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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
180 Varick Street,
New York, NY 10014
(Address of principal executive offices) (Zip Code)
(212) 645-1405
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: common stock,
par value $.001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of March 26, 1999 was $342,927,580.
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 26, 1999
----------------------------- ----------------------------------
Common stock, par value $.001 24,599,358
Documents Incorporated by Reference: The registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held on May 24,
1999 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
1998 Form 10-K Annual Report
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management 27
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 27
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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 our
business, including without limitation, the risks and uncertainties associated
with completing pre-clinical and clinical trials of our compounds that
demonstrate such compounds' safety and effectiveness; obtaining additional
financing to support our operations; obtaining and maintaining regulatory
approval for such compounds and complying with other governmental regulations
applicable to our business; obtaining the raw materials necessary in the
development of such compounds; consummating collaborative arrangements with
corporate partners for product development; achieving milestones under
collaborative arrangements with corporate partners; developing the capacity to
manufacture, market and sell our products, either directly or with collaborative
partners; developing market demand for and acceptance of such products;
competing effectively with other pharmaceutical and biotechnological products;
obtaining adequate reimbursement from third party payers; attracting and
retaining key personnel; 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.
(i)
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PART I
Item 1. Business.
OVERVIEW
We are a biopharmaceutical company, primarily engaged in the research and
development of drugs and other products for the treatment of cancer and
cancer-related disorders.
When we have successfully tested our products, we intend to sell them to the
public when and if we receive Food and Drug Administration ("FDA") and any other
required regulatory approvals. We may manufacture and market the products by
ourselves or in cooperation with others.
ImClone's Cancer-Related Products.
We currently have three cancer-related products that we are developing, two of
which we are testing in clinical trials. A clinical trial is a study in which a
product being tested is administered to patients under the supervision of a
qualified principal investigator. A clinical study is intended to determine,
among other things, the product's safety and effectiveness. We have not yet
commercialized and marketed any of these products or sold them to the public. We
are currently involved in developing the following cancer-related products:
o C225 Cancer Therapeutic ("C225").
o BEC2 Cancer Vaccine ("BEC2").
o c-p1C11 Monoclonal Antibody Inhibitor of Angiogenesis ("c-p1C11").
We discuss each of these products more fully below under the heading
"Development Programs."
Licensing of Diagnostics and Infectious Disease
Products.
We have also researched, developed and tested products to diagnose, and vaccines
for, infectious diseases such as the sexually transmitted diseases gonorrhea and
chlamydia. We have licensed the rights to these diagnostic and infectious
disease products and vaccines to corporate partners. We use the licensing,
research support and royalty fee revenues that we receive from these corporate
partners, in part, to fund our ongoing research and development of
cancer-related products.
Research Programs.
In addition to our development programs, we also continue to conduct research in
various areas. We conduct such research to discover new treatments for cancer.
We conduct such research in-house, as well as in cooperation with certain
corporate partners and academic institutions.
Background and Facilities.
ImClone was incorporated in Delaware in 1984 and began its principal research
and development operations in March 1986. ImClone'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.
We also operate a facility in Somerville, New Jersey where we manufacture
materials for product candidates of sufficient quality and in sufficient
quantity for human clinical trials.
DEVELOPMENT PROGRAMS
C225 Cancer Therapeutic.
Our main interventional therapeutic product candidate for cancer, C225, is a
chimerized (part mouse, part human) monoclonal antibody that blocks the
Epidermal Growth Factor ("EGF") receptor. An interventional therapeutic product
for cancer is a drug that interferes with the growth of tumors, and is used to
treat people who have developed cancer. An antibody is a protein that directly
recognizes foreign substances in the body, including tumors. The "monoclonal"
nature of an antibody means that the antibody is derived from a single
antibody-producing cell, called a hybridoma cell. C225 works to treat cancer in
the same manner as other growth factor receptor inhibitors, which process is
discussed in greater detail under the heading "ImClone's Research Programs
- -Research on Interventional Therapeutics."
The EGF receptor is found in excessive amounts in the cells of approximately
one-third of all solid cancers. It is also found in select normal tissue. In
vivo animal studies, which for cancer studies can be studies in which animals
have been implanted with human tumors, have shown that C225, when used together
with various agents used in chemotherapy (doxorubicin, cisplatin or paclitaxel)
or with radiotherapy, helps these chemotherapeutic or radiotherapeutic agents
fight the tumors more effectively. These studies showed that the human tumors
established in these animals were eliminated, and the animals survived
tumor-free for a significant period of time. We have also found that C225
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used alone helps reduce tumors in animals that have been implanted with renal
cell carcinoma (kidney cancer) and pancreatic carcinoma (pancreatic cancer).
Our C225 product is now in clinical trials. Clinical trials are typically
conducted in three sequential phases, Phase I, Phase II and Phase III, 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. A Phase II clinical trial studies a
limited number of patients to determine (1) if the drug has any effect on the
disease, (2) the correct dosage of the drug needed to produce the desired effect
and (3) the side effects of the dosage selected. A "Phase III" clinical trial is
conducted following a Phase II study which has shown that a product is effective
and acceptably safe. "Phase III" trials further evaluate clinical effectiveness
and further test for safety in a greater number of patients at multiple clinical
study sites.
Since December 1994, we have initiated several Phase Ib/IIa clinical trials of
C225 at Memorial Hospital (the patient care arm of Memorial Sloan-Kettering
Cancer Center) (referred to as "Sloan-Kettering"), Yale Cancer Center,
University of Virginia, MD Anderson Cancer Center and the University of Alabama,
among others. In these C225 Phase Ib/IIa studies, we have given C225
intravenously at selected doses, both alone and in combination with
chemotherapeutic drugs or radiotherapeutic agents, to patients with various
solid cancers, such as breast, prostate, head, and neck and renal cancers.
Certain of these studies are ongoing. These studies have shown that the drug is
generally well tolerated by patients.
A series of C225 pivotal studies is planned for 1999 based on positive results
from the Phase Ib/IIa studies. A pivotal study is a study after whose completion
FDA approval could be granted. One study will involve the administration to head
and neck cancer patients of C225 plus radiation therapy versus radiation therapy
alone, and in March 1999, the FDA gave us approval to initiate a Phase III
trial. A second trial will involve the use in head and neck cancer patients of
the drug plus cisplatin against cisplatin alone. A third trial will combine C225
and chemotherapy agents in patients who have failed prior chemotherapy in
squamous cell head and neck cancers. We also expect to begin in the near future
several additional Phase II clinical trials to continue to determine the types
of tumors on which C225 is most effective. In these clinical trials, we expect
C225 will be used in combination with chemotherapeutic agents or immune system
agents called cytokines.
In December 1998, we entered into an agreement with Merck KGaA ("Merck"), a
German-based drug company, relating to the development and commercialization of
C225. Under this agreement:
o We have granted Merck the exclusive right to market C225 outside of North
America.
o We have retained the right to market C225 within North America.
o We have retained the right to be the exclusive manufacturer of C225.
o We will co-develop C225 in Japan with Merck.
In return, Merck (1) paid us an upfront fee, (2) is paying to us early
cash-based milestone payments based upon our achievement of certain milestones
set forth in the agreement, (3) is paying to us, assuming we achieve further
milestones, additional milestone payments for which Merck will receive equity in
ImClone which will be priced at varying premiums to the then market price of the
common stock depending upon the timing of the achievement of the respective
milestones, (4) is providing to us subject to certain terms a secured line of
credit or guaranty for the build-out of a manufacturing facility by us for the
commercial production of C225, (5) is funding clinical development of C225
outside of North America, and (6) is required to pay us royalties on future
sales of C225 outside North America, if any.
BEC2 Cancer Vaccine.
BEC2 is our principal cancer vaccine product candidate. A cancer vaccine is
intended to be given to a patient after initial treatment of a tumor in order to
activate immune responses to protect against local spread, distant metastases,
or recurrence of the cancer. It is currently in the clinical development stage.
BEC2 is a monoclonal anti-idiotypic antibody. Anti-idiotypic antibodies are
antibodies directed against the site of another antibody to which antigens bind.
An antigen is a substance in the body that stimulates the body to produce
antibodies and/or T cells to fight disease. T cells are cells that are involved
in the immune system's response to fight disease. In certain cases, the
anti-idiotypic antibody can resemble the original antigen and thus stimulate an
immune system response. Often, such an anti-idiotypic antibody produces a
stronger immune response than the immune response produced by the original
antigen, which it resembles. As a result, the immune system of cancer patients
injected with an anti-idiotypic antibody that resembles an antigen on a tumor
will recognize the tumor antigen and destroy the tumor.
We have tested together with Sloan-Kettering scientists, the BEC2 antibody since
1991 in Phase I clinical trials at Sloan-Kettering against certain forms of
cancer, including both limited disease and extensive disease small cell lung
carcinoma and melanoma (skin cancer). Limited disease small cell lung carcinoma
is limited to
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the lungs. Extensive disease small cell lung carcinoma means that the disease
has migrated to other parts of the body. A statistically significant number of
patients with small cell lung carcinoma who participated in a pilot study
involving BEC2 at Sloan-Kettering had a considerably longer disease-free period
after treatment with BEC2 than would otherwise have been expected. We have begun
a Phase III multinational clinical trial for BEC2 in the treatment of limited
disease small cell lung carcinoma.
In December 1990, we entered into an agreement with Merck relating to the
development and commercialization of BEC2. Under this agreement, as subsequently
amended:
o We have granted Merck exclusive rights to manufacture and market BEC2
worldwide, but for North America where the parties share the right to
co-market BEC2.
o The parties intend that ImClone will be the bulk product manufacturer of
BEC2 to support worldwide sales.
In return, Merck (1) is paying us research support, (2) is required to pay us
certain milestone fees, and (3) is required to pay us royalties on future sales
of BEC2 by Merck outside North America, if any with a portion of the earlier
funding being creditable against royalties.
Monoclonal Antibody Inhibitor of Angiogenesis.
We have developed c-p1C11 as an inhibitor of angiogenesis. Angiogenesis is the
natural process of growth of new blood vessels. Vascular Endothelial Growth
Factor ("VEGF") regulates angiogenesis. VEGF is a natural growth factor, which
is also produced by tumor cells. Once produced by the tumor, it stimulates the
body's endothelial cells, which are the cells that line all blood vessels, to
grow. This results in the production of new blood vessels and ensures an
adequate blood supply to the tumor. The growth of a tumor depends upon the
growth of new blood vessels in this manner. KDR is a growth factor receptor
found almost exclusively on the surface of human endothelial cells. VEGF must
recognize and bind to this KDR receptor in order to stimulate the endothelial
cells to grow.
C-p1C11 is a chimerized monoclonal antibody, which specifically binds to the KDR
receptor for VEGF. By doing so, it prevents VEGF from binding to that receptor,
which, in turn, blocks endothelial cell growth and inhibits angiogenesis. The
c-p1C11 antibody, therefore, helps inhibit or eliminate cancer by preventing the
growth of new blood vessels and depriving the tumor of the blood supply that it
requires to grow. The c-p1C11 antibody is called "chimerized" because part of
the antibody is derived from a mouse, while the other part is derived from a
human. The benefit of the chimerization of this antibody in this way is that the
human part causes the antibody to be less immunogenic. That is, it lessens the
chance that the body will recognize the antibody as foreign and reject it. An
antibody such as c-p1C11 that inhibits angiogenesis may also be useful in
treating other diseases that, like cancer, depend on the growth of new blood
vessels. Such diseases include diabetic retinopathy, age-related macular
degeneration, and rheumatoid arthritis.
We are now conducting pre-clinical studies before filing an Investigational New
Drug Application ("IND") with the FDA to allow us to further test c-p1C11 as a
possible cancer therapeutic. Preliminary animal data demonstrate that c-p1C11
binds to blood vessels during tumor induced angiogenesis. Pre-clinical studies
are conducted before the beginning of clinical trials, and include both
laboratory evaluation of the chemistry of the product and animal studies to
determine the safety and effectiveness of the product. The results of the
pre-clinical studies are submitted to the FDA as part of the IND.
We are also working with MRC Collaborative Center in England to prepare a
"humanized" form of c-p1C11. A "humanized" form of c-p1C11 would essentially be
a human antibody that contains only a minimal amount of mouse components that
are necessary for the antibody to have therapeutic value without resulting in
the body rejecting the antibody. The humanized form of c-p1C11 would serve as a
back up, in the event that the chimerized c-p1C11 antibody causes an immune
response in the human body due to the presence of the mouse component.
IMCLONE'S RESEARCH PROGRAMS
General.
In addition to concentrating on our products in development, we perform ongoing
research in a number of related areas. We conduct research in-house. We also
cooperate with corporate partners and academic institutions on research. We hope
that such research efforts will identify, among other things, additional drugs,
and techniques to treat and prevent cancer which we can develop, test and
ultimately commercialize to manufacture and sell to the public.
Research on Interventional Therapeutics.
Tyrosine Kinase Receptor Inhibitors. We are conducting a research program to
develop inhibitors of tyrosine kinase receptors. Tyrosine kinase receptors are a
type of growth factor receptor. Tumor cells often depend on growth factors to
allow the tumor to continue to grow and multiply rapidly. These growth factors
act by
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binding to tyrosine kinase receptors, which are receptors located on the surface
of cells. When the growth factor binds to the receptor, this activates the
enzyme (kinase) part of the receptor, which initiates an "on signal" in the
cells. The kinase activity initiates the process of cell division, which results
in tumor growth. Therefore a product that inhibits tyrosine kinase receptors
would prevent the growth factor from binding with the tyrosine kinase receptor.
This would, in turn, prevent or inhibit the kinase activity that would result
from such binding, as well as the resulting cell division and tumor cell growth.
In the past, we have chosen to inhibit tyrosine kinase receptors with antibodies
that block the binding of growth factors to the receptors. For example, C225
blocks the binding of EGF to its receptor, EGFr and c-p1C11 blocks the binding
of VEGF to its receptor, KDR. More recently, we have started a discovery program
to identify small molecules that inhibit the enzyme part of growth factor
receptors. In October 1997, we entered into an agreement with CombiChem, Inc.,
("CombiChem") a combinational chemistry company. Under our agreement, we can use
CombiChem's library of structures of chemical compounds to help us identify
candidates that interfere with the function of growth factor receptors.
CombiChem will also synthesize novel and improved molecules that act as
inhibitors of the growth factor receptors. We have also entered into an
agreement with the Institute for Molecular Medicine in Freiburg, Germany, which
permits us to test small molecules as therapeutic candidates to see if they are
effective in inhibiting various tyrosine kinase receptors.
VE-cadherin. In connection with our anti-angiogenesis research program, we are
also doing research to see whether antibodies that inhibit vascular-specific
cadherin ("VE-cadherin") also inhibit angiogenesis. Cadherins are a family of
cell surface molecules that help organize tissue structures. Researchers believe
that VE-cadherin plays an important role in angiogenesis by organizing the
assembly of endothelial cells into vascular tubes, which is a necessary step in
the formation of new blood vessels. As we stated above, advanced tumor growth is
dependent on the formation of a capillary blood vessel network in the tumor to
ensure an adequate blood supply to the tumor. Therefore, antibodies that inhibit
VE-cadherin may inhibit such capillary formation in tumors, and help fight
cancer by cutting-off an adequate blood supply to the tumor. We intend to test
various monoclonal antibodies against VE-cadherin to see if they are effective
in inhibiting the function of the VE-cadherin, and the growth of blood vessels.
We also intend to use our chemical analysis techniques as well as CombiChem's
libraries to identify small molecules, in addition to antibodies, that inhibit
VE-cadherin. In connection with our VE-cadherin research program, we have been
assigned the exclusive rights to VE-cadherin-2, a recently developed form of
vascular-specific cadherin, and to antibodies that inhibit VE-cadherin. We also
collaborate with the Mario Negri Institute for Pharmacological Research (Milan,
Italy) to do pharmacological research to better determine the role of
VE-cadherin in angiogenesis.
Research on Potential Cancer Vaccines.
We are conducting research to discover possible cancer vaccines as another route
to cancer treatment. Cancer vaccines would activate immune responses to tumors
to protect against local spread, distant metastases, or recurrence of cancer.
Our BEC2 product is a cancer vaccine under development. We focus our research
efforts in our cancer vaccine research program on choosing appropriate cancer
cell targets and producing effective immune responses.
For example, we are now doing research on a possible melanoma vaccine based on
the melanoma antigen gp75. A melanoma is a tumor or cancerous growth of the
skin. The gp75 antigen stimulates the body to produce antibodies and T cells to
attack the malignant melanoma. Animal studies have shown that a gp75 cancer
vaccine is very effective in creating an immune response in the body against
melanoma cells, and may prevent or inhibit growth of experimental melanoma
tumors in mice.
Research on Endothelial Stem Cell Technology.
We have developed the technology necessary to isolate endothelial stem cells.
Endothelial stem cells are cells that may originate in the bone marrow. These
stem cells contribute to the development of new blood vessels throughout the
entire body. Endothelial stem cells help produce endothelial cells. We are
exploring the use of endothelial stem cells to stimulate collateral blood
circulation in ischemias. Ischemias are disease conditions where an organ of the
body does not receive enough blood. For example, a myocardial ischemia is caused
by the clogging of the blood vessels in the heart.
We believe that the ability to isolate endothelial stem cells could allow us to
use these cells to treat many ischemia conditions by using them to stimulate the
growth of new blood vessels to increase the supply of blood to a targeted area
of the body. We also believe that the isolated endothelial stem cells could be
used to treat other conditions where the stimulation of new blood vessel growth
is desired. These uses include the treatment of burn patients and the healing of
wounds.
We are also exploring the use of endothelial stem cells in connection with gene
therapy. Gene therapy involves inserting one or more genes into cells. The cells
may then be delivered by various mechanisms to specific
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parts of the body in order to treat disease. For example, in diabetes, a
condition in which the pancreas does not produce enough insulin, a gene therapy
technique could be used to alter cells to produce insulin and deliver such
insulin producing cells to the pancreas.
We believe that a gene therapy delivery approach could also be used with
endothelial cells in order to treat cancer. Tumors require angiogenesis to grow.
Tumors must attract endothelial stem cells in order for angiogenesis to occur.
We believe that a gene therapy technique could be used to alter endothelial stem
cells to express tumor-destroying molecules and to deliver these altered
endothelial stem cells to the tumors.
This research on endothelial stem cells is being conducted through our
wholly-owned subsidiary, EndoClone Incorporated.
Research on Hematopoiesis.
We are conducting research in hematopoiesis, which is the growth and development
of blood cell elements. Current cancer treatments such as radiation and
chemotherapy are limited because they are harmful to bone marrow, the part of
the body that manufactures the cellular elements of blood. Radiation and
chemotherapy would be less harmful and could be used more effectively if the
hematopoietic stem cells in the bone marrow (i.e., the cells that make blood
cells) could be shielded from these harmful effects. This could be accomplished
if these blood cell-making stem cells could be removed from the patient before
treatment with radiation or chemotherapy and returned to the patient afterwards.
Therefore, our research, on hematopoiesis has been aimed at discovering factors
to support these blood-making stem cells and to control their proliferation,
differentiation, and functional deterioration. Our goal is to permit them to be
maintained in culture outside of the body without harming them.
Most stem cells, when they are removed from the patient's bone marrow, quickly
differentiate, that is, they become designated for a specific function and lose
their ability to make blood cells. The delta-like protein ("DLK") is a protein
which may help to maintain stem cells in their undifferentiated state while they
are outside the patient's body during radiation treatment or chemotherapy. We
have an exclusive license from The National Institutes of Health ("NIH") to DLK
for use in our studies involving stem cells. DLK may also be useful in gene
therapy using stem cells. DLK could be used to maintain the stem cells in their
undifferentiated state while they are genetically manipulated outside the body.
Then, the stem cells could be returned to the body as functioning, rather than
differentiated, stem cells.
In the course of our research on hematopoiesis, we discovered the FLK-2/FLT-3
receptor (originally referred to by ImClone as FLK-2, by others as FLT-3, and
herein as FLK-2/FLT-3). We are the exclusive licensee of a family of patents and
patent applications covering the FLK-2/FLT-3 receptor. FLK-2/FLT-3 ligand is a
protein that binds to and activates the FLK-2/FLT-3 receptor. The FLK-2/FLT-3
ligand's role seems to be to stimulate the growth of the hematopoietic blood
making stem cells. In addition, the FLK-2/FLT-3 ligand stimulates the production
of dendritic cells, which are potent cells that specialize in processing foreign
antigens and presenting these antigens to the immune system. The addition of the
FLK-2/ FLT-3 ligand to stem cells may help stem cells reproduce themselves while
outside of the body during radiation treatment or chemotherapy. This would
increase the number of stem cells, and speed up the bone marrow recovery process
after return of the stem cells to the patient's body after treatment.
We have entered into a non-exclusive license and supply agreement with Immunex
Corporation ("Immunex") under which we have granted Immunex a license to the
FLK-2/FLT-3 receptor for the limited use of the manufacture of the FLK-2/FLT-3
ligand. Immunex has granted us a license to use the FLK-2/FLT-3 ligand for use
in our ex vivo research on stem cells.
CORPORATE PARTNERSHIPS FOR IMCLONE'S INFECTIOUS DISEASE VACCINES AND DIAGNOSTICS
We have licensed our diagnostic and infectious disease vaccine products and
techniques, which are based on our earlier research, to corporate partners for
further development and commercialization.
Diagnostic Technologies.
We have a strategic alliance with Abbott Laboratories ("Abbott"). We have
licensed some of our diagnostic products and techniques to Abbott on a worldwide
basis. In mid-1995, Abbott launched its first DNA-based diagnostic test in
Europe, using our Repair Chain Reaction ("RCR") DNA probe technology. Abbott's
test is used to diagnose the sexually transmitted diseases chlamydia and
gonorrhea, as well as mycobacteria. The RCR DNA probe technology uses DNA
amplification techniques to detect the presence of DNA or RNA in biological
samples thereby indicating the presence of disease.
In December 1996, we amended our agreement with Abbott to allow Abbott to
exclusively license our patented DNA signal amplification technology,
AMPLIPROBE, to Chiron Diagnostics. DNA signal amplification technology such as
AMPLIPROBE uses
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DNA amplification signal techniques in detecting the presence of DNA or RNA in
biological samples, thereby indicating the presence of disease. Abbott receives
a royalty payment from Chiron on all sales of Chiron branched DNA diagnostic
probe technology in countries covered by our patents. Abbott, in turn, pays any
such royalties it receives to us. Abbott has recently sold the Chiron branched
DNA diagnostic probe technology to Bayer Pharmaceutical Corporation.
Infectious Disease Vaccines.
We have given the Wyeth/Lederle vaccine and pediatrics division of American Home
Products Corporation ("American Home") a worldwide license to manufacture and
market our infectious disease vaccines. These vaccines are being developed by
American Home. In January 1998, we extended our agreement with American Home to
allow them to continue pre-clinical research on these vaccines through September
1999, in preparation for clinical trials of possible infectious disease vaccines
for the treatment of gonorrhea. Under the modified agreement, American Home must
pay us an annual license fee of $300,000, in semi-annual installments of
$150,000 each, until September 1999.
RESEARCH AND DEVELOPMENT
We initiated our in-house research and development in 1986. We have assembled a
scientific staff with a variety of complementary skills in a broad base of
advanced research technologies. These research technologies include oncology,
immunology, molecular and cellular biology, antibody engineering, protein and
synthetic chemistry and high-throughput screening. We also have recruited a
staff of technical and professional employees to carry out manufacturing of
clinical trial materials at our Somerville, New Jersey manufacturing facility.
In addition to our research programs pursued in-house, we collaborate with
certain academic institutions and corporations to support research in areas of
our product development efforts. We also have entered into collaborations with
major pharmaceutical companies in order to obtain funding and product
development and commercialization assistance for certain of our therapeutic
product candidates in exchange for specific product licensing rights. We intend
to enter into additional agreements of this nature with appropriate
pharmaceutical company partners with the resources and experience to assist us
financially to successfully bring our products to market, both in the U.S. and
abroad. There can be no assurance, however, that we will be successful in
consummating any such arrangements.
We have recorded expenses of approximately $21,049,000, $16,455,000 and
$11,482,000 for research and development in the years ended December 31, 1998,
1997 and 1996, respectively.
RESEARCH COLLABORATIONS AND IN-LICENSING ARRANGEMENTS
Our primary research collaborations which are non-clinical in nature are the
following:
CombiChem, Inc, San Diego, California. In October 1997, we entered into a
Collaborative Research and License Agreement with CombiChem to discover and
develop novel small molecules for use against selected targets for the treatment
of cancer. The companies are utilizing CombiChem's Discovery Engine(TM) and
Universal Informer Library(TM) to generate small molecules. These small
molecules are screened to identify lead candidates for development into drugs.
We provided CombiChem with $500,000 in October 1997 and $500,000 in October 1998
for these services through October 1999. We will pay CombiChem milestone
payments and royalties on marketed products resulting from the collaboration, if
any. At the same time, we also entered into a Stock Purchase Agreement pursuant
to which we purchased 312,500 shares of the common stock of CombiChem, as
adjusted, for a total purchase price of $2,000,000. CombiChem has agreed to use
the proceeds from the sale of its stock to us for general corporate purposes.
Mario Negri Institute for Pharmacological Research, Milan, Italy. We have a
supported research agreement with Mario Negri Institute for Pharmacological
Research. Under the agreement we support 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, we also acquired proprietary rights to VE-cadherin-2
and to antibodies to VE-cadherin. The National Cancer Institute ("NCI") has
awarded to us a Phase I SBIR grant in the amount of $100,000 to support our
VE-cadherin program.
Memorial Sloan-Kettering Cancer Center, New York, New York. We have a supported
research agreement with Sloan-Kettering to support research in several areas,
including potential cancer vaccine product, gp75. We have an exclusive license
from Sloan-Kettering to the gp75 tumor antigen and to the BEC2 cancer vaccine
and we are required under the license to make good faith efforts to proceed
diligently with the manufacture and sale of these products.
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Princeton University, Princeton, New Jersey. We have supported research under
the direction of certain faculty members at Princeton University. Specifically,
we have supported the research of Dr. Arnold Levine, Chairman of Princeton's
Department of Molecular Biology, in the area of the p53 tumor suppressor gene.
We have an exclusive license to the results of this research. This license is
terminable by Princeton University if we do not meet certain milestones in
connection with the development of the licensed technology.
We also have 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. We have an exclusive license from
Princeton University to the results of this research. This license is terminable
by the university if we do not meet certain developmental milestones. We also
have initiated work with Dr. Lemischka in identifying important stem cell or
stromal cell gene. Libraries of such genes are developed by Dr. Lemischka, and
then arrayed and sequenced by a third party, paid for by us and the information
gathered is studied to determine if unique genes have resulted. These genes
could be useful for a variety of purposes, including for hematopoiesis.
MRC Collaborative Centre, Mill Hill, United Kingdom. We are funding research at
the MRC Collaborative Centre on the humanization of our C225 and anti-KDR
antibodies and in the expression of our C225 antibody in a non-mouse cell line.
The University of North Carolina at Chapel Hill. We support 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. These results are exclusively licensed to us.
Our primary in-licensing arrangements, which have resulted in the transfer of
intellectual property rights to us are the following:
The University of California at San Diego. In April 1993, we obtained an
exclusive worldwide license from the University of California to a United States
patent covering specific monoclonal antibodies that bind to EGFr. Our C225
product is the chimerized form of one such antibody.
Rhone-Poulenc Rorer, Inc. In June 1994, we 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.
National Institutes of Health. In October 1996, we obtained an exclusive,
worldwide patent license from the NIH for the DLK protein and gene. The
agreement provides us with an exclusive license to stem cell and gene therapy
applications of the DLK protein and gene, as well as related diagnostic uses.
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
Our principal collaborations that are related to our clinical trials are the
following:
Memorial Sloan-Kettering Cancer Center. We have agreements with Sloan-Kettering
to support research in several areas. These include the study of our potential
cancer vaccine products, BEC2 and gp75. We have 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.
We also have agreements with certain institutions by which such institutions
serve as sites for our clinical trials.
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. The EORTC has responsibility for monitoring the trial in Europe at
various centers. It also randomizes patients and manages data for the worldwide
study. We utilize a contract research organization to coordinate and monitor the
study in the United States.
We anticipate utilizing a contract research organization to coordinate and
monitor in the United States our Phase III Study utilizing C225 in combination
with radiation therapy. We anticipate that arrangements similar to the above may
be employed for certain other future Phase II/III studies for C225.
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CORPORATE COLLABORATIONS AND OUT-LICENSING ARRANGEMENTS
To facilitate commercialization of certain of our products, we have entered into
agreements with major pharmaceutical companies. Although the terms of each
agreement differ, these agreements generally provide for us to receive license
fees, research funding and royalties on net sales of any future products during
the life of any relevant patent or a related period on unpatented technology. In
some cases, license fees include payments related to the achievement of
regulatory or product development milestones.
Merck KGaA (Darmstadt, Germany)
BEC2 Research and License Agreement.
In April 1990, we entered into an agreement with Merck relating to the
development and commercialization of BEC2 and the recombinant gp75 antigen. It
has been amended a number of times, most recently in December 1997.
Under this agreement:
o We have granted Merck a license, with the right to sublicense, to
manufacture and market our BEC2 product and the recombinant gp75 antigen.
This license is for all indications.
o The territory that the license covers is the world; except that in North
America we have granted Merck a sole license, without the right to
sublicense, to market but not to manufacture BEC2.
o We retain the right to co-promote BEC2 within North America.
o It is the intent of ourselves and Merck that we will be the bulk product
manufacturer of BEC2 to support worldwide sales.
o We are required to give Merck the opportunity to negotiate a license in
North America to gp75 before granting such a license to any third party.
In return, Merck:
o Is making research support payments to us totaling $4,700,000, of which
$4,375,000 has been received to date.
o is required to make milestone payments to us of up to $22,500,000, of
which $3,000,000 has been received to date, based on milestones achieved
in the product development of BEC2.
o is required to make royalty payments to us on all sales of the licensed
products outside North America, if any, with a portion of the earlier
funding received under the agreement being creditable against the amount
of royalties due.
In addition, under the agreement, 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. Conduct of the clinical trials and regulatory
submissions outside North America are the responsibility of Merck and within
North America are our responsibility. 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 are the
responsibility of Merck. These include our out-of-pocket costs (but do not
include costs of establishing a manufacturing facility) for manufacturing
materials for clinical trials, conduct of clinical trials and regulatory
submissions (other than drug approval fees which are the responsibility of Merck
or ourselves in our respective territories). If these expenses exceed DM
17,000,000, such excess expenses will be shared 60% by Merck and 40% by us.
Costs for the conduct of additional clinical trials for other indications will
be subject to separate budgets to be negotiated by the parties. We are
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 agreement terminates upon the later of (i) the last to expire of any patents
issued and covered by the technology (ii) or fifteen years from the date of the
first commercial sale. After termination the license will survive without
further royalty payment and is irrevocable. The agreement may be terminated
earlier by us 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, 1998, we recorded $3,500,000 in revenue from
Merck under this agreement, which consisted of milestone and research and
support payments.
In connection with the December 1997 amendment to the agreement with Merck for
BEC2, Merck purchased from us 400,000 shares of our Series A Convertible
Preferred Stock (the "Series A Preferred Shares" or "Series A Preferred Stock")
for a total price of approximately $40,000,000. 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. These dividends are payable on the outstanding Series A Preferred Shares
in cash on December 31 of each year
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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. 100,000 of the Series A Preferred Shares could be immediately converted
into shares of our common stock beginning on December 15, 1997. An additional
100,000 Series A Preferred Shares will be able to be converted into shares of
our common stock on or after each of January 1, 2000, January 1, 2001 and
January 1, 2002. To date, no Series A Preferred Shares have been converted
Any Series A Preferred Shares converted into common stock before January 1, 2000
will be converted at a conversion price of $12.50 per share of common stock.
