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, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
180 Varick Street,
New York, NY 10014
(Address of principal executive offices) (Zip Code)
(212) 645-1405
(Regristrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001
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. [X]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of March 27, 1998 was $178,172,328.
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, 1998
----------------------------- ---------------------------------
Common Stock, par value $.001 24,327,685
Documents Incorporated by Reference: The registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held on May 27,
1998 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.
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IMCLONE SYSTEMS INCORPORATED
1997 Form 10-K Annual Report
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 21
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Cautionary Factors With Respect to Forward-Looking Statements
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 pre-clinical 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;
achieving milestones under collaborative arrangements with corporate partners;
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," all
as are further discussed herein.
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PART I
Item 1. Business.
GENERAL
ImClone Systems Incorporated (the "Company" or "ImClone") is a
biopharmaceutical company engaged primarily in the research and development of
therapeutic products for the treatment of cancer and cancer-related disorders.
The Company's product candidates include interventional therapeutics for cancer
and cancer vaccines. The Company was incorporated in Delaware in 1984.
The Company's principal executive offices and laboratories are located at
180 Varick Street, New York, New York 10014 and the telephone number is (212)
645-1405.
DEVELOPMENT PROGRAMS
C225 Cancer Therapeutic. The Company's lead interventional therapeutic for
cancer is a chimerized (part mouse, part human) antibody that acts to block the
Epidermal Growth Factor receptor ("EGFr"). EGFr has been shown to be
over-expressed in the cells of approximately one-third of all solid cancers. It
is also expressed in select normal tissue. 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
elimination of human tumors established in these animals. The studies have
demonstrated long-term tumor-free survival of animals. The Company's research
has also shown that C225 used alone has efficacy in renal cell carcinoma animal
models.
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,
among others. These studies have involved intravenous administration of
escalating doses of C225, both with and without chemotherapeutic agents, in
patients with various solid cancers. Several of these studies are ongoing. These
studies have shown that the drug is generally well-tolerated. In 1997, the
Company initiated Phase Ib/IIa studies in head and neck cancer patients using
C225 alone (begun in July 1997), in conjunction with cisplatin (begun in April
1997) and in conjunction with radiation (begun in April 1997). Additionally, in
December 1997, the Company initiated a multi-center, open label Phase II
clinical trial to evaluate the effect of C225 on time to progression of disease
in 53 patients with metastatic renal cell carcinoma. ImClone expects to initiate
Phase II/III studies to evaluate the potential of C225 in various additional
tumor types, such as head and neck and pancreatic cancers.
BEC2 Cancer Vaccine. BEC2 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. BEC2 has shown 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 BEC2 worldwide, except that in North America, Merck
does not have the right to manufacture BEC2 and the Company has retained the
right to co-promote BEC2. It is the intent of the parties that ImClone will be
the bulk product manufacturer to support worldwide sales. In return, Merck is
paying ImClone research support, and is required to pay milestone fees and
royalties on future sales, if any, and will share revenues in North America. A
Phase III multinational clinical trial for BEC2 in treatment of limited disease
small cell lung carcinoma has been opened and patients are being screened for
treatment.
Chimerized Monoclonal Antibody Inhibitor of Angiogenesis. The Company has
developed a monoclonal antibody, c-p1C11, which is specific for the KDR receptor
for Vascular Endothelial Growth Factor ("VEGF"). The antibody is currently in
pre-clinical studies in preparation for the filing of an Investigational New
Drug ("IND") Application and the further testing of the product as a cancer
therapeutic. The Company is also preparing a humanized form of the antibody, in
conjunction with MRC Collaborative Centre. KDR and VEGF are known to be involved
in angiogenesis, which is the natural process of growth of new blood vessels. A
therapeutic product that would inhibit angiogenesis could be of value in
treatment of cancer as well as other diseases that depend on growth of blood
vessels, such as diabetic retinopathy, macular degeneration and rheumatoid
arthritis.
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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.
In addition to its chimerized monoclonal antibody in development, the
Company is seeking to develop other antibodies that inhibit angiogenesis. In
connection with this research and development of the chimerized angiogenesis
inhibitor, the Company is sponsoring research programs at various academic
institutions to test KDR specific therapeutics in animal models.
The Company has also initiated a program to develop small molecule
antagonists of growth factor receptors, including both angiogenic growth factor
receptors and EGF receptors. In October 1997, the Company entered into an
agreement with CombiChem, Inc. ("CombiChem"), a combinatorial chemistry company,
pursuant to which the Company has access to CombiChem's library of small
molecules for screening in ImClone's assays for identification of lead
candidates. See "Corporate Collaborations and Out-licensing Arrangements -
CombiChem, Inc." The Company has also entered into an agreement with the
Institute for Molecular Medicine in Freiburg, Germany to screen small molecule
therapeutic candidates, including those provided by the compound libraries of
CombiChem, against various tyrosine receptors.
The Company is conducting research on the validation of vascular-specific
cadherin ("VE-cadherin") as a novel potential drug target to inhibit
cancer-associated angiogenesis. VE-cadherin is believed to play an important
role in angiogenesis by enabling the assembly of endothelial cells into vascular
tubes. Cancer growth is dependent on the formation of a capillary blood vessel
network in the tumor, and VE-cadherin antagonists may thus have utility as
anti-cancer agents. ImClone will test monoclonal antibodies against VE-cadherin
as potential angiogenesis inhibitors and use its high-throughput assays for the
identification of small molecule VE-cadherin inhibitors. In connection with this
program, the Company has also acquired exclusive rights to VE-cadherin-2 and to
antibodies to VE-cadherin and initiated a collaboration with Mario Negri
Institute for Pharmacological Research (Milan, Italy) to conduct pharmacological
research in the role of VE-cadherins in angiogenesis. See "Research
Collaborations and In-Licensing Arrangements - Mario Negri Institute for
Pharmacological Research." The National Cancer Institute (the "NCI") has awarded
to the Company a Phase I Small Business Innovation Research ("SBIR") grant of
approximately $100,000 to support its VE-cadherin program.
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 malignant melanoma vaccine based on
the tumor associated antigen known as gp75. Patients with malignant melanoma are
known to produce antibodies and T cells that recognize gp75. Animal studies have
shown that a gp75 cancer vaccine is highly effective in eliciting an immune
response against melanoma cells and preventing growth of experimental melanoma
tumors in mice.
Endothelial Stem Cell Technology
The Company has proprietary technology capable of isolating endothelial
stem cells and is exploring uses of endothelial stem cells for stimulation of
collateral blood circulation in ischemias (e.g., myocardial ischemia and
peripheral vascular disease) as well as for gene therapy delivery. The Company
is considering whether to pursue this research directly or through its recently
established wholly-owned subsidiary, EndoClone Incorporated.
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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 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 taken 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. Immunex is currently testing the ligand in human trials, for
stem cell mobilization, and for tumor inhibition.
The Company also has rights to a recombinant mutein form of Interleukin-6
("Interleukin-6m" or "IL-6m") which it has tested in human trials in cancer
patients to seek to stimulate platelet production. The Company is currently
monitoring third party research with IL-6m to explore the possibility that IL-6m
may be a critical factor in liver cell regeneration.
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
vaccine and pediatrics division of American Home Products Corporation ("American
Home") a worldwide license to manufacture and market its infectious disease
vaccines, which are in development. In January 1998, this agreement was extended
to allow the continuation through September 1999 of pre-clinical research in
preparation for clinical trials of infectious disease candidate vaccines for the
treatment of gonorrhea. ImClone receives annual funding under this agreement in
the amount of $300,000. 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
proprietary Repair Chain Reaction ("RCR") DNA probe technology, for the
diagnosis of the sexually transmitted disease chlamydia. Abbott has added tests
for gonorrhea and mycobacteria, and has launched sales in the U.S. as well. In
June 1997, the Company received two milestone payments from Abbott totaling
$1,000,000 as a result of a patent issuance in Europe for the Company's RCR
technology. The issuance of the patent also entitles the Company to receive
royalty payments on sales in covered European countries for products using the
Company's RCR technology. Abbott will be entitled to deduct from royalties
otherwise due, 25% of such royalties due for a two-year period and 50%
thereafter until a total of $500,000 has been deducted. 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. For the year ended December 31, 1997, the
Company earned a total of $381,000 in royalty fees pursuant to its strategic
alliance with Abbott.
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, molecular and cell biology, antibody engineering, protein and
synthetic chemistry and high-throughput screening. The Company has also
recruited a staff of technical and professional employees to carry out
manufacturing of clinical trial materials at its Somerville, New Jersey
manufacturing facility. In addition to its research programs pursued in-house,
ImClone collaborates with certain academic institutions and corporations 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
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assist the Company financially to successfully bring 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 $16,455,000,
$11,482,000, and $8,768,000 for research and development in the years ended
December 31, 1997, 1996 and 1995, respectively.
RESEARCH COLLABORATIONS AND IN-LICENSING ARRANGEMENTS
The Company's primary research collaborations which are non-clinical in
nature are the following.
CombiChem, Inc, San Diego, California. In October 1997, the Company
entered into a Collaborative Research and License Agreement with CombiChem, a
private company, to discover and develop novel small cell molecules for use
against selected targets for the treatment of cancer. The companies are
utilizing CombiChem's Discovery Engine and Universal Informer Library to
generate small molecules for screening in ImClone's assays for identification of
lead candidates. ImClone is providing CombiChem with research funding through
October 1999 in the amount of $500,000 annually (of which the first $500,000 was
paid in October 1997), milestone payments and royalties on marketed products
resulting from the collaboration, if any. Concurrently with the execution of the
Collaborative Research and License Agreement, the Company entered into a Stock
Purchase Agreement pursuant to which the Company purchased 250,000 shares of the
common stock of CombiChem, as adjusted, for aggregate consideration of
$2,000,000. CombiChem has agreed to use the proceeds from the sale of its stock
to ImClone for general corporate purposes.
Mario Negri Institute for Pharmacological Research, Milan, Italy. The
Company has a supported research agreement with Mario Negri Institute for
Pharmacological Research pursuant to which it supports the work of Dr.
Elisabetta Dejana who is investigating the role of a recently discovered protein
family, VE-cadherins, in angiogenesis. VE-cadherins are believed to enable the
formation of capillary blood vessels in solid tumors. In connection with the
commencement of this supported research program, the Company also acquired
proprietary rights to VE-cadherin-2 and to antibodies to VE-cadherin. The NCI
has awarded to the Company a Phase I SBIR grant in the amount of $100,000 to
support its VE-cadherin program.
Memorial Sloan-Kettering Cancer Center, New York, New York. The Company
has a supported research agreement with Sloan-Kettering to support research in
several areas, including potential cancer vaccine product, gp75. The Company has
an exclusive license from Sloan-Kettering to the gp75 tumor antigen and to the
BEC2 cancer vaccine and is required under the license to make good faith efforts
to proceed diligently with the manufacture and sale of these products.
Princeton University, Princeton, New Jersey. The Company has supported
research under the direction of certain faculty members at Princeton University.
The Company supported 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.
MRC Collaborative Centre, Mill Hill, United Kingdom. The Company is
funding research at the MRC Collaborative Centre on the humanization of its C225
and anti-KDR antibodies and in the expression of its C225 antibody in a
non-mouse cell line.
The University of North Carolina at Chapel Hill. The Company supports
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. The Company also has exclusively licensed
from the university rights in connection with IL-6m.
The Company's primary in-licensing arrangements which have resulted in the
transfer of intellectual property rights to the Company are the following:
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National Institutes of Health. 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.
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 EGFr. The
Company's C225 product is the chimerized form of one such antibody.
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:
Memorial Sloan-Kettering Cancer Center. The Company has agreements with
Sloan-Kettering to support research in several areas, including the study of
potential cancer vaccine products BEC2 and gp75. The Company has an exclusive
license to the results of the research in the areas covered by the agreements.
The BEC2 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.
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, the University of Virginia, MD Anderson
Cancer Center and the University of Alabama, among others. For its BEC2 trials,
it is anticipated that numerous institutions in both the United States and
Europe will serve as clinical trial sites.
The European Organization for Research and Treatment of Cancer ("EORTC"),
an oncology research clinical group, is involved in the Phase III multi-national
clinical trial for BEC2 in the treatment of limited disease small cell lung
carcinoma, having responsibility for monitoring the trial in Europe at various
centers, as well as randomizing patients and managing data for the worldwide
study. It is anticipated that Quintiles, Inc., a contract research organization,
will serve as the Company's representative in coordinating and monitoring the
study in the United States.
The Company anticipates that arrangements similar to the above may be
employed for certain future Phase II/III studies for C225.
CORPORATE COLLABORATIONS AND OUT-LICENSING ARRANGEMENTS
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 subsequently amended, most recently in December 1997
(the "Amended License Agreement"). Under the Amended License Agreement, the
Company has granted Merck a license, with the right to sublicense, to
manufacture and market the Company's BEC2 product and its recombinant gp75
antigen, for all indications throughout the world; except that in North America
the Company has granted Merck a sole license, without the right to sublicense,
to market but not to manufacture BEC2. The Company retains the right to
co-promote BEC2 within North America. It is the intent of the parties that
ImClone will be the bulk product manufacturer to support worldwide sales. The
Company is required to give Merck the opportunity to negotiate a license in
North America to gp75 before granting such a license to any third party. The
Amended License Agreement requires Merck to make research support and
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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 outside North America, 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. The Amended License
Agreement provides for milestone payments of a total of $22,500,000 of which
$3,000,000 have been earned to date. Gross sales of BEC2 in North America will
be distributed in accordance with the terms of a co-promotion agreement for BEC2
to be negotiated by the parties. Pursuant to the Amended License Agreement,
conduct of the clinical trials and regulatory submissions outside North America
are the responsibility of Merck and within North America are the responsibility
of ImClone. Costs worldwide to conduct a multi-site, multi-national Phase III
clinical trial to obtain approval for the indication of the treatment of limited
disease small cell lung carcinoma for BEC2, including out-of-pocket costs of
ImClone (but not including costs of establishing a manufacturing facility) for
manufacturing materials for clinical trials, conduct of clinical trials and
regulatory submissions (other than drug approval fees which are the
responsibility of Merck or ImClone in their respective territories) are the
responsibility of Merck; provided, however, that should the expenses of such
clinical trial exceed 17 million Deutsche Marks, such excess expenses will be
shared 60% by Merck and 40% by ImClone. Costs for the conduct of additional
clinical trials for other indications shall be subject to separate budgets to be
negotiated by the parties. ImClone is responsible for providing the supply of
the active agent outside of North America at the expense of Merck, and it is the
intention of the parties that the cost of goods sold in North America be paid
out of gross sales of any licensed product in North America in accordance with a
co-promotion agreement to be negotiated.
The Amended License 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 Amended License
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, 1997, the Company recorded $3,667,000 in
revenue from Merck under the Amended License Agreement, which is composed of
milestone and research and support payments.
In connection with the December 1997 amendment to the Amended License
Agreement, Merck purchased from the Company 400,000 shares of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Shares" or "Series
A Preferred Stock") for total consideration of $40,000,000, before issuance
costs of $3,000. The holders of the Series A Preferred Shares are entitled to
receive annual cumulative dividends of $6.00 per share. Dividends accrue as of
the issuance date of the Series A Preferred Shares and are payable on the
outstanding Series A Preferred Shares in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
Series A Preferred Shares on which the dividend is to be paid, whichever is
sooner. Up to 100,000 Series A Preferred Shares are currently convertible into
the Company's common stock, $.001 par value (the "Common Stock") and an
additional 100,000 Series A Preferred Shares will become convertible on each of
January 1, 2000, January 1, 2001 and January 1, 2002. During the period from
issuance through December 31, 1999, the Series A Preferred Shares are
convertible at a price equal to $12.50 per share; during the period from January
1, 2000 through December 31, 2000 the Series A Preferred Shares are convertible
at a price equal to the average of the closing prices for the Common Stock for
the five trading days ending on December 31, 1999; during the period from
January 1, 2001 through December 31, 2001 the Series A Preferred Shares are
convertible at a price equal to the average of the closing prices for the Common
Stock for the five trading days ending on December 31, 2000; during the period
from January 1, 2002 through December 31, 2002 the Series A Preferred Shares are
convertible at a price equal to 88% of the average of the closing prices for the
Common Stock for the five trading days ending on December 31, 2001; and anytime
after January 1, 2003 the Series A Preferred Shares are convertible at a price
equal to the average of the closing prices for the Common Stock for the five
trading days ending on December 31, 2002. The conversion price is subject to
adjustment in the case of certain dilutive events. Further, in the event the
average market price of the Common Stock for the five consecutive trading days
ending one trading day prior to any trading day during which any Series A
Preferred Shares are outstanding exceeds 150% of the conversion price then in
effect, the Company has the right to require the holder of the Series A
Preferred Shares to convert all such shares that may be convertible. The Company
may also redeem in whole or any part of the Series A Preferred Shares then
outstanding at a redemption price of $120 per Preferred Share, plus accrued and
unpaid dividends thereon. In connection with the purchase of the Series A
Preferred Shares, Merck was granted certain registration rights with respect to
the shares of Common Stock underlying the Preferred Shares, and Merck agreed to
refrain from selling such shares of Common Stock for certain specified periods
of time. In accordance with the terms of the Series A Preferred Stock, the
holder is able to realize an assured incremental yield of $5,455,000 on the
conversion of the Series A Preferred Stock if
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converted from January 1, 2002 through December 31, 2002. Such amount is being
amortized as a preferred stock dividend over a five-year period beginning with
the day of issuance. Accrued dividends on the Series A Preferred Stock were
$112,000 plus the incremental yield on the conversion discount of $51,000 at
December 31, 1997.
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 RCR
and Ampliprobe technologies for cancer detection and prognosis. This agreement
requires Abbott to exercise its best reasonable efforts to develop and
commercialize products incorporating RCR 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 RCR
technology, for the diagnosis of the sexually transmitted disease chlamydia.
Abbott has added tests for gonorrhea and mycobacteria, and has launched sales in
the U.S. as well. 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.
Under the agreement Abbott has paid ImClone up-front fees and research
support, and is obligated to pay milestone fees and royalties on sales. In June
1997, the Company received two milestone payments from Abbott totaling
$1,000,000 as a result of a patent issuance in Europe for the Company's RCR
technology, which is partially creditable against royalties as set forth below.
The issuance of the patent also entitles the Company to receive royalty payments
on sales in covered European countries for products using the Company's RCR
technology. Abbott will be entitled to deduct from royalties otherwise due, 25%
of such royalties due for a two-year period and 50% thereafter until a total of
$500,000 has been deducted. For the year ended December 31, 1997, the Company
earned a total of $381,000 in royalty fees pursuant to its strategic alliance
with Abbott. 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.
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 was engaged in the development of 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. In
January 1998, this agreement was extended to continue annual research funding
payable to ImClone in the amount of $300,000 through September 1999 and to
extend through such date the period by which American Home is required to have
initiated clinical trials with a vaccine candidate.
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.
In the year ended December 31, 1997, the Company recorded revenues of
$300,000 under the American Home agreements.
7
<PAGE>
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, if any. 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
is conducting human clinical studies with FLK-2/FLT-3 ligand for stem cell
mobilization and for tumor inhibition. 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, 1997, the Company recorded no revenue from
Immunex under this agreement.
MANUFACTURING
For the Company to support its ongoing research and development it
maintains, supplies and staffs a facility for the preparation, analysis and
distribution of clinical supplies to various study centers. The Company operates
a clinical grade manufacturing facility for biologics in Somerville, New Jersey
that includes laboratories, storage areas, mechanical systems and qualified
staff for the production of and analysis of biological 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, and packaging and distributing to clinical sites both the BEC2 antibody
and C225 antibody. This facility is operated according to current Good
Manufacturing Practices ("cGMP") which is a requirement for product manufactured
for use in clinical trials and for commercial sale. In January 1998, ImClone
completed the construction and commissioning of a new 1,750 square foot process
development center at this facility dedicated to manufacturing process
optimization for existing products and the pre-clinical and Phase I development
of new biological therapeutics.
ImClone has also 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.
Should any of the Company's products be approved for commercial sale, such
products will need to 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 and clinical trials, production in
later stage clinical trials or commercial quantities may create technical
challenges for the Company. If the Company commercializes its products, the
Company may adapt its Somerville, New Jersey facility for use as its
commercial-scale manufacturing facility. To this end, the Company has taken
steps to complete a formal design concept for large scale manufacturing at this
facility. The Company is also evaluating the requirements of establishing a
separate commercial manufacturing facility at the Company's New Jersey location
or at some other location. The Company has limited experience in later stage
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 later stage clinical or commercial production.
8
<PAGE>
MARKETING
The Company does not have pharmaceutical marketing experience. If the
Company were to market its products itself or with a partner, significant
additional expenditures and management resources would be required to develop an
internal sales force and there can be no assurance that the Company would be
successful in penetrating the markets for any products developed or that
internal marketing capabilities would successfully be developed at all. The
Company has co-promotion rights for commercialization of its BEC2 cancer vaccine
product in North America pursuant to its Amended License Agreement with Merck,
and expects that, in other instances, it may enter into development agreements
with third parties that may include co-marketing or co-promotion arrangements.
In the alternative, the Company could grant exclusive marketing rights to its
corporate partners in return for up-front fees, milestone payments and royalties
on sales. Under these arrangements, the Company's partner may have the
responsibility for a significant portion of development of the product and
regulatory approval. In the event that the partner fails to develop a marketable
product or fails to market a product successfully, the Company's business may be
adversely affected.
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 39 issued
patents world-wide, 24 of which are issued United States patents. The Company
has the exclusive right to develop certain anti-EGFr receptor antibodies with
potential anti-tumor activity under a United States patent owned by the
University of California. Ten 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 four 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 BEC2, antibodies to receptor tyrosine kinases, such as FLK-1 and
FLK-2; methods for amplifying and detecting DNA, such as the RCR technology; and
hematopoietic factors.
With respect to C225, the Company's EGFr cancer inhibiting antibody, the
Company is the exclusive licensee of an issued U.S. patent from the University
of California covering certain monoclonal antibodies that inhibit epidermal cell
growth. The Company is also the exclusive licensee from Rhone-Poulenc Rorer of a
family of patent applications seeking to cover antibodies to EGFr used in
conjunction with chemotherapeutic agents. The EGFr antibodies being developed by
the Company include 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 forms of the antibody and fragments thereof, in synergy with
anti-neoplastic agents, such as doxorubicin and cisplatin. Additionally,
humanized forms of the antibody and antibody fragments, are claimed, as well as
methods of inhibiting human tumors with C225 alone.
The Company's proprietary position with respect to its anti-tumor BEC2
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. The Company is also the assignee of a family of patent applications
filed by Company scientists covering angiogenesis-inhibiting antibodies to
receptors that bind VEGF. A specific patent application of such family claims
specifically the use of FLK-1 receptor antibodies to isolate cells expressing
the FLK-1 receptor on their cell surface. Additionally, the Company is a
co-owner of a recently filed patent application claiming the use of FLK-1
9
<PAGE>
receptor antibodies to isolate endothelial progenitor cells that express FLK-1
on their cell surface. At present, the Company is seeking exclusive rights to
this invention from the co-owners.
The Company is also the exclusive licensee of a family of patent
applications covering novel cadherin molecules that are involved in endothelial
cell interactions; such interactions are believed to be involved in angiogenic
processes. The subject patent applications cover antibodies that bind to, and
affect, the cadherin molecules.
