loss per common share:
Loss before extraordinary item ............. $ (0.76) $ (0.72) $ (1.12) $ (1.58) $ (1.58)
Extraordinary loss on extinguishment of debt $ 0.07 $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
Net loss per common share .................. $ (0.83) $ (0.72) $ (1.12) $ (1.58) $ (1.58)
========= ========= ========= ========= =========
Weighted average shares outstanding ........ 19,371 13,311 10,903 8,879 7,700
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
(In thousands) 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and securities (1) ..................... $ 13,514 $ 10,207 $ 3,032 $ 7,301 $ 13,331
Working capital ............................. $ 7,695 $ 3,735 $ (1,470) $ 1,215 $ 11,988
Total assets ................................ $ 25,885 $ 22,803 $ 17,467 $ 24,208 $ 24,591
Long-term obligations ....................... $ 2,775 $ 4,235 $ 4,487 $ 3,636 $ 4,601
Accumulated deficit ......................... $(101,973) $ (85,958) $ (76,317) $ (64,126) $ (50,124)
Stockholders' equity ........................ $ 16,589 $ 11,823 $ 8,176 $ 14,812 $ 18,646
</TABLE>
(1) Includes $532 and $821 as of December 31, 1993 and December 31, 1992,
respectively, which was restricted for use only for construction and
equipping the Company's New York City facility under the terms of certain
industrial development bonds. As of the year ended December 31, 1996
none of the cash of the Company was so restricted.
16
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following discussion and analysis by management is provided to identify
certain significant factors which affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements.
Overview and Risk Factors
The Company is a biopharmaceutical company engaged primarily in the
research and development of therapeutic products for the treatment of selected
cancers and cancer-related disorders. The products under development include
cancer therapeutics and cancer vaccines. Since its inception in April 1984, the
Company has devoted substantially all of its efforts and resources to research
and development conducted on its own behalf and through collaborations with
corporate partners and academic research and clinical institutions. The Company
has generated a cumulative net loss of approximately $101,973,000 for the period
from its inception to December 31, 1996. The Company expects to incur
significant additional operating losses over each of the next several years. The
major sources of the Company's working capital have been the proceeds of its
initial public offering in November 1991, a second public offering in May 1993,
overseas offerings in 1994, the sale of its Cadus stock holdings in December
1994 and April 1995, the debt and equity transaction with the Oracle Group in
August 1995, public offerings completed in November 1995, February 1996 and
March 1997, private equity financings, license fees and research and development
fees from corporate partners, and income earned on the investment of these
funds. See "Liquidity and Capital Resources". Since its inception through
December 31, 1996, the Company also has incurred indebtedness of $6,313,000
($2,000,000 of which was repaid March 31, 1992) under Industrial Development
Revenue Bonds, the proceeds of which have been used for the acquisition,
construction and installation of the Company's research and development facility
in New York City. The Company also has a remaining obligation to Pharmacia at
December 31, 1996 in the amount of $1.9 million. See Note 6(a) to the Financial
Statements.
Substantially all of the Company's products are in the early stages of
development, clinical studies or research. Substantially all the Company's
revenues were generated from license and research arrangements with corporate
sponsors. The Company's revenues under its research and license agreements with
corporate sponsors have fluctuated and are expected to fluctuate significantly
from period to period. Similarly, the Company's results of operations have
fluctuated and are expected to fluctuate significantly from period to period.
These variations have been, and are expected to be, based primarily on the
timing of entering into supported research and license agreements, the status of
the Company's various products, the timing and level of revenues from sales by
its partner in diagnostics, Abbott, of products bearing the Company's
technology, the addition or termination of research programs or funding support,
performance by the Company's corporate collaborators of their funding and
marketing obligations, the achievement of specified research or
commercialization milestones and variations in the level of expenditures for the
Company's proprietary products during any given period. The Company's products
will require substantial additional development and clinical testing and
investment prior to commercialization. To achieve profitable operations, the
Company, alone or with others, must successfully develop, introduce and market
its products. No assurance can be given that any of the Company's product
development efforts will be successfully completed, that required regulatory
approvals can be obtained or that any products, if developed, will be
successfully manufactured or marketed or achieve customer acceptance.
17
<PAGE>
Results of Operations
Years Ended December 31, 1996 and December 31, 1995
Revenues for the years ended December 31, 1996 and December 31, 1995 were
$600,000 and $800,000, respectively. Revenues for both years included $300,000
from the Company's corporate partnership with the Wyeth/Lederle Vaccine division
of American Home in infectious disease vaccines. In addition, revenues for the
years ended December 31, 1996 and December 31, 1995 included royalty fees of
$225,000 and contract research fees of $500,000, respectively, from the
Company's strategic alliance with Abbott in diagnostics. Finally, the year ended
December 31, 1996 included $75,000 in license fees from the Company's
cross-licensing agreement with Immunex for novel hematopoietic growth factors.
Total operating expenses for the years ended December 31, 1996 and December
31, 1995 were $15,443,000 and $12,507,000, respectively. Research and
development expenses for the years ended December 31, 1996 and December 31, 1995
were $11,482,000 and $8,768,000, respectively. Such amounts for the years ended
December 31, 1996 and December 31, 1995 represented 74% and 70%, respectively,
of total operating expenses. The $2,714,000 increase in research and development
expenses is primarily attributable to costs incurred for C225, the Company's
lead therapeutic product candidate. This includes additional staffing and
expenditures in the functional areas of product development, manufacturing and
clinical and regulatory affairs to support the manufacture of C225 for human
clinical trials and travel-related expenses to pursue strategic partnerships for
C225 (and other product candidates). The remaining increase reflects growth in
the area of discovery research for future product candidates.
General and administrative expenses include administrative personnel costs,
costs incurred in connection with pursuing arrangements with corporate partners
and technology licensors, and expenses associated with applying for patent
protection for the Company's technology and products. Such expenses for the year
ended December 31, 1996 were $3,961,000 compared to $3,739,000 for the year
ended December 31, 1995. The $222,000 increase primarily reflects additional
staffing to support the expanding research, clinical, development and
manufacturing efforts of the Company, particularly with its lead therapeutic
product candidate, C225. The Company expects general and administrative expenses
to increase in future years to support planned increases in research and
development.
Interest and other income was $918,000 for the year ended December 31, 1996
as compared to $3,120,000 for the year ended December 31, 1995. Other income for
the year ended December 31, 1995 included the sale of the remaining one-half of
its shares of capital stock of Cadus for $3,000,000 to High River. See
"Liquidity and Capital Resources". The greater interest income earned during the
year ended December 31, 1996 reflects the Company's improved cash position from
the November 1995 and February 1996 public sales of shares of its Common Stock.
See "Liquidity and Capital Resources". Interest and other expense was $823,000
and $1,054,000 for the years ended December 31, 1996 and December 31, 1995,
respectively. Such expense for both years primarily includes interest on two
outstanding Industrial Development Revenue Bonds with an aggregate principal
amount of $4,313,000, interest recorded on the liability to Pharmacia for the
reacquisition of the worldwide rights to IL-6m and the contract manufacture of
clinical material, and interest accrued and the amortization of the non-cash
debt discount recorded in connection with the Company's August 1995 financing
with the Oracle Group. See "Liquidity and Capital Resources" and Notes 6(a) and
6(b) to the Financial Statements.
18
<PAGE>
The Company had net losses of $16,015,000 or $0.83 per share, and
$9,641,000 or $0.72 per share, for the years ended December 31, 1996 and
December 31, 1995, respectively. The net loss for the year ended December 31,
1996 included a $1,267,000 or $0.07 per share extraordinary loss on early
extinguishment of debt through the May issuance of Common Stock in lieu of cash
repayment of a $2,500,000 loan due the Oracle Group and a $180,000 long-term
note owed to a Company Director. See "Liquidity and Capital Resources".
Years Ended December 31, 1995 and December 31, 1994
Revenues for the years ended December 31, 1995 and December 31, 1994 were
$800,000 and $950,000, respectively. Revenues for the years ended December 31,
1995 and December 31, 1994 consisted of $300,000 from the Company's corporate
partnership with American Home in vaccines. In addition, revenues for the years
ended December 31, 1995 and December 31, 1994 included contract research fees of
$500,000 and $400,000, respectively, from the Company's strategic alliance with
Abbott in diagnostics. Finally, license fees of $250,000 were recognized from
the Abbott alliance during the year ended December 31, 1994.
Total operating expenses for the years ended December 31, 1995 and December
31, 1994 were $12,507,000 and $15,164,000, respectively. Research and
development expenses for the years ended December 31, 1995 and December 31, 1994
were $8,768,000 and $11,816,000, respectively. Such amounts for the years ended
December 31, 1995 and December 31, 1994 represented 70% and 78%, respectively,
of total operating expenses. The decrease in research and development expenses
is attributable to the reduction in selected personnel, laboratory and third
party costs. Also, the Company incurred a one-time charge of $800,000 during the
year ended December 31, 1994 for the contract manufacture of IL-6m clinical
material from Pharmacia.
General and administrative expenses include administrative personnel costs,
costs incurred in connection with pursuing arrangements with corporate partners
and technology licensors, and expenses associated with applying for patent
protection for the Company's technology and products. Such expenses for the year
ended December 31, 1995 were $3,739,000 compared to $3,348,000 for the year
ended December 31, 1994. The increase is related primarily to fees incurred in
connection with the April 1995 Cadus stock sale, a loan agreement and related
financing with the Oracle Group completed in August 1995, a contemplated
product-related financing of C225 which the Company did not continue to pursue,
and transfer of the Company's patent representation to outside counsel.
Interest and other income was $3,120,000 for the year ended December 31,
1995 as compared to $3,186,000 for the year ended December 31, 1994. Each year
included a gain from the sale of 50% of the Company's common and preferred Cadus
stock to an unrelated party for $3,000,000. Interest and other expense was
$1,054,000 and $821,000 for the years ended December 31, 1995 and December 31,
1994, respectively. Such expense for both years primarily reflect interest on
two outstanding Industrial Development Revenue Bonds with an aggregate principal
amount of $4,313,000. In addition, interest and other expense also included
interest recorded on the liability to Pharmacia for the reacquisition of the
worldwide rights to IL-6m and the contract manufacture of clinical material for
the Company's trials of IL-6m. See "Liquidity and Capital Resources" and Note
6(a) to the Financial Statements. Interest for the period ended December 31,
1995 also includes accrued interest and the amortization of discounted interest
incurred in connection with the August 1995 financing with the Oracle Group. See
Note 6(b) to the Financial Statements.
19
<PAGE>
The equity in the loss of affiliate of $342,000 for the year ended December
31, 1994 was attributable to the Company's share in the losses of Cadus, which
was accounted for under the equity method during the year. During 1994, the
Company owned 28% of the common and preferred stock of Cadus. The terms of its
sale of 50% of its holdings in Cadus to High River for $3,000,000 were finalized
in December 1994; the cash consideration was received by the Company on January
4, 1995. On April 27, 1995, sale of the Company's remaining Cadus stock was
completed for $3,000,000 to High River. See "Liquidity and Capital Resources"
and Note 2(e) to the Financial Statements.
The Company had net losses of $9,641,000 or $0.72 per share, and
$12,191,000 or $1.12 per share, for the years ended December 31, 1995 and
December 31, 1994, respectively, due to the factors discussed above. The lower
loss per share for the year ended December 31, 1995 was primarily attributable
to a lower net loss and an increase in the number of outstanding shares.
Liquidity and Capital Resources
At December 31, 1996, the Company had a cash and cash equivalents and
securities available for sale balance of approximately $13.5 million, virtually
all of which represents the remaining balance of the proceeds of public
offerings of 3,000,000 shares of Common Stock in November 1995 and 2,200,000
shares of Common Stock in February 1996. Such balances totaled approximately
$32.6 million on March 14, 1997 which reflects the proceeds received from the
Company's public offering of 3,000,000 shares of Common Stock in March 1997.
The Company has financed its operations primarily through the proceeds of
an initial public offering in November 1991, which raised approximately $31.7
million, net of expenses, supported research funding and license agreements,
interest income, the issuance of industrial development bonds and the following
described additional financings. In May 1993, the Company completed a second
public Common Stock offering which raised approximately $10.4 million, net of
expenses. In 1994, the Company completed several private offerings of its Common
Stock, including offerings pursuant to regulations under the Securities Act of
1933, as amended (the "1993 Act"). The 1933 Act places restrictions on the
resale in the United States of shares issued in a Regulation S offering. These
various private offerings raised an aggregate of approximately $5.7 million.
In December 1994 the Company completed the sale of one-half of its shares
of capital stock of Cadus to High River for $3.0 million. During April 1995, the
Company completed the sale of the remaining one-half of its shares of capital
stock of Cadus for $3.0 million, also to High River. In exchange for receiving a
now-expired right to repurchase all the outstanding shares of capital stock of
Cadus, the Company granted to High River two options to purchase shares of
Common Stock. One option is for 150,000 shares at an exercise price per share
equal to $2.00, subject to adjustment under certain circumstances, and the other
option is for 300,000 shares at an exercise price per share equal to $0.69,
subject to adjustment under certain circumstances. Both options will expire on
April 26, 2000.
In August 1995, the Oracle Group purchased 1,000,000 shares of Common Stock
for a purchase price of $1.5 million and made a loan to the Company in the
aggregate amount of $2.5 million with a two-year maturity, but subject to
mandatory prepayment, in whole or in part, upon the occurrence of certain
events, including the raising of certain additional funds. The loan carried an
annual interest rate of 8%. The Oracle Group includes Oracle Partners, L.P.,
Quasar International Partners C.V., Oracle Institutional Partners L.P., Sam
Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants
exercisable at any time until
20
<PAGE>
August 10, 2000 entitling the holders thereof to purchase 500,000 shares of
Common Stock at a price of $1.50 per share and 500,000 shares of Common Stock at
a price of $3.00 per share. As a result of the Company's offerings of shares of
its Common Stock in November 1995 and February 1996, the Oracle Group was
entitled to require the Company to apply 20 percent of the gross proceeds of the
sale of the shares of Common Stock from the offerings to repay the loan.
In July 1995, a director loaned the Company $180,000 in exchange for a
long-term note due two years from issuance at an annual interest rate of 8%. As
part of the transaction, the director was granted 36,000 warrants to purchase
Company Common Stock at $1.50 per share and an additional 36,000 warrants to
purchase Company Common Stock at $3.00 per share. In May 1996, the Company and
the director exchanged the note for 24,000 shares of Common Stock and the
Company paid the accrued and unpaid interest on the note in the amount of
$10,000 in cash. The Company recorded an extraordinary loss of $39,000 on the
extinguishment of the debt. The Company has registered the resale of such shares
of Common Stock with the Commission under a registration statement in accordance
with the provisions of the 1933 Act.
In November 1995, the Company completed a public sale of 3,000,000 shares
of Common Stock at a per share price to the public of $3.75. Net proceeds to the
Company from this sale totaled approximately $10.6 million after deducting
expenses payable by the Company in connection with the offering and the
commission paid by the Company.
In February 1996, the Company completed a public sale of 2,200,000 shares
of Common Stock at a per share price to the public of $6.63. Net proceeds to the
Company from this sale totaled approximately $13.6 million after deducting
expenses payable by the Company in connection with the offering and the
commission paid by the Company.
In May 1996, the Company and the Oracle Group exchanged the notes
evidencing the 1995 loan in the aggregate outstanding principal amount of $2.5
million for 333,333 shares of Common Stock and the Company paid the accrued and
unpaid interest on the notes in the amount of $143,000 in cash. The Company
recorded an extraordinary loss of $1,228,000 on the extinguishment of the debt.
The Company has registered such shares of Common Stock with the Securities and
Exchange Commission (the "Commission") under a registration statement in
accordance with the provisions of the 1933 Act.
In May 1996, the Company extended its collaboration with Merck for the
development of a therapeutic cancer vaccine, BEC-2, for use in small-cell lung
carcinoma and in malignant melanoma. The collaboration continues a research and
license agreement between the two companies signed in December 1990. Under the
terms of the modified agreement, the Company may receive up to $11.7 million in
license fees, research and development support and milestone payments in
addition to the monies previously received under the original agreement. In
return, Merck will receive marketing rights to BEC-2 for all therapeutic
indications outside North America. Formerly, the rights of Merck were confined
to Europe, Australia and New Zealand. Merck will also share in the development
costs for the United States and Europe and will pay all development costs in
other territories. The Company will be entitled to royalties based upon product
sales outside North America.
In June 1996, the Company and the New York City Industrial Development
Agency (the "NYIDA") extended the maturity of the Company's $2.1 million
repayment obligation to the NYIDA for the 1986 Industrial Revenue Bond, which
was due on June 15, 1996, to December 15, 1997.