After that, the number of shares of common stock into which Series A Preferred
Shares are convertible is not fixed. Instead, the conversion price is determined
under a formula based upon the market price of our common stock at specified
measurement dates, which are generally one year apart. The lower the market
price of our common stock on the measurement date in question, the greater the
number of shares of common stock into which the Series A Preferred Shares may be
converted (i.e., the lower the conversion price). The conversion price is
determined as of the measurement date, and remains fixed until adjusted on the
next measurement date to reflect the market price of our common stock. During
the year 2002, the conversion price is 88% of the market price of our common
stock. If the market price of our common stock declines (or, in the case of the
year 2002 remains constant) after the measurement date in question is fixed, the
common stock may be purchased at a price that is lower than the price at which
the common stock is being sold on the open market.
The terms of the Series A Preferred Shares also give us the right, in certain
circumstances, to require the holders of the Series A Preferred Shares to
convert those shares into common stock at the conversion price then in effect.
Generally, if after the determination of the conversion price for the Series A
Preferred Shares on a measurement date, the average market price of our common
stock for any period of five trading days is greater than 150% of that
conversion price, we can require the conversion of the then convertible Series A
Preferred Shares at that conversion price. We also may redeem (i.e., repurchase)
all or any part of the Series A Preferred Shares at a price of $120 per share,
plus accrued dividends.
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 Series A Preferred Shares. Merck also agreed to refrain from
selling such shares of common stock for certain specified periods of time. These
terms were modified in connection with the execution of the C225 License and
Development Agreement with Merck in December 1998. In accordance with the terms
of the Series A Preferred Stock, we are required to recognize an assumed
incremental yield of $5,455,000 (calculated at the date of issuance and based on
the beneficial conversion feature noted above). Such amount is being amortized
as a preferred stock dividend over a four-year period beginning with the day of
issuance. Accrued dividends payable on the Series A Preferred Stock were
$2,512,000 at December 31, 1998. Additionally, we have recognized an incremental
yield on the conversion discount of $1,319,000 at December 31, 1998.
C225 License and Development Agreement.
In December 1998, we entered into an agreement with Merck relating to the
development and commercialization of C225. Under this agreement:
o We have granted Merck exclusive rights to market C225 outside of North
America.
o We have retained the right to market C225 within North America.
o We will co-develop C225 in Japan with Merck.
o We will be the manufacturer of C225 and Merck will purchase product from
us for clinical trials and commercialization in its territory.
o Merck has agreed not to own greater than 19.9% of our voting securities
through December 3, 2002.
In return, Merck is:
o paying to us $30 million in upfront fees and early cash-based milestone
payments based upon our achievement of certain milestones set forth in the
agreement, of which $4,000,000 has been received to date.
o paying to us an additional $30 million assuming we achieve further
milestones for which Merck will receive equity (the "Milestone Shares") in
our company which will be priced at varying premiums to the then market
price of the common stock depending upon the timing of the achievement of
the respective milestones.
o providing to us subject to certain terms a $30 million secured line of
credit or guaranty for the build-out of a manufacturing facility by us for
the commercial production of C225.
o funding clinical development of C225 outside of North America.
o required to pay us royalties on future sales of C225 outside of North
America, if any.
The Milestone Shares, if issued, will be shares of our common stock (or a
non-voting preferred stock or other
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non-voting stock convertible into our common stock). The number of shares issued
to Merck will be determined by dividing the particular milestone payment due by
the purchase price of the common stock when the milestone is achieved. The
purchase price will relate to the then market price of our common stock, plus a
premium which varies, depending upon whether we achieve the milestone early,
on-time or late. The Milestone Shares will be a non-voting preferred stock or
other non-voting stock convertible into our common stock if the shares of common
stock that otherwise would be issued to Merck would result in Merck owning
greater than 19.9% of our common stock. This 19.9% limitation is in place
through December 2002. These convertible securities will not have voting rights.
They will be convertible at a price determined in the same manner as the
purchase price for shares of our common stock if shares of common stock were to
be issued. They will not be convertible if as a result of the conversion Merck
would own greater than 19.9% of our common stock. This 19.9% limitation is in
place through December 2002 except that after this date, Merck must sell shares
it receives as a result of conversion to the extent such shares result in
Merck's owning in excess of 19.9% of our common stock. We have granted Merck
certain registration rights regarding the shares of common stock that they may
acquire upon conversion of the Series A Preferred Shares and Milestone Shares.
This agreement may be terminated (1) by either Merck or ourselves in the event
of the material breach of the other party, (2) by Merck in various other
instances, including (a) at its discretion on any date on which a milestone is
achieved (in which case no milestone payment will be made), (b) for a one-year
period after first commercial sale of C225 in Merck's territory, upon Merck's
reasonable determination that the product is economically unfeasible (in which
case Merck is entitled to receive back 50% of the cash based milestones then
paid to date, but only based upon a royalty rate applied to our sales in North
America, if any), or (c) in the event we do not timely obtain certain collateral
license agreements in which case Merck also is entitled to a return of all
milestone payments to date. In the event of termination of the agreement, the
due date for the payment of the credit for the manufacturing facility will be
accelerated, or in the event of a guaranty, we will be required to use our best
reasonable efforts to release Merck as guarantor. Also, in the event by April
15, 1999 we fail to agree with Merck on a production concept for the
manufacturing facility or Merck fails to provide us with the credit facility or
guaranty then the agreement may be terminated by either of us, in which case
Merck is entitled to receive back all milestone payments made to date.
In the year ended December 31, 1998, we recorded $4,000,000 as a fee potentially
refundable from our corporate partner under this agreement.
Abbott Laboratories
We have licensed some of our diagnostic products and techniques to Abbott on a
worldwide basis. In mid-1995, Abbott launched its first DNA-based diagnostic
test in Europe, using our DNA probe technology. Abbott's test is used to
diagnose the sexually transmitted diseases chlamydia and gonorrhea, as well as
mycobacteria. The RCR DNA probe technology uses DNA amplification techniques to
detect the presence of DNA or RNA in biological samples thereby indicating the
presence of disease.
In December 1996, we amended our agreement with Abbott to allow Abbott to
exclusively license our patented DNA signal amplification technology,
AMPLIPROBE, to Chiron Diagnostics. DNA signal amplification technology such as
AMPLIPROBE also uses DNA signal amplification techniques in detecting the
presence of DNA or RNA in biological samples, thereby indicating the presence of
disease. Abbott receives a royalty payment from Chiron on all sales of Chiron
branched DNA diagnostic probe technology in countries covered by our patents.
Abbott, in turn, pays any such royalties it receives to us. Abbott has recently
sold the Chiron branched DNA diagnostic probe technology to Bayer Pharmaceutical
Corporation.
Under the agreement Abbott has paid us up-front fees and research support, and
is obligated to pay milestone fees and royalties on sales. In June 1997, we
received two milestone payments from Abbott totaling $1,000,000, as a result of
a patent issuance in Europe for our RCR technology. This is partially creditable
against royalties as described below. The issuance of the patent also entitles
us to receive royalty payments on sales in covered European countries for
products using our 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 March 1999, we
received a notice of allowance from the U.S. Patent Office for our RCR
technology. The patent issuance upon this notice of allowance will entitle us to
a $500,000 milestone payment from Abbott and royalties on sales for a two year
period from initiation of U.S. sales by Abbott for products using our RCR
technology. The agreement terminates upon the later of (i) the last to expire of
any patents issued covered by the technology or (ii), if no patents are granted,
twenty years, subject to certain earlier termination provisions contained in the
agreement.
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For the year ended December 31, 1998, we received a total of $295,000 in royalty
fees pursuant to our strategic alliance with Abbott.
American Home Products
In December 1987, we entered into a vaccine development and licensing agreement
with American Cyanamid Company ("Cyanamid") that provided Cyanamid an exclusive
worldwide license to manufacture and sell vaccines developed during the research
period of the agreement. In connection with the agreement, Cyanamid purchased
410,001 shares of our common stock. During the three-year research period of the
agreement, which period expired in December 1990, we were engaged in the
development of two vaccine candidates, the first of which was for N. gonorrhea
based on recombinant proteins, and the second of which was for Herpes Simplex
Virus based on recombinant glycoproteins B and D.
In September 1993, Cyanamid's Lederle-Praxis Biologicals division and ImClone
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 us,
as well as milestone fees and royalties on sales of any N. gonorrhea vaccine
that might arise from the collaboration. In January 1998, this agreement was
extended to continue annual research funding payable to us in the amount of
$300,000 through September 1999 and to extend 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 us. American Home is
required to pay royalties to us in connection with sales of the vaccines, if
any.
In the year ended December 31, 1998, we recorded revenues of $300,000 under the
American Home agreements.
Immunex Corporation
In the course of our research on hematopoiesis, we discovered the FLK-2/FLT-3
receptor. We are the exclusive licensees of a family of patents and patent
applications covering the FLK-2/FLT-3 receptor. FLK-2/FLT-3 ligand is a protein
that binds to and activates the FLK-2/FLT-3 receptor. The FLK-2/FLT-3 ligand is
owned by Immunex.
In December 1996, we entered into a non-exclusive license and supply agreement
with Immunex under which we granted Immunex an exclusive worldwide license to
the FLK-2/FLT-3 receptor for the limited use of the manufacture of the
FLK-2/FLT-3 ligand. Immunex is currently testing the ligand in human trials for
stem cell stimulation and for tumor inhibition. Under this agreement, we receive
royalty and licensing fees from Immunex, and Immunex has granted us a license to
use the FLK-2/FLT-3 ligand for use in our ex vivo research on stem cells. In
addition, Immunex has granted us a non-exclusive license in the United States
and Canada to use and sell the FLK-2/FLT-3 ligand, manufactured by Immunex, for
ex-vivo stem cell expansion, together with an exclusive license to distribute
the ligand with our 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 us. Subject to earlier
termination provisions contained in the agreements, our 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, 1998, we recorded no revenue from Immunex under
this agreement.
MANUFACTURING
For us to support our ongoing research and development we maintain, supply and
staff a facility for the preparation, analysis and distribution of clinical
supplies to various clinical study sites. We operate a manufacturing facility
for biologics in Somerville, New Jersey. This facility includes laboratories,
storage areas, mechanical systems and qualified staff for the production and
analysis of biological materials according to the appropriate Federal, state and
local regulations. At this facility, we are currently producing C225, the EGFr
antibody, to supply our clinical trials, and packaging and distributing to
clinical study sites both the BEC2 antibody and C225 antibody. We are also
developing the purification process for c-p1C11 and are in the early stages of
production. 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, we completed the
construction and commissioning of a new 1,750 square foot process development
center at this facility dedicated to manufacturing process
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optimization for existing products and the pre-clinical and Phase I development
of new biological therapeutics.
We also have established relationships with qualified contract vendors to
perform specialized testing and manufacturing operations not performed by us. We
have in the past and expect 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 our
clinical program needs.
We have an agreement in principle for the supplemental further development,
production, scale-up, and manufacture of our C225 antibody for use in our
clinical trials. Services pursuant to this agreement commenced in April 1998.
The total project cost is DM 8,950,000 (or currently approximately $5,424,000 of
which $1,897,000 was incurred for the year ended December 31, 1998).
Under our agreement with Merck for C225, we are taking the lead in developing,
in consultation with Merck, a production concept for a new manufacturing
facility. Merck is providing us, subject to certain terms, with a $30 million
secured line of credit or guaranty for the build-out of this facility. It is
anticipated that the facility will (i) be dedicated to the production of C225,
(ii) contain multiple 10,000 liter fermenters to be used in the fermentation of
the antibody (which is a necessary part of its production), (iii) be versatile
enough to adapt in the future for the production of other antibodies if
necessary or desired and (iv) have an area of approximately 100,000 square feet.
Under the terms of the agreement, if by April 15, 1999 we don't come to an
agreement with Merck on the production concept for the facility or Merck fails
to provide us with the credit facility or guaranty then the agreement may be
terminated by either party. We are reviewing whether to erect this facility
adjacent to our New Jersey manufacturing facility or at another site.
The materials that are used to manufacture our products include qualified cell
lines developed by us and specially qualified raw materials and components,
which we can obtain from a number of sources. We maintain necessary Quality
Control and Quality Assurance oversights of all materials used in the
manufacture of our clinical supplies.
Should any of our products be approved for commercial sale, such products will
need to be (1) manufactured in commercial quantities (2) in compliance with
regulatory requirements and (3) at acceptable costs. Although we have developed
products in the laboratory and in some cases have 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 us.
We expect that commercial production for C225 initially would be done at the new
facility and by the contract manufacturer providing us with supplemental
clinical supply of material. Ultimately, we expect to be the sole manufacturer
for commercial production. We would expect that a similar arrangement would be
followed for other products under development.
We have limited experience in later stage clinical-scale manufacturing and no
experience in commercial-scale manufacturing, and no assurance can be given that
we will be able to make the transition to later stage clinical or commercial
production or make the transition in a cost effective manner.
MARKETING
We do not have pharmaceutical marketing experience. We have recently hired a
Vice President of Marketing to develop our internal marketing capabilities. If
we were to market our products ourselves 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 we would be successful in
penetrating the markets for any products developed or that internal marketing
capabilities would successfully be developed at all. We have co-promotion rights
for commercialization of our BEC2 cancer vaccine product in North America
pursuant to our agreement with Merck. In our agreement with Merck for C225, we
retained all rights to commercialize C225 in North America. We expect that in
other instances, we may enter into development agreements with third parties
that may include co-marketing or co-promotion arrangements or pursuant to which
we retain all such rights in a given territory. In the alternative, we could
grant exclusive marketing rights to our corporate partners in return for
up-front fees, milestone payments, and royalties on sales. Under these
arrangements, our 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, business may be adversely affected.
PATENTS AND TRADE SECRETS
Generally.
We seek patent protection for our proprietary technology and products in the
United States and abroad. Patent applications have been submitted and are
pending in the United States, Canada, Europe and Japan as well as other
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countries. The patent position of biopharmaceutical firms generally is highly
uncertain and involves complex legal and factual questions. Our success will
depend, in part, on whether we can;
o Obtain patents to protect our own products.
o Obtain licenses to use the technologies of third parties, which may be
protected by patents.
o Protect our trade secrets and know-how.
o Operate without infringing the intellectual property and proprietary
rights of others.
Patent Rights; Licenses.
We currently have exclusive licenses or assignments of 49 issued patents
worldwide, 27 of which are issued United States patents. We have the exclusive
right to develop certain anti-EGFr antibodies with potential anti-tumor activity
under a United States patent owned by the University of California. Ten of our
U.S. patents are licensed from Princeton University. Six of the Princeton
patents relate to hematopoietic and angiogenic receptor genes and the proteins
they encode, such as the tyrosine kinase receptors FLK-1 and FLK-2/FLT-3. The
other four Princeton patents relate to a DNA signal amplification system and p53
detection systems.
We currently have exclusive licenses or assignments to approximately 39 families
of patent applications that relate to our proprietary technology in the U.S. and
in foreign countries. 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/FLT-3; methods for amplifying
and detecting DNA, such as the RCR and AMPLIPROBE technologies; antiangiogenic
factors and proangiogenic factors; and hematopoietic factors. We cannot be
certain that patents will be issued as a result of any of these applications.
Nor can we be certain that any issued patents would protect or benefit us or
give us adequate protection from competing products. For example, issued patents
may be challenged and declared invalid. In addition, under many of the
agreements under which we have licenses to the patents or patent applications of
others, we are required to meet specified milestone or diligence requirements in
order to keep our license. We cannot be certain that we will satisfy any of
these requirements.
We hold rights under the patents of certain third parties that we consider
necessary for the development of our technology. We will most likely need to
obtain additional licenses to patents of others in order to commercialize
certain of the products that we are currently developing. We cannot be certain
that we will be able to obtain any such licenses or, if we can do so, how much
they will cost. We know that others have filed patent applications in various
countries that relate to several areas in which we are developing products. Some
of these patent applications have already been issued as patents and some are
still pending. The pending patent applications may issue as patents. Issued
patents are entitled to a rebuttable presumption of validity under the laws of
the U.S. and certain other countries. These issued patents may therefore limit
our ability to develop commercial products. If we need licenses to such patents
to permit us to develop or market our products, we cannot be certain that we
would be able to get such licenses on acceptable terms.
C225.
We have an exclusive license to an issued U.S. patent for the murine form of
C225, our EGF receptor antibody product. Our licensor did not obtain patent
protection outside the U.S. for this antibody. However, we have sought
additional patent protection by exclusively licensing from a major
pharmaceutical company a family of patent applications seeking to cover
antibodies to EGFr used in conjunction with chemotherapeutic agents. A patent
application also has been filed on the use of anti-EGFr antibodies with
radiation. We also have filed patent applications covering the chimeric and
humanized forms of the antibody and fragments of the antibody, in synergy with
chemotherapeutic agents or radiation. Additionally, humanized forms of the
antibody and antibody fragments, are claimed as well as methods of inhibiting
human tumors with C225 alone.
C225 is a "chimerized" monoclonal antibody, which means it is made of antibody
fragments derived from more than one type of animal. Patents have been issued to
other biotechnology companies that cover the chimerization of antibodies.
Therefore, we may be required to obtain licenses under these patents before we
can commercialize our own chimerized monoclonal antibodies, including C225. We
cannot be certain that we will be able to obtain such licenses in the
territories where we want to commercialize, or how much such licenses would
cost.
BEC2.
We have exclusively licensed from Sloan-Kettering a family of patents and patent
applications relating to our BEC2 monoclonal anti-idiotypic antibody. We know
that others have been issued patents in the U.S. and Europe covering
anti-idiotypic antibodies and/or their use for the treatment of tumors. These
patents, if valid, could be interpreted to cover our BEC2 monoclonal antibody
and certain uses of BEC2. Merck, our licensee of BEC2, has informed us that it
has obtained non-exclusive, worldwide licenses to these patents in order to
market BEC2 in its territory. We are entitled to co-promote
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BEC2 in the U.S., however, we cannot be certain that we could obtain such
licenses on commercially acceptable terms, if at all.
Angiogenesis Inhibitors.
With respect to our research on inhibitors to angiogenesis based on the FLK-1
receptor, we are the exclusive licensees of a family of patents and patent
applications covering the FLK-1 receptor and antibodies to the receptor and its
human homolog, KDR. We are also the assignee of a family of patent applications
filed by our scientists covering angiogenesis-inhibiting antibodies to receptors
that bind VEGF. A specific patent application of such family claims specifically
the use of FLK-1/KDR receptor antibodies to isolate cells expressing the
FLK-1/KDR receptor on their cell surface. Additionally, we are a co-owner of a
recently filed patent application claiming the use of FLK-1/KDR receptor
antibodies to isolate endothelial progenitor cells that express FLK-1/KDR on
their cell surface. At present, we are seeking exclusive rights to this
invention from the co-owners.
VE Cadherin.
We have an exclusive license to a family of patent applications covering novel
cadherin molecules that are involved in endothelial cell interactions. These
interactions are believed to be involved in angiogenic processes. The subject
patent applications also cover antibodies that bind to, and affect, the cadherin
molecules.
Diagnostics.
Our diagnostics program has been licensed for commercial development to Abbott.
The program includes target amplification technology and detection methods, such
as RCR technology, signal amplification technology, such as AMPLIPROBE and p53
mutation detection for assisting in cancer diagnosis. Our proprietary position
with respect to our diagnostics program is based on numerous families of patents
and patent applications. We have either an assignment or exclusive license to
these families of patents and patent applications. We have an exclusive license
to an issued patent assigned to Princeton University related to the underlying
technology for our AMPLIPROBE DNA amplification and detection system. We are
aware that patent applications have been filed by, and that patents have been
issued to, third parties in the field of DNA amplification technology. This
could affect our ability or Abbott's ability to commercialize our diagnostic
products.
Trade Secrets.
With respect to certain aspects of our technology, we rely, and intend to
continue to rely, on trade secrets, unpatented proprietary know-how and
continuing technological innovation to protect our competitive position. Such
aspects of our technology include methods of isolating and purifying antibodies
and other proteins, collections of plasmids in viable host systems, and
antibodies that are specific for proteins that are of interest to us. There is
no assurance that others will not independently develop substantially equivalent
proprietary information or techniques.
Relationships between us and our employees, scientific consultants and
collaborators provide these persons with access to our trade secrets, know-how
and technological innovation under confidentiality agreements with the parties
involved. Similarly, our employees and consultants enter into agreements with us
which require that they do not disclose confidential information of ours and
they assign to us all rights to any inventions made while in our employ relating
to our activities.
We seek patent protection for our proprietary technology and products, in the
United States and abroad. Patent applications have been submitted and are
pending in the United States, Canada, Europe and Japan as well as other
countries.
GOVERNMENT REGULATION
The research and development, manufacture and marketing of human pharmaceutical
and diagnostic products are subject to regulation primarily by the FDA in the
United States and by comparable authorities in other countries. These national
agencies and other federal, state and local entities regulate, among other
things, research and development activities and the testing, manufacturing,
safety, handling, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of the products that the we are 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 a Company to enter into governmental supply contracts.
The process of obtaining requisite FDA approval has historically been costly and
time consuming. Current FDA requirements before a new human drug or biological
product 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
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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 drug product or a Biological License
Application ("BLA") for a biological product to allow commercial distribution 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 administration of the product to patients under
supervision of a qualified principal investigator. Such trials are typically
conducted in three sequential phases, although the phases may overlap. In Phase
I, the initial introduction of the drug into human subjects, the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution, and
excretion. Phase II involves studies in a limited patient population to (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" pursuant to FDA
regulations.
In October 1988, the FDA issued 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 NDAs and BLAs to be approved on the basis of expanded
Phase II clinical data results.
Diagnostic products are regulated by the FDA as medical devices. In general, a
new diagnostic product that is not "substantially equivalent" to a legally
marketable product is subject to premarket approval requirements much like those
for drugs and biological products. Specifically, the device must be tested under
an investigational device exemption ("IDE") and approved by the FDA under a
premarket approval application ("PMA") before it can be commercially marketed.
Under current law, each domestic and foreign drug and device
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 we develop will also be subject to
regulatory requirements governing human clinical trials and marketing for drugs
and biological products and devices. The requirements vary widely from country
to country, but typically the registration and approval process takes several
years and requires significant resources. In most cases, 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.
Our research and development programs involve the use of biohazardous materials.
Accordingly, our 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. We believe that our safety procedures for handling hazardous
materials comply with the requirements of such laws and regulations.
Our ability to earn sufficient returns on our 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
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commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. We compete with specialized
biopharmaceutical firms in the United States, Europe and elsewhere, as well as a
growing number of large pharmaceutical companies that are applying biotechnology
to their operations. Many biopharmaceutical companies have focused their
development efforts in the human therapeutics area, including cancer. Many major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical
companies. These companies, as well as academic institutions, governmental
agencies and private research organizations, also compete with us in recruiting
and retaining highly qualified scientific personnel and consultants. Our ability
to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital
to us.
We are aware of certain products under development or manufactured by
competitors that are used for the prevention, diagnosis, or treatment of certain
diseases we have targeted for product development. Various companies are
developing biopharmaceutical products that potentially directly compete with our
product candidates. These include areas such as (1) the use of small molecules
to the receptor or antibodies to those receptors to treat cancer, (2) the use of
anti-idiotypic antibody or recombinant antigen approaches to cancer vaccine
therapy, (3) the development of inhibitors to angiogenesis, (4) 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.
Our products under development and in clinical trials are expected to address
major markets within the cancer sector. Our competition will be determined in
part by the potential indications for which drugs are developed and ultimately
approved by regulatory authorities. Additionally, the timing of market
introduction of some of our potential products or of competitors' products may
be an important competitive factor. Accordingly, the relative speed with which
we can develop products, complete pre-clinical testing, clinical trials and
approval processes and supply commercial quantities to market are expected to be
important competitive factors. We expect that competition among products
approved for sale will be based on various factors, including product efficacy,
safety, reliability, availability, price, and patent position.
HUMAN RESOURCES
We initiated our in-house research and development in 1986. We have assembled a
scientific staff with a variety of complementary skills in a broad base of
advanced research technologies, including oncology, immunology, molecular and
cell biology, antibody engineering, protein and synthetic chemistry and
high-throughput screening. We have also recruited a staff of technical and
professional employees to carry out manufacturing of clinical trial materials at
our Somerville, New Jersey facility. Of our 138 full-time personnel on March 26,
1999, 56 were employed in our product development, clinical and manufacturing
programs, 43 in research (including two engaged in research for EndoClone), and
39 in administration. Our staff includes 23 persons with Ph.D.s and three with
M.D.s.
ENDOCLONE INCORPORATED
In January 1998, we formed a wholly-owned subsidiary, EndoClone Incorporated.
Through EndoClone we are exploring the use of endothelial stem cells to
stimulate collateral blood circulation in ischemias. We believe that the ability
to isolate endothelial stem cells could allow us to use these cells to treat
many ischemia conditions by using them to stimulate the growth of new blood
vessels to increase the supply of blood to a targeted area of the body. We also
believe that the isolated endothelial stem cells could be used to treat other
conditions where the stimulation of new blood vessel growth is desired. These
uses include the treatment of burn patients and healing of wounds. We are
exploring the use of endothelial stem cells in connection with gene therapy. We
believe that a gene therapy delivery approach could also be used with
endothelial cells in order to treat cancer. Tumors require angiogenesis to grow.
Tumors must attract endothelial stem cells in order for angiogenesis to occur.
We believe that a gene therapy technique could be used to alter endothelial stem
cells to express tumor-destroying molecules and to deliver these altered
endothelial stem cells to the tumors. We have begun hiring research scientists
to devote their time to this research area.
Item 2. Properties.
RESEARCH FACILITY--NEW YORK, NEW YORK
We currently occupy two contiguous leased floors at 180 Varick Street in New
York City. Currently we use approximately 30,000 of a total available 40,000
square feet on the two floors. The lease for the two floors was due to expire
March 31, 1999. We have entered into a
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new lease for the two floors which was effective as of January 1, 1999 and
expires in December 2004. The annual rent under the lease for 1999 is $720,000,
which increases by 3% per year for subsequent years. Rent expense for the New
York facility was approximately $574,000, $554,000, and $508,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. We have completed a design
concept to renovate the facility to better fit our needs as a result of our
growth since originally occupying the facility. The renovation will utilize all
40,000 square feet of space. It is expected to cost approximately $1.6 million
and is expected to be completed in approximately one year.
The original acquisition, construction and installation of our 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, we acquired certain property and a building in Somerville, New
Jersey at a cost to us of approximately $4,665,000, including expenses. We have
retrofitted the building to serve as our clinical-grade manufacturing facility.
When purchased, the facility had in place various features, including clean
rooms, air handling, electricity, and water for injection systems and
administrative offices. The cost for completion of facility modifications was
approximately $5,400,000.
Currently the facility is being operated to develop and manufacture materials
for our clinical trials. Under certain circumstances, we 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, we 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. Under our agreement with
Merck for C225, we are taking the lead in developing, in consultation with
Merck, a production concept for a new manufacturing facility. We are reviewing
whether to erect this facility adjacent to our New Jersey manufacturing facility
or at another site.
Item 3. Legal Proceedings.
There is no material legal proceeding pending against us or any of our property,
nor was any such proceeding terminated during the fourth quarter of the year
ended December 31, 1998.
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
Our common stock is traded in the over-the-counter market and prices are
reported on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbol "IMCL".
The following table sets forth, for the periods indicated, the range of high and
low sale prices for the common stock on the Nasdaq National Market, as reported
by The Nasdaq Stock Market. The quotations shown represent inter-dealer prices
without adjustment for retail mark-ups, mark downs or commissions, and may not
necessarily reflect actual transactions.
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
High Low
- --------------------------------------------------------------------------------
Year ended December 31, 1998
First Quarter ................... $ 8 7/16 $ 5 5/8
Second Quarter .................. $13 7/8 $ 7 5/8
Third Quarter ................... $13 7/8 $ 8 1/4
Fourth Quarter .................. $12 1/8 $ 5 9/16
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
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
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
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STOCKHOLDERS
As of the close of business on March 26, 1999, there were approximately 281
holders of record of our common stock. We estimate that there are approximately
7,700 beneficial owners of our common stock.
DIVIDENDS
We have never declared cash dividends on our common stock and have no present
intention of declaring such cash dividends in the foreseeable future. The
holders of our Series A Preferred Stock are entitled to receive cumulative
dividends. They may receive dividends at the annual rate of $6.00 per share,
compounded annually. The 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 BY THE COMPANY OF UNREGISTERED SECURITIES
In October 1998, we issued 15,000 shares of unregistered common stock to our
Vice President, Business Development and General Counsel upon exercise of
outstanding warrants for a total purchase price of $22,500. In December 1998, we
issued a total of 7,460 shares of unregistered common stock to a member of our
Board of Directors upon exercise of outstanding warrants and options for a total
purchase price of $15,757. Such issuances were consummated as private sales by
the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31,
(In thousands, except share and per share data) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues $ 4,193 $ 5,348 $ 600 $ 800 $ 950
Operating expenses:
Research and development 21,049 16,455 11,482 8,768 11,816
General and administrative 7,145 5,356 3,961 3,739 3,348
Interest and other income (3,054) (1,523) (918) (3,120) (3,186)
Interest and other expense 435 551 823 1,054 821
Equity in loss of affiliate -- -- -- -- 342
--------- -------- -------- -------- ---------
Loss before extraordinary item (21,382) (15,491) (14,748) (9,641) (12,191)
Extraordinary loss on extinguishment of debt -- -- 1,267 -- --
--------- -------- -------- -------- ---------
Net loss (21,382) (15,491) (16,015) (9,641) (12,191)
Preferred dividends (including assumed
incremental yield attributable to beneficial
conversion feature of $1,268 in 1998 and $51 in
1997) 3,668 163 -- -- --
--------- -------- -------- -------- ---------
Net loss to common stockholders $ (25,050) $(15,654) $(16,015) $ (9,641) $ (12,191)
========= ======== ======== ======== =========
Basic and Diluted net loss per common share:
Loss before extraordinary item $ (1.03) $ (0.67) $ (0.76) $ (0.72) $ (1.12)
Extraordinary loss on extinguishment of debt -- -- (0.07) -- --
--------- -------- -------- -------- ---------
Net loss (1.03) (0.67) (0.83) (0.72) (1.12)
========= ======== ======== ======== =========
Weighted average shares outstanding 24,301 23,457 19,371 13,311 10,903
December 31,
(In thousands) 1998 1997 1996 1995 1994
Balance Sheet Data:
Cash and securities $ 46,739 $ 59,610 $ 13,514 $10,207 $ 3,032
Working capital 35,073 56,671 7,695 3,735 (1,470)
Total assets 62,252 75,780 25,885 22,803 (17,467)
Long-term obligations 3,746 3,430 2,775 4,235 4,487
Accumulated deficit (138,846) (117,464) (101,973) (85,958) (76,317)
Stockholders' equity 45,174 68,226 16,589 11,823 8,176
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis by our management is provided to identify
certain significant factors which affected our financial position and operating
results during the periods included in the accompanying financial statements.
OVERVIEW AND RISK FACTORS
We are a biopharmaceutical company engaged primarily in the research and
development of therapeutic products for the treatment of selected cancers and
cancer-related disorders. Our products under development include (i) cancer
therapeutics, (ii) cancer vaccines and (iii) inhibitors of angiogenesis. Since
our inception in April 1984, we have devoted substantially all of our efforts
and resources to research and development conducted on our own behalf and
through collaborations with corporate partners and academic research and
clinical institutions. We have generated a cumulative net loss of approximately
$138,846,000 for the period from our inception to December 31, 1998. We expect
to incur significant additional operating losses over each of the next several
years. The major sources of our working capital have been:
o the proceeds from the public and private sale of equity securities.