The United States Patent and Trademark Office has granted two patents for
the Company's cysteine-depleted IL-6 molecular variant, IL-6m, and the DNA that
encodes IL-6m. The patent and patent applications are co-owned by the Company
and the University of North Carolina, whose rights have been exclusively
licensed to the Company. 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 third-party patents for both recombinant and
native 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's diagnostics program has been licensed for commercial
development to Abbott. The program includes target amplification and detection
methods, such as RCR technology, 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 currently is exclusive
licensee of an issued patent 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 field of signal amplification
technology for DNA assays.
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 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 and (iv) filing by a company and
approval by the FDA of a New Drug Application ("NDA") for a
10
<PAGE>
drug product or a Biological License Application ("BLA") for a biological
product to allow commercial manufacturing of the drug or biologic.
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 cGMP 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 BLA'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 cGMP regulations and licensing
specifications after an NDA, BLA 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.
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
11
<PAGE>
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 competitors' 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, molecular and cell biology, antibody engineering, protein and
synthetic chemistry and high-throughput screening. The Company has also
recruited a staff of technical and professional employees to carry out
manufacturing of clinical trial materials at its Somerville, New Jersey
facility. Of the Company's 110 full-time personnel on March 27, 1998, 44 were
employed in its product development, clinical and manufacturing programs, 39 in
research and 27 in administration. The Company's staff includes 15 persons with
Ph.D.s and 2 with M.D.s.
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. A portion of the lease expired
in 1993 and a portion expires in March 1999. The Company has extended the 1993
expired portion of the lease through March 1997 at 85% of each year's fair
market rental value and from 1997 to March 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. Rent expense for the New York facility was
approximately $554,000, $508,000 and $493,000 for the years ended December 31,
1997, 1996 and 1995, respectively. The Company is currently in discussions
regarding the extension of the lease and considering other alternatives.
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 (the "IDA Bonds") issued by the New York
City Industrial Development Agency (the "NYIDA"). These facilities secure the
payment of debt service on the outstanding IDA Bonds.
MANUFACTURING FACILITY--SOMERVILLE, NEW JERSEY
In June 1992, the Company acquired certain property and a building in
Somerville, 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
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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 may 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. In January 1998, ImClone completed the construction and
commissioning of a new 1,750 square foot process development center at this
facility dedicated to manufacturing process optimization for existing products
and the pre-clinical and Phase I development of new biological therapeutics. In
addition, the Company has taken steps to complete a formal design concept for
large scale manufacturing at this facility.
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, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
MARKET INFORMATION
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, 1997
First Quarter ............. $ 10 1/8 $ 5 3 /4
Second Quarter ............ $ 7 7/8 $ 4 5 /8
Third Quarter ............. $ 8 1/8 $ 4 5 /8
Fourth Quarter ............ $ 8 1/2 $ 5 21/32
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
STOCKHOLDERS
As of the close of business on March 27, 1998, there were approximately
195 holders of record of the Company's Common Stock. The Company estimates that
there are approximately 4,900 beneficial owners of its Common Stock.
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DIVIDENDS
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.
Pursuant to the terms of the Company's Series A Preferred Stock, the holders of
Series A Preferred Shares are entitled to receive cumulative dividends at the
annual rate of $6.00 per share, compounded annually, which dividends began to
accrue when the Series A Preferred Shares were issued on December 15, 1997.
Dividends on the outstanding Series A Preferred Shares are payable in cash on
December 31st of each year beginning on December 31, 1999, or at the time of
conversion, whichever is sooner. Series A Preferred Shares are of senior rank to
all shares of Common Stock with respect to payment of dividends.
RECENT SALES OF UNREGISTERED SECURITIES
In December 1997, the Company sold to Merck 400,000 Series A Preferred
Shares for total consideration of $40,000,000 pursuant to an exemption from
registration under Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). In March 1997, the Company issued 20,000 shares
of unregistered Common Stock to a single individual upon exercise of outstanding
warrants for aggregate consideration of $30,000. In March 1997, the Company
issued an aggregate of 190,000 shares of unregistered Common Stock jointly to
two individuals upon exercise of outstanding warrants for aggregate
consideration of $285,000. Such issuances were consummated as private sales
pursuant to Section 4(2) of the Securities Act.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
(In thousands, except per share data) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues $ 5,348 $ 600 $ 800 $ 950 $ 5,403
Operating expenses:
Research and development 16,455 11,482 8,768 11,816 13,876
General and administrative 5,356 3,961 3,739 3,348 4,375
Interest and other income (1,523) (918) (3,120) (3,186) (573)
Interest and other expense 551 823 1,054 821 587
Equity in loss of affiliate -- -- -- 342 1,140
--------- --------- -------- -------- --------
Loss before extraordinary item (15,491) (14,748) (9,641) (12,191) (14,002)
Extraordinary loss on extinguishment of debt -- 1,267 -- -- --
--------- --------- -------- -------- --------
Net loss (15,491) (16,015) (9,641) (12,191) (14,002)
Preferred dividends (including incremental
yield of $51) 163 -- -- -- --
--------- --------- -------- -------- --------
Net loss to common stockholders $ (15,654) $ (16,015) $ (9,641) $(12,191) $(14,002)
========= ========= ======== ======== ========
Basic and diluted net loss per common share:
Loss before extraordinary item $ (0.67) $ (0.76) $ (0.72) $ (1.12) $ (1.58)
Extraordinary loss on extinguishment of debt -- 0.07 -- -- --
--------- --------- -------- -------- --------
Net loss $ (0.67) $ (0.83) $ (0.72) $ (1.12) $ (1.58)
========= ========= ======== ======== ========
Weighted average shares outstanding 23,457 19,371 13,311 10,903 8,879
</TABLE>
(In thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and securities (1) $ 59,610 $ 13,514 $ 10,207 $ 3,032 $ 7,301
Working capital 56,671 7,695 3,735 (1,470) 1,215
Total assets 75,780 25,885 22,803 17,467 24,208
Long-term obligations 3,430 2,775 4,235 4,487 3,636
Accumulated deficit (117,464) (101,973) (85,958) (76,317) (64,126)
Stockholders' equity 68,226 16,589 11,823 8,176 14,812
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(1) Includes $532,000 as of December 31, 1993 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.
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, cancer vaccines and inhibitors of angiogenesis. 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 $117,464,000 for the period from its inception to December 31,
1997. 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 from the public and private sale of equity
securities, the sale of the IDA Bonds by the NYIDA (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), license fees and contract
research and development fees and royalties from collaborative partners and
interest earned on these funds.
Substantially all of the Company's products are in various stages of
development, clinical studies or research. Substantially all the Company's
revenues were generated from license and research arrangements with
collaborative partners. 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 development milestones, including those relating to the
Company's Amended License Agreement with Merck, 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.
RESULTS OF OPERATIONS
Years Ended December 31, 1997 and December 31, 1996
Revenues
Revenues for the years ended December 31, 1997 and 1996 were $5,348,000
and $600,000 respectively, an increase of $4,748,000. Revenue for the year ended
December 31, 1997 consisted of (i) $300,000 in research support from the
Company's partnership with American Home Products in infectious disease
vaccines, (ii) $2,000,000 in milestone payments and $1,667,000 in research and
support payments from the Company's Amended License Agreement with Merck, and
(iii) $1,000,000 in milestone payments and $381,000 in royalty revenue from the
Company's strategic alliance with Abbott in diagnostics. Revenues for the year
ended December 31, 1996 consisted of (i) $300,000 in research support from the
Company's partnership with the Wyeth/Lederle vaccine and pediatrics division of
American Home in infectious disease vaccines, (ii) $225,000 in royalty revenue
from the Abbott alliance, and (iii) $75,000 in license
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fees from the Company's cross-licensing agreement with Immunex for novel
hematopoietic growth factors. Increased revenues for the year ended December 31,
1997 were primarily attributable to the Company's having achieved development
milestones under the Company's Amended License Agreement with Merck and the
Company's strategic license with Abbott.
Operating; Research and Development Expenses
Total operating expenses for the years ended December 31, 1997 and 1996
were $21,811,000 and $15,443,000, respectively, an increase of $6,368,000 or
41%. Research and development expenses for the years ended December 31, 1997 and
1996 were $16,455,000 and $11,482,000, respectively, an increase of $4,973,000
or 43%. Such amounts for the years ended December 31, 1997 and December 31, 1996
represented 75% and 74%, respectively, of total operating expenses. The increase
in research and development expenses for the year ended December 31, 1997 was
partly attributable to a one-time $2,233,000 non-cash compensation expense
recorded in connection with the extension of the term of an officer's warrant to
purchase 397,000 shares of Common Stock. The increase is also attributable to
costs associated with additional staffing, contract manufacturing and testing,
and expenditures in the functional areas of product development, manufacturing
and clinical and regulatory affairs to support the Company's lead therapeutic
product candidate, C225, as well as 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
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 years ended December 31, 1997 and 1996 were $5,356,000 and $3,961,000,
respectively, an increase of $1,395,000 or 35%. The increase in general and
administrative expenses primarily reflects (i) $279,000 non-cash compensation
expense recorded in connection with an option grant to an officer of the Company
and (ii) additional support staffing for the expanding research, clinical,
development and manufacturing efforts of the Company, particularly with respect
to C225. The Company expects general and administrative expenses to increase in
future periods to support planned increases in research and development.
Interest and Other Income and Expenses
Interest and other income was $1,523,000 for the year ended December 31,
1997 compared to $918,000 for the year ended December 31, 1996, an increase of
$605,000 or 66%. The increase was primarily attributable to the increased
interest income earned from higher cash balances in the Company's investment
portfolio resulting from the proceeds received from a public offering of Common
Stock completed in March 1997 and a private placement of Series A Preferred
Stock completed in December 1997. Interest expense was $551,000 and $823,000 for
the years ended December 31, 1997 and 1996, respectively, a decrease of $272,000
or 33%. Interest expense for both periods primarily included interest on two
then outstanding IDA Bonds with an aggregate principal amount of $4,313,000
($2,113,000 of which was repaid in December 1997) and interest recorded on the
liability to Pharmacia and UpJohn Inc. ("Pharmacia"), for the reacquisition of
the worldwide rights to IL-6m as well as clinical material manufactured and
supplied by Pharmacia to the Company. The decrease was primarily attributable to
the May 1996 exchange of debt for Common Stock with the Oracle Group and a
Company Director.
Net Losses
The Company had net losses to common stockholders of $15,654,000 or $0.67
per share for the year ended December 31, 1997, compared with $16,015,000 or
$0.83 per share for the year ended December 31, 1996. The year ended December
31, 1996 included a $1,267,000 or $0.07 per share extraordinary loss on early
extinguishment of debt. This extraordinary loss resulted from the 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. The decrease in the
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per share net loss to common stockholders is due primarily to the increased
number of shares of Common Stock outstanding as a result of the March 1997
public offering of Common Stock.
Years Ended December 31, 1996 and December 31, 1995
Revenues
Revenues for the years ended December 31, 1996 and 1995 were $600,000 and
$800,000, respectively, a decrease of $200,000. Revenues for 1996 consisted of
(i) $300,000 in research support from the Company's corporate partnership with
the Wyeth/Lederle vaccine and pediatrics division of American Home, (ii) royalty
revenue of $225,000 from the Company's strategic alliance with Abbott, (iii) and
$75,000 in license fees from the Company's cross-licensing agreement with
Immunex. Revenues for 1995 consisted of (i) $300,000 in research support from
the Company's corporate partnership with the Wyeth/Lederle vaccine and
pediatrics division of American Home, and (ii) contract research fees of
$500,000 from the Company's strategic alliance with Abbott.
Operating; Research and Development Expenses
Total operating expenses for the years ended December 31, 1996 and
December 31, 1995 were $15,443,000 and $12,507,000, respectively, an increase of
$2,936,000 or 23%. Research and development expenses for the years ended
December 31, 1996 and December 31, 1995 were $11,482,000 and $8,768,000,
respectively, an increase of $2,714,000 or 31%. Such amounts for the years ended
December 31, 1996 and December 31, 1995 represented 74% and 70%, respectively,
of total operating expenses. The 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
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, an increase of $222,000 or 6%. The 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 and Expenses
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, a decrease
of $2,202,000 or 71%. Other income for the year ended December 31, 1995 included
the Company's sale of the remaining one-half of its shares of capital stock of
Cadus Pharmaceutical Corporation, a company it assisted in founding in 1992, for
$3,000,000 to High River, LP. 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.
Interest expense was $823,000 and $1,054,000 for the years ended December 31,
1996 and December 31, 1995, respectively, a decrease of $231,000 or 22%. Such
expense for both years primarily included interest on two then outstanding IDA
Bonds with an aggregate principal amount of $4,313,000 ($2,113,000 of which was
repaid in December 1997), 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.
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Net Losses
The Company had net losses to common stockholders 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 to common stockholders
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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's principal sources of liquidity
consisted of cash and cash equivalents and securities available for sale of
approximately $59,600,000. The Company has financed its operations since
inception primarily through the public and private sales of equity securities,
the sale of the IDA Bonds through the NYIDA, license fees and contract research
and development fees and royalties received under agreements with collaborative
partners and interest earned on these funds. Since inception, public and private
sales of equity securities have raised approximately $163,799,000 in net
proceeds, including approximately $23,200,000 raised in a public offering of
3,000,000 shares of Common Stock in March 1997 and approximately $39,997,000
raised in a private placement of 400,000 Series A Preferred Shares in December
1997. The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an
aggregate of $6,313,000, 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, and of which $2,200,000 is currently
outstanding. Since inception, the Company has earned approximately $28,662,000
from license fees, contract research and development fees and royalties from
collaborative partners, including approximately $5,348,000 received in 1997.
Since inception the Company has earned approximately $5,447,000 in interest
income, including approximately $1,523,000 in 1997.
The Company has obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under a December 1996 financing agreement with Finova Technology
Finance, Inc. ("Finova"). The agreement allows the Company to finance the lease
of equipment and make certain building and leasehold improvements to existing
facilities involving amounts aggregating approximately $2,500,000. As of
December 31, 1997, the Company had entered into six individual leases
aggregating a total cost of $1,745,000. 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 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. The financing agreement with Finova expired in
December 1997 and the Company did not utilize the full $2,500,000 under the
agreement. The Company anticipates that it will enter into a new financing
agreement with Finova during the second quarter of 1998 aggregating
approximately $2,000,000; however, no assurance can be given that such agreement
will be consummated.
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. 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
consummating any such alternatives. These discussions have included potential
significant strategic alliances for the development and commercialization of the
Company's lead product candidate, C225. Such strategic alliances could include
up-front license fees plus milestone fees and revenue sharing. There can be no
assurance that the Company will be successful in achieving such alliances, nor
can the Company predict the amount of funds which might be available to it if it
entered into such alliances or the time at which such funds would be made
available.
In January 1998, the Company completed the construction and commissioning
of a new 1,750 square foot process development center at its Somerville, New
Jersey facility at a cost of approximately $1,650,000. The Company has also
taken steps to complete a formal design concept for large scale manufacturing at
this facility. If the Company adapts this facility to large scale manufacturing
or does so at another location, it will incur substantial additional costs. The
lease on the Company's New York City facility expires in March 1999. The Company
is currently in discussions regarding the extension of the lease and is
considering other alternatives, such as relocating
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its executive offices and laboratories to a new facility. Were the Company to
relocate its executive offices and laboratories, it would incur substantial
additional costs.
The IDA Bond issued in 1990 (the "1990 IDA Bond") in the outstanding
principal amount of $2,200,000 becomes due in 2004. If the lease on the
Company's New York City facility is terminated, the 1990 IDA Bond provides that
it will become due 60 days prior to such termination. Interest payable on the
1990 IDA Bond will aggregate approximately $250,000 during 1998. The Company has
granted the NYIDA a security interest in substantially all facility equipment
located in the New York facility to secure the obligations of the Company to the
NYIDA under the 1990 IDA Bond. In December 1997, the Company paid off the
outstanding principal on the IDA Bond issued in 1986 in the aggregate principal
amount of $2,113,000, plus accrued and unpaid interest thereon.
The holders of the Series A Preferred Shares are entitled to receive
cumulative dividends at an annual rate of $6.00 per share. Dividends accrue as
of the issuance date of the Series A Preferred Shares and are payable on the
outstanding Series A Preferred Shares in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
Series A Preferred Shares on which the dividend is to be paid, whichever is
sooner. Accrued dividends were $112,000 plus the incremental yield on the
conversion discount of $51,000 at December 31, 1997.
Total capital expenditures made during the year ended December 31, 1997
were $2,981,000. Of the total capital expenditures made during the year ended
December 31, 1997, $1,324,000 has been reimbursed in accordance with the terms
of the Finova agreement discussed 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.
The Company anticipates that its existing capital resources, including the
on-going research support of its corporate partners, should enable it to
maintain its current and planned operations through the end of the year 2000.
However, the receipt of such ongoing research support is subject to attaining
research and development milestones, certain of which have not yet been
achieved. There can be no assurance that the Company will achieve these
milestones. 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 cost of manufacturing
scale-up and effective commercialization activities and arrangements, the level
of resources that the Company devotes to the development of marketing and sales
capabilities, the costs involved in filing, prosecuting and enforcing patent
claims, 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.
In order to fund its capital needs after the end of the year 2000, the Company
will require significant levels of additional capital and intends to raise the
capital through additional arrangements with corporate partners, equity or debt
financings or from other sources. There is no assurance the Company will be
successful in consummating any such arrangements. If adequate funds are not
available, the Company may be required to significantly curtail its planned
operations.
Uncertainties associated with the length and expense of pre-clinical and
clinical testing of any of the Company's products could greatly increase the
cost of development of such product and affect the timing of anticipated
revenues from product sales, and failure by the Company to obtain regulatory
approval for any product will preclude its commercialization. In addition, the
failure by the Company to obtain patent protection for its products may make
certain of its products commercially unattractive.
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $115,000,000 which expire at
various dates from 2000 through 2012. At December 31, 1997 the Company had
research credit carryforwards of approximately $2,303,000 which expire at
various dates between years 2001 and 2012. 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 percentage points
within a three-year period. Since 1986, the Company experienced two ownership
changes. Accordingly, the Company is significantly limited in utilizing its tax
net operating loss carryforwards arising before such ownership changes to offset
future federal taxable income. Similarly, the Company is significantly
restricted in using its research credit carryforwards arising before such
ownership changes to offset future federal income tax expense.
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OTHER ITEMS
The Company is evaluating the risks and costs associated with the year
2000 conversion. The Company intends to communicate with those organizations
with which it does business to ensure that year 2000 issues will be resolved in
a timely manner. If necessary modifications and conversions by those with which
the Company does business are not completed timely, the year 2000 conversion
issue may have a material adverse effect on the Company's consolidated financial
position and results of operations. Based on the Company's ongoing evaluation,
management does not currently believe that the costs to achieve year 2000
compliance will be material to the Company's financial position or results of
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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 May 27, 1998.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1)and(2). The response to this portion of Item 14. is submitted as a
separate section of this report commencing on page F-1. (a) (3)
Exhibits (numbered in accordance with Item 601 of Regulation S-K).