21
<PAGE>
In December 1996, the Company entered into a technology cross-licensing
agreement with Immunex relating to FLT-3/FLK-2 ligand and its receptor. FLT-3
ligand is a hematopoietic growth factor. Under the terms of the agreement, the
Company has exclusively licensed the receptor to Immunex for use in the
manufacture of the ligand. In return, the Company will receive an initial
payment of $150,000 and a royalty based on the sales of the ligand by Immunex
and its sub-licensees. Of the initial $150,000 payment, $75,000 was recorded as
license fee revenue for the year ended December 31, 1996. In addition, Immunex
has granted the Company a non-exclusive license in the United States and Canada
to use its patented FLT-3/FLK-2 ligand, manufactured by Immunex, for ex-vivo
stem cell expansion together with an exclusive license to distribute the ligand
with its own proprietary products for ex-vivo expansion. Immunex has agreed to
seek to obtain the consent of its parent company, American Home, to expand the
territory of this license to include the world outside North America.
In December 1996, the Company and Abbott modified their 1992 diagnostic
strategic alliance to provide for an exclusive sublicensing agreement with
Chiron Diagnostics for the Company's patented DNA signal amplification
technology, AMPLIPROBE. Under the terms of the agreement, all sales of Chiron
branched DNA diagnostic probe technology in countries covered by Company patents
will be subject to a royalty to Abbott to be passed through to the Company. The
initial royalty payment of approximately $225,000, which covered AMPLIPROBE
sales from January 1992 through September 1996, was included under the revenue
caption "research and development funding from third parties and other" for the
year ended December 31, 1996. The Company received the initial royalty payment
from Abbott in late January 1997.
In December 1996, the Company signed an agreement with Finova to finance
the lease of laboratory and computer-related equipment and make certain building
and leasehold improvements to existing facilities involving payments aggregating
approximately $2,500,000. The first of multiple intended leases has been signed
at a cost of $421,000. Each lease has a fair market value purchase option at the
expiration of a 42-month term. Pursuant to the agreement, the Company issued to
Finova a warrant expiring December 31, 1999 to purchase 23,220 shares of Common
Stock at an exercise price of $9.69 per share. The Company has registered the
resale of such shares of Common Stock underlying the warrant with the Commission
under a registration statement in accordance with the provisions of the 1933
Act. See Notes 6(a), 10 and 11 to the Financial Statements.
In March 1997, the Company completed a public sale of 3,000,000 shares of
Common Stock at a per share price to the public of $7.875. Net proceeds to the
Company from the sale totaled approximately $23.2 million after deducting
expenses payable by the Company in connection with the offering and the
commission paid by the Company.
The Company has expended and will continue to expend in the future
substantial funds to continue the research and development of its products,
conduct pre-clinical and clinical trials, establish clinical-scale and
commercial-scale manufacturing in its own facilities or in the facilities of
others, and market its products. In addition, $2.1 and $2.2 million,
respectively, in Industrial Development Revenue Bonds issued on behalf of the
Company in 1986 and 1990 become due in December 1997 and May 2004, respectively.
See Note 5 to the Financial Statements.
In July 1993, the Company entered into a termination agreement with
Erbamont, Inc., now a subsidiary of Pharmacia and UpJohn, Inc. ("Pharmacia"), to
acquire the worldwide rights to IL-6m, a blood cell growth factor, which had
been licensed to Pharmacia pursuant to a development and licensing agreement. In
consideration of the return of rights and the transfer of certain material and
information, the Company has paid $1.4 million and has further obligations to
Pharmacia. Such obligations, including those to pay for IL-6 mutein material
manufactured
22
<PAGE>
and supplied by Pharmacia, totaled $2.4 million at March 31, 1996. In addition,
the Company is required to pay Pharmacia $2.7 million in royalties on eventual
sales of IL-6m, if any. In March, 1996, the Company entered into a Repayment
Agreement with Pharmacia (the "Repayment Agreement") pursuant to which it agreed
to pay the $2.4 million over 24 months commencing in March 1996, with interest
only payable during the first six months. At December 31, 1996 the remaining
obligation to Pharmacia totaled $1.9 million. In connection with the Repayment
Agreement, the Company signed a Confession of Judgment, which can be filed by
Pharmacia with an appropriate court in the case of default by the Company.
Pursuant to a Security Agreement entered into with Pharmacia, the Company
pledged its interests in patents related to IL-6m and to heparanase to secure
its obligations under the Repayment Agreement.
The Company's future working capital and capital requirements will depend
upon numerous factors, including the progress of the Company's research and
development programs, pre-clinical testing and clinical trials, the Company's
corporate partners fulfilling their obligations to the Company, the timing and
cost of seeking regulatory approvals, the level of resources that the Company
devotes to the development of manufacturing, marketing and sales capabilities,
technological advances, the status of competitors and the ability of the Company
to maintain existing and establish new collaborative arrangements with other
companies to provide funding to the Company to support these activities.
The Company's budgeted cash expenditures for the twelve month period ending
December 31, 1997 total approximately $20.5 million. Included in this budget
figure are $1.7 million of the remaining $1.9 million obligation to Pharmacia
and the $2.1 million Industrial Revenue Development Bond debt payable to the
NYIDA in December 1997. In addition, the budget reflects the expansion of
operations to include numerous new outside research agreements, the proposed
hire of several new employees during 1997 and related costs to support the
expansion of the Company's research and development programs, including the
expanded clinical trials. The Company's assumed budget for 1998 (which does not
take into account any extraordinary expenditures) is $17.0 million. The Company
expects that its capital resources, including the ongoing research support of
its corporate partners will be sufficient to fund its operations through
approximately December 1998. However, the receipt of certain of such ongoing
research support is subject to attaining research and development milestones,
certain of which have not yet been achieved. These milestones include the
successful completion of a pilot manufacturing run relating to the BEC-2 cancer
vaccine and the nonoccurrence of third party opposition filings against a
currently allowed patent of the Company in Europe relating to the Abbott
strategic alliance. There can be no assurance that the Company will achieve
these milestones, if at all. If difficulty is encountered in attaining these
milestones, the Company may postpone the budgeted expansion of operations to
allow for funding of its operations beyond 1998. Accordingly, in order to fund
its capital needs after 1998, the Company will require significant levels of
additional capital and intends to raise the necessary capital through additional
equity or debt financings, arrangements with corporate partners or from other
sources.
The Company has entered into preliminary discussions with several major
pharmaceutical companies regarding various alternatives concerning the funding
of research and development for certain of its products. No assurance can be
given that the Company will be successful in pursuing any such alternatives. In
addition, the Company may seek to enter into a significant strategic partnership
with a pharmaceutical company for the development of its lead product candidate,
C225. Such a strategic alliance could include an up-front equity investment and
license fees plus milestone fees and revenue sharing. There can be no assurance
that the Company will be successful in achieving such an alliance, nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.
23
<PAGE>
The Company has granted a security interest in substantially all facility
equipment located in its New York City facility to secure the obligations of the
Company to the NYIDA relating to the 1986 Industrial Development Revenue Bond
and the 1990 Industrial Development Revenue Bond, which were issued to finance a
portion of the cost of this facility.
The Company has outfitted and purchased equipment for a certain property to
create a clinical-scale production facility that complies with current Good
Manufacturing Practices regulations. To be successful, the Company's products
must be manufactured in commercial quantities in compliance with regulatory
requirements and at acceptable costs. Although the Company has developed
products in the laboratory and in some cases has produced sufficient quantities
of materials for pre-clinical animal trials and early stage clinical trials,
production in late stage clinical or commercial quantities may create technical
challenges for the Company. If it commercializes its products, the Company plans
to adapt this facility for use as its commercial-scale manufacturing facility.
However, the Company has limited experience in clinical-scale manufacturing and
no experience in commercial-scale manufacturing, and no assurance can be given
that the Company will be able to make the transition to late stage clinical or
commercial production. The timing and any additional costs of adapting the
facility for commercial manufacturing will depend on several factors, including
the progress of products through clinical trials, and are not yet determinable.
Total capital expenditures made during the year ended December 31, 1996
were $693,000. Of the total capital expenditures made during the year ended
December 31, 1996, $421,000 has been reimbursed in accordance with the terms of
the Finova agreement mentioned above which provides for improvements and
equipping of the Company's manufacturing facility in New Jersey. The balance of
capital additions was for equipment and computer-related purchases for both the
New Jersey facility and the corporate office and research laboratories in New
York.
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $97,350,000 which expire at various
dates from 2000 through 2011. At December 31, 1996 the Company had research
credit carryforwards of approximately $1,883,000 which expire at various dates
between the years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended, the annual utilization of the Company's net operating
loss and research credit carryforwards may be limited if the Company experiences
a change in ownership of more than 50% within a three-year period. The Company
believes that one or more of such ownership changes may have occurred since
1986. Therefore, the Company may be significantly limited in utilizing its tax
net operating loss carryforwards arising before such ownership change(s) to
offset future taxable income. Similarly, the Company may be restricted in using
its research credit carryforwards arising before such ownership change(s) to
offset future federal income tax expense.
Recently Issued Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes
24
<PAGE>
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect that adoption of SFAS No.
125 will have a near-term material impact on the Company's financial position,
results of operations, or liquidity.
Item 8. Financial Statements and Supplementary Data.
The response to this item is submitted as a separate section of this report
commencing on Page F-1.
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not Applicable.
PART III
The information required by "Item 10. - Directors and Executive Officers of
the Registrant"; "Item 11. Executive Compensation"; "Item 12. - Security
Ownership of Certain Beneficial Owners and Management"; and "Item 13. - Certain
Relationships and Related Transactions" is incorporated into Part III of this
Annual Report on Form 10-K by reference to the Company's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on June 3, 1997.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) and (2). The response to this portion of Item 14. is submitted as a
separate section of this report commencing on page F-1.
(a)(3)and (c). Exhibits (numbered in accordance with Item 601 of Regulation
S-K).
Exhibit No. Description
3.1A Certificate of Incorporation, and all amendments thereto
3.2A By-Laws of the Company
4.1A Form of Warrant issued to the Company's officers and directors
under Warrant Agreements
4.2A Stock Purchase Agreement between Erbamont Inc. and the Company,
dated May 1, 1989
4.3A Stock Purchase Agreement between American Cyanamid Company
(Cyanamid) and the Company dated December 18, 1987
4.4A Form of Subscription Agreement entered into in connection with
September 1991 private placement
4.5A Form of Warrant issued in connection with September 1991 private
placement
25
<PAGE>
10.1F Company's 1986 Employee Incentive Stock Option Plan, including
form of Incentive Stock Option Agreement
10.2F Company's 1986 Non-qualified Stock Option Plan, including form of
Non-qualified Stock Option Agreement
10.3F Company's 401(k) Plan
10.4B Research and License Agreement between Merck and the Company
dated December 19, 1990
10.5B Research, License and Manufacturing Agreement between Cyanamid
and the Company, made and effective as of July 31, 1989
10.6B Hematopoietic Growth Factors License Agreement between Erbamont,
N.V. and the Company, dated May 1, 1989, and Supplemental
Amendatory Agreement between Erbamont, N.V. and the Company dated
September 28, 1990
10.7B Agreement between Cyanamid and the Company dated December 18,
1987 and supplemental letter agreement between Cyanamid and the
Company dated September 6, 1991
10.8B Agreement between Hadasit Medical Research Services &
Development, Ltd. and the Company
10.9B Agreement between Hadasit Medical Research Services &
Development, Ltd. and the Company dated September 21, 1989
10.10 A Supported Research Agreement between Memorial Sloan-Kettering
Cancer Center (MSKCC) and the Company dated March 26, 1990
10.11B License Agreement between MSKCC and the Company, dated March 26,
1990
10.12B License Agreement between MSKCC and the Company, dated March 26,
1990
10.13B License Agreement between MSKCC and the Company, dated March 26,
1990
10.14B Research Agreement between the Trustees of Princeton University
(Princeton) and the Company dated January 1, 1991
10.15B Research Agreement between Princeton and the Company dated May 1,
1991
10.16B Research Agreement between Princeton and the Company dated May 1,
1991
10.17B License Agreement between Princeton and the Company dated March
20, 1991
10.18B License Agreement between Princeton and the Company dated May 29,
1991
10.19B License Agreement between Princeton and Oncotech, Inc. dated
September 3, 1987
10.20B Supported Research Agreement between The University of North
Carolina at Chapel Hill (UNC) and the Company effective July 5,
1988
10.21B License Agreement between UNC and the Company dated July 5, 1988
10.22B License Agreement between UNC and the Company dated July 27, 1988
26
<PAGE>
10.23B Supported Research Agreement between UNC and the Company
effective April 1, 1989
10.24B License Agreement between UNC and the Company dated July 1, 1991
10.25B Agreement between Celltech Limited and the Company dated May 23,
1991
10.26B Research Agreement between New York University Medical Center and
the Company dated April 1, 1989
10.27B Consulting Agreement between Thomas E. Shenk and the Company
dated July 1, 1986
10.28B Consulting Agreement between Robert Schneider and the Company
dated July 1, 1986 and amendatory letter agreements dated May 23,
1989 and May 16, 1990
10.29B Consulting Agreement between Robert Schneider and the Company
dated August 15, 1987
10.30A Form of Non-disclosure and Discovery Agreement between employees
of the Company and the Company
10.31A Industrial Development Bond Documents:
10.31.1A Industrial Development Revenue Bonds (1985 ImClone Systems
Incorporated Project)
10.31.1.1A Lease Agreement, dated as of October 1, 1985, between the New
York City Industrial Development Agency (NYCIDA) and the Company,
as Lessee
10.31.1.2A Indenture of Trust, dated as of October 1, 1985, between NYCIDA
and United States Trust Company of New York (US Trust), as
Trustee
10.31.1.3A Company Sublease Agreement, dated as of October 1, 1985, between
the Company and NYCIDA
10.31.1.4A Tax Regulatory Agreement, dated October 9, 1985, from NYCIDA and
the Company to US Trust, as Trustee
10.31.1.5A Lessee Guaranty Agreement, dated as of October 1, 1985, between
the Company and US Trust, as Trustee
10.31.1.6A First Supplemental Indenture of Trust, dated as of November 1,
1985 from the NYCIDA to US Trust
10.31.1.7A Third Supplemental Indenture of Trust, dated as of October 12,
1990 from NYCIDA to US Trust
10.31.2A Industrial Development Revenue Bonds (1986 ImClone Systems
Incorporated Project)
10.31.2.1A First Amendment to Company Sublease Agreement, dated as of
December 1, 1986, between the Company, as Sublessor, and NYCIDA
as Sublessee
10.31.2.2A First Amendment to Lease Agreement, dated as of December 1, 1986,
between NYCIDA and the Company, as Lessee
10.31.2.3A Second Supplement Indenture of Trust, dated as of December 1,
1986 between NYCIDA and US Trust, as Trustee
27
<PAGE>
10.31.2.4A Tax Regulatory Agreement, dated December 31, 1986, from NYCIDA
and the Company to US Trust, as Trustee
10.31.2.5A First Amendment to Lessee Guaranty Agreement, dated as of
December 1, 1986, between the Company and US Trust, as Trustee
10.31.2.6A Bond Purchase Agreement, dated as of December 31, 1986, between
NYCIDA and New York Muni Fund, Inc., as Purchaser
10.31.2.7A Letter of Representation and Indemnity Agreement, dated as of
December 31, 1986, from the Company to NYCIDA and New York Muni
Fund, Inc., as Purchaser
10.31.3A Industrial Development Revenue Bonds (1990 ImClone Systems
Incorporated Project)
10.31.3.1A Lease Agreement, dated as of August 1, 1990, between NYCIDA and
the Company, as lessee
10.31.3.2A Company Sublease Agreement, dated as of August 1, 1990, between
the Company, as Sublessor, and NYCIDA
10.31.3.3A Indenture of Trust, dated as of August 1, 1990, between NYCIDA
and US Trust, as Trustee
10.31.3.4A Guaranty Agreement, dated as of August 1, 1990, from the Company
to US Trust, as Trustee
10.31.3.5A Tax Regulatory Agreement, dated August 1, 1990, from the Company
and NYC.IDA to US Trust, as Trustee
10.31.3.6A Agency Security Agreement, dated as of August 1, 1990, from the
Company, as Debtor, and the NYCIDA to US Trust, as Trustee
10.31.3.7A Letter of Representation and Indemnity Agreement, dated as of
August 14, 1990, from the Company to NYCIDA, New York Mutual
Fund, Inc., as the Purchaser and Chase Securities, Inc., as
Placement Agent Company to NYCIDA
10.32A Lease Agreement between 180 Varick Street Corporation and the
Company, dated October 8, 1985, and Additional Space and
Modification Agreement between 180 Varick Street Corporation and
the Company, dated June 13, 1989
10.33A License Agreement between The Board of Trustees of the Leland
Stanford Junior University and the Company effective May 1, 1991
10.34A License Agreement between Genentech, Inc. and the Company dated
December 28, 1989
10.35B License Agreement between David Segev and the Company dated
December 28, 1989
10.36B License Agreement between Gesellschaft Biotechnologische
Forschung GmbH and the Company dated September 12, 1989
10.37A License Agreement between The Texas A&M University System and the
Company dated March 31, 1988
10.38A License Agreement between The University of Iowa Research
Foundation and the Company dated March 31, 1988
28
<PAGE>
10.39A Letter Agreement dated June 27, 1991 between the Company and
Miles Inc.