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o the sale of the IDA Bonds by the NYIDA (the proceeds of which have been
used for the acquisition, construction and installation of our research
and development facility in New York City).
o license fees.
o contract research and development fees.
o royalties from collaborative partners.
o interest earned on these funds.
Substantially all of our products are in various stages of development, clinical
studies or research. Substantially all our revenues were generated from license
and research arrangements with collaborative partners. Our revenues under
research and license agreements with corporate sponsors have fluctuated and are
expected to fluctuate significantly from period to period. Similarly, our
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:
o The status of development of our various products.
o The time at which we enter into research and license agreements with
corporate partners that provide for payments to us, and the timing of
payments to us under these agreements.
o Whether or not we achieve specified research or commercialization
milestones.
o Timely payment by our corporate partners of amounts payable to us.
o The addition or termination of research programs or funding support.
o The timing of sales by Abbott, our partner in diagnostics, of products
that use our technology, and the amount for which such products are sold.
o Variations in the level of expenses related to our proprietary products
during any given period.
Our products are only in the development stage. Before we can commercialize our
products and begin to sell them to generate revenues, they will need substantial
additional development and clinical testing, which will cost a lot of money.
Generally, to make a profit we will need to successfully develop, test,
introduce and market our products. It is not certain that any of our products
will be successfully developed or that required regulatory approvals to
commercialize them can be obtained. Further, even if we successfully develop a
product, there is no assurance that we will be able to successfully manufacture
or market that product or that customers will buy it.
Our products will require substantial additional development and clinical
testing and investment prior to commercialization. To achieve profitable
operations, we, alone or with others, must successfully develop, introduce and
market our products. No assurance can be given that any of our 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, 1998 and 1997
Revenues.
Revenues for the years ended December 31, 1998 and 1997 were $4,193,000 and
$5,348,000, respectively, a decrease of $1,155,000, or 22%. Revenues for the
year ended December 31, 1998 consisted of (i) $300,000 in research support from
our partnership with American Home in infectious disease vaccines, (ii)
$1,000,000 in milestone revenue and $2,500,000 in research and support payments
from our agreement with Merck for BEC2, (iii) $295,000 in royalty revenue from
our strategic alliance with Abbott in diagnostics and (iv) $98,000 from a Phase
I Small Business Innovation Research grant from the National Cancer Institute
for a program in cancer-related angiogenesis. Revenues for the year ended
December 31, 1997 consisted of (i) $300,000 in research support from our
partnership with American Home in infectious disease vaccines, (ii) $2,000,000
in milestone revenue and $1,667,000 in research and support payments from our
agreement with Merck for BEC2 and (iii) $1,000,000 in milestone revenue and
$381,000 in royalty revenue from our strategic alliance with Abbott in
diagnostics. The decrease in revenues for the year ended December 31, 1998 was
primarily attributable to a decrease in milestone revenue which can vary widely
from period to period depending upon the timing of the achievement of various
research and development milestones for products under development.
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<PAGE>
Operating; Research and Development Expenses.
Total operating expenses for the years ended December 31, 1998 and 1997 were
$28,194,000 and $21,811,000, respectively, an increase of $6,383,000, or 29%.
Research and development expenses for the years ended December 31, 1998 and 1997
were $21,049,000 and $16,455,000, respectively, an increase of $4,594,000 or
28%. Such amounts for both years ended December 31, 1998 and 1997 represented
75% of total operating expenses. The increase in research and development
expenses for the year ended December 31, 1998 was partially attributable to (i)
the costs associated with an agreement in principle for the supplemental further
development and manufacture of clinical grade C225 to support ongoing and future
human clinical trials, (ii) expenditures associated with additional staffing in
the area of discovery research, (iii) the initiation of new supported research
programs with academic institutions, (iv) the establishment of corporate
in-licensing arrangements and (v) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with C225. This increase was partially offset by the one-time $2,233,000
non-cash compensation expense recorded for the year ended December 31, 1997 in
connection with the extension of the term of an officer's warrant to purchase
397,000 shares of common stock.
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 our technology and products. Such expenses for the years ended
December 31, 1998 and 1997 were $7,145,000 and $5,356,000, respectively, an
increase of $1,789,000, or 33%. The increase in general and administrative
expenses primarily reflected (i) additional support staffing for the expanding
research, development, clinical and manufacturing efforts of the Company,
particularly with respect to C225 and (ii) expenses associated with the pursuit
of strategic corporate alliances and other corporate development expenses. We
expect general and administrative expenses to increase in future periods to
support our planned increases in research, development, clinical and
manufacturing efforts.
Interest and Other Income and Interest Expense.
Interest and other income was $3,054,000 for the year ended December 31, 1998
compared to $1,523,000 for the year ended December 31, 1997, an increase of
$1,531,000, or 101%. The increase was primarily attributable to the increased
interest income earned from higher cash balances in our investment portfolio
resulting from the private placement of Series A Preferred Stock completed in
December 1997. Interest expense was $435,000 and $551,000 for the years ended
December 31, 1998 and 1997, respectively, a decrease of $116,000 or 21%.
Interest expense for both periods primarily included (i) interest on an
outstanding Industrial Development Revenue Bond issued in 1990 (the "1990 IDA
Bond") with a principal amount of $2,200,000, (ii) interest recorded on capital
lease obligations and (iii) interest recorded on a liability to Pharmacia and
UpJohn Inc. ("Pharmacia"), for the reacquisition of the worldwide rights to a
recombinant mutein form of Interleukin-6 ("IL-6m") as well as clinical material
manufactured and supplied to us by Pharmacia. The decrease was primarily
attributable to the (i) December 1997 repayment of an IDA Bond issued in 1986
(the "1986 IDA Bond") with a principal amount of $2,113,000 and (ii) February
1998 repayment of the remaining liability to Pharmacia.
Net Losses.
We had net losses to common stockholders of $25,050,000 or $1.03 per share for
the year ended December 31, 1998 compared with $15,654,000 or $0.67 per share
for the year ended December 31, 1997. The increase in the net losses and per
share net loss to common stockholders was due primarily to the factors noted
above and the accrued dividends and incremental yield on the Series A Preferred
Shares.
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 our
partnership with American Home in infectious disease vaccines, (ii) $2,000,000
in milestone revenue and $1,667,000 in research and support payments from our
agreement with Merck for BEC2, and (iii) $1,000,000 in milestone payments and
$381,000 in royalty revenue from our strategic alliance with Abbott in
diagnostics. Revenues for the year ended December 31, 1996 consisted of (i)
$300,000 in research support from our partnership with American Home in
infectious disease vaccines, (ii) $225,000 in royalty revenue from our strategic
alliance with Abbott in diagnostics, and (iii)
21
<PAGE>
$75,000 in license fees from our cross-licensing agreement with Immunex for
novel hematopoietic growth factors. The increase in revenues for the year ended
December 31, 1997 was primarily attributable to (i) our having achieved
development milestones under our agreement with Merck for BEC2, and (ii) our
strategic alliance with Abbott. Milestone revenue can vary widely from period to
period depending upon the timing of the achievement of various research and
development milestones for products under development.
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 (i) 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 our common stock, and (ii) costs associated with
additional staffing, contract manufacturing and testing, and expenditures in the
functional areas of product development, manufacturing and clinical and
regulatory affairs associated with C225, and (iii) 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 our 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 one of our officers, and (ii) additional
support staffing for our expanding research, development, clinical and
manufacturing efforts, particularly with respect to C225. We expect general and
administrative expenses to increase in future periods to support planned
increases in research and development.
Interest and Other Income and Interest Expense.
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 our investment portfolio
resulting from the proceeds received from a public offering of our 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 (i) 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 (ii) interest recorded on
the liability to Pharmacia, for the reacquisition of the worldwide rights to
IL-6m as well as clinical material manufactured and supplied to us by Pharmacia.
The decrease was primarily attributable to the May 1996 exchange of debt for our
common stock with the Oracle Group and one of our Directors.
Net Losses.
We 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 our 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 one of our Directors. The decrease in the per share net
loss to common stockholders is due primarily to the increased number of shares
of our common stock outstanding as a result of the March 1997 public offering of
our common stock.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, our principal sources of liquidity consisted of cash and
cash equivalents and short-term securities available for sale of approximately
$46,739,000. We have financed our operations since inception primarily through:
o the proceeds from the public and private sales of our equity securities.
22
<PAGE>
o the sale of three issues of IDA Bonds through the NYIDA.
o license fees.
o contract research and development fees.
o royalties received under agreements with collaborative partners.
o interest earned on these funds.
Since inception:
o public and private sales of equity securities in financing transactions
have raised approximately $163,799,000 in net proceeds.
o 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 our research and development
facility in New York City, and of which $2,200,000 is currently
outstanding.
o we have earned approximately $32,855,000 from license fees, contract
research and development fees and royalties from collaborative partners,
including approximately $4,193,000 earned during the year ended December
31, 1998.
o We have earned approximately $8,463,000 in interest income, including
approximately $3,016,000 earned during the year ended December 31,1998.
In April 1998, we entered into an agreement in principle with a pharmaceutical
manufacturer for the supplemental further development, production scale-up and
manufacture of our lead therapeutic product candidate, C225, for use in human
clinical trials. Services pursuant to this agreement commenced in April 1998 and
are anticipated to conclude in October 1999. The total project cost is DM
8,950,000, or currently approximately $5,424,000. As of December 31, 1998, we
had incurred a liability of approximately $1,897,000 for services provided under
this agreement.
In October 1997, we entered into a Collaborative Research and License Agreement
with CombiChem to discover and develop novel small molecules against selected
targets for the treatment of cancer. At the same time as we entered into this
agreement, we entered into a Stock Purchase Agreement pursuant to which we
purchased 312,500 shares of common stock of CombiChem, as adjusted, for a total
purchase price of $2,000,000. The investment has been classified as a long-term
asset. During the year ended December 31, 1998 we recorded an unrealized loss of
$652,000 on this investment due to a reduction in the market value of the stock.
We deem this reduction in market value to be temporary and therefore, the
unrealized loss was recorded as a component of accumulated other comprehensive
loss.
We have obligations under various capital leases for certain laboratory, office
and computer equipment and also certain building improvements primarily under a
December 1996 financing agreement (the "1996 Financing Agreement") and an April
1998 financing agreement (the "1998 Financing Agreement") with Finova Technology
Finance, Inc. ( "Finova" ). The 1996 Financing Agreement allowed us to finance
the lease of equipment and make certain building and leasehold improvements to
existing facilities involving amounts totalling approximately $2,500,000. Each
lease has a fair market value purchase option at the expiration of a 42-month
term. Pursuant to the 1996 Financing Agreement, we issued to Finova a warrant
expiring December 31, 1999 to purchase 23,220 shares of our common stock at an
exercise price of $9.69 per share. We 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 1996 Financing
Agreement with Finova expired in December 1997 and we utilized only $1,745,000
of the full $2,500,000 under the agreement. In April 1998, we entered into the
1998 Financing Agreement with Finova totalling approximately $2,000,000. The
terms of the 1998 Financing Agreement are substantially similar to the now
expired 1996 Financing Agreement except that each lease has a 48-month term. As
of December 31, 1998, we had entered into ten individual leases under both the
1996 Financing Agreement and the 1998 Financing Agreement aggregating a total
cost of $3,069,000 and had $676,000 available under the 1998 Financing
Agreement. The 1998 Financing Agreement terminates on March 31, 1999 and we are
in discussions regarding its extension for an additional 60 day period.
We have spent and will continue to spend in the future substantial funds to
continue the research and development of our products, conduct pre-clinical and
clinical trials, establish clinical-scale and commercial-scale manufacturing in
our own facilities or in the facilities of others, and market our products. We
have entered into preliminary discussions with several major pharmaceutical
companies regarding various alternatives concerning the funding of research and
development for certain of our products. No assurance can be given that we will
be successful in consummating any such alternatives. Such strategic alliances
could include up-front license fees plus milestone fees and revenue sharing.
There can be no assurance that we will be successful in achieving such
alliances, nor can we predict
23
<PAGE>
the amount of funds which might be available to us if we entered into such
alliances or the time at which such funds would be made available or the other
terms of any such alliances.
In January 1998, we completed the construction and commissioning of a new 1,750
square foot process development center at our Somerville, New Jersey facility at
a cost of approximately $1,650,000. Under our agreement with Merck for C225, we
are taking the lead in developing, in consultation with Merck, a production
concept for a new manufacturing facility. Merck is providing us, subject to
certain terms, with a $30 million secured line of credit or guaranty for the
build-out of this facility. We are reviewing whether to erect this facility
adjacent to our current manufacturing facility in New Jersey or at another
location.
We rent our New York City facility under a lease which was scheduled to expire
in March 1999. We renewed the entire lease for a term commencing as of January
1, 1999 through December 2004 and plan to retrofit the facility to better suit
our needs at a cost of approximately $1,600,000.
The 1990 IDA Bond in the outstanding principal amount of $2,200,000 becomes due
in 2004. We will incur annual interest on the 1990 IDA Bond aggregating
approximately $250,000. We have granted the NYIDA a security interest in
substantially all facility equipment located in the New York facility to secure
our obligations to the NYIDA under the 1990 IDA Bond.
The holders of the 400,000 shares of 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 $2,512,000 at December 31, 1998.
Total capital expenditures made during the year ended December 31, 1998 were
$1,203,000. Of such expenditures, $731,000 have been reimbursed in accordance
with the terms of the 1998 Financing Agreement with Finova. Of the total capital
expenditures made during year ended December 31, 1998, $730,000 related to
improving and equipping our manufacturing facility in New Jersey. The balance of
capital additions was for leasehold improvements, equipment and computer-related
purchases for the corporate office and research laboratories in New York.
We expect that our existing capital resources should enable us to maintain our
current and planned operations through March 2001. Certain of our research and
support payments from corporate partners have defined expiration dates during
1999. Under these existing corporate partnerships, we expect to receive final
research and support payments of approximately $758,000 which will be recognized
through the third quarter of 1999. Additionally, certain milestone payments are
subject to attaining research and development milestones, many of which have not
yet been achieved. There can be no assurance that we will achieve these
milestones. Our future working capital and capital requirements will depend upon
numerous factors, including, but not limited to:
o progress of our research and development programs, pre-clinical testing
and clinical trials.
o our corporate partners fulfilling their obligations to us.
o timing and cost of seeking and obtaining regulatory approvals.
o timing and cost of manufacturing scale-up and effective commercialization
activities and arrangements.
o level of resources that we devote to the development of marketing and
sales capabilities.
o costs involved in filing, prosecuting and enforcing patent claims.
o technological advances.
o status of competitors.
o our ability to maintain existing and establish new collaborative
arrangements with other companies to provide funding to us to support
these activities.
o costs of establishing both clinical scale and commercial scale
manufacturing capacity in our facility and those of others.
In order to fund our capital needs after March 2001, we will require significant
levels of additional capital and we intend to raise the capital through
additional arrangements with corporate partners, equity or debt financings or
from other sources including the proceeds of product sales, if any. There is no
assurance that we will be successful in consummating any such arrangements. If
adequate funds are not available, we
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<PAGE>
may be required to significantly curtail our planned operations.
Uncertainties associated with the length and expense of pre-clinical and
clinical testing of any of our product candidates could greatly increase the
cost of development of such products and affect the timing of any anticipated
revenues from product sales. Our failure to obtain regulatory approval for any
product will preclude its commercialization. In addition, our failure to obtain
patent protection for our products may make certain of our products commercially
unattractive.
At December 31, 1998, we had net operating loss carryforwards for federal income
tax purposes of approximately $129,485,000 which expire at various dates from
2000 through 2018. At December 31, 1998 we had research credit carryforwards of
approximately $3,642,000 which expire at various dates between years 2009 and
2018. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended,
the annual utilization of a 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, we
experienced two ownership changes. Accordingly, our net operating loss
carryforwards available to offset future federal taxable income arising before
such ownership changes are limited to $5,159,000 annually. Similarly, we are
restricted in using our research credit carryforwards arising before such
ownership changes to offset future federal income tax expense.
Year 2000
The "Year 2000 problem" involves mainly the inability of certain computer
programs and microprocessing devices to differentiate between the year 1900 and
the year 2000 because two-digit rather than four-digit fields were used to
identify the year. There are a variety of related "date" problems, including the
use by older programs and devices of algorithms that will fail to correctly
identify the year 2000 and certain other years in the twenty-first century as
leap years. A Year 2000 problem could cause a computer system or microprocessor
that is date sensitive to malfunction, resulting in system failures. Such
failures could cause disruptions of our operations, including, without
limitation, the systems in place at our Branchburg clinical-scale manufacturing
facility, computers, communication devices and laboratory instrumentation and
systems which use dated information in our research and development and
scientific testing or, possibly, in our pre-clinical or clinical trials.
To deal with the Year 2000 problem we have developed a year 2000 program that
has three main phases: (i) review of information technology ("IT") and non-IT
systems for the purposes of assessing the potential impact of Year 2000 on our
business and identifying non-Year 2000 compliant systems; (ii) remediation and
development of contingency plans; and (iii) testing. These phases are not
necessarily sequential. We have a Year 2000 team to coordinate and carry out the
various phases and Reporting Responsible Persons in each critical area,
including computer hardware, software, other hardware, laboratory equipment,
collaborators and process/clinical development. While we believe that our
program is and will be adequate to address Year 2000 problems, there can be no
assurance that our operations will not be adversely affected. While we have
devoted significant resources to dealing with the Year 2000 problem, our efforts
to date have not caused the deferral of any other significant IT projects.
We have completed phase one with regard to our own systems. We reviewed the
potential impact of the "Y2K" bug on our research and development, product
development, manufacturing, financial, communication and administrative
operations. We determined which systems are critical to our business. We also
determined which systems were non-year 2000 compliant.
As for the second phase, we are in the process of remediating through corrective
programming modifications or system replacement all mission critical systems
that we identified as non-compliant. We estimate that this process is 80%
complete and that it will be finished by June 30, 1999. In addition, for systems
that we have identified as non-mission critical, we also intend to either
correct them through programming changes or replace them with compliant software
and any necessary hardware or, possibly, simply discontinue using the system.
We have already developed testing protocols and have begun testing for all
mission-critical systems and have completed approximately 60% of the testing we
currently anticipate. We expect to have completed testing of all mission
critical systems no later than June 30, 1999. We are also in the process of
testing other systems, and expect to have completed that process no later than
June 30, 1999.
The Company estimates the cost of its Year 2000 program to be approximately
$350,000, of which approximately $165,000 has been spent through December 31,
1998. This includes the purchase of third-party software and required hardware
to run such software as well as the cost of modifying software. This
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<PAGE>
estimate is management's good faith estimate based on a variety of contingency
assessments and is subject to change. Such expenditures will be funded from the
Company's internal resources.
In addition to the review of internal systems, we have identified and begun to
make inquiries of our critical suppliers, corporate partners, manufacturers,
clinical study sites, service suppliers, communications providers, lessor
utilities, and banks whose system failures or non-compliant products could have
an adverse impact on our operations. We expect to complete the identification
and assessment process for such entities prior to June 30, 1999. While we are
not currently aware of any material Year 2000 problems involving such entities
that are likely to adversely affect us, there can be no assurance that there
will not be such problems or that, if discovered, they will be timely
remediated.
We are in the process of developing contingency plans to deal with possible
disruptions of important operations such as discovery research, product
development, manufacturing and ongoing clinical trials. Such disruptions could
affect the development and ultimate marketing of potential products as well as
put us at a competitive disadvantage relative to companies that have corrected
such problems. These contingency plans may need to be refined as more
information becomes available.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our holdings of financial instruments are comprised of U.S. corporate debt,
foreign corporate debt, U.S. government debt, foreign government/agency
guaranteed debt and commercial paper. All such instruments are classified as
securities available for sale. We do not invest in portfolio equity securities
or commodities or use financial derivatives for trading purposes. Our debt
security portfolio represents funds held temporarily pending use in our business
and operations. We manage these funds accordingly. We seek reasonable
assuredness of the safety of principal and market liquidity by investing in
rated fixed income securities while at the same time seeking to achieve a
favorable rate of return. Our market risk exposure consists principally of
exposure to changes in interest rates. Our holdings are also exposed to the
risks of changes in the credit quality of issuers. We typically invest in the
shorter-end of the maturity spectrum or highly liquid investments.
The table below presents principal amounts and related weighted average interest
rates by year of maturity for our investment portfolio:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
----------- --------- --------- ------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ 2,000,000 $3,156,000 -- -- -- -- $ 5,156,000 $ 5,199,000
Average Interest Rate 5.41% 5.09% -- -- -- -- 5.21% --
Variable Rate $ 9,257,000 $3,995,000 $1,764,000 -- -- $22,651,000(1) $37,667,000 $37,652,000
Average Interest Rate 5.49% 5.63% 5.17% -- -- 5.56% 5.53% --
----------- ---------- ---------- ------ ------ ----------- ----------- -----------
$11,257,000 $7,151,000 $1,764,000 -- -- $22,651,000(1) $42,823,000 $42,851,000
=========== ========== ========== ====== ====== =========== =========== ===========
</TABLE>
(1) These holdings are highly liquid and we consider the potential for loss of
principal to be minimal.
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.
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PART III
The information required by "Item 10. - Directors and Executive Officers of the
Registrant"; "Item 11. Executive Compensation"; "Item 12. - Security Ownership
of Certain Beneficial Owners and Management"; and "Item 13. - Certain
relationships and Related Transactions" is incorporated into Part III of this
Annual Report on Form 10-K by reference to our Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on May 24, 1999.
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).
<TABLE>
<CAPTION>
Incorporation
Exhibit No. Description by Reference
- ----------- ----------- ------------
<S> <C> <C>
3.1 Certificate of Incorporation, and all amendments thereto O (3.1)
3.2 Amended and Restated By-Laws of the Company N (3.2)
4.1 Form of Warrant issued to the Company's officers and directors under Warrant Agreements A (4.1)
4.2 Stock Purchase Agreement between Erbamont Inc. and the Company, dated May 1, 1989 A (4.2)
4.3 Stock Purchase Agreement between American Cyanamid Company (Cyanamid) and the Company A (4.3)
dated December 18, 1987
4.4 Form of Subscription Agreement entered into in connection with September 1991 private A (4.4)
placement
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 F (10.1)
Option Agreement
10.2 Company's 1986 Non-qualified Stock Option Plan, including form of Non-qualified Stock Option F (10.2)
Agreement
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, B (10.6)
dated May 1, 1989, and Supplemental Amendatory Agreement between Erbamont, N.V. and the
Company dated September 28, 1990
10.6 Agreement between Cyanamid and the Company dated December 18, 1987 and supplemental B (10.7)
letter agreement between Cyanamid and the Company dated September 6, 1991
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 B (10.9)
dated September 21, 1989
10.9 Supported Research Agreement between Memorial Sloan-Kettering Cancer Center (MSKCC) and A (10.10)
the Company dated March 26, 1990
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)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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") B (10.20)
and the Company effective July 5, 1988
10.20 License Agreement between UNC and the Company dated July 5, 1988 B (10.21)
10.21 License Agreement between UNC and the Company dated July 27, 1988 B (10.22)
10.22 Supported Research Agreement between UNC and the Company effective April 1, 1989 B (10.23)
10.23 License Agreement between UNC and the Company dated July 1, 1991 B (10.24)
10.24 Agreement between Celltech Limited and the Company dated May 23, 1991 B (10.25)
10.25 Form of Non-disclosure and Discovery Agreement between employees of the Company and the
Company A (10.30)
10.26 Industrial Development Bond Documents: A (10.31)
10.26.1 Industrial Development Revenue Bonds (1985 ImClone Systems Incorporated Project) A (10.31.1)
10.26.1.1 Lease Agreement, dated as of October 1, 1985, between the New York City Industrial
Development Agency (NYCIDA) and the Company, as Lessee A (10.31.1.3)
10.26.1.2 Indenture of Trust, dated as of October 1, 1985, between NYCIDA and United States Trust
Company of New York (US Trust), as Trustee A (10.31.1.2)
10.26.1.3 Company Sublease Agreement, dated as of October 1, 1985, between the Company and
NYCIDA A (10.31.1.3)
10.26.1.4 Tax Regulatory Agreement, dated October 9, 1985, from NYCIDA and the Company to US Trust,
as Trustee A (10.31.1.4)
10.26.1.5 Lessee Guaranty Agreement, dated as of October 1, 1985, between the Company and US Trust,
as Trustee A (10.31.1.5)
10.26.1.6 First Supplemental Indenture of Trust, dated as of November 1, 1985 from the NYCIDA
to US Trust A (10.31.1.6)
10.26.1.7 Third Supplemental Indenture of Trust, dated as of October 12, 1990 from NYCIDA
to US Trust A (10.31.1.7)
10.26.2 Industrial Development Revenue Bonds (1986 ImClone Systems Incorporated Project) A (10.31.2)
10.26.2.1 First Amendment to Company Sublease Agreement, dated as of December 1, 1986, between
the Company, as Sublessor, and NYCIDA as Sublessee A (10.31.2.1)
10.26.2.2 First Amendment to Lease Agreement, dated as of December 1, 1986, between NYCIDA
and the Company, as Lessee A (10.31.2.2)
10.26.2.3 Second Supplement Indenture of Trust, dated as of December 1, 1986 between NYCIDA and
US Trust, as Trustee A (10.31.2.3)
10.26.2.4 Tax Regulatory Agreement, dated December 31, 1986, from NYCIDA and
the Company to US Trust, as Trustee A (10.31.2.4)
10.26.2.5 First Amendment to Lessee Guaranty Agreement, dated as of December 1, 1986, between the
Company and US Trust, as Trustee A (10.31.2.5)
10.26.2.6 Bond Purchase Agreement, dated as of December 31, 1986, between NYCIDA and New York
Muni Fund, Inc., as Purchaser A (10.31.2.6)
10.26.2.7 Letter of Representation and Indemnity Agreement, dated as of December 31, 1986, from
the Company to NYCIDA and New York Muni Fund, Inc., as Purchaser A (10.31.2.7)
10.26.3 Industrial Development Revenue Bonds (1990 ImClone Systems Incorporated Project) A (10.31.3)
10.26.3.1 Lease Agreement, dated as of August 1, 1990, between NYCIDA and the Company, as lessee A (10.31.3.1)
10.26.3.2 Company Sublease Agreement, dated as of August 1, 1990, between the Company, as
Sublessor, and NYCIDA A (10.31.3.2)
10.26.3.3 Indenture of Trust, dated as of August 1, 1990, between NYCIDA and US Trust, as Trustee A (10.31.3.3)
10.26.3.4 Guaranty Agreement, dated as of August 1, 1990, from the Company to US Trust, as Trustee A (10.31.3.4)
10.26.3.5 Tax Regulatory Agreement, dated August 1, 1990, from the Company and NYCIDA to US
Trust, as Trustee A (10.31.3.5)
10.26.3.6 Agency Security Agreement, dated as of August 1, 1990, from the Company, as Debtor, and
the NYCIDA to US Trust, as Trustee A (10.31.3.6)
10.26.3.7 Letter of Representation and Indemnity Agreement, dated as of August 14, 1990, from
the Company to NYCIDA, New York Mutual Fund, Inc., as the Purchaser and Chase Securities,
Inc., as Placement Agent Company to NYCIDA A (10.31.3.7)
10.27 Lease Agreement between 180 Varick Street Corporation and the Company, dated October 8, 1985,
and Additional Space and Modification Agreement between 180 Varick Street Corporation and the
Company, dated June 13, 1989 A (10.32)
10.28 License Agreement between The Board of Trustees of the Leland Stanford Junior University and
the Company effective May 1, 1991 A (10.33)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10.29 License Agreement between Genentech, Inc. and the Company dated December 28, 1989 A (10.34)
10.30 License Agreement between David Segev and the Company dated December 28, 1989 B (10.35)
10.31 Letter of Intent between the Company and Dr. David Segev dated November 18, 1991 C (10.40)
10.32 Agreement between the Company and Celltech Limited dated March 11, 1992 C (10.42)
10.33 Agreement of Sale dated June 19, 1992 between the Company and Korsch Tableting Inc. D (10.45)
10.34 Research and License Agreement, having an effective date of December 15, 1992, between the
Company and Abbott Laboratories E (10.46)
10.35 Research and License Agreement between the Company and Chugai Pharmaceutical Co., Ltd.
dated January 25, 1993 E (10.47)
10.36 License Agreement between the Company and the Regents of the University of California dated
April 9, 1993 G (10.48)
10.37 Contract between the Company and John Brown, a division of Trafalgar House, dated H (10.49)
January 19, 1993
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 H (10.53)
November 23, 1993
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 H (10.55)
Pharmaceutical Co., Ltd. dated December 17, 1993
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 I (10.57)
Ultra Fund Limited dated August 12, 1994
10.46 Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL I (10.58)
Ultra Fund Limited dated November 4, 1994
10.47 Offshore Securities Subscription Agreement between ImClone Systems Incorporated and I (10.59)
Anker Bank Zuerich dated November 10, 1994
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 J (10.62)
High River Limited Partnership relating to 150,000 shares common stock of ImClone Systems
Incorporated
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 J (10.65)
and the members of the Oracle Group
10.54 Security Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated J (10.66)
and the members of the Oracle Group
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 K (10.71)
Merck of April 1, 1990
10.60 Amendment of October 1993 to the Research and License Agreement between the Company and K (10.72)
Merck of April 1, 1990
10.61 Employment agreement dated May 17, 1996 between the Company and Carl S. Goldfischer L (10.73)
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
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 L (10.75)
Company and members of The Oracle Group.
10.64 Collaborative Research and License Agreement between the Company and CombiChem, Inc. M (10.76)
dated October 10, 1997
10.65 Amendment of May 1996 to Research and License Agreement between the Company and Merck P (10.65)
of April 1, 1990
10.66 Amendment of December 1997 to Research and License Agreement between the Company and P (10.66)
Merck of April 1, 1990
10.67 Equipment Leasing Commitment from Finova Technology Finance, Inc. Q (10.67)
10.68 Development and License Agreement between the Company and Merck KGaA dated
December 14, 1998 R (10.70)
10.69 Lease dated as of December 15, 1998 for the Company's premises at 180 Varick Street,
New York, New York T
10.70 Engagement Agreement, as amended between the Company and Diaz & Altschul Capital LLC T
10.71 Amendment dated March 2, 1999 to Development and License Agreement between the Company
and Merck KGaA T
21.1 Subsidiaries T
23.1 Consent of KPMG LLP T
27.1 Financial Data Schedule T
99.1 1996 Incentive Stock Option Plan, as amended O (99.1)
99.2 1996 Non-Qualified Stock Option Plan, as amended O (99.2)
99.3 ImClone Systems Incorporated 1998 Non-Qualified Stock Option Plan S (99.1)
99.4 ImClone Systems Incorporated 1998 Employee Stock Purchase Plan S (99.2)
99.5 Option Agreement, dated as of September 1, 1998, between the Company and Ron Martell S (99.3)
</TABLE>
- ------------------------
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, 1995.
L Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
30
<PAGE>
M Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997, as amended. Confidential treatment was granted for a portion of
this Exhibit.
N Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated January 21, 1998.
O Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
P Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted for a portion of this Exhibit.
Q Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
R Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-67335.
Confidential treatment was granted for a portion of this Exhibit.
S Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-8, File No. 333-64827.
T Filed herewith.
(b) Reports on Form 8-K
On December 16, 1998, we filed with the Securities and Exchange Commission (the
"Commission") a Current Report on Form 8-K dated December 14, 1998 relating to
our signing of a Development and Licensing Agreement with Merck (Item 5).