Incorporation
Exhibit No. Description by Reference
- ----------- ----------- ------------
3.1 Certificate of Incorporation, and all amendments
thereto N (3.1)
3.2 Amended and Restated By-Laws of the Company M (3.2)
4.1 Form of Warrant issued to the Company's officers
and directors under Warrant Agreements A (4.1)
4.2 Stock Purchase Agreement between Erbamont Inc. and
the Company, dated May 1, 1989 A (4.2)
4.3 Stock Purchase Agreement between American Cyanamid
Company (Cyanamid) and the Company dated December
18, 1987 A (4.3)
4.4 Form of Subscription Agreement entered into in
connection with September 1991 private placement A (4.4)
4.5 Form of Warrant issued in connection with
September 1991 private placement A(4.5)
4.6 Preferred Stock Purchase Agreement between the
Company and Merck KGaA ("Merck") dated December
3, 1997 P
4.7 Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock P
10.1 Company's 1986 Employee Incentive Stock Option
Plan, including form of Incentive Stock Option
Agreement F (10.1)
10.2 Company's 1986 Non-qualified Stock Option Plan,
including form of Non-qualified Stock Option
Agreement F (10.2)
10.3 Company's 401(k) Plan F (10.3)
10.4 Research and License Agreement between Merck and
the Company dated December 19, 1990 B (10.4)
10.5 Hematopoietic Growth Factors License Agreement
between Erbamont, N.V. and the Company, dated May
1, 1989, and Supplemental Amendatory Agreement
between Erbamont, N.V. and the Company dated
September 28, 1990 B (10.6)
10.6 Agreement between Cyanamid and the Company dated
December 18, 1987 and supplemental letter
agreement between Cyanamid and the Company dated
September 6, 1991 B (10.7)
10.7 Agreement between Hadasit Medical Research
Services & Development, Ltd. and the Company B (10.8)
10.8 Agreement between Hadasit Medical Research
Services & Development, Ltd. and the Company dated
September 21, 1989 B (10.9)
10.9 Supported Research Agreement between Memorial
Sloan-Kettering Cancer Center (MSKCC) and the
Company dated March 26, 1990 A (10.10)
10.10 License Agreement between MSKCC and the Company,
dated March 26, 1990 B (10.11)
10.11 License Agreement between MSKCC and the Company,
dated March 26, 1990 B (10.12)
10.12 License Agreement between MSKCC and the Company,
dated March 26, 1990 B (10.13)
10.13 Research Agreement between the Trustees of
Princeton University (Princeton) and the Company
dated January 1, 1991 B (10.14)
10.14 Research Agreement between Princeton and the
Company dated May 1, 1991 B (10.15)
10.15 Research Agreement between Princeton and the
Company dated May 1, 1991 B (10.16)
10.16 License Agreement between Princeton and the
Company dated March 20, 1991 B (10.17)
10.17 License Agreement between Princeton and the
Company dated May 29, 1991 B (10.18)
10.18 License Agreement between Princeton and Oncotech,
Inc. dated September 3, 1987 B (10.19)
10.19 Supported Research Agreement between The
University of North Carolina at Chapel Hill
("UNC") and the Company effective July 5, 1988 B (10.20)
10.20 License Agreement between UNC and the Company
dated July 5, 1988 B (10.21)
10.21 License Agreement between UNC and the Company
dated July 27, 1988 B (10.22)
10.22 Supported Research Agreement between UNC and the
Company effective April 1, 1989 B (10.23)
10.23 License Agreement between UNC and the Company
dated July 1, 1991 B (10.24)
10.24 Agreement between Celltech Limited and the Company
dated May 23, 1991 B (10.25)
10.25 Form of Non-disclosure and Discovery Agreement
between employees of the Company and the Company A (10.30)
10.26 Industrial Development Bond Documents: A (10.31)
10.26.1 Industrial Development Revenue Bonds (1985 ImClone
Systems Incorporated Project) A (10.31.1)
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10.26.1.1 Lease Agreement, dated as of October 1, 1985,
between the New York City Industrial Development
Agency (NYCIDA) and the Company, as Lessee A (10.31.1.3)
10.26.1.2 Indenture of Trust, dated as of October 1, 1985,
between NYCIDA and United States Trust Company of
New York (US Trust), as Trustee A (10.31.1.2)
10.26.1.3 Company Sublease Agreement, dated as of October 1,
1985, between the Company and NYCIDA A (10.31.1.3)
10.26.1.4 Tax Regulatory Agreement, dated October 9, 1985,
from NYCIDA and the Company to US Trust, as
Trustee A (10.31.1.4)
10.26.1.5 Lessee Guaranty Agreement, dated as of October 1,
1985, between the Company and US Trust, as Trustee A (10.31.1.5)
10.26.1.6 First Supplemental Indenture of Trust, dated as of
November 1, 1985 from the NYCIDA to US Trust A (10.31.1.6)
10.26.1.7 Third Supplemental Indenture of Trust, dated as of
October 12, 1990 from NYCIDA to US Trust A (10.31.1.7)
10.26.2 Industrial Development Revenue Bonds (1986 ImClone
Systems Incorporated Project) A (10.31.2)
10.26.2.1 First Amendment to Company Sublease Agreement,
dated as of December 1, 1986, between the Company,
as Sublessor, and NYCIDA as Sublessee A (10.31.2.1)
10.26.2.2 First Amendment to Lease Agreement, dated as of
December 1, 1986, between NYCIDA and the Company,
as Lessee A (10.31.2.2)
10.26.2.3 Second Supplement Indenture of Trust, dated as of
December 1, 1986 between NYCIDA and US Trust, as
Trustee A (10.31.2.3)
10.26.2.4 Tax Regulatory Agreement, dated December 31, 1986,
from NYCIDA and the Company to US Trust, as
Trustee A (10.31.2.4)
10.26.2.5 First Amendment to Lessee Guaranty Agreement,
dated as of December 1, 1986, between the Company
and US Trust, as Trustee A (10.31.2.5)
10.26.2.6 Bond Purchase Agreement, dated as of December 31,
1986, between NYCIDA and New York Muni Fund, Inc.,
as Purchaser A(10.31.2.6)
10.26.2.7 Letter of Representation and Indemnity Agreement,
dated as of December 31, 1986, from the Company to
NYCIDA and New York Muni Fund, Inc., as Purchaser A(10.31.2.7)
10.26.3 Industrial Development Revenue Bonds (1990 ImClone
Systems Incorporated Project) A(10.31.3)
10.26.3.1 Lease Agreement, dated as of August 1, 1990,
between NYCIDA and the Company, as lessee A(10.31.3.1)
10.26.3.2 Company Sublease Agreement, dated as of August 1,
1990, between the Company, as Sublessor, and
NYCIDA A (10.31.3.2)
10.26.3.3 Indenture of Trust, dated as of August 1, 1990,
between NYCIDA and US Trust, as Trustee A (10.31.3.3)
10.26.3.4 Guaranty Agreement, dated as of August 1, 1990,
from the Company to US Trust, as Trustee A (10.31.3.4)
10.26.3.5 Tax Regulatory Agreement, dated August 1, 1990,
from the Company and NYC.IDA to US Trust, as
Trustee A(10.31.3.5)
10.26.3.6 Agency Security Agreement, dated as of August 1,
1990, from the Company, as Debtor, and the NYCIDA
to US Trust, as Trustee A(10.31.3.6)
10.26.3.7 Letter of Representation and Indemnity Agreement,
dated as of August 14, 1990, from the Company to
NYCIDA, New York Mutual Fund, Inc., as the
Purchaser and Chase Securities, Inc., as Placement
Agent Company to NYCIDA A(10.31.3.7)
10.27 Lease Agreement between 180 Varick Street
Corporation and the Company, dated October 8,
1985, and Additional Space and Modification
Agreement between 180 Varick Street Corporation
and the Company, dated June 13, 1989 A(10.32)
10.28 License Agreement between The Board of Trustees of
the Leland Stanford Junior University and the
Company effective May 1, 1991 A(10.33)
10.29 License Agreement between Genentech, Inc. and the
Company dated December 28, 1989 A(10.34)
10.30 License Agreement between David Segev and the
Company dated December 28, 1989 B(10.35)
10.31 Letter of Intent between the Company and Dr. David
Segev dated November 18, 1991 C(10.40)
10.32 Agreement between the Company and Celltech Limited
dated March 11, 1992 C(10.42)
10.33 Agreement of Sale dated June 19, 1992 between the
Company and Korsch Tableting Inc. D(10.45)
10.34 Research and License Agreement, having an
effective date of December 15, 1992, between the
Company and Abbott Laboratories E(10.46)
10.35 Research and License Agreement between the Company
and Chugai Pharmaceutical Co., Ltd. dated January
25, 1993 E(10.47)
22
<PAGE>
10.36 License Agreement between the Company and the
Regents of the University of California dated
April 9, 1993 G (10.48)
10.37 Contract between the Company and John Brown, a
division of Trafalgar House, dated January 19,
1993 H (10.49)
10.38 Collaboration and License Agreement between the
Company and the Cancer Research Campaign
Technology, Ltd., signed April 4, 1994, with an
effective date of April 1, 1994. G (10.50)
10.39 Termination Agreement between the Company and
Erbamont Inc. dated July 21, 1993 H (10.51)
10.40 Research and License Agreement between the Company
and Cyanamid dated September 15, 1993 G (10.52)
10.41 Clinical Trials Agreement between the Company and
the National Cancer Institute dated November 23,
1993 H (10.53)
10.42 License Agreement between the Company and UNC
dated December 1, 1993 G (10.54)
10.43 Notice of Termination for the research
collaboration between the Company and Chugai
Pharmaceutical Co., Ltd. dated December 17, 1993 H (10.55)
10.44 License Agreement between the Company and
Rhone-Poulenc Rorer dated June 13, 1994 I (10.56)
10.45 Offshore Securities Subscription Agreement between
ImClone Systems Incorporated and GFL Ultra Fund
Limited dated August 12, 1994 I (10.57)
10.46 Offshore Securities Subscription Agreement between
ImClone Systems Incorporated and GFL Ultra Fund
Limited dated November 4, 1994 I (10.58)
10.47 Offshore Securities Subscription Agreement between
ImClone Systems Incorporated and Anker Bank
Zuerich dated November 10, 1994 I (10.59)
10.48 Option Agreement, dated as of April 27, 1995,
between ImClone Systems Incorporated and High
River Limited Partnership relating to capital
stock of Cadus Pharmaceutical Corporation J (10.60)
10.49 Option Agreement, dated as of April 27, 1995,
between ImClone Systems Incorporated and High
River Limited Partnership relating to 300,000
shares of Common Stock of ImClone Systems
Incorporated J (10.61)
10.50 Option Agreement, dated as of April 27, 1995,
between ImClone Systems Incorporated and High
River Limited Partnership relating to 150,000
shares Common Stock of ImClone Systems
Incorporated J (10.62)
10.51 Stock Purchase Agreement, dated as of August 10,
1995, by and between ImClone Systems Incorporated
and the members of the Oracle Group J (10.63)
10.52 Form of Warrant issued to the members of the
Oracle Group J (10.64)
10.53 Loan Agreement, dated as of August 10, 1995, by
and between ImClone Systems Incorporated and the
members of the Oracle Group J (10.65)
10.54 Security Agreement, dated as of August 10, 1995,
by and between ImClone Systems Incorporated and
the members of the Oracle Group J (10.66)
10.55 Mortgage, dated August 10, 1995, made by ImClone
Systems Incorporated for the benefit of Oracle
Partners, L.P., as Agent J (10.67)
10.56 Financial Advisory Agreement entered into between
the Company and Genesis Merchant Group Securities
dated November 2, 1995 K (10.68)
10.57 Repayment Agreement (with Confession of Judgment,
and Security Agreement) entered into between the
Company and Pharmacia, Inc. on March 6, 1996 K (10.69)
10.58 License Amendment entered into between the Company
and Abbott Laboratories on August 28,
1995,amending the Research and License Agreement
between the parties dated December 15, 1992 K (10.70
10.59 Amendment of September 1993 to the Research and
License Agreement between the Company and Merck of
April 1, 1990 K (10.71)
10.60 Amendment of October 1993 to the Research and
License Agreement between the Company and Merck of
April 1, 1990 K (10.72)
10.61 Employment agreement dated May 17, 1996 between
the Company and Carl S. Goldfischer L (10.73)
10.62 Financial Advisory Agreement dated February 26,
1997 between the Company and Hambrecht & Quist LLC L (10.74)
10.63 Exchange Agreement exchanging debt for Common
Stock dated as of April 15, 1996 among the Company
and members of The Oracle Group. L (10.75)
10.64 Collaborative Research and License Agreement
between the Company and CombiChem, Inc. dated
October 10, 1997 L (10.76)
23
<PAGE>
10.65 Amendment of May 1996 to Research and License
Agreement between the Company and Merck of April
1, 1990 O
10.66 Amendment of December 1997 to Research and License
Agreement between the Company and Merck of April
1, 1990 O
21.1 Subsidiaries P
23.1 Consent of KPMG Peat Marwick LLP P
27.1 Financial Data Schedule P
99.1 1996 Incentive Stock Option Plan, as amended N (99.1)
99.2 1996 Non-Qualified Stock Option Plan, as amended N (99.2)
- ----------
A Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064.
B Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064. Confidential
treatment was granted for a portion of this exhibit.
C Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-48240. Confidential
treatment was granted for a portion of this exhibit.
D Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed June 26, 1992.
E Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992. Confidential treatment was granted for a portion of this
Exhibit.
F Previously filed with the Commission; incorporated by reference Amendment
No. 1 to Registration Statement on to Form S-1, File No. 33-61234.
G Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1993. Confidential Treatment was granted for a portion of this
Exhibit.
H Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1993.
I Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
J Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-2, File No. 33-98676.
K Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
L Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997, as amended. Confidential treatment was granted for a portion of
this Exhibit.
M Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated January 21, 1998.
N Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
O Filed herewith. Confidential treatment has been requested with respect to
certain portions of this Exhibit.
P Filed herewith.
24
<PAGE>
(b) Reports on Form 8-K
On December 9, 1997, the Company filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-K dated December 4,
1997 relating to the Company's entering into an amendment with Merck to the
Company's Research and License Agreement with Merck and the purchase by Merck
from the Company of 400,000 shares of Series A Preferred Stock (Item 5).
On October 15, 1997, the Company filed with the Commission a Current
Report on Form 8-K dated October 10, 1997 relating to the Company's entering
into a Collaborative Research and License Agreement with CombiChem and the
purchase of shares of CombiChem Common Stock (Item 5).
25
<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, 1998 By /s/ Samuel D. Waksal
----------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert F. Goldhammer Chairman of the Board of Directors March 27, 1998
- --------------------------
(Robert F. Goldhammer)
/s/ Samuel D. Waksal President, Chief Executive Officer March 27, 1998
- -------------------------- and Director
(Samuel D. Waksal) (Principal Executive Officer)
/s/ Harlan W. Waksal Executive Vice President, March 27, 1998
- -------------------------- Chief Operating Officer and Director
(Harlan W. Waksal)
/s/ Carl S. Goldfischer Vice President, Financial and March 27, 1998
- -------------------------- Strategic Planning and Chief Financial
(Carl S. Goldfischer) Officer (Principal Financial Officer)
/s/ Richard Barth Director March 27, 1998
- --------------------------
(Richard Barth)
/s/ Jean Carvais Director March 27, 1998
- --------------------------
(Jean Carvais)
/s/ Vincent T. DeVita, Jr. Director March 27, 1998
- --------------------------
(Vincent T. DeVita, Jr.)
/s/ David M. Kies Director March 27, 1998
- --------------------------
(David M. Kies)
__________________________ Director March 27, 1998
(Paul B. Kopperl)
/s/ John Mendelsohn Director March 27, 1998
- --------------------------
(John Mendelsohn)
/s/ William R. Miller Director March 27, 1998
- --------------------------
(William R. Miller)
26
<PAGE>
FINANCIAL STATEMENTS
Index to Financial Statements
Financial Statements
Independent Auditors' Report ............................................. F-2
Balance Sheets at December 31, 1997 and 1996 ............................. F-3
Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995 ....................................... F-4
Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996, and 1995 ................................. F-5
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 ....................................... F-6
Notes to Financial Statements ............................................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
----------------------------
KPMG Peat Marwick LLP
New York, New York
February 20, 1998
F-2
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Balance Sheets
(in thousands, except share data)
December 31, December 31,
Assets 1997 1996
----------- ------------
Current assets:
Cash and cash equivalents ......................... $ 2,558 $ 2,734
Securities available for sale ..................... 57,052 10,780
Prepaid expenses .................................. 596 122
Amount due from officer and stockholder ........... -- 101
Other current assets .............................. 589 479
--------- ---------
Total current assets ............. 60,795 14,216
--------- ---------
Property and equipment:
Land .............................................. 340 340
Building and building improvements ................ 8,969 8,969
Leasehold improvements ............................ 4,832 4,832
Machinery and equipment ........................... 6,315 5,159
Furniture and fixtures ............................ 550 536
Construction in progress .......................... 2,159 320
--------- ---------
Total cost ....................... 23,165 20,156
Less accumulated depreciation
and amortization ........................... (11,294) (9,606)
--------- ---------
Property and equipment, net ...... 11,871 10,550
--------- ---------
Patent costs, net ...................................... 944 977
Deferred financing costs, net .......................... 55 65
Other assets ........................................... 2,115 77
--------- ---------
$ 75,780 $ 25,885
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................................. $ 1,731 $ 1,059
Accrued expenses and other ........................ 1,440 1,366
Interest payable .................................. 68 238
Deferred revenue .................................. 208 --
Current portion of long-term liabilities .......... 677 3,858
--------- ---------
Total current liabilities ........ 4,124 6,521
--------- ---------
Long-term debt ......................................... 2,200 2,200
Other long-term liabilities, less current portion ...... 1,230 575
--------- ---------
Total liabilities ................ 7,554 9,296
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized
4,000,000 shares; issued and outstanding
Series A Convertible: 400,000 and none
at December 31, 1997 and December 31, 1996,
respectively (preference in liquidation
$40,112 and none, respectively) ............. 400 --
Common stock, $.001 par value; authorized
45,000,000 shares; issued 24,265,072
and 20,248,122 at December 31, 1997 and
December 31, 1996, respectively;
outstanding 24,214,255 and
20,233,699 at December 31, 1997 and
December 31, 1996, respectively .............. 24 20
Additional paid-in capital ........................ 185,706 118,760
Accumulated deficit ............................... (117,464) (101,973)
Treasury stock, at cost; 50,817 and 14,423
shares at December 31, 1997
and December 31, 1996, respectively .......... (492) (169)
Unrealized gain (loss) on securities
available for sale ........................... 52 (49)
--------- ---------
Total stockholders' equity ....... 68,226 16,589
--------- ---------
$ 75,780 $ 25,885
========= =========
See accompanying notes to financial statements.
F-3
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Operations
(in thousands, except per share data)
Year Ended December 31,
-------------------------------
1997 1996 1995
------- -------- --------
Revenues:
License fees from third parties ...... $ 3,000 $ 75 $ --
Research and development funding
from third parties and other ........ 2,348 525 800
-------- -------- --------
Total revenues ..................... 5,348 600 800
-------- -------- --------
Operating expenses:
Research and development ............. 16,455 11,482 8,768
General and administrative ........... 5,356 3,961 3,739
-------- -------- --------
Total operating expenses ........... 21,811 15,443 12,507
-------- -------- --------
Operating loss ......................... (16,463) (14,843) (11,707)
-------- -------- --------
Other:
Interest and other income ............ (1,523) (918) (3,120)
Interest expense ..................... 551 823 1,054
-------- -------- --------
Net interest and other income ...... (972) (95) (2,066)
-------- -------- --------
Loss before extraordinary item ......... (15,491) (14,748) (9,641)
Extraordinary loss on
extinguishment of debt ................ -- 1,267 --
-------- -------- --------
Net loss ............................... (15,491) (16,015) (9,641)
Preferred dividends (including
incremental yield of $51) ............. 163 -- --
-------- -------- --------
Net loss to common stockholders ........ $(15,654) $(16,015) $ (9,641)
======== ======== ========
Net loss per common share:
Basic and diluted:
Loss before extraordinary item ..... $ (0.67) $ (0.76) $ (0.72)
Extraordinary loss on
extinguishment of debt ............ -- 0.07 --
-------- -------- --------
Net loss ............................. $ (0.67) $ (0.83) $ (0.72)
======== ======== ========
Weighted average shares outstanding .... 23,457 19,371 13,311
======== ======== ========
See accompanying notes to financial statements.
F-4
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Stockholders' Equity
Years Ended December 31, 1995, 1996, and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------------- -------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ....... -- $ -- 12,577,685 $ 13 $ 84,630 $ (76,317)
----------- ----------- ----------- ----------- ----------- -----------
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)
----------- ----------- ----------- ----------- ----------- -----------
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)
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)
----------- ----------- ----------- ----------- ----------- -----------
Issuance of preferred stock ......... 400,000 400 39,597
Issuance of common stock ............ 3,000,000 3 23,152
Options exercised ................... 147,450 223
Warrants exercised .................. 869,500 1 1,385
Options granted to non-employees .... 189
Options/warrants granted to
employees .......................... 2,512
Treasury shares ..................... (36,394)
Changes in unrealized gain on
securities available for sale ...
Preferred stock dividends ........... (112)
Net loss ............................ (15,491)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 ....... 400,000 $ 400 24,214,255 $ 24 $ 185,706 $ (117,464)
=========== =========== =========== =========== =========== ===========
</TABLE>
Unrealized
(Loss) on
Securities
Treasury Available
Stock for Sale Total
---------- ----------- -----------
Balance at December 31, 1994 ....... $ (150) $ -- $ 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 ....... $ (150) $ -- $ 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) (19)
Changes in unrealized loss on
securities available for sale ... (49) (49)
Net loss ............................ (16,015)
---------- ----------- -----------
Balance at December 31, 1996 ....... $ (169) $ (49) $ 16,589
---------- ----------- -----------
Issuance of preferred stock ......... 39,997
Issuance of common stock ............ 23,155
Options exercised ................... 223
Warrants exercised .................. 1,386
Options granted to non-employees .... 189
Options/warrants granted to
employees .......................... 2,512
Treasury shares ..................... (323) (323)
Changes in unrealized gain on
securities available for sale ... 101 101
Preferred stock dividends ........... (112)
Net loss ............................ (15,491)
---------- ----------- -----------
Balance at December 31, 1997 ....... $ (492) $ 52 $ 68,226
========== =========== ===========
See accompanying notes to financial statements.
F-5
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $ (15,491) $ (16,015) $ (9,641)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ....................... 1,797 1,704 1,789
Expense associated with issuance
of options and warrants ......................... 2,729 95 --
Extraordinary loss on extinguishment of debt ........ -- 1,267 --
Discounted interest amortization .................... -- 156 222
Write-off of fixed assets ........................... -- -- 2
Write-off of patent costs ........................... 146 -- 126
Loss on sale of investments ......................... 2 -- --
Changes in:
Prepaid expenses .................................. (474) (7) (37)
Other current assets .............................. (110) (453) 42
Due from officer .................................. 101 31 24
Other assets ...................................... (37) (14) 115
Interest payable .................................. (170) (105) 328
Accounts payable .................................. 672 67 (624)
Accrued expenses and other ........................ 75 540 421
Deferred revenue .................................. 208 -- --
--------- --------- ---------
Net cash used in operating activities .......... (10,552) (12,734) (7,233)
--------- --------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment ................ (1,657) (272) (36)
Purchases of securities available for sale ............ (241,623) (32,665) --
Sales of securities available for sale ................ 195,450 21,836 --
Investment in CombiChem, Inc .......................... (2,000) -- --
Additions to patents .................................. (212) (343) (186)
--------- --------- ---------
Net cash used in investing activities .......... (50,042) (11,444) (222)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock ......... 39,997 -- --
Net proceeds from issuance of common stock ............ 23,154 13,562 12,002
Proceeds from exercise of stock options and
warrants............................................ 1,581 3,807 185
Purchase of treasury stock ............................ (323) (19) --
Proceeds from long-term notes payable ................. -- -- 2,680
Proceeds from short-term notes payable ................ -- -- 100
Repayment of long-term debt ........................... (2,113) -- --
Repayment of short-term notes payable ................. -- -- (284)
Payments of other liabilities ......................... (1,878) (645) (53)
--------- --------- ---------
Net cash provided by financing activities ..... 60,418 16,705 14,630
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents .... (176) (7,473) 7,175
Cash and cash equivalents at beginning of period ........ 2,734 10,207 3,032
--------- --------- ---------
Cash and cash equivalents at end of period .............. $ 2,558 $ 2,734 $ 10,207
========= ========= =========
</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 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 that are
being developed by the Company or that would render the Company's technology and
products obsolete and non-competitive. Many of these competitors have
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.
(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, 1997, all investments in securities were classified as
available-for-sale.
F-7
<PAGE>
(c) Long-Lived Assets
Long-lived assets include:
o Fixed assets are stated at cost. Depreciation of fixed assets 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 12))
or the service lives of the improvements, whichever is shorter.
o Patent and patent application costs are amortized on a straight-line
basis over their respective expected useful lives, up to a 15-year
period. Capitalized patent costs are reviewed for impairment whenever
events or circumstances provide evidence that suggests that the
carrying amount may not be recoverable. The Company assesses the
recoverability of net capitalized patent costs by determining if the
unamortized balance can be recovered through future cash flows.
The Company reviews long-lived assets for impairment when events or
changes in business conditions indicate that their full carrying value may not
be recovered. Assets are considered to be impaired and written down to fair
value if expected associated cash flows are less than the carrying amounts. Fair
value is generally the present value of the expected associated cash flows.
(d) Deferred Financing Costs
Costs incurred in obtaining the Industrial Development Revenue Bonds (Note
6) are amortized using the straight-line method over the terms of the related
bonds.
(e) Gain on Sale of Investment in 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. During 1994 and 1995, the Company sold its capital stock
holding in Cadus to High River Limited Partnership ("High River"). The Statement
of Operations for the year ended December 31, 1995 includes in interest and
other income the gain on the sale of the Cadus stock sold during that period. In
exchange for receiving a now-expired right to repurchase all the outstanding
shares of capital stock of Cadus held by High River, the Company granted to High
River two options to purchase shares of the Company's common stock (the "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.
(f) 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.
Royalty revenue is recognized upon receipt by the Company and is derived
from sales of products by corporate partners using licensed Company technology.
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.
(g) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plans
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
market price on the date of grant of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. ("SFAS") 123, "Accounting for Stock-Based Compensation,"
F-8
<PAGE>
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.
(h) 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.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(j) 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.
(k) Net Loss Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
("EPS") for the year ended December 31, 1997. This statement simplifies the
standards for computing EPS and makes them more comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires dual presentation of basic and diluted EPS on the face of
the statement of operations of all entities with complex capital structures.
SFAS 128 also requires a reconciliation of the numerator and denominator of the
diluted EPS calculation. Potentially dilutive securities, including convertible
preferred stock, options and warrants, have not been included in the diluted EPS
computation because they are anti-dilutive.
(l) Reclassification
Certain amounts previously reported have been reclassified to conform to
current year's presentation.
