-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G5W/6Z3pQZtbYg2REiw2XK6PgW1kXXTlYaDOH2g1Yd96O0n8xJ02H7ilMzuKtQ3u a/z8TYiYVSfoDoA2UBZSVQ== 0000950123-02-008046.txt : 20020814 0000950123-02-008046.hdr.sgml : 20020814 20020814163203 ACCESSION NUMBER: 0000950123-02-008046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMCLONE SYSTEMS INC/DE CENTRAL INDEX KEY: 0000765258 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 042834797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19612 FILM NUMBER: 02736946 BUSINESS ADDRESS: STREET 1: 180 VARICK ST CITY: NEW YORK STATE: NY ZIP: 10014 BUSINESS PHONE: 2126451405 MAIL ADDRESS: STREET 1: 180 VARICK ST CITY: NEW YORK STATE: NY ZIP: 10014 10-Q 1 y62899e10vq.txt IMCLONE SYSTEMS INCORPORATED ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-19612 IMCLONE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 04-2834797 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 180 VARICK STREET, NEW YORK, NY 10014 (Address of principal executive offices) (Zip code) (212) 645-1405 Registrant's telephone number, including area code NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF AUGUST 13, 2002 ----- --------------------------------- Common Stock, par value $.001 73,385,235 Shares
================================================================================ IMCLONE SYSTEMS INCORPORATED INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2002 (unaudited) and December 31, 2001 ....... 1 Unaudited Consolidated Statements of Operations - Three and six months ended June 30, 2002 and 2001 .............................................................. 2 Unaudited Consolidated Statements of Cash Flows - Six months ended June 30, 2002 and 2001 .............................................................. 3 Notes to Consolidated Financial Statements .......................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk .......................... 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings ................................................................... 24 Item 2. Changes in Securities and Use of Proceeds ........................................... 25 Item 4. Submission of Matters to a Vote of Security Holders ................................. 25 Item 6. Exhibits and Reports on Form 8-K .................................................... 26
PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS IMCLONE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share data)
JUNE 30, DECEMBER 31, 2002 2001 --------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents ............................................. $ 65,535 $ 38,093 Securities available for sale ......................................... 286,077 295,893 Prepaid expenses ...................................................... 5,679 3,891 Amounts due from corporate partners (Note 7) .......................... 16,562 8,230 Other current assets .................................................. 4,395 3,547 --------- --------- Total current assets .............................................. 378,248 349,654 --------- --------- Property and equipment, net ............................................. 145,420 107,248 Patent costs, net ....................................................... 1,632 1,513 Deferred financing costs, net ........................................... 4,556 5,404 Note receivable ......................................................... 10,000 10,000 Other assets ............................................................ 4,518 383 --------- --------- $ 544,374 $ 474,202 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ...................................................... $ 14,947 $ 16,919 Accrued expenses ...................................................... 22,660 11,810 Interest payable ...................................................... 4,442 4,446 Current portion of deferred revenue (Note 7) .......................... 36,627 20,683 Current portion of long-term liabilities .............................. 236 426 --------- --------- Total current liabilities ......................................... 78,912 54,284 --------- --------- Deferred revenue, less current portion (Note 7) ......................... 298,612 182,813 Long-term debt .......................................................... 242,200 242,200 Other long-term liabilities, less current portion ....................... 57 79 --------- --------- Total liabilities ................................................. 619,781 479,376 --------- --------- Commitments and contingencies (Note 8) Stockholders' equity (deficit): Preferred stock, $1.00 par value; authorized 4,000,000 shares; reserved 1,200,000 series B participating cumulative preferred stock................................................................ -- -- Common stock, $.001 par value; authorized 200,000,000 shares; issued 73,573,160 and 73,348,271 at June 30, 2002 and December 31, 2001, respectively, outstanding 73,383,910, and 73,159,021 at June 30, 2002 and December 31, 2001, respectively ................................. 74 73 Additional paid-in capital ............................................ 345,295 341,735 Accumulated deficit ................................................... (419,153) (346,037) Treasury stock, at cost; 189,250 shares at June 30, 2002 and December 31, 2001 ................................................... (4,100) (4,100) Accumulated other comprehensive income: Unrealized gain on securities available for sale .................... 2,477 3,155 --------- --------- Total stockholders' equity (deficit) .............................. (75,407) (5,174) --------- --------- $ 544,374 $ 474,202 ========= =========
See accompanying notes to consolidated financial statements Page 1 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Revenues: License fees and milestone revenue (Note 7) ...... $ 1,595 $ 3,136 $ 8,258 $ 27,232 Research and development funding and royalties ... 38 115 688 763 Collaborative agreement revenue (Note 7) ........ 9,932 644 21,170 3,895 ---------- ---------- ---------- ---------- Total revenues ................................. 11,565 3,895 30,116 31,890 ========== ========== ========== ========== Operating expenses: Research and development ......................... 38,167 24,390 75,945 49,486 Marketing, general and administrative ............ 16,479 6,223 24,602 9,951 Expenses associated with the amended Bristol-Myers Squibb Company ("BMS") Commercial Agreement .... -- -- 2,250 -- ---------- ---------- ---------- ---------- Total operating expenses ....................... 54,646 30,613 102,797 59,437 ========== ========== ========== ========== Operating loss ..................................... (43,081) (26,718) (72,681) (27,547) ---------- ---------- ---------- ---------- Other: Interest income .................................. (2,904) (3,262) (5,168) (7,827) Interest expense ................................. 3,347 3,197 6,839 6,510 Loss (gain) on securities and investments ........ (435) 2,850 (1,236) 4,468 ---------- ---------- ---------- ---------- Net interest and other expense ................. 8 2,785 435 3,151 ---------- ---------- ---------- ---------- Net loss ..................................... $ (43,089) $ (29,503) $ (73,116) $ (30,698) ========== ========== ========== ========== Net loss per common share: Basic and diluted: Net loss per common share ...................... $ (0.59) $ (0.44) $ (1.00) $ (0.46) ========== ========== ========== ========== Weighted average shares outstanding ................ 73,356 67,051 73,332 66,657 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements Page 2 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------- 2002 2001 ---------- ---------- Cash flows from operating activities: Net loss .................................................................. $ (73,116) $ (30,698) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........................................... 4,656 1,558 Amortization of deferred financing costs ................................ 848 848 Expense associated with issuance of options and warrants ................ 7 687 Gain on securities available for sale ................................... (1,236) (908) Write-down of investment in Valigen N.V ................................. -- 4,375 Write-off of convertible promissory note receivable from A.C.T. Group, Inc. ............................................... -- 1,000 Changes in: Prepaid expenses ...................................................... (1,788) (1,183) Amounts due from corporate partners (including amounts received from BMS of $6,887 for the six months ended June 30, 2002) ............... (8,332) -- Note receivable - officer ............................................. -- (15) Other current assets .................................................. (848) 2,816 Other assets .......................................................... (4,135) (75) Interest payable ...................................................... (4) 1 Accounts payable ...................................................... (1,972) (4,811) Accrued expenses ...................................................... 10,850 (2,026) Deferred revenue (including amounts received from BMS of $140,000 for the six months ended June 30, 2002) ............................. 131,743 3,807 Fees potentially refundable to Merck KGaA ............................. -- (28,000) ---------- ---------- Net cash provided by (used in) operating activities ................. 56,673 (52,624) ---------- ---------- Cash flows from investing activities: Acquisitions of property and equipment .................................. (42,686) (28,196) Purchases of securities available for sale .............................. (241,356) (30,346) Sales and maturities of securities available for sale ................... 251,730 87,646 Investment in Valigen N.V ............................................... -- (2,000) Loan to A.C.T. Group, Inc. .............................................. -- (1,000) Additions to patents .................................................... (203) (431) ---------- ---------- Net cash provided by (used in) investing activities ................. (32,515) 25,673 ---------- ---------- Cash flows from financing activities: Proceeds from exercise of stock options and warrants .................... 2,745 3,744 Proceeds from issuance of common stock under the employee stock purchase plan ......................................................... 323 348 Proceeds from short-swing profit rule ................................... 486 -- Purchase of treasury stock .............................................. -- (1,830) Payment of preferred stock dividends .................................... -- (5,764) Redemption of series A preferred stock .................................. -- (20,000) Payments of other liabilities ........................................... (270) (357) ---------- ---------- Net cash provided by (used in) financing activities ................. 3,284 (23,859) ---------- ---------- Net increase (decrease) in cash and cash equivalents ................ 27,442 (50,810) Cash and cash equivalents at beginning of period .......................... 38,093 60,325 ---------- ---------- Cash and cash equivalents at end of period ................................ $ 65,535 $ 9,515 ========== ========== Supplemental cash flow information: Cash paid for interest, including amounts capitalized of $780 and $1,120 for the six months ended June 30, 2002 and 2001, respectively ......... $ 6,776 $ 6,781 ========== ========== Non-cash financing activity: Capital asset and lease obligation addition ........................... $ 58 $ -- ========== ==========
See accompanying notes to consolidated financial statements Page 3 IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PREPARATION The consolidated financial statements of ImClone Systems Incorporated ("ImClone Systems" or the "Company") as of June 30, 2002 and for the three and six months ended June 30, 2002 and 2001 are unaudited. In the opinion of management, these unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission ("SEC"). Results for the interim periods are not necessarily indicative of results for the full years. Pursuant to the guidance in Emerging Issues Task Force Issue No. 01-14, Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred ("EITF No. 01-14"), the Company changed its classification for corporate partner reimbursements effective January 1, 2002 to characterize such reimbursements received for research and development and marketing expenses incurred as collaborative agreement revenue in the consolidated statements of operations. Prior to January 1, 2002, the Company characterized such reimbursements as a reduction of expenses in the consolidated statements of operations. As prescribed in EITF No. 01-14, all comparative financial statements for prior periods have been reclassified to comply with this guidance. (2) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consist of the following:
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ Land ......................................... $ 4,899,000 $ 2,733,000 Building and building improvements ........... 61,306,000 50,720,000 Leasehold improvements ....................... 8,367,000 8,302,000 Machinery and equipment ...................... 37,131,000 33,057,000 Furniture and fixtures ....................... 2,088,000 2,031,000 Construction in progress ..................... 58,876,000 33,080,000 ------------ ------------ Total cost ............................. 172,667,000 129,923,000 Less accumulated depreciation and amortization (27,247,000) (22,675,000) ------------ ------------ Property and equipment, net .................. $145,420,000 $107,248,000 ============ ============
The Company is building a second commercial manufacturing facility adjacent to its new product launch manufacturing facility in Somerville, New Jersey. This new facility will be a multi-use facility with capacity of up to 110,000 liters (working volume). The 250,000 square foot facility will cost approximately $233,000,000, and is being built on land purchased in December 2000. The actual cost of the new facility may change depending upon various factors. The Company incurred approximately $52,617,000, (included in construction in progress above) excluding capitalized interest of approximately $1,234,000, in conceptual design, engineering and pre-construction costs through June 30, 2002. Through July 22, 2002, committed purchase orders totaling approximately $40,217,000 have been placed for subcontracts and equipment related to this project. In addition, $22,770,000 in engineering, procurement, construction management and validation costs were committed. In January 2002, the Company purchased real estate consisting of a 7.5-acre parcel of land located adjacent to the Company's product launch manufacturing facility and pilot facility in Somerville, New Jersey. The real estate includes an existing 50,000 square foot building, 40,000 square feet of which is warehouse space and 10,000 square feet of which is office space. The purchase price for the property and building was approximately $7,020,000, of which approximately $1,125,000 related to the purchase of the land and approximately $5,895,000 related to the purchase of the building. The Company intends to use this property for warehousing and logistics for its Somerville campus. Page 4 On May 20, 2002, the Company purchased real estate consisting of a 6.94-acre parcel of land located across the street from the Company's product launch manufacturing facility in Somerville, New Jersey. The real estate includes an existing 46,000 square feet of office space. The purchase price for the property was approximately $4,515,000, of which approximately $1,041,000 was related to the purchase of the land and approximately $3,474,000 was related to the purchase of the building. The Company intends to use this property as the administrative building for the Somerville campus. As of June 30, 2002, the Company has incurred approximately $422,000 for the retrofit of this facility. The total cost for the retrofit will be approximately $5,187,000. The process of preparing consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to evaluate the carrying values of its long-lived assets. The recoverability of the carrying values of the Company's product launch manufacturing facility, its second commercial manufacturing facility and its warehousing and logistics facility will depend on (1) receiving FDA approval of our interventional therapeutic product candidate for cancer, ERBITUX((TM)), (2) receiving FDA approval of the manufacturing facilities and (3) the Company's ability to earn sufficient returns on ERBITUX. Based on management's current estimates, the Company expects to recover the carrying value of such assets. (3) MANUFACTURING CONTRACT SERVICES In December 1999, the Company entered into a development and manufacturing services agreement with Lonza Biologics PLC ("Lonza"). This agreement was amended in April 2001 to include additional services. Under the agreement, Lonza was responsible for process development and scale-up to manufacture ERBITUX in bulk form under current Good Manufacturing Practices ("cGMP") conditions. These steps were taken to assure that the manufacturing process would produce bulk material that conforms with the Company's reference material. The Company did not incur any costs associated with this agreement during the three months ended June 30, 2002 and 2001. Approximately $38,000 and $3,600,000 was incurred in the six months ended June 30, 2002 and 2001, respectively, and $7,068,000 from inception through June 30, 2002. As of June 30, 2002, Lonza has completed its responsibilities under the development and manufacturing services agreement. In September 2000, the Company entered into a three-year commercial manufacturing services agreement with Lonza relating to ERBITUX. This agreement was amended in June 2001 and again in September 2001 to include additional services. The total cost for services to be provided under the three-year commercial manufacturing services agreement is approximately $87,050,000. The Company has incurred approximately $7,410,000 and $3,075,000 in the three months ended June 30, 2002 and 2001, respectively, and $14,528,000 and $4,875,000 in the six months ended June 30, 2002 and 2001, respectively, and $24,840,000 from inception through June 30, 2002 for services provided under the commercial manufacturing services agreement. Under the December 1999 and September 2000 agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions and is delivering it to the Company over a term ending no later than December 2003. The costs associated with both of these agreements are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until the Company obtains obligations from its corporate partners to purchase such product. In the event of such approval or obligations from its corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed when sold. In the event the Company terminates the commercial manufacturing services agreement without cause, the Company will be required to pay 85% of the stated costs for each of the first ten batches cancelled, 65% of the stated costs for each of the next ten batches cancelled and 40% of the stated costs for each of the next six batches cancelled. The batch cancellation provisions for certain additional batches that we are committed to purchase require the Company to pay 100% of the stated costs of cancelled batches scheduled within six months of the cancellation, 85% of the stated costs of cancelled batches scheduled between six and twelve months following the cancellation and 65% of the stated costs of cancelled batches scheduled between twelve and eighteen months following the cancellation. These amounts are subject to mitigation should Lonza use its manufacturing capacity caused by such termination for another customer. At June 30, 2002, the estimated remaining future commitments under the amended commercial manufacturing services agreement are $38,160,000 in 2002 and $24,050,000 in 2003. In December 2001, the Company entered into an agreement with Lonza to manufacture ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA (the "2,000L Lonza Agreement"). The costs associated with the agreement are reimbursable by Merck KGaA and accordingly are accounted for as collaborative agreement revenue and such costs are also included in research and development expenses in the consolidated statement of operations. The Company has incurred approximately $1,175,000 in the three months ended June 30, 2002, $3,525,000 in the six months ended June 30, 2002, and $6,008,000 from inception through June 30, 2002 for services provided under this agreement. Approximately $2,350,000 and $133,000 were reimbursable by Merck KGaA at June 30, 2002 and December 31, 2001, respectively, and included in amounts due from corporate partners in the consolidated balance sheets. At June 30, 2002, the estimated remaining future commitment by the companies under this agreement is $1,175,000 in 2002. Page 5 In January 2002, the Company executed a letter of intent with Lonza to enter into a long-term supply agreement. The long-term supply agreement would apply to a large scale manufacturing facility that Lonza is constructing. The Company expects such facility would be able to produce ERBITUX in 20,000 liter batches. The Company paid Lonza $3,250,000 for the exclusive negotiating right of a long-term supply agreement, which amount is included in Other assets at June 30, 2002 in the consolidated balance sheet. Such negotiations commenced shortly thereafter and are continuing. Under certain conditions such payment shall be refunded to the Company. Provided the Company enters into a long-term supply agreement, such payment shall be creditable against the 20,000 liter batch price. (4) INVESTMENT IN VALIGEN N.V. In May 2000, the Company made an equity investment in ValiGen N.V. ("ValiGen"), a private biotechnology company specializing in therapeutic target identification and validation using the tools of genomics and gene expression analysis. The Company purchased 705,882 shares of ValiGen's series A preferred stock and received a five-year warrant to purchase 388,235 shares of ValiGen's common stock at an exercise price of $12.50 per share. The aggregate purchase price was $7,500,000. The Company assigned a value of $594,000 to the warrant based on the Black-Scholes Pricing Model. The ValiGen series A preferred stock contains voting rights identical to holders of ValiGen's common stock. Each share of ValiGen series A preferred stock is convertible into one share of ValiGen common stock. The Company may elect to convert the ValiGen series A preferred stock at any time; provided, that the ValiGen preferred stock will automatically convert into ValiGen common stock upon the closing of an initial public offering of ValiGen's common stock with gross proceeds of not less than $20,000,000. The Company also received certain protective rights and customary registration rights under this arrangement. The Company recorded this original investment in ValiGen using the cost method of accounting. During the second quarter of 2001, the Company purchased 160,000 shares of ValiGen's series B preferred stock for $2,000,000. The terms of the series B preferred stock are substantially the same as the series A preferred stock. The investment in ValiGen represented approximately 7% of ValiGen's outstanding equity at the time of purchase. As of June 30, 2001, the Company had completely written-off its investment in ValiGen based on the modified equity method of accounting. Included in loss on securities and investments are write-downs of the Company's investment in Valigen of $2,775,000 and $4,375,000 for the three and six months ended June 30, 2001, respectively. In the spring of 2001, the Company also entered into a no-cost Discovery Agreement with ValiGen to evaluate certain of its technology. The Company's former President and Chief Executive Officer is a member of ValiGen's Board of Directors. (5) NET LOSS PER COMMON SHARE Basic and diluted net loss per common share are computed based on the net loss for the relevant period, divided by the weighted average number of common shares outstanding during the period. For purposes of thee diluted loss per share calculation, the exercise or conversion of all potential common shares is not included since their effect would be anti-dilutive for all periods presented. As of June 30, 2002, and 2001, the Company had approximately 16,897,000 and 18,238,000, respectively, potential common shares outstanding which represent new shares which could be issued under convertible debt, stock options and stock warrants. (6) COMPREHENSIVE INCOME (LOSS) The following table reconciles net loss to comprehensive income (loss):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net loss .......................................... $(43,089,000) $(29,503,000) $(73,116,000) $(30,698,000) Other comprehensive income (loss): Unrealized holding gain arising during the period 277,000 17,000 558,000 1,955,000 Reclassification adjustment for realized gain included in net loss .......................... (435,000) (926,000) (1,236,000) (908,000) ------------ ------------ ------------ ------------ Total other comprehensive income (loss) ..... (158,000) (909,000) (678,000) 1,047,000 ------------ ------------ ------------ ------------ Total comprehensive loss .......................... $(43,247,000) $(30,412,000) $(73,794,000) $(29,651,000) ============ ============ ============ ============
(7) COLLABORATIVE AGREEMENTS (a) MERCK KGAA Page 6 Effective April 1990, the Company entered into a development and commercialization agreement with Merck KGaA with respect to BEC2 and the recombinant gp75 antigen. The agreement has been amended a number of times, most recently in December 1997. The agreement grants Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 outside North America. The agreement also grants Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make BEC2 within North America in conjunction with the Company. Pursuant to the terms of the agreement the Company has retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold gp75 in North America. In return, the Company has recognized research support payments totaling $4,700,000 and is entitled to no further research support payments under the agreement. Merck KGaA is also required to make payments of up to $22,500,000, of which $4,000,000 has been recognized, through June 30, 2002, based on milestones achieved in the licensed products' development. Merck KGaA is also responsible for worldwide costs of up to DM17,000,000 associated with a multi-site, multinational phase III clinical trial for BEC2 in limited disease small-cell lung carcinoma. This expense level was reached during the fourth quarter of 2000 and all expenses incurred from that point forward are being shared 60% by Merck KGaA and 40% by the Company. Such cost sharing applies to all expenses beyond the DM17,000,000 threshold. The Company has incurred approximately $33,000 in the three months ended June 30, 2002 and did not incur any expenses in the three months ended June 30, 2001. The Company has incurred approximately $154,000 and $122,000 in reimbursable research and development expenses associated with this agreement in the six months ended June 30, 2002 and 2001, respectively. These amounts have been recorded as research and development expenses and also as collaborative agreement revenue in the consolidated statements of operations. Merck KGaA is also required to pay royalties on the eventual sales of BEC2 outside of North America, if any. Revenues from sales, if any, of BEC2 in North America will be distributed in accordance with the terms of a co-promotion agreement to be negotiated by the parties. In December 1998, the Company entered into a development and license agreement with Merck KGaA with respect to ERBITUX. In exchange for granting Merck KGaA exclusive rights to market ERBITUX outside of the United States and Canada and co-development rights in Japan, the Company received through June 30, 2002, $30,000,000 in up-front fees and early cash-based milestone payments based on the achievement of defined milestones. In March 2001, the Company satisfied a condition relating to obtaining certain collateral license agreements associated with the ERBITUX development and license agreement with Merck KGaA. The satisfaction of this condition allowed for the recognition of $24,000,000 in previously received milestone payments and initiated revenue recognition of the $4,000,000 up-front payment received in connection with this agreement. An additional $30,000,000 can be received, of which $5,000,000 has been received as of June 30, 2002, assuming the achievement of further milestones for which Merck KGaA will receive equity in the Company. The equity underlying these milestone payments will be priced at varying premiums to the then-market price of the common stock depending upon the timing of the achievement of the respective milestones. If issuing shares of common stock to Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common stock, the milestone shares will be a non-voting preferred stock, or other non-voting stock convertible into the Company's common stock. These convertible securities will not have voting rights. They will be convertible at a price determined in the same manner as the purchase price for shares of the Company's common stock if shares of common stock were to be issued. They will not be convertible into common stock if, as a result of the conversion, Merck KGaA would own greater than 19.9% of the Company's common stock. This 19.9% limitation is in place through December 2002. Merck KGaA will pay the Company a royalty on future sales of ERBITUX outside of the United States and Canada, if any. This agreement may be terminated by Merck KGaA in various instances, including (1) at its discretion on any date on which a milestone is achieved (in which case no milestone payment will be made), or (2) for a one-year period after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck KGaA's reasonable determination that the product is economically unfeasible (in which case Merck KGaA is entitled to a return of 50% of the cash-based up front fees and milestone payments then paid to date, but only out of revenues received by ImClone, if any, based upon a royalty rate applied to the gross profit from ERBITUX sales or a percentage of ERBITUX fees and royalties received from a sublicensee on account of the sale of ERBITUX in the United States and Canada). In August 2001, the Company and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third party to do so upon the Company's reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30,000,000 credit facility relating to the build-out of the Company's product launch manufacturing facility. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense, and that Merck KGaA has waived its right of first offer in the case of a proposed sublicense by the Company of ERBITUX in the Company's territory. In consideration for the amendment, the Company agreed to a reduction in royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory. In conjunction with Merck KGaA, the Company has expanded the trial of ERBITUX plus radiotherapy in squamous cell carcinoma of the head and neck into Europe, South Africa, Israel, Australia and New Zealand. In order to support these clinical trials, Merck KGaA has agreed to purchase from the Company ERBITUX manufactured by the Company and also by Lonza Page 7 under the development and manufacturing services agreement and the 2000L Lonza Agreement for use in this and other trials and further agreed to reimburse the Company for one-half of the outside contract service costs incurred with respect to this Phase III clinical trial of ERBITUX for the treatment of head and neck cancer in combination with radiation. Amounts due from Merck KGaA related to these arrangements totaled approximately $8,372,000 and $1,503,000 at June 30, 2002 and December 31, 2001, respectively, and are included in amounts due from corporate partners in the consolidated balance sheets. The Company recorded collaborative agreement revenue related to these arrangements in the consolidated statements of operations totaling approximately $7,200,000 and $461,000 in the three months ended June 30, 2002, and 2001, respectively and $12,222,000 and $3,590,000 in the six months ended June 30, 2002, and 2001, respectively. Of these amounts, $6,544,000 and $10,853,000 in the three and six months ended June 30, 2002, respectively, and $393,000 and $1,423,000 in the three and six months ended June 30, 2001, respectively, related to reimbursable costs associated with supplying ERBITUX to Merck KGaA for use in clinical trials. A portion of the ERBITUX sold to Merck KGaA was produced in prior periods and the related manufacturing costs have been expensed in prior periods when the related raw materials were purchased and the associated direct labor and overhead was consumed or, in the case of contract manufacturing, when such services were performed. These costs totaled $3,713,000 and $6,214,000 for the three and six months ended June 30, 2002, respectively. Reimbursable research and development expenses were incurred and totaled approximately $656,000 and $1,369,000 in the three and six months ended June 30, 2002 and $68,000 and $2,167,000 in the three and six months ended June 30, 2001. These amounts have been recorded as research and development expenses and also as collaborative agreement revenue in the consolidated statements of operations. (b) BRISTOL-MYERS SQUIBB COMPANY On September 19, 2001, the Company entered into an acquisition agreement (the "Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation ("BMS Biologics"), which is a wholly-owned subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase up to 14,392,003 shares of the Company's common stock for $70.00 per share, net to the seller in cash. In connection with the Acquisition Agreement, the Company entered into a stockholder agreement with BMS and BMS Biologics, dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which all parties agreed to various arrangements regarding the respective rights and obligations of each party with respect to, among other things, the ownership of shares of the Company's common stock by BMS and BMS Biologics. Concurrent with the execution of the Acquisition Agreement and the Stockholder Agreement, the Company entered into a development, distribution and supply agreement (the "Commercial Agreement") with BMS and its wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"), relating to ERBITUX, pursuant to which, among other things, the Company is co-developing and co-promoting ERBITUX in the United States and Canada, and co-developing ERBITUX (together with Merck KGaA) in Japan. On October 29, 2001, pursuant to the Acquisition Agreement, BMS Biologics accepted for payment pursuant to the tender offer 14,392,003 shares of the Company's common stock on a pro rata basis from all tendering shareholders and those conditionally exercising stock options. On March 5, 2002, the Company amended the Commercial Agreement with E.R. Squibb and BMS. The amendment changed certain economics of the Commercial Agreement and has expanded the clinical and strategic roles of BMS in the ERBITUX development program. One of the principal economic changes to the Commercial Agreement is that the Company received $140,000,000 on March 7, 2002 and an additional payment of $60,000,000 is payable on March 5, 2003. Such payments are in lieu of the $300,000,000 milestone payment the Company would have received under the original terms of the agreement upon acceptance by the FDA of the ERBITUX rolling Biologic License Application submitted for marketing approval to treat irinotecan-refractory colorectal cancer. In addition, the Company agreed to resume construction of its second commercial manufacturing facility as soon as reasonably practicable after the execution of the amendment. In exchange for the rights granted to BMS under the amended Commercial Agreement, the Company can receive up-front and milestone payments totaling $900,000,000 in the aggregate, of which $200,000,000 was received on September 19, 2001, $140,000,000 was received on March 7, 2002, $60,000,000 is payable