10.40C Letter of Intent between the Company and Dr. David Segev dated
November 18, 1991
10.41C Research Agreement between the Company and the State of Oregon
acting by and through the Oregon State Board of Higher Education
on Behalf of the Oregon Health Sciences University dated February
26, 1992
10.42C Agreement between the Company and Celltech Limited dated March
11, 1992
10.43C Supported Research Agreement between the Company and The Johns
Hopkins University dated March 9, 1992
10.44C Letter Agreement between the Company and Fred Hutchinson Cancer
Research Center Foundation dated April 8, 1992
10.45D Agreement of Sale dated June 19, 1992 between the Company and
Korsch Tableting Inc.
10.46E Research and License Agreement, having an effective date of
December 15, 1992, between the Company and Abbott Laboratories
10.47E Research and License Agreement between the Company and Chugai
Pharmaceutical Co., Ltd. dated January 25, 1993
10.48G License Agreement between the Company and the Regents of the
University of California dated April 9, 1993
10.49H Contract between the Company and John Brown, a division of
Trafalgar House, dated January 19, 1993
10.50G Collaboration and License Agreement between the Company and the
Cancer Research Campaign Technology, Ltd., signed April 4, 1994,
with an effective date of April 1, 1994.
10.51H Termination Agreement between the Company and Erbamont Inc. dated
July 21, 1993
10.52G Research and License Agreement between the Company and Cyanamid
dated September 15, 1993
10.53H Clinical Trials Agreement between the Company and the National
Cancer Institute dated November 23, 1993
10.54G License Agreement between the Company and UNC dated December 1,
1993
10.55H Notice of Termination for the research collaboration between the
Company and Chugai Pharmaceutical Co., Ltd. dated December 17,
1993
10.56I License Agreement between the Company and Rhone-Poulenc Rorer
dated June 13, 1994
10.57I Offshore Securities Subscription Agreement between ImClone
Systems Incorporated and GFL Ultra Fund Limited dated August 12,
1994
10.58I Offshore Securities Subscription Agreement between ImClone
Systems Incorporated and GFL Ultra Fund Limited dated November 4,
1994 10.59I Offshore Securities Subscription Agreement between
ImClone Systems Incorporated and Anker Bank Zuerich dated
November 10, 1994
29
<PAGE>
10.60J Option Agreement, dated as of April 27, 1995, between ImClone
Systems Incorporated and High River Limited Partnership relating
to capital stock of Cadus Pharmaceutical Corporation
10.61J Option Agreement, dated as of April 27, 1995, between ImClone
Systems Incorporated and High River Limited Partnership relating
to 300,000 shares of Common Stock of ImClone Systems Incorporated
10.62J Option Agreement, dated as of April 27, 1995, between ImClone
Systems Incorporated and High River Limited Partnership relating
to 150,000 shares Common Stock of ImClone Systems Incorporated
10.63J Stock Purchase Agreement, dated as of August 10, 1995, by and
between ImClone Systems Incorporated and the members of the
Oracle Group
10.64J Form of Warrant issued to the members of the Oracle Group
10.65J Loan Agreement, dated as of August 10, 1995, by and between
ImClone Systems Incorporated and the members of the Oracle Group
10.66J Security Agreement, dated as of August 10, 1995, by and between
ImClone Systems Incorporated and the members of the Oracle Group
10.67J Mortgage, dated August 10, 1995, made by ImClone Systems
Incorporated for the benefit of Oracle Partners, L.P., as Agent
10.68K Financial Advisory Agreement entered into between the Company and
Genesis Merchant Group Securities dated November 2, 1995
10.69K Repayment Agreement (with Confession of Judgment, and Security
Agreement) entered into between the Company and Pharmacia, Inc.
on March 6, 1996
10.70K License Amendment entered into between the Company and Abbott
Laboratories on August 28, 1995, amending the Research and
License Agreement between the parties dated December 15, 1992
10.71K Amendment of September 1993 to the Research and License Agreement
between the Company and Merck of April 1, 1990
10.72K Amendment of October 1993 to the Research and License Agreement
between the Company and Merck of April 1, 1990
10.73L Employment agreement dated May 17, 1996 between the Company and
Carl S. Goldfischer
10.74L Financial Advisory Agreement dated February 26, 1997 between the
Company and Hambrecht & Quist LLC
10.75L Exchange Agreement exchanging debt for Common Stock dated as of
April 15, 1996 among the Company and members of The Oracle Group.
30
<PAGE>
21.1 Subsidiaries - None
23.1L Consent of KPMG Peat Marwick LLP
(b) Reports on Form 8-K
On February 26, 1997, the Company filed with the Commission a Current
Report on Form 8-K dated February 25, 1997 relating to its filing with the
Commission of a registration statement to register the public offering of
3,000,000 shares of Common Stock (Item 5).
On February 28, 1997, the Company filed with the Commission a Current
Report on Form 8-K dated February 25, 1997 containing the Company's audited
financial statements for the year ended December 31, 1996. (Item 5).
- ----------
A Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, Registration No. 33-43064.
B Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, Registration No. 33-43064. Confidential
treatment was granted for a portion of this exhibit.
C Previously filed with the Commission; incorporated by reference to the
Registration Statement on Form S-1, Registration No. 33-48240. Confidential
treatment was granted for a portion of this exhibit.
D Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed June 26, 1992.
E Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed March 30, 1993. Confidential
treatment was granted for a portion of this Exhibit.
F Previously filed with the Commission; incorporated by reference to the
Registration Statement on Amendment No. 1 to Form S-1, Registration No.
33-61234.
G Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed April 15, 1994. Confidential
Treatment was granted for a portion of this Exhibit.
H Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed April 15, 1994.
I Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed April 14, 1995.
J Previously filed with the Commission, incorporated by reference to the
Registration Statement on Form S-2, Registration No. 33-98676.
k Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K, filed March 28, 1997.
L Filed herewith.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMCLONE SYSTEMS INCORPORATED
March 27, 1997 By /s/ SAMUEL D. WAKSAL
------------------------------
Samuel D. Waksal
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
Signature Title Date
/s/ ROBERT F. GOLDHAMMER Chairman of the Board and March 27, 1997
- --------------------------- Director
(Robert F. Goldhammer)
March 27, 1997
/s/ SAMUEL D. WAKSAL President, Chief Executive
- --------------------------- Officer and Director
(Samuel D. Waksal) (Principal Executive Officer)
March 27, 1997
/s/ HARLAN W. WAKSAL Executive Vice President,
- --------------------------- Chief Operating Officer
(Harlan W. Waksal) and Director
March 27, 1997
/s/ CARL S. GOLDFISHCER Vice President, Financial
- --------------------------- and Strategic Planning
(Carl S. Goldfischer) and Chief Financial Officer
(Principal Financial Officer)
March 27, 1997
/s/ RICHARD BARTH Director
- ---------------------------
(Richard Barth)
March 27, 1997
/s/ JEAN CARVAIS Director
- ---------------------------
(Jean Carvais)
March 27, 1997
/s/ VINCENT T. DEVITA, JR. Director
- ---------------------------
(Vincent T. DeVita, Jr.)
March 27, 1997
/s/ DAVID M. KIES Director
- ---------------------------
(David M. Kies)
March 27, 1997
/s/ PAUL B. KOPPERL Director
- ---------------------------
(Paul B. Kopperl)
/s/ WILLIAM R. MILLER March 27, 1997
- --------------------------- Director
(William R. Miller)
32
<PAGE>
FINANCIAL STATEMENTS
Index to Financial Statements
Financial Statements
Independent Auditors' Report.................................. ........... F-2
Balance Sheets at December 31, 1996 and 1995.............................. F-3
Statements of Operations for the
Years Ended December 31, 1996, 1995, and 1994........................... F-4
Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995, and 1994........................... F-5
Statements of Cash Flows for the
Years Ended December 31, 1996, 1995, and 1994........................... F-6
Notes to Financial Statements............................................. F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ImClone Systems Incorporated:
We have audited the financial statements of ImClone Systems Incorporated as
listed in the accompanying index. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ImClone Systems Incorporated
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 2(h) to the financial statements, the Company has
adopted Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, in 1996.
/s/ KMPG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 18, 1997
F-2
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Balance Sheets
(in thousands, except share data)
December 31, December 31,
Assets 1996 1995
------------ -------------
Current assets:
Cash and cash equivalents ..................... $ 2,734 $ 10,207
Securities available for sale ................. 10,780 --
Prepaid expenses .............................. 122 115
Amount due from officer and stockholder ....... 101 132
Other current assets .......................... 479 26
--------- ---------
Total current assets ..................... 14,216 10,480
--------- ---------
Property and equipment:
Land ......................................... 340 340
Building and building improvements ........... 8,969 8,969
Leasehold improvements ....................... 4,832 4,832
Machinery and equipment ...................... 5,159 4,796
Furniture and fixtures ....................... 536 526
Construction in progress ..................... 320 --
--------- ---------
Total cost ............................... 20,156 19,463
Less accumulated depreciation
and amortization ....................... (9,606) (7,984)
--------- ---------
Property and equipment, net .............. 10,550 11,479
--------- ---------
Patent costs, net .............................. 977 707
Deferred financing costs, net .................. 65 74
Other assets ................................... 77 63
--------- ---------
$ 25,885 $ 22,803
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .............................. $ 1,059 $ 992
Accrued expenses and other .................... 1,366 826
Interest payable .............................. 238 343
Current portion of long-term liabilities ...... 3,858 4,584
--------- ---------
Total current liabilities ................ 6,521 6,745
--------- ---------
Long-term debt ................................. 2,200 2,200
Long-term notes payable, net ................... -- 1,928
Other long-term liabilities,
less current portion.......................... 575 107
--------- ---------
Total liabilities ........................ 9,296 10,980
--------- ---------
Commitments and contingencies
Stockholders' equity :
Preferred stock, $1.00 par value;
authorized 4,000,000 shares;
none issued and outstanding ................ -- --
Common stock, $.001 par value;
authorized 30,000,000 shares;
issued 20,248,122 and 16,819,622
at December 31, 1996 and
December 31, 1995, respectively;
outstanding 20,233,699 and
16,806,919 at December 31, 1996 and
December 31, 1995, respectively ............ 20 17
Additional paid-in capital ................... 118,760 97,914
Accumulated deficit .......................... (101,973) (85,958)
Treasury stock, at cost; 14,423
and 12,703 shares at December 31, 1996
and December 31, 1995, respectively ........ (169) (150)
Unrealized loss on securities
available for sale ......................... (49) --
--------- ---------
Total stockholders' equity ............... 16,589 11,823
--------- ---------
$ 25,885 $ 22,803
========= =========
See accompanying notes to financial statements.
F-3
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Revenues:
License fees from third parties ................ $ 75 $ -- $ 250
Research and development funding from third
parties and other ........................... 525 800 700
-------- -------- --------
Total revenues ................... 600 800 950
-------- -------- --------
Operating expenses:
Research and development ....................... 11,482 8,768 11,816
General and administrative ..................... 3,961 3,739 3,348
-------- -------- --------
Total operating expenses .......... 15,443 12,507 15,164
-------- -------- --------
Operating loss ...................................... (14,843) (11,707) (14,214)
-------- -------- --------
Other (income) expense:
Interest and other income ...................... (918) (3,120) (3,186)
Interest and other expense ..................... 823 1,054 821
Equity in loss of affiliate .................... -- -- 342
-------- -------- --------
Net interest and other income ...... (95) (2,066) (2,023)
-------- -------- --------
Loss before extraordinary item ...................... (14,748) (9,641) (12,191)
Extraordinary loss on extinguishment of debt......... 1,267 -- --
-------- -------- --------
Net loss ............................................ $(16,015) $ (9,641) $(12,191)
======== ======== ========
Net loss per common share:
Loss before extraordinary item .............. $ (0.76) $ (0.72) $ (1.12)
Extraordinary loss on extinguishment of debt. 0.07 -- --
-------- -------- --------
Net loss per common share ................... $ (0.83) $ (0.72) $ (1.12)
======== ======== ========
Weighted average shares outstanding ................. 19,371 13,311 10,903
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Stockholders' Equity
Years Ended December 31, 1994, 1995, and 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury
--------------------------
Shares Amount Capital Deficit Stock
-------------- --------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ....... 9,510,183 $ 10 $ 79,497 $ (64,126) $ (150)
-------------- --------- -------------- ---------------- -----------
Issuance of common stock ........... 3,067,502 3 5,133
Advances to officer and
stockholder ....................
Amortization of deferred
compensation ...................
Net loss ........................... (12,191)
-------------- --------- -------------- ---------------- -----------
Balance at December 31, 1994 ....... 12,577,685 $ 13 $ 84,630 $ (76,317) $ (150)
-------------- --------- -------------- ---------------- -----------
Issuance of common stock ........... 4,000,000 4 11,998
Options exercised .................. 156,750 162
Warrants exercised ................. 15,300 23
Payment of promissory notes ........ 57,184 36
Proceeds from promissory notes ..... 2
Debt discount ...................... 1,063
Net loss ........................... (9,641)
-------------- --------- -------------- ---------------- -----------
Balance at December 31, 1995 ....... 16,806,919 $ 17 $ 97,914 $ (85,958) $ (150)
-------------- --------- -------------- ---------------- -----------
Issuance of common stock ........... 2,200,000 2 13,560
Options exercised .................. 266,275 846
Warrants exercised ................. 604,892 1 2,960
Options granted to non-employees.... 95
Extinguishment of debt ............. 357,333 3,260
Debt discount ...................... 125
Treasury shares .................... (1,720) (19)
Changes in unrealized loss on
securities available for sale ...
Net loss ............................ (16,015)
-------------- --------- -------------- ---------------- -----------
Balance at December 31, 1996 ........ 20,233,699 $ 20 $ 118,760 $ (101,973) $ (169)
============== ========= ============== ================ ===========
<CAPTION>
Unrealized
Amount Loss on
Due from Securities
Officer and Deferred Available
Stockholder Compensation for Sale Total
-------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 ........ $ (398) $ (21) $ - $ 14,812
-------------- ----------------- ------------- ----------------
Issuance of common stock ............ 5,136
Advances to officer and
stockholder ..................... 398 398
Amortization of deferred
compensation .................... 21 21
Net loss ............................ (12,191)
-------------- ----------------- ------------- ----------------
Balance at December 31, 1994 ........ $ - $ - $ - $ 8,176
-------------- ----------------- ------------- ----------------
Issuance of common stock ............ 12,002
Options exercised ................... 162
Warrants exercised .................. 23
Payment of promissory notes ......... 36
Proceeds from promissory notes ...... 2
Debt discount ....................... 1,063
Net loss ............................ (9,641)
-------------- ----------------- ------------- ----------------
Balance at December 31, 1995 ........ $ - $ - $ - $ 11,823
-------------- ----------------- ------------- ----------------
Issuance of common stock ............ 13,562
Options exercised ................... 846
Warrants exercised .................. 2,961
Options granted to non-employees.... 95
Extinguishment of debt .............. 3,260
Debt discount ....................... 125
Treasury shares ..................... (19)
Changes in unrealized loss on
securities available for sale ... (49) (49)
Net loss ............................ (16,015)
-------------- ----------------- ------------- ----------------
Balance at December 31, 1996 ........ $ - $ - $ (49) $ 16,589
============== ================= ============= ================
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Net loss .............................................. $(16,015) $ (9,641) $(12,191)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........................ 1,704 1,789 1,844
Expense associated with issuance
of options ....................................... 95 -- 21
Equity in loss of affiliate .......................... -- -- 342
Loss on sale of investments .......................... -- -- 23
Fees associated with commercialization
and license agreement rights ...................... -- -- 117
Extraordinary loss on early
extinguishment of debt ............................ 1,267
Discounted interest amortization ..................... 156 222 --
Write-off of fixed assets ............................ -- 2 --
Write-off of patent costs ............................ -- 126 29
Changes in:
Prepaid expenses .................................... (7) (37) 19
Other current assets ................................ (453) 42 (4)
Due from officer .................................... 31 24 (111)
Other assets ........................................ (14) 115 (110)
Interest payable .................................... (105) 328 (1)
Accounts payable .................................... 67 (624) 780
Accrued expenses and other .......................... 540 421 434
-------- -------- --------
Net cash used in operating activities ............. (12,734) (7,233) (8,808)
-------- -------- --------
Cash flows from investing activities:
Acquisitions of property and equipment ............... (693) (36) (434)
Proceeds from sale of equipment ...................... 421 -- --
Purchases of securities available for sale ........... (32,665) -- --
Sales of securities available for sale ............... 21,836 -- 5,350
Additions to patents ................................. (343) (186) (176)
Investment in and advances to affiliate .............. -- -- 405
-------- -------- --------
Net cash (used in) provided by investing activities (11,444) (222) 5,145
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock ............................. 13,562 12,002 5,534
Proceeds from exercise of stock options and warrants . 3,807 185 --
Purchase of treasury stock ........................... (19) -- --
Proceeds from long-term notes payable ................ -- 2,680 --
Proceeds from short-term notes payable ............... -- 100 220
Repayment of short-term notes payable ................ -- (284) --
Repayment of long-term debt .......................... -- -- (400)
Payments of other liabilities ........................ (645) (53) (55)
-------- -------- --------
Net cash provided by financing activities ......... 16,705 14,630 5,299
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ... (7,473) 7,175 1,636
Cash and cash equivalents at beginning of period ....... 10,207 3,032 1,396
-------- -------- --------
Cash and cash equivalents at end of period ............. $ 2,734 $ 10,207 $ 3,032
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
ImClone Systems Incorporated
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Basis of Preparation
ImClone Systems Incorporated (the "Company") is a biopharmaceutical company
engaged primarily in the research and development of therapeutic products for
the treatment of cancer and cancer-related disorders. The Company employs
accounting policies that are in accordance with generally accepted accounting
principles in the United States.