F-9
<PAGE>
(3) Securities Available-For-Sale
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for available-for-sale securities by major
security type at December 31, 1997 and 1996, were as follows:
At December 31, 1997:
<TABLE>
<CAPTION>
Gross
Unrealized Gross
Amortized Holding Unrealized
Cost Gains Holding Losses Fair Value
---- ----- -------------- ----------
<S> <C> <C> <C> <C>
Commercial paper ........................ $ 12,104,000 $ 4,000 $ -- $ 12,108,000
U.S. Government debt .................... 23,568,000 24,000 (5,000) 23,587,000
U.S. corporate debt ..................... 3,992,000 4,000 -- 3,996,000
Foreign corporate debt .................. 4,719,000 7,000 -- 4,726,000
Foreign Government/Agency
guaranteed debt......................... 12,617,000 18,000 -- 12,635,000
------------ ------------ ------------ ------------
$ 57,000,000 $ 57,000 $ (5,000) $ 57,052,000
============ ============ ============ ============
At December 31, 1996:
U.S. Government debt .................... $ 10,829,000 $ -- $ (49,000) $ 10,780,000
============ ============ ============ ============
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at December 31, 1997:
Years Ended December 31,
Amortized Cost Fair Value
-------------- ----------
1998 ...................... $25,849,000 $25,859,000
1999 ...................... 6,984,000 6,983,000
2000 ...................... 24,167,000 24,210,000
----------- -----------
$57,000,000 $57,052,000
=========== ===========
Proceeds from the sale of investment securities available-for-sale were
$195,450,000 and $21,836,000 in 1997 and 1996, respectively. Gross realized
gains included in income in 1997 were $1,000 and gross realized losses included
in income 1997 were $3,000. There were no realized gains or losses in 1996.
F-10
<PAGE>
(4) Other Assets
The following items are included in other assets:
December 31, December 31,
1997 1996
---------- ----------
Deposits ....................................... $ 115,000 $ 77,000
Investment in CombiChem, Inc. .................. 2,000,000 --
---------- ----------
$2,115,000 $ 77,000
========== ==========
In October 1997, the Company entered into a Collaborative Research and
License Agreement with CombiChem, Inc. ("CombiChem"), a private company, to
discover and develop novel small molecules for use against selected targets for
the treatment of cancer. The companies are utilizing CombiChem's Discovery
EngineTM and Universal Informer LibraryTM to generate small-molecules for
screening in the Company's assays for identification of lead candidates. The
Company is providing CombiChem with research funding through October 1999 in the
amount of $500,000 annually (of which the first $500,000 was paid in October
1997), milestone payments and royalties on marketed products resulting from the
collaboration, if any. Concurrent with the execution of the Collaborative
Research and License Agreement, the Company entered into a Stock Purchase
Agreement pursuant to which the Company purchased 250,000 shares of common stock
of CombiChem, as adjusted, for aggregate consideration of $2,000,000. The
Company has recorded its investment in CombiChem using the cost method of
accounting which approximates market value.
(5) Accrued Expenses and Other
The following items are included in accrued expenses and other:
December 31, December 31,
1997 1996
----------- -----------
Salaries and other payroll
related expenses ............................. $ 773,000 $ 782,000
Legal and accounting fees ...................... 169,000 217,000
Other .......................................... 498,000 367,000
========== ==========
$1,440,000 $1,366,000
========== ==========
(6) Long-term Debt
Long-term debt consists of the following:
December 31, December 31,
1997 1996
----------- -----------
10.75% Bond due 1997 .......................... $ -- $ 2,113,000
11.25% Bond due 2004 ........................... 2,200,000 2,200,000
----------- -----------
2,200,000 4,313,000
Less current portion ........................... -- (2,113,000)
=========== ===========
$ 2,200,000 $ 2,200,000
=========== ===========
On December 31, 1986, the New York City Industrial Development Agency (the
"NYIDA") issued on behalf of the Company an Industrial Development Revenue Bond
(the "1986 Bond") in the amount of $2,113,000 with a
F-11
<PAGE>
maturity date of December 15, 1994. The proceeds from the sale of the 1986 Bond
were used by the Company for the acquisition, construction and installation of
the Company's research and development facility in New York City. During
December 1994, the 1986 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
Company repaid the obligation on December 15, 1997.
In August 1990, the NYIDA issued another Industrial Development Revenue
Bond (the "1990 Bond") in the amount of $2,200,000. The 1990 Bond is due May 1,
2004. If the Company terminates its lease on its New York City facility (the
"Lease") the 1990 Bond will become due 60 days prior to such date. The Lease is
scheduled to expire in March 1999 and the Company is currently in discussions
regarding its extension and considering other alternatives. The proceeds from
the sale of the 1990 Bond were used by the Company for the acquisition,
construction and installation of the Company's research and development facility
in New York City.
The Company has granted a security interest in substantially all equipment
located in its New York City facility to secure the obligations of the Company
to the NYIDA relating to the 1990 Bond. Interest expense on the 1986 and 1990
Bonds for the years ended December 31, 1997 and 1996 was $465,000 and $475,000
respectively.
(7) Other Long-term Liabilities
Other long-term liabilities are comprised of the following:
December 31, December 31,
1997 1996
----------- -----------
Liability to reacquire IL-6m rights .......... $ 283,000 $ 1,917,000
Liability under capital lease obligations .... 1,469,000 354,000
Liability under license agreement ............ 43,000 49,000
Preferred stock dividends payable ............ 112,000 --
----------- -----------
1,907,000 2,320,000
Less current portion ......................... (677,000) (1,745,000)
----------- -----------
$ 1,230,000 $ 575,000
=========== ===========
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 had paid $1.4 million and had further obligations to Pharmacia
totaling $283,000 at December 31, 1997. In February 1998, such amount was paid
off in its entirety. In addition, the Company is required to pay Pharmacia up to
$2.7 million in royalties on eventual sales of IL-6m, if any.
The Company is obligated under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under a December 1996 financing agreement with Finova Technology
Finance, Inc. ("Finova"). The agreement allows the Company to finance the lease
of equipment and make certain building and leasehold improvements to existing
facilities involving amounts aggregating approximately $2,500,000. As of
December 31, 1997, the Company had entered into six individual leases
aggregating a total cost of $1,745,000. 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 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. The financing agreement with Finova expired in
December 1997 and the Company did not utilize the full $2,500,000 under the
agreement. The Company anticipates that it will enter into a new financing
agreement with Finova during the second quarter of 1998 aggregating
approximately $2,000,000; however, no assurance can be given that such agreement
will be consummated. See Notes 12 and 14.
F-12
<PAGE>
At December 31, 1997 and 1996, the gross amount of laboratory and office
equipment and building improvements and the related accumulated depreciation and
amortization recorded under all capital leases were as follows:
December 31, December 31,
1997 1996
----------- -----------
Laboratory, office and computer equipment ........ $ 1,204,000 $ 406,000
Building improvements ............................ 831,000 297,000
----------- -----------
2,035,000 703,000
Less accumulated depreciation and amortization ... (291,000) (190,000)
----------- -----------
$ 1,744,000 $ 513,000
=========== ===========
In connection with the Company's production and eventual marketing of
certain products, the Company entered into a license agreement that 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.
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 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 Securities and Exchange Commission (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, LP,
Quasar International Partners C.V., Oracle Institutional Partners LP, 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.
(8) 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. Pursuant to the
Company's research and license agreement with Merck KGaA ("Merck"), the Company
has the right to co-promote its BEC2 product in North America.
F-13
<PAGE>
Revenues for the years ended December 31, 1997, 1996, and 1995 were
$5,348,000, $600,000, and $800,000 respectively. Revenues for each year
consisted of $300,000 in research support from the Company's corporate
partnership with the Wyeth-Lederle vaccine and pediatrics division of American
Home Products Corporation ("American Home") in infectious disease vaccines. The
year ended December 31, 1997 included $2,000,000 in milestone payments and
$1,667,000 in research and support payments from the Company's research and
license agreement with Merck. In addition, revenues for the years ended December
31, 1997 and 1995 included milestone payments of $1,000,000 and $500,000,
respectively, from the Company's strategic alliance with Abbott Laboratories
("Abbott") in diagnostics. The years ended December 31, 1997 and 1996 also
included royalty revenue of $381,000 and $225,000, respectively, from the Abbott
alliance. Finally, the year ended December 31, 1996 included $75,000 in license
fees from the Company's cross-licensing agreement with Immunex Corporation
("Immunex") for novel hematopoietic growth factors.
Revenues were derived from the following geographic areas:
Year Ended December 31,
---------------------------------------------
1997 1996 1995
---------- ---------- ----------
United States ............ $1,681,000 $ 600,000 $ 800,000
Europe ................... 3,667,000 -- --
---------- ---------- ----------
$5,348,000 $ 600,000 $ 800,000
========== ========== ==========
(9) Preferred Stock
In connection with the December 1997 amendment to the Company's research
and license agreement with Merck, Merck purchased from the Company in December
1997 400,000 shares of the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Shares" or "Series A Preferred Stock") for total
consideration of $40,000,000, before issuance costs of $3,000. The holders of
the Series A Preferred Shares are entitled to receive annual cumulative
dividends of $6.00 per share. Dividends accrue as of the issuance date of the
Series A Preferred Shares and are payable on the outstanding Series A Preferred
Shares in cash annually on December 31 of each year beginning December 31, 1999
or at the time of conversion or redemption of the Series A Preferred Shares on
which the dividend is to be paid, whichever is sooner. Up to 100,000 Series A
Preferred Shares are currently convertible and an additional 100,000 Series A
Preferred Shares will become convertible on each of January 1, 2000, January 1,
2001 and January 1, 2002. During the period from issuance through December 31,
1999, the Series A Preferred Shares are convertible at a price equal to $12.50
per share; during the period from January 1, 2000 through December 31, 2000 the
Series A Preferred Shares are convertible at a price equal to the average of the
closing prices for the Common Stock for the five trading days ending on December
31, 1999; during the period from January 1, 2001 through December 31, 2001 the
Series A Preferred Shares are convertible at a price equal to the average of the
closing prices for the Common Stock for the five trading days ending on December
31, 2000; during the period from January 1, 2002 through December 31, 2002 the
Series A Preferred Shares are convertible at a price equal to 88% of the average
of the closing prices for the Common Stock for the five trading days ending on
December 31, 2001; and anytime after January 1, 2003 the Series A Preferred
Shares are convertible at a price equal to the average of the closing prices for
the Common Stock for the five trading days ending on December 31, 2002. The
conversion price is subject to adjustment in the case of certain dilutive
events. Further, in the event the average market price of the Common Stock for
the five consecutive trading days ending one trading day prior to any trading
day during which any Series A Preferred Shares are outstanding exceeds 150% of
the conversion price then in effect, the Company has the right to require the
holder of the Series A Preferred Shares to convert all such shares that may be
convertible. The Company may also redeem in whole or any part of the Series A
Preferred Shares then outstanding at a redemption price of $120 per Preferred
Share, plus accrued and unpaid dividends thereon. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Series A Preferred Shares shall be entitled to receive in cash
out of the assets of the Company, whether from capital or from earnings,
available for distribution to its stockholders, before any amount shall be paid
the holders of the Common Stock or holders of shares of other classes or series
of capital stock of the Company, an amount equal to the preference in
liquidation; provided that, if the assets are insufficient to pay the full
amount due to the holders of Series A Preferred Shares, such holders will
receive a pro rata portion thereof. In accordance with the terms of the Series A
Preferred Stock, the holder is able to realize an assured incremental yield of
$5,455,000 on the conversion of the Series A Preferred Stock if converted from
January 1, 2002 through December 31, 2002. Such amount is being amortized as a
preferred stock dividend over a five-year period beginning with the day of
issuance. Accrued dividends were $112,000 plus the incremental yield on the
conversion discount of $51,000 at December 31, 1997.
F-14
<PAGE>
(10) Stock Options and Warrants
(a) Stock Option Plans:
In February 1986, the Company adopted and the shareholders thereafter
approved an Incentive Stock Option Plan and a Non-Qualified Stock Option Plan
(the "86 Plans"). In February 1996, the Company's Board of Directors adopted and
the shareholders thereafter approved an additional Incentive Stock Option Plan
and Non-Qualified Stock Option Plan (the "96 Plans"). Combined, the 86 Plans and
96 Plans, as amended, provide for the granting of options to purchase up to
4,500,000 shares of Common Stock to key employees, directors, consultants and
advisors of the Company. Incentive stock options may not be granted at a price
less than the fair market value of the stock at the date of grant and may not be
granted to non-employees. Options under both the 86 Plans and 96 Plans, unless
earlier terminated, expire ten years from the date of grant. Certain options
granted under these plans vest over one-to-five-year periods. At December 31,
1997, options to purchase 2,377,095 shares of Common Stock were outstanding and
1,592,156 shares were available for grant. Options may no longer be granted
under the 86 Plans pursuant to the terms of the Plans.
A summary of stock option activity follows:
Weighted
average
exercise
Number of price per
shares share
---------- ---------
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 9.32
Exercised ................................ (266,275) 3.18
Canceled ................................. (74,977) 2.58
---------
Balance at December 31, 1996 ................ 2,103,577 5.80
1997 activity:
Granted .................................. 456,194 6.62
Exercised ................................ (147,450) 1.51
Canceled ................................. (35,226) 8.60
---------
Balance at December 31, 1997 ................ 2,377,095 $ 6.19
=========
During the years ended December 31, 1997 and 1996, the Company granted
options to purchase 32,000 shares and 116,000 shares, respectively, of its
Common Stock to certain Scientific Advisory Board members in consideration for
future services. The fair value of these grants was $124,000 and $756,000,
respectively, as calculated using the Black-Scholes option pricing model.
Compensation expense is being recognized ratably over the respective vesting
period of the options. See Note 10(c) for weighted average assumptions used.
During the years ended December 31, 1997 and 1996, the Company recognized
approximately $189,000 and $95,000, respectively, in compensation expense
relating to the options granted to Scientific Advisory Board members.
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
F-15
<PAGE>
outstanding shares of capital stock of Cadus held by High River, the Company
granted to High River two options to purchase shares of Common Stock. One option
is for 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 outstanding options
granted under the 1986 Plans 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, 1997, a total of 2,406,145 shares of Common Stock were
issuable upon exercise of 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
average
exercise
Number of price per
shares share
---------- ---------
Balance at December 31, 1994 ............... 2,472,567 $ 10.01
1995 activity:
Granted ................................. 1,434,300 3.03
Exercised ............................... (15,300) 1.50
Canceled ................................ -- --
---------
Balance at December 31, 1995 ............... 3,891,567 3.15
1996 activity:
Granted ................................. 23,220 9.69
Exercised ............................... (604,892) 4.89
Canceled ................................ (34,250) 12.92
---------
Balance at December 31, 1996 ............... 3,275,645 2.41
1997 activity:
Granted ................................. 397,000 1.50
Exercised ............................... (869,500) 1.56
Canceled ................................ (397,000) 1.50
---------
Balance at December 31, 1997 ............... 2,406,145 $ 2.71
=========
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
$2,233,000.
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
F-16
<PAGE>
up to and including the day prior to the date of exercise. The fair market value
of the warrants 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 warrants was reflected as a cost of
capital.
In December 1995, the Company granted its President a ten-year warrant to
purchase 350,000 shares of Common Stock at an exercise price equal to the $5.50
trading price of the Common Stock on the date of grant. The grant of the warrant
was approved by shareholders at the Company's 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, directors or consultants, and 2,048,217 warrants were repriced. In
consideration for the offer of repricing, those choosing to accept the repriced
warrants were to pay the Company the difference in value before and after
repricing as calculated by use of the Black-Scholes model, which payment could
be made through promissory notes to the Company. The closing trading price of
the Company's Common Stock on February 2, 1995 was $.69.
The outstanding warrants expire and are exercisable for the number of
shares of Common Stock as shown below:
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 ................................................. 971,805
June 2003 ................................................ 12,000
December 2005 ............................................. 350,000
---------
Total .................................................. 2,406,145
=========
(c) SFAS No. 123:
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 to employees and
directors during the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Option Plans
------------------------------------------------------------------------
1997 1996 1995
------------------- -------------------- -------------------
Shares $ Shares $ Shares $
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equals market value
at date of grant .................. 424,194(1) $ 4.29 961,875(1) $ 5.56 602,000 $ 1.07
Exercise price exceeds market value
at date of grant .................. -- $ -- -- $ -- 795,000 $ 0.32
</TABLE>
(1) Does not include 32,000 shares in 1997 and 116,000 shares in 1996
under options granted to non-employees. The fair value of these non-employee
grants has been recorded as compensation expense as prescribed under SFAS 123
and is being recognized ratably over the respective vesting period of the
options.
F-17
<PAGE>
<TABLE>
<CAPTION>
Warrants
------------------------------------------------------------------------
1997 1996 1995
------------------- -------------------- -------------------
Shares $ Shares $ Shares $
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equals market value
at date of grant .................. -- $ -- 23,220 $ 5.39 1,434,300 $ 0.64
Exercise price is less than market
value at date of grant ............ 397,000(1) $ 5.91 -- $ -- -- $ --
Exercise price exceeds market value
at date of grant .................. -- $ -- -- $ -- 2,048,217 $ 0.29
</TABLE>
(1) The only grant of warrants during 1997 was the extension of an
officer's warrant to purchase 397,000 shares of Common Stock. The extension has
been considered a cancellation of the original grant and the issuance of a new
below market grant. Accordingly, the Company recognized compensation expense
consistent with APB Opinion No. 25.
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 of the Common Stock, the expected volatility and the dividend
yield of the underlying Common Stock, and the risk-free interest rate during the
expected term of the option. The following summarizes the weighted average
assumptions used:
<TABLE>
<CAPTION>
Option Plans Warrants
--------------------------------------- ----------------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Expected life (years) ... 5.0 3.5 2.5 2.0 2.0 (1) 2.0
Interest rate ........... 6.00% 5.00% 5.00% 6.00% 5.00% 5.00%
Volatility .............. 72.29% 85.13% 85.13% 72.29% 85.13% 85.13%
Dividend yield .......... 0% 0% 0% 0% 0% 0%
</TABLE>
(1) The weighted average expected life does not include the warrants repriced
in 1996 as they were exercised simultaneously.
The estimated volatility for the year ended December 31, 1997 reflects the
performance of the Company's Common Stock over the fourteen-month period ended
March 1998. The estimated volatility for the years ended December 31, 1996 and
1995 reflects the performance of the Company's Common Stock over the
twelve-month period ended December 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.
F-18
<PAGE>
The following table summarizes information concerning stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Term Price at 12/31/97 Price
- ------------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.563 - 1.063 ............... 413,625 3.61 $ 0.78 358,625 $ 0.73
1.25 - 2.00 ................. 329,625 3.42 1.60 319,125 1.61
3.75 - 5.938 ................ 189,000 8.01 5.05 124,002 5.14
6.00 ........................ 302,250 9.90 6.00 -- --
6.125 - 8.125 ............... 161,626 8.73 7.15 36,502 7.13
8.30 - 10.00 ................ 356,800 8.61 8.63 153,459 8.57
10.875 - 16.00 .............. 624,169 8.18 10.99 260,060 11.09
--------- ---------
2,377,095 7.03 6.19 1,251,773 4.69
========= =========
</TABLE>
As of December 31, 1997, the outstanding warrants to purchase 2,406,145
common shares were all exercisable. The weighted average remaining contractual
term at December 31, 1997 for the 12,300 outstanding warrants exercisable at
$.63 per share is 2.2 years, the 24,600 exercisable at $.69 per share is 2.0
years, the 1,437,525 exercisable at $1.50 per share is 3.1 years, the 498,500
exercisable at $3.00 per share is 2.6 years, the 350,000 exercisable at $5.50
per share is 8.0 years, the 12,000 exercisable at $7.00 per share is 5.5 years,
the 23,220 exercisable at $9.69 per share is 2.0 years, the 6,000 exercisable at
$10.00 per share is 2.9 years, and the 42,000 exercisable at $13.33 per share is
3.3 years.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its options and warrants. Except as previously indicated, no
compensation cost has been recognized for its stock option and warrant grants.
Had compensation cost for the Company's stock option grants been determined
based on the fair value at the grant dates for awards consistent with the method
of SFAS No. 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ------------- -------------
<S> <C> <C> <C>
Net loss to common stockholders As reported $(15,654,000) $ (16,015,000) $ (9,641,000)
Pro forma (13,511,000) (19,653,000) (11,728,000)
Loss per share Basic and diluted:
As reported (0.67) (0.83) (0.72)
Pro forma (0.58) (1.01) (0.88)
</TABLE>
The pro forma effect on the loss for the years ended December 31, 1997,
1996, and 1995 is not necessarily indicative of the pro forma effect on future
years operating results since it does not take into effect the pro forma
compensation expense related to grants made prior to January 1, 1995.
F-19
<PAGE>
(11) 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,
1997 and December 31, 1996 are presented below.
December 31, December 31,
1997 1996
------------ ------------
Deferred tax assets:
Liability to reacquire IL-6m
rights and materials .................. $ 262,000 $ 863,000
Research and development
credit carryforward ................... 2,303,000 1,883,000
Compensation relating to the
issuance of stock options
and warrants .......................... 189,000 2,740,000
Net operating loss carryforwards ........ 52,408,000 44,374,000
Other ................................... 1,116,000 958,000
------------ ------------
Total gross deferred tax assets ............ 56,278,000 50,818,000
Less valuation allowance ................ (56,278,000) (50,818,000)
------------ ------------
Net deferred tax assets ................. -- --
------------ ------------
Deferred tax liabilities:
Total gross deferred tax
liabilities ........................... -- --
------------ ------------
Net deferred tax ........................ $ -- $ --
============ ============
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $115,000,000 which expire at
various dates from 2000 through 2012. At December 31, 1997, the Company had
research credit carryforwards of approximately $2,303,000 which expire at
various dates between years 2001 and 2012. 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 percentage points
within a three-year period. Since 1986, the Company experienced two ownership
changes. Accordingly, the Company is significantly limited in utilizing its tax
net operating loss carryforwards arising before such ownership changes to offset
future federal taxable income. Similarly, the Company is significantly
restricted in using its research credit carryforwards arising before such
ownership changes to offset future federal income tax expense.
(12) 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. Rent expense for leased premises was
approximately $554,000, $508,000, and $493,000 for the years ended December 31,
1997, 1996 and 1995, respectively. See also Note 7.
F-20
<PAGE>
Future minimum lease payments under the capital and operating leases are
as follows:
Capital Operating
Years ending December 31, Leases Leases
----------- -----------
1998 .................................... $ 510,000 $ 564,000
1999 .................................... 559,000 323,000
2000 .................................... 505,000 9,000
2001 .................................... 143,000 1,000
2002 .................................... 3,000 --
----------- -----------
1,720,000 897,000
Less interest expense .................... (251,000) --
----------- -----------
$ 1,469,000 $ 897,000
=========== ===========
Supported Research
The Company has entered into various research and license agreements with
certain academic institutions and others to supplement the Company's research
activities and to obtain for the Company rights to certain technology. The
agreements generally require the Company to fund the research and to pay
royalties based upon percentages of revenues, if any, on sales of products
developed from technology arising under these agreements.
Consulting Agreements
The Company has consulting agreements with several of its Scientific
Advisory Board members and other consultants. These agreements generally are for
a term of one year or are terminable at the Company's option.
(13) Retirement Plans
The Company maintains a 401(k) retirement plan available to all full-time,
eligible employees. Employee contributions are voluntary and are determined on
an individual basis, limited to the maximum amount allowable under federal tax
regulations. The Company, at its discretion, may make certain contributions to
the plan. No such contributions have been made to the plan during the years
ended December 31, 1997, 1996 and 1995.