on March 5, 2003, $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. Payments received under the amended Commercial Agreement with BMS and E.R. Squibb are being deferred and recognized as revenue based on the percentage of actual product research and development costs incurred to date by both BMS and the Company to the estimated total of such costs to be incurred over the term of the agreement. Except for the Company's expenses incurred pursuant to a co-promotion option, E.R. Squibb is also responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between the Company and E.R. Squibb, each party will be responsible for 50% of the distribution, sales, and marketing costs and other related costs and expenses in Japan. The Commercial Agreement provides that E.R. Squibb shall pay the Company a 39% distribution fee on net sales of ERBITUX by Page 8 E.R. Squibb in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of ERBITUX in Japan by E.R. Squibb or the Company shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb will pay the Company the amount of such distribution fee, and in the event of an operating loss, the Company will credit E.R. Squibb the amount of such distribution fee. The Commercial Agreement provides that the Company will be responsible for the manufacture and supply of all requirements of ERBITUX in bulk form for clinical and commercial use in the United States, Canada and Japan and that E.R. Squibb will purchase all of its requirements of ERBITUX in bulk form for commercial use from the Company. The Company will supply ERBITUX for clinical use at the Company's fully burdened manufacturing cost, and will supply ERBITUX for commercial use at the Company's fully burdened manufacturing cost plus a mark-up of 10%. In addition to the up-front and milestone payments, the distribution fees for the United States, Canada and Japan and the 10% mark-up on the commercial supply of ERBITUX, E.R. Squibb is also responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an Investigational New Drug Application ("INDA") (e.g., phase IV studies), the cost of which will be shared equally between E.R. Squibb and the Company. As between E.R. Squibb and the Company, each will be responsible for 50% of the cost of all clinical studies in Japan. Unless earlier terminated pursuant to the termination rights discussed below, the Commercial Agreement expires with regard to the Product in each country in the Territory on the later of September 19, 2018 and the date on which the sale of the Product ceases to be covered by a validly issued or pending patent in such country. The Commercial Agreement may also be terminated prior to such expiration as follows: - by either party, in the event that the other party materially breaches any of its material obligations under the Commercial Agreement and has not cured such breach within 60 days after notice; - by E.R. Squibb, if the joint executive committee (the "JEC") formed by BMS and the Company determines that there exists a significant concern regarding a regulatory or patient safety issue that would seriously impact the long-term viability of all products; or - by either party, in the event that the JEC does not approve additional clinical studies that are required by the FDA in connection with the submission of the initial regulatory filing with the FDA within 90 days of receiving the formal recommendation of the product development committee concerning such additional clinical studies. The Company incurred approximately $2,250,000 during the three months ended March 31, 2002 in advisor fees associated with the amendment to the Commercial Agreement with BMS and affiliates, which have been expensed and included as a separate line item in operating expenses in the consolidated statement of operations. Amounts due from BMS related to this agreement totaled approximately $8,157,000 and $6,714,000 at June 30, 2002 and December 31, 2001, respectively, and are included in amounts due from corporate partners in the consolidated balance sheets. The Company recorded collaborative agreement revenue related to this agreement in the consolidated statements of operations totaling approximately $2,426,000 and $8,521,000 in the three and six months ended June 30, 2002, respectively. Of these amounts, $1,960,000 and $3,810,000 in the three and six months ended June 30, 2002, respectively, related to reimbursable costs associated with supplying ERBITUX for use in clinical trials associated with this agreement. The related manufacturing costs have been expensed in prior periods when the related raw materials were purchased and the associated manufacturing direct labor and overhead was consumed or, in the case of contract manufacturing, when such services were performed. Reimbursable research and development and marketing expenses were incurred and totaled approximately $466,000 and $4,711,000 in the three and six months ended June 30, 2002. These amounts have been recorded as research and development and marketing, general and administrative expenses and also as collaborative agreement revenue in the consolidated statements of operations. In June 2002, the Company and BMS agreed that certain reimbursable ERBITUX clinical trial costs would in fact be borne by the Company. This resulted in the issuance of credit memos to BMS during the three months ended June 30, 2002 totaling approximately $2,949,000, which ultimately reduced collaborative agreement revenue and license fee revenue in the three and six months ended June 30, 2002. License fees and milestone revenues consist of the following: Page 9
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ BMS ERBITUX license fee revenue ............... $ 1,499,000 $ -- $ 8,066,000 $ -- Merck KGaA ERBITUX milestone revenue .......... -- 2,000,000 -- 26,000,000 Merck KGaA BEC2 milestone revenue ............. -- 1,000,000 -- 1,000,000 Merck KGaA ERBITUX and BEC2 license fee revenue 96,000 96,000 192,000 192,000 Other ......................................... -- 40,000 -- 40,000 ------------ ------------ ------------ ------------ Total license fees and milestone revenues . $ 1,595,000 $ 3,136,000 $ 8,258,000 $ 27,232,000 ============ ============ ============ ============
Collaborative agreement revenue (see note 1) from corporate partners consists of the following:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ BMS, reimbursable ERBITUX research and development expenses ......................... $ 1,740,000 $ -- $ 7,692,000 $ -- BMS, reimbursable ERBITUX marketing expenses ... 686,000 -- 829,000 -- Merck KGaA, reimbursable ERBITUX research and development expenses ............ 656,000 68,000 1,369,000 2,167,000 Merck KGaA, reimbursable ERBITUX product costs for use in clinical trials ............. 6,544,000 393,000 10,853,000 1,423,000 Merck KGaA, reimbursable administrative expenses 273,000 183,000 273,000 183,000 Merck KGaA, reimbursable BEC2 research and development expenses ..................... 33,000 -- 154,000 122,000 ------------ ------------ ------------ ------------ Total collaborative agreement revenue ...... $ 9,932,000 $ 644,000 $ 21,170,000 $ 3,895,000 ============ ============ ============ ============
Amounts due from corporate partners consist of the following:
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ Due from BMS, ERBITUX research and development and marketing expenses ...... $ 8,157,000 $ 6,714,000 Due from Merck KGaA, ERBITUX research and development and administrative expenses ................................................................. 1,604,000 666,000 Due from Merck KGaA, reimbursement of ERBITUX manufacturing costs for use in clinical trials .......................................................... 6,768,000 837,000 Due from Merck KGaA, BEC2 research and development expenses ................ 33,000 13,000 ------------ ------------ Total amounts due from corporate partners .............................. $ 16,562,000 $ 8,230,000 ============ ============
Deferred revenue consists of the following:
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ BMS, ERBITUX Commercial Agreement ............................ $329,382,000 $197,447,000 Merck KGaA, ERBITUX development and license agreement .......................................... 3,667,000 3,778,000 Merck KGaA, BEC2 development and commercialization agreement . 2,190,000 2,271,000 ------------ ------------ 335,239,000 203,496,000 Less: current portion ........................................ (36,627,000) (20,683,000) ------------ ------------ $298,612,000 $182,813,000 ============ ============
Page 10 (8) CONTINGENCIES The Company and certain of its officers and directors are named as defendants in a number of complaints filed beginning in January 2002 on behalf of purported classes of its stockholders asserting claims under Section 10(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. By order dated June 4, 2002 these actions were consolidated under the caption of the first-filed of these actions, Irvine v. Imclone Systems Incorporated et at., No. 02 Civ. 0109(RO). The original complaints in these actions allege generally that various public statements made by the Company or its senior officers during 2001 and early 2002 regarding the prospects for FDA approval of ERBITUX were false or misleading when made, that various Company insiders were aware of material, non-public information regarding the actual prospects for ERBITUX at the time that those insiders engaged in transactions in the Company's common stock and that members of the purported shareholder class suffered damages when the market price of the Company's common stock declined following disclosure of the information that allegedly had not been previously disclosed. On December 28, 2001, the Company disclosed that it had received a "refusal to file" letter from the FDA relating to its biologics license application for ERBITUX. Thereafter, various news articles purported to describe the contents of the FDA's "refusal to file" letter. During this period, the market price of the Company's common stock declined. The complaints in the various actions seek to proceed on behalf of a class of the Company's present and former stockholders, other than defendants or persons affiliated with the defendants, seek monetary damages in an unspecified amount and seek recovery of plaintiffs' costs and attorneys' fees. A consolidated amended complaint is expected to be filed shortly. Beginning on January 13, 2002 and continuing thereafter, eight separate purported stockholders derivative actions have been filed against the members of its board of directors and the Company, as nominal defendant, making allegations similar to the allegations in the federal securities class action complaints. All of these actions assert claims, purportedly on the Company's behalf, for breach of fiduciary duty by certain members of the board of directors based on the allegation that certain directors engaged in transactions in the Company's common stock while in possession of material, non-public information concerning the regulatory and marketing prospects for ERBITUX. Another complaint, purportedly asserting direct claims on behalf of a class of the Company's shareholders but in fact asserting derivative claims that are similar to those asserted in these eight cases, was filed in the U.S. District Court for the Southern District of New York on February 13, 2002, styled Dunlap v. Waksal, et al., No. 02 Civ. 1154 (RO). The Dunlap complaint asserts claims against the board of directors for breach of fiduciary duty purportedly on behalf of all persons who purchased shares of the Company's common stock prior to June 28, 2001 and then held those shares through December 6, 2001. It alleges that the members of the purported class suffered damages as a result of holding their shares based on allegedly false information about the financial prospects of the Company that was disseminated during this period. All of these actions are in their earliest stages and a reserve has not been established in the accompanying consolidated financial statements because the Company does not believe at this time that a loss is probable or estimable. The Company intends to contest vigorously the claims asserted in these actions. The Company has received subpoenas and requests for information in connection with investigations by the Securities and Exchange Commission, the Subcommittee on Oversight and Investigations of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice relating to the circumstances surrounding the disclosure of the FDA letter dated December 28, 2001 and trading in the Company's securities by certain Company insiders in 2001. The Company is cooperating with all of these inquiries and intends to continue to do so. On June 19, 2002, the Company received a written "Wells Notice" from the staff of the Securities and Exchange Commission, indicating that the staff is considering recommending the Commission bring an action against the Company relating to the Company's disclosure immediately following its receipt of a Refusal-to-File letter from the FDA on December 28, 2001 for its biologics license application for ERBITUX. The Company filed a Wells submission on July 12, 2002 in response to the staff's Wells Notice. The Company has also received permission from the Commission to file a supplemental Wells submission, and the Company anticipates that it will make this submission in September of this year. The Company has incurred legal fees associated with these matters totaling approximately $5,724,000 during the six months ended June 30, 2002. In addition, the Company has estimated and recorded a receivable totaling $2,350,000 for a portion of the above mentioned legal fees that the Company believes are recoverable from its insurance carriers. This receivable is included in Other current assets in the consolidated balance sheet at June 30, 2002. (9) CERTAIN RELATED PARTY TRANSACTIONS In September 2001 and February 2002, the Company entered into employment agreements with six senior executive officers, including the then President and Chief Executive Officer and the then Chief Operating Officer. The then President and Chief Executive Officer resigned in May 2002 and the then Chief Operating Officer was appointed to President and Chief Executive Officer. The September agreements each have three-year terms and the February agreement has a one-year term. The February 2002 agreement was amended in April 2002. The term of employment for the present CEO will be automatically extended for one additional day each day during the term of employment unless either the Company or the Executive otherwise gives notice. The employment agreements provide for stated base salaries, and minimum bonuses and benefits aggregating $3,765,000 annually. Page 11 Certain transactions engaged in by the Company's former President and Chief Executive Officer, Dr. Samuel Waksal, in securities of the Company were deemed to have resulted in "short-swing profits" under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"). In accordance with Section 16(b) of the Exchange Act, Dr. Waksal has paid the Company an aggregate amount of approximately $486,000, in March 2002, and an additional amount of approximately $79,000 in July 2002, as disgorgement of "short-swing profits" he was deemed to have realized. The amount received in March 2002 was recorded as an increase to additional paid-in capital. (10) STOCKHOLDER RIGHTS PLAN On February 15, 2002, the Company's Board of Directors approved a Stockholder Rights Plan and declared a dividend of one right for each share of its common stock outstanding at the close of business on February 19, 2002. In connection with the Board of Directors' approval of the Stockholders Rights Plan, Series B Participating Cumulative Preferred Stock was created. Under certain conditions, each right entitles the holder to purchase from the Company one-hundredth of a share of series B Participating Cumulative Preferred Stock at an initial purchase price of $175 per share. The Stockholder Rights Plan is designed to enhance the Board's ability to protect stockholders against, among other things, unsolicited attempts to acquire control of the Company that do not offer an adequate price to all of the Company's stockholders or are otherwise not in the best interests of the Company and its stockholders. Subject to certain exceptions, rights become exercisable (i) on the tenth day after public announcement that any person, entity, or group of persons or entities has acquired ownership of 15% or more of the Company's outstanding common stock, or (ii) 10 business days following the commencement of a tender offer or exchange offer by any person that would, if consummated, result in such person acquiring ownership of 15% or more of the Company's outstanding common stock, (collectively an "Acquiring Person"). In such event, each right holder will have the right to receive the number of shares of common stock having a then current market value equal to two times the aggregate exercise price of such rights. If the Company were to enter into certain business combination or disposition transactions with an Acquiring Person, each right holder will have the right to receive shares of common stock of the acquiring company having a value equal to two times the aggregate exercise price of the rights. The Company may redeem these rights in whole at a price of $.001 per right. The rights expire on February 15, 2012. (11) SEPARATION AGREEMENT On May 22, 2002, the Company accepted the resignation of its President and Chief Executive Officer, Dr. Samuel D. Waksal. In connection with the resignation, on May 24, 2002 the Company and Dr. Waksal executed a separation agreement whereby Dr. Waksal received a lump sum payment totaling $7,000,000 and is entitled to receive for defined periods of time the continuation of certain benefits including health care and life insurance coverage with an estimated cost of $283,000. The related expense of $7,283,000 is included in Marketing, general and administrative expenses in the consolidated statement of operations for the three and six months ended June 30, 2002. In addition, 1,250,000 stock option awards granted to Dr. Waksal on September 19, 2001 which were exercisable at a per share exercise price of $50.01 and constituted all outstanding stock option awards held by Dr. Waksal, were deemed amended such that the unvested portion vested immediately as of the date of termination. The amended stock option awards can be exercised at any time until the end of the term of such awards. No compensation expense was recorded because the fair market value of the Company's common stock was below the $50.01 exercise price on the date the option award was amended. On August 7, 2002, a federal grand jury indicted Dr. Samuel D. Waksal. The Company has recently learned that Dr. Waksal, in contravention of Company policy, directed the destruction of certain documents that were, or could be perceived to be, material to the pending government investigations. Accordingly, on August 14, 2002, the Company filed an action against Dr. Waksal in New York State Supreme Court seeking repayment of amounts paid to him by the Company pursuant to the separation agreement, cancellation or recovery of other benefits provided under that agreement (including cancellation of all stock options that vested as a result of the agreement), disgorgement of amounts previously advanced by the Company on behalf of Dr. Waksal for his legal fees and expenses, and repayment of certain amounts paid under Dr. Waksal's previous employment agreement. The action is in its earliest stages. (12) 2002 STOCK OPTION PLAN In June 2002, the shareholders approved and the Company adopted the 2002 Stock Option Plan. The plan provides for the granting of both incentive stock options and non-qualified stock options to purchase 3,300,000 shares of the Company's common stock to employees, directors, consultants and advisors of the Company. Options granted under the plan generally vest over one to five year periods and unless earlier terminated, expire ten years from the date of grant. Incentive stock options granted under the 2002 stock option plan may not exceed 825,000 shares of common stock, may not be granted at a price less than the fair market value of the stock at the date of grant and may not be granted to non-employees. Page 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis by our management is provided to identify certain significant factors that affected our financial position and operating results during the periods included in the accompanying financial statements. CRITICAL ACCOUNTING POLICIES During January 2002, the Securities and Exchange Commission ("SEC") published a Commission Statement in the form of Financial Reporting Release No. 61, which requested that all registrants discuss their most "critical accounting policies" in management's discussion and analysis of financial condition and results of operations. The SEC has defined critical accounting policies as those that are both important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are summarized in Note 2 to our consolidated financial statements included in Form 10-K for the fiscal year ended December 31, 2001, we believe the following accounting policies to be critical: Revenue - We adopted Staff Accounting Bulletin No. 101 ("SAB 101") in the fourth quarter of 2000 with an effective date of January 1, 2000, implementing a change in accounting policy with respect to revenue recognition. Beginning January 1, 2000, non-refundable fees received upon entering into collaborative agreements in which the Company has continuing involvement are recorded as deferred revenue and recognized over the estimated service period. See Note 7. Payments received under the development, promotion, distribution and supply agreement (the "Commercial Agreement") dated September 19, 2001 and as amended on March 5, 2002 with Bristol-Myers Squibb Company ("BMS") and E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and a wholly-owned subsidiary of BMS ("E.R. Squibb"), relating to ERBITUX, are being deferred and recognized as revenue based upon the actual product research and development costs incurred to date by BMS, E.R. Squibb and ImClone Systems as a percentage of the estimated total of such costs to be incurred over the term of the agreement. Of the $340,000,000 in upfront payments we received from BMS through June 30, 2002, approximately $8,066,000 was recognized as revenue during the six months ended June 30, 2002 and $10,618,000 from the commencement of the agreement through June 30, 2002. The methodology used to recognize revenue deferred involves a number of estimates and judgments, such as the estimate of total product research and development costs to be incurred under the Commercial Agreement. Changes in these estimates and judgments can have a significant effect on the size and timing of revenue recognition. Non-refundable milestone payments, which represent the achievement of a significant step in the research and development process, pursuant to collaborative agreements other than the Commercial Agreement with BMS, are recognized as revenue upon the achievement of the specified milestone. Production Costs - The costs associated with the manufacture of ERBITUX are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until we obtain obligations from our corporate partners for supply of such product. In the event of such approval or obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed as cost of goods sold when sold. If ERBITUX is approved by the United States Food and Drug Administration ("FDA"), any subsequent sale of this inventory, previously expensed, will result in revenue from product sales with no corresponding cost of goods sold. Litigation - We are currently involved in certain legal proceedings as discussed in "Contingencies" Note 8 to the financial statements. In accordance with Statement of Financial Accounting Standards No. 5, no legal reserve has been established in our financial statements for these matters because we do not believe at this time that a loss is probable or estimable. However, if in a future period, we deem it probable that an unfavorable ruling in any such legal proceeding will occur and such amount is estimable, there exists the possibility of a material adverse impact on the operating results of that period. Long-Lived Assets - We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. Assets are considered to be impaired and written down to fair value if expected associated undiscounted cash flows are less than carrying amounts. Fair value is generally determined as the present value of the expected associated cash flows. We recently built a product launch manufacturing facility and are building a second commercial manufacturing facility and a logistics and warehousing facility, which are summarized in Note 2 to the financial statements. The product launch manufacturing facility is dedicated to the clinical and commercial production of ERBITUX and the second commercial manufacturing facility will be a multi-use production facility. ERBITUX is currently being produced for clinical trials and potential commercialization. The logistics and warehousing facility will be the primary storage location for ERBITUX. We believe that ERBITUX will ultimately be approved for commercialization. As such, we believe that the full carrying value of both the product launch manufacturing facility and the second commercial manufacturing facility and the logistics and warehouse facility will be recovered. Changes in business conditions in the future could change our judgments about the carrying value of these facilities, which could result in the recognition of material impairment losses. Page 13 Manufacturing Contracts - As summarized under "Manufacturing Contract Services," Note 3 to the financial statements, we have entered into certain development and manufacturing services agreements with Lonza Biologics plc ("Lonza") for the clinical and commercial production of ERBITUX. We have commitments from Lonza to manufacture ERBITUX at the 5,000 liter scale through December 2003. On June 30, 2002, the estimated remaining future commitments under the amended commercial manufacturing services agreement with Lonza were $38,160,000 in 2002 and $24,050,000 in 2003. If ERBITUX were not to receive regulatory approval when anticipated, it is possible that a liability would need to be recognized for any remaining commitments to Lonza. Valuation of Stock Options - We apply APB Opinion No. 25 and related interpretations in accounting for our stock options and warrants. Accordingly, compensation expense is recorded on the date of grant of an option to an employee or member of the Board of Directors only if the fair market value of the underlying stock at the time of grant exceeds the exercise price. In addition, we have granted options to certain Scientific Advisory Board members and outside consultants, which are required to be measured at fair value and recognized as compensation expense in our consolidated statement of operations. Estimating the fair value of stock options and warrants involves a number of judgments and variables that are subject to significant change. A change in the fair value estimate could have a significant effect on the amount of compensation expense recognized. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 AND 2001. REVENUES Revenues for the six months ended June 30, 2002 and 2001 were $30,116,000 and $31,890,000, respectively, a decrease of $1,774,000, or 6% in 2002. Revenues for the six months ended June 30, 2002 primarily included $8,066,000 in license fee revenue and $8,521,000 in collaborative agreement revenue from our amended ERBITUX Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. The Collaborative Agreement revenue represents certain research and development and marketing expenses that have been incurred by us and are reimbursable by BMS as provided for in the amended Commercial Agreement. License fee revenue from payments under this agreement (of which $140,000,000 was received in 2002 and $200,000,000 was received in 2001) are being recognized as revenue over the product research and development life of ERBITUX. An additional $60,000,000 is payable on March 5, 2003, $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. We also recognized $12,495,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. In addition, we recognized $111,000 of the $4,000,000 up-front payment received upon entering into the ERBITUX development and license agreement with Merck KGaA. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the six months ended June 30, 2002 also included $688,000 in royalty revenue from our strategic corporate alliance with Abbott Laboratories ("Abbott") in diagnostics and $81,000 in license fee revenue and $154,000 in collaborative agreement revenue from our strategic corporate alliance with Merck KGaA for our principal cancer vaccine product candidate, BEC2. Revenues for the six months ended June 30, 2001 primarily included $26,000,000 in milestone revenue and $3,773,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. These milestone payments were received in prior periods and were originally recorded as fees potentially refundable to corporate partner because they were refundable in the event a condition relating to obtaining certain collateral license agreements was not satisfied. This condition was satisfied in March 2001. In addition, we recognized $111,000 of the $4,000,000 up-front payment received upon entering into this agreement. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the six months ended June 30, 2001 also included $763,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and $1,000,000 in milestone revenues and $81,000 in license fee revenues and $122,000 of collaborative agreement revenue from our strategic corporate alliance with Merck KGaA for BEC2. Page 14 OPERATING EXPENSES: Total operating expenses for the six months ended June 30, 2002 and 2001 were $102,797,000 and $59,437,000, respectively, an increase of $43,360,000, or 73% in 2002. Operating expenses for the six months ended June 30, 2002 included a $2,250,000 advisor fee associated with completing the amended Commercial Agreement. OPERATING EXPENSES: RESEARCH AND DEVELOPMENT Research and development expenses for the six months ended June 30, 2002 and 2001 were $75,945,000 and $49,486,000, respectively, an increase of $26,459,000 or 53% in 2002. Research and development expenses for the six months ended June 30, 2002 and 2001 as a percentage of total operating expenses, excluding the advisor fee associated with the amended Commercial Agreement in the six months ended June 30, 2002, were 76% and 83%, respectively. Research and development expenses include costs associated with our in-house and collaborative research programs, product and process development expenses, costs to manufacture our product candidates, particularly ERBITUX, prior to any approval that we may obtain of a product candidate for commercial sale or obligations of our corporate partners to acquire product from us, quality assurance and quality control costs, and costs to conduct our clinical trials and associated regulatory activities. Research and development expenses include costs that are reimbursable by our corporate partners. The increase in research and development expenses for the six months ended June 30, 2002 was primarily attributable to (1) the costs associated with full scale production at our product launch manufacturing facility, (2) costs related to the manufacturing services agreements with Lonza, (3) expenditures in the functional areas of product development and pilot plant manufacturing associated with ERBITUX and our antibody-based angiogenesis inhibitor product candidate for the treatment of cancer, IMC-2C6 and (4) increased expenditures associated with discovery research. We expect research and development costs to increase in future periods as we continue to manufacture ERBITUX prior to any approval of the product that we may obtain for commercial use or until we receive committed purchase obligations of our corporate partners. In the event of such approval or committed purchase obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for supply to E.R. Squibb for commercial use will be included in inventory and expensed as cost of goods sold when sold. We expect research and development costs associated with discovery research and product development also to continue to increase in future periods. OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE Marketing, general and administrative expenses include marketing and administrative personnel costs, including related occupancy costs, additional costs to develop internal marketing and sales capabilities, costs to pursue arrangements with strategic corporate partners and technology licensors, and expenses associated with applying for patent protection for our technology and products. Marketing, general and administrative expenses include amounts reimbursable from our corporate partners. Marketing, general and administrative expenses for the six months ended June 30, 2002 and 2001 were $24,602,000 and $9,951,000, respectively, an increase of $14,651,000, or 147% in 2002. The increase in marketing, general and administrative expenses primarily reflected (1) the separation compensation and other post-employment benefits associated with the resignation of the Company's former President and Chief Executive Officer (2) legal expenses associated with the pending class action lawsuits, shareholder derivative lawsuits and investigations by the SEC, the Subcommittee on Oversight and Investigation of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice, (3) costs associated with our marketing efforts, (4) additional administrative staffing required to support our commercialization efforts for ERBITUX and (5) expenses associated with general corporate activities. Other than the legal expenses component discussed in (2) above and related costs, whose level in the future is uncertain because it depends upon the manner in which these investigations and proceedings progress, we expect marketing, general and administrative expenses to increase in future periods to support our continued commercialization efforts for ERBITUX. INTEREST INCOME, INTEREST EXPENSE AND OTHER (INCOME) EXPENSE Interest income was $5,168,000 for the six months ended June 30, 2002 compared with $7,827,000 for the six months ended June 30, 2001, a decrease of $2,659,000, or 34% in 2002. The decrease was primarily attributable to a decrease in interest rates associated with our portfolio of debt securities. Interest expense was $6,839,000 and $6,510,000 for the six months ended June 30, 2002 and 2001, respectively, an increase of $329,000 or 5% in 2002. Interest expense for the six months ended June 30, 2002 and 2001 was offset by the capitalization of interest costs of $780,000 and $1,120,000, respectively, during the construction period of our product launch manufacturing facility and a second commercial manufacturing facility for which design, engineering, and pre-construction costs have been incurred. Interest expense for both periods included (1) interest on the 5 -1/2% convertible subordinated notes due March 1, 2005 (the "Convertible Subordinated Notes") issued in February 2000, (2) interest on an outstanding Industrial Development Revenue Bond issued in 1990 (the "1990 IDA Bond") with a principal amount of $2,200,000 and (3) interest recorded on various capital lease obligations under a 1996 financing agreement and a 1998 financing Page 15 agreement with Finova Technology Finance, Inc. ("Finova"). We recorded gains on securities and investments of $1,236,000 and losses of $4,467,000 for the six months ended June 30, 2002 and 2001, respectively. The losses on securities and investments for the six months ended June 30, 2001 included $4,375,000 in write-downs of our investment in ValiGen N.V. and a $1,000,000 write-off of our convertible promissory note from A.C.T. Group, Inc. NET LOSSES We had a net loss of $73,116,000 or $1.00 per share for the six months ended June 30, 2002, compared with a net loss of $30,698,000 or $0.46 per share for the six months ended June 30, 2001. The increase in the net losses and per share net loss to common stockholders was due to the factors noted above. THREE MONTHS ENDED JUNE 30, 2002 AND 2001. REVENUES Revenues for the three months ended June 30, 2002 and 2001 were $11,565,000 and $3,895,000, respectively, an increase of $7,670,000, or 197% in 2002. Revenues for the three months ended June 30, 2002 primarily included $1,499,000 in license fee revenue and $2,426,000 in collaborative agreement revenue from our amended Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. The Collaborative Agreement revenue represents certain research and development and marketing expenses that have been incurred by us and are reimbursable by BMS as provided for in the amended Commercial Agreement. License fee revenue from payments under this agreement (of which $140,000,000 was received in 2002 and $200,000,000 was received in 2001) are being recognized over the product research and development life of ERBITUX. We also recognized $7,473,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. In addition, we recognized $55,000 of the $4,000,000 up-front payment received upon entering into the ERBITUX development and license agreement with Merck KGaA. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the three months ended June 30, 2002 also included $38,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and $41,000 in license fee revenue and $33,000 in collaborative agreement revenue from our strategic corporate alliance with Merck KGaA for BEC2. Revenues for the three months ended June 30, 2001 primarily included $2,000,000 in milestone revenue and $644,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. These milestone payments were received in prior periods and were originally recorded as fees potentially refundable to corporate partner because they were refundable in the event a condition relating to obtaining certain collateral license agreements was not satisfied. This condition was satisfied in March 2001. In addition, we recognized $55,000 of the $4,000,000 up-front payment received upon entering into this agreement. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the three months ended June 30, 2001 also included $115,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and $1,000,000 in milestone revenues and $41,000 in license fee revenues from our strategic corporate alliance with Merck KGaA for BEC2. OPERATING EXPENSES: Total operating expenses for the three months ended June 30, 2002 and 2001 were $54,646,000 and $30,613,000, respectively, an increase of $24,033,000, or 79% in 2002. OPERATING EXPENSES: RESEARCH AND DEVELOPMENT Research and development expenses for the three months ended June 30, 2002 and 2001 were $38,167,000 and $24,390,000, respectively, an increase of $13,777,000 or 56% in 2002. Such amounts for the three months ended June 30, 2002 and 2001 represented 70% and 80%, respectively, of total operating expenses. Research and development expenses include costs associated with our in-house and collaborative research programs, product and process development expenses, costs to manufacture our product candidates, particularly ERBITUX, prior to any approval that we may obtain of a product candidate for commercial sale or obligations of our corporate partners to acquire product from us, quality assurance and quality control costs, and costs to conduct our clinical trials and associated regulatory activities. Research and development expenses include costs that are reimbursable by our corporate partners. The increase in research and development expenses for the three months ended June 30, 2002 was primarily attributable to (1) the costs associated with full scale production at our product launch manufacturing facility, (2) costs related to the manufacturing services agreements with Lonza, (3) expenditures in the functional areas of product development and pilot plant manufacturing associated with ERBITUX and IMC-2C6 and (4) increased expenditures associated with discovery research. We expect research and development costs to increase in future periods as we continue to manufacture Page 16 ERBITUX prior to any approval of the product that we may obtain for commercial use or until we receive committed purchase obligations of our corporate partners. In the event of such approval or committed purchase obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for supply to E.R. Squibb for commercial use will be included in inventory and expensed as cost of goods sold when sold. We expect research and development costs associated with discovery research and product development also to continue to increase in future periods. OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE Marketing, general and administrative expenses include marketing and administrative personnel costs, including related occupancy costs, additional costs to develop internal marketing and sales capabilities, costs to pursue arrangements with strategic corporate partners and technology licensors, and expenses associated with applying for patent protection for our technology and products. Marketing, general and administrative expenses include amounts reimbursable from our corporate partner. Marketing, general and administrative expenses for the three months ended June 30, 2002 and 2001 were $16,479,000 and $6,223,000, respectively, an increase of $10,256,000, or 165% in 2002. The increase in marketing, general and administrative expenses primarily reflected (1) the separation compensation and other post-employment benefits associated with the resignation of the Company's former President and Chief Executive Officer (2) legal expenses associated with the pending class action lawsuits, shareholder derivative lawsuits and investigations by the SEC, the Subcommittee on Oversight and Investigation of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice, (3) costs associated with our marketing efforts, (4) additional administrative staffing required to support our commercialization efforts for ERBITUX and (5) expenses associated with general corporate activities. Other than the legal expenses component discussed in (2) above and related costs, whose level in the future is uncertain because it depends upon the in which these investigations and proceedings progress, we expect marketing, general and administrative expenses to increase in future periods to support our continued commercialization efforts for ERBITUX. INTEREST INCOME, INTEREST EXPENSE AND OTHER (INCOME) EXPENSE Interest income was $2,904,000 for the three months ended June 30, 2002 compared with $3,262,000 for the three months ended June 30, 2001, a decrease of $358,000, or 11% in 2002. The decrease was primarily attributable to a decrease in interest rates associated with our portfolio of debt securities. Interest expense was $3,347,000 and $3,197,000 for the three months ended June 30, 2002 and 2001, respectively, an increase of $150,000 or 5% in 2002. Interest expense for the three months ended June 30, 2002 and 2001 was offset by the capitalization of interest costs of $481,000 and $626,000, respectively, during the construction period of our product launch manufacturing facility and a second commercial manufacturing facility for which design, engineering, and pre-construction costs have been incurred. Interest expense for both periods included (1) interest on the Convertible Subordinated Notes issued in February 2000, (2) interest on an outstanding 1990 IDA Bond with a principal amount of $2,200,000 and (3) interest recorded on various capital lease obligations under a 1996 financing agreement and a 1998 financing agreement with Finova. We recorded gains on securities and investments of $435,000 and losses of $2,850,000 for the three months ended June 30, 2002 and 2001, respectively. The losses on securities and investments for the three months ended June 30, 2001 included a $2,775,000 write-down of our investment in ValiGen N.V and a $1,000,000 write-off of our convertible promissory note from A.C.T. Group, Inc. NET LOSSES We had a net loss of $43,089,000 or $0.59 per share for the three months ended June 30, 2002, compared with a net loss of $29,503,000 or $0.44 per share for the three months ended June 30, 2001. The increase in the net losses and per share net loss to common stockholders was due to the factors noted above. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of approximately $352,000,000. From our inception on April 26, 1984 through June 30, 2002, we have financed our operations primarily through the following means: - Public and private sales of equity securities and convertible notes in financing transactions have raised approximately $492,652,000 in net proceeds - We have earned approximately $109,531,000 from license fees, contract research and development fees, reimbursements from our corporate partners and royalties from collaborative partners. Additionally, we have Page 17 approximately $335,239,000 in deferred revenue related to up-front payments received from our amended Commercial Agreement for ERBITUX with BMS, our ERBITUX development and license agreement with Merck KGaA and our BEC2 development and commercialization agreement with Merck KGaA. These amounts are being recognized as revenue over the expected lives of the respective agreements - We have earned approximately $52,282,000 in interest income - The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an aggregate of $6,300,000, the proceeds of which have been used for the acquisition, construction and installation of our research and development facility in New York City, and of which $2,200,000 is outstanding We may, from time to time, consider a number of strategic alternatives designed to increase shareholder value, which could include joint ventures, acquisitions and other forms of alliances, as well as the sale of all or part of the Company. Until September 19, 2006, or earlier upon the occurrence of certain specified events, we may not take any action that constitutes a prohibited action under our stockholder agreement with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation ("BMS Biologics"), which is a wholly-owned subsidiary of BMS, without the consent of the BMS directors. Such prohibited actions include (i) issuing additional shares or securities convertible into shares in excess of 21,473,002 shares of our common stock in the aggregate, subject to certain exceptions; (ii) incurring additional indebtedness if the total of the principal amount of such indebtedness incurred since September 19, 2001 and then-outstanding, and the net proceeds from the issuance of any redeemable preferred stock then-outstanding, would exceed the amount of indebtedness outstanding as of September 19, 2001 by more than $500 million; (iii) acquiring any business if the aggregate consideration for such acquisition, when taken together with the aggregate consideration for all other acquisitions consummated during the previous twelve months, is in excess of 25% of the aggregate value of the Company at the time we enter into the binding agreement relating to such acquisition; (iv) disposing of all or any substantial portion of our non-cash assets; (v) issuing capital stock with more than one vote per share. In September 2001, we entered into the ERBITUX Commercial Agreement with BMS and E.R. Squibb, pursuant to which, among other things, together with E.R Squibb we are (a) co-developing and co-promoting ERBITUX in the United States and Canada, and (b) co-developing ERBITUX (together with Merck KGaA) in Japan. The Commercial Agreement was amended on March 5, 2002 to change certain economics of the agreement and has expanded the clinical and strategic roles of BMS in the ERBITUX development program. Pursuant to the amended Commercial Agreement, we can receive up-front and milestone payments totaling $900,000,000 in the aggregate, of which $200,000,000 was received upon the signing of the agreement. The remaining $700,000,000 in payments comprises $140,000,000 paid on March 7, 2002, $60,000,000 payable on March 5, 2003, $250,000,000 payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. Except for our expenses incurred pursuant to the co-promotion option, E.R. Squibb is responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and E.R. Squibb and the Company, each will be responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. The Commercial Agreement provides that E.R. Squibb shall pay us distribution fees based on a percentage of annual sales of ERBITUX by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of ERBITUX in Japan by E.R. Squibb or us shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb will pay us the amount of such distribution fee, and in the event of an operating loss, we will credit E.R. Squibb the amount of such distribution fee. The Commercial Agreement provides that we will be responsible for the manufacture and supply of all requirements of ERBITUX in bulk form for clinical and commercial use in the United States, Canada and Japan and that E.R. Squibb will purchase all of its requirements of ERBITUX in bulk form for commercial use from us. We will supply ERBITUX for clinical use at our fully burdened manufacturing cost, and will supply ERBITUX for commercial use at our fully burdened manufacturing cost plus a mark-up of 10%. In addition to the up-front and milestone payments, the distribution fees for the United States, Canada and Japan and the 10% mark-up on the commercial supply of ERBITUX, E.R. Squibb is also responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch, which are not pursuant to an Investigational New Drug Application ("INDA") (e.g., phase IV studies), the cost of which will be shared equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and the Company, each will be responsible for 50% of the cost of all clinical studies in Japan. In February 2000, we completed a private placement of $240,000,000 in 5 - -1/2% convertible subordinated notes due March 1, 2005. We received net proceeds of approximately $231,500,000, after deducting expenses associated with the offering. Page 18 Accrued interest on the notes was approximately $4,400,000 at June 30, 2002. A holder may convert all or a portion of a note into common stock at any time on or before March 1, 2005 at a conversion price of $55.09 per share, subject to adjustment under certain circumstances. We may redeem some or all of the notes prior to March 6, 2003 if specified common stock price thresholds are met. On or after March 6, 2003, we may redeem some or all of the notes at specified redemption prices. In December 1999, we entered into a development and manufacturing services agreement with Lonza. This agreement was amended in April 2001 to include additional services. Under the agreement, Lonza is responsible for process development and scale-up to manufacture ERBITUX in bulk form under cGMP conditions. These steps were taken to assure that the manufacturing process would produce bulk material that conforms with our reference material and to support in part, our regulatory filing with the FDA. As of June 30, 2002, Lonza has completed its responsibilities under the development and manufacturing service agreement. We had incurred approximately $7,068,000 for services provided under this agreement through June 30, 2002. In September 2000, we entered into a three-year commercial manufacturing services agreement with Lonza relating to ERBITUX. This agreement was amended in June 2001 and again in September 2001 to include additional services. As of June 30, 2002, we had incurred approximately $24,840,000 for services provided under the commercial manufacturing services agreement. Under these two agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions and is delivering it to us over a term ending no later than December 2003. The costs associated with both of these agreements are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until we obtain obligations from our corporate partners for supply of such product. In the event of such approval or obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed as cost of goods sold when sold. In the event we terminate (i.e., the cancellation of batches of bulk product) the commercial manufacturing services agreement without cause, we will be required to pay 85% of the stated costs for each of the first ten batches cancelled, 65% of the stated costs for each of the next ten batches cancelled and 40% of the stated costs for each of the next six batches cancelled. The batch cancellation provisions for certain additional batches that we are committed to purchase require us to pay 100% of the stated costs of cancelled batches scheduled within six months of the cancellation, 85% of the stated costs of cancelled batches scheduled between six and twelve months following the cancellation and 65% of the stated costs of cancelled batches scheduled between twelve and eighteen months following the cancellation. These amounts are subject to mitigation should Lonza use its manufacturing capacity caused by such termination for another customer. At June 30, 2002, the estimated remaining future commitments under the amended commercial manufacturing services agreement are $38,160,000 in 2002 and $24,050,000 in 2003. In December 2001, we entered into an agreement with Lonza to manufacture ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. We had incurred approximately $6,008,000 for services provided under this agreement, of which $3,658,000 was reimbursed by Merck KGaA. The remaining $2,350,000 that is due from Merck KGaA is included in Amounts due from corporate partners in the consolidated balance sheet at June 30, 2002. At June 30, 2002, the estimated remaining future commitments under this agreement is $1,175,000 in 2002. On January 2, 2002 we executed a letter of intent with Lonza to enter into a long-term supply agreement. The long-term supply agreement would apply to a large scale manufacturing facility that Lonza is constructing. We expect such facility would be able to produce ERBITUX in 20,000 liter batches. We paid Lonza $3,250,000 for the exclusive rights to reserve and negotiate a long-term supply agreement for a portion of the new facility's overall capacity. Such negotiations commenced shortly thereafter and are continuing. Under certain conditions, such payment shall be refunded to us. If we enter into a long-term supply agreement, such payment will be creditable to us against the 20,000 liter batch price, such credit to be spread evenly over the batches manufactured each year of the initial term of the long-term supply agreement. We cannot be certain that we will be able to enter into agreements for commercial supply with third party manufacturers on terms acceptable to us. Even if we are able to enter into such agreements, we cannot be certain that we will be able to produce or obtain sufficient quantities for commercial sale of our products. Any delays in producing or obtaining commercial quantities of our products could have a material adverse effect on our business, financial condition and results of operations. Effective April 1990, we entered into a development and commercialization agreement with Merck KGaA with respect to BEC2 and the recombinant gp75 antigen. The agreement has been amended a number of times, most recently in December 1997. The agreement grants Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 outside North America. The agreement also grants Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make BEC2 within North America in conjunction with ImClone Systems. Pursuant to the terms of the agreement we have retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold Page 19 gp75 in North America. In return, we have recognized research support payments totaling $4,700,000 and are entitled to no further research support payments under the agreement. Merck KGaA is also required to make payments of up to $22,500,000, of which $4,000,000 has been recognized, based on milestones achieved in the licensed products' development. Merck KGaA is also responsible for worldwide costs of up to DM17,000,000 associated with a multi-site, multinational phase III clinical trial for BEC2 in limited disease small-cell lung carcinoma. This expense level was reached during the fourth quarter of 2000 and all expenses incurred from that point forward are being shared 60% by Merck KGaA and 40% by ImClone Systems. Such cost sharing applies to all expenses beyond the DM17,000,000 threshold. Merck KGaA is also required to pay royalties on the eventual sales of BEC2 outside of North America, if any. Revenues from sales, if any, of BEC2 in North America will be distributed in accordance with the terms of a co-promotion agreement to be negotiated by the parties. In December 1998, we entered into a development and license agreement with Merck KGaA with respect to ERBITUX. In exchange for granting Merck KGaA exclusive rights to market ERBITUX outside of the United States and Canada and co-development rights in Japan, we received through June 30, 2002, $30,000,000 in up-front fees and early cash-based milestone payments based on the achievement of defined milestones. An additional $30,000,000 can be received, of which $5,000,000 has been received as of June 30, 2002, assuming the achievement of further milestones for which Merck KGaA will receive equity in ImClone Systems. The equity underlying these milestone payments will be priced at varying premiums to the then-market price of the common stock depending upon the timing of the achievement of the respective milestones. If issuing shares of common stock to Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common stock, the milestone shares will be a non-voting preferred stock, or other non-voting stock convertible into our common stock. These convertible securities will not have voting rights. They will be convertible at a price determined in the same manner as the purchase price for shares of our common stock if shares of common stock were to be issued. They will not be convertible into common stock if, as a result of the conversion, Merck KGaA would own greater than 19.9% of our common stock. This 19.9% limitation is in place through December 2002. Merck KGaA will pay us a royalty on future sales of ERBITUX outside of the United States and Canada, if any. This agreement may be terminated by Merck KGaA in various instances, including (1) at its discretion on any date on which a milestone is achieved (in which case no milestone payment will be made), or (2) for a one-year period after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck KGaA's reasonable determination that the product is economically unfeasible (in which case Merck KGaA is entitled to a return of 50% of the cash-based up front fees and milestone payments then paid to date, but only out of revenues received, if any, based upon a royalty rate applied to the gross profit from ERBITUX sales or a percentage of ERBITUX fees and royalties from a sublicensee on account of the sale of ERBITUX in the United States and Canada). In August 2001, ImClone Systems and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third party to do so upon ImClone Systems' reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30,000,000 credit facility relating to the build-out of the product launch manufacturing facility. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by ImClone Systems of ERBITUX in ImClone Systems' territory. In consideration for the amendment, we agreed to a reduction in royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory. We have obligations under various capital leases for certain laboratory, office and computer equipment and also certain building improvements, primarily under a 1998 financing agreement with Finova. This agreement allowed us to finance the lease of equipment and make certain building and leasehold improvements to existing facilities. Each lease has a fair market value purchase option at the expiration of its 48-month term. We have entered into six individual leases under the financing agreement with an aggregate cost of $1,942,000. This financing arrangement is now expired. We rent our current New York corporate headquarters and research facility under an operating lease that expires in December 2004. In 2000 we completed renovations of the facility to better suit our needs, at a cost of approximately $2,800,000. In October 2001, we entered into a sublease for a four-story building in downtown New York to serve as our future corporate headquarters and research facility. The space, to be designed and improved in the future, includes between 75,000 and 100,000 square feet of usable space, depending on design, and includes possible additional expansion space. The sublease has a term of 22 years, followed by two five-year renewal option periods. The future minimum lease payments are approximately $50,625,000 over the term of the sublease. In order to induce the sublandlord to enter into the sublease, we made a loan to and accepted from the sublandlord a $10,000,000 note receivable. The note is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The note receivable is payable by the sublandlord over 20 years and bears interest at 5 -1/2% in years one through five, 6 -1/2% in years six through ten, 7 -1/2% in years eleven through fifteen and 8 -1/2% in years sixteen through twenty. In addition, we paid the owner a consent fee in the amount of $500,000. Page 20 On May 1, 2001, we entered into a lease for an approximately 4,000 square foot portion of a 15,000 square foot building known as 710 Parkside Avenue, Brooklyn, New York and we have leased an adjacent 6,250 square foot building known as 313-315 Clarkson Avenue, Brooklyn, New York, (collectively "the premises") to serve as our new chemistry and high throughput screening facility. The term of the lease is for five years with five successive one-year extensions. As of June 30, 2002, we have incurred approximately $3,778,000, excluding capitalized interest of approximately $83,000 for the retrofit of this facility to better fit our needs. The total cost for the retrofit will be approximately $4,300,000. We built a new 80,000 square foot product launch manufacturing facility adjacent to the pilot facility in Somerville, New Jersey. The product launch manufacturing facility was built on a 5.7 acre parcel of land we purchased in December 1999 for approximately $700,000. The product launch manufacturing facility contains three 10,000 liter (working volume) fermenters and is dedicated to the clinical and commercial production of ERBITUX. The cost of the facility was approximately $53,000,000, excluding capitalized interest of approximately $1,966,000. The cost for the facility has come from our cash reserves, which were primarily obtained through the issuance of debt and equity securities. The product launch manufacturing facility was ready for its intended use and put in operation in July 2001 and we commenced depreciation at that time. We have completed conceptual design and preliminary engineering plans and are currently reviewing detailed design plans for, and proceeding with construction of, the second commercial manufacturing facility. The second commercial manufacturing facility will be a multi-use facility of approximately 250,000 square feet and will contain up to 10 fermenters with a total capacity of up to 110,000 liters (working volume). The facility will be built on a 7.12 acre parcel of land that we purchased in July 2000 for approximately $950,000. The cost of this facility, consisting of two completely fitted out suites and a third suite with utilities only, is expected to be approximately $233,000,000, excluding capitalized interest. The actual cost of the new facility may change depending upon various factors. We have incurred approximately $52,617,000, excluding capitalized interest of approximately $1,234,000, in conceptual design, engineering, equipment and construction costs through June 30, 2002. On January 31, 2002 we purchased a 7.5 acre parcel of land located adjacent to the Company's product launch manufacturing facility and pilot facility in Somerville, New Jersey. The real estate includes an existing 50,000 square foot building, 40,000 square feet of which is warehouse space and 10,000 square feet of which is office space. The purchase price for the property and building was approximately $7,020,000, of which approximately $1,125,000 was related to the purchase of the land and approximately $5,895,000 was related to the purchase of the building. We intend to use this property for warehousing and logistics for our Somerville campus. On May 20, 2002, we purchased real estate consisting of a 6.94 acre parcel of land located across the street from the Company's product launch manufacturing facility in Somerville, New Jersey. The real estate includes an existing 46,000 square feet of office space. The purchase price for the property was approximately $4,515,000, of which approximately $1,041,000 was related to the purchase of the land and approximately $3,474,000 was related to the purchase of the building. We intend to use this property as the administrative building for the Somerville campus. As of June 30, 2002, we have incurred approximately $422,000 for the retrofit of this facility. The total cost for the retrofit will be approximately $5,187,000. Total capital expenditures made during the six months ended June 30, 2002 were $42,686,000 and primarily included $1,579,000 related to the purchase of equipment for and leasehold improvement costs associated with our corporate office and research laboratories in our New York facility, $23,437,000 related to the conceptual design, preliminary engineering plans, capitalized interest costs and construction costs for a second commercial manufacturing facility, $1,125,000 and $5,895,000 for the land and building, respectively, for the warehousing and logistics building, $1,041,000 and $3,474,000 for the land and building, respectively, for the purchase of and $422,000 for the retrofit of the central operations building, $3,198,000 for the retrofit of the Brooklyn chemistry lab, $725,000 related to improving and equipping our product launch manufacturing facility, and $1,031,000 related to improving and equipping our pilot manufacturing facility. We believe that our existing cash on hand, marketable securities and amounts to which we are entitled should enable us to maintain our current and planned operations through 2003. We are also entitled to reimbursement for certain marketing and research and development expenditures and certain other payments, some of which are payable upon the achievement of research and development milestones. Such amounts include $560,000,000 in cash-based payments of which $60,000,000 is payable on March 5, 2003, as well as up to $25,000,000 in equity-based milestone payments under our ERBITUX development and license agreement with Merck KGaA and up to $18,500,000 in cash-based milestone payments under our BEC2 development agreement with Merck KGaA. There can be no assurance that we will achieve these milestones. Our future working capital and capital requirements will depend upon numerous factors, including, but not limited to: - progress and cost of our research and development programs, pre-clinical testing and clinical trials Page 21 - our corporate partners fulfilling their obligations to us - timing and cost of seeking and obtaining regulatory approvals - timing and cost of manufacturing scale-up and effective commercialization activities and arrangements - level of resources that we devote to the development of marketing and sales capabilities - costs involved in filing, prosecuting and enforcing patent claims - technological advances - legal costs and the outcome of outstanding legal proceedings and investigations - status of competition - our ability to maintain existing corporate collaborations and establish new collaborative arrangements with other companies to provide funding to support these activities In order to fund our capital needs after 2003, we will require significant levels of additional capital and we intend to raise the capital through additional arrangements with corporate partners, equity or debt financings, or from other sources, including the proceeds of product sales, if any. There is no assurance that we will be successful in consummating any such arrangements. If adequate funds are not available, we may be required to significantly curtail our planned operations. Below is a table that presents our contractual obligations and commercial commitments as of June 30, 2002:
PAYMENTS DUE BY YEAR ---------------------------------------------------------------------------- 2005 AND TOTAL 2002 2003 2004 THEREAFTER ------------ ------------ ------------ ------------ ------------ Long-term debt ................... $242,200,000 $ -- $ -- $ 2,200,000 $240,000,000 Capital lease obligations including interest ............ 299,000 170,000 76,000 15,000 38,000 Operating leases ................. 54,637,000 1,020,000 3,024,000 3,521,000 47,072,000 Construction commitments ......... 62,987,000 23,208,000 38,287,000 1,492,000 -- Lonza ............................ 63,385,000 39,335,000 24,050,000 -- -- ------------ ------------ ------------ ------------ ------------ Total contractual cash obligations $423,508,000 $ 63,733,000 $ 65,437,000 $ 7,228,000 $287,110,000 ============ ============ ============ ============ ============
New Jersey State Tax Law Changes In July 2002, the State of New Jersey (""NJ'') enacted various income tax law changes, which are retroactive to January 1, 2002. One of the provisions of the new law is the suspension of the utilization of net operating losses for 2002 and 2003. This provision would negatively affect the Company if it generates NJ taxable income in 2002 and 2003 because it would not be able to utilize its NJ net operating loss carryover to offset such taxable income. Page 22 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On August 17, 2001, Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" was issued and will be effective for the Company in the first quarter of the year ended December 31, 2003. The new rule requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred. When the liability is initially recorded, a cost is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation for its recorded amount is paid or a gain or loss upon settlement is incurred. Management will be analyzing this requirement to determine the effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring Costs. SFAS 146 applies to costs associated with an exit activity (including restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. SFAS 146 will require a company to disclose information about its exit and disposal activities, the related costs, and changes in those costs in the notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS 146, a company may not restate its previously issued financial statements and the new Statement grandfathers the accounting for liabilities that a company had previously recorded under Emerging Issues Task Force Issue 94-3. The Company is currently evaluating the impact of adoption of this statement. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS--SAFE HARBOR STATEMENT 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 and ability to manufacture, as well as 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 payors; attracting and retaining key personnel; obtaining and protecting proprietary rights; legal costs and the outcome of outstanding legal proceedings and investigations; and those other factors set forth in "Risk Factors" in the Company's most recent Registration Statement and Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our holdings of financial instruments comprise a mix of U.S. dollar denominated securities that may include U.S. corporate debt, foreign corporate debt, U.S. government debt, foreign government/agency guaranteed debt and commercial paper. All such instruments are classified as securities available for sale. Generally, we do not invest in portfolio equity securities, commodities, foreign exchange contacts or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in investment grade fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We invest in securities that have a range of maturity dates. Typically, those with a short-term maturity are fixed-rate, highly liquid, debt instruments and those with longer-term maturities are highly liquid debt instruments with fixed interest rates or with periodic interest rate adjustments. The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio as of June 30, 2002.