The Company expects that its capital resources, including the ongoing
research support of its corporate partners, will be sufficient to fund its
operations through 1997. If, however, difficulty is encountered in attaining the
milestones necessary for continued research support, the Company would postpone
the budgeted expansion of operations to allow for funding of its operations
beyond 1997. Accordingly, in order to fund its capital needs after that time,
the Company will require significant levels of additional capital and intends to
raise the necessary capital through additional equity or debt financings,
arrangements with corporate partners or from other sources. The Company has
entered into preliminary discussions with several major pharmaceutical companies
regarding various alternatives concerning the funding of research and
development for certain of its products. No assurance can be given that the
Company will be successful in pursuing any such alternatives. In addition, the
Company may seek to enter into a significant strategic partnership with a
pharmaceutical company for the development of its lead product candidate, C225.
Such a strategic alliance could include an up-front equity investment and
license fees plus milestone fees and revenue sharing. There can be no assurance
that the Company will be successful in achieving such an alliance, nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.
The biopharmaceutical industry is subject to rapid and significant
technological change. The Company has numerous competitors, including major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions. These competitors may succeed in
developing technologies and products that are more effective than any which are
being developed by the Company or which would render the Company's technology
and products obsolete and non-competitive. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in
pre-clinical testing and human clinical trials of new or improved pharmaceutical
products and in obtaining Food and Drug Administration ("FDA") and other
regulatory approvals on products for use in health care. The Company is aware of
various products under development or manufactured by competitors that are used
for the prevention, diagnosis or treatment of certain diseases the Company has
targeted for product development, some of which use therapeutic approaches that
compete directly with certain of the Company's product candidates. The Company
has limited experience in conducting and managing pre-clinical testing necessary
to enter clinical trials required to obtain government approvals and has limited
experience in conducting clinical trials. Accordingly, the Company's competitors
may succeed in obtaining FDA approval for products more rapidly than the
Company, which could adversely affect the Company's ability to further develop
and market its products. If the Company commences significant commercial sales
of its products, it will also be competing with respect to manufacturing
efficiency and marketing capabilities, areas in which the Company has limited or
no experience.
F-7
<PAGE>
(2) Summary of Significant Accounting Policies
(a) Cash Equivalents
Cash equivalents consist primarily of U.S. government instruments,
commercial paper, master notes and other readily marketable debt instruments.
The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents.
(b) Investments in Securities
The Company classifies its investment in debt and equity securities in one
of three categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Premiums and
discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
At December 31, 1996, all investments in securities were classified as
available-for-sale.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture and
equipment is provided by straight-line methods over estimated useful lives of
three to twelve years, and leasehold improvements are being amortized over the
related lease term (including optional renewal periods (Note 10)) or the service
lives of the improvements, whichever is shorter.
(d) Patent Costs
Patent and patent application costs are amortized on a straight-line basis
over their respective expected useful lives, up to a 15-year period.
(e) Deferred Financing Costs
Costs incurred in obtaining the Industrial Development Revenue Bonds (Note
5) are amortized using the straight-line method over the terms of the related
bonds.
F-8
<PAGE>
(f) Investment in and Advances to Affiliate
Cadus Pharmaceutical Corporation ("Cadus") was incorporated in January 1992
to develop novel classes of therapeutics that target signal transduction
pathways. The Company held a 50% investment in the capital stock of Cadus
through November 1994. In December 1994, an agreement was reached for the
Company to sell one-half of its shares of capital stock of Cadus to High River
Limited Partnership ("High River") for total consideration of $3.0 million. The
gain in 1994 on sale of the Cadus shares was recorded in the Statement of
Operations as other income for the year ended December 31, 1994. The cash
consideration was received by the Company on January 4, 1995.
During April 1995, the Company completed the sale of the remaining one-half
of its shares of capital stock of Cadus for $3.0 million, also to High River. In
exchange for receiving a now-expired right to repurchase all the outstanding
shares of capital stock of Cadus, the Company granted to High River two options
to purchase shares of Common Stock. One option is for 150,000 shares at an
exercise price per share equal to $2.00, subject to adjustment under certain
circumstances, and the other option is for 300,000 shares at an exercise price
per share equal to $0.69, subject to adjustment under certain circumstances.
Both options will expire on April 26, 2000.
(g) Revenue Recognition
License fees are recognized if the Company enters into license agreements
with third parties that provide for the payment of non-refundable fees when the
agreement is signed or when all parties concur that specified goals are
achieved. These fees are recognized as license fee revenues in accordance with
the terms of the particular agreement.
Research and development funding revenue is derived from collaborative
agreements with third parties and is recognized in accordance with the terms of
the respective contracts. Revenue from certain agreements is recognized using
the percentage of completion method based on contract costs incurred to date
compared with total estimated contract costs.
Revenue recognized in the accompanying statements of operations is not
subject to repayment. Revenue received that is related to future performance
under such contracts is deferred and recognized as revenue when earned.
(h) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(i) Research and Development
Research and development expenditures made pursuant to certain research and
development contracts with academic institutions, and other research and
development costs, are expensed as incurred.
F-9
<PAGE>
(j) Income Taxes
Effective January 1, 1993 the Company adopted SFAS No. 109, Accounting for
Income Taxes. SFAS No. 109 requires a change from the deferred method of
accounting for income taxes to the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns.
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Adoption of this
Statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.
(m) Net Loss Per Share
Net loss per share is computed based on the weighted average number of
shares outstanding. Common stock equivalents are not included in the computation
of average shares outstanding because they are anti-dilutive.
(n) Reclassification
Certain amounts previously reported have been reclassified to conform to
current year's presentation.
F-10
<PAGE>
(3) Securities Available-For-Sale
Securities available-for-sale of $10,780,000 at December 31, 1996 consisted
of mortgage-backed debt securities. The amortized cost of such securities was
$10,829,000 and the net unrealized holding losses were $49,000 at December 31,
1996. These securities available-for-sale have maturities ranging from 1997 to
1999.
(4) Accrued Expenses and Other
The following items are included in accrued expenses and other:
December 31, December 31,
1996 1995
------------ ------------
Salaries and other
payroll related expenses ................. $ 782,000 $206,000
Legal and accounting fees .................. 217,000 145,000
Other ...................................... 367,000 475,000
---------- --------
$1,366,000 $826,000
========== ========
(5) Long-term Debt
Long-term debt is comprised of the following:
December 31, December 31,
1996 1995
------------ ------------
10.75% Bond due 1997 ................. $ 2,113,000 $ 2,113,000
11.25% Bond due 2004 ................. 2,200,000 2,200,000
Less current portion ................. (2,113,000) (2,113,000)
----------- -----------
$ 2,200,000 $ 2,200,000
=========== ===========
On December 31, 1986, the New York City Industrial Development Agency (the
"NYIDA") issued an Industrial Development Revenue Bond (the "1986 Bond") on
behalf of the Company in the amount of $2,113,000. During December 1994, the
Bond's original maturity date of December 15, 1994 was extended to June 15,
1996. During June 1996, the Company and the NYIDA extended the maturity date an
additional eighteen months to December 15, 1997. The proceeds from the sale of
this Bond were used by the Company for the acquisition, construction and
installation of the Company's research and development facility in New York
City.
In August 1990, the NYIDA issued another Industrial Development Revenue
Bond (the "1990 Bond") in the amount of $2,200,000. The Bond is due May 1, 2004.
The proceeds from the sale of the Bond were used by the Company for the
acquisition, construction and installation of the Company's research and
development facility in New York City.
The Company has granted a security interest in substantially all equipment
located in its New York City facility to secure the obligations of the Company
to the NYIDA relating to the 1986 Bond and the 1990 Bond.
F-11
<PAGE>
(6) Long-term Liabilities and Notes Payable
(a) Other Long-term Liabilities
Other long-term liabilities is comprised of the following:
December 31, December 31,
1996 1995
------------ ------------
Liability to reacquire IL-6m rights ............ $ 1,917,000 $ 2,400,000
Liability under capital lease obligations ..... 354,000 125,000
Liability under license agreement .............. 49,000 53,000
Less current portion ........................... (1,745,000) (2,471,000)
----------- -----------
$ 575,000 $ 107,000
=========== ===========
In July 1993, the Company entered into an agreement with Erbamont, Inc.,
now a subsidiary of Pharmacia and Upjohn, Inc. ("Pharmacia"), to acquire the
worldwide rights to IL-6m, a blood cell growth factor, which had been licensed
to Pharmacia pursuant to a development and licensing agreement. In consideration
of the return of rights and the transfer of certain material and information,
the Company has paid $1.4 million and has further obligations to Pharmacia. Such
obligations, including those to pay for IL-6 mutein material manufactured and
supplied by Pharmacia, totaled $2.4 million at March 31, 1996. In addition, the
Company is required to pay Pharmacia $2.7 million in royalties on eventual sales
of IL-6m, if any. In March, 1996, the Company entered into a Repayment Agreement
with Pharmacia (the "Repayment Agreement") pursuant to which it agreed to pay
the $2.4 million over 24 months commencing in March 1996, with interest only
payable during the first six months. At December 31, 1996 the remaining
obligation to Pharmacia totaled $1.9 million. In connection with the Repayment
Agreement, the Company signed a Confession of Judgment, which can be filed by
Pharmacia with an appropriate court in the case of default by the Company.
Pursuant to a Security Agreement entered into with Pharmacia, the Company
pledged its interests in patents related to IL-6m and to heparanase to secure
its obligations under the Repayment Agreement.
During fiscal 1992, the Company entered into a capital lease agreement for
laboratory equipment which was recorded as an asset in the amount of $262,000.
The lease extends over a five-year period and has a bargain purchase option at
the end of the lease term. At December 31, 1996, the accumulated depreciation on
this equipment totaled $180,000. See also Note 10.
In December 1996, the Company signed an agreement with Finova Technology
Finance, Inc. ("Finova") to finance the lease of laboratory and computer-related
equipment and make certain building and leasehold improvements to existing
facilities involving payments aggregating approximately $2,500,000. The first of
multiple intended leases was signed in December 1996 at a cost of $421,000 and
related to equipment previously purchased by the Company during 1996. This
capital lease has been treated as a sale-leaseback transaction and no gain or
loss was recognized on the sale. Each lease has a fair market value purchase
option at the expiration of a 42-month term. At December 31, 1996, accumulated
depreciation on these assets totaled $6,000. Pursuant to the agreement, the
Company issued to Finova a warrant expiring December 31, 1999 to purchase 23,220
shares of Common Stock at an exercise price of $9.69 per share. The Company
recorded a non-cash debt discount of approximately $125,000 in connection with
this financing, which discount is being amortized over the 42-month term of the
first lease. See also Notes 10 and 11.
In connection with the Company's production and eventual marketing of
certain products, the Company entered into a license agreement which requires
minimum annual royalty payments throughout the term of the agreement. The
agreement expires in 2004 and calls for minimum annual payments of $10,000,
which are creditable against royalties that may be due from sales. To the extent
the minimum annual royalties are not expected to be offset by sales, the Company
has charged the net present value of these payments to operations. An interest
rate of 10% was used to discount the cash flows.
F-12
<PAGE>
(b) Long-term Notes Payable, net
Long-term notes payable is comprised of the following:
December 31, December 31,
1996 1995
------------ ------------
Liability for director
promissory note, including interest ........ $ -- $ 186,000
Liability for long-term loan,
including interest ......................... -- 2,583,000
Less loan discount ........................... -- (841,000)
---------- -----------
$ -- $ 1,928,000
========== ===========
In July 1995, a director loaned the Company $180,000 in exchange for a
long-term note due two years from issuance at an annual interest rate of 8%. As
part of the transaction, the director was granted 36,000 warrants to purchase
Company common stock at $1.50 per share and an additional 36,000 warrants to
purchase Company common stock at $3.00 per share. In May 1996, the Company and
the director exchanged the note for 24,000 shares of Common Stock and the
Company paid the accrued and unpaid interest on the note in the amount of
$10,000 in cash. The Company recorded an extraordinary loss of $39,000 on the
extinguishment of the debt. The Company has registered such shares of Common
Stock with the Commission under a registration statement in accordance with the
provisions of the Securities Act of 1933 (the "1933 Act").
On August 11, 1995, the Oracle Group purchased 1,000,000 shares of Common
Stock for a purchase price of $1.5 million and made a loan to the Company in the
aggregate amount of $2.5 million with a two-year maturity, but subject to
mandatory prepayment, in whole or in part, upon the occurrence of certain
events, including the raising of certain additional funds. The loan carried an
annual interest rate of 8%. The Oracle Group includes Oracle Partners, L.P.,
Quasar International Partners C.V., Oracle Institutional Partners L.P., Sam
Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants
exercisable at any time until August 10, 2000 entitling the holders thereof to
purchase 500,000 shares of Common Stock at a price of $1.50 per share and
500,000 shares of Common Stock at a price of $3.00 per share. As a result of the
Company's offerings of shares of its Common Stock in November 1995 and February
1996, the Oracle Group was entitled to require the Company to apply 20 percent
of the gross proceeds of the sale of the shares of Common Stock from the
offerings to repay the loan.
In May 1996, the Company and the Oracle Group exchanged the notes in the
aggregate outstanding principal amount of $2.5 million for 333,333 shares of
Common Stock and the Company paid the accrued and unpaid interest on the notes
in the amount of $143,000 in cash. The Company recorded an extraordinary loss of
$1,228,000 on the extinguishment of the debt. The Company has registered such
shares of Common Stock with the Commission under a registration statement in
accordance with the provisions of the 1933 Act.
F-13
<PAGE>
(7) Research Agreements
The Company has entered into several research and development agreements
with third parties. Generally, the agreements provide for the Company to receive
research and development funding, milestone payments, royalties, or license fees
or a combination thereof. In return, the Company has granted licenses to these
third parties to market or manufacture and market certain of its products in
specified fields of use and in specified geographic areas.
Revenues for the years ended December 31, 1996, December 31, 1995, and
December 31, 1994 were $600,000, $800,000, and $950,000 respectively. Revenues
for each year consisted of $300,000 from its corporate partnership with the
Wyeth-Lederle Vaccine Division of American Home Products Corporation ("American
Home") in infectious disease vaccines. In addition, revenues for the year ended
December 31, 1996 included royalty fees of $225,000 from the Company's strategic
alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues for the
years ended December 31, 1995, and December 31, 1994 included contract research
fees of $500,000 and $400,000, respectively, also from the Abbott alliance. The
year ended December 31, 1996 also included $75,000 in license fees from the
Company's cross-licensing agreement with Immunex Corporation ("Immunex") for
novel hematopoietic growth factors. Finally, license fees of $250,000 were
recognized from the Abbott alliance during the year ended December 31, 1994.
Revenues for all three years were derived from United States sources.
(8) Capital Stock
(a) Stock Option Plans:
In February 1986, the Company adopted an Incentive Stock Option Plan and a
Nonqualified Stock Option Plan (the "86 Plans"). On February 25, 1996, the
Company adopted an additional Stock Option Plan and Nonqualified Stock Option
Plan (the "96 Plans") which were approved by shareholders at its Annual Meeting
held June 3, 1996. Combined, the 86 and 96 Plans provide for the granting of
options to purchase up to 3,000,000 shares of Common Stock to key employees and
advisors. Incentive stock options may not be granted at a price less than the
fair market value of the stock at the date of grant. Options under both the 86
and 96 Plans expire ten years from the date of grant. Certain options granted
under these plans vest over three- to five-year periods. At December 31, 1996,
options to purchase 2,103,577 shares of Common Stock were outstanding and
525,625 shares were available for grant.