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMCLONE SYSTEMS INCORPORATED
March 29, 1999 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 29,1999
- ----------------------------
(Robert F. Goldhammer)
/s/ Samuel D. Waksal President, Chief Executive Officer March 29,1999
- ---------------------------- and Director (Principal Executive
(Samuel D. Waksal) Officer)
/s/ Harlan W. Waksal Executive Vice President, March 29,1999
- ---------------------------- Chief Operating Officer and
(Harlan W. Waksal) Director
/s/ Carl S. Goldfischer Vice President, Finance and March 29,1999
- ---------------------------- Chief Financial Officer
(Carl S. Goldfischer) (Principal Financial Officer)
/s/ Richard Barth Director March 29,1999
- ----------------------------
(Richard Barth)
/s/ Jean Carvais Director March 29,1999
- ----------------------------
(Jean Carvais)
/s/ Vincent T. DeVita, Jr. Director March 29,1999
- ----------------------------
(Vincent T. DeVita, Jr.)
/s/ David M. Kies Director March 29,1999
- ----------------------------
(David M. Kies)
/s/ Paul B. Kopperl Director March 29,1999
- ----------------------------
(Paul B. Kopperl)
/s/ John Mendelsohn Director March 29,1999
- ----------------------------
(John Mendelsohn)
/s/ William R. Miller Director March 29,1999
- ----------------------------
(William R. Miller)
32
<PAGE>
FINANCIAL STATEMENTS
Index to Financial Statements
Financial Statements
Independent Auditors' Report ............................................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 ................ F-3
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended December 31, 1998, 1997, and 1996 ................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997, and 1996 ..................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 ..................................... F-6
Notes to the Consolidated Financial Statements ........................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
ImClone Systems Incorporated:
The Board of Directors and Stockholders
We have audited the consolidated financial statements of ImClone Systems
Incorporated and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ImClone
Systems Incorporated and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
-------------------------
KPMG LLP
Princeton, New Jersey
February 19, 1999
F-2
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Consolidated Balance Sheets
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 3,888 $ 2,558
Securities available for sale .................................... 42,851 57,052
Prepaid expenses ................................................. 470 596
Other current assets ............................................. 1,196 589
--------- ---------
Total current assets ............................... 48,405 60,795
--------- ---------
Property and equipment:
Land ............................................................. 340 340
Building and building improvements ............................... 10,519 8,969
Leasehold improvements ........................................... 4,846 4,832
Machinery and equipment .......................................... 7,834 6,315
Furniture and fixtures ........................................... 640 550
Construction in progress ......................................... 115 2,159
--------- ---------
Total cost ......................................... 24,294 23,165
Less accumulated depreciation and amortization .................. (12,877) (11,294)
--------- ---------
Property and equipment, net ........................ 11,417 11,871
--------- ---------
Patent costs, net .................................................. 860 944
Deferred financing costs, net ...................................... 46 55
Other assets ....................................................... 1,524 2,115
--------- ---------
$ 62,252 $ 75,780
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................................. $ 1,109 $ 1,731
Accrued expenses and other ....................................... 4,847 1,440
Interest payable ................................................. 45 68
Deferred revenue ................................................. 75 208
Fee potentially refundable from corporate partner ................ 4,000 --
Current portion of long-term liabilities ......................... 744 677
Preferred stock dividends payable ................................ 2,512 --
--------- ---------
Total current liabilities .......................... 13,332 4,124
--------- ---------
Long-term debt ..................................................... 2,200 2,200
Other long-term liabilities, less current portion .................. 1,546 1,118
Preferred stock dividends payable .................................. -- 112
--------- ---------
Total liabilities .................................. 17,078 7,554
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized
4,000,000 shares; issued and outstanding
Series A Convertible: 400,000 at December
31, 1998 and December 31, 1997 (preference
in liquidation $42,512 and $40,112, respectively) ............. 400 400
Common stock, $.001 par value; authorized 45,000,000
shares; issued 24,567,312 and 24,265,072 at December
31, 1998 and December 31, 1997, respectively;
outstanding 24,516,495, and 24,214,255 at December
31, 1998 and December 31, 1997, respectively ................... 25 24
Additional paid-in capital ....................................... 184,853 185,706
Accumulated deficit .............................................. (138,846) (117,464)
Treasury stock, at cost; 50,817 shares at
December 31, 1998 and December 31, 1997 ....................... (492) (492)
Note receivable - officer and stockholder ........................ (142) --
Accumulated other comprehensive income (loss):
Unrealized (loss) gain on securities available for sale ........ (624) 52
--------- ---------
Total stockholders' equity ......................... 45,174 68,226
--------- ---------
$ 62,252 $ 75,780
========= =========
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License fees from third parties ............................... $ 1,000 $ 3,000 $ 75
Research and development funding from third
parties and other ........................................... 3,193 2,348 525
-------- -------- --------
Total revenues ................................ 4,193 5,348 600
-------- -------- --------
Operating expenses:
Research and development ...................................... 21,049 16,455 11,482
General and administrative .................................... 7,145 5,356 3,961
-------- -------- --------
Total operating expenses ...................... 28,194 21,811 15,443
-------- -------- --------
Operating loss ................................................... (24,001) (16,463) (14,843)
-------- -------- --------
Other:
Interest and other income ..................................... (3,054) (1,523) (918)
Interest expense .............................................. 435 551 823
-------- -------- --------
Net interest and other income ................. (2,619) (972) (95)
-------- -------- --------
Loss before extraordinary item ................................... (21,382) (15,491) (14,748)
Extraordinary loss on extinguishment of debt ..................... -- -- 1,267
-------- -------- --------
Net loss ......................................................... (21,382) (15,491) (16,015)
Preferred dividends (including assumed incremental
yield attributible to beneficial conversion
feature of $1,268 and $51 for the years ended
December 31, 1998 and 1997, respectively) ..................... 3,668 163 --
-------- -------- --------
Net loss to common stockholders .................................. $(25,050) $(15,654) $(16,015)
======== ======== ========
Net loss per common share:
Basic and diluted:
Loss before extraordinary item .............................. (1.03) (0.67) (0.76)
Extraordinary loss on extinguishment of debt ................ -- -- (0.07)
-------- -------- --------
Net loss ...................................................... $ (1.03) $ (0.67) $ (0.83)
======== ======== ========
Weighted average shares outstanding .............................. 24,301 23,457 19,371
======== ======== ========
Comprehensive loss:
Net loss ......................................................... $(21,382) $(15,491) $(16,015)
Other comprehensive income (loss):
Unrealized gain on securities available for sale:
Unrealized holding gain (loss) arising during the period .... (638) 99 (49)
Less: Reclassification adjustment for realized gain
(loss) included in net loss .............................. 38 (2) --
-------- -------- --------
Total other comprehensive income (loss) ...... (676) 101 (49)
-------- -------- --------
Total Comprehensive loss ......................................... $(22,058) $(15,390) $(16,064)
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- ---------------------- Paid-in Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ............ -- $ -- 16,819,622 $ 17 $ 97,914 $ (85,958) $ (150)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Issuance of common stock ................ 2,200,000 2 13,560
Options exercised ....................... 266,275 846
Warrants exercised ...................... 604,892 1 2,960
Options granted to non-employees ........ 95
Extinguishment of debt .................. 357,333 3,260
Debt discount ........................... 125
Treasury shares ......................... (19)
Changes in unrealized loss on
securities available for sale ........
Net loss ................................ (16,015)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ............ -- -- 20,248,122 20 118,760 (101,973) (169)
---------- ---------- ---------- ---------- ---------- ---------- ----------
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 ......................... (323)
Changes in unrealized loss on
securities available for sale ........
Preferred stock dividends ............... (112)
Net loss ................................ (15,491)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ............ 400,000 400 24,265,072 24 185,706 (117,464) (492)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Options exercised ....................... 154,097 1 613
Warrants exercised ...................... 143,755 200
Issuance of shares through employee stock
purchase plan ........................ 4,388 33
Options granted to non-employees ........ 540
Options granted to employees ............ 150
Changes in unrealized gain on
securities available for sale ........
Note receivable - officer and stockholder
Interest on note receivable - officer
and stockholder ...................... 11
Preferred stock dividends ............... (2,400)
Net loss ................................ (21,382)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 ............ 400,000 $ 400 24,567,312 $ 25 $ 184,853 $ (138,846) $ (492)
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
Note Accumulated
Receivable Other
Officer and Comprehensive
Stockholder Loss Total
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1995 ............ $ -- $ -- $ 11,823
---------- ---------- ----------
Issuance of common stock ................ 13,562
Options exercised ....................... 846
Warrants exercised ...................... 2,961
Options granted to non-employees ........ 95
Extinguishment of debt .................. 3,260
Debt discount ........................... 125
Treasury shares ......................... (19)
Changes in unrealized loss on
securities available for sale ........ (49) (49)
Net loss ................................ (16,015)
---------- ---------- ----------
Balance at December 31, 1996 ............ -- (49) 16,589
---------- ---------- ----------
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)
Changes in unrealized loss on
securities available for sale ........ 101 101
Preferred stock dividends ............... (112)
Net loss ................................ (15,491)
---------- ---------- ----------
Balance at December 31, 1997 ............ -- 52 68,226
---------- ---------- ----------
Options exercised ....................... 614
Warrants exercised ...................... 200
Issuance of shares through employee stock
purchase plan ........................ 33
Options granted to non-employees ........ 540
Options granted to employees ............ 150
Changes in unrealized gain on
securities available for sale ........ (676) (676)
Note receivable - officer and stockholder (131) (131)
Interest on note receivable - officer
and stockholder ...................... (11) --
Preferred stock dividends ............... (2,400)
Net loss ................................ (21,382)
---------- ---------- ----------
Balance at December 31, 1998 ............ $ (142) $ (624) $ 45,174
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F - 5
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $ (21,382) $ (15,491) $ (16,015)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................................. 1,769 1,797 1,704
Expense associated with issuance
of options and warrants ...................................... 690 2,729 95
Extraordinary loss on extinguishment of debt ................... -- -- 1,267
Discounted interest amortization ............................... -- -- 156
Write-off of patent costs ...................................... 235 146 --
(Gain) loss on sale of investments ............................. (38) 2 --
Changes in:
Prepaid expenses ............................................. 126 (474) (7)
Other current assets ......................................... (607) (110) (453)
Due from officer and stockholder ............................. -- 101 31
Other assets ................................................. (62) (37) (14)
Interest payable ............................................. (23) (170) (105)
Accounts payable ............................................. (622) 672 67
Accrued expenses and other ................................... 3,407 75 540
Deferred revenue ............................................. (133) 208 --
Fee potentially refundable from corporate partner ............ 4,000 -- --
--------- --------- ---------
Net cash used in operating activities .............. (12,640) (10,552) (12,734)
--------- --------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment ......................... (472) (1,657) (272)
Purchases of securities available for sale ..................... (62,779) (241,623) (32,665)
Sales and maturities of securities available for sale .......... 76,996 195,450 21,836
Investment in CombiChem, Inc. .................................. -- (2,000) --
Additions to patents ........................................... (254) (212) (343)
--------- --------- ---------
Net cash provided by (used in) investing activities 13,491 (50,042) (11,444)
--------- --------- ---------
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
Proceeds from exercise of stock options and warrants ........... 682 1,581 3,807
Proceeds from issuance of common stock under
the employee stock purchase plan ........................... 33 -- --
Purchase of treasury stock ..................................... -- (323) (19)
Proceeds from equipment and building improvement financings .... 594 -- --
Repayment of long-term debt .................................... -- (2,113) --
Payments of other liabilities .................................. (830) (1,878) (645)
--------- --------- ---------
Net cash provided by financing activities .......... 479 60,418 16,705
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............... 1,330 (176) (7,473)
Cash and cash equivalents at beginning of period ................... 2,558 2,734 10,207
--------- --------- ---------
Cash and cash equivalents at end of period ......................... $ 3,888 $ 2,558 $ 2,734
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F - 6
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Notes To Consolidated 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) Principles of Consolidation
The consolidated financial statements include the financial statements of
ImClone Systems Incorporated and its wholly-owned subsidiary Endoclone
Incorporated. All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Cash Equivalents
Cash equivalents consist primarily of U.S. Government instruments,
commercial paper, master notes and other readily marketable debt instruments.
The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents.
(c) Investments in Securities
The Company classifies its 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 debt 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
F-7
<PAGE>
available-for-sale securities are excluded from earnings and are reported as a
separate component of accumulated comprehensive loss until realized. Realized
gains and losses from the sale of available-for-sale securities are determined
on a specific identification basis.
A decline in the market value of any available-for-sale 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 is recognized when earned.
At December 31, 1998 and 1997, all investments in securities were
classified as available-for-sale.
(d) Long-Lived Assets
Property and equipment are stated at cost. Equipment under capital leases
are stated at the present value of minimum lease payments. Depreciation of fixed
assets is provided by straight-line methods over estimated useful lives of three
to twelve years, and leasehold improvements are being amortized over the related
lease term or the service lives of the improvements, whichever is shorter.
Patent and patent application costs are capitalized and amortized on a
straight-line basis over their respective expected useful lives, up to a 15-year
period.
The Company reviews long-lived assets for impairment when events or changes
in business conditions indicate that their full carrying value may not be
recovered. Assets are considered to be impaired and 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.
(e) 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.
(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.
Royalty revenue is recognized when earned and collection is probable.
Royalty revenue is derived from sales of products by corporate partners using
licensed Company technology.
Revenue recognized in the accompanying statements of operations is not
subject to repayment. Amounts received that are subject to repayment if certain
specified goals are not met are classified as fees potentially refundable and
recognized as revenue upon the achievement of such specified goals. Revenue
received that is related to future performance is classified as deferred revenue
and recognized when the revenue is earned.
(g) Stock-Based Compensation Plans
The Company has two types of stock-based compensation plans, stock option
plans and a stock purchase plan. The Company accounts for its stock-based
compensation plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the market price on the date of grant
F-8
<PAGE>
of the underlying stock exceeded the exercise price. The Company provides the
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 Statement of Financial Accounting Standards ("SFAS") No. 123
had been applied.
(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 Common Share
Basic and diluted loss per common share is based on the net loss for the
relevant period, adjusted for cumulative Series A Preferred Stock dividends and
the assumed incremental yield attributable to beneficial conversion feature of
$3,668,000, $163,000 and none for the years ended December 31, 1998, 1997 and
1996, respectively, divided by the weighted average number of shares issued and
outstanding during the period. For purposes of the diluted loss per share
calculation, the exercise or conversion of all potential common shares is not
included since their effect would be anti-dilutive for all years presented. As
of December 31, 1998, 1997 and 1996, the Company had approximately 10,933,000,
9,444,000 and 5,380,000, respectively, potential common shares outstanding
including convertible preferred stock, stock options and stock warrants. The
potential shares of Common Stock to which the Series A Preferred Stock is
convertible is based on the future market price of the Company's Common Stock.
The potential Common Stock outstanding relating to Preferred Stock conversion
for the years ended December 31, 1998 and 1997 has been estimated based on the
respective closing prices of the Common Stock at December 31, 1998 and December
31, 1997.
(l) Comprehensive Income (Loss)
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income (loss) consists of net income (loss)
and net unrealized gains (losses) on securities and is presented in the
consolidated statements of operations and comprehensive loss. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS No. 130.
(m) Reclassification
Certain amounts previously reported have been reclassified to conform to
the 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, 1998 and 1997, were as follows:
At December 31, 1998:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial paper .............. $ 4,738,000 $ -- $ -- $ 4,738,000
U.S. government debt ........... 2,000,000 2,000 -- 2,002,000
U.S. corporate debt ........... 21,633,000 69,000 (48,000) 21,654,000
Foreign corporate debt ......... 14,150,000 44,000 (42,000) 14,152,000
Foreign government/agency
guaranteed debt ............. 302,000 3,000 -- 305,000
----------- --------- ------------ -----------
$42,823,000 $ 118,000 $ (90,000) $42,851,000
=========== ========= ============ ===========
</TABLE>
At December 31, 1997:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses 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
=========== ======== ============ ===========
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at December 31, 1998:
Years ended December 31,
Amortized Fair
Cost Value
----------- -----------
1999 ............................................... $11,257,000 $11,260,000
2000 ............................................... 7,151,000 7,198,000
2001 ............................................... 1,764,000 1,757,000
2002 ............................................... -- --
2003 ............................................... -- --
2004 and thereafter ................................ 22,651,000 22,636,000
----------- -----------
$42,823,000 $42,851,000
=========== ===========
Proceeds from the sale of investment securities available-for-sale were
$35,604,000, $9,115,000 and $2,596,000 for the years ended December 31, 1998,
1997 and 1996, respectively. Gross realized gains included in income in 1998 and
1997 were $41,000 and $1,000, respectively and gross realized losses included in
income in 1998 and 1997 were $3,000 in both years. 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,
1998 1997
----------- ------------
Deposits ................................... $ 176,000 $ 115,000
Investment in CombiChem, Inc. .............. 1,348,000 2,000,000
---------- ----------
$1,524,000 $2,115,000
========== ==========
In October 1997, the Company entered into a Collaborative Research and
License Agreement with CombiChem, Inc. ("CombiChem") to discover and develop
novel small molecules for use against selected targets for the treatment of
cancer. The companies are utilizing CombiChem's Discovery Engine(TM) and
Universal Informer Library(TM) 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 and milestone payments and royalties on marketed products, if any,
resulting from the collaboration. Concurrent with the execution of the
Collaborative Research and License Agreement, the Company entered into a Stock
Purchase Agreement pursuant to which the Company purchased 312,500 shares of
common stock of CombiChem, as adjusted, for aggregate consideration of
$2,000,000. The Company recorded an unrealized loss of $652,000 and none as of
December 31, 1998 and 1997, respectively, on this investment due to a reduction
in the market value of the stock. The Company deems this reduction in market
value to be temporary and therefore this unrealized loss was recorded as a
component of accumulated other comprehensive loss.
(5) Accrued Expenses and Other
The following items are included in accrued expenses and other:
December 31, December 31,
1998 1997
------------ ------------
Salaries and other payroll related expenses ..... $1,256,000 $ 773,000
Legal and accounting fees ........................ 484,000 169,000
Research and development contract services ....... 2,032,000 --
Other ............................................ 1,075,000 498,000
---------- ----------
$4,847,000 $1,440,000
========== ==========
(6) Long-term Debt
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") bearing annual interest at 10.75% in the amount of $2,113,000
with a 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") bearing annual interest at 11.25% in the amount of
$2,200,000. The 1990 Bond is due May 1, 2004. The 1990 Bond includes a provision
that if the Company terminates its lease on its New York City facility, a
portion of which was scheduled to expire in March 1999, the 1990 Bond will
become due 60 days prior to such date. The Company renewed the entire lease for
the New York City facility effective as of January 1, 1999 through December
2004. 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.
F-11
<PAGE>
The Company has granted a security interest in substantially all equipment
located in its New York City facility to secure the obligation of the Company to
the NYIDA relating to the 1990 Bond. Interest expense on the 1986 and 1990 Bonds
was approximately $248,000 for the year ended December 31, 1998, and $465,000
for each of the years ended December 31, 1997 and 1996, respectively.
(7) Other Long-term Liabilities
Other long-term liabilities are comprised of the following:
December 31, December 31,
1998 1997
----------- --------------
Liability to reacquire IL-6m rights .......... $ -- $ 283,000
Liability under capital lease obligations .... 2,253,000 1,469,000
Liability under license agreement 37,000 43,000
----------- -----------
2,290,000 1,795,000
Less current portion ......................... (744,000) (677,000)
----------- -----------
$ 1,546,000 $ 1,118,000
=========== ===========
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 $1,400,000 and entered into a repayment agreement for an
additional $2,400,000 payable over 24 months commencing March 1996. At December
31, 1998, all amounts due Pharmacia under the repayment agreement were paid in
full. Additionally, 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 (the "1996 Financing
Agreement") and an April 1998 financing agreement (the "1998 Financing
Agreement") with Finova Technology Finance, Inc. ("Finova"). The 1996 Financing
Agreement allowed 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. Each lease has a fair market value
purchase option at the expiration of a 42-month term. Pursuant to the 1996
Financing 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 1996 Financing Agreement with
Finova expired in December 1997 and the Company did not utilize the full
$2,500,000 under the agreement. In April 1998, the Company entered into the 1998
Financing Agreement with Finova aggregating approximately $2,000,000. The terms
of the 1998 Financing Agreement are substantially similar to the now expired
1996 Financing Agreement except that each lease has a 48-month term and no
warrants were issued. As of December 31, 1998, the Company had entered into ten
individual leases under both the 1996 Financing Agreement and the 1998 Financing
Agreement aggregating a total cost of $3,069,000 and had $676,000 available
under the 1998 Financing Agreement. The 1998 Financing Agreement terminates
March 31, 1999 and the Company is in discussions regarding its extension for an
additional 60 days. There are no financial covenants associated with these
financing agreements. See Notes 13 and 15.
F-12
<PAGE>
At December 31, 1998 and 1997, the gross amount of laboratory equipment,
office equipment, building improvements and furniture and fixtures and the
related accumulated depreciation and amortization recorded under all capital
leases were as follows:
December 31, December 31,
1998 1997
------------ ------------
Laboratory, office and computer equipment .... $ 2,407,000 $ 1,204,000
Building improvements ....................... 861,000 831,000
Furniture and fixtures ....................... 92,000 --
----------- -----------
3,360,000 2,035,000
Less accumulated depreciation and ............ (643,000) (291,000)
=========== ===========
$ 2,717,000 $ 1,744,000
=========== ===========
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) Collaborative Agreements
In December 1990, the Company entered into a development and
commercialization agreement with Merck KGaA ("Merck") with respect to its
principal cancer vaccine product candidate, BEC2 and the recombinant gp75
antigen (collectively "BEC2"). The agreement has been amended a number of times,
most recently in December 1997. The agreement grants Merck a license, with the
right to sublicense, to manufacture and market BEC2 for all indications outside
of North America. Merck has also been granted a license, without the right to
sublicense, to
F-13
<PAGE>
market but not manufacture BEC2 in North America. The Company has the right to
co-promote BEC2 in North America. In return, the Company is entitled to
$4,700,000, of which $4,167,000 has been recognized as of December 31, 1998, in
research support payments. Merck is also required to make milestone payments up
to $22,500,000, of which $3,000,000 has been recognized as of December 31, 1998,
based on milestones achieved in the licensed products' development. Merck is
also required to pay royalties on the eventual sales of BEC2 outside of North
America, if any. Revenues arising from sales of BEC2 in North America will be
distributed in accordance with the terms of a co-promotion agreement to be
negotiated by the parties.
In December 1998, the Company entered into a development and license
agreement with Merck with respect to its lead interventional therapeutic product
candidate for cancer, C225. In exchange for exclusive rights to market C225
outside of North America and co-development rights in Japan, the Company can
receive $30,000,000, of which $4,000,000 has been received as of December 31,
1998, in up-front fees and early cash-based milestone payments assuming
achievement of defined milestones. An additional $30,000,000 can be received
assuming the achievement of further milestones for which Merck will receive
equity in the Company. The equity underlying these milestone payments will be
priced at varying premiums to the then market price of the Common Stock
depending upon the timing of the achievement of the respective milestones.
Additionally, Merck will, subject to certain terms, provide the Company a
$30,000,000 secured line of credit or guaranty for the build-out of a
manufacturing facility for the commercial development of C225. Merck will pay
the Company a royalty on future sales of C225 outside of North America, if any.
Merck has also agreed not to own greater than 19.9% of the Company's voting
securities through December 3, 2002. The agreement may be terminated by Merck on
any date on which a milestone is achieved (in which case no milestone payment
will be made) or for a one year period after the first commercial sale of C225
in Merck's territory, upon Merck's reasonable determination that the product is
economically unfeasible (in which case Merck is entitled to receive back 50% of
the cash based milestones then paid to date, but only based upon a royalty rate
applied to the Company's sales in North America, if any). In the event of
termination of the agreement, the due date for the payment of the line of credit
for the manufacturing facility will be accelerated, or in the event of a
guaranty, the Company will be required to use its best efforts to release Merck
as guarantor. In the event by April 15, 1999 the Company and Merck fail to agree
on a concept for the manufacturing facility or Merck fails to provide the
Company with the credit facility or guaranty then the agreement may be
terminated by either party, in which case Merck is entitled to receive back all
milestone payments made to date. Additionally, the Company must timely obtain
certain collateral license agreements and the failure to do so will also entitle
Merck to receive back all milestone payments made to date. The $4,000,000
milestone payment received in December 1998 has been recorded as a fee
potentially refundable from corporate partner and will be recognized as revenue
upon the parties mutual agreement of the manufacturing facility concept and
obtaining the defined collateral license agreements.
Revenues for the years ended December 31, 1998, 1997 and 1996 were
$4,193,000, $5,348,000 and $600,000 respectively. Revenues for the year ended
December 31, 1998 consisted of (i) $300,000 in research support from the
Company's partnership with the Wyeth/Lederle Vaccine and Pediatrics Division of
American Home Products Corporation ("American Home") in infectious disease
vaccines, (ii) $1,000,000 in milestone revenue and $2,500,000 in research and
support payments from the Company's research and license agreement with Merck
KGaA ("Merck") with respect to the Company's BEC2 product candidate, (iii)
$295,000 in royalty revenue from the Company's strategic alliance with Abbott
Laboratories ("Abbott") in diagnostics, and (iv) $98,000 from a Phase I Small
Business Innovation Research grant from the National Cancer Institute for a
program in cancer-related angiogenesis. Revenues for the year ended December 31,
1997 consisted of (i) $300,000 in research support from the Company's
partnership with American Home in infectious disease vaccines, (ii) $2,000,000
in milestone revenue and $1,667,000 in research and support payments from the
Company's research and license agreement with Merck with respect to the
Company's BEC2 product candidate, and (iii) $1,000,000 in milestone revenue 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 American Home
in infectious diseases, (ii) $225,000 in royalty revenue from the Company's
strategic alliance with Abbott in diagnostics, and (iii) $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:
F-14
<PAGE>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
---------- ---------- -----------
United States .............. $ 693,000 $1,681,000 $600,000
Germany .................... 3,500,000 3,667,000 --
---------- ---------- --------
$4,193,000 $5,348,000 $600,000
========== ========== ========
(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. 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 as of December 31, 1998 were
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 beneficial conversion 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 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
Company is required to recognize an assumed incremental yield of $5,455,000
(calculated at the date of issuance and based on the beneficial conversion
feature noted above). Such amount is being amortized as a preferred stock
dividend over a four-year period beginning with the day of issuance. Accrued
dividends payable were $2,512,000 or $6.28 per share at December 31, 1998.
Additionally, the Company has recognized an incremental yield attributable to a
beneficial conversion feature of $1,319,000 at December 31, 1998.
F-15
<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"). In May 1998, the Company's
Board of Directors adopted an additional Non-Qualified Stock Option Plan (the
"98 Plan") which shareholders are not required to approve. Combined, the 86
Plans, the 96 Plans, as amended, and the 98 Plan provide for the granting of
options to purchase up to 5,500,000 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 may not be
granted under the 98 Plan to officers or directors. Options under all the 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, 1998, options to purchase 4,409,124 shares of Common Stock were
outstanding and 453,405 shares were available for grant. Options may no longer
be granted under the 86 Plans pursuant to the terms of the 86 Plans.
A summary of stock option activity follows:
Weighted
average
exercise
Number of price per
shares share
--------- -----------
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
1998 activity:
Granted .................................. 2,432,976 10.19
Exercised ................................ (154,097) 3.98
Canceled ................................. (246,850) 11.04
---------
Balance at December 31, 1998 ................ 4,409,124 $ 8.20
=========
In May 1996, the Company granted an officer an option to purchase 225,000
shares of the Company's Common Stock at an exercise price below the market price
of the stock on the date of grant. The Company is recognizing compensation
expense as prescribed under APB Opinion No. 25.
In September 1998 and January 1999, the Company granted options to its
Vice President of Marketing and Vice President of Product and Process
Development to respectively purchase 60,000 shares of Common Stock. These
options were not granted under any of the above mentioned Incentive Stock Option
or Non-Qualified Stock Option Plans. The terms of these options are
substantially similar to those granted under the 98 Plan.
During the years ended December 31, 1998, 1997 and 1996, the Company
granted options to purchase 124,000, 32,000 and 116,000 shares, respectively, of
its Common Stock to certain Scientific Advisory Board
F-16
<PAGE>
members and outside consultants in consideration for future services. The fair
value of these grants was calculated using the Black-Scholes option pricing
model. See Note 10(c) for weighted average assumptions used. During the years
ended December 31, 1998, 1997 and 1996, the Company recognized approximately
$540,000, $189,000 and $95,000, respectively, in compensation expense relating
to the options granted to Scientific Advisory Board members and outside
consultants. During the years ended December 31, 1998, 1997 and 1996, the
Company granted options to outside members of its Board of Directors to purchase
approximately 44,000, 153,000 and 158,000 shares, respectively, of its Common
Stock.
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 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 if 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.
(b) Warrants
As of December 31, 1998, a total of 2,263,590 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, 1995 ................ 3,891,567 $ 3.15
1996 activity:
Granted ..................................... 23,220 9.69
Exercised ................................... (604,892) 4.89
Canceled .................................... (33,050) 12.92
---------
Balance at December 31, 1996 ................ 3,276,845 2.41
1997 activity:
Granted ..................................... 397,000 1.50
Exercised ................................... (869,500) 1.56
Canceled .................................... (397,000) 1.50
---------
Balance at December 31, 1997 ................ 2,407,345 2.71
1998 activity:
Granted ..................................... -- --
Exercised ................................... (143,755) 1.39
Canceled .................................... -- --
---------
Balance at December 31, 1998 ................ 2,263,590 $ 2.80
=========
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-17
<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.
The outstanding warrants (which are all currently exercisable) expire and
are exercisable for the number of shares of Common Stock as shown below:
December 1999 .................................................... 35,520
March 2000 ....................................................... 6,150
July 2000 ........................................................ 72,000
August 2000 ...................................................... 925,000
November 2000 .................................................... 12,720
March 2001 ....................................................... 2,500
May 2001 ......................................................... 847,700
June 2003 ........................................................ 12,000
December 2005 .................................................... 350,000
---------
Total ............................................................ 2,263,590
=========
(c) SFAS No. 123 Disclosures:
The following tables summarize the weighted average fair value of stock
options and warrants granted to employees and directors during the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Option Plans
--------------------------------------------------------------------
1998 1997 1996
-------------------- ------------------ ---------------------
Shares $ Shares $ Shares $
--------- ------ ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Exercise price is less than market
value at date of grant............. -- $ -- -- $ -- 225,000 $ 6.36
Exercise price equals market value
at date of grant .................. 900,476(1) $ 5.52 424,194(1) $ 4.29 736,875(1) $ 5.31
Exercise price exceeds market
value at date of grant ............ 1,408,500 $ 6.28 -- -- -- --
</TABLE>
(1) Does not include 124,000 shares in 1998, 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 by SFAS No. 123.
F-18
<PAGE>
<TABLE>
<CAPTION>
Warrants
--------------------------------------------------------------------
1998 1997 1996
-------------------- ------------------ ---------------------
Shares $ Shares $ Shares $
--------- ------ ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Exercise price is less than market
value at date of grant ............. -- $ -- 397,000(1) $ 5.91 -- $ --
Exercise price equals market value
at date of grant ................... -- $ -- -- $ -- 23,220 $ 5.39
Exercise price exceeds market
value at date of grant ............. -- $ -- -- $ -- -- $ --
</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:
Option Plans Warrants
-------------------------- -------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Expected life (years) .. 5.3 5.0 3.5 -- 2.0 2.0 (1)
Interest rate .......... 5.58% 6.00% 5.00% -- 6.00% 5.00%
Volatility ............. 76.03% 72.29% 85.13% -- 72.29% 85.13%
Dividend yield ......... 0% 0% 0% -- 0% 0%
(1) The weighted average expected life does not include the warrants
repriced in 1996 as they were exercised simultaneously.