2002 2003 2004 2005 ------------ ------------ ------------ ------------ Fixed Rate .......... $ 5,831,000 $ 248,000 $ -- $ -- Average Interest Rate 6.37% 6.00% -- -- Variable Rate ....... 12,003,000(1) -- 15,603,000(1) 12,994,000(1) Average Interest Rate 1.99% -- 4.60% 2.21% ------------ ------------ ------------ ------------ $ 17,834,000 $ 248,000 $ 15,603,000 $ 12,994,000 ============ ============ ============ ============
2007 AND 2006 THEREAFTER TOTAL FAIR VALUE ------------ ------------ ------------ ------------ Fixed Rate .......... $ -- $ 14,506,000 $ 20,585,000 $ 21,782,000 Average Interest Rate -- 6.18% 6.23% -- Variable Rate ....... 4,799,000(1) 217,616,000(1) 263,015,000 264,295,000 Average Interest Rate 2.31% 2.82% 2.85% -- ------------ ------------ ------------ ------------ $ 4,799,000 $232,122,000 $283,600,000 $286,077,000 ============ ============ ============ ============
Page 23 (1) These holdings consist of U.S. corporate and foreign corte floating rate notes. Interest on the securities is adjusted monthly, quarterly or semi-annually, depending on the instrument, using prevailing interest rates. These holdings are highly liquid and we consider the potential for loss of principal to be minimal. Our 5 -1/2% convertible subordinated notes in the principal amount of $240,000,000 due March 1, 2005 and other long-term debt have fixed interest rates. The subordinated notes are convertible into our common stock at a conversion price of $55.09 per share. The fair value of fixed interest rate instruments are affected by changes in interest rates and in the case of the convertible notes by changes in the price of our common stock. The fair value of the 5 -1/2% convertible subordinated notes (which have a carrying value of $240,000,000) was approximately $168,300,000 at June 28, 2002. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS A. LITIGATION 1. FEDERAL SECURITIES CLASS ACTIONS A number of complaints asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act were filed beginning in January 2002 in the U.S. District Court for the Southern District of New York against us and certain of our directors and officers on behalf of purported classes of our shareholders. By order dated June 4, 2002 these actions were consolidated under the caption of the first-filed of these actions, Irvine v. ImClone Systems Incorporated et at., No. 02 Civ. 0109(RO). The original complaints in these actions allege generally that various public statements made by us or our senior officers during 2001 and early 2002 regarding the prospects for FDA approval of ERBITUX were false or misleading when made, that various Company insiders were aware of material, non-public information regarding the actual prospects for ERBITUX at the time that those insiders engaged in transactions in our common stock and that members of the purported shareholder class suffered damages when the market price of our common stock declined following disclosure of the information that allegedly had not been previously disclosed. On December 28, 2001, we disclosed that we had received a "refusal to file" letter from the FDA relating to our biologics license application for ERBITUX. Thereafter, various news articles purported to describe the contents of the FDA's "refusal to file" letter. During this period, the market price of our common stock declined. The complaints in the various actions seek to proceed on behalf of a class of our present and former shareholders, other than defendants or persons affiliated with the defendants, seek monetary damages in an unspecified amount and seek recovery of plaintiffs' costs and attorneys' fees. A consolidated amended complaint is expected to be filed shortly. 2. DERIVATIVE ACTIONS Beginning on January 13, 2002 and continuing thereafter, eight separate purported shareholder derivative actions have been filed against the members of our Board of Directors and the Company, as nominal defendant, advancing claims based on allegations similar to the allegations in the federal securities class action complaints. Three of these derivative cases were filed in the Delaware Court of Chancery and have been consolidated in that court under the caption In re ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC. An additional case has been filed in the Delaware Court of Chancery, styled Krim v. Waksal, et al., C.A. No. 19528-NC, which likely will be consolidated with the other actions pending in that court. In addition, two purported derivative actions have been filed in the U.S. District Court for the Southern District of New York, styled Lefanto v. Waksal, et al., No. 02 Civ. 0163 (LLS), and Forbes v. Barth, et al., No. 02 Civ. 1400 (RO), and two purported derivative actions have been filed in New York State Supreme Court in Manhattan, styled Boghosian v. Barth, et al., Index No. 100759/02 and Johnson v. Barth, et al., Index No. 601304/02. All of these actions assert claims, purportedly on our behalf, for breach of fiduciary duty by certain members of the Board of Directors based on the allegation, among others, that certain directors engaged in transactions in our common stock while in possession of material, non-public information concerning the regulatory and marketing prospects for ERBITUX. Another complaint, purportedly asserting direct claims on behalf of a class of the Company's shareholders but in fact asserting derivative claims that are similar to those asserted in these eight cases, was filed in the U.S. District Court for the Southern District of New York on February 13, 2002, styled Dunlap v. Waksal, et al., No. 02 Civ. 1154 (RO). The Dunlap complaint asserts claims against the Board of Directors for breach of fiduciary duty purportedly on behalf of all persons who purchased shares of the Company's common stock prior to June 28, 2001 and then held those shares through December 6, 2001. It alleges that the members of the purported class suffered damages as a result of holding their shares based on allegedly false information about the financial prospects of the Company that was disseminated during this period. Page 24 All of these actions are in their earliest stages. We intend to contest vigorously the claims asserted in these actions. B. GOVERNMENT INQUIRIES AND INVESTIGATIONS As previously reported, we have received subpoenas and requests for information in connection with investigations by the Securities and Exchange Commission, the Subcommittee on Oversight and Investigations of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice relating to the circumstances surrounding the disclosure of the FDA letter dated December 28, 2001 and trading in our securities by certain Company insiders in 2001. We are cooperating with all of these inquiries and intend to continue to do so. On June 19, 2002, we received a written "Wells Notice" from the staff of the Securities and Exchange Commission, indicating that the staff is considering recommending the Commission bring an action against us relating to our disclosure immediately following the receipt of a Refusal-to-File letter from the FDA on December 28, 2001 for our biologics license application for ERBITUX. We filed a Wells submission on July 12, 2002 in response to the staff's Wells Notice. We have also received permission from the Commission to file a supplemental Wells submission, and we anticipate that we will make this submission in September of this year. ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) An annual meeting of stockholders was held on June 11, 2002 (the "Annual Meeting"). (b) The directors elected at the Annual Meeting were Andrew G. Bodnar, Vincent T. DeVita, Jr., Robert F. Goldhammer, David M. Kies, Paul B. Kopperl, Arnold Levine, John Mendelsohn, William R. Miller, Peter S. Ringrose and Harlan W. Waksal. Such persons are all of the directors of the Company whose term of office as a director continued after the Annual Meeting. (c) The matters voted upon at the Annual Meeting and the results of the voting are set forth below. Broker non-votes were not applicable. (i) Election of directors
NAME IN FAVOR WITHHELD ---- ---------- --------- Andrew G. Bodnar ........ 54,276,035 8,728,530 Vincent T. DeVita, Jr ... 54,279,942 8,724,623 Robert F. Goldhammer .... 54,238,633 8,765,932 Paul B. Kopperl ......... 54,280,272 8,724,293 David M. Kies ........... 54,284,503 8,720,062 Arnold Levine ........... 54,283,391 8,721,174 John Mendelsohn ......... 53,912,661 9,091,904 William R. Miller ....... 54,278,940 8,725,625 Peter S. Ringrose ....... 54,281,356 8,723,209 Harlan W. Waksal ........ 53,860,561 9,144,004
(ii) The stockholders approved the Company's 2002 Stock Option Plan. The stockholders voted 45,617,936 shares in favor and 17,268,070 shares against. 118,559 shares abstained from voting. (iii) The stockholders approved a proposal to amend the Company's certificate of incorporation to increase the total number of shares of common stock the Company is authorized to issue from 120,000,000 shares to 200,000,000 shares. The stockholders voted 61,580,428 shares in favor and 1,337,270 shares against. 86,867 shares abstained from voting. (iv) The stockholders ratified the appointment by the Board of Directors of KPMG LLP as the Company's independent certified public accountants for the fiscal year ending December 31, 2002. The stockholders voted 62,207,089 shares in favor and 404,703 shares against. 392,773 shares abstained Page 25 from voting. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description ----------- ----------- 3.1C Amendment dated August 9, 2002 to the Company's Certificate of Incorporation, as amended 10.90 Employment Agreement dated as of February 1, 2002 between the Company and Clifford R. Saffron, as amended by letter agreement dated as of April 18, 2002 10.91 Separation Agreement dated as of May 22, 2002 between the Company and Samuel D. Waksal 10.92 Agreement of Sale and Purchase between 4/33 Building Associates, LP and ImClone Systems Incorporated pertaining to 33 Chubb Way, Branchburg, New Jersey executed as of March 1, 2002 99.8 ImClone Systems Incorporated 2002 Stock Option Plan. 99.9 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.10 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K On June 26, 2002, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission reporting events under Item 5. Page 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMCLONE SYSTEMS INCORPORATED (Registrant) Date: August 14, 2002 By /s/ HARLAN W. WAKSAL ------------------------------------- Harlan W. Waksal President and Chief Executive Officer Date: August 14, 2002 By /s/ DANIEL S. LYNCH ------------------------------------- Daniel S. Lynch Senior Vice President, Finance and Chief Financial Officer Page 27 EX-3.1C 3 y62899exv3w1c.txt AMENDMENT TO CERTIFICATION OF INC Exhibit 3.1C CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF IMCLONE SYSTEMS INCORPORATED Under Section 242 of the General Corporation Law Of the State of Delaware The undersigned, being the President and CEO of IMCLONE SYSTEMS INCORPORATED, a Delaware corporation (the "Corporation") DOES HEREBY CERTIFY as follows: FIRST: This Certificate of Incorporation of the Corporation is hereby amended so that Article FOURTH (a) shall read in its entirety as follows: "FOURTH: (a) The total number of shares of capital stock which the Corporation shall have the authority to issue is two hundred million (200,000,000) shares of Common Stock with a par value of one tenth of one cent ($.001) per share and four million (4,000,000) shares of Preferred Stock with a par value of one dollar ($1.00) per share" SECOND: That such amendment was duly adopted by the Board of Directors of the Corporation and by the Stockholders of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS THEREOF, this Certificate of Amendment to the Certificate of Incorporation has been signed, and the statements made herein affirmed as true under the penalties of perjury, this 9th day of August 2002. /S/ Harlan W. Waksal --------------------------- Harlan W. Waksal President and CEO /S/ Daniel S. Lynch - ------------------------- Daniel S. Lynch Secretary EX-10.90 4 y62899exv10w90.txt EMPLOYMENT AGREEMENT EXHIBIT 10.90 - ORIGINAL EMPLOYMENT AGREEMENT AGREEMENT, dated as of February 1, 2002 by and between ImClone Systems Incorporated, a Delaware corporation (the "Company") and Clifford R. Saffron ("Executive"). IN CONSIDERATION of the premises and the mutual covenants set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive as a Vice-President and Special General Counsel ("SGC") and Executive hereby accepts such employment, on the terms and conditions hereinafter set forth. 2. Term. The period of employment of Executive by the Company under this Agreement (the "Employment Period") shall commence on the date hereof (the "Commencement Date") and shall continue through the first anniversary thereof. The Employment Period may be sooner terminated by either party in accordance with Section 6 of this Agreement. 3. Position and Duties. During the Employment Period, Executive shall serve as SGC, and shall report to the Company's Chief Executive Officer. Executive shall have those powers and duties normally associated with the position of SGC and shall have such other powers and duties as are assigned to him by the Company. Executive shall devote all of his working time, attention and energies during normal business hours (other than absences due to illness or vacation) to performing his duties for the Company. 4. Place of Performance. The principal place of employment of Executive shall be at the Company's principal executive offices in New York, New York; provided, that, he may be required to travel on Company business from time to time. 5. Compensation and Related Matters. (a) Base Salary and Bonus. During the Employment Period, the Company shall pay Executive a base salary at the rate of $225,000 per year ("Base Salary"). Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. In addition to Base Salary, Executive shall be eligible to receive an annual target bonus of $100,000 upon attaining performance goals established by the Company. (b) Stock Options. (i) The Board of Directors of the Company has approved a stock option grant to Executive to acquire 60,000 shares of the Company's common stock (each, an "Option" and collectively the "Options") at a price of $ 18.44 per share under such terms and conditions as provided for under the Company's then existing stock option plans which are not inconsistent with clause (ii) below. (ii) The Options described in paragraph (i) above shall be granted subject to the following terms and conditions: (A) except as provided below, the Options shall be granted under and subject to the Company's stock option plan; (B) the exercise price per share of each Option shall be $ 18.44, which was the closing price of the Company's common stock on the NASDAQ (or such other principal trading market for the Company's common stock) on February 15, 2002, the date that this grant was approved by the Board; (C) the Options shall be vested and exercisable as to 25% of the shares subject thereto on the date of grant and as to an additional 25% of the shares subject thereto on each of the first, second and third anniversaries of the date of grant; provided, that, Executive is then employed; (D) each Option shall be exercisable for the ten (10) year period following the date of grant; provided, that, Executive is then employed; and (E) each Option shall be evidenced by, and subject to, a stock option agreement whose terms and conditions are consistent with the terms of employees of the Company who are at a vice president level. (c) Expenses. The Company shall promptly reimburse Executive for all reasonable business expenses upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified from time to time. (d) Vacation. Executive shall be entitled to the number of weeks of paid vacation per year as are customarily provided for an employee of his position under the Company's vacation policy. (e) Services Furnished. During the Employment Period, the Company shall furnish Executive with office space, stenographic and secretarial assistance and such other facilities and services as provided to other employees of his position. (f) Welfare, Pension and Incentive Benefit Plans and Perquisites. During the Employment Period, Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, or which it may adopt from time to time, for its employees, in accordance with the eligibility requirements for participation therein. (g) Signing Bonus. By no later than March 22, 2002, the Company shall pay Executive a signing bonus of $25,000. 6. Termination. Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (a) Expiration. The expiration of the Employment Period. (b) Death. The death of Executive. (c) Disability. If, as a result of Executive's physical or mental incapacity ("Disability"), Executive shall have been substantially unable to perform his duties hereunder for a period of thirty (30) days in any one-year period, the Company shall have the right to terminate Executive's employment for Disability. 2 (d) Cause. The Company terminates Executive for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment upon Executive's (i) conviction of, or plea of guilty or nolo contendere to, a felony or any other crime involving moral turpitude; (ii) breach of any term of this Agreement; (iii) misconduct that is injurious to the Company; (iv) habitual drug or alcohol abuse; (v) failure to satisfactorily perform his duties hereunder; or (vi) breach of any Company policy or code of conduct. (e) Without Cause. The Company terminates Executive's employment hereunder without Cause by providing Executive with a Notice of Termination. (f) Resignation by Executive. Executive terminates this Agreement and Executive's employment hereunder at any time upon thirty (30) days prior written notice to the Company. 7. Termination Procedure. (a) Notice of Termination. Any termination of Executive by the Company or by Executive (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12 of this Agreement. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive under the provisions so indicated. (b) Date of Termination. "Date of Termination" shall mean (i) if Executive's employment is terminated by the expiration of this Agreement, the date of expiration, (ii) if Executive's employment is terminated by his death, the date of his death, (iii) if Executive's employment is terminated pursuant to Section 6(c) hereof, the date the Notice of Termination is given, or (iv) if Executive's employment is terminated pursuant to any other Section, the date specified in the Notice of Termination. 8. Compensation Upon Termination or During Disability. In the event Executive is disabled or his employment terminates during the Employment Period, the Company shall provide Executive with the payments set forth below. Executive acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of his employment during the Employment Period and that prior to receiving any such payments and as a material condition thereof, Executive shall sign and agree to be bound by a general release of claims against the Company and any entity in control of, controlled by or under common control with the Company (an "Affiliate") in such form as is reasonably satisfactory to the Company. (a) If Executive is terminated pursuant to Sections 6(a), 6(b), 6(c) 6(d), or 6(f), the Company shall pay Executive his accrued, but unpaid Base Salary and, to the extent permitted by the Company's vacation policy, his accrued vacation pay, through the Date of Termination (the "Accrued Benefits"), and the Company shall have no further obligations to Executive under this Agreement; provided, that, Executive shall also be entitled to any other 3 benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Executive's employment is terminated pursuant to Section 6(e), Executive shall be entitled to (i) payment of his Accrued Benefits and (ii) the Company shall continue to pay Executive his Base Salary until the remainder of the Employment Period as though the termination under Section 6(e) had not occurred; provided, that, such period shall not be less than three (3) months. The Company shall have no further obligations to Executive under this Agreement; provided, that, Executive shall also be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. 9. Restrictive Covenants. (a) Except (i) as required in order to perform his obligations under this Agreement, or (ii) as may otherwise be required by law or any legal process (in which case Executive shall use his reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction), Executive shall not, without the express prior written consent of the Company, disclose or divulge to any other person or entity, or use or modify for use, directly or indirectly, in any way, for any person or entity any of the Company's or any Affiliate's Confidential Information at any time (during or after Executive's employment). For purposes of this Agreement, "Confidential Information" of the Company shall mean any valuable, competitively sensitive data and information related to the Company's or any Affiliate's business including, without limitation Trade Secrets (as defined below) that are not generally known by or readily available to the Company's or any Affiliate's competitors other than as a result of an improper disclosure directly or indirectly by Executive. "Trade Secrets" shall mean information or data of the Company or any Affiliate's including, but not limited to, technical or non-technical data, financial information, programs, devices, methods, techniques, drawings, processes, financial plans, product plans, or lists of actual or potential customers or suppliers, that: (A) derive economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from their disclosure or use; and (B) are the subject of efforts that are reasonable under the circumstances to maintain their secrecy (b) All records, files, drawings, documents, models, equipment, and the like containing Confidential Information or needed in the Company's business which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination of employment. The Company shall be the owner of all Trade Secrets and other products relating to the Company's business developed by Executive alone or in conjunction with others as part of his employment with the Company. (c) In the scope of Executive's employment with the Company, he may be requested, alone or with others, to create, invent, enhance, and modify items which are or 4 could be deemed to be Confidential Information. Executive acknowledges and agrees that all of such information is intended to be, and will remain, the sole and exclusive property of the Company. In addition, Executive agrees that any and all intellectual property that Executive invents, discovers, originates, makes, conceives, creates or authors either solely or jointly with others and that is the result of or is substantially derived from Confidential Information shall be the sole and exclusive property of the Company unless in the public domain. If Executive's employment with the Company terminates for any reason, he shall promptly and fully disclose all such property to the Company, shall provide the Company with any information that it may reasonably request about such property and shall execute such agreements, assignments or other instruments as may be reasonably requested by the Company to reflect such ownership by the Company and shall fully cooperate with the Company to protect the business relationships of the Company and to insure that there will be no unreasonable interference or disruption of such business relationships. (d) Should Executive engage in or perform any of the acts prohibited by this Section 9, it is agreed that the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy available to Company shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. 10. Arbitration. Except as provided for in Section 9 of this Agreement, if any contest or dispute arises between the parties with respect to this Agreement, such contest or dispute shall be submitted to binding arbitration for resolution in New York, New York in accordance with the rules and procedures of the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. The decision of the arbitrator shall be final and binding on both parties, and any court of competent jurisdiction may enter judgment upon the award. Each party shall pay its own expenses, including legal fees, in such dispute and shall split the cost of the arbitrator and the arbitration proceedings. 11. Successors; Binding Agreement. The rights and benefits of Executive hereunder shall not be assignable, whether by voluntary or involuntary assignment or transfer by Executive. This Agreement shall be binding upon, and inure to the benefit of, the successors and assigns of the Company, and the heirs, executors and administrators of the Executive, and shall be assignable by the Company to any entity acquiring substantially all of the assets of the Company, whether by merger, consolidation, sale of assets or similar transactions. 12. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: 5 If to Executive: Clifford Saffron 120 Redwood Drive Roslyn, New York 11576 If to the Company: ImClone Systems Incorporated 180 Varick Street New York, New York 10014 Attention: Chief Financial Officer or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 13. Miscellaneous. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The respective rights and obligations of the parties hereunder of this Agreement shall survive Executive's termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. By signing this Agreement, Executive acknowledges that he will not be an officer of the Company and that during the Employment Period he will not hold himself out to the public or any other party as an officer of the Company. 14. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 16. Entire Agreement. Except as other provided herein, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter. Except as other provided herein, any prior 6 agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. 17. Withholding. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 18. Section Headings. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. 19. Representation. Executive represents and warrants to the Company, and Executive acknowledges that the Company has relied on such representations and warranties in employing Executive, that neither Executive's duties as an employee of the Company nor his performance of this Agreement will breach any other agreement to which Executive is a party, including without limitation, any agreement limiting the use or disclosure of any information acquired by Executive prior to his employment by the Company. In addition, Executive represents and warrants and acknowledges that the Company has relied on such representations and warranties in employing Executive, that he has not entered into, and will not enter into, any agreement, either oral or written, in conflict herewith. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. IMCLONE SYSTEMS INCORPORATED /S/ Daniel S. Lynch By: ------------------------ Name: Daniel S. Lynch Title: Senior Vice President - Finance & Chief Financial Officer Executive: /S/ Clifford R. Saffron ------------------------ Name: Clifford R. Saffron 8 EXHIBIT 10.90 - AMENDMENT As of April 18, 2002 Clifford R. Saffron, Esq. 120 Redwood Drive Roslyn, NY 11576 Dear Cliff: Reference is made to the Employment Agreement between the Company and yourself dated as of February 1, 2002 (the "Agreement"). That Agreement provides the terms of your employment by ImClone Systems Incorporated commencing February 1, 2002, and it is the intent of the Company and yourself through this letter amendment (the "Amendment") to make certain changes to the Agreement, as follows: In Section 1, "Employment", your title, reflected in the Agreement as Vice President and Special General Counsel (SGC), shall be changed to "Senior Vice President and Special General Counsel (SGC)". In addition to the Stock Option award set forth in Section 5(b) of the Agreement, the Company awards you additional Stock Options as set forth below: The Board of Directors of the Company has approved a stock option grant to Executive to acquire 10,000 shares of the Company's common stock (each, an "Option" and collectively the "Options") at a price of $ 21.54 per share under such terms and conditions as provided for under the Company's then existing stock option plans which are not inconsistent with the following paragraph. The Options described in paragraph (i) above shall be granted subject to the following terms and conditions: (A) except as provided below, the Options shall be granted under and subject to the Company's stock option plan; (B) the exercise price per share of each Option shall be $ 21.54, which was the closing price of the Company's common stock on the NASDAQ (or such other principal trading market for the Company's common stock) on April 18, 2002, the date that this grant was approved by the Board; (C) the Options shall be vested and exercisable as to 25% of the shares subject thereto on each of the first, second, third and fourth anniversaries of the date of grant; provided, that, Executive is then employed; (D) each Option shall be exercisable for the ten (10) year period following the date of grant; provided, that, Executive is then employed; and (E) each Option shall be evidenced by, and subject to, a stock option agreement whose terms and conditions are consistent with the terms of employees of the Company who are at a vice president level. "Section 5(c) of the Agreement is amended to add the following additional language: "In addition, during the Employment Period, the Company shall provide the Executive a reasonable automobile allowance as determined by the CEO". In all other aspects the Agreement remains unchanged. Kindly enter into the Amendment by signing below. Very truly yours, /S/ Daniel S. Lynch Daniel S. Lynch Senior Vice President, Chief Financial Officer and Secretary Agreed to: /S/ Clifford R. Saffron ---------------------------- Clifford R. Saffron EX-10.91 5 y62899exv10w91.txt SEPERATION AGREEMENT EXHIBIT 10.91 SEPARATION AGREEMENT (SAMUEL D. WAKSAL) SEPARATION AGREEMENT, dated as of May 22, 2002 ("Agreement"), between IMCLONE SYSTEMS INCORPORATED, a Delaware corporation (the "Company"), and SAMUEL D. WAKSAL (the "Executive"). Capitalized terms used herein but not defined herein shall have the meanings given to them in the Employment Agreement, dated as of September 19, 2001 (the "Employment Agreement"), between the Company and the Executive. SECTION 1. RESIGNATION. In consideration of the Company's agreements hereunder, the Executive hereby resigns from all directorships, offices and positions with the Company and its subsidiaries, affiliates and employee benefit plans and trusts, effective May 22, 2002 (the "Date of Termination"). The Executive and the Company hereby agree that the Employment Period shall be terminated as of the Date of Termination. SECTION 2. SEPARATION COMPENSATION. Within five (5) days following the Date of Termination, the Company shall pay to Executive $7,000,000 (seven million dollars). SECTION 3. OTHER BENEFITS. (a) The Company shall maintain in full force and effect, for the continued benefit of Executive, his spouse and his dependents for a period of three (3) years following the Date of Termination the medical, hospitalization, dental, and life insurance programs in which Executive, his spouse and his dependents were participating immediately prior to the Date of Termination at the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the Date of Termination; provided, that, if Executive, his spouse or his dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, his spouse and his dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs ("Continued Benefits"), provided, that, such Continued Benefits shall terminate on the date or dates Executive receives equivalent coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit, basis). (b) Subject to the Executive's insurability, the Company shall purchase for the benefit of Executive or his designated beneficiaries a term life insurance policy with a death benefit of $5,000,000 to be maintained for 6 years following the Date of Termination. (c) The Company shall reimburse Executive in the manner provided in Section 5 of the Employment Agreement for reasonable expenses incurred, but not paid prior to the Date of Termination. 