(14) Supplemental Cash Flow Information and Non-cash Investing and Financing
Activities are as follows:
Year Ended December 31,
--------------------------------
1997 1996 1995
---------- --------- --------
Cash paid during the year for:
Interest ................................. $ 707,000 $ 817,000 $504,000
========= ========= ========
Non-cash investing and finance
activities:
Finova capital asset and lease
obligations additions ................... 1,324,000 421,000 --
========= ========= ========
Fair value of Finova warrant .............. -- 125,000 --
========= ========= ========
Other capital lease obligations ........... 28,000 -- --
========= ========= ========
Unrealized gain (loss) on securities
available-for-sale ...................... 101,000 (49,000) --
========= ========= ========
Extinguishment of Oracle Group
debt for stock .......................... -- 2,500,000 --
========= ========= ========
Extinguishment of director
debt for stock .......................... -- 180,000 --
========= ========= ========
Preferred Stock dividend .................. 163,000 -- --
========= ========= ========
F-21
<PAGE>
(15) Related Party Transactions
Through March 1995, the Company made miscellaneous noninterest-bearing
cash advances to the President and CEO of the Company totaling approximately
$156,000. The officer provided the Company with a demand promissory note
pursuant to which the officer was obligated to repay the debt over a twenty-four
month period ending April 30, 1997. In March 1997, the Company accepted a new
promissory note (the "new promissory note") in the aggregate amount of $110,000
from the officer. The new promissory note was payable as to $15,000 no later
than May 15, 1997 and the remainder upon the earlier of on demand by the Company
or December 31, 1997 and bore interest at the rate of 5% compounded quarterly.
The new promissory note covered the remaining balance of the original note,
interest thereon and additional miscellaneous cash advances made since the date
of the original note totaling $15,000. At December 31, 1997, the new promissory
note was paid in full by the officer.
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.
In January 1998, the Company accepted a promissory note totaling
approximately $131,000 from its President and CEO in connection with the
exercise of a warrant to purchase 87,305 shares of the Company's Common Stock.
The note is due no later than two years from issuance and bears annual interest
at the rate of 8.5%.
(16) Fair Value of Financial Instruments
For the years ended December 31, 1997 and 1996, 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
Discounted cash flow analyses were used to determine the fair value of
long-term debt because quoted market prices on these instruments were
unavailable. The fair value of these instruments approximated the carrying
amount.
F-22
<PAGE>
(17) 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.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Revenues ................................. $ 75,000 $ 3,196,000 $ 742,000 $ 1,335,000
Operating expenses ....................... 6,478,000 4,529,000 4,359,000 6,445,000
----------- ----------- ----------- ----------
Operating loss ........................... (6,403,000) (1,333,000) (3,617,000) (5,110,000)
Net interest and other income ............ (50,000) (295,000) (283,000) (344,000)
----------- ----------- ----------- ----------
Net loss ................................. (6,353,000) (1,038,000) (3,334,000) (4,766,000)
Preferred stock dividends
(including incremental
yield of $51,000) ..................... -- -- -- 163,000
----------- ----------- ----------- ----------
Net loss to common stockholders .......... $(6,353,000) $(1,038,000) $(3,334,000) $(4,929,000)
=========== =========== =========== ===========
Basic and diluted net loss
per common share ....................... $ (0.30) $ (0.04) $ (0.14) $ (0.20)
=========== =========== =========== ===========
Year ended December 31, 1996:
Revenues ................................. $ 75,000 $ 75,000 $ 75,000 $ 375,000
Operating expenses ....................... 3,066,000 3,438,000 3,714,000 5,225,000
----------- ----------- ----------- ----------
Operating loss ........................... (2,991,000) (3,363,000) (3,639,000) (4,850,000)
Net interest and other expense
(income) ............................... 154,000 (61,000) (97,000) (91,000)
----------- ----------- ----------- ----------
Loss before extraordinary item ........... (3,145,000) (3,302,000) (3,542,000) (4,759,000)
Extraordinary loss on
extinguishment of debt ................. -- 1,267,000 -- --
----------- ----------- ----------- ----------
Net loss ................................. $(3,145,000) $(4,569,000) $(3,542,000) $(4,759,000)
=========== =========== =========== ===========
Basic and diluted net loss per
common share:
Loss before extraordinary item ........... $ (0.18) $ (0.17) $ (0.18) $ (0.24)
Extraordinary loss on extinguishment
of debt ................................ -- 0.06 -- --
----------- ----------- ----------- ----------
Net loss per common share ................ $ (0.18) $ (0.23) $ (0.18) $ (0.24)
=========== =========== =========== ===========
</TABLE>
F-23
Exhibit 4.6
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December
3, 1997 by and between ImClone Systems Incorporated, a Delaware corporation,
with a principal place of business at 180 Varick Street, 7th Floor, New York,
New York 10014, USA (the "Company"), and Merck KGaA, Frankfurter Strasse 250,
D-64271, Darmstadt 1, Germany (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Buyer wishes to purchase, in the amounts and upon the terms and
conditions stated in this Agreement, shares of the Company's Series A
Convertible Preferred Stock, $1.00 par value per share (the "Series A Preferred
Stock"); and
"C. WHEREAS, the parties have also on this day entered into an amendment
to their Research and License Agreement dated December 19, 1990, as previously
amended by amendments dated each of September 1, 1993, November 2, 1993 and May
14, 1996" (the "Amendment").
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
a. Purchase of Preferred Stock. The Company shall issue and sell to the
Buyer on the Closing Date (as defined below) and the Buyer shall purchase
400,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred
Shares"), which shall be convertible into shares (the "Conversion Shares") of
the Company's common stock, $.001 par value (the "Common Stock") in accordance
with the terms of the form of Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock attached hereto as Exhibit A (the
"Certificate of Designations"). The per share purchase price for the Series A
Preferred Shares shall be One Hundred Dollars ($100).
b. Form of Payment. The Buyer shall pay the $40,000,000 purchase price for
the Series A Preferred Shares (the "Purchase Price") by wire transfer of United
States Dollars to the Company on the Closing Date (as defined below). The
Company shall deliver to the Buyer a stock certificate, duly executed on behalf
of the Company, representing the Series A Preferred Shares (the "Stock
Certificate") on the Closing Date.
1
<PAGE>
c. Closing Date. The date and time of the issuance and sale of the Series
A Preferred Shares (the "Closing Date") shall be no later than 4:00 p.m. New
York Eastern Standard Time on December 15, 1997 or such other date to which the
parties may mutually agree.
2. BUYER REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Company that:
a. Organization and Qualification. The Buyer is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated. The Buyer is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect on it. "Material
Adverse Effect" means any material adverse effect on operations, properties or
financial condition.
b. Investment Purpose. The Buyer is purchasing the Series A Preferred
Shares for its own account for investment only and not with a view towards the
public sale or distribution thereof except pursuant to sales registered under
the 1933 Act or an exemption therefrom.
c. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a)(3) of Regulation D.
d. Reliance on Exemptions. The Buyer understands that the Series A
Preferred Shares are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemption and the eligibility of the Buyer to
acquire the Series A Preferred Shares.
e. Information. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Series A Preferred
Shares which have been requested by the Buyer. The Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received complete and satisfactory answers to any such inquiries. The Buyer
understands that its investment in the Series A Preferred Shares involves a high
degree of risk.
f. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Series A Preferred
Shares.
2
<PAGE>
g. Transfer or Resale. The Buyer understands that (i) the Series A
Preferred Shares and the Conversion Shares have not been and are not being
registered under the 1933 Act or any United States state securities laws or any
other laws, and may not be transferred unless (a) subsequently registered
thereunder, or (b) the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that the securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (ii) any sale of
such securities made in reliance on Rule 144 promulgated under the 1933 Act may
be made only in accordance with the terms of said Rule and further, if said Rule
is not applicable, any resale of such securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) except as specified in this Agreement, neither the
Company nor any other person is under any obligation to register such securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. The Buyer agrees that in no event will
it make a disposition of such securities unless and until it shall have first
(i) notified the Company of the proposed disposition and shall have furnished
the Company with a statement of the circumstances surrounding the proposed
disposition; and (ii) with respect to the Series A Preferred Shares, it shall
have obtained the prior written consent of the Company.
h. Legends. The Buyer understands that the Series A Preferred Shares and
the Conversion Shares may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended. The securities
have been acquired for investment and may not be sold, transferred or
assigned unless an effective registration statement for the securities
under said Act, or an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, that registration is not required
under said Act has been received. The securities represented by this
certificate are subject to certain restrictions on transfer as set forth
in a Preferred Stock Purchase Agreement dated as of December 3, 1997, a
copy of which is available for inspection at the executive offices of the
Company.
i. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
3
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated. The Company is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect on it.
b. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Company and is a valid and
binding agreement of the Company enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
c. Capitalization. The authorized capital stock of the Company consists of
(i) 45,000,000 shares of Common Stock of which 24,185,955 shares were
outstanding as of September 30, 1997, and (ii) 4,000,000 shares of Preferred
Stock, $1.00 par value, none of which were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended, as in
effect on the date hereof ("Certificate of Incorporation") and the Company's
By-laws, as in effect on the date hereof (the "By-laws").
d. Issuance of Shares. The Series A Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, shall be validly issued,
fully paid and non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof.
e. No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby will not result in a violation of the Company's Certificate
of Incorporation or By-laws or cause the Company to be in breach of any
agreement by which it is bound. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations which either singly or in the aggregate
do not have a Material Adverse Effect. Except as required under the 1933 Act and
any applicable United States state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement in accordance
with the terms hereof.
f. Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, wherein
an unfavorable decision, ruling or finding
4
<PAGE>
would have a Material Adverse Effect or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement of any of the documents
contemplated herein.
g. No Material Adverse Change. Since September 30, 1997 there has occurred
no change which could reasonably be expected to have a Material Adverse Effect
on the Company.
4. COVENANTS
a. Best Reasonable Efforts. The parties shall use their best reasonable
efforts timely to satisfy each of the conditions described in Section 5 and 6 of
this Agreement.
b. Form D, Blue Sky Laws. The Company agrees to file a Form D with respect
to the Series A Preferred Stock as required under Regulation D. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Series A Preferred Stock for,
or obtain exemption for the Series A Preferred Stock for, sale to the Buyer at
the closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States.
c. Reservation of Shares. The Company shall at all times have authorized,
and reserved for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the conversion of the Series A Preferred Shares.
d. Market Stand-Off Agreement. The Buyer hereby agrees that, during the
period of duration specified by the Company and an underwriter of Common Stock
or other securities of the Company, following the effective date of a
registration statement of the Company filed under the 1933 Act, the Buyer and
any Affiliate (as that term is defined under Rule 405 under the 1933 Act) shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time except insofar as such securities are covered by
such registration statement; provided, however, that such agreement shall not
exceed 90 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to such securities of the Buyer (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
e. Stand-Still Agreement. Except for the acquisition of Conversion Shares,
for the exercise of any rights as a holder of Conversion Shares or as otherwise
contemplated by this Agreement, the Buyer hereby agrees that for a period of
five years from the date hereof, without the prior written consent of the
Company, neither the Buyer nor any Affiliate (as that term is defined in Rule
405 under the 1933 Act) of the Buyer (regardless of whether such person or
entity is an Affiliate on the date hereof) will (i) acquire, offer to acquire,
or agree to acquire, directly or
5
<PAGE>
indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights or options to acquire any voting securities of the Company, (ii)
make, or in any way participate, directly or indirectly, in any "solicitation"
of "proxies' to vote (as such terms are used in the proxy rules of the SEC), or
seek to advise or influence any person or entity with respect to the voting of
any voting securities of the Company, (iii) form, join or in any way participate
in a "group" within the meaning of Section 13(d) (3) of the United States
Securities Exchange Act of 1934, as amended with respect to any voting
securities of the Company, or (iv) otherwise act, alone or in concert with
others, to seek to control or influence the management, board of directors or
policies of the Company. Buyer acknowledges that the Company would not have an
adequate remedy at law for money damages in the event that this covenant were
not performed in accordance with its terms and therefore agree that the Company
shall be entitled to specific enforcement of the terms hereof in addition to any
other remedy to which it may be entitled, at law or in equity.
f. Resales of Conversion Shares. Except pursuant to a registration
statement provided in Article 8 hereof, the Buyer hereby agrees that Conversion
Shares shall only be sold by it and any Affiliate (as defined in Rule 405 under
the 1933 Act) in accordance with the following:
(i) Conversion Shares relating to Tranche I (as defined in the
Certificate of Designations) (a) shall not be sold prior to December 31, 1998;
and (b) shall not be sold during the period December 31, 1998 through December
31, 1999 in an amount that is excess of that amount specified in Rule 144 (e)
(1) of the 1933 Act.
(ii) Conversion Shares relating to Tranche II (as defined in the
Certificate of Designations) (a) shall not be sold prior to December 31, 2000;
and (b) shall not be sold during the period December 31, 2000 through December
31, 2001 in an amount that is in excess of that amount specified in Rule 144 (e)
(1) of the 1933 Act.
(iii) Conversion Shares relating to Tranche III (as defined in the
Certificate of Designations) (a) shall not be sold prior to December 31, 2001;
and (b) shall not be sold during the period December 31, 2001 through December
31, 2002 in an amount that is in excess of that amount specified in Rule 144 (e)
(1) of the 1933 Act.
(iv) Conversion Shares relating to Tranche IV (as defined in the
Certificate of Designations) (a) shall not be sold prior to December 31, 2002;
and (b) shall not be sold during the period December 31, 2002 through December
31, 2003 in an amount that is in excess of that amount specified in Rule 144 (e)
(1) of the 1933 Act.
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5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell the Series A Preferred
Shares is subject to the satisfaction, at or before the Closing Date, of each of
the following conditions, provided that these conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The parties shall have executed this Agreement and delivered the same
to each other.
b. The Buyer shall have delivered the Purchase Price to the Company.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date and an officers' certificate to such
effect delivered to the Company.
d. The parties shall have executed the Amendment.
6. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Series A Preferred
Shares is subject to the satisfaction, at or before the Closing Date, of each of
the following conditions, provided that these conditions are for the Buyer's
sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The parties shall have executed this Agreement and delivered the same
to each other.
b. The Company shall have caused the Certificate of Designations to be
filed with the Secretary of State for the State of Delaware of the United States
at or before the Closing Date.
c. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date and an officers' certificate to such
effect delivered to the Buyer.
d. The Company shall have delivered to the Buyer the Stock Certificate.
e. The parties shall have executed the Amendment.
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7. REGISTRATION RIGHTS
The Buyer shall have the right to request, once for Conversion Shares
relating to each tranche, that the Company effect registration with respect to
all or part of Conversion Shares relating to the relevant tranche. Upon written
request of the Buyer in compliance with the preceding sentence that the Company
effect registration with respect to all or a part of the Registrable Securities,
the Company will, as expeditiously as reasonably possible:
a. prepare and file with the Commission a registration statement on Form
S-3 or on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate, as the case may be, and which form shall be
available for the sale of the Registrable Securities; provided, that before
filing with the Commission a registration statement or prospectus or any
amendments or supplements thereto, the Company will (i) furnish to one counsel
selected by the Buyer copies of all such documents proposed to be filed, which
documents will be subject to reasonable advance review of such counsel, and (ii)
notify the Buyer of any stop order issued or threatened by the Commission and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered;
b. keep such registration effective for a period of no longer than two (2)
years after the date of filing of such registration statement or until the Buyer
has completed the distribution described in the registration statement relating
thereto, whichever first occurs;
c. prepare and file with the Commission such amendments and supplements to
such registration statements and the Prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement;
d. furnish to the Buyer such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the Prospectus included in such registration statement
(including each preliminary prospectus), in conformity with the requirements of
the 1933 Act and such other documents as the Buyer may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by the
Buyer;
e. advise the Buyer and the managing underwriters, if any, and, if
requested by the Buyer or the managing underwriters, if any, confirm such advice
in writing, when a registration statement or any amendment thereto has been
filed with the Commission and when the registration statement or any
post-effective amendment thereto has become effective;
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<PAGE>
f. use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of any registration statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
time;
g. cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed;
h. provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
i. immediately notify the Buyer at any time when a Prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event as a result of which the Prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and will
promptly prepare and furnish to the Buyer a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
j. make available for inspection by the Buyer, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Buyer or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "Records")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspectors in connection
with such registration statement; provided, however, that such Inspectors shall
first agree in writing with the Company that any Records that are reasonably and
in good faith designated by the Company as confidential at the time of delivery
of such Records shall be kept confidential by such Inspectors; and
k. in connection with underwritten offerings, use its reasonable best
efforts to obtain a comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by comfort letters as the Buyer reasonably requests.
The Buyer agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 7(i) hereof, the Buyer
will forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until the Buyer's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 7(i) hereof, and, if so directed by the Company, the Buyer will deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies then in the Buyer's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.
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<PAGE>
8. PIGGYBACK REGISTRATION
If the Company proposes to file a registration statement under the 1933
Act with respect to an offering by the Company of any class of securities after
the Closing Date (other than a registration statement on Form S-4 or S-8 or any
successor form to such Forms, or filed in connection with a merger, exchange
offer or an offering of securities solely to the existing stockholders in
connection with a merger, exchange offer or an offering of securities solely to
the existing stockholders in connection with a rights offering or solely to
employees of the Company), then the Company shall give written notice of such
proposed filing to the Buyer at least twenty days before the anticipated filing
date, and such notice shall offer Buyer the opportunity to register such amount
of Registrable Securities as Buyer may request. The Company shall use its best
efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the Buyer to include such securities in such
offering on the same terms and conditions as any similar securities of the
Company included therein. Notwithstanding the foregoing, (i) if the managing
underwriter or underwriters of such proposed underwritten offering delivers a
written notice to the Buyer that the total amount of securities which the Buyer,
the Company and any other persons or entities (other than such other persons or
entities with whom the Company has agreements on the date hereof prohibiting
reduction or limitation as contemplated herein) having registration rights,
intend to include in such offering is sufficiently large as to materially and
adversely affect the success of such offering, then the amount of securities to
be offered for the accounts of the Buyer and for the accounts of such other
persons or entities shall be reduced or limited in proportion to their
respective amounts of securities to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount recommended
by such managing underwriter; provided, that no reduction shall be made in the
securities to be offered for the account of the Company; and (ii) if such
proposed underwritten offering involves only equity securities and the managing
underwriter or underwriters thereof shall have delivered a written notice to the
Buyer that the inclusion of any Registrable Securities in such offering will
materially and adversely affect the success of such offering, then no
Registrable Securities shall be included in such offering.
9. EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 7 or Section 8 hereof shall be
borne by the Company. All Selling Expenses relating to securities so registered
shall be borne by the Buyer.
10. INDEMNIFICATION.
a. Indemnification by the Company. The Company will, and it hereby does,
agree to indemnify and hold harmless, to the full extent permitted by law, the
Buyer, its directors and officers and each other person, if any, who controls
the Buyer within the meaning of the 1933 Act or the Exchange Act, against any
and all losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts personally paid in any settlement) to which the Buyer,
any such director or officer or controlling person may become subject under the
1933 Act, common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect
10
<PAGE>
thereof) or expenses arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the 1933 Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse the Buyer and each such
director, officer or controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceedings; provided, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expenses arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
and in conformity with written information furnished to the Company by the Buyer
for use in the preparation thereof; and provided, further, that the Company will
not be liable to the Buyer or any other person, if any, who controls the Buyer,
under the indemnity agreement in this Section 10(a) with respect to any
preliminary prospectus as amended or supplemented as the case may be, to the
extent that any such loss, claim, damage or liability of the Buyer or
controlling person results from the fact that the Buyer sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus (including any
documents incorporated by reference therein), whichever is most recent, if the
Company has previously furnished copies thereof to the Buyer and such final
prospectus, as then amended or supplemented, has corrected any such misstatement
or omission. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Buyer or any such director,
officer or controlling person and shall survive the transfer of such securities
by the Buyer. It is agreed that the indemnity agreement contained in this
Section 10(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent has not been unreasonably withheld).
b. Indemnification by the Buyer. The Buyer will, if the Registrable
Securities are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify and hold harmless (in
the same manner and to the same extent as set forth in subdivision (a) of this
Section 10) the Company, any underwriter and their respective controlling
persons within the meaning of the 1933 Act and the Exchange Act, and all other
prospective sellers and their respective controlling persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the Buyer for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any
underwriter or any of the Buyer or any of its directors, officers and
controlling persons and shall survive the transfer of such securities by the
Buyer; provided, however, that the obligations of the Buyer hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages, or
liabilities (or actions
11
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in respect thereof) if such settlement is effected without the consent of the
Buyer (which consent shall not be unreasonably withheld).
c. Notices of Claims, Etc. Each party entitled to indemnification under
this Section 10 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
such claim or any litigation resulting therefrom, provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided, further,
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
10, to the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
d. Contribution. If the indemnification provided for in this Section 10 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statements of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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11. DEFINITIONS
The term "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the 1933 Act or the Exchange
Act.
The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time and a reference
to a particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar successor federal statute.
The term "person" shall mean an individual, partnership, corporation,
limited liability company, trust, unincorporated organization or government or
political department or agency thereof or other entity.
The term "Prospectus" shall mean the prospectus included in any
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the 1933 Act),
as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of Registrable Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
The term "Registrable Securities" shall mean any Conversion Shares. As to
any Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the 1933 Act and such securities
shall have been disposed of pursuant to such effective registration statement,
(ii) such securities shall have been distributed pursuant to Rule 144, Rule
144A, or any similar provision then in force, under the 1933 Act, (iii) such
securities shall have been otherwise transferred, new certificates or other
evidences of ownership for them not bearing a legend restricting further
transfer and not subject to any stop transfer order or other restrictions on
transfer shall have been delivered by the Company and subsequent disposition of
such securities shall not require registration or qualification of such
securities under the 1933 Act or any state securities laws then in force or (iv)
the sale of such securities by the Buyer shall no longer require registration
under the 1933 Act or such securities shall cease to be outstanding.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and the applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
The term "Registration Expenses" shall mean all expenses incurred in
effecting anyregistration pursuant to this Agreement, including without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel
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<PAGE>
for the Company, blue sky fees and expenses and expenses of any regular or
special audits incident to or required by any such registration, but shall not
include Selling Expenses.
The term "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities and
fees and disbursements of counsel for the Buyer (other than the fees and
disbursements of counsel constituting a part of blue sky fees and expenses and
included in Registration Expenses).
12. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware of the United States without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when such counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional originally executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. 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. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notice or communication hereunder shall be in writing and
delivered by messenger, overnight courier, first class mail, (return receipt
requested) or telex or telecopy (with such telex or telecopy confirmed promptly
in writing by first class mail return receipt requested), as follows:
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If to the Company:
ImClone Systems Incorporated
180 Varick Street, 7th Floor
New York, NY 10014
Telephone: (212) 645-1405
Telecopy: (212) 645-2054
Attention: Corporate Secretary
With copy to:
Howard, Darby and Levin
1330 Avenue of the Americas
New York, NY 10019
Telephone: (212) 841-1000
Telecopy: (212) 841-1010
Attention: Lawrence A. Darby III, Esq.
If to the Buyer:
Merck KGaA
Frankfurter Strasse 250
D-64271 Darmstadt 1
Germany
Telephone: (011) 49 61 51 72 21 24
Telecopy: (011) 49 61 51 72 34 35
Attention: Edward R. Roberts, President, World Pharmaceuticals
With copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, NY 10036-7703
Telephone: (212) 626-4682
Telecopy: (212) 626-4120
Attention: Edwin S. Matthews, Jr., Esq.
or in each case, to such address or telex or telecopy number as such party may
designate in writing to the other by written notice given in the manner
specified herein. All such communications shall be deemed to have been given,
delivered or made when so delivered personally, by overnight courier or first
class mail or sent by telex or telecopy (confirmation received), or five
business days after being so mailed.