F-19
<PAGE>
The following table summarizes information concerning stock options
outstanding at December 31, 1998:
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Term Price at 12/31/98 Price
- --------------- ----------- ---- ----- ----------- -----
$0.563 - 2.00 ... 665,825 2.36 $ 1.13 637,575 $ 1.14
3.75 - 6.00 .... 510,125 8.38 5.71 396,751 5.73
6.063 - 7.875 .. 602,727 8.76 6.44 66,003 7.08
8.125 - 10.625 . 492,300 8.13 8.95 257,092 8.57
10.875 - 11.33 .. 504,147 7.40 10.88 300,602 10.88
11.375 .......... 1,319,000 9.42 11.38 -- --
11.50 - 13.33 ... 315,000 9.23 11.84 14,250 13.03
--------- ---------
4,409,124 7.76 $ 8.20 1,672,273 $ 5.46
========= =========
As of December 31, 1998, the outstanding warrants to purchase 2,263,590
common shares were all exercisable and have a weighted average remaining
contractual term of 2.9 years. The weighted average remaining contractual term
at December 31, 1998 for the 6,150, outstanding warrants exercisable at $.63 per
share is 1.2 years, the 12,300 exercisable at $.69 per share is 1.0 year, the
1,313,420 exercisable at $1.50 per share is 2.1 years, the 498,500 exercisable
at $3.00 per share is 1.6 years, the 350,000 exercisable at $5.50 per share is
7.0 years, the 12,000 exercisable at $7.00 per share is 4.5 years, the 23,220
exercisable at $9.69 per share is 1.0 year, the 6,000 exercisable at $10.00 per
share is 1.9 years, and the 42,000 exercisable at $13.33 per share is 2.3 years.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its options and warrants. Except as previously indicated, no
compensation cost has been recognized for its stock option and warrant grants.
Had compensation cost for the Company's stock option grants been determined
based on the fair value at the grant dates for awards consistent with the method
of SFAS No. 123, the Company's net loss and loss per share would have been
increased or decreased to the pro forma amounts indicated below.
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ -------------
Net loss to common As reported $(25,050,000) $(15,654,000) $(16,015,000)
stockholders Pro forma (32,306,000) (17,283,000) (19,653,000)
Loss per share Basic and diluted:
As reported $ (1.03) $ (0.67) $ (0.83)
Pro forma (1.33) (0.74) (1.01)
The pro forma effect on the loss for the years ended December 31, 1998,
1997, and 1996 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.
(11) Employee Stock Purchase Plan
In April 1998, the Company's Board of Directors adopted the ImClone
Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"), subject to
shareholders' approval which was received in May 1998. The ESPP allows eligible
employees to purchase shares of the Company's Common Stock through payroll
deductions at the end of quarterly purchase periods. To be eligible, an
individual must be employed for a period of not less than six months, he or she
is required to work more than 20 hours per week for at least five months per
calendar year and he or she may not own greater than 5% of the Company's Common
Stock. Pursuant to the ESPP, the Company has
F-20
<PAGE>
reserved 500,000 shares of Common Stock for issuance. On the first day of each
quarterly purchase period, each eligible employee participating in such
quarterly purchase period will be granted an option to purchase a number of
shares of Common Stock determined by dividing such employee's contributions
accumulated prior to the last day of the quarterly period by the purchase price.
The purchase price is equal to 85% of the market price per share on the last day
of each quarterly purchase period. An employee may purchase stock from the
accumulation of payroll deductions of up to a maximum of 15% of his or her
compensation, limited to $25,000 per year. As of December 31, 1998,
participating employees have purchased 4,388 shares of Common Stock at an
aggregate purchase price of approximately $33,000 and 495,612 shares were
available for future purchases. No compensation expense has been recorded in
connection with the ESPP.
(12) 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,
1998 and December 31, 1997 are presented below.
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Liability to reacquire IL-6m rights and materials ........ $ -- $ 262,000
Research and development credit carryforward ............. 3,642,000 2,303,000
Compensation relating to the issuance of stock options and
warrants ............................................... 376,000 189,000
Net operating loss carryforwards ......................... 57,169,000 52,408,000
Other .................................................... 3,424,000 1,116,000
------------ ------------
Total gross deferred tax assets .................... 64,611,000 56,278,000
Less valuation allowance ...................... (64,611,000) (56,278,000)
------------ ------------
Net deferred tax assets ....................... -- --
------------ ------------
Deferred tax liabilities:
------------ ------------
Total gross deferred tax liabilities .......... -- --
------------ ------------
Net deferred tax ............................. $ -- $ --
============ ============
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The net
change in the total valuation allowance for the years ended December 31, 1998
and 1997 was an increase of $8,333,000 and $5,460,000, respectively. The tax
benefit assumed using the Federal statutory tax rate of 34% has been reduced to
an actual benefit of zero due principally to the aforementioned valuation
allowance.
At December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $129,485,000 which expire at
various dates from 2000 through 2018. At December 31, 1998, the Company had
research credit carryforwards of approximately $3,642,000 which expire at
various dates between years 2009 and 2018. Pursuant to Section 382 of the
Internal Revenue Code of 1986, as amended, the annual utilization of a 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 such
ownership changes. Accordingly, the Company's net operating loss carryforwards
available to offset future federal taxable income arising before such ownership
changes are limited to $5,159,000 annually. Similarly, the Company is restricted
in using its research credit carryforwards arising before such ownership changes
to offset future federal income tax expense.
F-21
<PAGE>
(13) Commitments
Leases
The Company leases its New York City facility under an operating lease, a
portion of which was scheduled to expire in March 1999. The Company renewed the
entire lease effective as of January 1, 1999 through December 2004. The annual
minimum rent for 1999 is $720,000 and increases 3% annually for each year
thereafter. Rent expense for the New York City facility was approximately
$574,000, $554,000, and $508,000 for the years ended December 31, 1998, 1997 and
1996, respectively. See also Note 6.
Future minimum lease payments under the capital and operating leases are as
follows:
Capital Operating
Years ending December 31, Leases Leases
---------- ----------
1999 ......................................... 900,000 769,000
2000 ......................................... 889,000 780,000
2001 ......................................... 520,000 794,000
2002 ......................................... 248,000 815,000
2003 ......................................... -- 823,000
2004 ......................................... -- 835,000
----------- ----------
2,557,000 4,816,000
Less interest expense ........................ (304,000) --
----------- ----------
$ 2,253,000 $4,816,000
=========== ==========
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.
Contract Services
In April, 1998, the Company entered into an agreement in principle with
a pharmaceutical manufacturer for the supplemental further development,
production scale-up and manufacture of its lead therapeutic product candidate,
C225, for use in human clinical trials. Services pursuant to this agreement
commenced in April 1998 and are anticipated to conclude in October 1999. The
total project cost is DM8,950,000, or as of December 31, 1998 approximately
$5,424,000. As of December 31, 1998, the Company had incurred a liability of
approximately $1,897,000 (U.S. dollar equivalent) for services provided to date
under this agreement.
F-22
<PAGE>
(14) 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. The Company contributed approximately $47,000 to the plan for the year
ended December 31, 1998. No such contributions were made to the plan during the
years ended December 31, 1997 and 1996.
(15) Supplemental Cash Flow Information and Non-cash Investing and Financing
Activities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest ........................................................ $ 422,000 $ 707,000 $ 817,000
=========== ========== ===========
Non-cash investing and finance activities:
Finova capital asset and lease obligations additions ........ 731,000 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 ..... (676,000) 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 .................................... 2,400,000 163,000 --
=========== ========== ===========
Warrant exercise paid with a note, including accrued interest 142,000 -- --
=========== ========== ===========
</TABLE>
(16) Related Party Transactions
The Company has scientific consulting agreements with two members of the
Board of Directors. Expenses relating to these agreements were $112,000 for each
of the years ended December 31, 1998, 1997 and 1996.
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.
F-23
<PAGE>
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 is full recourse.
Interest is payable on the first anniversary date of the promissory note and on
the stated maturity or any accelerated maturity at the annual rate of 8.5%. At
December 31, 1998, the total amount due the Company, including interest, was
approximately $142,000 and is classified in the stockholders' equity section of
the balance sheet as a note receivable from officer and stockholder.
In October 1998, the Company accepted an unsecured promissory note totaling
$100,000 from its Executive Vice President and COO. The note is payable on
demand including interest at the annual rate of 8.25% for the period that the
loan is outstanding. At December 31, 1998, the total amount due the Company,
including interest, is approximately $102,000.
In August 1998, the Company entered into a utilization agreement with a
company to provide certain support services. This company is considered a
related party because of common management. The Company is being reimbursed
$2,000 per month for providing laboratory space and related support.
(17) Fair Value of Financial Instruments
For the years ended December 31, 1998 and 1997, 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-24
2/94
================================================================================
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
================================================================================
Agreement of Lease, made as of this 15th day of December 1998, between 180
VARICK STREET CORPORATION c/o Olmstead Properties, Inc., 575 Eighth Avenue,
Suite 2400, New York, New York 10018 party of the first part, hereinafter
referred to as OWNER, or LANDLORD, and IMCLONE SYSTEMS INCORPORATED, a Delaware
Corporation having an office at 180 Varick Street, New York, New York 10014
party of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner the
entire 6th and 7th floors (the "Demised Premises")
in the building known as 180 Varick Street (the "Building") in the Borough of
Manhattan, City of New York, for the term of six (6) years (or until such term
shall sooner cease and expire as hereinafter provided) to commence on the first
day of January nineteen hundred and ninety-nine, and to end on the thirty-first
day of December two thousand and four both dates inclusive, at an annual rental
rate of
See Article 41 (a) (i)
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at (the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for
see Article 41(h)
provided such use is in accordance with, the certificate of occupancy for the
building, if any, and for no other purpose.
Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, which shall not be unreasonably withheld, and to the provisions of this
article, Tenant, at Tenant's expense, may make alterations, installations,
additions or improvements which are nonstructural and which do not affect
utility services or plumbing and electrical lines, in or to the interior of the
demised premises using contractors or mechanics first approved in each instance
by Owner, which approval shall not be unreasonably withheld, Tenant shall, at
its expense, before making any alterations, additions, installations or
improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense. by payment or filing the bond required by law or otherwise.
All fixtures and all paneling, partitions. railings and like installations,
installed in the premises at any time, either by Tenant or by Owner on Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant given at the time Landlord gives its written approval to such
installation (if, in fact, Landlord approves of such installation), provided,
however, that in Tenant's request for approval of such installation, it
expressly requests, highlighted in bold face or underlining, Landlord's approval
to allow such installation to remain upon and be surrendered with the Demised
Premises at the end of the term of this lease, elects to relinquish Owner's
right thereto and to have them removed by Tenant, in which event the same shall
be removed from the demised premises by Tenant prior to the expiration of the
lease, at Tenant's expense. Anything contained herein to the contrary
notwithstanding, Tenant shall retain ownership of all laboratory equipment
installed in the Demised Premises and shall remove such equipment on or before
the expiration or sooner termination of the term of this lease. Nothing in this
Article shall be construed to give Owner title to or to prevent Tenant's removal
of trade fixtures, moveable office furniture and equipment, but upon removal of
any such from the premises or upon removal of other installations as may be
required by Owner, as hereinabove provided, Tenant shall immediately and at its
expense, repair and restore the premises to the condition existing prior to
installation and repair any damage to the demised premises or the building due
to such removal. All property permitted or required to be removed by Tenant at
the end of the term remaining in the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or removed from the premises by Owner, at Tenant's expense.
Repairs:
4. Owner shall maintain and repair the exterior of and the public portions of
the building. Tenant shall, throughout the term of this lease, take good care of
the demised premises including the bathrooms and lavatory facilities (if the
demised premises encompass the entire floor of the building) and the windows and
window frames and, the fixtures and appurtenances therein and at Tenant's sole
cost and expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant
shall give Owner prompt notice of any defective condition in any plumbing,
heating system or electrical lines located in the demised premises and following
such notice, Owner shall remedy the condition with due diligence, but at the
expense of Tenant, if repairs are necessitated by damage or injury attributable
to Tenant, Tenant's servants, agents, employees, invitees or licensees as
aforesaid. Except as specifically provided in Article 9 or elsewhere in this
lease, there shall be no allowance to the Tenant for a diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner, Tenant or others making or
failing to make any repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. It is specifically agreed that Tenant shall
not be entitled to any set off or reduction of rent by reason of any failure of
Owner to comply with the covenants of this or any other article of this lease.
Tenant agrees that Tenant's sole remedy at law in such instance will be by way
of any action for damages for breach of contract, `The provisions of this
Article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty with regard to which Article 9 hereof shall apply.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the New York State Labor law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter Tenant shall, at Tenant's sole cost and expense,
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
hoards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, or the
Insurance Services Office, or any similar body which shall impose any violation,
order or duty upon Owner or Tenant with respect to the demised premises, whether
or not arising out of Tenant's use or manner of use thereof, or, with respect to
the building, if arising out of Tenant's use or manner of use of the demised
premises of the building (including the use permitted under the lease). Except
as provided in Article 30 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant shall not do or
Please Initial
Tenant:_________________
Landlord:_______________
<PAGE>
permit any act or thing to be done in or to the demised premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire insurance rate shall, at the beginning of this lease or at any rate shall,
at the beginning of this lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" or rate for the building or demised premises issued by a body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rates then applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installation shall be placed and maintained by
Tenant, at Tenant's expense, in setting sufficient, in Owner's reasonable
judgement, to absorb and prevent vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals, modification,
consolidations, replacements and extensions of any such underlying leases and
mortgages. This clause shall be self-operative and no further instrument or
subordination shall be required by any ground or underlying lessor or by any
mortgagee, affecting any lease or the real property of which the demised
premises are a part. In confirmation of such subordination. Tenant shall from
time to time execute promptly any certificate that Owner may reasonably request.
Tenant's Liability Insurance Property Loss, Damage Indemnity:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage in
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agent, servant or employees; Owner or
its agents shall not be liable for any damage caused by other tenants or persons
in, upon or about said building or caused by operations in connection of any
private, public or quasi public work. If at any time any windows of the demised
premises are temporarily closed, darkened or bricked up (or permanently closed,
darkened or bricked up, if required by law) for any reason whatsoever including,
but not limited to Owner's own acts, Owner shall not be liable for any damage
Tenant may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorney's fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant or condition of this lease,
or the carelessness, negligence or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees or licensees. Tenant's liability under
this lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Owner's rights and remedies against Tenant under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to the date of
the casualty, or such later date that Tenant surrenders full and complete vacant
possession of the Demised Premises to Landlord, and any payment of rent made by
Tenant which were an account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein. Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustments of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (c) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d) and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment, trade fixtures,
goods and merchandise located therein. The foregoing release and waiver shall be
in force only if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefitting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from date of
title vesting in such proceeding and Tenant shall have no claim for the value of
any unexpired term of said lease. Tenant shall have the right to make an
independent claim to the condemning authority for the value of Tenant's moving
expenses and personal property, trade fixtures and equipment, provided Tenant is
entitled pursuant to the terms of the lease to remove such property, trade
fixtures and equipment at the end of the term and provided further such claim
does not reduce Owner's award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
prior written consent of Owner in each instance. Transfer of the majority of the
stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under tenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collections shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric Current:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in [CLIPART OMITTED] RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building of the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times upon prior reasonable notice to Tenant to examine the same and
to make such repairs, replacements and improvements as Owner may deem necessary
and reasonably desirable to any portion of the building or which Owner may elect
to perform in the premises after Tenant's failure to make repairs of perform any
work which Tenant is obligated to perform under this lease, or for the purpose
of complying with laws regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided, wherever possible, they are within walls or otherwise
concealed. Owner may, during the progress of any work in the demised premises,
take all necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitle to any abatement of
rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours for the purpose
of showing the same to prospective purchasers or mortgagees of the building, and
during the last six months of the term for the purpose of showing the same to
prospective tenants and may, during said six month period, place upon
Please Initial
Tenant:_________________
Landlord:_______________
- ----------
[CLIPART OMITTED] Rider to be added if necessary.
<PAGE>
the demised premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom. Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligation hereunder.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in violation
of the certificate of occupancy issued for the building of which the demised
premises are a part. Tenant has inspected the premises and accepts them as is,
subject to the riders annexed hereto with respect to Owner's work, if any. In
any event, Owner makes no representation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or not of
record. If any governmental license or permit shall be required for the proper
and lawful conduct of Tenant's business, Tenant shall be responsible for and
shall procure and maintain such license or permit.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by sending of a written notice to Tenant within
a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Owner shall forthwith, not withstanding
any other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; "or if this
lease be rejected under ss.235 of Title 11 of the U.S. Code (bankruptcy code);"
or if any execution or attachment shall be issued against Tenant or any of
Tenant's property whereupon the demised premises shall be taken or occupied by
someone other than Tenant; or if Tenant shall make default with respect to any
other lease between Owner and Tenant; or if Tenant shall have failed, after five
(5) days written notice, to redeposit with Owner any portion of the security
deposited hereunder which Owner has applied to the payment of any rent and
additional rent due and payable hereunder or failed to move into or take
possession of the premises within thirty (30) days after the commencement of the
term of this lease, of which fact Owner shall be the sole judge; then in any one
or more of such events, upon Owner serving a written fifteen (15) days notice
upon Tenant specifying the nature of said default and upon the expiration of
said fifteen (15) days, if Tenant shall have failed to comply with or remedy
such default, or if the said default or omission complained of shall be of a
nature that the same cannot be completely cured or remedied within said fifteen
(15) day period, and if Tenant shall not have diligently commenced during such
default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the term thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserve herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant concessions
or free rent or charge a higher rental than that in this lease, (c) Tenant or
the legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may reasonably incur in connection with re-letting, such as legal
expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of Owner
to collect the deficiency for any subsequent month by a similar proceedings.
Owner, in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall advertise and list the availability of
the Demised Premises with real estate brokers. Owner shall in no event be liable
in any way whatsoever for failure to re-let the demised premises, or in the
event that the demised premises are re-let, for failure to collect the rent
thereof under such re-letting, and in no event shall Tenant be entitled to
receive any excess, if any, of such net rents collected over the sums payable by
Tenant to Owner hereunder. In the event of a breach or threatened breach by
Tenant of any of the covenants or provisions hereof, Owner shall have the right
of injunction and the right to invoke any remedy allowed at law or in equity as
if re-entry, summary proceedings and other remedies were not herein provided
for. Mention in this lease of any particular remedy, shall not preclude Owner
from any other remedy, in law or in equity. Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future laws.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of any
of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligations of Tenant thereunder. If Owner, in connection with the foregoing or
in connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorney's fees, in instituting,
prosecuting or defending any action or proceedings, and prevails in any such
action or proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
Building Alterations and Management:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner my reason of Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
Please Initial
Tenant_________________
Landlord_______________
<PAGE>
No Representations by Owner:
21. Neither Owner nor Owners agents have made any representations or promises
with respect to the physical condition of the building, the land upon which it
is erected or the demised premises, the rents, leases, expenses of operation or
any other matter or thing affecting or related to the demised premises or the
building except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" on the date possession is tendered and
acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and
additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 34
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the date of
the commencement of the term hereof, because of the holding-over or retention of
possession of any Tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or if Owner has
not completed any work required to be performed by Owner, or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be unpaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
any work required) until after Owner shall have given Tenant notice that Owner
is able to deliver possession in the condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to time
date specified as the commencement of the term of this lease, Tenant covenants
and agrees that such possession and/or occupancy shall be deemed to be under all
the terms, covenants, conditions and provisions of this lease, except the
obligation to pay the fixed annual rent set forth in page one of this lease. The
provisions of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of the original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach and no provision of this lease shall be deemed to have
been waived by Owner unless such waiver be in writing signed by Owner. No
payment by Tenant on receipt by Owner of a lesser amount than the monthly rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this lease provided. All checks tendered to Owner as and for the rent of the
demised premises shall be deemed payments for the account of Tenant. Acceptance
by Owner of rent from anyone other than Tenant shall not be deemed to operate as
an attornment to Owner by the payor of such rent or as a consent by Owner to any
assignment or subletting by Tenant of the demised premises to such payor, or as
a modification of the provisions of this lease. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties thereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any proceeding or action for possession
including a summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
Inability to Perform:
27. This Lease and the obligation of both parties (except for the obligation of
Tenant to pay rent hereunder) to perform all of the covenants and agreements
hereunder on part of either party to be performed shall in no wise be affected,
impaired or excused because either party is unable to fulfill any of its
obligations under this lease or to supply or is unable to make, or is delayed in
making any repair, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment, fixtures or other materials if either
party is prevented or delayed from doing so by reason of strike or labor
troubles or any cause whatsoever beyond either party's sole control including,
but not limited to, government preemption or restrictions or by reason of any
rule, order or regulation of any department or subdivision thereof of any
government agency or by reasons of the conditions which have been or are
affected, either directly or indirectly, by war or other emergency.
Bills and Notices:
28. Except as otherwise in this lease provided, a bill statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Water Charges:
29. It Tenant requires, uses or consumes water for any purpose in addition to
ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation, thereof and throughout the duration of
Tenant's occupancy Tenant shall keep said meter and installation equipment in
good working order and repair at Tenant's own cost and expense in default of
which Owner may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay
for water consumed, as shown on said meter as and when bills are rendered, and
on default in making such payment Owner may pay such charges and collect the
same from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, charge or any other tax, rent, levy or charge
which now or hereafter is assessed, imposed or a lien upon the demised premises
or the realty of which they are part pursuant to law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection or system. If the building or
the demised premises or any part there is supplied with water through a meter
through which water is also supplied to other premises Tenant shall pay to
Owner, as additional rent, on the first day of each month, [CLIP ART OMITTED] %
($[CLIP ART OMITTED]) of the total meter charges as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Owner
hereinabove or elsewhere in this lease, Owner may sue for and collect any monies
to be paid by Tenant or paid by Owner for any of the reasons or purposes
hereinabove set forth.
Sprinklers:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the New
York Board of Fire Underwriters or the New York Fire Insurance Exchange or any
bureau, department or official office federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system
installations, modifications, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in fire insurance rate
set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
$[CLIP ART OMITTED], of on the first day of each month during the term of this
lease, as Tenant's portion of the contract price for sprinkler supervisory
service.
Elevators, Heat, Cleaning:
31. Owner shall: (a) provide necessary passenger elevator facilities on business
days from 8 a.m to 6 p.m. and on Saturday from 8 a.m. to 1 p.m.: and have at
least one passenger elevator available twenty four hours a day, seven days a
week; (b) if freight elevator service is provided, same shall be provided only
on regular business days Monday through Friday inclusive, and on those days only
between the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c)
furnish heat, water and other services supplied by Owner to the demised
premises, when and as required by law, on business days from 8 a.m. t 6 p.m. and
on Saturdays from 8
Please Initial
Tenant_________________
Landlord_______________
- ----------
[CLIP ART OMITTED] Space to be filled in or deleted.
<PAGE>
a.m. to p.m.; (d) clean the public halls and pubic portions of the building
which are used in common by all tenants. Tenant shall, at Tenant's expense, keep
the demised premises, including the windows, clean and in order, to the
reasonable satisfaction of Owner, and for that purpose shall employ the person
or persons, or corporation approved by Owner. Tenant shall pay to Owner the cost
of removal of any of Tenant's refuse and rubbish from the building. Bills for
the same shall be rendered by Owner to Tenant at such time as Owner may elect
and shall be due and payable hereunder, and the amount of such bills shall be
deemed to be, and be paid as, additional rent. Tenant shall, however, have the
option of independently contracting for the removal of such rubbish and refuse
in the event that Tenant does not wish to have same done by employees of Owner.
Under such circumstances, however, the removal of such refuse and rubbish by
others shall he subject to such rules and regulations as, in the judgment of
Owner, are necessary for the proper operation of the building. Owner reserves
the right to stop service of the heating, elevator, plumbing and electric
systems, when necessary, by reason of accident, or emergency, or for repairs,
alterations, replacements or improvements, in the judgment of Owner desirable or
necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner may
proceed diligently with alterations necessary to substitute automatic control
elevator service without in any way affecting the obligations of Tenant
hereunder.
Security:
32. Tenant has deposited with Owner the sum of $154,445.50 as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all the
terms, provisions, covenants and conditions of this lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the demised premises to Owner. In the event of
a sale of the land and building or leasing of the building, of which the demised
premises form a part, Owner shall have the right to transfer the security to the
vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look to the new
Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance
- -- See Article 79
Captions:
33. The Captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this lease nor the intent
of any provision thereof.
Definitions:
34. The term "Owner" as used in this lease means only the owner of the fee or of
the leasehold of the building, or the mortgagee in possession, for the time
being of the land and building (or the owner of a lease of the building or of
the land and building) of which the demised premises form a part, so that in the
event of any sale or sales of said land and building or of said lease, or in the
event of a lease of said building, or of the land and building, the said Owner
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums which
shall be due to Owner from Tenant under this lease, in addition to the annual
rental rate. The term "business days" as used in this lese, shall exclude
Saturdays, Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable building service
union employees service contract or by the applicable Operating Engineers
contract with respect to HVAC service. Wherever it is expressly provided in this
lease that consent shall not be unreasonably withheld, such consent shall not be
unreasonably delayed.
Adjacent Excavation-Shoring:
35. If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
Rules and Regulations:
36. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
annexed hereto and such other and further reasonable Rules and Regulations as
Owner or Owner's agents may from time to time adopt. Notice of any additional
rules or regulations shall be given in such manner as Owner may elect. In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
determination shall be final and conclusive upon the parties hereto. The right
to dispute the reasonableness of any additional Rule or Regulation upon Tenant's
part shall be deemed waived unless the same shall be asserted by service of a
notice, in writing upon Owner within fifteen (15) days after the giving of
notice thereof. Nothing in this lease contained shall be construed to impose
upon Owner any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease, as against any other tenant and
Owner shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees.
Glass:
37: Owner shall replace, at the expense of the Tenant (unless caused by the
negligence or willful acts of Landlord, its agents, employees or contractors, in
which event same shall be performed at Landlord's sole cost and expense) any and
all plate and other glass damaged or broken from any cause whatsoever in and
about the demised premises. Owner may insure, and keep insured, at Tenant's
expense, all plate and other glass in the demised premises for and in the name
of Owner. Bills for the premiums therefor shall be rendered by Owner to Tenant
at such times as Owner may elect, and shall be due from, and payable by, Tenant
when rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
Estoppel Certificate:
38. Tenant, at arty time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), stating the dates to which the rent and additional rent have
been paid, and stating whether or not there exists any default by Owner under
this Lease, and, if so, specifying each such default.
Directory Board Listing:
39. If, at the request of and as accommodation to Tenant, Owner shall place upon
the directory board in the lobby of the building, one or more names of persons
other than Tenant, such directory board listing shall not be construed as the
consent by Owner to an assignment or subletting by Tenant to such person or
persons.
Successors and Assigns:
40. The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns. Tenant shall look only to Owner's estate
and interest in the land and building for the satisfaction of Tenant's remedies
for the collection of a judgement (or other judicial process) against Owner in
the event of any default by Owner hereunder, and no other property or assets of
such Owner (or any partner, member, officer or director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy
of the demised premises.
SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
180 VARICK STREET CORPORATION [CORP. SEAL]
Witness for Owner: -------------------------------
By: [L.S]
- ------------------------ -------------------------------
Vice President
Witness for Tenant IMCLONE SYSTEMS, INCORPORATED [CORP. SEAL]
By: [L.S]
- ------------------------ -------------------------------
Please Initial
Tenant_________________
Landlord_______________
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
to me known, who being by me duly sworn, did depose and say that he resides in
that he is
the of the
corporation described in and which executed the foregoing instrument, as TENANT;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
to be known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that
he executed the same.
------------------------------------------------
[CLIPART OMITTED] IMPORTANT - PLEASE READ [CLIPART OMITTED]
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS
LEASE IN ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same as visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall the inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment. merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors or cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs
or interferes with other Tenants in the beneficial use of their premises.