2 (d) The Executive shall be entitled to any other rights, compensation and/or benefits as may be due to the Executive as of the Date of Termination in accordance with the terms and provisions of any agreements (other than the Employment Agreement), plans or programs of the Company. (e) With respect to equity awards granted or made on or after September 19, 2001, notwithstanding the terms or conditions of any stock option, stock appreciation right, restricted stock or similar agreements between the Company and Executive to the contrary, and for purposes thereof, such agreements shall be deemed to be amended in accordance with this Section 3(e) if need be as of the Date of Termination and neither the Company, the Board nor the Committee shall take or assert any position contrary to the foregoing, such that Executive shall vest, as of the Date of Termination, in all rights under such agreements (e.g., stock options that would otherwise vest after the Date of Termination) and in the case of stock options, stock appreciation rights or similar awards, thereafter shall be permitted to exercise any and all such rights until the end of the term of such awards (regardless of any termination of employment restrictions therein contained) and restricted stock held by Executive shall become immediately vested as of the Date of Termination. (f) The Executive shall have the right to receive in connection with this Agreement any payments to which the Executive would have been entitled pursuant to Section 8(e) of the Employment Agreement. (g) The Company shall pay fees of the Executive's crisis management consultant incurred during the six months following the Date of Termination; provided that such fees do not exceed $25,000 per month. (h) The Company shall pay to the applicable advisors of the Executive, the Executive's legal fees incurred in connection with the negotiation of this Agreement up to a maximum of $35,000. SECTION 4. RESTRICTIVE COVENANTS. (a) CONFIDENTIALITY. The Executive shall not, without the prior written consent of the Company or as may otherwise be required by applicable law or legal process, or as is necessary in connection with any adversarial proceeding against the Company (in which cases Executive shall use his reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction) at any time use, divulge or convey any trade secrets or confidential information, knowledge or data relating to the Company or its affiliates and their respective businesses and investments (including information, knowledge or data of third parties as to which the Company or an affiliate is under an obligation of confidentiality), which is not generally available public knowledge (other than information that became public knowledge as a result of acts by Executive in violation of this Agreement). (b) NON-SOLICITATION. The Executive hereby agrees, in consideration of the payments to him hereunder, that from the Date of Termination through the first 3 anniversary of the Date of Termination, Executive shall not directly or indirectly induce any employee of the Company to terminate such employment or to become employed by any other biopharmaceutical company. (c) NON-COMPETITION. The Executive hereby agrees, in consideration of the payments to him hereunder, that from the Date of Termination through the first anniversary of the Date of Termination, he shall not be employed by or perform activities on behalf of, or have an ownership interest in, any person, firm, corporation or other entity, or in connection with any business enterprise, that is directly or indirectly engaged in any of the biopharmaceutical businesses in which the Company and its subsidiaries have significant involvement (other than by means of Executive's direct or beneficial ownership of up to one percent (1%) of any entity whether or not such entity is in the same or competing business); provided that nothing in this Section 4(c) shall restrict the Executive's current relationships with Scientia Health Group Inc., Antigenics, Cibus Genetics LLC, Berleley Heart Lab, Microbes, Prototek II, Inc., Tribeca Pharmaceutical Corporation and Valigen, N.V. (d) BLUE PENCIL. The parties hereby acknowledge that the restrictions in this Section 4 have been specifically negotiated and agreed to by the parties hereto and are limited only to those restrictions necessary to protect the Company and its subsidiaries from the misuse of confidential information and unfair competition. The parties hereby agree that if the scope or enforceability of any provision, paragraph or subparagraph of this Section 4 is in any way disputed at any time, and should a court find that such restrictions are overly broad, the court may modify and enforce the covenant to the extent that it believes it to be reasonable under the circumstances. Each provision, paragraph and subparagraph of this Section 4 is separable from every other provision, paragraph, and subparagraph and constitutes a separate and distinct covenant. Executive acknowledges that the Company's business is not limited by geographical scope, is operating throughout the world and that the effect of Section 4(c) may be to prevent him from working in a competitive business after his termination of employment hereunder. SECTION 5. SPECIFIC PERFORMANCE. The Executive acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 4 would be inadequate and the Company would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, the Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall, notwithstanding Section 17 of this Agreement, be entitled to bring an action in any court of competent jurisdiction for the purpose of obtaining equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. SECTION 6. COOPERATION. The Executive shall provide reasonable cooperation in connection with any action, investigation or proceeding which relates to the Company or any of its affiliates, including without limitation in connection with any litigation and disputes arising out of actions or inactions of the Company or any affiliate of which the Executive has knowledge or information; provided that such cooperation does not unreasonably interfere with the Executive's other pursuits or undertakings. The Executive further agrees to cooperate with the Company in supplying data, information, and expertise within the Executive's special knowledge or competence and otherwise assist the Company in the protection of the interests of the Company 4 and its affiliates; provided that such cooperation does not unreasonably interfere with the Executive's other pursuits or undertakings. The Company shall reimburse the Executive for reasonable out-of-pocket expenses incurred by the Executive in connection with such cooperation following its receipt of the Executive's appropriately itemized request. SECTION 7. INDEMNITY. The existing rights of the Executive and obligations of the Company with regard to indemnification of the Executive that are not dependent upon Executive's continued employment or holding an office or directorship with the Company or an affiliate, and the indemnification rights under the Company's current certificate of incorporation and by-laws, shall continue. SECTION 8. NON-DISPARAGEMENT. The Company and its affiliates shall refrain from making any statements or comments of a defamatory or disparaging nature to any third party regarding the Executive, and the Executive shall refrain from making any statements or comments of a defamatory or disparaging nature to any third party regarding the Company, any of its affiliates, or any of their directors, officers, personnel, policies or product; provided, however, that it shall not be a violation of this Section 8 for either party to make truthful statements when required to do so by a court of law, by any governmental agency having supervisory authority over the party, or by any administrative or legislative body with apparent jurisdiction to order the party to divulge, disclose or make accessible such information or as may otherwise be required to defend any allegations or statements made by the other party. SECTION 9. SEVERABILITY. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. SECTION 10. ASSIGNMENT. This Agreement, and all of Executive's rights and duties hereunder, shall not be assignable or delegable by Executive. Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force and effect. This Agreement may be assigned by the Company to a person or entity which is a successor in interest to substantially all of the business operations of the Company. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such successor person or entity. SECTION 11. NO MITIGATION. Executive shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment, and, except as may be required pursuant to Section 3(a) of this Agreement, the Executive shall not be required to pay the Company any amounts the Executive may receive from such alternative employment. Additionally, amounts owed to the Executive under this Agreement shall not be offset by any claims the Company may have against the Executive. SECTION 12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. SECTION 13. NOTICE. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective 5 addresses set forth below in this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Notice to the Company shall be addressed to: ImClone Systems Incorporated 180 Varick Street New York, New York 10014 Attn: Chief Financial Officer Notice to the Executive shall be addressed to: Dr. Samuel D. Waksal 150 Thompson Street, Apt. 5C New York, NY 10012 SECTION 14. WITHHOLDING TAXES. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. SECTION 15. ENTIRE AGREEMENT/AMENDMENTS. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes the Employment Agreement, which shall terminate as of the date hereof. For the avoidance of doubt, the Discovery and Non-Disclosure Agreement, dated as of July 15, 1986, between the Company and the Executive shall survive. This Agreement may not be amended except by written instrument signed by the parties hereto. SECTION 16. NO WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. SECTION 17. ARBITRATION. Except as set forth in Section 5 of this Agreement, any dispute, controversy or claim arising out of or relating to this Agreement shall be settled exclusively by binding arbitration for resolution in New York, New York in accordance with the rules and procedures of the Employment Dispute Resolution Rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding on both parties, and any court of competent jurisdiction may enter judgment upon the award. The Company shall pay all expenses relating to such arbitration, including but not limited to, the Executive's legal fees and expenses, regardless of outcome, unless the arbitrator determines that the Executive has acted in bad faith. SECTION 18. GOVERNING LAW; VENUE. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles thereof. Except as provided in Section 17 of this Agreement, the Executive irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York and the courts of the United States located in the State of New York for the purpose of any action or proceeding 6 arising out of or relating to this Agreement, and acknowledges that the designated fora have a reasonable relation to this Agreement and the parties' relationship to one another. SECTION 19. COUNTERPARTS. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. IMCLONE SYSTEMS INCORPORATED /S/ Daniel S. Lynch ------------------------------ BY: DANIEL S. LYNCH TITLE: CFO /S/ Samuel D. Waksal, Ph.D. ------------------------------ SAMUEL D. WAKSAL, PH.D. EX-10.92 6 y62899exv10w92.txt AGREEMENT OF SALE EXHIBIT 10.92 EXECUTION COPY AGREEMENT OF SALE AND PURCHASE BETWEEN 4/33 BUILDING ASSOCIATES, L.P. AND IMCLONE SYSTEMS INCORPORATED PERTAINING TO 33 CHUBB WAY, BRANCHBURG, NEW JERSEY EXECUTED EFFECTIVE AS OF MARCH 1, 2002 AGREEMENT OF SALE AND PURCHASE THIS AGREEMENT OF SALE AND PURCHASE (this "AGREEMENT") is entered into and effective for all purposes as of March 1, 2002 (the "EFFECTIVE DATE"), by and between 4/33 Building Associates, L.P., a New Jersey limited partnership ("SELLER") and ImClone Systems Incorporated a Delaware corporation ("PURCHASER"). In consideration of the mutual promises, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. For purposes of this Agreement, the following capitalized terms have the meanings set forth in this Section 1.1: "AFFILIATE" means any person or entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Purchaser or Seller, as the case may be. For the purposes of this definition, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have the meanings correlative to the foregoing. "AUTHORITIES" means the various governmental and quasi-governmental bodies or agencies having jurisdiction over Seller, the Real Property, the Improvements, or any portion thereof. "BILLABLE OPERATING COSTS" has the meaning ascribed to such term in Section 10.4(c). "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which national banking associations are authorized or required to close. "CLOSING" means the consummation of the purchase and sale of the Property contemplated by this Agreement, as provided for in Article X. "CLOSING DATE" means the date on which the Closing occurs, which the parties anticipate will be on or about, but not prior to, May 15, 2002, or such later date to which Purchaser and Seller may hereafter agree in writing. "CLOSING STATEMENT" has the meaning ascribed to such term in Section 10.4(a). "CLOSING SURVIVING OBLIGATIONS" means the rights, liabilities and obligations set forth in Sections 3.2, 3.4, 5.5, 5.6, 8.1, 8.2, 10.4, 11.1, 12.1, 12.2, 16.1 and 17.2. "CODE" has the meaning ascribed to such term in Section 4.3. "COMMITMENT" has the meaning ascribed to such term in Section 6.2. "CURE NOTICE" has the meaning ascribed to such term in Section 16.2. "DEED" has the meaning ascribed to such term in Section 10.3(a). "DOCUMENTS" has the meaning ascribed to such term in Section 5.2. "DUE DILIGENCE PERIOD" means the period that ends at 11:59 p.m. Eastern Time on March 1, 2002. "EARNEST MONEY DEPOSIT" has the meaning ascribed to such term in Section 4.1. "EFFECTIVE DATE" has the meaning ascribed to such term in the opening paragraph of this Agreement. "ENVIRONMENTAL LAWS" means all federal, state and local environmental laws, rules, statutes, directives, binding written interpretations, binding written policies, ordinances and regulations issued by any Authorities and in effect as of the date of this Agreement with respect to or which otherwise pertain to or affect the Real Property or the Improvements, or any portion thereof, the use, ownership, occupancy, or operation of the Real Property or the Improvements or any portion thereof, or Seller, and as same have been amended, modified or supplemented from time to time prior to the date of this Agreement, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), the Hazardous Substances Transportation Act (49 U.S.C. Section 1802 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended by the Hazardous and Solid Wastes Amendments of 1984 ("RCRA"), the Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. Section 300f et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Clean Water Act (33 U.S.C. Section 1321 et seq.), the Solid Waste Disposal Act (42 U.S.C. Section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001 et seq.), the Radon and Indoor Air Quality Research Act (42 U.S.C. Section 7401 note, et seq.), the Superfund Amendment Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), comparable state and local laws, including but not limited to Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.) ("ISRA") and any and all rules and regulations which have become effective prior to the date of this Agreement under any and all of the aforementioned laws. "ESCROW HOLDER" means General Land Abstract Company, One Gateway Center, Suite 2503, Newark, New Jersey 07102 Attention: Gregory Kowalski. "EXISTING SURVEYS" has the meaning ascribed to such term in Section 6.1. 2 "GOVERNMENTAL REGULATIONS" means all laws, ordinances, rules and regulations of the Authorities applicable to Seller or the use or operation of the Real Property or the Improvements or any portion thereof. "HAZARDOUS SUBSTANCES" means all (a) asbestos, radon gas, electromagnetic waves, urea formaldehyde foam insulation and transformers or other equipment that contains dielectric fluid containing polychlorinated biphenyls, (b) any solid, liquid, gaseous or thermal contaminant, including smoke vapor, soot, fumes, acids, alkalis, chemicals, waste, petroleum products or byproducts, asbestos, PCBs, phosphates, lead or other heavy metals, chlorine, or radon gas, (c) any solid or liquid wastes (including hazardous wastes), hazardous air pollutants, hazardous substances, hazardous chemical substances and mixtures, toxic substances, pollutants and contaminants, as such terms are defined in any Environmental Law, including, without limitation, the National Environmental Policy Act (42 U.S.C. Section 4321 et seq.), Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.) and (d) any other chemical, material or substance, the use or presence of which, or exposure to the use or presence of which, is prohibited, limited or regulated by any Environmental Laws. "IMPROVEMENTS" means all buildings, structures, fixtures, parking areas and improvements located on the Real Property. "LEASE SURRENDER" means the surrender of the Tenant Lease and the Property by the Tenant at Closing, as evidenced by the Acknowledgement of Lease Surrender to be entered into by the Purchaser and the Tenant, and which is intended to be delivered at the Closing. "LEASE SURRENDER AGREEMENT" means that certain Lease Surrender Agreement by and between Office Interiors, Inc. and ImClone Systems, Incorporated dated as of March 1, 2002. "LICENSEE PARTIES" has the meaning ascribed to such term in Section 5.1. "LICENSES AND PERMITS" means, collectively, all of Seller's right, title and interest, to the extent assignable, in and to licenses, permits, certificates of occupancy, approvals, dedications, subdivision maps and entitlements now or hereafter issued, approved or granted by the Authorities in connection with the Real Property and the Improvements, together with all renewals and modifications thereof. "LOSSES AND DAMAGES" has the meaning ascribed to such term in Section 5.3(b). "OUTSIDE CLOSING DATE" means July 31, 2002. "PERMITTED EXCEPTIONS" means and includes all of the following: (a) zoning and building ordinances and land use regulations that apply to the Real Property and the Improvements; (b) the lien of taxes and assessments not yet due and payable; (c) such state of facts as would be disclosed by a physical inspection of the Real Property and the Improvements or an update to the Existing Survey; (d) any exceptions caused by Purchaser, its agents, representatives or employees; (e) any matters deemed to constitute Permitted Exceptions under Section 6.2(b). In no event shall the term "Permitted Exceptions" include any of the matters described in Section 6.2(c). 3 "PERMITTED OUTSIDE PARTIES" has the meaning ascribed to such term in Section 5.2(b). "PERSONAL PROPERTY" means all of Seller's right, title and interest in and to the equipment, appliances, tools, supplies, machinery, artwork, furnishings and other tangible personal property attached to, appurtenant to, located in and used exclusively in connection with the ownership or operation of the Improvements other than the personal property described on EXHIBIT B attached hereto. "PROPERTY" has the meaning ascribed to such term in Section 2.1. "PROPERTY MANAGER" means The Gale Management Company, L.L.C., a Delaware limited liability company. "PRORATION ITEMS" has the meaning ascribed to such term in Section 10.4(a). "PURCHASE PRICE" has the meaning ascribed to such term in Section 3.1. "PURCHASER REPRESENTATION NOTICE" has the meaning ascribed to such term in Section 16.2. "PURCHASER'S INFORMATION" has the meaning ascribed to such term in Section 5.2(c). "PURCHASER'S BROKER" has the meaning ascribed to such term in Section 11.1. "REAL PROPERTY" means that certain parcel of real property located at 33 Chubb Way, Township of Branchburg, Block 68.06 Lot 5, Somerset County, New Jersey, as more particularly described on EXHIBIT A attached hereto and made a part hereof, together with all of Seller's right, title and interest, if any, in and to the appurtenances pertaining thereto, including, but not limited to, Seller's right, title and interest in and to the adjacent streets, alleys and right-of-ways, and any easement rights, air rights, subsurface rights, development rights and water rights. "RECORDER'S OFFICE" means the land records of the Somerset County Clerk. "RECORDS AND PLANS" means, collectively: (i) applicable books and records, including, but not limited to, property operating statements, specifically relating to the Improvements; (ii) all structural reviews, architectural drawings and structural engineering, seismic, and architectural and environmental reports, studies and certificates pertaining to the Real Property or the Improvements; and (iii) all preliminary, final and proposed plans, specifications and drawings of the Improvements or the Real Property or any portion thereof. The term "Records and Plans" shall not include: (1) any document or correspondence which would be subject to the attorney-client privilege; (2) any document or item which Seller is contractually or otherwise bound to keep confidential; (3) any documents pertaining to the marketing of the Property for sale to prospective purchasers; (4) any internal memoranda, reports or assessments of Seller, Seller's Affiliates, relating to Seller's valuation of the Property; and (5) appraisals of the Property whether prepared internally by Seller or Seller's Affiliates or externally. "RENTALS" means fixed monthly rentals, additional rentals, percentage rentals, escalation rentals (which include Tenant's prorata share of building operation and maintenance costs and 4 expenses as provided for under the Tenant Lease, to the extent the same exceeds any expense stop specified in such Tenant Lease, if applicable), retroactive rentals, all administrative charges, utility charges, tenant or real property association dues, park charges applicable to the Real Property, storage rentals, special event proceeds, temporary rents, telephone receipts, locker rentals, vending machine receipts and other sums and charges payable by Tenant under the Tenant Lease or from other occupants or users of the Property, but excluding amounts received for Billable Operating Costs for the calendar year in which Closing occurs. Rentals are "DELINQUENT" when they were due prior to the Closing Date and payment thereof has not been made on or before the Closing Date. "RENT ROLL" has the meaning ascribed to such term in Section 5.2(a). "REPORTING PERSON" has the meaning ascribed to such term in Section 4.3. "SELLER REPRESENTATION NOTICE" has the meaning ascribed to such term in Section 16.2. "SERVICE CONTRACTS" means all service agreements, maintenance contracts, equipment leasing agreements, and other contracts for the provision of labor, services, materials or supplies relating solely to the Real Property, the Improvements or the Personal Property and under which Seller is currently paying for services rendered in connection with or receiving revenues from the Property, as listed and described on EXHIBIT C attached hereto, together with all renewals, supplements, amendments and modifications thereof, and any new such agreements entered into after the Effective Date, to the extent permitted by Section 7.1(e). All leasing, listing, and property management agreements will be terminated at the Closing and excluded from such term. Purchaser has requested, and Seller has agreed, that all Service Contracts be terminated as of the Closing Date. "SIGNIFICANT PORTION" means damage by fire or other casualty to the Real Property and the Improvements or a portion thereof requiring repair costs in excess of Five Hundred Thousand and No/100 Dollars ($500,000.00). "TENANT DEPOSIT" means the Letter of Credit deposited with Seller, as landlord, or any other person on Seller's behalf, by the Tenant as the security deposit under the Tenant Lease Seller will produce the original Letter of Credit at Closing and return the original Letter of Credit to Tenant in connection with the Lease Surrender, unless Seller has to draw on the Letter of Credit prior to Closing for Tenant's failure to pay amounts due under the Tenant Lease. "TENANT LEASE" means (i) the written lease, rental agreements or occupancy agreements, and all written renewals, amendments, modifications and supplements thereto, together with (ii) any renewals and modifications thereof for the single tenant of the building, Office Interiors, Inc., d/b/a Dancker Sellew & Douglas. "TENANT" means Office Interiors, Inc., d/b/a Dancker Sellew & Douglas, and all persons or entities leasing, renting or occupying space within the Improvements pursuant to the Tenant Lease, but expressly excludes any subtenants, licensees, concessionaires, franchisees or other persons or entities whose occupancy is derived through Tenant. "TERMINATION NOTICE" has the meaning ascribed to such term in Section 5.4. 5 "TERMINATION SURVIVING OBLIGATIONS" means the rights, liabilities and obligations set forth in Sections 5.2, 5.3, 5.6, 10.01(d), 11.1, 12.1, and 12.2, Article XIII and Section 17.2. "TITLE COMPANY" means General Land Abstract Company, as agent for First American Title Insurance Company . "TITLE DOCUMENTS" has the meaning ascribed to such term in Section 6.2(a). "TITLE OBJECTION" and "TITLE OBJECTIONS" have the meaning ascribed to such terms in Section 6.2(a). "TITLE POLICY" has the meaning ascribed to such term in Section 6.3. "TO SELLER'S KNOWLEDGE" means the present actual (as opposed to constructive or imputed) knowledge solely of Joseph Adamo as of the Effective Date, and recertified to the Closing Date, without any independent investigation or inquiry whatsoever. SECTION 1.2 REFERENCES; EXHIBITS AND SCHEDULES. Except as otherwise specifically indicated, all references in this Agreement to Articles or Sections refer to Articles or Sections of this Agreement, and all references to Exhibits or Schedules refer to Exhibits or Schedules attached hereto, all of which Exhibits and Schedules are incorporated into, and made a part of, this Agreement by reference. The words "herein," "hereof," "hereinafter" and words and phrases of similar import refer to this Agreement as a whole and not to any particular Section or Article. ARTICLE II AGREEMENT OF PURCHASE AND SALE SECTION 2.1 AGREEMENT. Seller hereby agrees to sell, convey and assign to Purchaser, and Purchaser hereby agrees to purchase and accept from Seller, on the Closing Date and subject to the terms and conditions of this Agreement, all of the following (collectively, the "PROPERTY"): (a) the Real Property; (b) the Improvements; (c) the Personal Property, if any; (d) all of Seller's right, title and interest, if any, in, to and under the Licenses and Permits; (e) all of Seller's right, title and interest, if any, to the extent assignable or transferable, in and to all names, trade names and logos used by Seller exclusively in the operation and identification of the Improvements; (f) all of Seller's right, title and interest, if any, to the extent assignable or transferable, in and to all other intangible rights, titles, interests, privileges and appurtenances 6 owned by and related to or used exclusively in connection with the ownership, use or operation of the Real Property or the Improvements; and (g) the Records and Plans, but only to the extent such Records and Plans are in the possession or control of Seller, its Affiliates or the Property Manager. ARTICLE III CONSIDERATION SECTION 3.1 PURCHASE PRICE. The purchase price for the Property (the "PURCHASE PRICE") will be Three Million Nine Hundred Eighty Five Thousand and No /100 Dollars ($3,985,000.00) in lawful currency of the United States of America, payable as provided in Section 3.3. SECTION 3.2 ASSUMPTION OF OBLIGATIONS. As additional consideration for the purchase and sale of the Property, at Closing, Purchaser will assume and agree to discharge, perform and comply with each and every liability, duty, covenant, or obligation of Seller resulting from, arising out of, or in any way related to the Licenses and Permits and arising on or after the Closing Date; provided, however, nothing contained in this Section 3.2 shall relieve or release Seller from its covenants set forth in Section 7.1(a). Purchaser hereby indemnifies and holds Seller harmless from and against any and all claims, liens, damages, demands, causes of action, liabilities, lawsuits, judgments, losses, costs and expenses (including, but not limited to, reasonable attorneys' fees and expenses) asserted against or incurred by Seller and arising out of the failure of Purchaser to perform its obligations pursuant to this Section 3.2. Seller hereby indemnifies and holds Purchaser harmless from and against any and all claims, liens, damages, demands, causes of action, liabilities, lawsuits, judgments, losses, costs and expenses (including, but not limited to, reasonable attorneys' fees and expenses) asserted against or incurred by Purchaser and arising out of the failure of Seller to perform its obligations pursuant to the Tenant Lease, any Service Contract or any of the Licenses and Permits which shall have arisen prior to the Closing Date The provisions of this Section 3.2 will survive the Closing without limitation. SECTION 3.3 METHOD OF PAYMENT OF PURCHASE PRICE. As and when set forth in Section 10.2, Purchaser will deposit in escrow with the Title Company the Purchase Price (subject to adjustments described in Section 10.4), together with all other costs and amounts to be paid by Purchaser at Closing pursuant to the terms of this Agreement, by Federal Reserve wire transfer of immediately available funds to an account to be designated by the Title Company. Provided Seller has timely performed all of its obligations under this Agreement (unless otherwise expressly waived by Purchaser) and that all of the conditions to Purchaser's performance under this Agreement have been satisfied (unless otherwise expressly waived by Purchaser), no later than 2:00 p.m. Eastern Time on the Closing Date, Purchaser will authorize the Title Company to (a) pay to Seller by Federal Reserve wire transfer of immediately available funds to an account to be designated by Seller, the Purchase Price (subject to adjustments described in Section 10.4), less any costs or other amounts to be paid by Seller at Closing pursuant to the terms of this Agreement, and (b) pay to all appropriate payees the other costs and amounts to be paid by Purchaser at Closing pursuant to the terms of this Agreement. Provided Purchaser has timely performed all of its obligations under this Agreement (unless otherwise 7 expressly waived by Seller) and that all of the conditions to Seller's performance under this Agreement have been satisfied (unless otherwise expressly waived by Seller), no later than 2:00 p.m. Eastern Time on the Closing Date, Seller will direct the Title Company to pay to the appropriate payees out of the proceeds of Closing payable to Seller all costs and amounts to be paid by Seller at Closing pursuant to the terms of this Agreement. SECTION 3.4 NO TENANCY. The Seller and the Purchaser expressly agree that the Tenant's surrender of the Leased Premises (as that term is defined in the Lease Surrender Agreement) on the earlier of the Date upon which the Tenant surrenders the Tenant Lease to Purchaser under the Lease Surrender Agreement or the Closing Date pursuant to the terms of the Lease Surrender Agreement will not create a landlord-tenant relationship between Purchaser and Seller, and that neither party will make any claim against the other arising out of or relating to any purported landlord-tenant relationship. This provision shall survive Closing. ARTICLE IV EARNEST MONEY DEPOSIT SECTION 4.1 THE DEPOSIT. On or before the date that is three (3) Business Days after the execution and delivery of this Agreement, Purchaser will deposit with the Escrow Holder, in good funds immediately collectible by the Escrow Holder, the sum of Three Hundred Thousand and No/100 Dollars ($300,000.00) (together with all interest earned thereon, the "EARNEST MONEY Deposit"). SECTION 4.2 ESCROW INSTRUCTIONS. The Earnest Money Deposit shall be held in escrow by the Escrow Holder in accordance with the terms and provisions of an escrow agreement by and among the Escrow Holder, Seller and Purchaser, the form of which is attached hereto and made a part hereof as EXHIBIT D. SECTION 4.3 DESIGNATION OF REPORTING PERSON. In order to assure compliance with the requirements of Section 6045 of the Internal Revenue Code of 1986, as amended (the "CODE"), and any related reporting requirements of the Code, the parties hereto agree as follows: (a) Provided the Escrow Holder shall execute a statement in writing (in form and substance reasonably acceptable to the parties hereunder) pursuant to which it agrees to assume all responsibilities for information reporting required under Section 6045(e) of the Code, Seller and Purchaser shall designate the Escrow Holder as the person to be responsible for all information reporting under Section 6045(e) of the Code (the "REPORTING PERSON"). If the Escrow Holder refuses to execute a statement pursuant to which it agrees to be the Reporting Person, Seller and Purchaser shall agree to appoint another third party, acceptable to Seller and Purchaser in their reasonable discretion, as the Reporting Person. (b) Seller and Purchaser each hereby agree: (i) to provide to the Reporting Person all information and certifications regarding such party as reasonably requested by the Reporting Person or otherwise required to be provided by a party to the transaction described herein under Section 6045 of the Code; and 8 (ii) to provide to the Reporting Person such party's taxpayer identification number and a statement (on Internal Revenue Service Form W-9 or an acceptable substitute form, or on any other form the applicable current or future Code sections and regulations might require and/or any form requested by the Reporting Person), signed under penalties of perjury, stating that the taxpayer identification number supplied by such party to the Reporting Person is correct. (c) Each party hereto agrees to retain this Agreement for not less than four years from the end of the calendar year in which Closing occurred, and to produce it to the Internal Revenue Service upon a valid request therefor. (d) The addresses for Seller and Purchaser are as set forth in Section 14.1 hereof, and the real estate subject to the transfer provided for in this Agreement is described in EXHIBIT A. ARTICLE V INSPECTION OF PROPERTY SECTION 5.1 ENTRY AND INSPECTION. (a) From and after the Effective Date until the expiration of the Due Diligence Period, but subject to the provisions of this Section 5.1 and subject to the obligations set forth in Section 5.3 below, Seller will permit Purchaser and its authorized agents, consultants, representatives, and lenders (the "LICENSEE PARTIES") the right to enter upon the Real Property and Improvements at all reasonable times during normal business hours to perform inspections of the Property, including a Phase I evaluation, and communicate with the Tenant. Purchaser will provide to Seller notice of the intention of Purchaser or the other Licensee Parties to enter the Real Property and/or Improvements at least 48 hours prior to such intended entry to conduct the Phase I and specify the intended purpose therefor and the inspections and examinations contemplated to be made. Notwithstanding anything to the contrary contained herein, no physical testing or sampling shall be conducted during any such entry by Purchaser or any Licensee Party upon the Real Property without Seller's specific prior written consent, which consent may not be unreasonably withheld, delayed or conditioned. Solely as an accommodation to Purchaser in connection with Purchaser's contemplated ownership the Property and operation of the Property following the Closing and provided Purchaser has not exercised its right to terminate this Agreement pursuant to Section 5.4, Purchaser shall have the right, after the expiration of the Due Diligence Period, to continue to conduct examinations, inspections, tests, studies and investigations regarding the Property provided that Purchaser complies with the provisions of this Agreement and provided further that such continuing inspection right shall not give, and Purchaser acknowledges that Purchaser shall not have any right to terminate this Agreement on account of the results of any examinations, inspections, tests, studies, or investigations regarding the Property or on account of the failure to obtain financing for the consummation of the transactions contemplated by this Agreement after the expiration of the Due Diligence Period. (b) Subject to the obligations set forth in Section 5.3 below, the Licensee Parties shall have the right to communicate directly with the Authorities for any good faith reasonable purpose in connection with this transaction contemplated by this Agreement. Purchaser shall be 9 free to request copies of building permits, certificates of occupancy and approved site plans and zoning compliance letters or certificates from the Authorities without prior written notice to Seller. SECTION 5.2 DOCUMENT REVIEW. (a) Throughout the Due Diligence Period and, if this Agreement is not terminated, thereafter (but subject to Section 5.1 above), Purchaser and its authorized agents or representatives will have the opportunity to review, inspect, examine, analyze, verify and photocopy, at the office of Seller, all non-privileged, non-confidential and/or non-proprietary documents and materials relating to the Property that are in Seller's possession or control (collectively, the "DOCUMENTS"), including (without limitation) the following: (i) assessments (special or otherwise) and ad valorem and personal property tax bills; (ii) the most current rent roll for the Real Property and the Improvements (the "RENT ROLL"); (iii) operating statements for the Property for calendar year 1999, calendar year 2000 and the first ten (10) months of calendar year 2001; and (iv) copies of the Tenant Lease, the Service Contracts, the Licenses and Permits, and the Records and Plans. Notwithstanding the foregoing, in no event shall Purchaser be entitled to review, inspect, examine, analyze, verify or photocopy any materials relating to Seller's proposed sale of the Property to, or negotiations with, Purchaser or with any other proposed prior purchaser of the Property. (b) Purchaser acknowledges