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g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the
Company nor the Buyer shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other (which consent may be
withheld for any reason in the sole discretion of the party from whom consent is
sought).
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations, warranties and agreements of the Company
and the Buyer set forth in Sections 2, 3, 4, 7, 8, 9, 10, 11 and 12 shall
survive the closing.
j. Publicity. The Company and the Buyer shall have the right to approve
before issuance any press releases, SEC or NASD filings, or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer, to make any press release or SEC or NASD filings with respect to such
transactions as is required by applicable law and regulations.
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
IN WITNESS WHEREOF, the Buyer and the Company have caused this Preferred
Stock Purchase Agreement to be duly executed as of the date first above-written.
IMCLONE SYSTEMS INCORPORATED
By: /s/ Samuel D. Waksal
------------------------------------
Name: Samuel D. Waksal
----------------------------------
Its: President & CEO
-----------------------------------
MERCK KGaA
By: /s/ E. R. Roberts
------------------------------------
Name: E. R. Roberts
----------------------------------
Its: Head of Pharmaceuticals
-----------------------------------
16
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Exhibit A
to
Preferred Stock Purchase Agreement
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK
OF
IMCLONE SYSTEMS INCORPORATED
IMCLONE SYSTEMS INCORPORATED (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held on December 3,
1997, adopted resolutions providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of four hundred thousand (400,000) shares
of Series A Convertible Preferred Stock (the "Series A Preferred Shares") of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 400,000 shares of Series
A Convertible Preferred Stock (the "Series A Preferred Shares") which shall have
the following powers, designations, preferences and other special rights:
II. Dividends. The holders of the then outstanding Series A Preferred
Shares shall be entitled to receive, out of funds legally available therefor,
cumulative dividends at the annual rate of 6% of the Stated Value thereof
compounded annually (pro-rated for any portion of the applicable period during
which such Series A Preferred Shares are outstanding). Dividends shall be
payable on the Series A Preferred Shares then outstanding in cash (i) annually
on December 31st of each year beginning on December 31, 1999 or (ii) at the time
of conversion or redemption (as
17
<PAGE>
provided herein) of the Series A Preferred Shares on which the dividend is to be
paid, whichever is sooner. Dividends on the Series A Preferred Shares shall
accumulate and accrue from the date of original issuance and shall accrue from
day to day thereafter, whether or not earned or declared. Until any such
dividend in arrears is paid, dividends shall continue to accrue on each Series A
Preferred Share but the percentage rate expressed herein shall be applied to the
Stated Value thereof plus all dividends thereon (including dividends computed
pursuant to this sentence).
III. Conversion of Series A Preferred Shares. The holders of the Series A
Preferred Shares shall have the right, at their option, to convert the Series A
Preferred Shares into shares of Common Stock on the following terms and
conditions:
A. Each Series A Preferred Share shall be convertible at any time as
hereinafter provided (or, if such Series A Preferred Share is called for
redemption, at any time up to and including, but not after, the close of
business on the fifth full business day prior to the date fixed for such
redemption, unless default shall be made by the Company in providing the
funds for the payment of the redemption price), into fully paid and
nonassessable shares (calculated to the nearest whole share) of Common
Stock of the Company as constituted at the time of such conversion, at the
conversion price in effect at the time of conversion determined as
hereinafter provided (the "Conversion Price"). Each Series A Preferred
Share shall have a value of $100 (the "Stated Value") and the number of
shares of Common Stock issuable upon conversion of each of the Series A
Preferred Shares shall be determined by dividing the Stated Value thereof
by the Conversion Price then in effect. Every reference herein to the
Common Stock of the Company (unless a different intention is expressed)
shall be to the shares of the Common Stock of the Company, $.001 par
value, as such stock exists immediately after the issuance of the Series A
Preferred Shares provided for hereunder, or to stock into which such
Common Stock may be changed from time to time thereafter.
B. The Series A Preferred Shares shall be convertible as of the
dates set forth in (i) - (iv) below.
(i) up to 100,000 Series A Preferred Shares ("Tranche I")
shall be convertible at any time on or after the date on which the
Series A Preferred Shares are issued (the "Issuance Date"); (ii) up
to an additional 100,000 Series A Preferred Shares ("Tranche II")
shall be convertible at any time on or after January 1, 2000 (the
"Second Anniversary Date"); (iii) up to an additional 100,000 Series
A Preferred Shares ("Tranche III") shall be convertible at any time
on or after January 1, 2001 (the "Third Anniversary Date"); and (iv)
up to an additional 100,000 Series A Preferred Shares ("Tranche IV")
shall be convertible at any time on or after January 1, 2002 (the
"Fourth Anniversary Date").
C. The Series A Preferred Shares shall be convertible at the
Conversion Prices set forth in (i) - (v) below.
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<PAGE>
1. Series A Preferred Shares converted on or after the
Issuance Date and before the Second Anniversary Date shall be
convertible at a per share Conversion Price equal to $12.50; (ii)
Series A Preferred Shares converted on or after the Second
Anniversary Date and before the Third Anniversary Date shall be
convertible at a per share Conversion Price equal to 100% of the
Average Market Price (as defined below) of the Common Stock for the
five (5) consecutive trading days ending one trading day prior to
the Second Anniversary Date; (iii) Series A Preferred Shares
converted on or after the Third Anniversary Date and before the
Fourth Anniversary Date shall be convertible at a per share
Conversion Price equal to 100% of the Average Market Price (as
defined below) of the Common Stock for the five (5) consecutive
trading days ending one trading day prior to the Third Anniversary
Date; (iv) Series A Preferred Shares converted on or after the
Fourth Anniversary Date and before January 1, 2003 shall be
convertible at a per share Conversion Price equal to 88% of the
Average Market Price (as defined below) of the Common Stock for the
five (5) consecutive trading days ending one trading day prior to
the Fourth Anniversary Date; and (v) Series A Preferred Shares
converted on or after January 1, 2003 shall be convertible at a per
share Conversion Price equal to 100% of the Average Market Price (as
defined below) of the Common Stock for the five (5) consecutive
trading days ending one (1) trading day prior to the receipt by the
Company of the Conversion Notice (as defined below).
D. Notwithstanding anything to the contrary contained herein, in the
event (i) the Conversion Price in effect from time to time under Section
2(c) is less than the Average Market Price (as defined below) of the
Common Stock for the five (5) consecutive trading days ending one trading
day prior to the Issuance Date, and (ii) the number of shares of Common
Stock that would be issued at such Conversion Price would exceed that
number of shares of Common Stock permitted to be issued by the Company
without shareholder approval under the rules of the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") (the
"Permissible Shares"), then the Company shall issue the Permissible Shares
as herein provided, and with respect to those shares exceeding the
Permissible Shares (the "Excess Shares") the Company shall use its
reasonable best efforts to take such action as will permit it to issue the
Excess Shares, and if the Company is unable to obtain such required
permission within a reasonable period of time, the Company shall
repurchase the Excess Shares at a per share purchase price equal to the
Stated Value, plus accrued and unpaid dividends thereon.
E. Notwithstanding anything to the contrary contained herein, should
the Average Market Price (as defined below) of the Common Stock for the
five (5) consecutive trading days ending one trading day prior to any
trading day during which any of the Series A Preferred Shares are
outstanding exceed 150% of the Conversion Price then in effect, then so
long as such price is in excess of such percentage the Company, in its
sole discretion, may require the holder of such Series A Preferred Shares
to convert all such Series A Preferred Shares as may then be convertible.
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<PAGE>
F. "Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing prices for such security
for each trading day in such period on the NASDAQ National Market, or, if
the NASDAQ National Market is not the principal trading market for such
security, on the principal trading market for such security, or, if market
value cannot be calculated for such period on any of the foregoing bases,
the average fair market value during such period as reasonably determined
in good faith by the Board of Directors of the Company.
G. The Conversion Price shall be subject to adjustments from time to
time as follows:
1. If and whenever on or after the Issuance Date the Company
issues, sells or exchanges other than in an Excluded Issuance (as
hereinafter defined), any share of Common Stock for a consideration
per share less than the Average Market Price of the Common Stock for
the five (5) consecutive trading days ending one trading day prior
to such event (the "Actual Price") (a "Dilutive Event"), then
forthwith upon such issue or sale the Conversion Price shall be
decreased by multiplying the Conversion Price in effect immediately
before the Dilutive Event by a fraction, the numerator of which is
the number of shares of Common Stock that are Outstanding on an
As-Converted Basis (as defined below) immediately before the
Dilutive Event plus the number of shares of Common Stock that could
be purchased at the Actual Price at the time of the Dilutive Event
for the aggregate consideration paid or payable upon the sale or
issuance of Common Stock in the Dilutive Event, and the denominator
of which is the number of shares of Common Stock that are
Outstanding on an As-Converted Basis immediately before the Dilutive
Event plus the number of shares that are acquired or to be acquired
upon the sale or issuance of the Common Stock in the Dilutive Event.
For purposes of this paragraph (1), "Outstanding on an As-Converted
Basis immediately before the Dilutive Event" means the sum of (i)
all Common Stock issued and outstanding immediately before the
Dilutive Event plus (ii) ---- all Common Stock issuable upon the
exercise of options or warrants or conversion of convertible
securities outstanding immediately before the Dilutive Event.
2. "Excluded Issuance" means the issue or sale of (i) shares
of Common Stock by the Company pursuant to the exercise of options
and warrants outstanding immediately prior to the Issuance Date (as
adjusted pursuant to the terms of such securities to give effect to
stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Issuance Date), (ii) options to
acquire Common Stock pursuant to a resolution of, or a stock option
plan approved by a resolution of, the Board of Directors of the
Company (or the compensation committee or stock option committee
thereof) to the Company's employees, directors or Scientific
Advisory Board members, or (iii) shares of Common Stock issued by
the Company as dividends on, or upon conversion of, the Series A
Preferred Shares.
20
<PAGE>
3. If after the Issuance Date the Company in any manner grants
or issues any option, warrant or convertible security and the price
per share for which shares of Common Stock are issuable upon the
exercise of any such option, warrant or convertible security is less
than the Actual Price with respect to such date of grant or
issuance, then such shares of Common Stock shall be deemed to have
been issued and sold by the Company at the time of the granting or
issuance of such option, warrant or convertible security for such
price per share and the Conversion Price shall be adjusted in
accordance with paragraph (i) above. For purposes of this paragraph,
the "price per share" for which shares of Common Stock are issuable
upon the conversion or exercise of any option, warrant or
convertible security shall be equal to the sum of the amounts of
consideration (if any) received or receivable by the Company with
respect to such shares of Common Stock upon the granting or issuance
of the option, warrant or convertible security and upon exercise or
conversion of the option, warrant or convertible security. No
further adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon the exercise or conversion of
such option, warrant or convertible security.
4. If after the Issuance Date the purchase price provided for
in any option or warrant, the additional consideration (if any)
payable upon the issue, conversion or exchange of any convertible
security, or the rate at which any convertible security is
convertible into or exchangeable for Common Stock changes at any
time, any Conversion Price previously adjusted with respect to such
option, warrant or convertible security and in effect at the time of
such change shall be readjusted to the Conversion Price which would
have been in effect at such time had such option, warrant or
convertible security originally provided for such changed purchase
price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
5. Upon the expiration of any option or warrant or the
termination of any right to convert any convertible security, after
the Issuance Date, without the exercise of any such option or
warrant, any Conversion Price then in effect hereunder shall be
adjusted to the Conversion Price which would have been in effect at
the time of such expiration or termination had such option, warrant
or convertible security, to the extent outstanding immediately prior
to such expiration or termination, never been issued.
6. In case any option or warrant is issued in connection with
the issue or sale of other securities of the Company, together
comprising one (1) integrated transaction in which no specific
consideration is allocated to such option or warrant by the parties
thereto, the option or warrant shall be deemed to have been issued
for a consideration of $.0l.
7. If the Company shall consolidate with or merge into any
corporation or reclassify its outstanding shares of Common Stock
(other than by way of subdivision or reduction of such shares) (each
21
<PAGE>
a "Major Transaction"), then each Series A Preferred Share shall
thereafter be convertible into the number of shares of stock or
securities (the "Resulting Securities") or property of the Company,
or of the entity resulting from such consolidation or merger, to
which a holder of the number of shares of Common Stock delivered
upon conversion of such Series A Preferred Share would have been
entitled upon such Major Transaction had the holder of such Series A
Preferred Share exercised its right of conversion and had such
Common Stock been issued and outstanding and had such holder been
the holder of record of such Common Stock at the time of such Major
Transaction, and the Company shall make lawful provision therefor as
a part of such consolidation, merger or reclassification.
8. If at any time, or from time to time after the Issuance
Date, the Company shall (i) declare and pay, on or in respect of,
its Common Stock any dividend payable in shares of Common Stock or
(ii) subdivide the outstanding shares of Common Stock into a greater
number of shares, or reduce the number of outstanding Series A
Preferred Shares by combining such Series A Preferred Shares into a
smaller number of Series A Preferred Shares, the Conversion Price in
effect at the time of the taking of a record for such dividend or
the taking of such other action shall be proportionately decreased
as of such time, and conversely (iii) if at any time, or from time
to time, the Company shall reduce the number of outstanding shares
of Common Stock by combining such shares into a smaller number of
shares, or subdivide the outstanding Series A Preferred Shares into
a greater number of Series A Preferred Shares, the Conversion Price
in effect at the time of the taking of any such action shall be
proportionately increased as of such time.
9. Anything in this Section 2 to the contrary notwithstanding,
the Company shall not be required to give effect to any adjustment
in the Conversion Price unless and until the net effect of one or
more adjustments, determined as above provided, shall have resulted
in a change of the Conversion Price by at least $0.05, provided,
however, that when the cumulative net effect of more than one
adjustment so determined shall be to change the Conversion Price by
at least $0.05 such change in the Conversion Price shall thereupon
be given effect.
10. The Company shall not issue any fraction of a share of
Common Stock upon any conversion, but shall pay in cash therefor at
the Conversion Price then in effect multiplied by such fraction.
11. Notice of Adjustments of Conversion Rate. Whenever the
Conversion Price is adjusted as provided herein, the Company shall
promptly (and, in any event, not later than the fifteenth (15th) day
following the occurrence of the event requiring such adjustment)
compute the adjusted Conversion Price in accordance herewith and
shall prepare a report setting forth such adjustment. The Company
will promptly (and, in any event, not later than such fifteenth
(15th) day) furnish a copy of each such report and such verification
to the holder of any Series A Preferred Share. The Company will also
keep copies of all such reports and such
22
<PAGE>
verifications at its principal office, and will cause the same to be
available for inspection at such office during normal business hours
by the holder of any Series A Preferred Shares.
12. Notice of Certain Corporate Action. In case:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in
cash out of its earned surplus; or
(2) (a) of any reclassification of the Common Stock of
the Company, or (b) of any consolidation, merger or share
exchange to which the Company is a party and for which
approval of any stockholders of the Company is required, or
(c) of the conveyance, transfer, sale or lease of all or
substantially all of the assets of the Company; or
(3) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company, ten (10) business days prior to the applicable
record, expiration or effective date hereinafter specified, shall
give to each holder of Series A Preferred Shares a notice stating
(x) the date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants, or, if a record is
not to be taken, the effective date as of which the holders of
Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, (y) the date
on which such reclassification, consolidation, merger, share
exchange, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock
for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up.
H. On presentation and surrender to the Company (or at any office or
agency maintained for the transfer of the Series A Preferred Shares) of
the certificates of Series A Preferred Shares so to be converted, duly
endorsed in blank for transfer or accompanied by proper instruments of
assignment or transfer in blank (a "Conversion Notice"), with signatures
guaranteed, the holder of such Series A Preferred Shares shall be
entitled, subject to the limitations herein contained, to receive in
exchange therefor a certificate or certificates for fully paid and
nonassessable shares, which certificates shall be delivered by the fifth
trading day after the date of delivery of the Conversion Notice, and cash
for fractional shares, of Common Stock on the foregoing basis. The Series
A Preferred Shares shall be deemed to have been converted, and the person
converting the same to have become the holder of record of Common Stock,
for all purposes as of the date of delivery of the Conversion Notice.
23
<PAGE>
I. The Company shall, so long as any of the Series A Preferred
Shares are outstanding, reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Shares outstanding, such number of
shares of Common Stock as it shall reasonably believe shall from time to
time be sufficient to effect the conversion of all of the Series A
Preferred Shares then outstanding.
J. The Company shall pay any and all taxes which may be imposed upon
it with respect to the issuance and delivery of Common Stock upon the
conversion of the Series A Preferred Shares as herein provided. The
Company shall not be required in any event to pay any transfer or other
taxes by reason of the issuance of such Common Stock in names other than
those in which the Series A Preferred Shares surrendered for conversion
are registered on the Company's records, and no such conversion or
issuance of Common Stock shall be made unless and until the person
requesting such issuance has paid to the Company the amount of any such
tax, or has established to the satisfaction of the Company and its
transfer agent, if any, that such tax has been paid.
IV. Voting Rights. Holders of Series A Preferred Shares shall have no
voting rights, except as required by law, by Section 7 hereof and, to the extent
permitted by applicable laws and regulations, as provided in this Section 3. If
during any fiscal year of the Company, the Company shall be in arrears in the
payment of any dividend on the Series A Preferred Shares for a period of six
months or more during such fiscal year, then at the annual meeting of
shareholders relating to such fiscal year, the holders of the Series A Preferred
Shares shall have the right to designate a nominee for director to be included
on the slate of the Company's nominees for directors for such annual meeting of
shareholders, and further, shall have the right, voting as a class, to elect
such nominee as a director of the Company at such annual meeting of
shareholders.
V. Redemption. The Company may, but shall not be obligated to, at any
time, and from time to time, redeem on the terms and conditions herein provided,
the whole or any part of the Series A Preferred Shares then outstanding at a
redemption price of $120 per Preferred Share, plus accrued and unpaid dividends
thereon, in accordance with the following procedures:
A. In case of redemption of only part of the Series A Preferred
Shares at any time outstanding, the Company shall designate the amount of Series
A Preferred Shares so to be redeemed and shall redeem such Series A Preferred
Shares ratably from each tranche.
B. Notice of every redemption shall be given by mail to every holder
of record of any Series A Preferred Shares then to be redeemed, at least thirty
(30), but no more than ninety (90), days prior to the date fixed as the date for
the redemption thereof, at the respective addresses of such holders as the same
shall appear on the stock transfer books of the Company. The notice shall state
that the Series A Preferred Shares shall be redeemed by the Company at the
redemption price specified above, upon the surrender for cancellation, at the
time and place designated in such notice, of the certificates representing the
Series A Preferred Shares to be redeemed, properly endorsed in blank for
transfer, or accompanied by proper instruments of assignment and transfer in
blank, with signatures guaranteed, and bearing all necessary transfer tax stamps
thereto affixed and canceled. On
24
<PAGE>
and after the date specified in the notice described above, each holder of
Series A Preferred Shares called for redemption shall be entitled to receive
therefor the specified redemption price upon presentation and surrender at the
place designated in such notice of the certificates for Series A Preferred
Shares called for redemption, properly endorsed in blank for transfer or
accompanied by proper instruments of assignment or transfer in blank, with
signatures guaranteed, and bearing all necessary transfer tax stamps thereto
affixed and canceled.
C. If the Company shall give notice of redemption as aforesaid (and
unless the Company shall fail to pay the redemption price of the Series A
Preferred Shares presented for redemption in accordance with such notice), all
Series A Preferred Shares called for redemption shall be deemed to have been
redeemed on the date specified in such notice, whether or not the certificates
for such Series A Preferred Shares shall be surrendered for redemption, and such
Series A Preferred Shares so called for redemption shall from and after such
date cease to represent any interest whatsoever in the Company or its property,
and the holders thereof shall have no rights other than the right to receive
such redemption price without any interest thereof from and after such date.
VI. Liquidation, Dissolution, Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of the Series A Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings, available for
distribution to its stockholders (the "Preferred Funds"), before any amount
shall be paid to the holders of the Common Stock or holders of shares of other
classes or series of capital stock of the Company (the "Junior Shares"), an
amount equal to the Stated Value per Series A Preferred Share outstanding plus
accrued and unpaid dividends thereon, provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series A Preferred
Shares, then each holder of Series A Preferred Shares shall receive a percentage
of the Preferred Funds equal to the full amount of Preferred Funds payable to
such holder as a percentage of the full amount of Preferred Funds payable to all
holders of Series A Preferred Shares. The purchase or redemption by the Company
of stock of any class, in any manner permitted by law, shall not, for the
purposes hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Notwithstanding the foregoing, to the extent that Series A Preferred
Shares shall be converted or redeemed, as the case may be, the Company may issue
shares of other classes or series of preferred stock of the Company that are of
equal rank with the Series A Preferred Shares (the "Pari Passu Shares"), and
such Pari Passu Shares shall be entitled to distributions of the Preferred Funds
on the same basis as the Series A Preferred Shares. Neither the consolidation
nor merger of the Company with or into any other corporation or corporations,
nor the sale or transfer by the Company of less than substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company. No holder of Series A Preferred Shares
shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Company other than the amounts
provided for herein.
VII. Preferred Rank. Except with respect to any Pari Passu Shares that the
Company may issue from time to time pursuant to Section 5, all Series A
Preferred Shares shall be of senior rank to all Junior Shares in respect to the
preferences as to dividends and distributions and payments upon the liquidation,
dissolution or winding up of the Company. In the event dividends on the Series A
Preferred Shares are in arrears, the Company shall not be entitled to pay
dividends on any, Junior
25
<PAGE>
Shares or Pari Passu Shares. The rights of the Junior Shares shall be subject to
the preferences and relative rights of the Series A Preferred Shares.
Notwithstanding the foregoing, the Company may authorize and issue additional or
other preferred stock which is of junior rank, or equal rank as permitted by
Section 5, with the Series A Preferred Shares in respect of the preferences as
to dividends and distributions and payments upon the liquidation, dissolution or
winding up of the Company; provided, however, that for so long as the Series A
Preferred Shares remain outstanding the Company shall not issue any capital
stock which is senior in rank to the Series A Preferred Shares in respect of any
of the foregoing preferences. In the event of the merger or consolidation of the
Company with or into another corporation, the Series A Preferred Shares shall
maintain their relative powers, designations and preferences provided for
herein.
VIII. Vote to Change the Terms of Series A Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the holders of not less than two-thirds (2/3) of
the then outstanding Series A Preferred Shares shall be required to amend,
alter, change or repeal any of the powers, designations, preferences and rights
of the Series A Preferred Shares.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed
by, its President, and its Secretary, this 3rd day of December 1997.