A summary of stock option activity follows:
Weighted average
Number of exercise price
shares per share
---------- ----------
Balance at December 31, 1993 ................ 969,321 $8.75
1994 activity
Granted ................................ 254,500 3.94
Exercised .............................. --
Canceled ............................... (331,742) 10.21
----------
Balance at December 31, 1994 ................ 892,079 6.83
1995 activity
Granted ................................ 752,000 1.91
Exercised .............................. (156,750) 1.04
Canceled ............................... (120,375) 1.45
----------
Balance at December 31, 1995 ................ 1,366,954 2.34
1996 activity
Granted ................................ 1,077,875 9.85
Exercised .............................. (266,275) 3.18
Canceled ............................... (74,977) 2.58
----------
Balance at December 31, 1996 ................ 2,103,577 6.08
----------
F-14
<PAGE>
In June 1996, the Company granted options to purchase 116,000 shares of its
Common Stock to certain Scientific Advisory Board members in consideration for
future services. The fair value of the grant was approximately $756,000 as
calculated using the Black-Scholes option pricing model. Compensation expense is
being recognized ratably over the four year vesting period of the options. See
Note 8(c) for weighted average assumptions used. During the year ended December
31, 1996, the Company recognized approximately $95,000 in compensation expense
relating to the above grants.
During April 1995, the Company completed the sale of the remaining one-half
of its shares of capital stock of Cadus for $3.0 million to High River. In
exchange for receiving a now-expired right to repurchase all the outstanding
shares of capital stock of Cadus, the Company granted to High River two options
to purchase shares of Common Stock. One option is for 150,000 shares at an
exercise price per share equal to $2.00, subject to adjustment under certain
circumstances, and the other option is for 300,000 shares at an exercise price
per share equal to $0.69, subject to adjustment under certain circumstances.
Both options will expire on April 26, 2000. The 450,000 options have a weighted
average exercise price of $1.13.
On February 2, 1995, exercise prices for certain granted and outstanding
Incentive and Nonqualified Stock Options with original exercise prices in excess
of $1.25 per share were offered to be repriced to $1.25 per share, by vote of a
Special Subcommittee of the Compensation Committee of the Board of Directors.
Benefit of repricing was confined to individuals who continued to serve the
Company as employees or consultants, and 645,000 options were repriced. In
connection with the offer of repricing, the vesting schedule of those choosing
to accept repriced options was extended to June 30, 1995 for options already
vested or to vest prior to June 30, 1995. The closing trading price of the
Company's common stock on February 2, 1995 was $0.69.
(b) Warrants
As of December 31, 1996, a total of 3,275,645 common shares were issuable
under outstanding warrants. Such warrants have been issued to certain officers,
directors and other employees of the Company, certain Scientific Advisory Board
members, certain investors and certain credit providers and investors.
A summary of warrant activity follows:
Weighted
Number of Average Exercise
Shares Price Per Share
--------- ----------------
Balance at December 31, 1993 ........ 2,983,970 $ 9.47
1994 Activity
Granted ........................ 24,600 0.69
Exercised ...................... -- --
Cancelled ...................... (536,003) 6.61
---------
Balance at December 31, 1994 ........ 2,472,567 10.01
1995 Activity
Granted ........................ 1,434,300 3.03
Exercised ...................... (15,300) 1.50
Cancelled ...................... -- --
---------
Balance at December 31, 1995 ........ 3,891,567 3.15
1996 Activity
Granted ....................... 23,220 9.69
Exercised ..................... (604,892) 4.89
Cancelled ..................... (34,250) 12.92
---------
Balance at December 31, 1996 ....... 3,275,645 2.41
=========
During September 1996, the Company repriced certain warrants held by
investors to purchase 80,700 shares of Common Stock in order to promote their
exercise prior to pending expiration. The warrants were repriced to an amount
which was ten percent less than the average closing price for the Common Stock
for the thirty days leading up to and including the day prior to the date of
exercise. The fair market value of the warrant was reflected as a cost of
capital.
During November 1996, the Company repriced certain warrants held by
investors to purchase 130,000 shares of Common Stock in order to promote their
exercise prior to pending expiration. The warrants were repriced to an amount
which was ten percent less than the average closing price for the Common Stock
for the thirty days leading up to and including the day prior to the date of
exercise. The fair market value of the warrant was reflected as a cost of
capital.
In December 1995, the Company granted its President a ten-year warrant to
purchase 350,000 common shares at an exercise price determined by the $5.50
trading price of the stock on the date of grant. The grant of the warrant was
approved by shareholders at its Annual Meeting held June 3, 1996.
On February 2, 1995 exercise prices for certain granted and outstanding
warrants were offered to be repriced to $1.50 per share. The benefit of the
repricing was confined to individuals who continued to serve the Company as
employees or consultants, and 2,048,217 warrants were repriced. In consideration
for the offer of repricing, those choosing to accept the repriced warrants are
to pay the Company the difference in value before and after repricing as
calculated by use of the Black-Scholes model, which payment can be made through
promissory notes to the Company. The closing trading price of the Company's
common stock on February 2, 1995 was $.69.
F-15
<PAGE>
The outstanding warrants expire and are exercisable for the number of
shares of Common Stock as shown below:
March 1997.................................................... 728,500
December 1999................................................. 47,820
March 2000.................................................... 12,300
July 2000..................................................... 72,000
August 2000................................................... 925,000
November 2000................................................. 12,720
March 2001.................................................... 2,500
May 2001...................................................... 1,112,805
June 2003..................................................... 12,000
December 2005................................................. 350,000
----------
Total............................................. 3,275,645
==========
(c) SFAS No. 123:
Options and Warrants
In 1996, the Company adopted the provisions of SFAS No. 123, "Accounting
for Stock Based Compensation". The following table summarizes the weighted
average fair value of stock options and warrants granted during years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Option Plans Warrant Plans
----------------------------------- ----------------------------------
1996 1995 1996 1995
------------------ -------------- ------------- -----------------
Shares $ Shares $ Shares $ Shares $
---------- ------ -------- ----- ------ ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise price equals market value at date
of grant ..................................... 1,077,875 $5.56 602,000 $1.07 23,220 $5.39 1,434,300 $0.64
Exercise price exceeds market value at date of
grant ........................................ -- $ -- 795,000 $0.32 -- $ -- 2,048,217 $0.29
</TABLE>
The above table share amounts for 1995 reflect the impact of the re-pricing
as discussed in Notes 8(a) and (b).
The fair value of stock options and warrants was estimated using the
Black-Scholes option pricing model. The Black-Scholes model considers a number
of variables including the exercise price and the expected life of the option,
the current price, the expected volatility and the dividend yield of the
underlying stock, and the risk-free interest rate during the expected term of
the option. The following summarizes the weighted average assumptions used:
<TABLE>
<CAPTION>
Option Plans Warrant Plans
--------------------------------- --------------------------------
1996 1995 1996 1995
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Expected life (years)............... 3.5 2.5 2.0 (1) 2.0
Interest rate....................... 5.00% 5.00% 5.00% 5.00%
Volatility.......................... 85.13% 85.13% 85.13% 85.13%
</TABLE>
(1) The weighted average expected life does not include the warrants repriced
in 1996 as they were exercised simultaneously.
The estimated volatility reflects the performance of the Company's Common
Stock over the twelve-month period ended December 31, 1996. The expected life of
the options and warrants reflects the anticipated holding period prior to
exercise. The estimated risk-free interest rate used is based on risk-free
investment products with similar terms.
The following table summarizes information concerning stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/96 Term Price at 12/31/96 Price
----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.33 - 0.69........ 337,500 3.3 0.66 335,250 $ 0.66
1.03 - 1.91........ 387,800 5.7 1.21 275,825 1.24
2.00............... 150,000 3.3 2.00 150,000 2.00
3.19 - 3.88........ 47,250 8.8 3.80 11,813 3.77
4.00 - 5.69........ 136,750 7.9 5.22 71,688 5.09
6.38 - 7.88........ 107,652 9.4 7.20 3,126 6.38
8.33 - 9.75........ 72,000 9.1 9.10 43,000 9.14
10.88 - 12.88...... 844,625 9.4 10.90 165,250 10.89
13.33 - 16.00...... 20,000 2.9 13.40 19,500 13.33
--------- ---------
2,103,577 7.1 6.08 1,075,452 3.49
========= =========
</TABLE>
F-16
<PAGE>
As of December 31, 1996, the outstanding warrants to purchase 3,275,645
common shares were all exercisable. The weighted average remaining contractual
term at December 31, 1996 for the 12,300 outstanding warrants exercisable at
$.63 per share is 3.2 years, the 24,600 exercisable at $.69 per share is 3.0
years, the 2,285,525 exercisable at $1.50 per share is 3.6 years, the 498,500
exercisable at $3.00 per share is 5.8 years, the 21,500 exercisable at $4.00 per
share is 0.2 years, the 350,000 exercisable at $5.50 per share is 9.0 years, the
12,000 exercisable at $7.00 per share is 6.5 years, the 23,220 exercisable at
$9.69 per share is 3.0 years, the 6,000 exercisable at $10.00 per share is 3.9
years, and the 42,000 exercisable at $13.33 per share is 4.3 years.
Pro forma net loss and loss per share reflect compensation cost of $3.6
million and $2.1 million, respectively, for the years ended December 31, 1996
and 1995.
(Thousands of dollars,
except per share amounts) 1996 1995
- ------------------------- ---- ----
Net loss As reported $(16,015) $ (9,641)
Pro forma $(19,653) $(11,728)
Loss per share As reported $ (0.83) $ (0.72)
Pro forma $ (1.01) $ (0.88)
The amounts disclosed may not be representative of the effects on reported
net loss for future years.
(9) Income Taxes
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and December 31, 1995 are presented below.
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ -------------
Deferred tax assets:
<S> <C> <C>
Liability to reacquire IL-6m rights and materials............. $863,000 $ 1,147,000
Gain on sale of Cadus shares ................................. -- 1,367,000
Equity in loss of affiliate .................................. -- 917,000
Research and development credit carryforward ................. 1,883,000 1,757,000
Compensation relating to the issuance of
stock options and warrants .................................. 2,740,000 3,038,000
Net operating loss carryforwards ............................. 44,374,000 31,870,000
Other ........................................................ 958,000 540,000
------------ ------------
Total gross deferred tax assets ..................... 50,818,000 40,636,000
Less valuation allowance ............................ (50,818,000) (40,636,000)
------------ ------------
Net deferred tax assets ............................. $ -- $ --
------------ ------------
Deferred tax liabilities:
Property and equipment, principally due to
depreciation and amortization............................... $ -- $ --
------------ ------------
Total gross deferred tax liabilities ................ $ -- $ --
============ ============
Net deferred tax asset .............................. $ -- $ --
============ ============
</TABLE>
For the years ended December 31, 1996 and December 31, 1995, the Company
established an aggregate valuation allowance of $50,818,000 and $40,636,000
respectively, to reflect management's belief that significant uncertainty exists
regarding the ultimate realization of its deferred tax assets.
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $97,350,000 which expire at various
dates from 2000 through 2011. At December 31, 1996 the Company had research
credit carryforwards of approximately $1,883,000 which expire at various dates
between years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended, the annual utilization of the Company's net operating
loss and research credit carryforwards may be limited if the Company experiences
a change in ownership of more than 50% within a three-year period. The Company
believes that one or more of such ownership changes may have occurred since
1986. Therefore, the Company may be significantly limited in utilizing its tax
net operating loss carryforwards arising before such ownership change(s) to
offset future taxable income. Similarly, the Company may be restricted in using
its research credit carryforwards arising before such ownership change(s) to
offset future federal income tax expense.
F-17
<PAGE>
(10) Commitments
Leases
The Company leases premises under an operating lease, a portion of which
expired in 1993 and a portion of which expires in 1999. The Company has extended
the 1993 expired portion of the lease through 1997 at 85% of each year's fair
market rental value and from 1997 to 1999 at 100% of each year's fair market
rental value, for a portion of the premises. The rate for the remaining portion
of the premises is $264,000 annually through March 31, 1997 and $285,000
annually through March 31, 1999. The estimated future lease payment schedule
below is based on the exercise of the renewal options described above, using a
fair market rental value of $10.00 per square foot. Rent expense for leased
premises was approximately $508,000, $493,000, and $467,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments under the capital and operating leases are as
follows:
Capital Operating
Leases Leases
------------ ------------
Years ending December 31,
- -------------------------
1997 ................................... $ 203,000 $ 516,000
1998 ................................... 142,000 513,000
1999 ................................... 141,000 291,000
2000 ................................... 71,000 8,000
2001 ................................... -- 1,000
Thereafter ............................. -- --
----------- ----------
$ 557,000 $1,329,000
Less interest expense .................. (203,000) --
----------- ----------
$ 354,000 $1,329,000
=========== ==========
Supported Research
The Company has entered into various research and license agreements with
certain universities to supplement the Company's research activities and to
obtain for the Company rights to certain technology. The agreements generally
require the Company to fund the research and to pay royalties based upon
percentages of revenues, if any, on sales of products developed from technology
arising under these agreements.
Consulting Agreements
The Company has consulting agreements with several of its Scientific
Advisory Board members and other consultants. These agreements generally are for
a term of one year or are terminable at the Company's option.
F-18
<PAGE>
(11) Supplemental Cash Flow Information and Non-cash Investing and Financing
Activities are as Follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental Cash Flow Information
Cash paid during the period for:
Interest............................................. $ 817.0 $ 504.0 $ 504.0
------- ------- -------
Supplemental Non-cash Investing and Financing Activities
Finova capital asset and lease obligation additions.... 421.0 -- --
Fair value of Finova warrant........................... 125.0 -- --
Extinguishment of Oracle Group debt for stock.......... 2,500.0 -- --
Extinguishment of director debt for stock.............. 180.0 -- --
Unrealized loss on securities available for sale....... 49.0 -- --
</TABLE>
(12) Related Party Transactions
The outstanding balance of total miscellaneous noninterest-bearing cash
advances to the President and CEO of the Company on December 31, 1994 totaled
approximately $156,000. The officer has provided the Company with a demand
promissory note pursuant to which the officer is obligated to repay the debt
over a twenty four month period ending April 30, 1997.
During the year ended December 31, 1995, the Company made additional
miscellaneous noninterest-bearing cash advances to the officer totaling $7,000.
In addition, the officer repaid $31,000 of the demand promissory note during the
year ended December 31, 1995. This brought the outstanding balance of total
miscellaneous noninterest-bearing cash advances to the officer of $132,000 at
December 31, 1995.
During the year ended December 31, 1996, the Company made additional
miscellaneous noninterest-bearing cash advances to the officer totaling $8,000.
In addition, the officer repaid $39,000 of the demand promissory note during the
year ended December 31, 1996. This brought the outstanding balance of total
miscellaneous non-interest-bearing cash advances to the officer of $101,000 at
December 31, 1996.
In March 1995, two directors (one of whom is an officer) each loaned the
Company $20,000 in exchange for short-term notes due sixty days from issuance.
As part of the transaction, the directors were each granted 2,460 five-year
warrants to purchase Company common stock at $.625 per share, the stock closing
price on the date of the promissory note. Each lender could accept payment of
principal and interest at 15% in Company shares in lieu of cash, also at $.625
per share. In May 1995, one director accepted payment of $20,493 which included
principal and interest at 15%. The second lender accepted principal and interest
totaling $15,493 and 8,000 shares of Company common stock at $.625 per share.
F-19
<PAGE>
Also in March 1995, a director and a shareholder each loaned the Company
$30,000 in exchange for short-term notes due sixty days from issuance. As a part
of the transaction, the director and shareholder were each granted 3,690
five-year warrants to purchase Company common stock at $.625 per share, the
stock closing price on the date of the promissory note. Each lender could accept
payment of principal and interest at 15% in Company shares in lieu of cash, also
at $.625 per share. During May 1995, the director accepted payment of 49,184
shares of Company common stock at $.625 per share, while the shareholder
accepted $30,740 which included principal and interest at 15%.
In May 1995, the Company loaned an officer $20,000 in exchange for a demand
promissory note. The officer was obligated to repay the debt over a sixteen
month period ended September 17, 1996. The loan was paid in full in December
1995.
In January 1996, the Company paid Concord International Investment Group,
LP, approximately $163,000 for services rendered by it to the Company in
connection with structuring a contemplated product related financing for C225.
Mr. Robert F. Goldhammer, Chairman of the Board of Directors, is a limited
partner of Concord International Investment Group, LP.
In August 1995 and January 1996, the Company paid Delano & Kopperl
Financial Advisors, Inc. a total of approximately $69,000 for services rendered
by it to the Company in connection with structuring a contemplated product
related financing for C225. Paul B. Kopperl, a director of the Company, is
President, director, and 25% shareholder of Delano & Kopperl Financial Advisors,
Inc.
F-20
<PAGE>
(13) Fair Value of Financial Instruments
For the years ended December 31, 1996 and 1995, the following methods and
assumptions were used to estimate the fair value of each class of financial
instrument:
Cash and cash equivalents, accounts payable, accrued and other current
liabilities:
The carrying amounts approximate fair value because of the short maturity
of those instruments.
Long-term debt and notes payable:
Discounted cash flow analyses were used to determine the fair value of
long-term debt and notes payable because quoted market prices on these
instruments were unavailable. The fair value of these instruments approximated
the carrying amount.