that any and all of the Documents may be proprietary and confidential in nature and have been provided to Purchaser solely to assist Purchaser in determining the feasibility of purchasing the Property. Subject only to the provisions of Article XII, Purchaser agrees not to disclose the contents of the Documents, or any of the provisions, terms or conditions contained therein, to any party outside of Purchaser's organization other than its attorneys, partners, accountants, consultants, advisors, lenders or investors (collectively, the "PERMITTED OUTSIDE PARTIES"). Purchaser further agrees that within its organization, or as to the Permitted Outside Parties, the Documents will be disclosed and exhibited only to those persons within Purchaser's organization or to those Permitted Outside Parties who are responsible for, advising with respect to, or determining the feasibility of, Purchaser's acquisition of the Property. Purchaser further acknowledges that the Documents and other information relating to the leasing arrangements between Seller or its Affiliates and the Tenant or prospective tenants are proprietary and confidential in nature. Purchaser agrees not to divulge the contents of such Documents and other information except in strict accordance with the confidentiality standards set forth in this Section 5.2 and Article XII and agrees to notify all of the Permitted Outside Parties of the restrictions set forth in this Section 5.2(b). In permitting Purchaser and the Permitted Outside Parties to review the Documents or information to assist Purchaser, Seller has not waived any privilege or claim of confidentiality with respect thereto, no third party benefits or relationships of any kind, either express or implied, have been offered, intended or created by Seller, and any such claims are expressly rejected by Seller and waived by Purchaser. Notwithstanding the foregoing, Seller acknowledges that Purchaser is a publicly traded corporation, and as such, Purchaser may disclose the transaction contemplated by this Agreement in public filings with governmental agencies, as required by law. (c) Purchaser will use its best efforts to return to Seller all copies Purchaser and the Permitted Outside Parties have made of the Documents and all copies of any studies, reports or 10 test results regarding any part of the Property obtained by Purchaser, before or after the execution of this Agreement, in connection with Purchaser's inspection of the Property (collectively, "PURCHASER'S INFORMATION") not later fifteen (15) days following the time this Agreement is terminated for any reason. (d) Purchaser acknowledges that some of the Documents may have been prepared by third parties and may have been prepared prior to Seller's ownership of the Property. Purchaser hereby acknowledges that, except as expressly provided in Section 8.1 below, Seller has not made and does not make any representation or warranty regarding the truth, accuracy or completeness of the Documents or the sources thereof. Seller has not undertaken any independent investigation as to the truth, accuracy or completeness of the Documents. (e) Notwithstanding any provision of this Agreement to the contrary, no termination of this Agreement will terminate Purchaser's obligation pursuant to this Section 5.2. SECTION 5.3 ENTRY AND INSPECTION OBLIGATIONS. (a) Purchaser agrees that in entering upon and inspecting or examining the Property and communicating with the Tenant, Purchaser and the other Licensee Parties will not: disturb the Tenant or interfere with its use of the Property pursuant to the Tenant Lease; interfere with the operation and maintenance of the Real Property or Improvements; damage any part of the Real Property, the Improvements, or any personal property owned or held by the Tenant or any other person or entity; injure or otherwise cause bodily harm to Seller or the Tenant, or to any of their respective agents, guests, invitees, contractors and employees, or to any other person or entity; permit any liens to attach to the Real Property by reason of the exercise of Purchaser's rights under this Article V; communicate with the service providers except as provided in this Article V; or reveal or disclose any information obtained concerning the Property and the Documents to anyone outside Purchaser's organization, except in accordance with the confidentiality standards set forth in Section 5.2(b) and Article XII. If testing or sampling are consented to by Seller, Purchaser, at its sole cost, shall promptly repair and/restore the Property. In connection with Purchaser's inspections, examinations, and testing or sampling to the extent consented to by Seller, of the Property, Purchaser will: (i) maintain commercial general liability (occurrence) insurance on terms and amounts reasonably satisfactory to Seller covering any accident arising in connection with the presence of Purchaser or the other Licensee Parties on the Real Property or Improvements, and deliver a certificate of insurance verifying such coverage to Seller prior to entry upon the Real Property or Improvements; (ii) promptly pay when due the fees and costs of all entry and inspections, examinations, consented to testing or sampling done by Purchaser with regard to the Property; and (iii) restore the Real Property, the Improvements, and the Personal Property to the condition in which the same were found before any such entry upon the Real Property and inspection, examination, consented to testing or sampling was undertaken. Nothing contained in this Section 5.3 shall be deemed or construed as Seller's consent to any physical testing or sampling with respect to the Property without compliance with the provisions of this Article V. (b) Purchaser hereby indemnifies, defends and holds Seller and its members, partners, directors, officers, other principals, agents, employees, successors and assigns harmless from and against any and all liens, claims, causes of action, damages, liabilities, demands, suits, 11 obligations to third parties, together with all losses, penalties, costs and expenses relating to any of the foregoing (including, but not limited to, court costs and reasonable attorneys' fees) (collectively referred to in this Section 5.3(b) as "LOSSES AND DAMAGES") arising out of any inspections, investigations, examinations, sampling or tests that have been or will be conducted by Purchaser or any Licensee Party, whether prior to or after the date hereof, with respect to the Property or any violation of the provisions of this Section 5.3 (excluding any Losses and Damages incurred or suffered by Seller as a result of Purchaser's discovery of any information or condition regarding the Property or relating to the results of any such inspections, investigations, examinations, samplings or tests (except to the extent Purchaser violates the terms of this Agreement in obtaining or disseminating such discovery or the information related thereto)). (c) Notwithstanding any provision of this Agreement to the contrary, no termination of this Agreement will terminate Purchaser's obligations pursuant to this Section 5.3. SECTION 5.4 TERMINATION. Purchaser, in its sole and absolute discretion, by giving Seller written notice, in accordance with the provisions of Section 14.1, on or prior to the expiration of the Due Diligence Period (the "TERMINATION Notice"), may elect to terminate this Agreement and its obligations hereunder for any reason or no reason, in Purchaser's sole discretion, without further liability except for the Termination Surviving Obligations. If Purchaser fails to give Seller the Termination Notice prior to the expiration of the Due Diligence Period, then Purchaser shall be deemed to have elected to waive its rights to terminate this Agreement pursuant to this Section 5.4. If Purchaser timely elects to terminate this Agreement pursuant to this Section 5.4, the Earnest Money Deposit shall be refunded to Purchaser, upon Purchaser's unilateral written instructions to the Escrow Holder prior to the expiration of the Due Diligence Period, Purchaser shall promptly return the Purchaser's Information to Seller, and this Agreement shall terminate and be of no further force or effect except for the Termination Surviving Obligations. SECTION 5.5 SALE "AS IS". THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT HAS BEEN NEGOTIATED BETWEEN SELLER AND PURCHASER. THIS AGREEMENT REFLECTS THE MUTUAL AGREEMENT OF SELLER AND PURCHASER, AND PURCHASER HAS CONDUCTED OR WILL CONDUCT TO THE EXTENT DEEMED NECESSARY OR APPROPRIATE BY PURCHASER, ITS OWN INDEPENDENT EXAMINATION OF THE PROPERTY. OTHER THAN THE MATTERS REPRESENTED IN SECTIONS 7.3, 8.1 AND 11.1 HEREOF, BY WHICH ALL OF THE FOLLOWING PROVISIONS OF THIS SECTION 5.5 ARE LIMITED, PURCHASER HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER DIRECTLY OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLER OR ANY OF SELLER'S AGENTS OR REPRESENTATIVES, AND PURCHASER HEREBY ACKNOWLEDGES THAT NO SUCH REPRESENTATIONS HAVE BEEN MADE. SELLER SPECIFICALLY DISCLAIMS, AND NEITHER IT NOR ANY OF ITS AFFILIATES NOR ANY OTHER PERSON IS MAKING, ANY REPRESENTATION, WARRANTY OR ASSURANCE WHATSOEVER TO PURCHASER OTHER THAN THE REPRESENTATIONS AND WARRANTIES OF SELLER EXPRESSLY SET FORTH IN SECTIONS 7.3, 8.1 and 11.1 OF THIS AGREEMENT, AND NO WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EITHER EXPRESS OR IMPLIED, ARE MADE BY SELLER OR RELIED UPON BY PURCHASER WITH RESPECT TO THE STATUS OF TITLE , TO OR THE MAINTENANCE, REPAIR, 12 CONDITION, DESIGN OR MARKETABILITY OF THE PROPERTY, OR ANY PORTION THEREOF, INCLUDING, BUT NOT LIMITED TO, (a) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, (e) ANY CLAIM BY PURCHASER FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, WITH RESPECT TO THE IMPROVEMENTS OR THE PERSONAL PROPERTY, (f) THE FINANCIAL CONDITION OR PROSPECTS OF THE PROPERTY AND (g) THE COMPLIANCE OR LACK THEREOF OF THE REAL PROPERTY OR THE IMPROVEMENTS WITH GOVERNMENTAL REGULATIONS, IT BEING THE EXPRESS INTENTION OF SELLER AND PURCHASER THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE PROPERTY WILL BE CONVEYED AND TRANSFERRED TO PURCHASER IN ITS PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS", WITH ALL FAULTS. Purchaser represents that it is a knowledgeable, experienced and sophisticated purchaser of real estate, and that it is relying on Seller's express representations and warranties set forth in Sections 7.3, 8.1 and 11.1 of this Agreement and on its own expertise and that of the Permitted Outside Parties in purchasing the Property. Prior to the date hereof and during the Due Diligence Period, Purchaser has conducted and may conduct such inspections, investigations and other independent examinations of the Property and related matters as Purchaser deemed necessary, including, but not limited to, the physical and environmental conditions thereof, and will rely upon same and not upon any statements of Seller (excluding the matters expressly represented by Seller in Sections 7.3, 8.1 and 11.1 hereof) or of any officer, director, employee, agent or attorney of Seller. Purchaser acknowledges that all information obtained by Purchaser was obtained from a variety of sources and Seller will not be deemed to have represented or warranted the completeness, truth or accuracy of any of the Documents or other such information heretofore or hereafter furnished to Purchaser, except as expressly represented in Sections 7.3, 8.1 and 11.1 hereof. Upon Closing Purchaser will assume the risk that adverse matters, including, but not limited to, adverse physical and environmental conditions, may not have been revealed by Purchaser's inspections and investigations; provided, however, that the foregoing shall not constitute a waiver of any false or misleading representation or warranty expressly made by Seller in Sections 7.3, 8.1 and 11.1 herein. Purchaser acknowledges and agrees that upon Closing, Seller will sell and convey to Purchaser, and Purchaser will accept the Property, "AS IS, WHERE IS," with all faults. Purchaser further acknowledges and agrees that there are no oral agreements, warranties or representations, collateral to or affecting the Property, by Seller, any agent of Seller or any third party. Seller is not liable or bound in any manner by any oral or written statements, representations or information pertaining to the Property furnished by any real estate broker, agent, employee, servant or other person, unless the same are specifically set forth or referred to herein. Purchaser acknowledges that the Purchase Price reflects the "as is, where is" nature of this sale and any faults, liabilities, defects or other adverse matters that may be associated with the Property. Purchaser, with Purchaser's counsel, has fully reviewed the disclaimers and waivers set forth in this Agreement, and understands the significance and effect thereof. Purchaser acknowledges and agrees that the disclaimers and other agreements set forth herein are an integral part of this Agreement, and that Seller would not have agreed to sell the Property to Purchaser for the Purchase Price without the disclaimer and other agreements set 13 forth in this Agreement. The terms and conditions of this Section 5.5 will expressly survive the Closing, will not merge with the provisions of any closing documents and will survive recordation of the Deed. SECTION 5.6 PURCHASER'S RELEASE OF SELLER. (a) Seller is hereby released from all responsibility and liability to Purchaser regarding the condition (including the presence in the soil, air, structures, and surface and subsurface waters of Hazardous Substances or substances that have been or may in the future be determined to be toxic, hazardous, undesirable or subject to regulation and that may need to be specially treated, handled and/or removed from the Property under current or future federal, state and local laws, regulations, or guidelines), valuation, salability or utility of the Property, or is suitability for any purpose whatsoever except to the extent that such responsibility or liability is the result of the material inaccuracy (if any) of Seller's representation under Section 8.1(j) hereof. Notwithstanding any other provisions of this Agreement, nothing herein shall be deemed or construed to prohibit Purchaser from (i) impleading or joining Seller as a third party defendant or co-defendant in any action, suit, hearing, or other proceeding instituted by any third party or any Authorities with respect to any claim against Purchaser or Seller arising from any environmental condition at the Real Property which shall have existed or is alleged to have existed while Seller shall have been the owner or operator of the Property (an "ENVIRONMENTAL ACTION") and (ii) seeking to enforce the payment, by Seller, of its portion of any joint and several non-appealable final judgment against Seller and Purchaser arising from or as a result of any such Environmental Action. (b) Purchaser acknowledges that it has inspected and/or has or will have the opportunity to inspect the Property, observed and/or has or will have the opportunity to observe its physical characteristics and existing conditions, and had or has or will have the opportunity to conduct such investigation and study on and of the Property and adjacent areas as Purchaser deemed or deems necessary. Subject to Seller's responsibility for any breach of the warranties and representations contained in Sections 7.3, 8.1 and 11.1 of this Agreement and subject to the provisions of the last sentence of Section 5.6(a), Purchaser hereby waives any and all objections to or complaints (including, but not limited to, actions based on federal, state or common law and any private right of action under CERCLA, RCRA, ISRA or any other state and federal law to which the Property is or may be subject) regarding physical characteristics and existing conditions, including, without limitation, structural and geologic conditions, subsurface soil and water conditions and solid and hazardous waste and Hazardous Substances on, under, adjacent to or otherwise affecting the Property. Purchaser further hereby assumes the risk of changes in applicable laws and regulations relating to past, present and future environmental conditions on the Property, and the risk that adverse physical characteristics and conditions, including, without limitation, the presence of Hazardous Substances or other contaminants, may not be revealed by its investigation. (c) The provisions of this Section 5.6 shall survive either (i) the Closing and the recordation of the Deed, and shall not be deemed merged into the Deed upon its recordation, or (ii) any termination of this Agreement. 14 SECTION 5.7 ISRA. The Seller acknowledges and agrees that the Seller shall be responsible to take all necessary and required action in connection with, arising from or relating to compliance with the provisions of any Environmental Laws in connection with the sale and conveyance of the Property to the Purchaser. Notwithstanding the foregoing, Purchaser has entered into a Lease Surrender Agreement with Tenant dated as of March 1, 2002, in which agreement, Tenant has agreed to submit an Application/Affidavit to the New Jersey Department of Environmental Protection ("NJDEP") requesting a letter of non-applicability from NJDEP (the "LNA") for the Real Property. The Seller shall cooperate with Tenant to complete the Application/Affidavit and Tenant shall deliver a copy of the LNA, together with a copy of the Application/Affidavit in request therefor, to the Purchaser at or prior to Closing. If Tenant or Seller is unable to obtain the LNA, Purchaser shall have the option of (i) terminating this Agreement and receiving a return of the Earnest Money Deposit, and thereafter, neither party shall have any remaining obligations under this Agreement, except for the Termination Surviving Obligations or (ii) continuing with the purchase of the Property. ARTICLE VI TITLE AND SURVEY MATTERS SECTION 6.1 SURVEY. Prior to the execution and delivery of this Agreement, Seller has delivered to Purchaser a copy of that certain survey of the Real Property and the Improvements commonly referred to as 33 Chubb Way prepared by Parker Engineering & Surveying P.C. dated August 1, 1997, last revised October 22, 1997, bearing International Land Services, Inc. job no. 97-07-32:025,. Said survey, together with and any modification, update or recertification thereof which Purchaser elected to obtain, are herein referred to as the "EXISTING SURVEY". Seller shall not have any obligation to obtain any modification, update or recertification of the Existing Survey. Should Purchaser obtain its own survey and should Purchaser wish Seller to utilize its surveyor's metes and bounds description on the Deed, then Purchaser shall have such description certified to Seller and its attorney. SECTION 6.2 TITLE COMMITMENT. (a) Purchaser shall cause the Title Company to furnish to Purchaser (i) a preliminary title report or title commitment (the "COMMITMENT") and (ii) copies of all recorded documents referred to on Schedule B of the Commitment as exceptions to coverage (the "TITLE DOCUMENTS"). (b) Purchaser shall have the right to object in writing to any matters shown on the Commitment or disclosed by the Title Documents, the Existing Survey or any updated or subsequent survey that are not Permitted Exceptions (individually, a "TITLE OBJECTION" and collectively, the "TITLE OBJECTIONS") prior to the date which is the tenth (10th) Business Day following the execution and delivery of this Agreement. Purchaser shall have the further right to order a run-down title examination prior to Closing, and to submit to Seller any Title Objection which may have arisen since the initial Commitment. Unless Purchaser shall timely object to any exceptions or matters shown on or disclosed by the Title Commitment, the Title Documents, the Existing Survey or any updated or subsequent survey, all such exceptions and matters (other than 15 exceptions relating to the matters described in Section 6.2(c)) shall be deemed to constitute additional Permitted Exceptions. Seller may elect (but, subject to Section 6.2(c), shall not be obligated) to remove or cause to be removed, at Seller's expense, any Title Objections, and shall be entitled to a reasonable adjournment of the Closing (not to exceed thirty (30) days) for the purpose of such removal. Seller shall notify Purchaser in writing within ten (10) days after receipt of Purchaser's notice of Title Objections whether Seller elects to remove same. If Seller fails to provide such notice, Seller shall be deemed to have elected not to cure such Title Objections. If Seller is unable to remove any Title Objections in a manner acceptable to Purchaser (in Purchaser's reasonable discretion), prior to the Closing, or if Seller elects not to remove one or more Title Objections, Purchaser may elect, as its sole and exclusive remedy therefor, to either (i) terminate this Agreement by giving written notice to Seller on or before the earlier of the date that is three (3) Business Days after receipt of Seller's notice or three (3) Business Days after the expiration of the foregoing ten (10) day period, in which event the Earnest Money Deposit shall be paid to Purchaser, upon Purchaser's unilateral written instructions to the Escrow Holder within the foregoing time period, Purchaser shall return the Purchaser's Information to Seller, and thereafter the parties shall have no further rights or obligations hereunder except for the Termination Surviving Obligations or (ii) waive such Title Objections, in which event such Title Objections shall be deemed additional "Permitted Exceptions" and the Closing shall occur as herein provided without any reduction of or credit against the Purchase Price. If before the end of the period set forth in (i) above, Purchaser fails to give Seller and Escrow Agent such written notice, then Purchaser shall be deemed to have elected to take title to the Real Property subject to such Title Objections pursuant to Section 6.2(b)(ii). (c) Notwithstanding any provision of this Section 6.2 to the contrary, Seller will be obligated, prior to or at the Closing, to cure exceptions to title to the Property relating to (i) liens and security interests securing the loan from GELCO Corporation to Seller, (ii) any other monetary liens or security interests against Seller's interest in the Property (including, without limitation mechanics' liens, judgment liens and tax liens against Seller's interest in the Property), (iii) all taxes and assessments due and payable for any period prior to the Closing, and (iv) any exception to title created after the effective date of the Commitment that has not been consented to by Purchaser. SECTION 6.3 TITLE INSURANCE. At Closing, the Title Company shall issue to Purchaser or be irrevocably committed to issue to Purchaser an owner's policy of title insurance on a currently available ALTA Owner's Policy of Title Insurance in accordance with the terms of the Commitment, in the amount of the Purchase Price, insuring that fee simple title to the Real Property and the Improvements is good and marketable and vested in Purchaser subject only to the Permitted Exceptions (the "TITLE POLICY"), which Title Policy shall be issued at ordinary rates. Purchaser shall be entitled to request that the Title Company provide such other endorsements (or amendments) to the Title Policy as Purchaser may reasonably require, provided that (a) such endorsements or amendments shall be at no cost to, and shall impose no additional liability on, Seller, other than such liability as shall result from the Affidavit of Title to be delivered at Closing, (b) Purchaser's obligations under this Agreement shall not be conditioned upon Purchaser's ability to obtain such endorsements and, if Purchaser is unable to obtain such endorsements, Purchaser shall nevertheless be obligated to proceed to close the transaction 16 contemplated by this Agreement without reduction of or set off against the Purchase Price, and (c) the Closing shall not be delayed as a result of Purchaser's request for such endorsements. ARTICLE VII INTERIM OPERATING COVENANTS SECTION 7.1 INTERIM OPERATING COVENANTS. Seller covenants to Purchaser that Seller will: (a) OPERATIONS. From the Effective Date until the earlier of the termination of this Agreement or Closing, continue to or cause to continue to operate, manage and maintain the Improvements in the ordinary course of Seller's business and substantially in accordance with Seller's present practice, subject to ordinary wear and tear and further subject to Article IX of this Agreement; (b) MAINTAIN INSURANCE. From the Effective Date until the earlier of the termination of this Agreement or Closing, maintain, or cause to be maintained, fire and extended coverage insurance on the Property which is at least equivalent in all material respects to the insurance policies covering the Real Property and the Improvements as of the Effective Date; (c) COMPLY WITH GOVERNMENTAL REGULATIONS. From the Effective Date until the earlier of the termination of this Agreement or Closing, comply in all material respects with all Governmental Regulations applicable to the Property, it being understood and agreed that prior to Closing Seller will have the right to contest any such Governmental Regulations, and Seller shall not knowingly take any action that would result in a failure to so comply; (d) LEASES. From the Effective Date until the earlier of the termination of this Agreement or the Closing, not enter into any new lease, or any amendment to the Tenant Lease or terminate the Tenant Lease, without the prior written consent of Purchaser; (e) SERVICE CONTRACTS. From the Effective Date until the earlier of the termination of this Agreement or Closing, not enter into any service contract unless such service contract is terminable on thirty (30) days' notice without penalty or unless Purchaser consents thereto in writing (and thereby automatically agrees to assume at Closing); and (f) NOTICES. To the extent received by Seller, from the Effective Date until the earlier of the termination of this Agreement or Closing, promptly deliver to Purchaser copies of written default notices, notices of lawsuits, written threats to initiate lawsuits, and notices of violations affecting the Property. SECTION 7.2 Intentionally deleted SECTION 7.3 SERVICE CONTRACTS. Seller hereby agrees to provide a notice of termination to the applicable service provider under all Service Contracts in a timely manner such that the Service Contracts shall terminate on or before the Closing Date. Seller shall have no obligation to replace any of the Service Contracts, such obligation to be the sole 17 responsibility of Purchaser. The existing management agreement between Property Manager and Seller shall be deemed to automatically terminate upon the sale of the Property and Purchaser has no obligations with respect thereto. In accordance with the definition of Service Contracts, the Property Manager's management agreement shall be not be provided to Purchaser. ARTICLE VIII REPRESENTATIONS AND WARRANTIES SECTION 8.1 SELLER'S REPRESENTATIONS AND WARRANTIES. The following, together with the representations and warranties set forth in Sections 7.3 and 11.1, constitute the sole representations and warranties of Seller. Subject to the limitations set forth in Article XVI of this Agreement, Seller represents and warrants to Purchaser the following: (a) STATUS. Seller is a limited partnership duly organized, validly existing and in good standing under the laws of the State of New Jersey. (b) AUTHORITY AND CONSENTS. Seller has the full power and authority to execute and deliver this Agreement and perform its obligations hereunder and under all documents delivered pursuant to this Agreement. The execution and delivery of this Agreement and the performance of Seller's obligations hereunder have been or will be duly authorized by all necessary action on the part of Seller, and this Agreement constitutes the legal, valid and binding obligation of Seller, subject to equitable principles and principles governing creditors' rights generally. No consent, waiver, approval or authorization is required from any person or entity (that has not already or will not be obtained prior to Closing) in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of the transactions contemplated hereby. Seller has obtained general partner approval for the sale on the terms and conditions set forth herein but has not yet obtained the necessary consent of a majority in interest of certain minority partners of the Seller. Accordingly, the validity of this representation and the consummation of the Closing shall be conditioned upon and subject to Seller's receipt of such partner approval, which if not obtained prior to Closing, shall entitle (i) the parties to adjourn the Closing Date until any mutually acceptable date up to and including the Outside Closing Date or (ii) Purchaser, at its sole election, to terminate this Agreement. In the event that the parties adjourn the Closing Date pursuant to this Section 8.1(b), Seller shall reimburse Purchaser for any payments made to Tenant up to the date of Closing from Purchaser pursuant to Section 7(d) of the Lease Surrender Agreement. In the event that Purchaser terminates this Agreement due to Seller's failure to obtain such minority partner approval prior to the Closing Date or any adjourned Closing Date pursuant to this Section 8.1(b), Seller shall (i) return the Deposit, together with all interest earned thereon, to Purchaser; (ii) reimburse Purchaser for the Deposit pursuant to the Lease Surrender Agreement and (iii) reimburse Purchaser for any payments actually paid from Purchaser to Tenant pursuant to Section 7(d) of the Lease Surrender Agreement. Reimbursement payments due from Seller to Purchaser pursuant to this Section 8.1(b) shall be due and payable within three (3) business days of Seller's receipt of written proof of Purchaser's payment to Tenant under the Lease Surrender Agreement. (c) NON-CONTRAVENTION. The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not violate any 18 judgment, order, injunction, decree, regulation or ruling of any court or Authority or conflict with, result in a breach of, or constitute a default under the organic documents of Seller, any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other material agreement or instrument to which Seller is a party or by which it is bound. (d) SUITS AND PROCEEDINGS. Except as listed in EXHIBIT G, there are no legal actions, suits or similar proceedings pending and served, or to Seller's Knowledge, threatened against Seller or the Property, which are not adequately covered by existing insurance or, if adversely determined, would adversely affect the value of the Property, the continued operations thereof, or Seller's ability to consummate the transactions contemplated hereby. There are no legal actions, suits or similar proceedings related to the condemnation of all or any portion of the Property pending and served, or to Seller's Knowledge threatened against the Property. (e) NON-FOREIGN ENTITY. Seller is not a "foreign person" or "foreign corporation" as those terms are defined in the Code and the regulations promulgated thereunder. (f) TENANT. As of the Effective Date, the Tenant, as set forth on EXHIBIT H attached hereto, constitutes all of the Tenants from whom Seller is currently accepting rental payments. There are no written leases or occupancy agreements affecting the Property to which Seller is a party or of which Seller has knowledge with any parties other than with the Tenant listed on EXHIBIT H. (g) SERVICE CONTRACTS. To Seller's Knowledge, none of the service providers listed on EXHIBIT C is in default under any Service Contract. To Seller's Knowledge, the Documents made available to Purchaser pursuant to Section 5.2 hereof include copies of all Service Contracts listed on EXHIBIT C under which Seller is currently paying for services rendered in connection with the Property. (h) NO VIOLATIONS. To Seller's Knowledge, Seller has not received prior to the Effective Date any written notification from an Authority (i) that the Real Property or the Improvements are in violation of any applicable fire, health, building, use, occupancy or zoning laws or (ii) that any work is required to be done upon or in connection with the Real Property or the Improvements where such work remains outstanding and, if unaddressed would become a violation of law or have an adverse affect on the use of the Real Property and the Improvements as currently owned and operated. (i) INSURANCE. To Seller's Knowledge, Seller has not received any written notice from any insurance company or board of fire underwriters of any defects or inadequacies in or on the Real Property or the Improvements or any part or component thereof that would adversely affect the insurability of the Real Property or the Improvements or cause any increase in the premiums for insurance for the Real Property or the Improvements. The Real Property is located in a flood zone and Federal Flood insurance is available. (j) ENVIRONMENTAL. To Seller's Knowledge, Seller has not received written notice of violation of any Environmental Law from any Authorities or from any contiguous property owner. 