Address 180 Varick Street
Premises Entire 6th and 7th floors
================================================================================
180 VARICK STREET CORPORATION
TO
IMCLONE SYSTEMS INCORPORATED
================================================================================
STANDARD FORM OF
[SEAL] LOFT [SEAL]
LEASE
The Real Estate Board of New York, Inc.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================================================
Dated December 10, 1998
Rent Per Year
See Article 41 (a)(i)
Rent Per Month
See Article 41 (a) (i)
Term six (6) years
From January 1, 1999
To December 31, 2004
Drawn by
------------------------------------------------------------------------
Checked by
----------------------------------------------------------------------
Entered by
----------------------------------------------------------------------
Approved by
---------------------------------------------------------------------
================================================================================
<PAGE>
LS-131/177
RIDER AGREEMENT:
To be attached to and form a part of:
Lease dated December 15, 1998 Premises Entire 6th and 7th floors between 180
Varick Street Corporation c/o Olmstead Properties, Inc. 575 Eighth Avenue, NY,
NY 10018 as Landlord and Imclone Systems Incorporated, 180 Varick Street, New
York, New York 10014 as Tenant
At the commencement of the term hereof electric current shall be supplied to
Tenant at the demised premises in accordance with the provisions of clause A or
B or F of this Article, subject to the other terms and conditions of this
Article and lease. A. Submetering If electric current be supplied by Landlord,
at Landlord's option, pursuant to this clause , Tenant covenants and agrees to
purchase the same from Landlord or Landlord's designated agent, at charges,
taxes, terms and rates set by Landlord from time to time but, except as
hereinafter set forth, not more than those specified in Service Classification
No. 4 on September 7, 1970, that being the date immediately prior to which the
rates of Consolidated Edison Company of New York, Inc. were adjusted and
consolidated with respect to redistribution of electric current to commercial
buildings. Such charges, taxes, terms and rates may be revised by Landlord, at
it option, from time to time, in the same proportion as any increases after the
aforesaid date in the charges, taxes, terms or rates to Landlord in connection
with the supply of electric current to the building of which the demised
premises are a part (hereinafter referred to as the "building"). When more than
one meter measures the electric service to the demised premises, the services
rendered through each meter shall be separately computed and billed in
accordance with the charges, taxes, terms and rates stated herein. Bills shall
be rendered at such times as Landlord may elect and, commencing on the earlier
of (i) Tenant's occupancy of all or any portions of the demised premises, or
(ii) the commencement date of the term of this lease, the amounts as computed
from meter readings shall be deemed to be, and be paid as, additional rent
without set-off or deduction. B. Rent Inclusion - If electric current be
supplied by Landlord, at Landlord's option, pursuant to this clause, Tenant
covenants and agrees to have it supplied to Tenant at the demised premises based
on the method of including the use thereof within the annual rent and the annual
rent reserved herein shall be increased as hereinafter set forth, in
consideration of Landlord supplying electric current as an additional service as
hereinafter provided. At any time after Tenant is in possession of the demised
premises, a reputable electrical consultant selected by Landlord shall (but, if
this lease be a renewal or shall subsequently be extended, or if an electric
rent inclusion modification agreement is being executed in connection with this
lease, Landlord shall have the option, but not the obligation to) make a survey
of the electrical equipment, usage and powerload to ascertain the electric
current consumption and demand in the demised premises on an annual basis, and
calculate the annual rent increase resulting therefrom utilizing charges, taxes,
terms and rates as set by Landlord from time to time, but, except as hereinafter
set forth not more than those specified in Service Classification No. 2 on
September 7, 1970, that being the date immediately prior to which the rates of
Consolidated Edison Company of New York, Inc. were adjusted and consolidated
with respect to redistribution of electric current to commercial buildings. Such
charges, taxes, terms and rates may be revised by Landlord, at its option, from
time to time, in the same proportion as any increases after the aforesaid date
in the charges, taxes, terms or rates to Landlord in connection with the supply
of electric current to building. Following the making any such survey, the
parties shall execute an agreement prepared by Landlord amending this lease and
setting forth the increase in annual rent calculated as aforesaid, as of the
date of the commencement the furnishing of electric current to the demised
premises pursuant to this clause B, but such increase shall be effective from
that date even if such agreement is not executed. Landlord, its agent or
consultant, is given the right make surveys, from time to time, in the demised
premises covering the electric equipment and use of electric current. If, after
the date of such initial survey (or if subdivision "(i)" or "(ii)" above is
applicable, after the date on which the annual rent payable by Tenant was last
increased in consideration of Landlord supplying electric current to the demised
premises) there are any additions to or increases in (i) the equipment or usage
in the demised premises, or (ii) in the charges, terms and/or rates to Landlord
by the public utility corporation supplying electric current to the building, or
(iii) in any taxes thereon which Landlord is obligated to pay, or (iv) if Tenant
shall regularly remain open for business other than during those hours
incorporated in any prior electric survey, then, and in any such instance or
instances, the annual rent served herein shall be further increased in
accordance with the provisions of this Article to reflect such additions,
increases or additional use as of the effective date thereof. If Landlord and
Tenant cannot agree on the amount of any such increase, as hereinbefore
described, the same shall be determined by a reputable electric consultant
selected by the Landlord and paid equally by both parties. The parties shall
then execute an agreement prepared by Landlord amending this lease and setting
forth the new annual rent resulting from such increase and confirming the
effective date thereof, but such increase shall be effective from such date even
if such agreement is not executed. C. Landlord shall not in any way be liable or
responsible to Tenant for any loss or damage or expense which Tenant may sustain
or incur if either the quantity or character of electric service is changed or
is no longer available or suitable for Tenant's requirements. Tenant's use of
electric current in the demised premises shall not at any time exceed the
capacity of any of the electrical conductors and facilities in or otherwise
serving the demised premises. In order to insure that such capacity is not
exceeded and to avert any possible adverse effect upon the building's electric
service, Tenant shall not, without Landlord's prior written consent in each
instance, connect any fixtures, appliances of equipment (other than a reasonable
number of table or floor [ILLEGIBLE], typewriters and similar small office
machines using comparable electric current) to the building's electric
distribution system [ILLEGIBLE]make any alteration or addition to the electric
system of the demised premises. Should Landlord grant such consent, all
additional [ILLEGIBLE]or other equipment required therefor shall be provided by
Landlord, and all costs and expenses in connection therewith, including, without
limitation, those for filing and supervision, shall be paid by Tenant upon
Landlord's demand, as additional rent, without setoff or deduction. As a
condition to granting such consent, Landlord may require Tenant to agree to an
increase in the annual rent by any amount which will reflect the value to Tenant
of the additional service to be furnished by Landlord, to wit: the potential
additional electric current to be made available to Tenant based upon the
estimated initial total capacity of such additional [ILLEGIBLE] or other
equipment. If Landlord and Tenant cannot agree on the amount of such annual rent
increase, the same shall be determined by a reputable electrical consultant, to
be selected by Landlord and paid equally by both parties. The parties shall then
execute an agreement prepared by Landlord amending this lease and setting forth
the new annual rent resulting from such increase and confirming the effective
date thereof, but such increase shall be effective from such date even if such
agreement is not executed. E. Landlord reserves the right to discontinue
furnishing electric current to Tenant in the demised premises at any time upon
not less than thirty (30) days' notice to Tenant. F. If Landlord, at Landlord's
option, (i) exercises such right of discontinuance as provided in clause E, or
(ii) requires Tenant to initially obtain its electric current directly from the
public utility corporation supplying electric current to the building, this
lease shall continue in full force and effect and shall be unaffected thereby,
except only that, from and after the effective date of such discontinuance, or
the commencement of direct usage, as the case may be, Landlord shall not be
obligated to furnish electric current to Tenant and except that, if Landlord
shall have been furnishing electric current on a rent inclusion basis, from and
after the effective date of such discontinuance, the annual rent payable under
this lease shall be reduced by an amount equal to the aggregate amount of all
increases to the annual rent reserved herein pursuant to clause B of this
Article. In either aforesaid event, if Landlord is not to furnish electric
current to Tenant, Tenant shall arrange to obtain electric current directly from
the public utility corporation supplying electric current to the building; and
in any event, all risers, equipment and other facilities which may be required
for Tenant to obtain electric current directly form such public utility
corporation shall, at Tenant's expense, payable to Landlord upon demand, as
additional rent, without [ILLEGIBLE] or deduction, be installed by Landlord, if
in Landlord's judgment the same are necessary and will not cause damage or
injury to the building or any part thereof or create a hazardous condition or
entail excessive alterations, repairs or expense or [ILLEGIBLE] with or
<PAGE>
(CONTINUED)
disturb any other building tenants or occupants; and in nay event, any such
installation shall be maintained by Tenant, at its expense, and shall be subject
to such conditions as Landlord and/or the public utility corporation may
require. If Landlord shall not furnish electric current to Tenant, it shall not
be liable to Tenant therefor and the same shall not be deemed to be a lessening
or diminution of services within the meaning of any law, rule or regulation now
or hereafter enacted, promulgated or issued. G. If any taxes or charges are or
shall be imposed upon Landlord or its agent in connection with the sale or
resale of electrical energy to Tenant, Tenant covenants and agrees that, where
permitted by law, Tenant's pro-rata share of such taxes or charges shall be
passed on to Tenant and paid by Tenant to Landlord or its agents upon demand, as
additional rent, without set-off or deduction. At all times during the term of
this lease Tenant will comply with all present and future General Rules,
Regulations, Terms and Conditions applicable to service equipment, wiring and
Requirements in accordance with the regulations of the public utility
corporation supplying electric current to the building. H. In the event that any
increased or additional rent under this article is not paid within 30 days after
a bill is rendered, Landlord may, upon at least ten (10) days' prior written
notice to Tenant without further notice and without waiving its rights to any
other remedy or remedies it may have, discontinue the service of electric
current to the demised premises without releasing Tenant by such discontinuance
of service. I. Tenant covenants and agrees that at no time will the connected
electrical load for any one full or partial floor of the demises premises exceed
6 watts per square foot of usable area unless the rent has been increased
pursuant to this Article to reflect the additional load. J. It is agreed that
Landlord, from time to time may change the method of supplying electric current
to Tenant at the demised premises in any manner referred to in this lease or
otherwise, provided that in so doing Landlord shall comply with all applicable
laws.
Notwithstanding anything to the contrary contained herein, Tenant shall be
charged for the electricity consumed by it for the Demised Premises based upon
the then current Service Classification, billed by the Utility Company servicing
the property, which is commensurate with Tenant's level of usage (including all
taxes, charges, terms, rates and other fees associated with Landlord providing
electrical service), plus fifteen percent (15%). Such taxes, charges, terms and
rates to Landlord in connection with the supply of electric current to the
Building of which the Demised Premises are a part, will be used in the
calculation of the Tenant billing.
Anything contained in subparagraph C hereof to the contrary notwithstanding,
Tenant, within twenty (20) days after receipt of the determination of Landlord's
electric consultant, may contest, at Tenant's sole cost and expense, the results
thereof by retaining a reputable electrical engineer or consultant to make a
survey of the electrical equipment, usage and powerload to ascertain the
electric current consumption and demand in the Demised Premises on an annual
basis, and to calculate the annual rent increase resulting therefrom as
hereinabove provided. Tenant shall furnish Landlord with a copy of the report
and calculation of the survey conducted by tenant's electrical engineer or
consultant, by certified or registered mail, return receipt requested, within
ten (10) days of Tenant's receipt thereof. In the event of a discrepancy between
Landlord's and Tenant's determination of the increase in annual rent resulting
from Tenant's electric equipment, usage and powerload, the Landlord and Tenant
shall cause their respective electrical engineers or consultants to confer and
resolve the discrepancy within thirty (30) days after Landlord's receipt of
Tenant's report. If the respective electrical engineers and consultants shall be
unable to reach agreement within sixty (60) days of Landlord's receipt of
Tenant's report, the two engineers or consultants shall designate a third
engineer or consultant to make the determination in accordance with the
provisions of this electric rider, and the determination of said third engineer
or consultant shall be binding and conclusive on the parties hereto. If the
parties' respective engineers or consultants shall be unable to agree upon the
designation of a third engineer or consultant by the eightieth day after
Landlord's receipt of Tenant's report, either party hereto may request the
American Arbitration Association to designate such third engineer or consultant,
whose determination shall be binding and conclusive upon the parties hereto. The
costs and expenses of any such third engineer or consultant shall be paid by the
party whose determination of the increase to annual rent due to Tenant's
electric equipment, usage and powerload was at the greatest variance from the
determination of the third engineer or consultant. Pending the resolution of any
contest pursuant to the terms hereof, Tenant shall pay the increase in the
annual rent as provided pursuant to the determination of Landlord's engineer or
consultant, and upon the resolution of any such contest, the increase to annual
rent shall be adjusted accordingly, with arrears paid to Landlord, or a refund
or credit allowed to Tenant, as the case may be, within thirty (30) days of the
date of the determination of the third engineer or consultant.
<PAGE>
ADDITIONAL CLAUSES attached to and forming a part of lease dated as of December
15, 1998, between 180 VARICK STREET CORPORATION, Landlord, c/o OLMSTEAD
PROPERTIES, INC., Suite 2400, 575 Eighth Avenue, New York, NY 10018 and IMCLONE
SYSTEMS, INCORPORATED, Tenant.
41. BASIC PROVISIONS AND DEFINITIONS: This Article is an integral part of this
Lease and all of the terms hereof are incorporated into this Lease in all
respects. the following terms, whenever used in this Lease, shall have the
meanings set forth in this Article, and only such meanings unless expressly
contradicted, limited or expanded elsewhere in this Lease.
(a) RENTAL: The payment reserved under this Lease for the term hereof
shall be and consist of the aggregate of:
(i) Minimum Rent, which shall be $720,000.00 per annum ($60,000.00 per
month) from January 1, 1999 to and including December 31, 1999; $741,600.00 per
annum ($61,800.00 per month) from January 1, 2000 to and including December 31,
2000; $763,848.00 per annum ($63,654.00 per month) from January 1, 2001 to and
including December 31, 2001; $786,763.44 per annum ($65,563.62 per month) from
January 1, 2002 to and including December 31, 2002; $810,366.34 per annum
($67,530.53 per month) from January 1, 2003 to and including December 31, 2003;
and $834,677.33 per annum ($69,556.44 per month) from January 1, 2004 to and
including December 31, 2004.
(ii) Additional Rent consisting of all such other sums of money shall
become due from and payable by Tenant to Landlord hereunder (for default in
payment of which Landlord shall have the same remedies as a default in payment
of Minimum Rent).
(b) BASE TAX shall mean Taxes, as finally determined, for the calendar
year commencing January 1, 1999 through December 31, 1999.
(c) TENANT'S SHARE shall be 13.33%.
(d) INTENTIONALLY DELETED.
(e) INTENTIIONALLY DELETED.
(f) INTENTIONALLY DELETED.
(g) BROKER shall mean OLMSTEAD PROPERTIES, INC.
(h) USE shall mean marketing; biotechnology, molecular modeling, computer
graphics and high-technology research facilities; computer programming;
manufacturing of diagnostic kits, vaccine, therapeutics and materials therefor;
conferences and general and executive offices.
42. AS-IS POSSESSION: Tenant acknowledges that neither Landlord, nor any agent
of Landlord, has made any representations or promises with regard to the Demised
Premises for the term herein demised. The taking of possession of the Demised
Premises by Tenant for the term herein demised shall be conclusive evidence as
against Tenant that Tenant accepts the same "as-is" and that the Demised
Premises were in good and satisfactory condition at the time such possession was
taken. Landlord shall not be obligated to make any repairs, alterations,
improvements or additions to the Demised Premises for Tenant's occupancy.
43. USE: (A) Subject to and in accordance with the rules, regulations, laws,
ordinances, statutory limitations and requirements of all governmental
authorities and the fire insurance rating organization and board of fire
underwriters and any similar bodies having jurisdiction thereof, Tenant
covenants and agrees that it shall use the Demised Premises solely for the use
as provided in Article 41(h), but for no other purpose.
(B) Tenant agrees that Landlord shall have the right to prohibit the use
of the Demised Premises by Tenant for any method of operation, advertising or
interior display which
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Landlord________________
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Landlord deems detrimental to the operation or reputation of the Building and
upon notice from Landlord, Tenant shall forthwith refrain from or discontinue
such activities. Landlord acknowledges that Tenant's use of the Demised Premises
for biotechnology purposes shall not, in and of itself be deemed to be
detrimental to the operation or reputation of the Building.
44. TENANT'S INSTALLATIONS: All work necessary or desirable to make the Demised
Premises suitable for Tenant's use and occupancy (other than Landlord's Work)
shall be performed by Tenant at Tenant's own cost and expense (hereinafter
called "Tenant's Work"). Tenant's Work to be performed by Tenant in the Demised
Premises shall be subject to the following conditions:
(A) Tenant shall comply with all of the laws, orders, rules and
regulations of all governmental authorities, and of the fire insurance rating
organization having jurisdiction thereof, and the local board of fire
underwriters, or any similar body, and Tenant shall have procured and paid for,
so far as the same may be required, all governmental permits and authorizations;
(B) Prior to commencing Tenant's Work, all plans and specifications
therefor shall be submitted to Landlord for Landlord's prior written approval.
If, in connection with determining whether or not to approve Tenant's plans and
specifications Landlord incurs architectural, engineering or other professional
fees, Tenant shall pay such reasonable fees as additional rent within ten
business days of submission of such bills to Tenant;
(C) Prior to commencing Tenant's Work, Tenant shall at its own cost and
expense deliver to Landlord an endorsement of Tenant's and Tenant's contractor's
policy of comprehensive general liability insurance referred to in Article 52 of
this lease, covering the risk during the course of performance of Tenant's Work,
together with proof of payment of such endorsement, which policy as endorsed
shall protect Landlord and its managing agent in the same amounts against any
claims or liability arising out of Tenant's Work, and Tenant or Tenant's
contractors shall obtain workers' compensation insurance to cover all persons
engaged in Tenant's Work and liability insurance covering Tenant's Work in the
Demised Premises in the amounts of $1,000,000 in respect of property damage and
$1,000,000 in respect of any one person, not less than $3,000,000 in respect of
any one occurrence, and a certificate thereof shall be furnished to the Landlord
before commencement of any work by any contractor, subcontractor, their agents,
servants or employees. Tenant's contractor shall name Landlord, its managing
agent and any other party as Landlord may request as additional insureds under
said insurance policies;
(D) Prior to commencing Tenant's Work which in Landlord's reasonable
judgment will cost more than $5,000.00, Tenant, at its own cost and expense,
shall deliver to Landlord a surety company performance bond and a labor and
material and payment bond, issued by a surety company acceptable to Landlord, or
other security satisfactory to Landlord, in an amount at least equal to
Landlord's estimated cost of Tenant's Work, guaranteeing the performance thereof
and payment therefor within a reasonable time, free and clear of all liens,
encumbrances, chattel mortgages, conditional bills of sale and other charges,
and in accordance with the plans and specifications approved by Landlord. Upon
completion of all Tenant's Work, the performance bond shall be returned to
Tenant, provided, however, that all of the terms, covenants, conditions and
provisions of this Article have been complied with, and further, Tenant is not
in default of any of the terms, covenants, conditions or provisions of this
lease;
(E) All of Tenant's Work shall be done in such a manner so as not to
materially interfere with, delay, or impose any additional expense upon Landlord
in the maintenance of the Building. In no event shall Landlord be required to
consent to any Tenant's Work which would physically affect any part of the
Building outside of the Demised Premises or would, in Landlord's sole judgment,
affect the proper functioning of any of the mechanical, electrical, sanitary or
other systems of the Building;
(F) Notwithstanding anything herein contained to the contrary, Tenant
shall make all repairs to the Demised Premises necessitated by Tenant's Work
permitted hereunder, and shall keep and maintain in good order and condition all
of the installations in connection with Tenant's Work, and shall make all
necessary replacements thereto.
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Landlord________________
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(G) Prior to commencing Tenant's Work, Tenant shall deliver to Landlord
the names and addresses of Tenant's general contractor, subcontractors, material
supplier and laborers, and the breakdown of the aggregate total cost of Tenant's
Work. Tenant, at its sole cost and expense, shall procure written waivers of the
right to file mechanic's liens executed by contractors, subcontractors, material
suppliers and laborers simultaneously with payment for the labor performed or
materials furnished has been made to each contractor, subcontractor, material
supplier or laborer. Tenant shall also procure written releases of lien executed
by contractors, subcontractors, material suppliers and laborers simultaneously
upon payment in full for the labor performed or materials furnished by such
contractor, subcontractor, material supplier or laborer. Any failure or refusal
on the part of Tenant to comply with the foregoing shall be deemed a default
under this lease.
45. ELECTRICITY: Electricity shall be supplied to Tenant in accordance with the
provisions of paragraph A of Rider A annexed hereto.
46. TAX ESCALATION: (A) As used in this lease:
(i) "Taxes" shall mean the real estate taxes and assessments and special
assessments imposed upon the Building and/or the land on which the Building is
situated by any governmental bodies or authorities (the "Land"). If at any time
during the term of this lease the methods of taxation prevailing at the
commencement of the term hereof shall be altered so that in lieu of, or as an
addition to or as a substitute for the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or imposed on
real estate and the improvements thereof, there shall be levied, assessed and
imposed (a) a tax, assessment, levy or otherwise on the rents received
therefrom, or (b) a license fee measured by the rent payable by Tenant to
Landlord, or (c) any other such additional or substitute tax, assessment, levy,
imposition or charge, then all such taxes, assessments, levies, impositions or
charges or the part thereof so measured or based shall be deemed to be included
within the term "Taxes" for the purpose hereof.
(ii) "Tax Year" shall mean the fiscal year commencing on July 1 and ending
on June 30 (or such other period as hereafter may be duly adopted by the City of
New York as its fiscal year for real estate tax purposes).
(B) (i) If the Taxes for any Tax Year shall be more than the Base Tax,
Tenant shall pay as Additional Rent for such Tax Year an amount equal to
Tenant's Share of the amount by which the Taxes for such Tax Year are greater
than the Base Tax (the amount payable by Tenant is hereinafter called the "Tax
Payment"). The Tax Payment shall be prorated, if necessary, to correspond with
that portion of a Tax Year occurring within the term of this lease. The Tax
Payment shall be payable by Tenant within ten (10) business days after receipt
of a demand from Landlord therefor. In addition to and supplementing the
foregoing, Landlord may estimate the amount of the Tax Payment which will be due
from Tenant to Landlord and notify Tenant of the amount so estimated. Thereupon,
Tenant shall pay the amount so estimated to Landlord, in equal monthly
installments, in advance, on the first day of each calendar month during the
applicable Tax Year. Within sixty (60) days after the end of each Tax Year,
Landlord shall deliver a copy to Tenant of all tax bills for such Tax Year,
together with a statement showing the amount of Tenant's Tax Payment. If the
amount of such monthly payments paid by Tenant exceeds the actual amount due,
the overpayment shall be credited on Tenant's next succeeding payment or, during
the last year of the term, Landlord will refund such excess to Tenant within
thirty (30) days following the expiration of the term, if Tenant is not in
default hereunder. If the amount of such monthly payments paid by Tenant shall
be less than the actual amount due, then Tenant shall pay to Landlord the
difference between the amount paid by Tenant and the actual amount due within
ten (10) days after demand from Landlord.
(ii) In the event the Base Tax is reduced as a result of an appropriate
proceeding, Landlord shall have the right to adjust the amount of Tax Payment
due from Tenant for any Tax Year in which Tenant is or was obligated to pay a
Tax Payment hereunder, and Tenant agrees to pay the amount of said adjustment on
the next rental installment day immediately following receipt of a rent
statement from Landlord setting forth the amount of said adjustment.
Please Initial:
Tenant__________________
Landlord________________
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(C) Only Landlord shall be eligible to institute tax reduction or other
proceedings to reduce the assessed valuation of the Land and the Building.
Should Landlord be successful in any such reduction proceedings and obtain a
rebate for periods during which Tenant has paid its share of increases, Landlord
shall after deducting its expenses, including attorneys' fees and disbursements
in connection therewith, return Tenant's Share of such rebate to Tenant.
(D) With respect to any period at the expiration of the term of this lease
which shall constitute a partial Tax Year, Landlord's statement shall apportion
the amount of the Additional Rent due hereunder. The obligation of Tenant in
respect to such Additional Rent applicable for the last year of the term of this
lease or part thereof shall survive the expiration of the term of this lease.
(E) Notwithstanding the fact that the increase in rent is measured by an
increase in Taxes, such increase is Additional Rent and shall be paid by Tenant
as provided herein regardless of the fact that Tenant may be exempt, in whole or
in part, from the payment of any taxes by reason of Tenant's diplomatic or other
tax-exempt status or for any other reason whatsoever.
47. LEASEHOLD MORTGAGE: A. Tenant may, without Landlord's consent, from time to
time pledge, mortgage or encumber this Lease and/or the leasehold estate demised
hereunder to any institutional lender or sublease the Demised Premise to the New
York City Industrial Development Agency ("IDA") and immediately thereafter
sublease the Demised Premises back from the IDA ("Leaseback"). Any such pledge,
mortgage or encumbrance upon this Lease or the leasehold estate demised
hereunder or the Leaseback, as the same may be extended, modified, amended or
replaced, is referred to in this Lease as the "Leasehold Mortgage". There shall
be no limitation or restrictions upon the principal amount or other sums secured
by any Leasehold Mortgage and such principal amount or other sums that may also
be secured by other mortgages, deeds of trust or security agreements. Landlord
shall not be bound to recognize the Leasehold Mortgagee unless such Leasehold
Mortgagee or Tenant shall have notified Landlord of the existence of such
Leasehold Mortgage and of the name and address of such Leasehold Mortgagee and
furnished Landlord with a copy of the Leasehold Mortgage and bond or Note
secured thereby.
B. Landlord hereby agrees with and for the benefit of each Leasehold
Mortgagee and the heirs, legal representatives, successors and assigns of
Leasehold Mortgagee:
(i) When giving notice to Tenant with respect to any default under this
Lease or any exercise of any right to terminate this Lease, Landlord will also
give a copy of such notice by registered or certified mail or by a nationally
recognized overnight courier, to the Leasehold Mortgagee at the address of such
Leasehold Mortgagee furnished to Landlord; and no such notice to Tenant shall be
deemed to have been duly given, nor shall such notice be effective unless such
notice is also given in said manner to the Leasehold Mortgagee.
(ii) In case Tenant shall default in respect of any of the provisions of
this Lease, the Leasehold Mortgagee shall have the right, but not the
obligation, to cure such default whether the same consists of the failure to pay
rent or the failure to perform any other matter or thing which Tenant is
required to do or perform under this Lease, and Landlord shall accept
performance by or on behalf of Leasehold Mortgage as though, and with the same
effect as if it had been done or performed by Tenant. The Leasehold Mortgagee
will have a period of time after the service of such notice upon it within which
it may cure the default specified in such notice, or cause it to be cured, which
is the same period for cure, if any, as is given to Tenant under this Lease in
respect of the specified default after the giving of such notice to Tenant. In
the event of a default or in the event that termination is sought by reason of a
default, other than the non-payment of rent, which cannot reasonably be cured
within said period, the period of time for cure shall be extended for so long as
the Leasehold Mortgagee is diligently proceeding to cure such default, provided
that the Leasehold Mortgagee has begun to cure the default within the said
period.
(iii) If, in order to cure any default by the Tenant under the provisions
of this Lease, the Leasehold Mortgagee must perform any act or acts other than
the payment of rent, no default will be deemed to exist and the Landlord shall
have no right, and shall take no action, to effect a termination of this Lease
until the Leasehold Mortgagee has had a reasonable opportunity to cure such
default after Leasehold Mortgagee obtains possession of the Demised Premises by
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Tenant__________________
Landlord________________
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appointment of a receiver, institution or foreclosure proceedings or otherwise,
but upon condition that the Leasehold Mortgagee shall deliver to Landlord, no
later than thirty (30) days after the expiration of the grace period applicable
to the Tenant as to the particular default, an acknowledged instrument by which
the Leasehold Mortgagee undertakes that (x) during the pendency of any such
foreclosure or other such proceedings with respect to Tenant's interest in this
Lease and until the interest of Tenant in this Lease shall terminate and
possession of, title to, and control over the Demised Premises shall be obtained
by Leasehold Mortgagee, Leasehold Mortgagee will pay or cause to be paid to
Landlord, when and as it shall become due (but without giving effect to any
right of acceleration of rentals in the event of a default), the rental provided
for in the Lease and (y) when, as and if possession of, title to, and control
over the Demised Premises shall be obtained by Leasehold Mortgagee, or its
nominee or designee, whether voluntarily as a result of foreclosure proceedings
or otherwise, Leasehold Mortgagee shall therefore perform or cause its nominee
to perform, all the covenants of this Lease on Tenant's part to be performed to
the extent that Tenant shall have failed to perform such covenants prior to the
date on which such title, possession and control by Leasehold Mortgagee shall,
upon request of Landlord, reimburse Landlord for the costs of any repairs (i)
which are the obligation of Tenant under the Lease and which are made by
Landlord after default by Tenant and (ii) which corrects dangerous or hazardous
conditions or which are necessary to prevent deterioration of the Demised
Premises. If prior to the sale in any foreclosure proceeding instituted by the
Leasehold Mortgagee, or if prior to the date on which Tenant's interest in the
Lease and the Demised Premises shall otherwise be extinguished, the default in
respect of which Landlord shall have given any notice contemplated by this
paragraph shall have been cured and possession of the Demised Premises shall
have been restored to Tenant, the undertaking of the Leasehold Mortgagee
provided for in this subparagraph (iii) shall automatically terminate and be
without further force or effect. No Leasehold Mortgagee shall be required to
commence and continue any foreclosure or other proceedings or to obtain or
continue possession of the Demised Premises.
(iv) The Leasehold Mortgagee (or its designee or nominee) may become the
legal owner and holder of the interest of the Tenant under this Lease,
including, without limitation, the interest of Tenant in all improvements
erected by Tenant on the Demised Premises, by foreclosure or other enforcement
proceedings or by obtaining an assignment of this Lease in lieu of foreclosure
or through settlement of or arising out of any pending or threatened foreclosure
proceeding, without Landlord's consent but subject to the Leasehold Mortgagee's
obligation to assume this Lease. In such event, the Leasehold Mortgage (or its
designee or nominee) shall have the right thereafter to assign this Lease, but
subject to the applicable terms and provisions of this Lease.
(v) In the event of the termination of this Lease, the Landlord will
notify Leasehold Mortgagee and certify in writing to Leasehold Mortgagee all
amounts then due to Landlord under this Lease and the Landlord will enter into a
new lease of the Demised Premises with the Leasehold Mortgagee for the remainder
of the term, to commence as at the date of the termination of this Lease at the
same rental and upon all of the other terms, provisions, covenants and
agreements as in this Lease contained, upon condition that (a) Leasehold
Mortgagee shall make written request to Landlord for such new lease no later
than thirty (30) days from the date such notice by the Landlord is given to
Leasehold Mortgagee; (b) Leasehold Mortgagee shall pay to Landlord at the time
of the execution and delivery of said new lease all sums which, as of the date
of execution and delivery of such new lease, were past due and owing under this
Lease, but without giving effect to any provision permitting acceleration of
rentals upon termination of this Lease amounts not otherwise then due; and (c)
such new lease shall require the Tenant thereunder to perform any obligation of
Tenant under the Lease not then performed.
(vi) Anything in this Article contained to the contrary notwithstanding,
the provisions of this Article shall only be for the benefit of the holders of
the Leasehold Mortgage which is a first lien upon the leasehold estate or is a
direct sublease of Tenant.
(vii) If the Tenant fails to observe or perform any of its obligations
under this Lease, the Leasehold Mortgagee may, but shall not be obligated to,
observe or perform such obligations for and on behalf of Tenant, whether or not
Tenant shall be in default under this Lease.
Please Initial:
Tenant__________________
Landlord________________
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C. Any notice or other communication which Landlord shall desire or is
required to give to or serve upon Leasehold Mortgagee shall be in writing and
shall be served by registered or certified mail or by nationally recognized
overnight courier addressed to such holder at its address as shall be designated
from time to time by such holder by notice in writing. Any notice or other
communication which the Leasehold Mortgagee shall desire or is required to give
to or serve upon Landlord shall be deemed to have been duly given or served if
sent by registered or certified mail or by nationally recognized overnight
courier to Landlord at Landlord's address as shall be designated from time to
time by Landlord by notice in writing given to Leasehold Mortgagee by registered
or certified mail or by nationally recognized overnight courier.
D. Landlord will not modify, amend, cancel or accept a surrender of the
Lease, nor shall this Lease be terminated by Tenant (including a termination
pursuant to the express provisions hereof), nor shall Tenant elect any option
granted to it under this Lease, including without limitation to terminate this
Lease under Article 9 hereof or any other section of this Lease, without the
prior written consent of the Leasehold Mortgagee. Any such modification,
amendment, cancellation, surrender, termination or option election without the
written consent of the Leasehold Mortgagee shall be void and of no force or
effect.
E. No union of the interests of Landlord and Tenant shall result in a
merger of this Lease and the fee interest in the Demised Premises without the
prior written consent of the Leasehold Mortgagee.
F. All notices, statements and other communications to be given under the
terms of this Lease shall also be given in writing simultaneously to the
Leasehold Mortgagee.
G. The parties agree, at any time and from time to time, upon not less
than ten (10) days' prior written notice from the other, to execute, acknowledge
and deliver to the requesting party, a statement in writing addressed to the
requesting party certifying that this Lease is unmodified and in force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), stating the dates to which
rent, additional rent and other charges have been paid, and stating whether or
not to the best knowledge of the signer of such certificate, there exists any
defaults in the performance of any covenant, agreement, term, provision or
condition contained in this Lease, and if so, specifying each such default of
which the signer may have knowledge.
48. INTENTIONALLY DELETED.
49. NON-WAIVER AND SURVIVAL OF ADDITIONAL RENT OBLIGATIONS: Landlord's failure
during the lease term to prepare and deliver any of the tax bills, statements,
notices or bills set forth in Article 46 or Landlord's failure to make a demand
shall not in any way cause Landlord to forfeit or surrender its rights to
collect any of the foregoing items of Additional Rent which may have become due
during the term of this lease. Tenant's liability for the amounts due under
Article 46 shall survive the expiration of the lease term.
50. ADDENDUM TO ARTICLE 6 (COMPLIANCE WITH LAWS): Supplementing the provisions
of Article 6 hereof, Tenant shall give prompt notice to Landlord of any notice
it receives of the violation of any law or requirement of any public authority
with respect to the Demised Premises or the use or occupation thereof. Tenant
shall promptly comply with all present and future laws, orders and regulations
of all state, federal, municipal and local governments, departments, commissions
and boards or any direction of any public officer pursuant to law, and all
orders, rules and regulations of the New York Board of Fire Underwriters or any
similar body which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the Demised Premises (in which event Tenant shall effect
such compliance at its sole cost and expense) or the Building (in which event,
notwithstanding anything herein to the contrary, Landlord shall effect such
compliance but Tenant shall promptly pay to Landlord Tenant's Share of the cost
thereof).