IMCLONE SYSTEMS INCORPORATED
By: /s/ Samuel D. Waksal
---------------------------------
Name: Samuel D. Waksal
-------------------------------
Title: President & CEO
------------------------------
ATTEST
By: /s/ John B. Landes
---------------------------------
Name: John B. Landes
-------------------------------
Title: Secretary
------------------------------
26
Exhibit 4.7
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK
OF
IMCLONE SYSTEMS INCORPORATED
IMCLONE SYSTEMS INCORPORATED (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held on December 3,
1997, adopted resolutions providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of four hundred thousand (400,000) shares
of Series A Convertible Preferred Stock (the "Series A Preferred Shares") of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 400,000 Tshares of
Series A Convertible Preferred Stock (the "Series A Preferred Shares") which
shall have the following powers, designations, preferences and other special
rights:
(1) Dividends. The holders of the then outstanding Series A Preferred
Shares shall be entitled to receive, out of funds legally available therefor,
cumulative dividends at the annual rate of 6% of the Stated Value thereof
compounded annually (pro-rated for any portion of the applicable period during
which such Series A Preferred Shares are outstanding). Dividends shall be
payable on the Series A Preferred Shares then outstanding in cash (i) annually
on December 31st of each year beginning on December 31, 1999 or (ii) at the time
of conversion or redemption (as provided herein) of the Series A Preferred
Shares on which the dividend is to be paid, whichever is
1
<PAGE>
sooner. Dividends on the Series A Preferred Shares shall accumulate and accrue
from the date of original issuance and shall accrue from day to day thereafter,
whether or not earned or declared. Until any such dividend in arrears is paid,
dividends shall continue to accrue on each Series A Preferred Share but the
percentage rate expressed herein shall be applied to the Stated Value thereof
plus all dividends thereon (including dividends computed pursuant to this
sentence).
(2) Conversion of Series A Preferred Shares. The holders of the Series A
Preferred Shares shall have the right, at their option, to convert the Series A
Preferred Shares into shares of Common Stock on the following terms and
conditions:
(a) Each Series A Preferred Share shall be convertible at any time
as hereinafter provided (or, if such Series A Preferred Share is called
for redemption, at any time up to and including, but not after, the close
of business on the fifth full business day prior to the date fixed for
such redemption, unless default shall be made by the Company in providing
the funds for the payment of the redemption price), into fully paid and
nonassessable shares (calculated to the nearest whole share) of Common
Stock of the Company as constituted at the time of such conversion, at the
conversion price in effect at the time of conversion determined as
hereinafter provided (the "Conversion Price"). Each Series A Preferred
Share shall have a value of $100 (the "Stated Value") and the number of
shares of Common Stock issuable upon conversion of each of the Series A
Preferred Shares shall be determined by dividing the Stated Value thereof
by the Conversion Price then in effect. Every reference herein to the
Common Stock of the Company (unless a different intention is expressed)
shall be to the shares of the Common Stock of the Company, $.001 par
value, as such stock exists immediately after the issuance of the Series A
Preferred Shares provided for hereunder, or to stock into which such
Common Stock may be changed from time to time thereafter.
(b) The Series A Preferred Shares shall be convertible as of the
dates set forth in (i) - (iv) below.
(i) up to 100,000 Series A Preferred Shares ("Tranche I")
shall be convertible at any time on or after the date on which the
Series A Preferred Shares are issued (the "Issuance Date"); (ii) up
to an additional 100,000 Series A Preferred Shares ("Tranche II")
shall be convertible at any time on or after January 1, 2000 (the
"Second Anniversary Date"); (iii) up to an additional 100,000 Series
A Preferred Shares ("Tranche III") shall be convertible at any time
on or after January 1, 2001 (the "Third Anniversary Date"); and (iv)
up to an additional 100,000 Series A Preferred Shares ("Tranche IV")
shall be convertible at any time on or after January 1, 2002 (the
"Fourth Anniversary Date").
(c) The Series A Preferred Shares shall be convertible at the
Conversion Prices set forth in (i) - (v) below.
2
<PAGE>
(i) Series A Preferred Shares converted on or after the
Issuance Date and before the Second Anniversary Date shall be
convertible at a per share Conversion Price equal to $12.50; (ii)
Series A Preferred Shares converted on or after the Second
Anniversary Date and before the Third Anniversary Date shall be
convertible at a per share Conversion Price equal to 100% of the
Average Market Price (as defined below) of the Common Stock for the
five (5) consecutive trading days ending one trading day prior to
the Second Anniversary Date; (iii) Series A Preferred Shares
converted on or after the Third Anniversary Date and before the
Fourth Anniversary Date shall be convertible at a per share
Conversion Price equal to 100% of the Average Market Price (as
defined below) of the Common Stock for the five (5) consecutive
trading days ending one trading day prior to the Third Anniversary
Date; (iv) Series A Preferred Shares converted on or after the
Fourth Anniversary Date and before January 1, 2003 shall be
convertible at a per share Conversion Price equal to 88% of the
Average Market Price (as defined below) of the Common Stock for the
five (5) consecutive trading days ending one trading day prior to
the Fourth Anniversary Date; and (v) Series A Preferred Shares
converted on or after January 1, 2003 shall be convertible at a per
share Conversion Price equal to 100% of the Average Market Price (as
defined below) of the Common Stock for the five (5) consecutive
trading days ending one (1) trading day prior to the receipt by the
Company of the Conversion Notice (as defined below).
(d) Notwithstanding anything to the contrary contained herein, in
the event (i) the Conversion Price in effect from time to time under
Section 2(c) is less than the Average Market Price (as defined below) of
the Common Stock for the five (5) consecutive trading days ending one
trading day prior to the Issuance Date, and (ii) the number of shares of
Common Stock that would be issued at such Conversion Price would exceed
that number of shares of Common Stock permitted to be issued by the
Company without shareholder approval under the rules of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
(the "Permissible Shares"), then the Company shall issue the Permissible
Shares as herein provided, and with respect to those shares exceeding the
Permissible Shares (the "Excess Shares") the Company shall use its
reasonable best efforts to take such action as will permit it to issue the
Excess Shares, and if the Company is unable to obtain such required
permission within a reasonable period of time, the Company shall
repurchase the Excess Shares at a per share purchase price equal to the
Stated Value, plus accrued and unpaid dividends thereon.
(e) Notwithstanding anything to the contrary contained herein,
should the Average Market Price (as defined below) of the Common Stock for
the five (5) consecutive trading days ending one trading day prior to any
trading day during which any of the Series A Preferred Shares are
outstanding exceed 150% of the Conversion Price then in effect, then so
long as such price is in excess of such percentage the Company, in its
sole discretion, may require the holder of such Series A Preferred Shares
to convert all such Series A Preferred Shares as may then be convertible.
3
<PAGE>
(f) "Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing prices for such security
for each trading day in such period on the NASDAQ National Market, or, if
the NASDAQ National Market is not the principal trading market for such
security, on the principal trading market for such security, or, if market
value cannot be calculated for such period on any of the foregoing bases,
the average fair market value during such period as reasonably determined
in good faith by the Board of Directors of the Company.
(g) The Conversion Price shall be subject to adjustments from time
to time as follows:
(i) If and whenever on or after the Issuance Date the Company
issues, sells or exchanges other than in an Excluded Issuance (as
hereinafter defined), any share of Common Stock for a consideration
per share less than the Average Market Price of the Common Stock for
the five (5) consecutive trading days ending one trading day prior
to such event (the "Actual Price") (a "Dilutive Event"), then
forthwith upon such issue or sale the Conversion Price shall be
decreased by multiplying the Conversion Price in effect immediately
before the Dilutive Event by a fraction, the numerator of which is
the number of shares of Common Stock that are Outstanding on an
As-Converted Basis (as defined below) immediately before the
Dilutive Event plus the number of shares of Common Stock that could
be purchased at the Actual Price at the time of the Dilutive Event
for the aggregate consideration paid or payable upon the sale or
issuance of Common Stock in the Dilutive Event, and the denominator
of which is the number of shares of Common Stock that are
Outstanding on an As-Converted Basis immediately before the Dilutive
Event plus the number of shares that are acquired or to be acquired
upon the sale or issuance of the Common Stock in the Dilutive Event.
For purposes of this paragraph (1), "Outstanding on an As-Converted
Basis immediately before the Dilutive Event" means the sum of (i)
all Common Stock issued and outstanding immediately before the
Dilutive Event plus (ii) all Common Stock issuable upon the exercise
of options or warrants or conversion of convertible securities
outstanding immediately before the Dilutive Event.
(ii) "Excluded Issuance" means the issue or sale of (i) shares
of Common Stock by the Company pursuant to the exercise of options
and warrants outstanding immediately prior to the Issuance Date (as
adjusted pursuant to the terms of such securities to give effect to
stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Issuance Date), (ii) options to
acquire Common Stock pursuant to a resolution of, or a stock option
plan approved by a resolution of, the Board of Directors of the
Company (or the compensation committee or stock option committee
thereof) to the Company's employees, directors or Scientific
4
<PAGE>
Advisory Board members, or (iii) shares of Common Stock issued by
the Company as dividends on, or upon conversion of, the Series A
Preferred Shares.
(iii) If after the Issuance Date the Company in any manner
grants or issues any option, warrant or convertible security and the
price per share for which shares of Common Stock are issuable upon
the exercise of any such option, warrant or convertible security is
less than the Actual Price with respect to such date of grant or
issuance, then such shares of Common Stock shall be deemed to have
been issued and sold by the Company at the time of the granting or
issuance of such option, warrant or convertible security for such
price per share and the Conversion Price shall be adjusted in
accordance with paragraph (i) above. For purposes of this paragraph,
the "price per share" for which shares of Common Stock are issuable
upon the conversion or exercise of any option, warrant or
convertible security shall be equal to the sum of the amounts of
consideration (if any) received or receivable by the Company with
respect to such shares of Common Stock upon the granting or issuance
of the option, warrant or convertible security and upon exercise or
conversion of the option, warrant or convertible security. No
further adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon the exercise or conversion of
such option, warrant or convertible security.
(iv) If after the Issuance Date the purchase price provided
for in any option or warrant, the additional consideration (if any)
payable upon the issue, conversion or exchange of any convertible
security, or the rate at which any convertible security is
convertible into or exchangeable for Common Stock changes at any
time, any Conversion Price previously adjusted with respect to such
option, warrant or convertible security and in effect at the time of
such change shall be readjusted to the Conversion Price which would
have been in effect at such time had such option, warrant or
convertible security originally provided for such changed purchase
price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
(v) Upon the expiration of any option or warrant or the
termination of any right to convert any convertible security, after
the Issuance Date, without the exercise of any such option or
warrant, any Conversion Price then in effect hereunder shall be
adjusted to the Conversion Price which would have been in effect at
the time of such expiration or termination had such option, warrant
or convertible security, to the extent outstanding immediately prior
to such expiration or termination, never been issued.
(vi) In case any option or warrant is issued in connection
with the issue or sale of other securities of the Company, together
comprising one (1) integrated transaction in which no specific
consideration is allocated to such option
5
<PAGE>
or warrant by the parties thereto, the option or warrant shall be
deemed to have been issued for a consideration of $.0l.
(vii) If the Company shall consolidate with or merge into any
corporation or reclassify its outstanding shares of Common Stock
(other than by way of subdivision or reduction of such shares) (each
a "Major Transaction"), then each Series A Preferred Share shall
thereafter be convertible into the number of shares of stock or
securities (the "Resulting Securities") or property of the Company,
or of the entity resulting from such consolidation or merger, to
which a holder of the number of shares of Common Stock delivered
upon conversion of such Series A Preferred Share would have been
entitled upon such Major Transaction had the holder of such Series A
Preferred Share exercised its right of conversion and had such
Common Stock been issued and outstanding and had such holder been
the holder of record of such Common Stock at the time of such Major
Transaction, and the Company shall make lawful provision therefor as
a part of such consolidation, merger or reclassification.
(viii) If at any time, or from time to time after the Issuance
Date, the Company shall (i) declare and pay, on or in respect of,
its Common Stock any dividend payable in shares of Common Stock or
(ii) subdivide the outstanding shares of Common Stock into a greater
number of shares, or reduce the number of outstanding Series A
Preferred Shares by combining such Series A Preferred Shares into a
smaller number of Series A Preferred Shares, the Conversion Price in
effect at the time of the taking of a record for such dividend or
the taking of such other action shall be proportionately decreased
as of such time, and conversely (iii) if at any time, or from time
to time, the Company shall reduce the number of outstanding shares
of Common Stock by combining such shares into a smaller number of
shares, or subdivide the outstanding Series A Preferred Shares into
a greater number of Series A Preferred Shares, the Conversion Price
in effect at the time of the taking of any such action shall be
proportionately increased as of such time.
(ix) Anything in this Section 2 to the contrary
notwithstanding, the Company shall not be required to give effect to
any adjustment in the Conversion Price unless and until the net
effect of one or more adjustments, determined as above provided,
shall have resulted in a change of the Conversion Price by at least
$0.05, provided, however, that when the cumulative net effect of
more than one adjustment so determined shall be to change the
Conversion Price by at least $0.05 such change in the Conversion
Price shall thereupon be given effect.
(x) The Company shall not issue any fraction of a share of
Common Stock upon any conversion, but shall pay in cash therefor at
the Conversion Price then in effect multiplied by such fraction.
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<PAGE>
(xi) Notice of Adjustments of Conversion Rate. Whenever the
Conversion Price is adjusted as provided herein, the Company shall
promptly (and, in any event, not later than the fifteenth (15th) day
following the occurrence of the event requiring such adjustment)
compute the adjusted Conversion Price in accordance herewith and
shall prepare a report setting forth such adjustment. The Company
will promptly (and, in any event, not later than such fifteenth
(15th) day) furnish a copy of each such report and such verification
to the holder of any Series A Preferred Share. The Company will also
keep copies of all such reports and such verifications at its
principal office, and will cause the same to be available for
inspection at such office during normal business hours by the holder
of any Series A Preferred Shares.
(xii) Notice of Certain Corporate Action. In case:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in
cash out of its earned surplus; or
(2) (a) of any reclassification of the Common Stock of
the Company, or (b) of any consolidation, merger or share
exchange to which the Company is a party and for which
approval of any stockholders of the Company is required, or
(c) of the conveyance, transfer, sale or lease of all or
substantially all of the assets of the Company; or
(3) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company, ten (10) business days prior to the applicable
record, expiration or effective date hereinafter specified, shall
give to each holder of Series A Preferred Shares a notice stating
(x) the date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants, or, if a record is
not to be taken, the effective date as of which the holders of
Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, (y) the date
on which such reclassification, consolidation, merger, share
exchange, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock
for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up.
(h) On presentation and surrender to the Company (or at any office
or agency maintained for the transfer of the Series A Preferred Shares) of
the certificates of Series A Preferred Shares so to be converted, duly
endorsed in blank for transfer or
7
<PAGE>
accompanied by proper instruments of assignment or transfer in blank (a
"Conversion Notice"), with signatures guaranteed, the holder of such
Series A Preferred Shares shall be entitled, subject to the limitations
herein contained, to receive in exchange therefor a certificate or
certificates for fully paid and nonassessable shares, which certificates
shall be delivered by the fifth trading day after the date of delivery of
the Conversion Notice, and cash for fractional shares, of Common Stock on
the foregoing basis. The Series A Preferred Shares shall be deemed to have
been converted, and the person converting the same to have become the
holder of record of Common Stock, for all purposes as of the date of
delivery of the Conversion Notice.
(i) The Company shall, so long as any of the Series A Preferred
Shares are outstanding, reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Shares outstanding, such number of
shares of Common Stock as it shall reasonably believe shall from time to
time be sufficient to effect the conversion of all of the Series A
Preferred Shares then outstanding.
(j) The Company shall pay any and all taxes which may be imposed
upon it with respect to the issuance and delivery of Common Stock upon the
conversion of the Series A Preferred Shares as herein provided. The
Company shall not be required in any event to pay any transfer or other
taxes by reason of the issuance of such Common Stock in names other than
those in which the Series A Preferred Shares surrendered for conversion
are registered on the Company's records, and no such conversion or
issuance of Common Stock shall be made unless and until the person
requesting such issuance has paid to the Company the amount of any such
tax, or has established to the satisfaction of the Company and its
transfer agent, if any, that such tax has been paid.
(3) Voting Rights. Holders of Series A Preferred Shares shall have no
voting rights, except as required by law, by Section 7 hereof and, to the extent
permitted by applicable laws and regulations, as provided in this Section 3. If
during any fiscal year of the Company, the Company shall be in arrears in the
payment of any dividend on the Series A Preferred Shares for a period of six
months or more during such fiscal year, then at the annual meeting of
shareholders relating to such fiscal year, the holders of the Series A Preferred
Shares shall have the right to designate a nominee for director to be included
on the slate of the Company's nominees for directors for such annual meeting of
shareholders, and further, shall have the right, voting as a class, to elect
such nominee as a director of the Company at such annual meeting of
shareholders.
(4) Redemption. The Company may, but shall not be obligated to, at any
time, and from time to time, redeem on the terms and conditions herein provided,
the whole or any part of the Series A Preferred Shares then outstanding at a
redemption price of $120 per Preferred Share, plus accrued and unpaid dividends
thereon, in accordance with the following procedures:
8
<PAGE>
(a) In case of redemption of only part of the Series A Preferred
Shares at any time outstanding, the Company shall designate the amount of
Series A Preferred Shares so to be redeemed and shall redeem such Series A
Preferred Shares ratably from each tranche.
(b) Notice of every redemption shall be given by mail to every
holder of record of any Series A Preferred Shares then to be redeemed, at
least thirty (30), but no more than ninety (90), days prior to the date
fixed as the date for the redemption thereof, at the respective addresses
of such holders as the same shall appear on the stock transfer books of
the Company. The notice shall state that the Series A Preferred Shares
shall be redeemed by the Company at the redemption price specified above,
upon the surrender for cancellation, at the time and place designated in
such notice, of the certificates representing the Series A Preferred
Shares to be redeemed, properly endorsed in blank for transfer, or
accompanied by proper instruments of assignment and transfer in blank,
with signatures guaranteed, and bearing all necessary transfer tax stamps
thereto affixed and canceled. On and after the date specified in the
notice described above, each holder of Series A Preferred Shares called
for redemption shall be entitled to receive therefor the specified
redemption price upon presentation and surrender at the place designated
in such notice of the certificates for Series A Preferred Shares called
for redemption, properly endorsed in blank for transfer or accompanied by
proper instruments of assignment or transfer in blank, with signatures
guaranteed, and bearing all necessary transfer tax stamps thereto affixed
and canceled.
(c) If the Company shall give notice of redemption as aforesaid (and
unless the Company shall fail to pay the redemption price of the Series A
Preferred Shares presented for redemption in accordance with such notice),
all Series A Preferred Shares called for redemption shall be deemed to
have been redeemed on the date specified in such notice, whether or not
the certificates for such Series A Preferred Shares shall be surrendered
for redemption, and such Series A Preferred Shares so called for
redemption shall from and after such date cease to represent any interest
whatsoever in the Company or its property, and the holders thereof shall
have no rights other than the right to receive such redemption price
without any interest thereof from and after such date.
(5) Liquidation, Dissolution, Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of the Series A Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings, available for
distribution to its stockholders (the "Preferred Funds"), before any amount
shall be paid to the holders of the Common Stock or holders of shares of other
classes or series of capital stock of the Company (the "Junior Shares"), an
amount equal to the Stated Value per Series A Preferred Share outstanding plus
accrued and unpaid dividends thereon, provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series A Preferred
Shares, then each holder of Series A Preferred Shares shall receive a percentage
of the Preferred Funds equal to the full amount of Preferred Funds payable to
such holder as a percentage of the full amount of Preferred Funds payable to all
holders of Series A Preferred Shares. The purchase or redemption by the Company
of stock of any class, in any manner permitted by law, shall not, for the
purposes hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Notwithstanding the foregoing, to the extent that Series A Preferred
Shares shall be converted or
9
<PAGE>
redeemed, as the case may be, the Company may issue shares of other classes or
series of preferred stock of the Company that are of equal rank with the Series
A Preferred Shares (the "Pari Passu Shares"), and such Pari Passu Shares shall
be entitled to distributions of the Preferred Funds on the same basis as the
Series A Preferred Shares. Neither the consolidation nor merger of the Company
with or into any other corporation or corporations, nor the sale or transfer by
the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Series A Preferred Shares shall be entitled to receive any
amounts with respect thereto upon any liquidation, dissolution or winding up of
the Company other than the amounts provided for herein.
(6) Preferred Rank. Except with respect to any Pari Passu Shares that the
Company may issue from time to time pursuant to Section 5, all Series A
Preferred Shares shall be of senior rank to all Junior Shares in respect to the
preferences as to dividends and distributions and payments upon the liquidation,
dissolution or winding up of the Company. In the event dividends on the Series A
Preferred Shares are in arrears, the Company shall not be entitled to pay
dividends on any, Junior Shares or Pari Passu Shares. The rights of the Junior
Shares shall be subject to the preferences and relative rights of the Series A
Preferred Shares. Notwithstanding the foregoing, the Company may authorize and
issue additional or other preferred stock which is of junior rank, or equal rank
as permitted by Section 5, with the Series A Preferred Shares in respect of the
preferences as to dividends and distributions and payments upon the liquidation,
dissolution or winding up of the Company; provided, however, that for so long as
the Series A Preferred Shares remain outstanding the Company shall not issue any
capital stock which is senior in rank to the Series A Preferred Shares in
respect of any of the foregoing preferences. In the event of the merger or
consolidation of the Company with or into another corporation, the Series A
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein.
(7) Vote to Change the Terms of Series A Preferred Shares. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting of the holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares shall be required to amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series A
Preferred Shares.
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IN WITNESS WHEREOF, the Company has caused this certificate to be signed
by, its President, and its Secretary, this 3rd day of December 1997.
IMCLONE SYSTEMS INCORPORATED
By: /s/ Samuel D. Waksal
---------------------------------
Name: Samuel D. Waksal
-------------------------------
Title: President & CEO
------------------------------
ATTEST
By: /s/ John B. Landes
---------------------------------
Name: John B. Landes
-------------------------------
Title: Secretary
------------------------------
11
Exhibit 10.65
Amendment of May 1996 to the Research and License Agreement between
ImClone Systems Incorporated and Merck KGaA
WHEREAS ImClone Systems (hereinafter "ImClone") and Merck KGaA (hereinafter
"Merck") are parties to a Research and License Agreement effective April 1, 1990
which has been previously amended on September 1, 1993 and on November 2, 1993;
and
WHEREAS the parties intend to further modify the Agreement to represent the
current intent of the parties with respect to the development of BEC-II and
gp75, the parties hereby modify and amend the Agreement in the following
respects:
1. The recitation of the parties on page one of the Agreement shall replace the
name E. Merck with the name Merck KGaA.
2. Section 1.16 shall be modified to read in its entirety as follows:
"1.16 The term "Research and Development Protocol" shall mean the plan for
the conduct of the Research and Development, as set forth in Schedule E
attached hereto and specifically incorporated herein, and as may be amended
by the parties from time to time, including with respect to Alternative
Product(s)."
3. Section 1.17 shall be modified to read in its entirety as follows:
"1.17 The term "Research and Development Period" shall mean that four year
period during which the initial research on BEC-II and gp75 was performed,
in accordance with the terms of Article 3 hereof, which four year period has
concluded."
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<PAGE>
4. Section 2.1 shall be modified to read in its entirety as follows:
"2.1 ImClone hereby grants to Merck an exclusive license, with the right to
sublicense, in the Field under Licensed Patents and/or Licensed Technology
to make, have made, use, sell, or have sold Licensed Products worldwide,
with the exception of North America. ImClone retains all rights to the
Licensed Patents and the Licensed Technology other than granted hereby."
5. Section 2.2 shall be modified to read in its entirety as follows:
"2.2 Merck hereby grants to ImClone an exclusive license, with the right to
sublicense, to all rights which it may have to Licensed Technology to make,
have made, use, sell or have sold Licensed Products in North America."