19 (k) BANKRUPTCY. Seller is not in the hands of a receiver, and Seller has not committed any act of bankruptcy or insolvency. (l) SPECIAL ASSESSMENTS. To Seller's Knowledge, no special assessments have been levied or are threatened or pending against all or any part of the Property. (m) PROPERTY RIGHTS. There are no leases, occupancy agreements or similar agreements giving any person or entity any post-Closing rights to use, occupy or operate on the property or any portion thereof or otherwise affecting or relating to the Property other than the Leases . (n) RIGHTS TO PURCHASE. There are no options or other written agreements with respect to the sale of all or any part of the Property, and no person or entity has any option, right of first refusal or right of first offer to purchase all or any part of the Property, which will not be discharged or waived prior to or at the time of Closing. (o) MATERIAL LATENT DEFECTS. To Seller's Knowledge, there are no material latent defects affecting the Property. (p) UNDERGROUND STORAGE TANKS. To Seller's Knowledge, there are no underground storage tanks at or under the Property. ( q ) ENVIRONMENTAL CONDITIONS. To Seller's Knowledge, there does not exist on the Property any environmental condition or matter which would require remediation or other corrective action pursuant to any Environmental Laws. (r) HAZARDOUS SUBSTANCES. To Seller's Knowledge, Seller has not used, treated, stored or disposed of any Hazardous Substances at the Property in violation of any Environmental Laws and no Hazardous Substances have been used, treated, stored or disposed of at the Property in violation of any Environmental Laws. SECTION 8.2 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and warrants to Seller the following: (a) STATUS. Purchaser is a corporation duly organized and validly existing under the laws of the State of Delaware. (b) AUTHORITY. Purchaser has the full power and authority to execute and deliver this Agreement and perform its obligations hereunder and under all documents delivered pursuant to this Agreement. The execution and delivery of this Agreement and the performance of Purchaser's obligations hereunder have been or will be duly authorized by all necessary action on the part of Purchaser and this Agreement constitutes the legal, valid and binding obligation of Purchaser, subject to equitable principles and principles governing creditors' rights generally. (c) NON-CONTRAVENTION. The execution and delivery of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby will not violate any judgment, order, injunction, decree, regulation or ruling of any court or Authority or conflict with, result in a breach of, or constitute a default under the organic documents of Purchaser, any 20 note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other material agreement or instrument to which Purchaser is a party or by which it is bound. (d) CONSENTS. No consent, waiver, approval or authorization is required from any person or entity (that has not already been obtained) in connection with the execution and delivery of this Agreement by Purchaser or the performance by Purchaser of the transactions contemplated hereby. ARTICLE IX CONDEMNATION AND CASUALTY SECTION 9.1 SIGNIFICANT CASUALTY. Subject to the provisions of this Article IX, Seller shall bear the risk of all loss, destruction or damage to the Real Property and Improvements from any and all causes up to the Closing. If, prior to the Closing Date, all or any portion of the Real Property and Improvements is destroyed or damaged by fire or other casualty, Seller will promptly notify Purchaser of such casualty. If all or a Significant Portion of the Real Property and Improvements shall have been damaged, Purchaser will have the option to terminate this Agreement upon notice to Seller given not later than fifteen (15) days after receipt of Seller's notice. If this Agreement is terminated, the Earnest Money Deposit will be returned to Purchaser, Purchaser shall return the Purchaser's Information to Seller, and thereafter neither Seller nor Purchaser will have any further rights or obligations to the other hereunder except with respect to the Termination Surviving Obligations. If Purchaser does not elect to terminate this Agreement, Seller will not be obligated to repair such damage or destruction but (a) Seller will assign and turn over to Purchaser all of the insurance proceeds net of reasonable collection costs (or, if such have not been awarded, all of its right, title and interest therein, pursuant to an assignment agreement reasonably acceptable to Purchaser) payable with respect to such fire or other casualty and (b) the parties will proceed to Closing pursuant to the terms hereof without abatement of the Purchase Price, except that Purchaser will receive credit for any insurance deductible or co-pay amount. Purchaser's reasonable consent shall be required prior to Seller settling any loss with its insurance carrier. SECTION 9.2 CASUALTY OF LESS THAN A SIGNIFICANT PORTION. If less than a Significant Portion of the Real Property or the Improvements is damaged as aforesaid, then (a) the Closing will occur without abatement of the Purchase Price (except that Purchaser will receive a credit for any insurance deductible or co-pay amount), (b) Seller will not be obligated to repair such damage or destruction, and (c) Seller will credit to Purchaser at Closing an amount equal to (i) the reasonably estimated cost of repair of such casualty as, for purposes of this Section 9.2, made by a reputable general contractor in the Branchburg area who regularly performs the type of work required and is reasonably acceptable to Purchaser and (ii) the estimated amount of post-closing rental abatement as a result of such casualty as reasonably estimated by Seller and reasonably approved by Purchaser. SECTION 9.3 CONDEMNATION OF PROPERTY. If prior to Closing, there is a condemnation or sale in lieu of condemnation of all or any portion of the Real Property or the Improvements, Seller shall promptly notify Purchaser of such condemnation or sale. In the event of (a) a condemnation or sale in lieu of condemnation of all or a Significant Portion of the Real Property 21 and the Improvements, (b) a condemnation or sale in lieu of condemnation of any portion of the Real Property or the Improvements that is not a Significant Portion of the Property but that causes the remainder of the Real Property and the Improvements to no longer be in compliance with applicable law ("grandfathering" as a pre-existing use or pre-existing structure constituting compliance for this purpose), (c) a condemnation or sale in lieu of condemnation of any portion of the Real Property that affects access to the Real Property or reduces the available parking within the Real Property, or (d) a condemnation or sale in lieu of condemnation of any portion of the buildings on the Real Property, prior to the Closing, Purchaser will have the option, by providing Seller written notice within fifteen (15) days after receipt of Seller's notice of such condemnation or sale, of terminating this Agreement and Purchaser's obligations under this Agreement. In the event Purchaser does not terminate this Agreement pursuant to the preceding sentence or is not entitled to terminate this Agreement pursuant to the preceding sentence, Seller will assign to Purchaser, pursuant to an assignment agreement reasonably acceptable to Purchaser and Seller, any and all claims for the proceeds of such condemnation or sale to the extent the same are applicable to the Real Property and the Improvements, and Purchaser will take title to the Property with the assignment of such proceeds and subject to such condemnation and without reduction of the Purchase Price. Should Purchaser elect to terminate Purchaser's obligations under this Agreement under the provisions of this Section 9.3, the Earnest Money Deposit will be returned to Purchaser, Purchaser shall return the Purchaser's Information to Seller, and neither Seller nor Purchaser will have any further obligation under this Agreement except for the Termination Surviving Obligations. Notwithstanding anything to the contrary herein, if any eminent domain or condemnation proceeding is instituted (or notice of same is given) solely for the taking of any subsurface rights for utility easements or for any right-of-way easement, and the taking does not materially affect the value or enjoyment of the Real Property and the Improvements for their current use or Purchaser's anticipated use, Purchaser will not be entitled to terminate this Agreement as to any part of the Property, but any award resulting therefrom will be assigned to Purchaser at Closing, pursuant to an assignment agreement reasonably acceptable to Purchaser and Seller, and will be the exclusive property of Purchaser upon Closing. ARTICLE X CLOSING SECTION 10.1 CLOSING. (a)The Closing of the sale of the Property by Seller to Purchaser will occur on or about the Closing Date through the escrow established with the Title Company. The Closing is intended to occur simultaneously with the Lease Surrender, and the parties agree to cooperate with each other to effect the simultaneous Closing of the transaction contemplated by this Agreement and the Lease Surrender. The parties shall endeavor to conduct Closing by depositing with the Title Company all closing documents prior to or on the Closing Date and shall endeavor to finalize all Proration Items (to the extent adjusted between Seller and Purchaser) and the Closing Statement no later than one (1) Business Day prior to Closing. Each party (or its counsel) shall deliver appropriate closing instructions to the Title Company with respect to implementing the provisions of this Article. At Closing, the events set forth in this Article X will occur, it being understood that the performance or tender of performance of all matters set forth in this Article X are mutually concurrent conditions which may be waived by the party for whose benefit they are intended. 22 (b) Notwithstanding the foregoing, the parties acknowledge that Purchaser has made an application to the Branchburg Township Planning Board, seeking certain approval for site improvements and changes to the use of the Property (the "APPROVAL"), which Approval has been granted, subject to the statutory time under the New Jersey Municipal Land Use Law within which a legal action or appeal may be filed contesting the Approval. In the event a third party legal action or appeal is taken contesting such Approval, Purchaser may adjourn the Closing until the Outside Closing Date to have a final, unappealable decision rendered affirming the Approval. If Purchaser shall not have (x) received such final, unappealable decision affirming the Approval and proceeded to Closing on or before the Outside Closing Date, or (y) at Purchaser's option, proceeded to Closing on or before the Outside Closing Date without such final, unappealable decision, then unless the Outside Closing Date shall be extended by mutual agreement of the parties, either party may by written notice to the other party within five (5) Business Days thereafter elect to terminate this Agreement. Purchaser may void Seller's election to terminate by waiving the contingency for such final, unappealable decision in writing within five (5) days of receipt of Seller's termination notice and proceeding promptly to Closing. If termination is caused by Purchaser's inability to obtain necessary final, unappealable Approval from the municipality, then upon termination, the Earnest Money Deposit shall be returned to Purchaser, and neither party shall have any remaining obligations to the other under this Agreement, except for the Termination Surviving Obligations. (c) Purchaser shall notify Seller promptly if any third party appeal of the Approval is taken. Purchaser shall be permitted to defend an appeal at the sole cost of Purchaser and subject to (1) Purchaser providing prior written notice to Seller; (2) Purchaser keeping Seller informed of all issues with respect to the appeal; and (3) Purchaser defending, indemnifying and holding harmless the Seller as to any loss, cost, damage or claim (including reasonable attorney fees) arising out of or related to Purchaser's appeal. Notwithstanding anything to the contrary contained in this Section or this Agreement, in no event shall Seller be required to consent to nor shall Purchaser be permitted to defend or pursue an appeal beyond the Outside Closing Date, as same may be extended by mutual agreement of the parties. (d) Purchaser agrees and acknowledges that, within thirty (30) days of the conclusion of the expiration or earlier termination of this Agreement, Purchaser will, at its sole cost and responsibility, cause the full and final dismissal, removal or settlement of title record, if any, of such appeal action to the extent that same are within Purchaser's control, which provision shall survive expiration or termination of this Agreement. SECTION 10.2 PURCHASER'S CLOSING OBLIGATIONS. On or before the Closing Date, Purchaser, at its sole cost and expense, will deliver the following items in escrow with the Title Company pursuant to Section 3.3 for delivery to Seller at Closing as provided herein: (a) The Purchase Price, after all adjustments are made at the Closing as herein provided, by Federal Reserve wire transfer of immediately available funds, in accordance with the timing and other requirements of Section 3.3; 23 (b) Counterpart originals of the Acknowledgement of Lease Surrender and Lease, Surrender Agreement duly executed by Purchaser and Tenant. (c) Fully executed original of Release duly executed by Seller and Tenant; (d) Evidence reasonably satisfactory to Seller that the person executing any closing documents on behalf of Purchaser has full right, power and authority to do so; (e) Such other documents as may be reasonably necessary or appropriate to effect the consummation of the transaction which is the subject of this Agreement, including, without limitation, settlement instructions with Seller and Escrow Holder, in form and substance acceptable to Purchaser, Seller, and Escrow Holder and provided such documents do not increase Purchaser's obligations or liabilities beyond those otherwise created by this Agreement; (f) A counterpart original of the Closing Statement, duly executed by Purchaser; and (g) A certificate stating that all of its representations and warranties set forth in Sections 8.2 and 11.1 are true and correct in all material respects, duly executed by Purchaser in a counterpart form to EXHIBIT M. SECTION 10.3 SELLER'S CLOSING OBLIGATIONS. On or before the Closing Date, Seller, at its sole cost and expense, will deliver the following items (a), (b), (c), (d), (e), (f), (g), (h), (l), (m), (n), (o), (p), (q) and (r) in escrow with the Title Company, and the following items (i), (j), and (k) to Purchaser at the Property: (a) A Bargain and Sale Deed with Covenant Against Grantor's Acts from Seller for the Real Property in proper statutory form for recordation in the form attached as EXHIBIT I (the "DEED"); (b) A bill of sale for the Personal Property in the form attached hereto as EXHIBIT J, duly executed by Seller; (c) Evidence reasonably satisfactory to Purchaser and the Escrow Holder that the person executing the documents delivered by Seller pursuant to this Section 10.3 on behalf of Seller has full right, power, and authority to do so; (d) A certificate in the form attached hereto as EXHIBIT L certifying that Seller is not a "foreign person" as defined in Section 1445 of the Internal Revenue Code of 1986, as amended, as well as any form or other document required under applicable laws to be executed by Seller in connection with any transfer tax applicable to the transaction contemplated by this Agreement; (e) A counterpart original of the Closing Statement duly executed by Seller; (f) A certificate stating that all of the representations and warranties set forth in Sections, 7.3, 8.1 and 11.1 are true and correct in all material respects in the form attached hereto as EXHIBIT M, duly executed by Seller; (g) Intentionally deleted; 24 (h) The Letter of Credit deposited by Tenant as the Tenant Deposit, which shall be returned by the Escrow Agent to Tenant, together with such executed statements of Landlord as shall be required to cancel the Letter of Credit. Notwithstanding the foregoing, Seller reserves the right to draw on the Letter of Credit prior to the Closing to the extent draw events are triggered prior to Closing in accordance with the terms of the Tenant Lease; (i) The Personal Property, if any; (j) All original Licenses and Permits in Seller's possession and control; (k) All keys, passes, lock combinations, pass cards, remote control access devices, security codes, computer software operating building systems, and other devices relating to the operation of the Improvements which are in Seller's possession and which Seller has the right to transfer; (l) Affidavit of Title in standard form; (m) A Form 1099 Information Statement as required by the Internal Revenue Code (to be supplied by Purchaser's title company); (n) The most recent tax bills for the Property; (o) Payoff letters or releases with respect to any mortgages or liens encumbering the Property; (p) A copy of any other documents required to be delivered by Seller under this Agreement if not theretofore delivered, to the extent any such documents are in Seller's possession; (q) If required by the Township to transfer title, a certificate of occupancy, continuing certificate of occupancy or building code approval for the Property, to be obtained at Seller's cost and expense; and (r) Such other documents as may be reasonably necessary or appropriate to effect the consummation of the transaction which is the subject of this Agreement, including, without limitation, documents required by the title company or settlement instructions with Purchaser and Escrow Holder, in form and substance acceptable to Purchaser, Seller and Escrow Holder and provided such documents do not increase Seller's obligation or liabilities beyond those otherwise created by this Agreement. SECTION 10.4 PRORATIONS. (a) Seller and Purchaser agree to adjust, as of the Closing Date, the following (collectively, the "PRORATION Items"): real estate taxes and assessments only. Seller will be charged or credited for the amounts of all of the Proration Items relating to the period up to and including the Closing Date, and Purchaser will be charged or credited for all of the Proration Items relating to the period after the Closing Date. Such preliminary estimated Closing 25 prorations shall be set forth on a preliminary closing statement to be prepared by Seller using its reasonable business judgment and submitted to Purchaser for Purchaser's approval (which approval shall not be unreasonably withheld, delayed or conditioned) (the "CLOSING STATEMENT"). The Closing Statement, once agreed upon, shall be signed by Purchaser and Seller and delivered to the Title Company for purposes of making the preliminary proration adjustment at Closing subject to the final cash settlement provided for below. The preliminary proration shall be paid at Closing by Purchaser to Seller (if the preliminary prorations result in a net credit to Seller) or by Seller to Purchaser (if the preliminary prorations result in a net credit to Purchaser) by increasing or reducing the cash to be delivered by Purchaser in payment of the Purchase Price at the Closing. If the actual amounts of the Proration Items are not known as of the Closing Date, the prorations will be made at Closing on the basis of the best evidence then available; thereafter, when actual figures are received, re-prorations will be made on the basis of the actual figures, and a final cash settlement will be made between Seller and Purchaser. No prorations will be made between Seller and Purchaser in respect of Rentals, operating costs, Billable Operating Costs or insurance premiums, and Seller's insurance policies will not be assigned to Purchaser. All adjustments other than the specified Proration Items shall be made by Seller, as landlord, and Tenant, as tenant, which adjustments shall be made in accordance with the Lease as if the Closing Date and Lease Surrender were the expiration date of the Lease. Final readings and final billings for utilities will be made as of the Closing Date, in which event no proration will be made at the Closing with respect to utility bills, otherwise, such prorations shall be made between Seller and Tenant, as aforesaid, for the period up to and including the Closing Date, and between Tenant and Purchaser for the period after the Closing Date. Seller will be entitled to all deposits presently in effect with the utility providers, and Purchaser will be obligated to make its own arrangements for deposits with the utility providers. Purchaser will use reasonable efforts to give Seller ten (10) business days notice of the Closing Date to allow Seller adequate time to arrange for final readings and calculation of all prorations. The provisions of this Section 10.4 will survive the Closing for nine (9) months. (b) Purchaser will cause to be paid or turned over to Seller, in the form received by Purchaser, all Rentals, if any, received by Purchaser after Closing and attributable to the Tenant Lease for any period prior to the Closing Date. Purchaser will have no liability for the failure to collect any such amounts and will not be required to take any other legal action to enforce collection of any such amounts owed to Seller by the Tenant of the Property. After the Closing Date, Seller may collect Delinquent Rentals and billings described in Section 10.4(d) below from Tenant and take other legal non-possessory action to enforce collection of any such amounts, provided, however, in no event will Seller have the right to threaten termination of the Tenant Lease or institute any eviction or ejectment proceedings. (c) Seller, using its reasonable business judgment, will prepare, at least seven (7) days prior to the Closing Date, a reconciliation as of the Closing Date of the amounts of all billings and charges for Tenant's use of water & sewer, operating costs and tax escalations (collectively, "BILLABLE OPERATING COSTS") comparing actual electricity and operating costs escalations for the year-to-date until the Closing Date with Seller's actual collections of Billable Operating Costs that have actually been charged to Tenant for the calendar year in which Closing occurs and submit such reconciliation to Tenant for its approval. All adjustments of Billable Operating Costs shall be conducted by Seller and Tenant. In no event will Purchaser be responsible for any adjustment on account of Billable Operating Costs. If more amounts have 26 been expended for Billable Operating Costs than have been billed to and collected from Tenant for Billable Operating Costs, Seller will seek to collect such difference from Tenant at Closing. If more amounts have been collected from Tenant for Billable Operating Costs than have been expended for Billable Operating Costs, Seller will remit to Tenant at Closing such excess collected amount. Purchaser and Seller agree that such proration of Billable Operating Costs at the Closing will fully relieve Purchaser from any responsibility to Tenant or Seller for such matters. In this regard, Seller will be solely responsible for (i) seeking collection from Tenant of the amount of any Billable Operating Costs not previously collected, and (ii) where appropriate, reimbursing Tenant for amounts attributable to Billable Operating Costs as may be necessary based on annual reconciliations for Billable Operating Costs for all calendar years including the calendar year in which Closing occurs. (The provisions of this subsection do not apply to Billable Operating Costs for the calendar year preceding the calendar year in which Closing occurs, the same being governed by Section 10.4(b) above.) (d) With respect to specific tenant billings for work orders, special items performed or provided at the request of Tenant, other specific services, and specific billings for Billable Operating Costs or other additional rents and amounts due which relate to the foregoing specific services rendered by Seller prior to the Closing Date, Seller may seek to collect same from Tenant in accordance with the Lease and Purchaser shall have no responsibility therefor. (e) Nothing contained in this Agreement shall obligate or be deemed to obligate Purchaser to pay or reimburse Seller for any Commissions, tenant improvement costs or other expenditures with respect to the existing Tenant Lease. SECTION 10.5 DELIVERY OF REAL PROPERTY. Upon completion of the Closing, Seller will deliver to Purchaser possession of the Real Property, subject to the Tenant Lease and the Permitted Exceptions. SECTION 10.6 COSTS OF TITLE COMPANY AND CLOSING COSTS. Costs of the Title Company and other Closing costs incurred in connection with the Closing will be allocated as follows: (a) Purchaser will pay (i) all premiums and other costs for the Title Policy, including, but not limited to, any endorsements (except for those insuring over remaining Title Objections) or deletions, as provided for in Section 6.2(b), (ii) all premiums and other costs for any mortgagee policy of title insurance, if any, including, but not limited to, any endorsements or deletions, (iii) all costs for any modification, update or recertification of the Existing Surveys which Purchaser elected to obtain, (iv) Purchaser's attorney's fees, (v) one-half of the Title Company's escrow fees, if any, and (vi) all recording fees. (b) Seller will pay (i) the cost of any endorsements to the Title Policy that insure over remaining Title Objections pursuant to Section 6.2(b),if so agreed by Purchaser, (ii) one-half of the Title Company's escrow fees, if any, (iii) all documentary transfer taxes and deed recordation taxes, and (iv) Seller's attorneys' fees. (c) Any other costs and expenses of Closing not provided for in this Section 10.6 shall be allocated between Purchaser and Seller in accordance with the custom in Somerset County, New Jersey. 27 (d) If the Closing does not occur for any reason whatsoever, the costs incurred through the date of termination will be borne by the party incurring same. SECTION 10.7 Intentionally Deleted. ARTICLE XI BROKERAGE SECTION 11.1 BROKER. Seller agrees to pay to Colliers Houston & Co. ("PURCHASER'S BROKER") a real estate commission at Closing (but only in the event of Closing in strict compliance with this Agreement) in an amount equal to Two Hundred Thousand and No/100 Dollars ($200,000.00) and such commission to Purchaser's Broker shall be reflected on the Closing Statement as a charge to be paid by the Seller. Purchaser represents that the payment of the commission by Seller to Purchaser's Broker will fully satisfy the obligations of Purchaser for the payment of a real estate commission to Purchaser's Broker in connection with this Agreement and the Closing. Other than as stated in this Section 11.1, Purchaser and Seller represent to the other that no real estate brokers, agents or finders' fees or commissions are due or will be due or arise in conjunction with the execution of this Agreement or consummation of this transaction by reason of the acts of such party, and Purchaser and Seller will indemnify and hereby agree to hold the other party harmless from any brokerage or finder's fee or commission claimed by any person asserting his entitlement thereto at the alleged instigation of the indemnifying party for or on account of this Agreement or the transactions contemplated hereby. The provisions of this Article XI will survive any Closing or termination of this Agreement. ARTICLE XII CONFIDENTIALITY SECTION 12.1 CONFIDENTIALITY. Seller and Purchaser each expressly acknowledges and agrees that the transactions contemplated by this Agreement and the terms, conditions, and negotiations concerning the same will be held in the strictest confidence by each of them and will not be disclosed by either of them except to their respective legal counsel, accountants, consultants, advisors, officers, members, partners, directors, shareholders, investors, and lenders, and to the Title Company, Escrow Holder, and Broker, and except and only to the extent that such disclosure may be necessary for their respective performances hereunder. Purchaser further acknowledges and agrees that, unless and until the Closing occurs and except as set forth in Section 5.2(b) and Article XII, all information obtained by Purchaser in connection with the Property will not be disclosed by Purchaser to any third persons without the prior written consent of Seller. Nothing contained in this Article XII will preclude or limit either party to this Agreement from disclosing or accessing any information otherwise deemed confidential under this Article XII in connection with that party's enforcement of its rights following a disagreement hereunder, or in response to lawful process or subpoena or other valid or enforceable order of a court of competent jurisdiction or any filings with governmental authorities required by reason of the transactions provided for herein pursuant to an opinion of counsel. Notwithstanding the foregoing, Seller acknowledges that Purchaser is a publicly traded corporation, and as such, 28 Purchaser may disclose the transaction contemplated by this Agreement in public filings with governmental agencies, as required by law. The provisions of this Section 12.1 will survive any termination of this Agreement. SECTION 12.2 PRESS RELEASES. Except as required by applicable law, (a) neither party shall issue any press release, take out any advertisement, or make any statement to the media with respect to this Agreement or the transactions contemplated by this Agreement, without the other party's consent, which consent may be given or withheld in such other party's reasonable discretion, (b) prior to Closing Purchaser shall not issue any press release, take out any advertisement, or make any statement to the media with respect to the Property, without Seller's consent, which consent may be given or withheld in Seller's sole discretion, and (c) following Closing Purchaser shall not issue any press release, take out any advertisement or make any statement to the media with respect to the Property if the same mentions Seller or any of Seller's parents, subsidiaries, affiliates or principals by name, acronym, abbreviation, trade name or service mark, without Seller's consent, which consent may be given or withheld in Seller's sole discretion. The provisions of this Section 12.2 will survive any Closing or any termination of this Agreement. ARTICLE XIII REMEDIES SECTION 13.1 DEFAULT BY SELLER. IN THE EVENT THE CLOSING AND THE TRANSACTIONS CONTEMPLATED HEREBY DO NOT OCCUR AS HEREIN PROVIDED BY REASON OF ANY DEFAULT OF SELLER, PURCHASER, AS PURCHASER'S SOLE AND EXCLUSIVE REMEDY, MAY ELECT BY NOTICE TO SELLER WITHIN TEN (10) BUSINESS DAYS FOLLOWING THE SCHEDULED CLOSING DATE, EITHER OF THE FOLLOWING: (A) TO TERMINATE THIS AGREEMENT, IN WHICH EVENT THE EARNEST MONEY DEPOSIT SHALL BE RETURNED TO PURCHASER, PURCHASER SHALL RETURN TO SELLER THE PURCHASER'S INFORMATION, SELLER SHALL REIMBURSE PURCHASER FOR THE ACTUAL THIRD PARTY OUT-OF-POCKET COSTS AND EXPENSES INCURRED BY PURCHASER IN CONNECTION WITH THIS AGREEMENT, PROVIDED, HOWEVER, SELLER SHALL HAVE NO OBLIGATION TO REIMBURSE PURCHASER FOR MORE THAN $25,000.00, AND THEREAFTER SELLER AND PURCHASER WILL HAVE NO FURTHER RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT EXCEPT WITH RESPECT TO THE TERMINATION SURVIVING OBLIGATIONS, OR (B) TO SEEK TO ENFORCE SPECIFIC PERFORMANCE OF THIS AGREEMENT. FAILURE OF PURCHASER TO MAKE THE FOREGOING ELECTION WITHIN THE FOREGOING TEN (10) BUSINESS DAY PERIOD SHALL BE DEEMED AN ELECTION BY PURCHASER TO TERMINATE THIS AGREEMENT UNDER THE AFORESAID TERMS AND CONDITIONS THEREOF. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED HEREIN WILL LIMIT PURCHASER'S REMEDIES AT LAW, IN EQUITY OR AS HEREIN PROVIDED IN THE EVENT OF A BREACH BY SELLER OF ANY OF THE CLOSING SURVIVING OBLIGATIONS OR THE TERMINATION SURVIVING OBLIGATIONS. 29 SECTION 13.2 DEFAULT BY PURCHASER. IN THE EVENT THE CLOSING AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREIN DO NOT OCCUR AS PROVIDED HEREIN BY REASON OF ANY DEFAULT OF PURCHASER, PURCHASER AND SELLER AGREE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE DAMAGES WHICH SELLER MAY SUFFER. PURCHASER AND SELLER HEREBY AGREE THAT (i) AN AMOUNT EQUAL TO THE EARNEST MONEY DEPOSIT IS A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT SELLER WOULD SUFFER IN THE EVENT PURCHASER DEFAULTS AND FAILS TO COMPLETE THE PURCHASE OF THE PROPERTY, AND (ii) SUCH AMOUNT WILL BE THE FULL, AGREED AND LIQUIDATED DAMAGES FOR PURCHASER'S DEFAULT AND FAILURE TO COMPLETE THE PURCHASE OF THE PROPERTY, AND WILL BE SELLER'S SOLE AND EXCLUSIVE REMEDY (WHETHER AT LAW OR IN EQUITY) FOR ANY DEFAULT OF PURCHASER RESULTING IN THE FAILURE OF CONSUMMATION OF THE CLOSING, WHEREUPON THIS AGREEMENT WILL TERMINATE, PURCHASER SHALL RETURN TO SELLER THE PURCHASER'S INFORMATION, AND SELLER AND PURCHASER WILL HAVE NO FURTHER RIGHTS OR OBLIGATIONS HEREUNDER EXCEPT WITH RESPECT TO THE TERMINATION SURVIVING OBLIGATIONS. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED HEREIN WILL LIMIT SELLER'S REMEDIES AT LAW, IN EQUITY OR AS HEREIN PROVIDED IN THE EVENT OF A BREACH BY PURCHASER OF ANY OF THE CLOSING SURVIVING OBLIGATIONS OR THE TERMINATION SURVIVING OBLIGATIONS. ARTICLE XIV NOTICES SECTION 14.1 NOTICES. All notices or other communications required or permitted hereunder will be in writing, and will be given by (a) personal delivery, or (b) professional expedited delivery service with proof of delivery, or (c) United States mail, postage prepaid, registered or certified mail, return receipt requested, or (d) facsimile transmission with a second copy sent by any of the foregoing methods, sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee will have designated by written notice sent in accordance herewith and will be deemed to have been given either at the time of personal delivery, or, in the case of expedited delivery service or mail, as of the date of first attempted delivery at the address or in the manner provided herein, or, in the case of facsimile transmission, upon receipt. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Agreement will be as follows: To Purchaser: ImClone Systems Incorporated 180 Varick Street New York, NY 10014 Attn: John B. Landes, Esquire Fax: (212) 645-2054 with a copy to: ImClone Systems Incorporated 22 Chubb Way Somerville, NJ 08876 30 Attn: Mr. Paul Goldstein Fax: (908) 218-7764 with a copy to: Wolff & Samson, P.A. 5 Becker Farm Road Roseland, NJ 07068 Attn: Jeffrey M. Gussoff, Esquire Fax: (973) 436-4426 To Seller: c/o The Gale Company, LLC 200 Campus Drive Suite 200 Florham Park, New Jersey 07932 Attn: Messrs. Stephen J. Cusma and Christopher F. Sameth Fax: (973) 301-9501 with a copy to: c/o The Morgan Stanley Real Estate Fund II, L.P. 1585 Broadway New York, New York 10036 Attn: Mr. John Buza Fax: (212) 761-3288 with copy to: c/o Paine Webber Inc. 1285 Avenue of the Americas 38th Floor New York, New York 10019 Attn: Mr. Kevin D. Cox Fax: (212) 713-7949 ARTICLE XV ASSIGNMENT AND BINDING EFFECT SECTION 15.1 ASSIGNMENT; BINDING EFFECT. Purchaser will not have the right to assign this Agreement without Seller's prior written consent, which consent shall not be unreasonably withheld or delayed. Purchaser and Seller may each assign its rights under this Agreement to an Affiliate of such assigning party without the consent of the non-assigning party, provided that any such assignment does not relieve the assigning party of its obligations hereunder. This Agreement will be binding upon and inure to the benefit of Seller and Purchaser and their respective successors and permitted assigns, and no other party will be conferred any rights by virtue of this Agreement or be entitled to enforce any of the provisions hereof. Whenever a reference is made in this Agreement to Seller or Purchaser, such reference will include the successors and permitted assigns of such party under this Agreement. 31 ARTICLE XVI LIMITED SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 16.