51. WAIVER OF SUBROGATION: Each party hereby release the other party (which term
as used in this Article includes the employees, agents, officers and directors
of the other party) from all liability, whether for negligence or otherwise, in
connection with loss covered by any fire and/or
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
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extended coverage insurance policies, which the releasor carries with respect to
the Demised Premises, or any interest or property therein or thereon (whether or
not such insurance is required to be carried under this lease), but only to the
extent that such loss is collected under said fire and/or extended coverage
insurance policies. Such release is also conditioned upon the inclusion in the
policy or policies of a provision whereby any such release shall not adversely
affect said policies, or prejudice any right of the releasor to recover
thereunder. Each party agrees that its insurance policies aforesaid will include
such a provision so long as the same shall be obtainable without extra cost, or
if extra cost shall be charged therefor, so long as the party for whose benefit
the clause or endorsement is obtained shall pay such extra cost. If extra cost
shall be chargeable therefor, each party shall advise the other of the extra
cost, and the other party at its election may pay the same, but shall not be
obligated to do so.
52. INDEMNITY-LIABILITY INSURANCE: (A) Tenant covenants and agrees to indemnify
and save Landlord, its managing agent and its principals, disclosed or
undisclosed, harmless from and against any and all claims, losses, damages or
expenses (including reasonable attorneys' fees) or other liability arising
during the term of this lease out of or in connection with (i) the construction,
possession, use, occupancy, management, repair, maintenance or control of the
Demised Premises or any part thereof or any other part of the Building used by
Tenant, or (ii) any act or omission of Tenant or Tenant's agents, employees,
contractors, concessionaires, licensees, invitees, subtenants or assignees, or
(iii) any default, breach, violation or nonperformance of this lease or any
provision hereof by Tenant, or (iv) any injury to person or property or loss of
life sustained in or about the Demised Premises or any part thereof, except such
claims found to be the result of the negligence of Landlord, its agents,
employees or contractors. Tenant shall, at its own cost and expense, defend any
and all actions, suits and proceedings which may be brought against, and Tenant
shall pay, satisfy and discharge any and all judgments, orders and decrees which
may be made or entered against, Landlord, its managing agent, its principals,
disclosed or undisclosed, with respect to, or in connection with, any of the
foregoing. The comprehensive general liability coverage maintained by Tenant
pursuant to this lease shall specifically insure the contractual obligations of
Tenant as set forth in this Article and/or as provided in this lease.
(B) Tenant covenants to provide on or before the Commencement Date of the
term hereof and to keep in force during the term hereof for the benefit of
Landlord, its managing agent and Tenant a comprehensive policy of liability
insurance protecting Landlord, its managing agent and Tenant (and any other
parties as Landlord shall designate to be added as insured parties) against any
liability whatsoever occasioned by accident on or about the Demised Premises or
any appurtenances thereto. Such policy is to be written by good and solvent
insurance companies licensed to do business in the State of New York and
satisfactory to Landlord. The policy shall be a comprehensive General Liability
type and extended to include personal injury liability and fire legal liability
with the amounts of liability thereunder not less than $1,000,000.00 in respect
of any one person, not less than $3,000,000.00 in respect of any one accident,
and not less than $500,000.00 in respect of property damages. In addition,
Tenant will, at Tenant's expense, maintain (i) workers' compensation insurance
within statutory limits covering all persons employed, directly or indirectly,
in connection with any of Tenant's Work or any repair or alteration authorized
by this lease or consented to by Landlord, and all employees and agents of
Tenant with respect to whom death or bodily injury claims could be asserted
against Landlord or Tenant; (ii) fire and extended coverage, vandalism,
malicious mischief and special extended coverage insurance in an amount adequate
to cover the cost of replacement of all fixtures and decorations and
improvements in the Demised Premises; and (iii) rent insurance covering those
risks referred to in (ii) above in an amount equal to all Minimum Rent and
Additional Rent payable under this lease for a period of twelve (12) months
commencing with the date of loss. Prior to the time such insurance is first
required to be carried by Tenant, and thereafter at least thirty (30) days prior
to the expiration of any such policy, Tenant agrees to deliver to Landlord
either a duplicate or original of the aforesaid policy or a certificate
evidencing such insurance, provided said certificate contains an endorsement
that such insurance may not be canceled or modified except upon ten (10) days'
written notice to Landlord, together with evidence of payment for the policy.
Tenant's failure to provide and keep in force the aforementioned insurance shall
be regarded as a material default hereunder, entitling Landlord to exercise any
or all of the remedies as provided in this lease in the event of Tenant's
default. The minimum limits of insurance described above shall be subject to
increase at any time, and from time to time, after the third anniversary of the
commencement date, if Landlord shall
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
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deem same necessary for adequate protection. Within thirty (30) days after
demand therefor by Landlord, Tenant shall furnish Landlord with evidence of
compliance with such demand.
53. TENANT'S CERTIFICATE: Tenant shall, without charge at any time and from time
to time, within ten (10) business days after request by Landlord, certify by
written instrument, duly executed, acknowledged and delivered, to any mortgagee,
assignee of any mortgage or purchaser, or any proposed mortgagee, assignee of
any mortgage or purchaser, or any other person, firm or corporation specified by
Landlord:
(A) that this lease is unmodified and in full force and effect (or, if
there has been modification, that the same is in full force and effect as
modified and stating the modifications);
(B) whether or not there are then existing any setoffs or defenses against
the enforcement of any of the agreements, terms, covenants or conditions hereof
upon the part of Tenant to be performed or complied with (and, if so, specifying
the same); and
(C) the dates, if any, to which the rental and other charges hereunder
have been paid in advance.
54. EXCULPATORY CLAUSE: If Landlord shall be an individual, joint venture,
tenancy-in-common, co-partnership, unincorporated association, or other
unincorporated aggregate of individuals and/or entities, or a corporation,
Tenant shall look only to such Landlord's estate and property in the Building
and, where expressly so provided in this lease, to offset against the rents
payable under this lease, for the satisfaction of Tenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of such Landlord or any of the principals of Landlord,
disclosed or undisclosed, shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this lease, the relationship of Landlord and Tenant hereunder or
Tenant's use or occupancy of the Demised Premises.
55. BROKER: Tenant covenants, warrants and represents that there was no broker
instrumental in consummating this lease and no conversations or negotiations
were had with any broker other than Broker concerning the renting of the Demised
Premises. Tenant agrees to indemnify, defend and hold and save Landlord harmless
against any and all liability from any claims of any broker other than Broker
who claims to have dealt with Tenant (including, without limitation, the cost of
counsel fees in connection with the defense of any such claims in connection
with the renting of the Demised Premises). Based upon such representation,
Landlord has agreed to enter into this leasing agreement with Tenant.
56. CONFLICT OF TERMS: In the event any term, covenant, condition or agreement
contained in this rider to the lease shall conflict or be inconsistent with any
term, covenant, condition or agreement contained in the printed portion of this
lease, then the parties agree that the rider provision shall prevail.
57. TENANT'S REMEDIES: With respect to any provision of this lease which
provides, in effect, that Landlord shall not unreasonably withhold or
unreasonably delay any consent or any approval, Tenant in no event shall be
entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any
claim, for money damages; nor shall Tenant claim any money damages by way of
setoff, counterclaim or defense, based upon any claim or assertion by Tenant
that Landlord has unreasonably withheld or unreasonably delayed any consent or
approval; but Tenant's sole remedy shall be an action or proceeding to enforce
any such provision, or for specific performance, injunction or declaratory
judgment.
58. TENANT'S OPERATING OBLIGATIONS: Tenant covenants and agrees that during the
term of this lease:
(A) If any governmental license or permit shall be required for the proper
and lawful conduct of Tenant's business in the Demised Premises, or any part
thereof, and if failure to secure such license or permit would in any way affect
Landlord, then Tenant, at its sole cost and
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
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expense, shall duly procure and thereafter maintain such license or permit and
submit the same to inspection by Landlord. Tenant shall at all times comply with
the terms and conditions of each such license or permit.
(B) Tenant shall maintain any sanitary lines in the Demised Premises and
shall not misuse plumbing facilities or dispose of any foreign substance
therein. Tenant shall not permit any food, waste, or other foreign substances to
be thrown or drawn into the pipes. Tenant shall maintain the plumbing that it
installs in good order, repair and condition, and repair any damage resulting
from any violation of this Paragraph. Tenant shall make any repairs to the other
plumbing in the Building, if damage results from Tenant's improper use of such
plumbing.
(C) Tenant will retain a licensed professional exterminating service which
will service the Demised Premises on a regular basis throughout the term so as
to keep the Demised Premises free of vermin. Tenant shall furnish Landlord with
a copy of said contract within seven (7) days of Landlord's request therefor.
(D) Tenant shall install chemical extinguishing devices approved by the
Fire Insurance Rating Organization and shall keep such devices under service as
required by such organization. If gas is used in the Demised Premises, Tenant
shall install gas cutoff devices (manual and automatic).
(E) Tenant will not encumber or obstruct or permit to be encumbered or
obstructed any hallway, service elevator, stairway or passageway in the
Building.
(F) Tenant covenants and agrees that throughout the term, it shall not
suffer, allow or permit any offensive or obnoxious vibration, noise, odor or
other undesirable effect to emanate from the Demised Premises, or any machine or
other installation therein, or otherwise suffer, allow or permit any such
obnoxious vibration, noise, odor or other undesirable effect to constitute a
nuisance or otherwise interfere with the safety, comfort or convenience of
Landlord, or other tenants, occupants, customers, agents, or invitees or any
others lawfully in or upon the Building and upon Landlord's notice, Tenant shall
within five (5) days thereof remove or control the same, and if any such
condition is not so remedied, then Landlord may, at its discretion, either: (i)
cure such condition and add any cost and expense incurred by Landlord therefor
to the next installment of rent due under this lease, and Tenant shall then pay
said amount, as Additional Rent hereunder; or (ii) treat such failure on the
part of Tenant to remedy such condition as a material default of this lease on
the part of Tenant hereunder, entitling Landlord to any of its remedies pursuant
to the terms of this lease.
(G) Tenant shall not subject any fixtures or equipment in or on the
Demised Premises which are affixed to the realty, to any mortgage, liens,
conditions, sales agreements, security interests or encumbrances.
(H) Tenant shall not perform any act or carry on any practice which may
damage, mar or deface the Demised Premises or any other part of the Building.
(I) Tenant shall not permit window cleaning or other exterior maintenance
and janitorial services in and for the demised premises to be performed except
by such person(s) as shall be approved by Landlord, and except during reasonable
hours designated for such purposes by Landlord.
(J) Tenant shall not install, operate or maintain in the Demised Premises
any electrical equipment which will overload the electrical system therein, or
any part thereof, beyond its reasonable capacity for proper and safe operation,
as determined by Landlord, in light of the overall system and requirements
therefor in the Building, or which does not bear underwriters' approval.
(K) Tenant shall not use or occupy the Demised Premises for any purpose
calculated to injure the reputation of the Demised Premises, and/or the Building
or of the neighborhood in which the same are located or to, presently or in the
future, impair the value of the Demised Premises and/or the Building. Landlord
acknowledges that the use of the Demised
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
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Premises for biotechnology purposes shall not, in and of itself, be deemed to
injure the reputation of the Demised Premises, the Building or the neighborhood,
nor impair the value of the Demised Premises or the Building.
(L) Tenant shall not permit any business to be operated in or from the
Demised Premises by any concessionaire or licensee without the prior written
consent of Landlord in each instance.
(M) There shall be no cooking or food preparation whatsoever in the
Demised Premises.
59. LABOR REGULATIONS: Tenant covenants and agrees that prior to and throughout
the demised term, it shall not take any action which would violate Landlord's
union contract, if any, affecting the Building, nor create any work stoppage,
picketing, labor disruption or dispute, or any interference with the business of
Landlord or any other tenant or occupant in the Building or with the rights and
privileges of any person(s) lawfully in the Building. Any default by Tenant
under this Article shall be deemed a material default entitling Landlord to
exercise any or all of the remedies as provided in this lease subject to the
notice provisions provided in Article 17 hereof.
60. INTENTIONALLY DELETED.
61. ADDENDUM TO ARTICLE 22 (END OF TERM): If Tenant shall default in
surrendering the Demised Premises upon the expiration or termination of the
term, Tenant's occupancy subsequent to such expiration or termination, whether
or not with the consent or acquiescence of Landlord, shall be deemed to be that
of a tenancy at will and in no event from month to month or from year to year,
and it shall be subject to all the terms, covenants and conditions of this lease
applicable thereto, except the Minimum Rent shall be one hundred fifty percent
(150%) of the amount payable in the last year of the term, and no extension or
renewal of this lease shall be deemed to have occurred by such holding over. In
the event Landlord shall commence proceedings to dispossess Tenant by reason of
Tenant's default, Tenant shall pay, in addition to costs and disbursements,
minimum legal fees of $500.00 for each proceeding as Additional Rent hereunder.
62. ADDENDUM TO ARTICLE 18 (LANDLORD'S REMEDIES): Should Tenant fail to pay
within five (5) days after same becomes due any installment of Minimum Rent,
Additional Rent, or any other sum payable to Landlord under the terms of this
lease, then interest shall accrue from and after the date on which any such sum
shall be due and payable, and such interest, together with a late charge of five
cents for each dollar overdue to cover the extra expense involved in handling
such delinquency shall be paid by Tenant to Landlord at the time of payment of
the delinquent sum. Anything contained herein to the contrary notwithstanding,
including but not limited to Article 17 hereof, Landlord shall give Tenant
written notice of its monetary defaults under this Lease, but no more often than
twice in a twelve consecutive month period. If Tenant shall issue a check to
Landlord which is returnable unpaid for any reason, Tenant shall pay Landlord an
additional charge of $100.00 for Landlord's expenses in connection therewith. If
Tenant shall be late in making any payment due under this lease more than three
(3) times in any Lease Year, Landlord shall be entitled to demand from Tenant
and Tenant agrees to tender to Landlord additional security in the amount of one
month's current Minimum Rent to be held in accordance with the terms of Article
32 hereof.
63. INTEREST: Whenever this lease refers to "interest" (except in relation to
Tenant's security deposit), same shall be computed at a rate equal to the "Prime
Rate" (as hereinafter defined) plus three (3%) percent except where otherwise in
this lease a different rate is specifically set forth. If, however, payment of
interest at any such rate by Tenant (or by the tenant then in possession having
succeeded to Tenant's interest in accordance with the terms of this lease)
should be unlawful, i.e., violative of the usury statutes or otherwise, then
"interest" shall, as against such party, be computed at the maximum lawful rate
payable by such party. "Prime Rate" shall mean the rate being reported at the
time in question by The Wall Street Journal.
64. ARBITRATION: Either party may request arbitration of any matter in dispute
wherein arbitration is expressly provided in this lease as the appropriate
remedy. All such controversies
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
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shall be settled by decision of the Chairman of the Real Estate Board of New
York, Inc. whose decision shall be final and conclusive upon the parties hereto
and a judgment may be obtained thereon in any court having jurisdiction in
accordance with the procedural rules then obtaining of the Real Estate Board of
New York, Inc. or any successor thereto. The arbitrator or arbitrators may grant
injunctions or other relief in such controversies or claims. The parties agree
that the unsuccessful party shall pay the entire cost and expense of such
arbitration, and each shall separately pay for its own attorneys' fees and
expenses.
65. ENTIRE AGREEMENT: No earlier statement or prior written matter shall have
any force or effect. Tenant agrees that it is not relying on any representations
or agreements other than those contained in this lease. This agreement shall not
be modified or canceled except by writing subscribed by all of the parties
hereto.
66. SAVINGS PROVISION: If any provision of this lease or its application to any
situation shall be invalid or unenforceable to any extent, the remainder of this
lease, or the application thereof to situations other than that as to which it
is invalid or unenforceable shall not be affected thereby, and every provision
of this lease shall be valid and enforceable to the fullest extent permitted by
law.
67. LEASE NOT BINDING UNLESS EXECUTED: Submission by Landlord of the within
lease for execution by Tenant shall confer no rights nor impose any obligations
on either party unless and until both Landlord and Tenant shall have executed
this lease and duplicate originals thereof shall have been delivered to the
respective parties.
68. MECHANIC'S LIENS: (A) Notwithstanding anything to the contrary contained in
this lease, Tenant, its successors and assigns, warrant and guarantee to
Landlord, its successors and assigns, that if any mechanic's lien shall be filed
against the Building of which the Demised Premises forms a part, for work
claimed to have been done for, or materials claimed to have been furnished to,
Tenant (i) the same shall be discharged by Tenant, by either payment, by bond or
otherwise, at the sole cost and expense of Tenant, within fifteen (15) days of
the giving of notice thereof by Landlord, (ii) either a release or a
satisfaction of lien, as the case may be, shall be filed with the County Clerk
of the county in which the Building is situate within such fifteen (15) day
period, and (iii) a copy of such release or satisfaction, as the case may be,
certified to by such County Clerk shall be delivered to Landlord within three
(3) days after such filing.
(B) In the event such mechanic's lien is not discharged timely, as
aforesaid, Landlord may discharge same for the account of and at the expense of
Tenant by payment, bonding or otherwise, without investigation as to the
validity thereof or of any offsets or defenses thereto, and Tenant shall
promptly reimburse Landlord, as Additional Rent, for all costs, disbursements,
fees and expenses, including, without limitation, legal fees, incurred in
connection with so discharging said mechanic's lien, together with interest
thereon from the time or times of payment until reimbursement by Tenant. Tenant
shall, within five (5) days of demand therefor by Landlord, pay to Landlord as
Additional Rent, the sum of One Thousand ($1,000) Dollars on account of
Landlord's legal fees and disbursements, but the foregoing shall not limit the
extent of Tenant's liability as set forth above.
(C) In the event such mechanic's lien is not discharged timely, as
aforesaid, Landlord, in addition to all other rights granted to Landlord in this
lease and without limitation, may institute a dispossess summary proceeding
based upon such failure to discharge any such lien. In the event Tenant fails to
deliver to Landlord the certified copy of the release or satisfaction required
hereunder within the time period provided for the delivery thereof to Landlord,
Landlord shall have the right to assume that such mechanic's lien has not been
discharged and Landlord shall have all of the rights and remedies provided for
herein based upon Tenant's failure to discharge any such lien.
(D) It is further expressly understood and agreed between the parties
hereto that Landlord may expend all or a portion of the security deposit made by
Tenant hereunder toward discharging any such mechanic's lien and the cost,
expenses, fees and disbursements, including, without limitation, legal fees, in
connection therewith. Upon notification by Landlord of the
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
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application of all or a portion of the security deposited by Tenant, Tenant
shall, within five (5) days after receipt of said notice, restore the security
deposit to such amount held by Landlord prior to Landlord's application thereof.
Tenant's failure to do so within said five (5) day period shall constitute a
material default under this lease.
(E) Tenant, at its sole cost and expense, shall procure written waivers of
the right to file mechanic's liens executed by contractors, subcontractors,
material suppliers and laborers simultaneously with payment for the labor
performed or materials furnished has been made to each contractor,
subcontractor, material supplier or laborer. Tenant shall also procure written
releases of lien executed by contractors, subcontractors, material suppliers and
laborers simultaneously upon payment in full for the labor performed or
materials furnished by such contractor, material supplier or laborer. Any
failure or refusal on the part of Tenant to comply with the foregoing shall be
deemed a default under this lease.
69. LANDLORD'S CONSENT: If Tenant requests Landlord's consent or approval to
alterations, assignment, subletting or any other matter or thing requiring
Landlord's consent or approval under this lease, and if in connection with such
request Landlord seeks the advice of its attorneys, architect and/or engineer,
then Landlord, as a condition precedent to granting its consent or approval, may
require (in addition to any other requirements of Landlord in connection with
such request) that Tenant pay the fee of Landlord's attorneys, architect and/or
engineer in connection with the consideration of such request and/or the
preparation of any documents pertaining thereto.
70. ENTRANCE DOORS: Tenant shall, throughout the term of this lease, maintain,
repair, service and replace when necessary, all doors leading into and out of
the Demised Premises and all hardware appurtenant thereto, including, but not
limited to, locks, hinges, silencers, door stops, door jams, door closets,
latchsets, flashbulbs, door frames, thresholds and door knobs. Landlord shall
have no liability or obligation whatsoever regarding the maintenance, repair,
service and replacement of the foregoing.
71. FINANCING REQUIREMENTS: If, in connection with obtaining financing or
refinancing for the Building of which the Demised Premises form a part, a
banking, insurance or other institutional lender shall request reasonable
modifications to this lease as a condition to such financing or refinancing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto;
provided, however, that such modifications do not increase the obligations of
Tenant hereunder (except, perhaps, to the extent that Tenant may be required to
give notices of any defaults by Landlord to such lender and/or permit the curing
of such defaults by such lender together with the granting of such additional
time for such curing as may be required for such lender to get possession of the
Building) or materially adversely affect the leasehold interest hereby created.
In no event shall a requirement that the consent of any such lender be given for
any modification of this lease or subject to the provisions of this lease for
any assignment or sublease, be deemed to materially adversely affect the
leasehold interest hereby created.
72. WAIVER OF COUNTERCLAIM: Tenant hereby waives the right to interpose any
offset or counterclaim (except for a "compulsory" counterclaim) in any action or
proceeding brought by the Landlord against the Tenant, or to enjoin any such
action or proceeding brought by the Landlord against the Tenant and the Tenant
further waives the right to consolidate with, or try together in any such action
or proceeding so instituted by the Landlord, any action or proceeding then
pending or thereafter instituted by the Tenant against the Landlord.
73. PERMITS AND FEES:
(A) Tenant covenants and agrees that, upon request of Landlord, it shall,
within ten (10) days from the date of the request, furnish Landlord with an
up-to-date copy of any permit or license required by any authority having
jurisdiction therein for Tenant to conduct business at the Demised Premises.
(B) In addition, Tenant further covenants and agrees that, upon request of
Landlord, it shall, within ten (10) days from the date of the request, furnish
Landlord with a copy of the canceled check, paid bill or any other evidence
which supports payment of current tax,
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
12
<PAGE>
assessment or fee, for personal property, fees or other imposition which is
imposed upon Tenant, other than the Real Estate Tax.
(C) In the event Tenant fails to submit to Landlord, upon request, the
items called for under either subparagraphs (A) or (B) above, such failure shall
be a default under the terms of this lease.
74. FORCE MAJEURE: Except for the payment of Minimum Rent and Additional Rent,
neither Landlord nor Tenant shall be deemed in default in the performance of any
obligation or undertaking provided herein in the event and/or so long as the
performance of any such obligation is prevented or delayed, retarded or hindered
by act of God, fire, earthquake, floods, explosion, action of the elements, war,
hostilities, invasion, insurrection, riot, mob violence, sabotage, inability to
procure or general shortage of labor equipment, facilities, materials or
supplies in the open market, failure of transportation, strikes, lockouts,
action of labor unions, condemnation, requisition, laws, orders of government or
civil or military or naval authorities, act or failure to act of either party
which causes the other party to be delayed in the performance of any such
obligation or undertaking, or any other cause, whether similar or dissimilar to
the foregoing, not within the reasonable control of the non-performing party.
75. ATTORNMENT: At the option of Landlord or any successor landlord or holder of
any mortgage affecting the demised premises, Tenant agrees that neither the
cancellation nor termination of any ground or underlying lease to which this
lease is now or may hereafter become subject or subordinate, nor any foreclosure
of a mortgage affecting the demised premises, nor the institution of any suit,
action, summary or other proceeding against Landlord or any successor landlord,
or any foreclosure proceedings brought by the holder of any such mortgage to
recover possession of the demised premises, shall by operation of law or
otherwise result in the cancellation or termination of this lease or the
obligations of Tenant hereunder, and upon the request of Landlord, successor
landlord or mortgagee, Tenant covenants and agrees to attorn to the Landlord or
to any successor to the Landlord's interest in the demised premises, or to the
mortgagee or to the purchaser of the mortgaged premises in foreclosure.
76. SORTING AND SEPARATION OF REFUSE AND TRASH:
Tenant covenants and agrees, at its sole cost and expense, to comply with
all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards regarding
the collection, sorting, separation and recycling of waste products, garbage,
refuse and trash. Tenant shall sort and separate such waste products, garbage,
refuse and trash into such categories as provided by law. Each separately sorted
category of waste products, garbage and trash shall be placed in separate
receptacles reasonably approved by Landlord. Such separate receptacles may at
Landlord's option, be removed from the demised premises in accordance with a
collection schedule prescribed by law. Landlord reserves the right to refuse to
collect or accept from Tenant any waste products, garbage, refuse or trash which
is not separated and sorted as required by law and to require Tenant to arrange
for such collection, at Tenant's sole cost and expense utilizing a contractor
satisfactory to Landlord. Tenant shall pay all costs, expenses, fines, penalties
or damages which may be imposed on Landlord or Tenant by reason of Tenant's
failure to comply with the provisions of this article, and, at Tenant's sole
cost and expense, shall indemnify, defend and hold Landlord harmless (including
legal fees and expenses) from and against any actions, claims and suits arising
from such non-compliance, utilizing counsel reasonably satisfactory to Landlord.
77. ASSIGNMENT, SUBLETTING, MORTGAGING. A. Tenant will not, by operation of law
or otherwise, assign, mortgage or encumber this Lease, nor sublet or permit the
Demised Premises or any part thereof to be used by others. The consent by
Landlord to any assignment or subletting shall not in any manner be construed to
relieve Tenant from obtaining Landlord's express written consent to any other or
further assignment or subletting nor shall any such consent by Landlord serve to
relieve or release Tenant from its obligations to fully and faithfully observe
and perform all of the terms, covenants and conditions of this Lease on Tenant's
part to be observed and performed.
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
13
<PAGE>
B. Upon obtaining a proposed assignee or sublessee, upon terms
satisfactory to Tenant, Tenant shall submit to Landlord in writing (w) the name
of the proposed assignee or subtenant; (x) the terms and conditions of the
proposed assignment or subletting; (y) the nature and character of the business
and credit of the proposed assignee or subtenant; (z) current financial
statements, banking references and any other references and information
reasonably requested by the Landlord. Landlord's consent to any such proposed
assignment or subletting shall not be unreasonably withheld or unduly delayed,
provided, however, that Landlord may withhold consent thereto if in the exercise
of its sole judgment it determines that:
(i) The financial condition and general reputation of the proposed
assignee or subtenant are not consistent with the extent of the obligation
undertaken by the proposed assignment or sublease or with the character and
reputation of the Building.
(ii) The proposed use of the Demised Premises is not appropriate for the
Building or in keeping with the character of the existing tenancies or permitted
by the Lease or with the dignity and character of the Building (but the
foregoing shall not be deemed to enlarge the purposes for which the Demised
Premises are permitted to be used as set forth in this Lease). The use of the
Demised Premises for biotechnology purposes shall not, in and of itself, be
deemed to be inappropriate for the Building or not in keeping with the dignity
and character of the Building.
(iii) The nature of the occupancy of the proposed assignee or subtenant
will cause an excessive density of employees or traffic or make excessive
demands on the Building's services or facilities or in any other way will lessen
the dignity or character of the Building.
(iv) The Tenant proposes to assign or sublet to one who, at the time, is a
tenant or occupant of the Building, or a subsidiary, division or affiliate of
any such tenant or occupant of the Building,(except, however, a subsidiary,
division or affiliate of Tenant), or to one with whom Landlord or its agents are
actively negotiating for space in the Building, or to one who, at the time, is a
tenant or occupant of premises in any other building then owned or managed by
Landlord or its affiliates.
(v) The Tenant offers or advertises to assign or sublet all or a portion
of the Demised Premises at a rental rate less than the rental rate Landlord is
then asking for other space in the Building.
C. Further, and as a condition of Landlord's consent to any assignment or
subletting:
(i) Tenant at the time of requesting Landlord's consent shall not be in
material default under this Lease;
(ii) Each assignee of this Lease shall assume in writing all of the terms,
covenants and conditions of this Lease on the part of Tenant hereunder to be
performed and observed;
(iii) An original or duplicate original of the instrument of assignment
and assumption or of the sublease agreement shall be delivered to Landlord
within (5) days following the making thereof;
(iv) Any instrument of sublease shall specifically state that each
sublease is subject to all of the terms, covenants and conditions of this Lease;
(v) Landlord may bill and Tenant shall pay all charges estimated by
Landlord (such estimate shall be subject to adjustment for underage and overage
upon ascertation of actual charges) to be due through the date of assignment
(without relieving Tenant or its assignee of the obligation to pay any balance
due when the actual charges are computed);
(vi) Each assignee shall deposit with Landlord and each sublessee shall
deposit with sublessor a sum equal to one month Minimum Rent as an additional
security deposit under the Lease;
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
14
<PAGE>
(vii) Any portion of the Demised Premises to be sublet shall have a
configuration which does not adversely impact on the remainder of the Demised
Premises and has direct access to the public corridor on the floor; and
(viii) In the event that this Lease shall be terminated, then, at
Landlord's option, sublessee shall attorn to Landlord pursuant to the then
executory terms and conditions of this sublease, except that Landlord shall not
(1) be liable for any previous act or omission of Tenant under such sublease,
(2) be subject to any offset, not expressly provided in such sublease, that
theretofore accrued to such subtenant against Tenant or (3) be bound by any
previous modification of such sublease or by any previous prepayment of more
than one month's fixed rent or any additional rent then due.
If Tenant shall duly comply with all of the foregoing then, as aforesaid,
Landlord shall not unreasonably withhold its consent to such assignment or
subletting.
Notwithstanding anything contained in this Article to the contrary,
Landlord shall not be obligated to entertain or consider any request by Tenant
to assign this Lease, or sublet all or a part of the Demised Premises unless
each request by Tenant is accompanied by a non-refundable fee payable to
Landlord in the amount of Seven Hundred Fifty ($750.00) Dollars representing
Landlord's administrative costs and expenses in processing each of Tenant's
requests.
D. It is agreed that if Landlord shall consent to such assignment or
subletting, and Tenant thereupon assigns this Lease or sublets all or any
portion of the Demised Premises, then and in that event Tenant shall pay to
Landlord, as Additional Rent, (i) in the event of an assignment during the first
two years of the term hereof, the amount of all monies received by Tenant in
excess of the Minimum Rent and additional rent payable by Tenant pursuant to
this Lease for the corresponding period of such assignment and thereafter, fifty
(50%) percent of such amount; and (ii) in the event of a subletting during the
first two years of the term hereof, the amount, if any, by which the Minimum
Rent and Additional Rent payable by the sublessee to Tenant shall exceed the
Minimum Rent plus Additional Rent allocable to that part of the Demised Premises
affected by such sublease, pursuant to the provisions of this Lease plus the
amounts, if any, payable by such sublessee to Tenant pursuant to any side
agreement as consideration (partial or otherwise) for Tenant making such
subletting, and thereafter, fifty (50%) percent of such amount. Such Additional
Rent payments shall be made monthly within five (5) business days after receipt
of the same by Tenant or within five (5) business days after Tenant is credited
with the same by the assignee or sublessee. At the time of submitting the
proposed assignment or sublease to Landlord, Tenant shall certify to Landlord in
writing whether or not the assignee or sublessee has agreed to pay any monies to
Tenant in consideration of the making of the assignment or sublease other than
as specified and set forth in such instruments, and if so Tenant shall certify
the amounts and time of payment thereof in reasonable detail.