(14) Summary of Quarterly Results of Operations (Unaudited)
The following unaudited quarterly financial information includes, in
management's opinion, all normal and recurring adjustments necessary to fairly
present the Company's results of operations and related information for the
periods presented. Net loss per share has been computed using the weighted
average shares outstanding during each quarter. Common stock equivalent shares
are excluded where the effect of their inclusion would result in decreasing the
net loss per share.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
(In thousands, except per share data) 3/31 6/30 9/30 12/31
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Revenues ................................. $ 75 $ 75 $ 75 $ 375
Operating expenses ....................... 3,066 3,438 3,714 5,225
------- ------- ------- -------
Operating loss ........................... (2,991) (3,363) (3,639) (4,850)
Net interest and other expense(income) ... 154 (61) (97) (91)
------- ------- ------- -------
Loss before extraordinary item ........... (3,145) (3,302) (3,542) (4,759)
Extraordinary loss on extinguishment
of debt................................ -- 1,267 -- --
------- ------- ------- -------
Net loss ................................. $(3,145) $(4,569) $(3,542) $(4,759)
======= ======= ======= =======
Net loss per common share:
Loss before extraordinary item ........... $ (0.18) $ (0.17) $ (0.18) $ (0.25)
Extraordinary loss on extinguishment
of debt ............................... -- 0.06 -- --
------- ------- ------- -------
Net loss per common share ................ $ (0.18) $ (0.23) $ (0.18) $ (0.25)
======= ======= ======= =======
Year ended December 31, 1995
Revenues ................................. $ 75 $ 75 $ 575 $ 75
Operating expenses ....................... 2,871 2,745 2,823 4,068
------- ------- ------- -------
Operating loss ........................... (2,796) (2,670) (2,248) (3,993)
Net interest and other expense(income) ... 218 (2,837) 267 286
------- ------- ------- -------
Net income (loss) ........................ (3,014) 167 (2,515) (4,279)
------- ------- ------- -------
Net income (loss) per share .............. $ (0.24) $ 0.01 $ (0.19) $ (0.29)
======= ======= ======= =======
</TABLE>
(15) Events (Unaudited) Subsequent to the Date of the Independent Auditors'
Report
In March 1997, the Company completed a public sale of 3,000,000 shares
of Common Stock at a per share price of $7.875. Net proceeds to the Company from
the sale totaled approximately $23.2 million after deducting expenses of the
offering.
In March 1997, the Company extended for a two year period the term of an
officer's warrant to purchase 397,000 shares of the Company's Common Stock at a
per share exercise price equal to $1.50. In connection with this transaction,
the Company recognized non-cash compensation expense of approximately $2.2
million.
F-21
Exhibit 10.73
IMCLONE SYSTEMS INCORPORATED
EMPLOYMENT AGREEMENT
with
DR. CARL GOLDFISCHER
AGREEMENT entered into as of May 17, 1996 between CARL GOLDFISCHER residing at
161 West 61st Street, New York, U.S.A. ("Employee"), and IMCLONE SYSTEMS
INCORPORATED ("ImClone" or the "Company"), a company organized under the laws of
the State of Delaware.
WITNESSETH:
WHEREAS, ImClone is in the business of biopharmaceutical research and
development (the "Business"); and
WHEREAS, ImClone desires to employ Employee as its Chief Financial Officer and
Vice-President of Finance and Strategic Planning at ImClone.
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment. With effect from the Effective Date (as defined in Section
3.1), ImClone employs Employee and Employee accepts employment with ImClone upon
the terms and conditions set forth herein.
2. Duties.
2.1 ImClone hereby engages Employee to serve as Vice-President of Finance and
Strategic Planning and Chief Financial Officer of ImClone responsible for the
day to day financial reporting and control and strategic planning of ImClone
according to the general direction of the Company's Chief Executive Officer.
2.2 Employee shall devote his full business time and attention to the Business
of the Company and shall perform his duties diligently and promptly for the
benefit of ImClone. During his engagement hereunder, Employee shall not
undertake or accept any other paid or unpaid employment or occupation or engage
in or be associated with, directly or indirectly any other businesses, duties or
pursuits except for the de minimis non-commercial or non-business activities,
without prior written consent of the CEO of the Company.
<PAGE>
2.3 Employee shall report regularly to the CEO and Board of Directors of the
Company or as otherwise requested by the Board, in accordance with Company
policy.
3. Term.
3.1 Employee's employment under this Agreement shall commence on May 20, 1996
(the "Effective Date") and shall end on the earliest of: (i) the death or
disability (as defined herein) of Employee; (ii) termination of employment by
the Company with cause (as defined herein); (iii) termination of empoyment by
the Company without cause (as defined herein); (iv) the termination of
Employee's employment by Employee after providing ninety (90) days advance
notice or such lesser written notice as Employer shall at the time accept; or
(v) two (2) years from the Effective Date of this Agreement ("Initial Term").
Employee, or his heirs, executors, personal representatives or assigns, shall
not be entitled to any compensation after expiration of period of notice of
termination of employment, including with respect to bonus, other than as
specifically set forth in Section 8.1 herein. In the event the Employee's
employment under this Agreement continues until the expiration of the Initial
Term, the term may be extended by written agreement of the parties ("Extended
Term").
3.2 For the purpose of this Agreement, "disability" shall mean any physical or
mental illness or injury as a result of which (1) Employee remains absent from
work for a period of two successive months, or an aggregate of two months in any
twelve month period or, (2) the Employee is deemed unable to perform the
essential functions of his employment, with or without accomodation, as
documented by a physician in writing.
3.3 For the purpose of this Agreement, "cause" shall exist if Employee (i)
breaches the terms of this Agreement; (ii) engages in willful misconduct or acts
in bad faith with respect to ImClone in connection with and related to the
employment hereunder; (iii) is subjected to criminal indictment or the filing of
information for a felony or is held liable by a court of competent jurisdiction
for fraud against ImClone; or (iv) fails to comply with the instructions of the
Company's Board of Directors or CEO given in good faith; provided that, with
respect to clauses (i) and (iv), if Employee has cured any such condition (that
is reasonably susceptible to cure) within 10 business days of the advance notice
(as defined herein) then "cause" shall be deemed not to exist. For purposes of
this paragraph 3.3, "advance notice" shall constitute a written notice delivered
to Employee that sets forth with particularity the facts and circumstances
relied on by ImClone as the basis for cause.
3.4 During the period following notice of termination by any party for any
reason, the Employee shall, if and to the degree requested by ImClone, cooperate
with ImClone and use his
<PAGE>
best efforts to assist the integration into the ImClone organization of the
person or persons who will assume the Employee's responsibilities.
4. Compensation.
4.1 During the Employee's employment under this Agreement and subject to the
performance of the services required to be performed hereunder by Employee,
ImClone shall pay to Employee for all services rendered by Employee under this
Agreement an annual gross salary paid in accordance with ImClone's normal and
reasonable payroll practices of $175,000 exclusive of amounts payable by the
Company for the benefits set forth in paragraph 4.2 (the "Gross Salary").
4.2 The Employee shall be eligible to participate in ImClone's contributory
comprehensive health plan, including major medical, hospitalization, life,
disability and dental insurance currently offered by the Company through the
Guardian Life Insurance Company. Employee will also be eligible to participate
in the ImClone 401K Employee Savings Plan, to the degree allowable under the
Company's plan document and appropriate regulations.
4.3 At the end of his first year of employment, Employee will receive a bonus
in the amount of $75,000, and at the end of the second year of employment, and
any renewable term thereafter, Employee shall be entitled to receive a bonus, as
determined by the Board of Directors, based upon Company practices.
5. Expenses. Employee may incur reasonable expenses in connection with the
performance of his duties, including expense for entertainment, travel and
similar items. ImClone will reimburse Employee for all business expenses after
Employee presents an itemized account of expenditures, together with receipts,
vouchers and other supporting material, subject to ImClone's approval. Per diem
allowances and petty cash advances shall be in accordance with ImClone's
standard policy as agreed to by the CEO and/or the Board of Directors of the
Company from time to time.
6. Vacation. Employee shall be entitled to 20 working days of paid vacation
during each year that this Agreement is in effect, to be taken at times subject
to the reasonable approval of ImClone. Vacation time may not be accumulated and
Employee shall forfeit any unused vacation remaining at the end of each year.
7. Participation in Stock Option Plans. Employee shall receive options to
purchase 225,000 shares of the Company at an exercise price equal to the average
closing trading price of ImClone stock for the sixty days through April 24,
1996. Of these options, 50,000 shall be immediately exercisable, and the
remainder shall vest equally over a three year period from the Effective Date,
such that one-third shall vest on each of the first, second, and third
anniversaries of the Effective Date. In accordance with the terms of ImClone's
stock option plans, vested options which have not been exercised upon
termination of employment shall not be exercisable and shall revert to the
Company.
<PAGE>
8. Termination of Employment by Company without Cause
8.1 In the event this Agreement is terminated by the Company without cause
under Section 3.1 (iii) hereof during the Initial Term or any Extended Term, as
defined in Section 3.1 above, in addition to any right to notice described
herein, the Employee shall have the right to receive amounts equal to the Gross
Salary and to receive reimbursement for the purchase of benefits equal to those
set forth in Section 4.2 for the following periods, which shall be the sole
remedy available to the Employee as a result of such termination. Employee's
employment shall be deemed terminated upon the expiration of the notice period
given with respect to such termination.
(i) in the event termination is effective during 1996 - 2 months;
(ii) in the event termination is effective during 1997 - 10 months; and
(iii) in the event termination is effective after January 1, 1998 - 12 months.
8.2 Employee's rights pursuant to this section 8 shall apply only in the event
this Agreement is terminated by the Company without cause under Section 3.1
(iii). For purposes of this section, termination by the Company without cause
shall be deemed to include termination of this Agreement by the Employee due to:
(1) the disposing of all or substantially all of the Company's property,
business or assets; or (2) the consolidation with or merger of the Company into
another corporation, resulting in a shift in voting control of more than 75% of
the Company's shares.
9. Secrecy and Nondisclosure. The Employee shall treat as secret and
confidential all of the processes, methods, formulas, procedures, techniques,
software, designs, data, drawings and other information which are not of public
knowledge or record pertaining to ImClone's Business (existing, potential and
future), including without limitation, all business information relating to
customers and suppliers and products of which the Employee becomes aware during
and as a result of his employment or association with ImClone, and Employee
shall not disclose, use, publish, or in any other manner reveal, directly or
indirectly, at any time during or after the term of this Agreement, any such
processes, methods, formulas, procedures, techniques, software, designs, data,
drawings and other information pertaining to ImClone's existing or future
Business or products. The Employee may disclose or use such information, if at
all, only with the prior express written consent of ImClone. The Employee also
agrees to enter into ImClone's Discovery and Non-Disclosure Agreement, a copy of
which is attached hereto.
10. Non-Competition.
10.1 Employee agrees that during the term of this Agreement and any extensions
hereof and for a period of one (1) year after he ceases to be employed by
ImClone he will not, directly or indirectly, for his own account or as an
employee, officer, director, partner, joint venturer, shareholder, investor,
consultant or otherwise (except as an investor in a corporation whose stock is
publicly traded and in which Employee holds less than 5% of the outstanding
shares) interest himself in or engage in any business or enterprise, anywhere in
the world, that directly or indirectly competes with the Business of ImClone,
that exists now or in the future during the
<PAGE>
term of this Agreement or is proposed by ImClone prior to the time of
termination or is based on similar technology to that of ImClone.
10.2 Employee agrees that during a period of one year from termination of this
Agreement or any extension hereof he shall not employ directly or indirectly any
individual then employed by the Company.
10.3 Employee acknowledges that the restricted period of time and geographical
area specified under paragraph 10.1 hereof are reasonable, in view of the nature
of the business in which ImClone is engaged and Employee's knowledge of
ImClone's Business and products.
10.4 Notwithstanding anything contained in paragraph 10.3 to the contrary, if
the period of time or the geographical area specified under paragraph 10.1
hereof should be determined to be unreasonable in any judicial proceeding, then
the period of time and area of the restriction shall be reduced so that this
Agreement may be enforced in such area and during such period of time as shall
be determined to be reasonable by such judicial proceeding.
11. Development Rights. The Employee agrees and declares that all proprietary
information including but not limited to trade secrets and know-how, patents and
other rights in connection therewith developed by or with the contribution of
Employee's efforts during his employment by ImClone shall be the sole property
of ImClone and the Employee shall execute all documents necessary to assign any
patents to ImClone and otherwise transfer such proprietary rights to ImClone.
12. Employee Representations. The Employee represents and warrants to ImClone
that the execution and delivery of this Agreement and the fulfillment of the
terms hereof (i) will not constitute a default under or breach of any agreement
or other instrument to which he is a party or by which he is bound, including
without limitation, any confidentiality or noncompetition agreement, (ii) do not
require the consent of any person or entity, and (iii) shall not utilize during
the term of this employment any proprietary information of any third party,
including prior employers of the Employee.
13. Benefit. Except as otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon ImClone, its successors and
assigns, including, without limitation, any subsidiary or affiliated entity and
shall inure to the benefit of, and may not be amended, modified or supplemented
in any respect, except by a subsequent writing executed by both parties hereto.
14. Entire Agreement. This Agreement constitutes the entire understanding and
agreement between the parties hereto, supersedes any and all prior discussions,
agreements and correspondence with regard to the subject matter thereof, and may
not be amended, modified or supplemented in any respect, except by a subsequent
writing executed by both parties hereto.
15. Notices. All notices, requests and other communications to any party
hereunder shall be given or made in writing and telecopies, mailed (by
registered or certified mail) or delivered by
<PAGE>
hand to the respective party at the address set forth in the caption of this
Agreement or to such other address (or telecopies number) as such party may
hereafter specify for the purpose of notice to the other party hereto. Each such
notice, request or other communication shall be effective (i) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
herein and the appropriate answerback is received or (ii) if given in writing by
any other means, when delivered at the address specified herein.
16. Applicable Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York without giving
effect to principles of conflicts of law and the courts of New York, shall have
exclusive jurisdiction over the parties hereto and subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first appearing above.
IMCLONE SYSTEMS INCORPORATED EMPLOYEE
By: /s/Samuel D. Waksal /s/Carl Goldfischer
--------------------- ---------------------
President and Chief Executive Officer/title Dr. Carl Goldfischer
<PAGE>
ImClone Systems Incorporated
Discovery and Non-Disclosure Agreement
For value received, and for other good and valuable consideration including
my employment or other association with ImClone Systems Incorporated (the
"Company") and the compensation to be paid to me, I hereby covenant and agree
with the Company (which term shall include any parent, subsidiary or successor
to the Company) as follows:
1. Disclosure of Discoveries
I hereby agree that I shall promptly communicate in writing to the Company,
or to such individual as the Company may, from time to time, designate, a full
and complete disclosure of any and all research and other information,
inventions, discoveries and improvements ("Discoveries") made, developed and/or
conceived and/or reduced to practice by me alone or jointly with others, whether
or not patentable or copyrightable, (i) while in the employ of, or other
association with, the Company, whether during or outside of the usual hours of
work, and (ii) during a one (1) year period following the termination of my
employment or other association with the Company, and which are reasonably
related to the business of the Company during the term of my employment or other
association with the Company. All such Discoveries shall be and remain the sole
and exclusive property of the Company.
<PAGE>
2. Assignment of Discoveries
I hereby agree to, and hereby do, assign and transfer to the Company, or to
its nominee or designee, without any separate remuneration or compensation to me
other than the compensation received or assigned to me from time to time in the
course of my aforesaid employment or other association with the Company, all my
right, title and interest throughout the world in and to such Discoveries,
together with the right to file, and/or own wholly and without restriction,
applications for United States and foreign patents on all Discoveries, and to
do, execute and deliver any and all acts and instruments that may be necessary
and proper to vest in the Company all such Discoveries, patents, copyrights and
trademarks; and that I will render to the Company, or to its nominee or
designee, all such assistance as it may require in the prosecution of all such
patent, copyright and trademark applications, and applications for the reissue
of such patents, copyrights and trademarks. I agree that I shall also execute,
upon request, documents which secure to the Company the interests here conveyed.
I further agree that I shall assist, upon request, in locating writings and
other physical evidence of the making of my Discoveries, and provide unrecorded
information relating to such Discoveries, and give testimony in any proceeding
in which any of my Discoveries, or any application or patent, copyright or
trademark directed thereto, may be involved.
<PAGE>
3. Copyright; Publishing
I hereby agree that I shall promptly disclose to the company any and all
publishable an/or copyrightable material which I produce, compose or write,
individually or in collaboration with others, which arises out of work delegated
to me by the Company, and further agree that such materials shall be considered
works made for hire.
At the expense of the Company, and to the extent that such material may not
be considered works made for hire, I shall assign to the Company all my interest
in such copyrightable material, and will sign all papers and do all other acts
necessary to assist the Company in obtaining copyrights on such material in any
and all countries.