6. Section 2.3 shall be modified to read in its entirety as follows:
"2.3 If, during the term of the Agreement, ImClone intends to grant a
license, exclusive or otherwise (or right to distribute) in the Field, under
Licensed Patent(s) and/or Licensed Technology, to make, use or sell Licensed
Product(s) in North America, it shall so notify Merck in writing and afford
Merck the opportunity to negotiate terms for such a license. Should the
parties not enter into such a license in writing within ninety (90) days of
such written notification to Merck, the offer shall be deemed formally
withdrawn."
7. Section 2.5(b) shall be modified to read in its entirety as follows:
"2.5 ImClone hereby grants to Merck an exclusive license, with a right to
sublicense, in the Field, to such rights as ImClone may hold to
Improvements, to make, have made, use, sell or have sold Licensed Products
worldwide outside North America."
2
<PAGE>
8. Section 2.5(c) shall be modified in its entirety to read as follows:
"2.5(c) If ImClone grants Merck a license (or right to distribute) under
Section 2.3 above, then ImClone shall grant Merck a license (or right to
distribute) in the Field to such rights as ImClone may hold to Improvements
to make, have made, use, sell or have sold Licensed Products in North
America."
9. Section 2.5(d) shall be modified so that the first sentence shall read in its
entirety as follows (the remainder of the section shall remain unchanged):
"2.5(d) Merck hereby grants to ImClone an exclusive license, with the right
to sublicense, to such rights as Merck may hold to Improvements, to make,
have made, use, sell or have sold Licensed Products in North America, at
conditions to be negotiated in good faith by the parties hereto."
10. Section 3.2 shall be modified to add a sentence at the end of the section as
follows:
"The funds required herein for the support of research of the BEC-II and
gp75 had been paid by Merck, and Merck shall have no further obligations as
a result of this Section 3.2"
11. Section 3.4 shall be modified so that it shall read in its entirety as
follows:
"3.4. The Research and Development Protocol includes the plans for the
conduct and management of clinical trials, development and manufacturing,
further research, and for the filing for appropriate regulatory approvals
for the sale of the Licensed Products. All of such clinical trials and
regulatory submissions shall be the responsibility of Merck in the
territories wherein it has a license and/or assignment hereunder. However,
it is the intention of the parties, as further set forth in the Research and
Development Protocol, to conduct a multi-site multi-national pivotal
clinical trial for the BEC-II.
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<PAGE>
Costs, including those of ImClone, as contemplated in the Research and
Development Protocol, for manufacturing of materials for clinical trials,
conduct of clinical trials, and regulatory submissions (other than drug
approval fees which are the responsibility of Merck or ImClone in their
respective territories) in connection with the development of the Licensed
Products for the U.S., Europe, Australia and New Zealand shall be shared by
the parties in the proportion of 60% by Merck and 40% by ImClone. It is the
intent of the parties that ImClone be the commercial manufacturer of the
Licensed Products worldwide. Achievement of such shall be as set forth in
the Research and Development Protocol."
12. Section 4.2 was amended by the amendment dated November 2, 1993 (the
"Amendment"). It is hereby acknowledged by the parties that Payments one, two,
three and four under Section 4.2(a) through 4.2(c) of the Agreement and Payment
one of the Amendment have been made. Other consideration in the Agreement
originally contemplated in the remainder of Section 4.2, as amended by the
Amendment, and Section 4.3, shall be increased, and the payment structure shall
be as follows, which shall replace Sections 4.2(d), 4.2(e) and Section 4.3 in
their entirety:
"4.2(d) Upon the achievement of milestone (a) in Section 4.3, a schedule of
quarterly payments totaling $4,700,000 shall commence. The first payment,
in the amount of $625,000, shall be made within 30 days after the
achievement of the milestone. Seven quarterly payments shall be made
thereafter, at quarterly intervals, all in the amount of $625,000, but for
the last payment, which shall be in the amount of $325,000. The last
payment has been reduced in part to reflect the acknowledgment of the
parties that the payment for the demonstration originally called for in
Section 4.2(c) was made under dispute, which has been resolved."
Section 4.2(e) shall be deleted in its entirety.
Section 4.3 shall be modified to read in its entirety as follows:
4
<PAGE>
"4.3 In addition, Merck shall pay ImClone the following non-refundable
milestone payments:
a. $500,000 upon the achievement of a pilot-scale (based on the Research
and Development Protocol) fermentation in the manufacture of BEC-II
yielding at least 7.5 grams of material meeting the specifications of the
Research and Development Protocol;
b. $1,000,000 upon successful manufacture of bulk cGMP BEC-II material
meeting the specifications of the Research and Development Protocol;
c. *** ***;
d. *** ***;
e. *** ***;
f. *** ***;
g. *** ***;
h. *** ***;
i. *** ***;
j. *** ***;
k. In the case that Merck enters into a distribution or sublicensing
arrangement for the marketing of BEC-II in Japan and receives
5
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
consideration in such transaction other than royalties or payments related
to sales (e.g. license fees, payments in lieu of royalties), *** such
payments shall be paid over to ImClone at the time or times that Merck
receives such consideration, not to exceed *** ."
13. Section 4.4 shall be modified to read in its entirety as follows:
"4.4(a) On Net Sales of Licensed Products in Europe, Australia or New
Zealand by Merck, its Affiliates, distributors or sublicensees, Merck shall
pay ImClone *** ."
"4.4(b) On Net Sales of Licensed Products outside Europe, Australia and New
Zealand, excluding North America, by Merck, its Affiliates, distributors or
sublicensees, Merck shall pay ImClone *** ;"
14. Section 9.1 shall be modified to read in its entirety as follows:
"9.1 ImClone represents that to the best of its knowledge Merck's use,
making, having made, selling and/or having sold Licensed Products does not
violate the patent rights of any third party. The parties hereby
acknowledge families of patent applications filed under the name of the
inventors Koprowski et. al. and entitled "Induction of Antibody Response to
Solid Tumors with Anti-Idiotype Antibodies," and the parties acknowledge
that Merck has obtained a non-exclusive worldwide license by Wistar under
the patent applications mentioned above, and that ImClone shall not be
required to contribute payments to such license in Merck's territory."
15. Section 10.2 shall be modified to read in its entirety as follows:
"10.2 The parties may agree at any time to terminate the Agreement at a
fixed date. Prior to or at termination, as the case may be, if any portion
of
6
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
any payment under Section 4.2(d) is due ImClone through the agreed upon
termination date, based on a proration according to calendar time, such
portion shall be paid by Merck to ImClone. Alternatively, if at termination
any portion of any payment pursuant to Section 4.2(d) already received by
ImClone is attributable to the period after the termination date (based on
a proration according to calendar time) ImClone shall promptly refund such
portion to Merck."
16. Section 10.3 shall be modified to read in its entirety as follows:
"10.3 Prior to the completion of all payments under Section 4.2(d), Merck
shall have the right to terminate the Agreement, based on a sound
scientific determination. Merck shall give ImClone written notice of its
intent to terminate, and a meeting of the Research Committee shall be
convened within two (2) weeks to discuss the grounds for termination.
ImClone shall have ninety (90) days from the date of the meeting to provide
data to substantiate continuation of the work. Merck may then terminate the
Agreement with immediate effect. Prior to or at termination, as the case
may be, if any portion of any payment under Section 4.2(d) is due ImClone
through the intended date of termination, based on a proration according to
calendar time, such portion shall be paid by Merck to ImClone.
Alternatively, if at termination any portion of any payment under Section
4.2(d) already received by ImClone is attributable to the period after the
termination date (based on a proration according to calendar time), ImClone
shall promptly refund such portion to Merck."
17. Section 10.6 shall be modified to read in its entirety as follows:
"10.6 If Merck fails in a country in which Merck has a right to sell
Licensed Products or Alternative Products to pursue in a timely fashion and
with all due diligence regulatory approval or sale of an Alternative
Product or Licensed Product, and such failure is not remedied within sixty
days (60) after written notice from ImClone specifying such failure,
ImClone may
7
<PAGE>
immediately, without further notice or opportunity to cure, terminate the
license with respect to such Licensed Product or Alternative Product in
such country."
18. Section 10.7 shall be modified to remove the word "other" from the first
line of the section.
IN WITNESS WHEREOF, this Amendment to the Agreement has been executed
this _______ day of May, 1996.
ImClone Systems Incorporated Merck KGaA
By: /s/ Samuel D. Waksal By: /s/ Dr. Orth /s/ Dr. Uhl
--------------------------- -----------------------------
Name: Samuel D. Waksal Name: Dr. Orth Dr. Uhl
Title: President & CEO Title: Principal Officer/ Authorized
Representative
Date: May 14, 1996 Date: October 23, 1996
8
<PAGE>
Attachment E: Research and Development Protocol
1. BEC-2
The initial development plan for the development of the product
established by the parties is attached hereto as encl. 1 (MS-Project EMD
60 205) and will be amended from time to time.
1.1 Manufacturing of trial medication for the multinational pivotal phase
II/III study or studies in the indication SCLC
The trial medication must meet at least the specifications laid down in
BB-IND 5076 resp. must fulfill new requirements of the US and EU
authorities (c.f. encl. 1) and show equal potency with adequate methods
(c.f. section 1.2).
ImClone is responsible for the production and the quality control as well
as for the release of bulk, of the final formulation and of the clinical
trial medication including the appropriate storage and shipment according
to the requirements of EU and US guidelines. ImClone will coordinate all
activities necessary to supply BEC-2 for phase II/III clinical trial(s).
ImClone will provide support Merck for any legal and regulatory release
requirements or negotiations specific for EU clinical investigations.
These activities will be carried out in close contact with the responsible
persons at Merck.
ImClone will consult with Merck and come to an agreement with Merck on all
questions related to the establishment of and/or all changes concerning
upstream processing, downstream processing, formulation, filling, the
stability program (bulk and final formulation), the specifications
(including all assays and test procedures) as well as the committed BCG
medication.
ImClone will consult with Merck about their contracts with any third party
contractors and will obtain an approval from Merck for all agreements with
third party contractors related to the manufacturing of BEC-2 clinical
trial medication. Merck use its best efforts to review and approve such
contract agreements within a short period of time.
Merck will receive the complete documentation (original data and reports)
on all aspects of manufacturing, including but not limited to cell banks,
such documentation having to be identical to the documentation available
to ImClone. Merck will receive, on request, samples of the MCB and the
WCB.
Merck will have the right to make audits at ImClone or at the sites of
third partners of ImClone. Furthermore, ImClone will ensure that Merck has
access to all available data in original and final report form. ImClone
will use best efforts to ensure access to original data in the event a
contractor ceases its operation.
<PAGE>
Costs to be paid to third parties for manufacturing, quality control,
storage, etc., of the clinical trial material shall be shared by the
parties according to section 3.4 of the LICENSE AGREEMENT. Any occurring
costs must be approved in advance by the RESEARCH COMMITTEE.
Manufacturing costs as well as costs to manufacturing (e.g., costs for
quality control and batch release) arising at ImClone will be shared by
Merck only if the BEC-2 production at Celltech Therapeutics fails to meet
the specification laid down in BB-IND 5076 and if both parities agree to
manufacturing at ImClone.
1.2 Preclinical studies to verify the identity of BEC-2
In order to more fully characterize BEC-2 the following will be done
1. *** .
2. *** .
3. *** .
4. *** .
Further preclinical studies performed to verify the identity of BEC-2 may
be included.
ImClone will consult with Merck about any contracts with third party
contractors and will obtain an approval from Merck for all agreements with
third party contractors related to the preclinical studies with BEC-2.
Merck use its best efforts to review and approve such contract agreements
within a short period of time.
Merck will receive the complete documentation (original data and
reports)on all aspects of preclinical studies performed to verify the
identity of BEC-2, such documentation having to be identical to the
documentation available to ImClone.
1.3 Clinical studies
The parties will jointly prepare, perform, evaluate and report the pivotal
study or studies necessary for obtaining the approval for marketing of
BEC-2 both in the US and in the EU. Both parties have the right to perform
audits at the other party's site and the sites of all clinical
investigators.
If both parties do not come to an agreement on the study protocol(s), the
evaluation of the data or on the final report(s), third party's expertise
(3 experts, to be named) shall be obtained for arbitration.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
Furthermore, both parties shall consult each other about additional
clinical trials which may be performed by one party alone. ImClone will
provide Merck with the trial material for any such studies to be performed
by Merck. The parties agree to inform each other on all planned or ongoing
activities within the RESEARCH COMMITTEE.
1.4 Regulatory Affairs
a) ImClone is responsible for providing all sections of regulatory
dossiers including but not limited to expert reports of
-IND, CTX and other applications clinical trial licenses
-PLA's and other applications for marketing authorization
Any such documentation will be prepared according to current or then
applicable FDA, EU, Japan or other national or international
regulatory requirements.
b) Merck will share with ImClone all national or international
information on the European regulatory status of the BEC-2 project. On
the other hand, ImClone will use its best efforts to keep Merck
informed about the US regulatory status of the BEC-2 project.
c) An electronic mail system between the regulatory departments of both
companies will be established as soon as possible.
2. gp75 and other entities covered under this Agreement
gp75 as referred to in Attachment E of the Agreement dated April 1, 1990
will be amended by the RESEARCH COMMITTEE.
Exhibit 10.66
Amendment of December 1997 to the Research and License Agreement between
ImClone Systems Incorporated and Merck KGaA
WHEREAS ImClone Systems (hereinafter "ImClone") and Merck KGaA
(hereinafter "Merck" ) are parties to a Research and License Agreement
(hereinafter the "Agreement") effective April 1, 1990 which has been previously
amended on September 1, 1993, November 2, 1993, and on May 14, 1996; and
WHEREAS the parties intend to further modify the Agreement to represent
the current intent of the parties with respect to the marketing of BEC2 in North
America, it being the intent of the parties that ImClone and Merck shall
co-market BEC2 in North America in accordance with the "Terms of Co-Marketing of
BEC2 by Merck and ImClone in North America" to be negotiated in good faith by
the parties hereafter and appended as Exhibit B to this Amendment; and
WHEREAS the parties have also on this day entered into a Preferred Stock
Purchase Agreement for the purchase by Merck of ImClone convertible preferred
stock; and
THE PARTIES HEREBY MODIFY and amend the Agreement in the following
respects (hereinafter the "Amendment"):
1. Section 2.1 shall be modified to read in its entirety as follows:
"2.1 ImClone hereby grants to Merck an exclusive license, with the right
to sublicense, in the Field under Licensed Patents and/or Licensed
Technology to make, have made, use, sell, or have sold Licensed Products
which incorporate BEC2 and gp75 worldwide outside North America; and
ImClone grants to Merck a Sole License restricted in accordance with
Exhibit B and the other terms of this Amendment, without the right to
sublicense, to use, sell or have sold, but not to make, Licensed Products
which incorporate BEC2 in North America in conjunction with ImClone."
1
<PAGE>
2. Section 2.2 shall be modified to read in its entirety as follows:
"2.2 Merck hereby grants to ImClone a Sole License, without the right to
sublicense, to all rights which it may have to Licensed Technology to
make, have made, use, sell or have sold Licensed Products which
incorporate BEC2 in North America in conjunction with Merck in accordance
with Exhibit B and the other terms of this Amendment; and Merck grants to
ImClone an exclusive license, with the right to sublicense, to all rights
which it may have to Licensed Technology to make, have made, use, sell or
have sold Licensed Products which incorporate gp75 in North America."
3. Section 2.3 shall be modified to read in its entirety as follows:
"2.3 If, during the term of the Agreement, ImClone intends to grant a
license, exclusive or otherwise (or right to distribute) in the Field,
under Licensed Patent(s) and/or Licensed Technology, to make, use or sell
Licensed Product(s) which incorporate gp75 in North America, it shall so
notify Merck in writing and afford Merck the opportunity to negotiate
terms for such a license. Should the parties not enter into such a license
in writing within ninety (90) days of such written notification to Merck,
the offer shall be deemed formally withdrawn."
4. Section 2.5 (b) shall be modified to read in its entirety as follows:
"2.5(b) ImClone hereby grants to Merck an exclusive license, with the
right to sublicense, in the Field to such rights as ImClone may hold to
Improvements to make, have made, use, sell, or have sold Licensed Products
which incorporate Improvements to BEC2 and gp75 worldwide outside North
America; and ImClone grants to Merck a Sole License restricted in
accordance with Exhibit B and the other terms of this Amendment, without
the right to sublicense, to such rights as ImClone may hold to
Improvements to use, sell or have sold, but not to make, Licensed
2
<PAGE>
Products which incorporate Improvements to BEC2 in North America in
conjunction with ImClone."
5. Section 2.5 (c) shall be modified to read in its entirety as follows:
"2.5(c) If ImClone grants Merck a license to Licensed Products which
incorporate gp75 (or right to distribute) under Section 2.3 above, then
ImClone shall grant Merck the same kind of license, (or right to
distribute) in the Field to such rights as ImClone may hold to
Improvements to make, use or sell Licensed Products which incorporate
Improvements to gp75 in North America."
6. Section 2.5 (d) shall be modified so that the first sentence shall read in
its entirety as follows (the remainder of the section shall remain
unchanged):
"2.5(d) Merck hereby grants to ImClone a Sole License, without the right
to sublicense, to such rights as Merck may hold to Improvements, to make,
use, sell or have sold Licensed Products which incorporate Improvements to
BEC2 in North America in conjunction with Merck in accordance with Exhibit
B and the other terms of this Amendment; and Merck grants to ImClone an
exclusive license, with the right to sublicense, to such rights as Merck
may hold to Improvements, to make, have made, use, sell or have sold
Licensed Products which incorporate Improvements to gp75 in North
America."
7. Section 3.4 shall be modified to read in its entirety as follows:
"3.4 The Research and Development Protocol includes the plans for the
conduct and management of clinical trials, development and manufacturing,
further research, and for the filing for appropriate regulatory approvals
for the sale of the Licensed Products. All of such clinical trials and
regulatory submissions shall be the responsibility of Merck worldwide
outside North America. It is the intention of the parties, as further set
forth in the Research and Development Protocol, to conduct a multi-site
multi-national pivotal clinical trial to obtain approval for the
indication of the treatment of limited disease small cell lung carcinoma
for the
3
<PAGE>
BEC2. Costs, including out-of-pocket costs of ImClone (but not including
cost of establishment of a manufacturing facility), as contemplated in the
Research and Development Protocol, for manufacturing of materials for
clinical trials, conduct of clinical trials, and regulatory submissions
(other than drug approval fees which are the responsibility of Merck or
ImClone in their respective territories) in connection with the
development of the Licensed Products which incorporate BEC2 worldwide
shall be paid by Merck. Notwithstanding the previous sentence, Merck's
sole responsibility to bear the expense of the conduct of such clinical
trials shall be capped at 17 million DM. To the extent that the expenses
of the conduct of such clinical trials exceed 17 million DM, such expenses
shall be shared, 60% for Merck and 40% for ImClone. The expense of the
conduct of additional clinical trials for other indications shall be
subject to separate budgets to be negotiated by the parties. It is the
intent of the parties that ImClone be the party responsible for
establishment of the manufacturing site for the active agent, at ImClone's
expense. It is also intended that ImClone be responsible for providing
supply of the active agent worldwide, at the expense of Merck. However,
costs of goods in North America, which shall include ImClone's costs plus
a negotiated provision for overhead, shall be paid out of gross sales of
the Licensed Product in North America, in accordance with the terms of the
Co-Marketing Agreement, Exhibit B."
8. Section 4.3 shall be modified to read in its entirety as follows:
"4.3 In addition, Merck shall pay ImClone the following non-refundable
milestone payments:
a. $500,000 upon the achievement of a pilot-scale (based on the Research
and Development Protocol) fermentation in the manufacture of BEC 2
yielding at least 7.5 grams of material meeting the specifications of the
Research and Development Protocol (paid);
b. $1,000,000 upon successful manufacture of bulk cGMP BEC 2 material
meeting the specifications of the Research and Development Protocol
(paid);
4
<PAGE>
c. *** ***;
d. $500,000 upon signing of this Amendment;
e. *** ***;
f. *** ***;
g. *** ***;
h. *** ***';
i. *** ***;
j. *** ***;
k. *** ***;
l. *** ***;
m. *** ***;
n. *** ***;
o. *** ***;
p. In the case that Merck enters into a distribution or sublicensing
arrangement for the marketing of BEC2 in Japan and receives consideration
in such transaction
5
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
other than royalties or payments related to sales (e.g. license fees,
payments in lieu of royalties), *** of such payments shall be paid over to
ImClone at the time or times that Merck receives such consideration, not
to exceed *** ."
9. Section 4.4 shall be modified to read in its entirety as follows:
"4.4(a) On Net Sales of Licensed Products in Europe, Australia or New
Zealand by Merck, its Affiliates, distributors or sublicensees, Merck
shall pay ImClone *** ."
"4.4(b) On Net Sales of Licensed Products outside Europe, Australia and
New Zealand, excluding North America, by Merck, its Affiliates,
distributors or sublicensees, Merck shall pay ImClone *** ."
"4.4(c) Gross Sales of Licensed Products which incorporate BEC2 in North
America shall be distributed in accordance with the terms of Exhibit B
appended hereto entitled "Terms of Co-Marketing of BEC2 by Merck and
ImClone in North America" to be negotiated in good faith by the parties
hereafter and to be appended hereto as Exhibit B. Exhibit B shall
establish the terms of a co-marketing of BEC2 in North America by Merck
and is intended to include among other things the following:
o Establishment of a committee of the parties to plan and monitor the
marketing of BEC2 in North America, which is anticipated to involve
sales by separate but coordinated sales forces of ImClone and Merck and
coordinated distribution of final product, with ImClone responsible for
manufacture of the active agent, and costs for manufacture to be paid
from gross sales in North America.
6
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
o Defining the components of Gross Margin against which costs
reimbursable to the parties and shares payable to the parties shall be
determined (Gross Margin generally to be Net Sales less cost of goods,
cost of distribution and other third party payments, including
royalties); and
o A division of Gross Margin such that each party will receive a
guaranteed share of *** of Gross Margin, and the remaining *** of Gross
Margin shall be divided between the parties in accordance with the
respective level of sales and marketing expense contributed by the
parties."
IN WITNESS WHEREOF, Amendment to the Agreement has been executed this
_______ day of December, 1997.
ImClone Systems Incorporated Merck KGaA
By: /s/ Samuel D. Waksal By: /s/ E. R. Roberts
--------------------------- --------------------------
Name: Samuel D. Waksal Name: E. R. Roberts
Title: President & CEO Title: Managing Partner
Date: December 3, 1997 Date: December 3, 1998
7
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Exhibit 21.1
EndoClone Incorporated, a Delaware corporation, is a wholly-owned subsidiary of
ImClone Systems Incorporated. EndoClone Incorporated does business under its own
name.
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, 333-22341 and 333-39067 on Form S-3 and
Nos. 333-10275 and 33-95894 on Form S-8) of ImClone Systems Incorporated of our
report dated February 20, 1998, relating to the balance sheets of ImClone
Systems Incorporated as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, which report appears in
the December 31, 1997, Annual Report on Form 10-K of ImClone Systems
Incorporated.
/s/ KPMG PEAT MARWICK LLP
---------------------------
KPMG PEAT MARWICK LLP
New York, New York
March 27, 1998
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This schedule contains summary information extracted from the financial
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</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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