E. If this Lease shall be assigned, or if the Demised Premises or any part
thereof be sublet or occupied by any person or persons other than Tenant,
Landlord may, after default by Tenant, collect rent from the assignee, subtenant
or occupant and apply the net amount collected (which may be treated by Landlord
as rent or as use and occupancy) to the Minimum Rent and Additional Rent herein
reserved but no such assignment, subletting, occupancy or collection of rent
shall be deemed a waiver of the covenants in this Article, nor shall it be
deemed an acceptance of the assignee, subtenant or occupant as a tenant, nor a
release of Tenant from the full performance by Tenant of all the terms,
conditions and covenants of this Lease.
F. Each permitted assignee shall assume and be deemed to have assumed this
Lease and shall be and remain liable jointly and severally with Tenant for the
payment of the Minimum Rent and Additional Rent and for the due performance of
all the terms, covenants, conditions and agreements herein contained on Tenant's
part to be performed for the term of this Lease and any renewals and
modifications hereof. No assignment shall be binding on Landlord unless, as
hereinbefore provided, such assignee or Tenant shall deliver to Landlord a
duplicate original of the instrument of assignment which contains a covenant of
assumption by the assignee of all of the obligations aforesaid and shall obtain
from Landlord the aforesaid written consent prior thereto. Any assignment,
sublease or agreement permitting the use and occupancy of the Demised Premises
or any portion thereof, to which Landlord shall not have expressly consented in
writing shall be deemed null and void and of no force or effect.
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
15
<PAGE>
G. Tenant agrees that notwithstanding any subletting or assignment
permitted by Landlord, no other or further assignment of this Lease or
subletting of all or any part of the Demised Premises by Tenant or any person or
entity claiming through or under Tenant (except as provided in subparagraph (B)
herein) shall or will be made except upon compliance with and subject to the
provisions of this Article.
H. No acceptance of rent by Landlord from a third party shall constitute a
consent to any assignment or subletting.
I. In lieu of consenting to any subletting or assignment as detailed
above, the landlord shall have the option to cancel this Lease by giving Tenant
written notice of its intention to do so, in which event such cancellation shall
become effective on the effective date of such proposed subletting or
assignment, with the same force and effect as if said cancellation date were the
date originally set forth as the expiration date of the term of this Lease.
J. It is specifically understood and agreed that if Tenant shall utilize a
broker, it shall designate Olmstead Properties, Inc. as its exclusive agent.
78. NEW YORK STATE LAW: This Lease shall be construed and enforced in accordance
with the laws of the State of New York.
79. TRANSFER PLUS ADDITIONAL SECURITY: Of the security herein referred to in
Paragraph 32, Tenant now has on deposit with the Landlord the sum of $35,000.00
under the terms and conditions of a lease dated as of October 18, 1973 between
Landlord and Footlight Parade, Inc. as tenant, which lease was assigned to
Imclone Systems Incorporated as of October 26, 1981 and further amended by an
agreement dated October 8, 1985 and an Additional Space and Modification
Agreement dated as of May 13, 1989 respectively (hereinafter collectively
referred to as the "Lease") covering the entire 6th and 7th floors, which
security shall be transferred to the within Lease. The Tenant agrees that upon
the execution hereof to pay to Landlord an additional sum of $119,445.50, making
the total security deposit pursuant to Article 32 of the Lease $154,445.50. The
parties agree that at all times during the term of the Lease, Tenant shall
maintain a security deposit with Landlord equal to twice the total of the then
current monthly installment of basic annual rent and average monthly electricity
charges payable by Tenant. It is expressly understood and agreed that on or
before the date of any increase in Minimum Rent as provided in Paragraph 41 (a)
(i), the Tenant shall deposit with the Landlord additional security required.
Any failure or refusal on the part of Tenant to timely make any such additional
security deposit may be deemed by Landlord as a default under this Lease
equivalent to the non-payment of rent.
80. AIR CONDITIONING: Tenant agrees that any air conditioning installed shall be
installed in accordance with any applicable laws, rules and regulations. Tenant
specifically agrees that under no circumstances shall it install any air
conditioning units that extend beyond the building property line. Tenant further
agrees that any air conditioning installed shall be installed in such a manner
as to prevent any condensation waste or water from dripping outside the window.
Failure to comply with the above shall be deemed a material default under the
terms of this Lease. In addition, Tenant agrees that if there currently exists
any air conditioning units that extend beyond the Building property line, Tenant
shall be fully responsible for any and all costs associated with the relocation
of said units to ensure that nothing is extending beyond the Building property
line. In the event Tenant fails to relocate any air conditioning units as
aforesaid, Landlord may relocate same for the account of and at the expense of
Tenant by payment or otherwise, without investigation as to the validity thereof
or any offsets or defenses thereto, and Tenant shall promptly reimburse Landlord
as Additional Rent for all costs, disbursements, fees and expenses including
without limitation, legal fees incurred in connection with the aforesaid.
81. THE OTHER LEASE: It is understood and agreed between the parties hereto that
there exists a lease dated as of October 18, 1973 between Landlord and Footlight
Parade, Inc. as tenant, which lease was assigned to Imclone Systems Incorporated
on October 26, 1981 and which lease was amended by an agreement dated as of
October 8, 1985 and which lease was further amended pursuant to an Additional
Space and Modification Agreement dated as of May 13, 1989 covering the entire
6th and 7th floors in the Building. Said lease as amended shall hereinafter be
referred to as
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/26/99
16
<PAGE>
the "Other Lease". Provided and on condition there exists no monetary arrears
beyond any applicable notice and cure periods, the term of the Other Lease shall
cease and expire as of December 31, 1998 and such date shall be deemed the
expiration date of the Other Lease, provided, however, Tenant shall pay to
Landlord all unpaid rents and additional rents up to said expiration date of the
Other Lease although subsequently billed.
82. OVERTIME ELEVATOR SERVICE: The Landlord agrees that the Tenant shall have
access to the building and to at least one (1) elevator to the Demised Premises
on a twenty-four (24) hour a day basis, seven days a week. It is agreed that
during non-business hours if the elevators malfunction then the Landlord shall
not be responsible to arrange for the commencement of repairs and restoring the
elevator to service until normal business begins. Nothing herein shall obligate
the Landlord to provide any additional services (i.e. heat, freight elevator
service etc.) other than specifically contained in this Lease. Tenant agrees to
fully cooperate with any and all after hours access systems or requirements that
the Landlord may impose.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
(or in the case of a corporation, have had their proper corporate officers
execute this lease and affix their corporate seals hereto) as of the date first
above written.
LANDLORD:
180 VARICK STREET CORPORATION
By:_________________________________________
Vice President
TENANT:
IMCLONE SYSTEMS INCORPORATED
By:_________________________________________
Please Initial:
Tenant__________________
Landlord________________
Revised: 3/16/99
17
DIAZ & ALTSCHUL
CAPITAL, LLC
Exhibit 10.70
July 1, 1998
ImClone Systems Incorporated
180 Varick Street
New York, New York 10014
Attention: Dr. Harlan Waksal
Dear Sir:
Engagement Agreement
This letter agreement (this "Agreement") confirms the understanding
between ImClone Systems Incorporated, a Delaware corporation (with its
affiliates collectively, the "Company"), and Diaz & Altschul Capital, LLC (the
"Financial Advisor"), pursuant to which the Company has retained the Financial
Advisor to render certain financial advisory services to the Company in
connection with a currently contemplated transaction, on the terms and subject
to the conditions set forth herein, in connection with the matters referred to
herein.
1. Retention. The Company hereby retains the Financial Advisor to assist
the Company in analyzing, structuring, negotiating, and effecting the proposed
Transaction on the terms and conditions of this Agreement. If requested by the
Company, the Financial Advisor will render an opinion, as to whether or not the
Transaction is fair, from a financial point of view, to the stockholders of the
Company. If an opinion is requested, the Company and the Financial Advisor will
enter into a separate agreement containing customary terms and conditions to be
mutually agreed upon. The parties acknowledge that such an opinion may be
requested from a third party. In addition, the parties acknowledge that the
Financial Advisor might retain Hambrecht & Quist Incorporated ("H&Q") to assist
the Financial Advisor in rendering its services under this Agreement in
connection with the Transaction. In connection with such retention, the
Financial Advisor shall be solely responsible for any compensation payable to
H&Q in connection with the Transaction
2. Transaction. As used in this Agreement, the term "Transaction" means
the currently contemplated purchase directly from the Company or from the
Company's shareholders of not less than 20% of the Company's common stock ($.001
par value) (the "Common Stock") outstanding after the Transaction, or securities
convertible into not less that 20% of the Company's Common Stock outstanding
after the Transaction. The parties acknowledge that the Transaction is separate
and apart from subsequent purchases that may occur making up a larger
transaction.
745 FIFTH AVENUE SUITE 3001 NEW YORK, NY 10151
PHONE 212.751.1011 FAX 212.751.5757
MEMBER-NASD
<PAGE>
3. Compensation. As compensation for the Financial Advisor's services
hereunder, the Company agrees to pay the Financial Advisor the following fees:
(a) a retainer fee of $35,000 per month (the "Retainer Fee"), payable
monthly in advance, commencing on July 1, 1998 and terminating upon
the earlier of the closing of the Transaction or the date that the
Company notifies the Financial Advisor that it no longer intends to
pursue the Transaction which amount shall be creditable against the
Transaction Fee set forth in (b) below, and
(b) a fee (the "Transaction Fee") equal to .75% of the consideration
paid in the Transaction
4. Expenses. Whether or not any Transaction is agreed to or consummated,
the Company agrees to reimburse the Financial Advisor, upon request from time to
time, for its reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its legal counsel and any agents or experts that may be retained
by the Financial Advisor, incurred in connection with the services performed
hereunder and the other advisory and capital raising assignments and
transactions for which the Financial Advisor has performed financial advisory
services to the Company; provided however, that such reimbursable expenses will
not exceed in the aggregate $35,000 without the consent of the Company.
5. Termination or Resignation. Subject to Section 8 hereof, the Financial
Advisor shall have the right at any time during the term of this Agreement to
resign on ten days' prior written notice and the Company shall have the right at
any time during the term of this Agreement to terminate the Financial Advisor's
services under this Agreement for any reason on ten days' prior written notice.
If the Company terminates the Financial Advisor's services hereunder at any
time, with respect to the consummation of the Transaction within 12 months after
such termination, the Financial Advisor shall be entitled to receive all of the
amounts payable pursuant to Section 3 hereof as if the Financial Advisor's
services had not been terminated.
6. Indemnity. As the Financial Advisor shall be acting on behalf of the
Company, the Company agrees to indemnify the Financial Advisor and the other
Indemnified Persons as set forth in Schedule 1 hereto, which is incorporated
herein and made a part hereof.
7. Representations and Warranties of Company. The Company represents and
warrants as follows:
(a) This Agreement has been duly authorized and validly executed and
delivered by the Company and constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its terms.
(b) Any information provided to the Financial Advisor by the Company in
connection with the Transaction, or any document distributed by the Company to
its stockholders or filed by the Company with the Securities and Exchange
Commission or any other federal,
2
<PAGE>
state, local or foreign government or any agency or department thereof will not
contain any untrue statements of a material fact or omit to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
8. Further Covenants of the Company. The Company agrees as follows:
(a) The Company agrees that, except as otherwise required by law, any
reference to the Financial Advisor or any affiliate of the Financial Advisor in
any document, or any other release or communication to any party outside the
Company, is subject to the Financial Advisor's prior approval (which shall not
be unreasonably withheld), which shall be given or subsequently confirmed in
writing. Except as otherwise required by law, if the Financial Advisor resigns
its appointment or is terminated prior to the dissemination of any such document
or other release or communication, no reference shall be made therein to the
Financial Advisor without the Financial Advisor's prior written permission; and
(b) In connection with the Financial Advisor's activities hereunder, the
Company agrees to furnish the Financial Advisor with all information concerning
the Company that the Financial Advisor reasonably deems appropriate and agrees
to provide the Financial Advisor with appropriate access to the Company's
accountants, counsel, consultants and other appropriate agents and
representatives. The Company acknowledges that the Financial Advisor may rely
upon the completeness and accuracy of information and data furnished to it by
the Company's officers, directors, employees, agents and representatives without
independent verification of such information and data or an appraisal of the
Company's assets.
9. Confidentiality. The parties have executed the Confidentiality
Agreement dated as of April 21, 1998 appearing as Schedule 2 hereto, which is
incorporated herein and made a part hereof.
10. Survival of Certain Provisions; Succession. The compensation and
expense provisions contained in Sections 3 and 4 (subject to Section 5), the
termination and resignation provisions contained in Section 5, the indemnity and
contribution agreements contained in Section 6 and Schedule 1, the
confidentiality provisions contained in Section 9 and Schedule 2, the
representations and warranties of the Company contained in Section 7, Section 8
and this Section 10 shall remain operative and in full force and effect
regardless of (a) any investigation made by or on behalf of the Financial
Advisor or by or on behalf of any affiliate of the Financial Advisor, any
Indemnified Person (as defined in Schedule 1 hereto), or any person controlling
any of them, (b) consummation of the Transaction, or (c) any termination or
expiration of this Agreement or the Financial Advisor's services under this
Agreement or resignation of the Financial Advisor, and this Agreement shall be
binding upon, and shall inure to the benefit of, any successors, assigns, heirs
and personal representatives of the Company, the Financial Advisor, the
Indemnified Persons and any such person.
11. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be mailed or delivered (which shall
include telephone line facsimile
3
<PAGE>
transmission) to the Company at the address set forth on the first page of this
Agreement or at the following telephone line facsimile transmission number (212)
645-2054, as the case may be, and to the Financial Advisor at 745 Fifth Avenue,
Suite 3001, New York, New York 10151, or at the following telephone line
facsimile line transmission number: (212) 751-5757, as the case may be, in
either case with a copy to Law Offices of Brian W Pusch, Penthouse Suite, 29
West 57th Street, New York, New York 10019 (telephone line facsimile
transmission number (212) 980-7055). Any such notice shall be effective upon
receipt.
12. Construction. This Agreement incorporates the entire understanding of
the parties and supersedes all previous agreements with respect to the subject
matter hereof and shall be governed by, and construed in accordance with, the
laws of the State of New York as applied to contracts made and performed wholly
in the State of New York, without regard to principles of conflict of laws.
13. Severability. Any determination that any provision of this Agreement
may be, or is, unenforceable shall not affect the enforceability of the
remainder of this Agreement.
14. Headings. The section headings in this Agreement have been inserted as
a matter of convenience for reference and are not an effective part of this
Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
16. Third Party Beneficiaries. This Agreement has been and is made solely
for the benefit of the Company, the Financial Advisor and the other Indemnified
Persons referred to in Section 6 hereof and their respective successors and
permitted assigns, and no other person shall acquire or have any right under or
by virtue of this Agreement.
17. Succession; Assignment. This Agreement shall be binding upon and inure
to the benefit of the Company, the Financial Advisor, the Indemnified Persons
and their respective successors, permitted assigns, heirs and personal
representatives. No party may assign its rights or obligations under this
Agreement without the prior written consent of the other party to this
Agreement.
l8. Advertisements. The Company agrees that the Financial Advisor and the
Company each shall have the right to place advertisements after the final
closing of the Transaction in financial and other newspapers and journals at its
own expense describing its services to the Company hereunder. The Financial
Advisor shall afford the Company a reasonable opportunity to review the text of
any such advertisement before it is placed and will not include in any such
advertisement any statements to which the Company reasonably objects.
4
<PAGE>
If the foregoing terms correctly set forth our agreement, please confirm
this by signing and returning the duplicate copy of this letter. Thereupon this
letter, as signed in counterpart, shall constitute our agreement on the subject
matter herein.
DIAZ & ALTSCHUL CAPITAL, LLP
By: /s/ Reinaldo M. Diaz
-----------------------------------
Name: Reinaldo M. Diaz
Authorized Signatory
Confirmed and Agreed to as of the
date first set forth above:
IMCLONE SYSTEMS INCORPORATED
By: /s/ Dr. Harlan Waksal
- ----------------------------------------
Name: Dr. Harlan Waksal,
Title: Executive Vice President & Chief Operating Officer
5
<PAGE>
SCHEDULE 1
This Schedule 1 is a part of and is incorporated into that certain letter
agreement, dated as of July 1, 1998 (the "Agreement"), by and between ImClone
Systems Incorporated, a Delaware corporation (with its affiliates collectively,
the "Company"), and Diaz & Altschul Capital, LLC (the "Financial Advisor").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Agreement.
The Company agrees to indemnify and hold harmless the Financial Advisor,
its affiliates, its agents, including without limitation, Hambrecht & Quist
Incorporated, and each person controlling of any of them (within the meaning of
Section 15 of the Securities Act), and the respective members, directors,
officers, agents and employees of the Financial Advisor, its affiliates, such
agents and each such controlling person (the Financial Advisor and each such
entity or person, an "Indemnified Person") from and against any losses, claims,
damages, judgments, assessments, costs and other liabilities (collectively, the
"Liabilities"), and shall reimburse each Indemnified Person (subject to such
Indemnified Person agreeing to repay such amounts if they are not indemnifiable
hereunder) for all fees and expenses (including the reasonable fees and expenses
of one counsel for all Indemnified Persons, except as otherwise expressly
provided herein) (collectively, the "Expenses,") as they are incurred by an
Indemnified Person in investigating, preparing, pursuing or defending any claim,
action, proceeding or investigation and whether or not any Indemnified Person is
a party (collectively, the "Actions"), (i) caused by, or arising out of or in
connection with, any untrue statement or alleged untrue statement of a material
fact contained in any document distributed by the Company to its stockholders or
distributed by any other party to the Transaction to its stockholders or filed
by the Company or any such other party with the Securities and Exchange
Commission or any other federal, state, local or foreign governmental or any
agency or department thereof (the "Documents") or by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (other than untrue statements or alleged untrue statements in, or
omissions or alleged omissions from, information relating to an Indemnified
Person furnished in writing by or on behalf of such Indemnified Person expressly
for use in any Documents) or (ii) otherwise arising out of or in connection with
advice or services rendered or to be rendered by any Indemnified Person pursuant
to the Agreement, the transactions contemplated thereby or any Indemnified
Person's actions or inactions in connection with any such advice, services or
transactions; provided, however, that, the Company shall not be responsible for
any Liabilities or Expenses of any Indemnified Person pursuant to this clause
(ii) that result from such Indemnified Person's negligence, bad faith, or
willful misconduct in connection with any of the advice, actions, inactions or
services referred to above. The Company also agrees to reimburse each
Indemnified Person (subject to such Indemnified Person agreeing to repay such
amounts if they are determined by final judgement of a court of competent
jurisdiction not to be indemnifiable hereunder) for all Expenses as they are
incurred in connection with enforcing such Indemnified Person's rights under the
Agreement, which includes this Schedule 1.
Upon receipt by an Indemnified Person of actual notice of an Action
against such Indemnified Person with respect to which indemnity may be sought
under the Agreement, such Indemnified Person shall promptly notify the Company
in writing; provided that failure by any
(i)
<PAGE>
Indemnified Person so to notify the Company shall not relieve the Company from
any liability which the Company may have on account of this indemnity or
otherwise to such Indemnified Person, except to the extent the Company shall
have been materially prejudiced by such failure.
The Company shall, if requested by the Financial Advisor, assume the
defense of any such Action including the employment of counsel reasonably
satisfactory to the Financial Advisor. Any Indemnified Person shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless: (i) the Company has failed promptly
to assume the defense and employ counsel or (ii) the named parties to any such
Action (including any impleaded parties) include such Indemnified Person and the
Company, and such Indemnified Person shall have been advised in the reasonable
opinion of counsel that there are one or more legal defenses available to it
which are different from or in addition to those available to the Company;
provided that the Company shall not in such event be responsible hereunder for
the fees and expenses of more than one firm of separate counsel for all
Indemnified Persons in connection with any Action or related Actions, in
addition to any local counsel. The Company shall not be liable for any
settlement of any Action effected without its written consent (which shall not
be unreasonably withheld). In addition, the Company shall not, without the prior
written consent of the Financial Advisor, settle, compromise or consent to the
entry of any judgment in or otherwise seek to terminate any pending or
threatened Action in respect of which indemnification or contribution may be
sought hereunder (whether or not such Indemnified Person is a party thereto)
unless such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Person from all Liabilities arising
out of such Action. The indemnification required hereby shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
In the event that the foregoing indemnity is unavailable to an Indemnified
Person other than in accordance with the Agreement, the Company shall contribute
to the Liabilities and Expenses paid or payable by such Indemnified Person in
such proportion as is appropriate to reflect (i) the relative benefits to the
Company, on the one hand, and to the Financial Advisor and any other Indemnified
Person, on the other hand, of the matters contemplated by the Agreement or (ii)
if the allocation provided by the immediately preceding clause is not permitted
by applicable law, not only such relative benefits but also the relative fault
of the Company, on the one hand, and the Financial Advisor and any other
Indemnified Person, on the other hand, in connection with the matters as to
which such Liabilities or Expenses relate, as well as any other relevant
equitable considerations; provided that in no event shall the Company contribute
less than the amount necessary to ensure that all Indemnified Persons, in the
aggregate, are not liable for any Liabilities and Expenses in excess of the
amount of fees actually received by the Financial Advisor pursuant to the
Agreement. For purposes of this paragraph, the relative benefits to the Company,
on the one hand, and to the Financial Advisor on the other hand, of the matters
contemplated by the Agreement shall be deemed to be in the same proportion as
(a) the total value paid or contemplated to be paid to or received or
contemplated to be received by the Company in the transaction or transactions
that are within the scope of the Agreement, whether
(ii)
<PAGE>
or not any such transaction is consummated, bears to (b) the fees paid to the
Financial Advisor under the Agreement.
The Company also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with advice or services rendered by any Indemnified
Person pursuant to the Agreement, the transactions contemplated thereby or any
Indemnified Person's actions or inactions in connection with any such advice,
service or transactions except that the Financial Advisor may be liable for
Liabilities (and related Expenses) of the Company from such Indemnified Person's
gross negligence, bad faith or willful misconduct in connection with any such
advice, actions, inactions or services.
The reimbursement, indemnity and contribution obligations of the Company
set forth herein shall apply in any modification of the Agreement and shall
remain in full force and effect regardless of any termination of, or the
completion of any Indemnified Person's services under or in connection with, the
Agreement.
(iii)
<PAGE>
Schedule 2
CONFIDENTIALITY AGREEMENT
ImClone Systems Incorporated, having a place of business at 180 Varick
Street, New York, New York 10014 (hereinafter called "ImClone"), and Diaz and
Altschul Capital, LLC, having a place of business at 745 Fifth Avenue, New York,
New York, 10151 (hereinafter called "Diaz and Altschul") expect to discuss
ImClone scientific and business information in connection with representation by
Diaz and Altschul of ImClone (hereinafter called "Technology"). For such a
discussion to take place, information that may be proprietary may be disclosed
by ImClone to Diaz and Altschul. For the purpose of enabling ImClone and Diaz
and Altschul (hereinafter, collectively, "the Parties") to hold the discussion
described above, Diaz and Altschul agrees to receive, and ImClone agrees to
disclose, proprietary information on the following terms and conditions:
1. For the purpose hereof, the term "Proprietary Information" shall mean
all information relating to Technology that is identified by ImClone as being
confidential, and that is disclosed to Diaz and Altschul by ImClone. Proprietary
Information includes, but is not limited to, information relating to science,
finance, business, intellectual property, and law. Proprietary Information does
not include information that (i) is in the public domain at the time of
disclosure; (ii) is in the possession of Diaz and Altschul prior to the time of
disclosure from sources unconnected with ImClone, as evidenced by written
records; (iii) after disclosure, enters the public domain through no act or
omission of Diaz and Altschul; (iv) after disclosure, is received by Diaz and
Altschul from a third party, unless the third party is not entitled to transfer
the information to Diaz and Altschul; (v) that Diaz and Altschul is required to
disclose by applicable law, rule or regulation, provided that in such case Diaz
and Altschul shall provide ImClone with reasonable notice to allow ImClone to
contest such stated requirement.
2. Diaz and Altschul shall treat each item of Proprietary Information as
confidential for a period of three (3) years from the date of receipt of each
item, and shall not use such Proprietary Information for any purpose other than
that described above. To treat as confidential shall mean that Diaz and Altschul
will not disclose Proprietary Information to any third party without the prior
written consent of ImClone, and will take the same precautions to prevent the
unauthorized disclosure of Proprietary
<PAGE>
Information to third parties that it takes to prevent the unauthorized
disclosure of its own confidential information.
3. Diaz and Altschul shall restrict the communication of Proprietary
Information to its employees and representatives who need to know to the extent
necessary for the purpose hereof.
4. Each authorized employee or representative to whom any Proprietary
Information is communicated or given shall be informed that the information is
confidential and proprietary and shall agree not to disclose or give the
information to others.
5. Each authorized employee or representative to whom any Proprietary
Information is communicated or given shall agree not to use any of said
information except for the purpose of permitting Diaz and Altschul and ImClone
to enter into the discussion contemplated hereunder.
6. Notwithstanding the foregoing, nothing contained in this agreement
shall be construed as creating an express or implied license to practice
Proprietary Information.
7. This Confidentiality Agreement shall be interpreted in accordance with
the laws of the State of New York.
8. This Agreement is intended by the Parties hereto as the final
expression of their understanding and is the complete and exclusive statement of
the terms hereof notwithstanding any oral representations or statements to the
contrary heretofore made. This Agreement contains all of the representations and
under-standings between the Parties hereto. No modifications of this Agreement
or waiver of the terms and conditions hereof shall be binding upon either party
unless approved in writing by an authorized representative of both Parties or
shall be effected by the acknowledgment of acceptance of any forms containing
other or different terms and conditions whether or not signed by an authorized
representative of one of the Parties. No modification or release shall be
effective unless in writing signed by the Parties.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their duly authorized officers.
IMCLONE SYSTEMS INCORPORATED
By: /s/ John B. Landes
- -------------------------------------
Print: John B. Landes
Title: Vice President
General Counsel
Date:
DIAZ AND ALTSCHUL CAPITAL, LLC
By: /s/ Reinaldo M. Diaz
- -------------------------------------
Print: Reinaldo M. Diaz
Title:
Date: 4/21/98
AGREE\D&A.CDA
<PAGE>
DIAZ & ALTSCHUL
CAPITAL, LLC
As of September 30, 1998
ImClone Systems Incorporated
180 Varick Street
New York, New York 10014
Attention: Dr. Harlan Waksal
Dear Sir:
RE: Engagement Agreement Amendment
We refer to the engagement agreement (the "Engagement Agreement"), dated
July 1, 1998, between ImClone Systems Incorporated (the "Company") and Diaz &
Altschul Capital, LLC (the "Financial Advisor"). The Engagement Agreement
contemplated a transaction involving a purchase directly from the Company or
from the Company's shareholders of not less than 20% of the Company's common
stock ($.001 par value) (the "Common Stock") outstanding after the Transaction,
as defined in the Engagement Agreement, or securities convertible into not less
that 20% of the Company's Common Stock outstanding after the Transaction, as
defined in the Engagement Agreement. Subsequent to the execution of the
Engagement Agreement, the parties have determined to broaden the types of
business arrangements under consideration. This Engagement Agreement amendment
(the "Engagement Agreement Amendment") shall confirm our understanding of the
modification of the Engagement Agreement between the Company and the Financial
Advisor.
Licensing Agreement. The defined term Transaction is hereby modified to
include the term Licensing Agreement, which is defined as a corporate
collaboration and development agreement between the Company and a partner (the
"Partner") that contemplates all, or any of, the following:
(a) the grant of a license to the Partner in certain territories of the
Company's intellectual property covering the product candidate C225 Cancer
Therapeutic ("C225"),
(b) certain payments to the Company, either through cash payments or the
purchase of the Company's Common Stock, upon the completion of certain events
related to the clinical development of C225,
745 FIFTH AVENUE SUITE 3001 NEW YORK, NY 10151
PHONE 212.751.1011 FAX 212.751.5757
MEMBER-NASD
<PAGE>
(c) an agreement for the Company to exclusively supply C225 to the Partner
for use in clinical studies and commercial sales, if any,
(d) a royalty payable to the Company from the Partner based on future
sales of C225, if any, or
(e) an agreement that the Partner shall provide a guarantee of a line of
credit to the Company for a new manufacturing facility or a direct loan from the
Partner to the Company for such manufacturing facility.
Compensation. In addition to the compensation provided in the Engagement
Agreement, the Financial Advisor shall be entitled to compensation for services
in connection with a Transaction involving a Licensing Agreement equal to
$200,000 (the "Licensing Agreement Fee"). The Licensing Agreement Fee shall be
payable $50,000 upon execution of this Agreement, and $50,000 on each of April
1, 1999, July 1, 1999 and October 1, 1999.
The Retainer Fee under Section 3(a) of the Engagement Agreement has been
paid through December 31, 1998. The parties acknowledge that the Retainer Fee
shall be suspended until such time as the Company gives written notice to the
Financial Advisor that it is to be reinstated.
If this letter correctly sets forth the Company's understanding, please
sign a copy of this letter in the space provided below and return it to the
Financial Advisor, whereupon this letter shall become a binding agreement under
the laws of the State of New York and the Engagement Agreement shall be amended
hereby. Except as amended hereby, the Engagement Agreement shall remain in full
force and effect.
DIAZ & ALTSCHUL CAPITAL, LLP
By: /s/ Arthur G. Altschul, Jr.
-------------------------------
Name: Arthur G. Altschul, Jr.
Authorized Signatory
Confirmed and Agreed to as of the
date first set forth above:
IMCLONE SYSTEMS INCORPORATED
By: /s/ John B. Landes
- ----------------------------------
John B. Landes, Vice President, Business Development
and General Counsel
2
Exhibit 10.71
ImClone Systems Incorporated
180 Varick Street, 7th Floor
New York, NY 100014
March 1, 1999
VIA FACSIMILE (011) 49-6151-72-3435 and DHL
Dr. Klaus Hoenneknoevel
Senior Vice President,
Licensing and Business Development
Merck KGaA
Frankfurter Strasse 250
64271 Darmstadt
Germany
Re: Development and License Agreement between Merck KGaA and ImClone dated
December 14, 1998
Dear Klaus:
As per the discussion that you have recently had in the Steering Committee
for C225 development, the parties have agreed to extend the three month period
during which the parties are to have agreed upon the commercially feasible
production concept for the C225 manufacturing facility of ImClone and for Merck
to have provided the Manufacturing Line of Credit for funding that facility. The
efforts to achieve such are going forward well between the parties. The
extension of such period shall be for one additional month, through April 15,
1999.
Therefore, by signing an enclosed consent copy of this letter, Merck
indicates that it agrees with ImClone to amend the reference to "three months"
in the third line of Section 4.9( c ) of the Agreement to "four months".
Kindly sign and return a signed copy of this letter of extension.
Very truly yours,
/s/ John B. Landes
-----------------------------
John B. Landes
Vice President,
Business Development
General Counsel
Merck KGaA Merck KGaA
By:/s/ Dr. Klaus Hoenneknoevel By: /s/ Dr. Klaus-Peter Brandis
Name: Dr. Hoenneknoevel Name: Dr. Brandis
Date: March 2, 1999 Date: March 2, 1999
Title: Head of Business Development Title: Head of Legal Department
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, 333-39067 and 333-67335 on Form
S-3 and Nos. 333-10275, 33-95894, 333-64825 and 333-64827 on Form S-8) of
ImClone Systems Incorporated of our report dated February 19, 1999, relating to
the consolidated balance sheets of ImClone Systems Incorporated and subsidiary
as of December 31, 1998 and 1997, and the related consolidated statements of
operations and comprehensive loss, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998, Annual Report on Form 10-K of ImClone Systems
Incorporated.
/s/ KPMG LLP
---------------------------
KPMG LLP
Princeton, New Jersey
March 30, 1999
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