4. Trade Secrets; Confidential Information
I hereby agree that I will not, during my employment by, or other
association with, the Company, or afterwards, disclose to others or use for my
own benefit any trade secrets (as hereinafter defined) or other confidential
information acquired by me from the Company, its customers, suppliers,
consultants, affiliates, or third parties contracting with the Company, except
to the extent that the disclosure of such trade secrets and other confidential
information is necessary to perform my duties and fulfill my responsibilities as
an employee or other associate of the company. A trade secret is information,
not generally known to the trade, which gives the Company an advantage over its
competitors. Trade secrets can include, by way of example, research being
planned and developed, research methods and processes, sources of supply,
materials used in research,
<PAGE>
marketing plans, and information concerning the filing or pendency of patent
applications.
Such obligation of confidentiality shall be waived as to information which
(i) is in the public domain, (ii) comes into the public domain through no fault
of my own, (iii) was known to me prior to its disclosure under this Agreement,
or (iv) is disclosed to me by a third party having lawful right to make such
disclosure.
5. Company Information
I hereby agree that I will not, without first obtaining the written
approval of the Company, or of such individual as the Company may, from time to
time, designate, divulge or disclose to anyone outside of the Company, whether
by private communication or by public address, publication or otherwise, any
information not already lawfully available to the public concerning the
Company's business and/or products, including, but not limited to, all
information about (a) the Company's production, profitability, business and
legal plans, finances, internal affairs, competitive position, customers and
vendors; (b) its formulae, processes, methods, reports, machines, or inventions;
and (c) any such information relating to the business of any corporation, firm
or person for whom the Company is conducting, or shall conduct, research
services, or is providing, or shall provide, other services, whether supplied by
the Company or such corporation, firm or person, or whether made, developed
and/or conceived by me or by others in the employ or other association with the
Company.
<PAGE>
6. Non-Compete
I hereby agree that I will not, during my period of employment or other
association with the Company, compete with the company or design, manufacture or
sell items which relate to products or business planned or under development by
the Company; and I further agree that I will not, during the period of my
employment or other association with the Company, directly or indirectly enter
the employment of, or render any business or technical services (except as
requested by the Company) to, any individual, partnership, association or
corporation who or which is a competitor of the Company, or who or which is
developing, making or selling products which relate to any research or
development project of the Company.
7. Company Property; Termination Certificate
Upon the termination of my employment or other association with the
Company, I hereby agree to turn over to the Company all models, prototypes,
notes, memoranda, notebooks, drawings, specifications, records, customer lists,
proposals, business plans, and other documents in my possession or under my
control, relating to any work done for, or otherwise belonging to, the Company,
it being acknowledged and agreed to by me that all such items are the sole
property of the Company, and I hereby agree to sign the following "Termination
Certificate" upon such termination of my employment or other association with
the Company:
"This is to certify that I do not have in my possession or custody, nor
have I failed to return, any models, prototypes, notes, memoranda, notebooks,
drawings,
<PAGE>
specifications, records, customer lists, proposals business plans, or copies of
any of these, and other documents and/or materials, tools, equipment programs,
databases or other property belonging to the Company.
8. Governing Law
The substantive laws of the State of New York which apply to contracts
executed and to be performed in New York shall govern this Agreement.
9. General Provisions
(a) The scope and effect of the covenants in this Agreement shall be as
broad in time, geography and in all other respects as is permitted by applicable
law, and should a court or other body of competent jurisdiction determine that
any term or provision of this Agreement is excessive in scope, invalid or
otherwise unenforceable, such term or provision shall be adjusted rather than
voided, if possible, and all other terms and provisions of this Agreement shall
be deemed valid and enforceable to the fullest extent possible.
(b) I further agree that this Agreement shall be binding upon me
irrespective of the duration of my employment or other association with the
Company, the reasons for the cessation of my employment or other association
with the Company, or the amount of my compensation and/or salary.
(c) This instrument is the whole agreement, and no modification or
variation shall be deemed valid unless in writing signed by the Company.
<PAGE>
(d) This Agreement shall be binding upon my heirs, executors, successors,
administrators, and legal representative, and shall inure to the benefit of the
successors and assigns or the Company.
(e) I represent and warrant to the Company that I am not under any
obligations to any person, firm or corporation, and have no other interest which
is inconsistent or in conflict with this Agreement, or which would prevent,
limit or impair in any way the performance by me of the covenants hereunder or
my duties in my said employment or other association with the Company.
IN WITNESS WHEREOF, I have hereunto set my hand this 12 day of March, 1997,
at New York, New York.
WITNESS: Carl Goldfischer
--------------------------
Print Name
/s/Judith Hansen /s/Carl Goldfischer
- ---------------------- --------------------------
Signature
Exhibit 10.74
Hambrecht & Quist LLC
February 26, 1996
Confidential
The Board of Directors
ImClone Systems Incorporated
180 Varick Street
New York, NY 10014
Gentlemen:
Hambrecht & Quist LLC ("Hambrecht & Quist") would be pleased to act as financial
advisor to ImClone Systems Incorporated ("ImClone " or the "Company") in
connection with ongoing financial strategies and tactics, included, but not
limited to financings. Pursuant to this engagement, Hambrecht & Quist will:
(i) review with members of management the Company's financial and
strategic plans; and
(ii) advise the Company with respect to financings.
As compensation for Hambrecht & Quist's services, the Company agrees to pay
Hambrecht & Quist a fee of $ 310,000.
The Company agrees that Hambrecht & Quist is entitled to rely upon all reports
and public filings of the Company (and its affiliates) and information supplied
to it by or on behalf of the Company (whether written or oral), and Hambrecht &
Quist shall not in any respect be responsible for the accuracy or completeness
of any such report, public filing or information or have an obligation to verify
the same.
Hambrecht & Quist hereby agrees that it will not disclose confidential
information received from the Company (or its affiliates) to others (other than
our employees, agents, accountants, attorneys, and other advisors) except as
contemplated by this engagement or as such disclosure may be required by law. At
the conclusion of our engagement hereunder, we will return to you all copies of
any documentary confidential information that you have duly marked
"confidential" and that are at the time in our possession. For purposes of this
agreement, "confidential information" shall mean information provided by you to
us that is not otherwise available to us from sources outside of the Company (or
its affiliates), and any such information shall cease to be confidential
information when it becomes generally available, or comes to our attention,
through other sources that do not, to our awareness at the time, involve a
violation of this or any similar agreement.
The Company agrees to indemnify Hambrecht & Quist in accordance with the
Standard Form of Indemnification Agreement, set forth as Exhibit A hereto.
<PAGE>
This agreement shall have a term of one year from the date hereof, except for
the indemnification provisions above, which will continue in full force and
effect in accordance with their terms.
Any advice, written or oral, rendered by Hambrecht & Quist pursuant to this
letter may not be disclosed publicly without its prior written consent except as
required by law or regulation or in response to any information request of the
Securities and Exchange Commission. The Company agrees that Hambrecht & Quist
has the right to place advertisements in financial and other newspapers and
journals at its own expense describing its services to the Company hereunder.
This agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
This agreement shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to the State's conflict of laws
principles.
If the foregoing correctly sets forth the understanding between us, please so
indicate on the enclosed copies of this letter and return two original copies to
us for our files.
Very truly yours,
HAMBRECHT & QUIST LLC
By: /s/Dennis J. Purcell
------------------------
Agreed to and accepted:
IMCLONE SYSTEMS INCORPORATED
By: /s/Samuel D. Waksal
--------------------------
Title: President and Chief Executive Officer
Date: March 7, 1997
<PAGE>
Exhibit A
HAMBRECHT & QUIST LLC
Standard Form of Indemnification Agreement
In connection with the services which Hambrecht & Quist has agreed to render to
the Company hereunder, the Company shall (A) indemnify Hambrecht & Quist and
hold it harmless to the fullest extent permitted by law against any losses,
claims, damages or liabilities to which Hambrecht & Quist may become subject in
connection with (i) its use of information that is inaccurate in any respect (as
a result of misrepresentation, omission, failure to update, or otherwise) that
is provided to Hambrecht & Quist by the Company, its representatives, agents or
advisers, regardless of whether Hambrecht & Quist should have known of such
inaccuracy, or (ii) any other aspect of its rendering such services, unless and
to the extent it is finally judicially determined that such losses, claims,
damages or liabilities relating thereto arise out of the gross negligence or
willful misconduct of Hambrecht & Quist, and (B) reimburse Hambrecht & Quist for
any legal or other expenses reasonably incurred by it in connection with
investigating, preparing to defend or defending any lawsuits, claims or other
proceedings arising in any manner out of or in connection with its performance
of its duties hereunder. If for any reason the foregoing indemnity is
unavailable to Hambrecht & Quist or insufficient to hold Hambrecht & Quist
harmless, then the Company shall contribute to the amount paid or payable by
Hambrecht & Quist as a result of such claims, liabilities, losses, damages or
expenses in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and Hambrecht & Quist on the
other but also the relative fault of the Company and Hambrecht & Quist, as well
as any relevant equitable considerations. Notwithstanding the provisions of this
agreement, the aggregate contribution of Hambrecht & Quist to all claims,
liabilities, losses, damages and expenses shall not exceed the amount of fees
actually received by Hambrecht & Quist pursuant to its engagement by the
Company. It is hereby further agreed that the relative benefits to the Company
on the one hand and Hambrecht & Quist on the other hand with respect to the
transactions contemplated in this engagement letter shall be deemed to be in the
same proportion as (i) the total value of the transaction bears to (ii) the fees
paid to Hambrecht & Quist with respect to such transactions. The Company agrees
that the indemnification and reimbursement commitments set forth in this
agreement shall apply whether or not Hambrecht & Quist is a formal party to any
such lawsuits or other proceedings, that Hambrecht & Quist is entitled to retain
separate counsel of its choice in connection with any of the matters to which
such commitments relate, that such commitments shall be in addition to any
liability that the Company may have to Hambrecht & Quist at common law or
otherwise, and that such commitments shall extend upon the terms set forth in
this agreement to any controlling person, director, officer, employee, agent or
affiliate of Hambrecht & Quist and shall survive any termination of this
agreement. Hambrecht & Quist will not, without the prior written consent of the
Company, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder, unless such settlement, compromise or
consent includes an unconditional release of the Company from all liability
arising out of such claim, action, suit or proceeding.
Exhibit 10.75
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, dated as of April 15, 1996 (this "Agreement"), among
the parties listed as Lenders on the signature page hereof (collectively, the
"Lenders") and ImClone Systems Incorporated, a Delaware corporation (the
"Company"). All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided such terms in the Loan Documents
referred to below.
W I T N E S S E T H:
WHEREAS, the Lenders and the Company are parties to (i) the Loan Agreement,
dated as of August 10, 1995 (the "Loan Agreement"), (ii) the Security Agreement,
dated as of August 10, 1995 in favor of the Lenders and (iii) the Mortgage and
Assignment of Leases, Rentals and Profits Fixture Filing and Security Agreement,
dated August 10, 1995 (the "Mortgage"), made by the Company for the benefit of
Oracle Partners, L.P. ("Oracle"), as agent for the Lenders (the agreements set
forth in clauses (i) through (iii) above are herein collectively referred to as
the "Loan Documents"); and
WHEREAS, the Company and the Lenders desire to exchange certain of the Term
Notes issued pursuant to the Loan Agreement (the "Term Notes") for shares of the
Company's Common Stock, $.001 par value (the "Common Stock"), upon the terms and
subject to the conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Exchange of Term Notes for Common Stock. Upon the terms and subject to
the conditions of this Agreement, each Lender agrees to surrender to the Company
at the Closing (as herein defined) such Lender's Term Note in exchange for (a)
payment of the accrued and unpaid interest on such Term Note and (b) the
issuance by the Company to such Lender of the number of shares of Common Stock
as provided herein. In exchange for the delivery and surrender by each Lender to
the Company of such Lender's Term Note, the Company hereby agrees (a) to pay the
accrued and unpaid interest on such Lender's Term Note to but not including the
Closing Date (as herein defined) as shall be determined in accordance with
Section 1.3 of the Loan Agreement (the "Interest Payment Amount") as set forth
on Schedule 1 hereto and (b) to issue and deliver to such Lender the number of
shares of Common Stock set forth opposite the name of such Lender on Schedule 1
hereto (collectively, the "Shares"), such number in each case being equal to the
quotient obtained by dividing the unpaid principal amount of such Lender's Term
Note by $7.50 (rounded to the nearest whole share).
-10-
<PAGE>
2. Closing; Closing Date. (a) The exchange of Term Notes for Shares and
payment of accrued and unpaid interest on the Term Notes will occur at a closing
(the "Closing") to be held on the date of execution and delivery of a
counterpart of this Agreement by the parties hereto, or such other date as shall
be agreed by Oracle and the Company (the "Closing Date").
(b) Promptly after the date the Registration Statement required to be filed
by the Company with the Securities and Exchange Commission (the "SEC") pursuant
to Section 6(a) of this Agreement (the "Registration Statement") is declared
effective by the SEC (the "SEC Effective Date"), the Company shall so notify
Oracle.
(c) If the SEC Effective Date has not occurred on or before the 120th day
after the Closing Date, the Company shall so notify Oracle. If the SEC Effective
Date has not occurred on or before the 135th day after the Closing Date, the
Company hereby agrees to issue and deliver to each Lender within ten business
days thereafter such number of additional shares (collectively, the "Additional
Shares") of Common Stock shown on Schedule I attached hereto; provided, however,
that the Lender shall have the right, exercisable by notice to the Company given
within five business days after the 135th day after the Closing Date, to receive
in lieu of the issuance and delivery of Additional Shares to such Lender and
upon return by such Lender of such Lender's Shares to the Company, payment in
cash in immediately available funds to such Lender not later than the date which
is ten business days after the 135th day after the Closing Date, an amount (the
"Repayment Amount") equal to the sum of (1) the aggregate principal amount of
the Term Note of such Lender as shown on Schedule 1 hereto plus (2) an amount
equal to the accrued and unpaid interest on the Term Note of such Lender from
and including the Closing Date to but excluding the date of payment to such
Lender of the Repayment Amount (the "Repayment Date"). Payment of the Repayment
Amount shall be made against delivery by such Lender to the Company of the
Shares issued to such Lender duly endorsed in blank, with duly executed stock
powers attached and customary signature guaranties. The parties hereto hereby
expressly agree that the Company's obligation under Section 6(a) to use its best
efforts to obtain effectiveness of the Registration Statement shall continue so
long as the Repayment Amount has not been paid or the Registration Statement has
been declared effective.
3. Representations, Warranties, Etc. of the Company.
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated thereby
(including, but not limited to, the sale, issuance and delivery of the Shares)
have been duly authorized by the Company and no additional corporate action by
the Company is required for the approval of this Agreement. When the Shares are
delivered to the Lenders at the Closing and paid for in accordance with the
terms of this Agreement, the Shares will be duly issued, fully paid and
nonassessable. This Agreement constitutes valid and binding agreements and
obligations of the Company enforceable against it in accordance with their
respective terms, except that such enforceability may be limited by (a)
applicable bankruptcy, insolvency,
-11-
<PAGE>
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general equitable principles (including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing), regardless of whether enforcement is sought in a proceeding in equity
or at law.
(b) The authorized capital stock of the Company consists of (i) 30,000,000
shares of Common Stock, par value $.001 per share, of which 19,130,657 shares
are issued and outstanding on the date hereof and (ii) 4,000,000 shares of
preferred stock, par value $1.00, of which no shares are issued and outstanding.
No other shares of capital stock have been authorized or issued. All shares of
the Company's outstanding capital stock have been duly authorized, are validly
issued and outstanding, and are fully paid and nonassessable.
(c) The execution, delivery and performance by the Company of this
Agreement, and the consummation by the Company of the transactions contemplated
hereby do not and will not (a) contravene or conflict with the Certificate of
Incorporation and Bylaws of the Company; (b) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company; (c)
constitute a default under or give rise to a right of termination, cancellation
or acceleration or loss of any benefit under any material agreement, contract or
other instrument binding upon the Company or under any material license,
franchise, permit or other similar authorization held by the Company; or (d)
result in the creation or imposition of any Lien (as defined below) on any
material asset of the Company, except as provided in this Agreement. For
purposes of this Agreement, the term "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
(d) The Company has heretofore made available to the Lenders true and
complete copies of all reports, registration statements, definitive proxy
statements and other documents (in each case together with all amendments and
supplements thereto) filed by the Company with the SEC since January 1, 1995
(such reports, registration statements, definitive proxy statements and other
documents, together with any amendments and supplements thereto, being sometimes
collectively referred to in this Agreement as the "Company SEC Filings"). A list
of all such Company SEC Filings is set forth on Schedule 3(d) hereto. The
Company SEC Filings constitute all of the documents (other than preliminary
materials) that the Company was required to file with the SEC since such date.
As of their respective dates, each of the Company SEC Filings complied in all
material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended, and the rules and regulations under each such Act, and none of
the Company SEC Filings contained as of the respective dates of filing with the
SEC any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. When
filed with the SEC, the financial statements included in the Company SEC Filings
complied as to form in all material respects with the applicable rules and
regulations of the SEC and were prepared in accordance with generally accepted
accounting
-12-
<PAGE>
principles (as in effect from time to time) applied on a consistent basis
(except as may be indicated therein or in the notes or schedules thereto), and
such financial statements fairly present in accordance with generally accepted
accounting principles in all material respects the financial position of the
Company as at the dates thereof and the results of its operations and its cash
flows for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit adjustments and the
absence of footnotes. Since January 1, 1995, except as disclosed in the Company
SEC Filings filed with the SEC prior to the date hereof or in Schedule 3(d)
hereto, the Company has not incurred any liability or obligation of any kind,
outside of the ordinary course of business which, in any case or in the
aggregate, is material to the business, assets, results of operations or
financial condition of the Company.
(e) Except as set forth on Schedule 3(e), there are no outstanding (a)
securities or instruments convertible into or exercisable for any of the capital
stock or other equity interests of the Company; (b) options, warrants,
subscriptions or other rights to acquire capital stock or other equity interests
of the Company; or (c) commitments, agreements or understandings of any kind,
including employee benefit arrangements, relating to the issuance or repurchase
by the Company of any capital stock or other equity interests of the Company,
any such securities or instruments convertible or exercisable for securities or
any such options, warrants or rights.
(f) To the best knowledge of the Company, no representation or warranty
made by the Company in this Agreement, nor in any document, written information,
financial statement, certificate, schedule or exhibit prepared and furnished or
to be prepared and furnished by the Company or the representatives of the
Company pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished. Except as disclosed in the Company SEC Filings,
there is no event, fact or conditions (other than general business or economic
conditions which affect businesses generally) that materially and adversely
affects the business of Company, or that reasonably could be expected to do so,
that has not been set forth in this Agreement or in the Schedules attached
hereto.
4. Each Lender severally and not jointly represents, warrants, covenants
and agrees with the Company as follows:
(a) Such Lender understands that the Shares to be issued to such
Lender have not been registered under the Securities Act or applicable state
securities or "blue sky" laws and may not be sold or otherwise transferred by
such Lender unless (A) the Shares are subsequently registered thereunder or (B)
such Lender shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company.
-13-
<PAGE>
(b) The certificates for the Shares to be issued to such Lender may
bear the following restrictive legend and the Company may place a stop-transfer
restriction against such Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, ASSIGNED OR
TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT, IN THE CIRCUMSTANCES REQUIRED, OR EVIDENCE
SATISFACTORY TO THE COMPANY THAT THE SHARES HAVE BEEN SOLD IN
COMPLIANCE WITH RULE 144 FORMULATED UNDER SAID ACT."
After the Shares have been registered under the Securities Act, the Shares may
bear a legend stating that the Shares are subject to a prospectus delivery
requirement under the Securities Act.
(c) Upon the Closing of the exchange of such Lender's Term Note, such
Lender hereby releases all of its or his interest in all Collateral, and hereby
assigns, transfers and shall deliver to the Borrower such of the Collateral, if
any, as is held by such Lender on the Closing Date.
5. Closing Conditions.
(a) Closing Conditions of the Lenders. The obligations of the Lenders to
complete the exchange of Term Notes for Shares and the Interest Payment Amount
at the Closing are conditioned upon the satisfaction of the following conditions
on or prior to the Closing Date, unless such conditions shall have been waived
by Oracle, for the benefit of the Lenders:
(i) Nasdaq Listing. The Shares shall be listed for trading on the
Nasdaq National Market.
(ii) Opinions. Oracle, for the benefit of the Lenders, shall have
received opinions of outside counsel and the General Counsel of the Company
substantially in the forms attached hereto as Exhibit A and Exhibit B.
(iii) Secretary's Certificate. Oracle, for the benefit of the Lenders,
shall have received a certificate of the Secretary of the Company (in form and
substance satisfactory to Oracle) certifying (i) that attached thereto are true
and complete copies of the resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement and any
other documents, instruments and certificates required to be executed by it in
connection herewith and approving the consummation of the transactions in the
manner contemplated hereby including, but not limited to, the authorization and
issuance of the Shares, and (ii) the names and true signatures of the
-14-
<PAGE>
officers of the Company signing this Agreement and all other documents to be
delivered in connection with this Agreement.
(iv) Performance; Representation and Warranties. The Company shall
have performed and complied in all material respects with all agreements and
conditions contained in this Agreement which are required to be performed or
complied with by the Company prior to or at the Closing. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects.
(v) Good Standings. Oracle, for the benefit of the Lenders, shall have
received certificates of good standing with respect to the Company, each issued
as of a recent date by the Secretaries of State of Delaware, New Jersey and New
York.
(b) Closing Conditions of the Company. The obligation of the Company to
complete the issuance of the Shares and delivery of the Interest Payment Amount
in exchange for the Term Notes at the Closing is conditioned upon the
satisfaction of the following conditions on or prior to the Closing Date, unless
such conditions shall have been waived by the Company:
(i) Forms UCC-3. The Company shall have received proper termination
statements (Form UCC-3 or the appropriate equivalent) for filing under the UCC
of each jurisdiction where a financing statement (Form UCC-1 or the appropriate
equivalent) was filed for the benefit of the Lenders in connection with the
security interest created pursuant to the Loan Documents in form and substance
reasonably satisfactory to the Company.
(ii) Mortgage Termination. The Company shall have received a release
and termination of the Mortgage in form and substance reasonably satisfactory to
the Company.
(iii) Performance; Representation and Warranties. The Lenders shall
have performed and complied in all material respects with all agreements and
conditions contained in this Agreement which are required to be performed or
complied with by the Lenders prior to or at the Closing. The representations and
warranties of the Lenders contained herein shall be true and correct in all
material respects.
6. Certain Covenants.
(a) Registration Rights. As soon as practicable, after the Closing, but in
no event later than thirty (30) days from the Closing Date the Company shall
file a registration statement with the SEC under the Securities Act to register
the Shares and, if applicable, the Additional Shares. The Company shall use its
best efforts to obtain effectiveness of the Registration Statement pursuant to
the Securities Act ("Registration") as promptly as practicable after the Closing
Date. In addition, the Company shall list, simultaneously with the Closing, the
Shares on the Nasdaq National Market. The Company shall
-15-
<PAGE>
maintain the Registration Statement for so long as the Lenders own any of the
Shares, but in no event longer than three (3) years after the effective date of
the Registration Statement relating to the Registration.
(b) Terms and Conditions of Registration. In connection with the
Registration Statement, the following provisions shall apply:
(i) The Lenders will promptly provide the Company with such
information as the Company shall reasonably request in order to prepare the
Registration Statement.
(ii) Subject to Section 8, all expenses in connection with the
preparation of the Registration Statement, including, without limitation, all
registration, listing and qualifications fees and the reasonable fees of legal
counsel for the Company, shall be borne solely by the Lenders.
(iii) Following the effective date of the Registration Statement, the
Company shall, upon the request of Oracle forthwith supply such number of
prospectuses (including preliminary prospectuses and amendments and supplements
thereto) meeting the requirements of the Securities Act and such other documents
as are incorporated by reference in the prospectus as shall be reasonably
requested by Oracle, for the benefit of the Lenders.
(iv) The Company shall prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the
Securities Act pursuant to which the registration statement has been filed with
respect to the offer and sale or other disposition of the Shares covered by the
Registration Statement.
(v) The Company shall register Shares covered by the Registration
under such securities or Blue Sky laws in such jurisdictions as the Lenders may
reasonably request, except that neither the Company nor the Lenders shall for
any such purpose be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any jurisdiction where
it is not so qualified.
(vi) The Lenders shall cooperate fully with the Company and provide
the Company with all information reasonably requested by the Company for
inclusion in the Registration Statement or as necessary to comply with the
Securities Act and the securities or blue sky laws of the jurisdictions referred
to in Section 6(b)(v).
(vii) The Company shall notify Oracle, for the benefit of the Lenders,
of the happening of any event as a result of which the Prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of
material fact or
-16-
<PAGE>
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which such statements are made.
(viii) The Company shall furnish, at the request and expense of the
Lenders, an opinion of counsel of the Company, dated the effective date of the
Registration Statement, as to the due authorization and issuance of the Shares
and compliance with federal securities laws by the Company in connection with
the authorization and issuance of the Shares and any such other matters required
by the SEC.
(c) Indemnification. (i) In the event of the registration of any Shares
under the Securities Act pursuant to the provisions of Section 6(a) above, the
Company agrees to indemnify and hold harmless the Lenders from and against any
and all losses, claims, damages or liabilities (or actions in respect thereof),
to which the Lenders may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus relating to such shares, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation under the Securities Act applicable to the
Company or relating to any action or inaction required by the Company in
connection with any such registration and will reimburse the Lenders for any
legal or other expenses reasonably incurred by the Lenders in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made (i) in such registration statement, such preliminary prospectus,
such final prospectus or such amendment or supplement thereto in reliance upon
and in conformity with written information furnished to the Company by the
Lenders specifically and expressly for use in the preparation thereof or (ii) in
a preliminary prospectus and corrected in the prospectus, as then amended or
supplemented.
(ii) In the event of the registration of any Shares of the Lenders under
the Securities Act for sale pursuant to the provisions of this Agreement, the
Lenders agree to indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities, to which the Company may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus or final prospectus relating to such
shares, or any amendment or supplement thereto, or arise out of or are based
upon omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
which untrue statement or alleged untrue statement or omission or alleged
omission was made therein in reliance upon and in conformity with written
information furnished to the Company by the Lenders.
-17-
<PAGE>
(iii) A party or parties hereto agreeing to be responsible for or to
indemnify against any matter pursuant to this Agreement is referred to herein as
the "Indemnifying Party" and the other party or parties claiming indemnity is
referred to as the "Indemnified Party."
An Indemnified Party under this Agreement shall, with respect to claims
asserted against such party by any third party, give written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within sixty (60) business days of the receipt of
any written claim from any such third party, but not later than twenty (20) days
prior to the date any answer or responsive pleading is due, and with respect to
other matters for which the Indemnified Party may seek indemnification, give
prompt written notice to the Indemnifying Party of any liability which might
give rise to a claim for indemnity; provided, however, that any failure to give
such notice will not waive any rights of the Indemnified Party except to the
extent the rights of the Indemnifying Party are materially prejudiced.
The Indemnifying Party shall have the right, at its election, to take over
the defense or settlement of such claim by giving written notice to the
Indemnified Party at least fifteen (15) days prior to the time when an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such claim
through counsel of its choosing (subject to the Indemnified Party's approval of
such counsel, which approval shall not be unreasonably withheld), shall be
solely responsible for the expenses of such defense and shall be bound by the
results of its defense or settlement of the claim. The Indemnifying Party shall
not settle any such claim without prior notice to and consultation with the
Indemnified Party, and no such settlement involving any equitable relief or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not be
unreasonably withheld). So long as the Indemnifying Party is diligently
contesting any such claim in good faith, the Indemnified Party may pay or settle
such claim only at its own expense and the Indemnifying Party will not be
responsible for the fees of separate legal counsel to the Indemnified Party,
unless the named parties to any proceeding include both parties and
representation of both parties by the same counsel would be inappropriate. If
the Indemnifying Party does not make such election, or having made such election
does not, in the reasonable opinion of the Indemnified Party proceed diligently
to defend such claim, then the Indemnified Party may (after written notice to
the Indemnifying Party), at the expense of the Indemnifying Party, elect to take
over the defense of and proceed to handle such claim in its discretion and the
Indemnifying Party shall be bound by any defense or settlement that the
Indemnified Party may make in good faith with respect to such claim. In
connection therewith, the Indemnifying Party will fully cooperate with
Indemnified Party should the Indemnified Party elect to take over the defense of
any such claim.
The parties agree to cooperate in defending such third party claims and the
Indemnified Party shall provide such cooperation and such access to its books,
records and properties as the Indemnifying Party shall reasonably request with
respect to any matter for
-18-
<PAGE>
which indemnification is sought hereunder; and the parties hereto agree to
cooperate with each other in order to ensure the proper and adequate defense
thereof.
With regard to claims of third parties for which indemnification is payable
hereunder, such indemnification shall be paid by the Indemnifying Party upon the
earlier to occur of: (i) the entry of a judgment against the Indemnified Party
and the expiration of any applicable appeal period, or if earlier, five (5) days
prior to the date that the judgment creditor has the right to execute the
judgment; (ii) the entry of an unappealable judgment or final appellate decision
against the Indemnified Party; or (iii) a settlement of the claim.
Notwithstanding the foregoing, provided that there is no dispute as to the
applicability of indemnification, the reasonable expenses of counsel to the
Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party if such expenses are a liability of the Indemnifying Party. With regard to
other claims for which indemnification is payable hereunder, such
indemnification shall be paid promptly by the Indemnifying Party upon demand by
the Indemnified Party.
7. Release of Collateral; Further Assurances. The Lenders agree (x) on or
prior to the Closing Date to do such things and execute such further documents
as are necessary to effect the release of all Collateral, including the
execution of UCC termination statements and termination of the Mortgage, from
the security interests, mortgages and other liens and encumbrances of the Loan
Documents, and (y) after the Closing Date to deliver such further documents and
do such further acts as the Company may reasonably request for the purpose of
further evidencing, confirming, recording, registering or otherwise documenting
the transactions contemplated by this Agreement and the releases set forth in
Section 4(c) hereof.
8. Certain Fees and Expenses. The Lenders shall be responsible for the
payment of the Company's reasonable legal fees and expenses relating to the
transactions contemplated by this Agreement (including without limitation in
connection with the Registration) up to an amount of $30,000. The portion of
legal fees accrued to the Closing Date will be payable to the Company by the
Lenders at the Closing.
9. Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States certified mail, postage prepaid
(and shall be deemed to have been received three (3) days after deposit into the
United States mail), or sent by prepaid overnight courier, facsimile or
confirmed telecopier, addressed as follows:
If to the Lenders:
Oracle Partners, L.P.
712 Fifth Avenue
45th Floor
New York, New York 10019
Attention: Larry Feinberg
Fax No.: (212) 459-0863
-19-
<PAGE>
With a copy in each case to:
Kane Kessler, P.C.
1350 Avenue of the Americas
26th Floor
New York, New York 10019
Attention: Robert L. Lawrence, Esq.
Fax No.: (212) 245-3009
If to the Company:
ImClone Systems Incorporated
180 Varick Street, 7th Floor
New York, New York 10014
Fax No.: (212) 645-2054
Attention: John B. Landes, Esq.
With a copy in each case to:
Brian W. Pusch, Esq.
29 West 57th Street
Penthouse Suite
New York, New York 10019
Fax No.: (212) 980-7055
Unless otherwise stated above, such communications shall be effective when they
are received by the addressee thereof in conformity with this Section. Any party
may change its address for such communications by giving notice thereof to the
other parties in conformity with this Section.
10. Indemnity under Loan Agreement. The indemnity set forth in Section 11.3
of the Loan Agreement shall not be affected by the provisions of this Agreement.
11. Miscellaneous. (a) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts will be lodged with Oracle and the Company.
-20-
<PAGE>
(b) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
New York.
(c) The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(e) This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement.
(f) This Agreement constitutes the entire understanding and agreement of
the parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings.
(g) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and permitted assigns,
any rights or remedies under or by reason of this Agreement.
-21-
<PAGE>
IN WITNESS WHEREOF, the Company and the Lenders have caused this Agreement
to be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written. BORROWER:
IMCLONE SYSTEMS INCORPORATED
By: /s/John B. Landes
------------------------
Name: John B. Landes
Title: Vice President, Business
Development and General Counsel
LENDERS:
ORACLE PARTNERS, L.P.
By: /s/Larry M. Feinberg
--------------------------
Name:
Title
QUASAR INTERNATIONAL
PARTNERS, C.V.
By: /s/Larry M. Feinberg
--------------------------
Name:
Title
ORACLE INSTITUTIONAL
PARTNERS, L.P.
By: /s/Larry M. Feinberg
--------------------------
Name:
Title
SAM ORACLE FUND, INC.
-22-
<PAGE>
By: /s/Larry M. Feinberg
--------------------------
Name:
Title
By:/s/Warren B. Kanders
--------------------------
WARREN B. KANDERS
By: Oracle Partners, L.P.,
Authorized Agent
By: /s/Larry M. Feinberg
--------------------------
Name:
Title
-23-
Exhibit 23.1
The Board of Directors
ImClone Systems Incorporated:
We consent to the incorporation by reference in the registration statements
(Nos. 33-95860, 333-07339, 333-21417 and 333-22341 on Form S-3 and Nos.
333-10275 and 33-95894 on Form S-8) of ImClone Systems Incorporated of our
report dated February 18, 1997, relating to the balance sheets of ImClone
Systems Incorporated as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the Annual Report on Form 10-K of ImClone Systems Incorporated.
Our report refers to the adoption of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, in 1996.
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG PEAT MARWICK LLP
New York, New York
March 27, 1997