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties of Seller set forth in Sections 7.3, 8.1 and 11.1, together with Seller's liability for any breach before Closing of any of Seller's interim operating covenants under Section 7.1, will survive the Closing for a period of twelve (12) months. Purchaser will not have any right to bring any action against Seller as a result of any untruth or inaccuracy of such representations and warranties, or any such breach, unless and until the aggregate amount of all liability and losses arising out of any such untruth or inaccuracy, or any such breach, exceeds $25,000, and then only to the extent of such excess. In addition, in no event will Seller's liability for all such breaches exceed, in the aggregate $400,000. Notwithstanding the foregoing, Seller's liability for a breach of Section 8.1(b) shall be valued at an aggregate amount up to a maximum of the Purchase Price. Seller shall have no liability with respect to any of Seller's representations, warranties and covenants herein if, prior to the Closing, Purchaser has actual knowledge of any breach of a covenant of Seller herein, or Purchaser obtains actual knowledge (from whatever source, including, without limitation, as a result of Purchaser's due diligence tests, investigations and inspections of the Property, or written disclosure by Seller or Seller's agents and employees) that contradicts any of Seller's representations and warranties herein, and Purchaser nevertheless consummates the transaction contemplated by this Agreement. The Closing Surviving Obligations will survive Closing without limitation unless a specified period is otherwise provided in this Agreement. All other representations, warranties, covenants and agreements made or undertaken by Seller under this Agreement, unless otherwise specifically provided herein, will not survive the Closing Date but will be merged into the Deed and other Closing documents delivered at the Closing. SECTION 16.2 NOTICE OF BREACH; SELLER'S RIGHT TO CURE. If at or prior to the Closing, Purchaser obtains actual knowledge that any of the representations or warranties made herein by Seller are untrue, inaccurate or incorrect in any material respect, Purchaser shall give Seller written notice (the "PURCHASER REPRESENTATION NOTICE") thereof within five (5) Business Days of obtaining such knowledge (but, in any event, prior to the Closing). Purchaser's actual knowledge shall be the actual knowledge of Paul Goldstein. If at or prior to the Closing, Seller obtains actual knowledge that any of the representations or warranties made herein by Seller are untrue, inaccurate or incorrect in any material respect, Seller shall give Purchaser written notice (the "SELLER REPRESENTATION NOTICE") thereof within five (5) Business Days of obtaining such knowledge (but, in any event, prior to the Closing). In either such event, Seller shall have the right to cure such misrepresentation or breach and shall be entitled to a reasonable adjournment of the Closing (not to exceed thirty (30) days) for the purpose of such cure by giving a written notice (a "CURE NOTICE") to Purchaser promptly upon receipt of the Purchaser Representation Notice or concurrently with the giving of a Seller Representation Notice, as applicable. If Seller does not timely give a Cure Notice or does give a Cure Notice but is unable to so cure any such misrepresentation or breach identified in a Seller Representation Notice or a Purchaser Representation Notice, then Purchaser, as its sole remedy for any and all such materially untrue, inaccurate or incorrect representations or warranties, shall elect either (a) to waive such misrepresentations or breaches of representations and warranties and consummate the purchase and sale of the Property as contemplated hereby without any reduction of or credit against the Purchase Price, or (b) to terminate this Agreement by written notice given to Seller on or before 32 the Closing Date, in which event this Agreement shall be terminated, Purchaser shall receive the Earnest Money Deposit, Purchaser shall return to Seller the Purchaser's Information, Seller shall reimburse Purchaser for its actual third party out-of-pocket costs incurred in connection with this Agreement, provided, however, in no event shall Seller have any obligation to reimburse Purchaser for an amount in excess of $25,000.00, and thereafter neither party shall have any further rights or obligations hereunder except to the extent of the Termination Surviving Obligations. ARTICLE XVII MISCELLANEOUS SECTION 17.1 WAIVERS. No waiver of any breach of any covenant or provisions contained herein will be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision contained herein. No extension of time for performance of any obligation or act will be deemed an extension of the time for performance of any other obligation or act. SECTION 17.2 RECOVERY OF CERTAIN FEES. In the event a party hereto files any action or suit against another party hereto by reason of any breach of any of the covenants, agreements or provisions contained in this Agreement, then in that event the prevailing party will be entitled to have and recover of and from the other party all reasonable attorneys' fees and costs resulting therefrom. For purposes of this Agreement, the term "attorneys' fees" or "attorneys' fees and costs" shall mean the reasonable fees and expenses of counsel to the parties hereto, which may include printing, photostating, duplicating and other expenses, air freight charges, and fees billed for law clerks, paralegals and other persons not admitted to the bar but performing services under the supervision of an attorney, and the costs and fees incurred in connection with the enforcement or collection of any judgment obtained in any such proceeding. The provisions of this Section 17.2 shall survive the entry of any judgment, and shall not merge, or be deemed to have merged, into any judgment. SECTION 17.3 CONSTRUCTION. Headings at the beginning of each article and Section are solely for the convenience of the parties and are not a part of this Agreement. Whenever required by the context of this Agreement, the singular will include the plural and the masculine will include the feminine and vice versa. This Agreement will not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. All exhibits and schedules referred to in this Agreement are attached and incorporated by this reference, and any capitalized term used in any exhibit or schedule which is not defined in such exhibit or schedule will have the meaning attributable to such term in the body of this Agreement. In the event the date on which Purchaser or Seller is required to take any action under the terms of this Agreement is not a Business Day, the action will be taken on the next succeeding Business Day. SECTION 17.4 COUNTERPARTS. To facilitate execution of this Agreement, this Agreement may be executed in multiple counterparts, each of which, when assembled to include an original signature for each party contemplated to sign this Agreement, will constitute a complete and fully executed original. All such fully executed original counterparts will collectively constitute a single agreement. 33 SECTION 17.5 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all of the other conditions and provisions of this Agreement will nevertheless remain in full force and effect, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to either party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto will negotiate in good faith to modify this Agreement so as to reflect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 17.6 ENTIRE AGREEMENT. This Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof, and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument, signed by the party to be charged or by its agent duly authorized in writing, or as otherwise expressly permitted herein. SECTION 17.7 GOVERNING LAW. THIS AGREEMENT WILL BE CONSTRUED, PERFORMED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY. SECTION 17.8 NO RECORDING. The parties hereto agree that neither this Agreement nor any memorandum concerning it will be recorded. Nothing herein, however, shall be deemed to prohibit the filing of a standard Notice of Settlement in connection with this transaction. SECTION 17.9 FURTHER ACTIONS. The parties agree to execute such instructions to the Title Company and such other instruments and to do such further acts as may be reasonably necessary to carry out the provisions of this Agreement. SECTION 17.10 NO OTHER INDUCEMENTS. The making, execution and delivery of this Agreement by the parties hereto has been induced by no representations, statements, warranties or agreements other than those expressly set forth herein. SECTION 17.11 NO PARTNERSHIP. Notwithstanding anything to the contrary contained herein, this Agreement shall not be deemed or construed to make the parties hereto partners or joint venturers, it being the intention of the parties to merely create the relationship of seller and purchaser with respect to the Property to be conveyed as contemplated hereby. SECTION 17.12 LIMITATIONS ON BENEFITS. It is the explicit intention of Purchaser and Seller that no person or entity other than Purchaser and Seller and their permitted successors and assigns is or shall be entitled to bring any action to enforce any provision of this Agreement against any of the parties hereto, and the covenants, undertakings and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, Purchaser and Seller or their respective successors and assigns as permitted hereunder. Nothing contained in this Agreement shall under any circumstances whatsoever be deemed or construed, or be interpreted, as making any third party (including, without limitation, Broker) a beneficiary of any 34 term or provision of this Agreement or any instrument or document delivered pursuant hereto, and Purchaser and Seller expressly reject any such intent, construction or interpretation of this Agreement. [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] [SIGNATURES BEGIN ON NEXT PAGE 35 IN WITNESS WHEREOF, Seller and Purchaser have respectively executed this Agreement to be effective as of the date first above written. PURCHASER: IMCLONE SYSTEMS INCORPORATED, a Delaware corporation By: /S/ John B. Landes --------------------------------- Name: John B. Landes Its: Senior Vice President, Legal SELLER: 4/33 BUILDING ASSOCIATES, L.P. a New Jersey limited partnership By: Scott Princeton Associates, L.P., a general partner By: Scott Princeton PW/MS LLC, its sole general partner By: /S/ Joseph Adamo ---------------------------------- Name: Joseph Adamo Its: Authorized Person By: Independence/Chubb Associates, L.P. a general partner By: Independence Chubb/PW/MS LLC, its sole general partner By: /S/ Joseph Adamo ---------------------------------- Name: Joseph Adamo Its: Authorized Person 36 EXHIBITS A -- Real Property Description B -- Excluded Personal Property C -- Service Contracts D -- Escrow Instructions E -- Intentionally Deleted F -- Intentionally Deleted G -- List of Known Suits, Actions and Proceedings H -- Tenant List I -- Form of Bargain and Sale Deed with Covenants Against Grantor's Acts J -- Form of Bill of Sale K -- Intentionally Deleted L -- Nonforeign Certificate -FIRPTA M -- Form of Certificate of Reaffirmation of Representations 37 EXHIBIT A LEGAL DESCRIPTION OF THE REAL PROPERTY All that certain Lot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Township of Branchburg, County of Somerset, State of New Jersey: BEING known as lot 5 block 68 F on "Amended Final Map Branchburg Township Somerset County New Jersey" filed January 3, 1983 as Map No. 1997. Being more particularly described as follows: BEGINNING at a point in the southerly sideline of Chubb Way said point being distant 1,380.74 feet southeasterly from the intersection of the said southerly sideline of Chubb Way with the easterly sideline of U.S. Route 202 and from said beginning point, running (1) Along the southerly sideline of Chubb Way in a northerly direction on a curve to the left having a radius of 530.00 feet, an arc distance of 163.55 feet to a point of tangence; thence (2) Continuing along same North 64 degrees 59 minutes 00 seconds East, a distance of 188.14 feet to a point; thence (3) South 25 degrees 01 minutes 00 seconds East, a distance of 916.05 feet to a point; thence (4) South 65 degrees 30 minutes 00 seconds West, a distance of 25.07 feet to an angel point; thence (5) South 84 degrees 00 minutes 00 seconds West, a distance of 92.40 feet to an angle point; thence (6) North 66 degrees 45 minutes 00 seconds West, a distance of 77.20 feet to an angle point; thence (7) South 63 degrees 18 minutes 59 seconds West, a distance of 144.53 feet to an angle point; thence (8) South 69 degrees 43 minutes 00 seconds West, a distance of 45.04 feet to a point; thence (9) North 24 degrees 44 minutes 39 seconds West, a distance of 853.65 feet to a point of BEGINNING. Also known as Lot 5, Block 68.06, Tax Map of the Township of Branchburg, County of Somerset. EXHIBIT B LIST OF EXCLUDED PERSONAL PROPERTY Any personal property owned or leased by Tenant and/or by the property manager NOTE: Per property manager, there is no personal property at 33 Chubb Way. EXHIBIT C SERVICE CONTRACTS
- -------------------------------------------------------------------------------------------------------- VENDOR/CONTRACT SERVICE PERIOD CANCELLATION - -------------------------------------------------------------------------------------------------------- ESSI Fire panel monitoring and Semi-annual and Emergency Thirty days prior notice emergency on call - -------------------------------------------------------------------------------------------------------- Shauger Parking lot sweeping Twice Yearly Thirty days prior notice - -------------------------------------------------------------------------------------------------------- Dubrows Landscaping Varies by season Thirty days prior notice - --------------------------------------------------------------------------------------------------------
EXHIBIT D ESCROW AGREEMENT ________________, 2002 GENERAL LAND ABSTRACT COMPANY One Gateway Center, Suite 2503 Newark, New Jersey 07102 Attention: Gregory Kowalski Subject: 33 Chubb Avenue, Branchburg, New Jersey Gentlemen and Mesdames: ImClone Systems Incorporated, a Delaware corporation ("PURCHASER") and 4/33 Building Associates, L.P. ("SELLER") have entered into that certain Agreement of Sale and Purchase dated _____________, 2002 (the "PURCHASE AGREEMENT"). Purchaser and Seller have selected General Land Abstract Company ("ESCROW HOLDER") to hold, in escrow, the Earnest Money Deposit required under Section 4.1 of the Purchase Agreement. The purpose of this letter agreement (this "LETTER") is to prescribe the specific instructions governing Escrow Holder's obligations with respect to the Earnest Money Deposit. Pursuant to the foregoing, the parties hereto agree as follows: 1. Seller and Purchaser hereby engage Escrow Holder to hold the Earnest Money Deposit and Escrow Holder hereby accepts such engagement. Escrow Holder agrees to hold in escrow all funds comprising the Earnest Money Deposit. The Earnest Money Deposit shall be invested in a federally-insured interest bearing account at a federally insured bank or such other investment as may be reasonably approved by Purchaser and Seller, pursuant to the instructions contained in the form attached hereto. All interest earned on the Earnest Money Deposit shall accrue to the benefit of the party to whom the Earnest Money Deposit is delivered in accordance with the terms of the Purchase Agreement. 2. If at any time Escrow Holder receives a certificate of either Seller or Purchaser (the "CERTIFYING PARTY") stating that (a) the Certifying Party is entitled to receive the Earnest Money Deposit pursuant to the terms of the Purchase Agreement and a copy of the certificate was sent as provided herein to the other party (the "OTHER PARTY") prior to or contemporaneously with the giving of such certificate to Escrow Holder, then, unless Escrow Holder receives contrary instructions from the Other Party within five (5) business days after Escrow Holder's receipt of said certificate, Escrow Holder, no sooner than five (5) business days after its receipt of said certificate, will deliver the Earnest Money Deposit to the Certifying Party, and thereupon Escrow Holder will be discharged and released from any and all liability hereunder. If Escrow Holder receives contrary instructions from the Other Party within five (5) business days following Escrow Holder's receipt of said certificate, Escrow Holder will not so deliver the 38 Earnest Money Deposit, but will, at its option, either (x) continue to hold the same pursuant hereto pending the joint written instructions of the parties or an order of a court of competent jurisdiction with respect to the disbursement thereof, or (y) commence an interpleader action a court of competent jurisdiction by giving Seller and Purchaser notice thereof and depositing the Earnest Money Deposit with the applicable court, whereupon Escrow Holder may resign as Escrow Holder. Notwithstanding the foregoing provisions to the contrary, if Purchaser terminates the Purchase Agreement pursuant to Section 5.4 or Section 6.2 of the Purchase Agreement, then Escrow Holder, upon unilateral written instructions of Purchaser delivered in accordance with Section 6 below and received in accordance with the time conditions, if any, contained in the Purchase Agreement and regardless of any conflicting written instructions that Escrow Holder may receive from Seller, shall immediately return the Deposit to or as directed by Purchaser. 3. In the event that (a) closing occurs under the Purchase Agreement then immediately after Closing, or (b) Escrow Holder receives a written statement executed by the Purchaser and the Seller, at any time, stating that Purchaser is excused from performing under the Purchase Agreement, then, within two (2) business days thereafter, Escrow Holder shall deliver the Earnest Money Deposit to Purchaser to the extent the Earnest Money Deposit has not been applied to the Purchase Price in accordance with the written instructions of Purchaser and Seller. 4. Escrow Holder shall receive no compensation for its service performed pursuant to this Letter except for (a) such expense or cost charged for investments by the bank or institution holding the Earnest Money Deposit, which expenses or costs shall be shared equally by Seller and Purchaser, and (b) reasonable attorneys' fees or costs incurred as a result of any dispute between Seller and Purchaser, which fees or costs will be reimbursed by the party whose non-performance or default gave rise to the dispute. 5. Escrow Holder shall not be liable for any damage, liability or loss arising out of or in connection with the services rendered by Escrow Holder pursuant to the Purchase Agreement or this Letter, except for any damage, liability, or loss resulting from the willful or grossly negligent misconduct of Escrow Holder or any of its employees. Escrow Holder shall be entitled to rely, and shall not be subject to any liability acting in reliance, upon any writing furnished to Escrow Holder by either Seller or Purchaser, and Escrow Holder shall be entitled to treat as genuine and as the document it purports to be, any letter, paper, or other document furnished to Escrow Holder in connection with this Letter. Escrow Holder may rely on any affidavit of either Seller or Purchaser or any other person with respect to the existence of any facts stated therein to be known to the affiant. 6. All notices or other communications required or permitted hereunder will be in writing, and will be given by (a) personal delivery, or (b) professional expedited delivery service with proof of delivery, or (c) United States mail, postage prepaid, registered or certified mail, return receipt requested, or (d) facsimile transmission with a second copy sent by any of the foregoing methods, sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee will have designated by written notice sent in accordance herewith and will be deemed to have been given either at the time of personal delivery, or, in the case of expedited delivery service or mail, as of the date of first 39 attempted delivery at the address or in the manner provided herein, or, in the case of facsimile transmission, upon receipt. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Letter will be as follows: To Purchaser: ImClone Systems Incorporated 180 Varick Street New York, NY 10014 Attn: John B. Landes, Esquire Fax: (212) 645-2054 with a copy to: ImClone Systems Incorporated 22 Chubb Way Somerville, NJ 08876 Attn: Mr. Paul Goldstein Fax: (908) 218-7764 with a copy to: Wolff & Samson, P.A. 5 Becker Farm Road Roseland, NJ 07068 Attn: Jeffrey M. Gussoff, Esquire Fax: (973) 436-4426 To Seller: c/o The Gale Company, LLC 200 Campus Drive Suite 200 Florham Park, New Jersey 07932 Attn: Messrs. Stephen J. Cusma and Christopher F. Sameth Fax: (973) 301-9501 with copy to: c/o The Morgan Stanley Real Estate Fund II, L.P. 1585 Broadway New York, New York 10036 Attn: Mr. John Buza Fax: (212) 761-3288 with copy to: c/o Paine Webber Inc. 1285 Avenue of the Americas 38th Floor New York, New York 10019 Attn: Mr. Kevin D. Cox Fax: (212) 713-7949 To Escrow Holder: General Land Abstract Company One Gateway Center, Suite 2503 Newark, New Jersey 07102 Attn: Gregory Kowalski Fax: (973) 621-7488 7. The instructions contained in this Letter shall not be modified, amended, or altered in any way except by a writing (which may be in counterpart copies) signed by both Seller and Purchaser (or by their respective counsel) and acknowledged by Escrow Holder. 8. Purchaser and Seller reserve the right, at any time and from time to time, by mutual agreement, to substitute a new Escrow Holder in place of Escrow Holder. 9. This Letter is intended solely to supplement and implement the provisions of the Purchase Agreement and is not intended to modify, amend, or vary any of the rights or obligations of Purchaser or Seller under the Purchase Agreement. [The remainder of this page is intentionally left blank.] IN WITNESS WHEREOF, this Letter is executed as of the day and year first above written. PURCHASER: IMCLONE SYSTEMS INCORPORATED, a Delaware corporation By: ___________________________________ Name: Its: SELLER: 4/33 BUILDING ASSOCIATES, L.P. a New Jersey limited partnership By:Scott Princeton Associates L.P., a general partner By: Scott Princeton PW/MS LLC, its general partner By:________________________________ Name: Joseph Adamo Its: Authorized Person By:Independence/Chubb Associates, L.P. a general partner By: Independence Chubb/PW/MS LLC, its sole general partner By: ______________________ Name: Joseph Adamo Its Authorized Person ESCROW HOLDER: GENERAL LAND ABSTRACT COMPANY By: _________________________________ Name: Its: EXHIBIT E INTENTIONALLY DELETED EXHIBIT F INTENTIONALLY DELETED EXHIBIT G LIST OF LAWSUITS NONE EXHIBIT H LIST OF TENANTS Office Interiors, Inc. d/b/a Dancker, Sellew & Douglas EXHIBIT I Prepared By: _________________________ Stephen J. Cusma, Esquire DEED This Deed is made on , 2002. BETWEEN 4/33 BUILDING ASSOCIATES, L.P., a New Jersey limited partnership, having an office c/o Gale & Wentworth, LLC, 200 Campus Drive, Suite 200, Florham Park, NJ 07932, referred to as the "GRANTOR" AND IMCLONE SYSTEMS INCORPORATED, a Delaware corporation, having an office at 180 Varick Street, New York, NY 10014, referred to as the "GRANTEE". TRANSFER OF OWNERSHIP. The Grantor grants and conveys (transfers ownership of) the property described below to the Grantee. This transfer is made for the sum of Three Million Nine Hundred Eighty-Five Thousand and 00/100 Dollars ($3,985,000.00). The Grantor acknowledges receipt of this money. TAX MAP REFERENCE. (N.J.S.A. 46:15-2.1) Township of Branchburg, Block 68.06 Lot 5. PROPERTY. The property consists of the land and the building and improvements on the land in the Township of Branchburg, County of Somerset and State of New Jersey. The legal description is attached hereto as Schedule A. (See Schedule A attached hereto and incorporated herein). Being the same Property conveyed to Grantor herein by Deed from Bellemead Development Corporation, a Delaware corporation dated September 1, 1988, recorded October 6, 1988 in Deed Book 1703 Page 810. Commonly known as 33 Chubb Way, Branchburg, NJ. Subject to easements, restrictions and agreements of record, and such state of facts as an accurate survey may disclose PROMISES GRANTOR. The Grantor promises that except for easements, restrictions and agreements of record, Grantor has done no act to encumber the Property. This promise is called a "covenant as to grantor's acts" (N.J.S.A. 46:4-6). This promise means that the Grantor has not allowed anyone else to obtain any legal rights which affect the property (such as by making a 40 mortgage or allowing a judgment to be entered against the Grantor). SIGNATURES. The Grantor signs this Deed as of the date at the top of the first page. WITNESS: GRANTOR: 4/33 BUILDING ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP _____________________ BY: SCOTT PRINCETON ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP, A GENERAL PARTNER BY: SCOTT PRINCETON PW/MS LLC, A NEW JERSEY LIMITED LIABILITY COMPANY, ITS SOLE GENERAL PARTNER BY: _________________________________________ JOSEPH ADAMO, AUTHORIZED PERSON BY: INDEPENDENCE/CHUBB ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP, A GENERAL PARTNER BY: INDEPENDENCE CHUBB/PW/MS LLC, A NEW JERSEY LIMITED LIABILITY COMPANY, ITS SOLE GENERAL PARTNER BY: _________________________________________ JOSEPH ADAMO, AUTHORIZED PERSON STATE OF NEW JERSEY ) )SS.: COUNTY OF MORRIS ) I CERTIFY that on , 2002, Joseph Adamo personally came before me and this person acknowledged under oath, to my satisfaction, that: (a) this person is the Authorized Person for (i) Scott Princeton PW/MS LLC, the sole general partner of Scott Princeton Associates, L.P., and (ii) Independence Chubb/PW/MS LLC, the sole general partner of Independence/Chubb Associates, L.P.. Scott Princeton Associates, L.P. and Independence/Chubb Associates, L.P. are the general partners of 4/33 Building Associates, L.P., the limited partnership named in this Deed as the Grantor; (b) this Deed was signed and delivered by the Grantor as its voluntary act duly authorized by a proper consent of its general partners; (c) this person signed this proof to attest to the truth of these facts; and (d) the full and actual consideration paid or to be paid for the combined transfer of title is $3,985,000.00 (such consideration is defined in N.J.S.A. 46:15-5). Signed and sworn to before me on , 2002. _____________________________________________________ DEED DATED: , 2002 4/33 Building Associates, L.P., Grantor TO ImClone Systems Incorporated, Grantee Record and return to: Wolff & Samson, P.A. 5 Becker Farm Road Roseland, NJ 07068 Attn: Jeffrey M. Gussoff, Esquire EXHIBIT J BILL OF SALE IN CONSIDERATION of Ten and No/100 Dollars ($10.00) and other good and valuable consideration paid to 4/33 Building Associates, L.P., a New Jersey limited partnership ("SELLER"), the receipt of which is hereby acknowledged, Seller does hereby GRANT, CONVEY AND WARRANT to ImClone Systems Incorporated, a Delaware corporation ("PURCHASER"), all of Seller's right, title, and interest in and to all equipment, appliances, tools, supplies, machinery, artwork, furnishings and other tangible personal property, if any, attached to, located in and used exclusively in connection with the ownership or operation of (i) the real property legally described on Exhibit A attached hereto and made a part hereof (the "REAL PROPERTY") and (ii) all buildings, structures, fixtures, parking areas and improvements located on the Real Property (the "IMPROVEMENTS"), but specifically excluding items of personal property owned by lawful tenants of the Improvements or of the Real Property and further excluding any items of personal property owned by third parties and leased to Seller (the "PERSONAL PROPERTY"). TO HAVE AND TO HOLD the Personal Property unto Purchaser and Purchaser's successors and assigns, forever. Seller has executed this Bill of Sale and BARGAINED, SOLD, TRANSFERRED, CONVEYED and ASSIGNED the Personal Property and Purchaser has accepted this Bill of Sale and purchased the Personal Property "AS IS AND WHEREVER LOCATED," WITH ALL FAULTS AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF WHATSOEVER NATURE, EXPRESS, IMPLIED, OR STATUTORY, EXCEPT AS EXPRESSLY SET FORTH IN THIS BILL OF SALE OR IN THE AGREEMENT OF SALE AND PURCHASE BETWEEN SELLER AND PURCHASER DATED AS OF MARCH 1, 2002, AS IT MAY HAVE BEEN AMENDED TO DATE (the "PURCHASE AGREEMENT") AND THE WARRANTIES SET FORTH HEREIN, IT BEING THE INTENTION OF SELLER AND PURCHASER TO EXPRESSLY NEGATE AND EXCLUDE ALL OTHER WARRANTIES WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, ANY RIGHTS OF PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, ANY CLAIM BY PURCHASER FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN WITH RESPECT TO THE PERSONAL PROPERTY, WARRANTIES CREATED BY AFFIRMATION OF FACT OR PROMISE AND ANY OTHER WARRANTIES CONTAINED IN OR CREATED BY THE UNIFORM COMMERCIAL CODE AS NOW OR HEREAFTER IN EFFECT IN THE STATE IN WHICH THE PERSONAL PROPERTY IS LOCATED, OR CONTAINED IN OR CREATED BY ANY OTHER LAW. EXECUTED to be effective as of the ________ day of _____________ 2002. SELLER: 4/33 BUILDING ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP BY: SCOTT PRINCETON ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP, A GENERAL PARTNER BY: SCOTT PRINCETON PW/MS LLC, A NEW JERSEY LIMITED LIABILITY COMPANY, ITS SOLE GENERAL PARTNER BY:________________________________________________ JOSEPH ADAMO, AUTHORIZED PERSON BY: INDEPENDENCE/CHUBB ASSOCIATES, L.P. , A NEW JERSEY LIMITED PARTNERSHIP, A GENERAL PARTNER BY: INDEPENDENCE CHUBB/PW/MS LLC, A NEW JERSEY LIMITED LIABILITY COMPANY, ITS SOLE GENERAL PARTNER BY:________________________________________________ JOSEPH ADAMO, AUTHORIZED PERSON EXHIBIT K INTENTIONALLY DELETED EXHIBIT L NON-FOREIGN ENTITY CERTIFICATION Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by the transferor, 4/33 Building Associates, L.P., a New Jersey limited partnership ("4/33"), the undersigned hereby certifies the following: 1. 4/33 is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); 2. 4/33's U.S. employer identification number is 22-2948461; and 3. 4/33's office address is: c/o The Gale Company, LLC 200 Campus Drive, Suite 200 Florham Park, New Jersey 07932 4/33 understands that this certification may be disclosed to the Internal Revenue Service and that any false statement made within this certification could be punished by fine, imprisonment, or both. Under penalties of perjury the undersigned declares that he has examined this certification and that to the best of his knowledge and belief it is true, correct and complete, and the undersigned further declares that he has the authority to sign this document on behalf of the transferor. TRANSFEROR: 4/33 BUILDING ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP By: Scott Princeton Associates, L.P., a general partner By: Scott Princeton PW/MS LLC, its sole general partner BY:____________________________________________ JOSEPH ADAMO, AUTHORIZED PERSON By: Independence/Chubb Associates, L.P. a general partner By: Independence Chubb/PW/MS LLC, its sole general partner BY:____________________________________________ JOSEPH ADAMO, AUTHORIZED PERSON EXHIBIT M CERTIFICATE This Certificate (this "CERTIFICATE") is made pursuant to the terms and conditions of that certain Agreement of Sale and Purchase, as it may have been amended to date (the "AGREEMENT") dated as of ___________, 2002 by and among 4/33 Building Associates, L.P., a New Jersey limited partnership (the "SELLER"), and ImClone Systems Incorporated, a Delaware corporation (the "PURCHASER"). [For Seller's Certificate] In consideration of the purchase of the Property (as defined in the Agreement) by the Purchaser from the Seller pursuant to the Agreement, the Seller certifies that all of the representations and warranties made by the Seller in Sections 7.3, 8.1 and 11.1 of the Agreement are true and correct in all material respects as of the date hereof except as may be set forth on any schedule attached hereto. [For Purchaser's Certificate] In consideration of the sale of the Property (as defined in the Agreement) by the Seller to the Purchaser pursuant to the Agreement, the Purchaser certifies that all of the representations and warranties made by the Purchaser in Section 8.2 and 11.1 of the Agreement are true and correct in all material respects as of the date hereof except as may be set forth on any schedule attached hereto. IN WITNESS WHEREOF, the Seller has executed this Certificate as of _______________, 2002. _________________________________ By: ____________________________ Name: Its: Authorized Representative EX-99.8 7 y62899exv99w8.txt 2002 STOCK OPTION PLAN EXHIBIT 99.8 IMCLONE SYSTEMS INCORPORATED 2002 STOCK OPTION PLAN 1. Purpose. The purpose of the ImClone Systems Incorporated 2002 Stock Option Plan (the "Plan") is to enhance the ability of ImClone Systems Incorporated (the "Company") and its Subsidiaries to attract and retain officers, employees, directors and consultants of outstanding ability and to provide officers, employees, directors and consultants with an interest in the Company parallel to that of the Company's shareholders. The term "Company" as used in this Plan with reference to employment or service shall include the Company and its Subsidiaries, as appropriate. 2. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall mean (i) if a Participant is party to an employment agreement or similar agreement with the Company and such agreement includes a definition of Cause, the definition contained therein or (ii) if no such employment or similar agreement exists, it shall mean (A) the Participant's failure to substantially perform the duties reasonably assigned to him or her by the Company, which has not been cured by the Participant following 10 days prior written notice from the Company, (B) a good faith finding by the Company of the Participant's dishonesty, gross negligence or misconduct, (C) a material breach by the Participant of any written Company employment policies or rules or (D) the Participant's conviction for, or his or her plea of guilty or nolo contendere to, a felony or for any other crime which involves fraud, dishonesty or moral turpitude. (c) "Change in Control" of the Company means the occurrence of one of the following events: (i) individuals who, on the Effective Date, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the EXHIBIT 99.8 Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary (provided, that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities, or (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) 60% or more of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or (iv) stockholder approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company's shareholders in substantially the same proportions as such shareholders owned the Company's outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company under this Plan. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than EXHIBIT 99.8 35% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Committee" shall mean a committee of at least two members of the Board appointed by the Board to administer the Plan and to perform the functions set forth herein and who are "non-employee directors" within the meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and who are also "outside directors" within the meaning of Section 162(m) of the Code. (f) "Common Stock" shall mean the common stock of the Company. (g) "Continuous Service" means that the Participant's service as an employee, director or consultant with the Company or a Subsidiary is not interrupted or terminated. The Participant's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or a Subsidiary as an employee, director or consultant or a change in the entity for which the Participant renders such service; provided, that, there is no interruption or termination of the Participant's Continuous Service other than an approved leave of absence. The Committee, in its sole discretion, may determine whether Continuous Service shall be considered interrupted. (h) "Disability" shall have the same meaning as provided in any long-term disability plan maintained by the Company or any Subsidiary in which a Participant then participates (the "LTD Plans"); provided, that, if no such plan exists, it shall have the meaning set forth in Section 22(e)(3) of the Code. (i) "Fair Market Value" per share as of a particular date shall mean, unless otherwise determined by the Board, the last reported sale price of the Common Stock on the NASDAQ (or any other exchange or national market system upon which price quotations for the Company's Common Stock is regularly available) for such date. (j) "Immediate Family Member" shall mean, except as otherwise determined by the Committee, a Participant's spouse, ancestors and descendants. (k) "Incentive Stock Option" shall mean a stock option which is intended to meet the requirements of Section 422 of the Code. (l) "Nonqualified Stock Option" shall mean a stock option which is not intended to be an Incentive Stock Option. EXHIBIT 99.8 (m) "Option" shall mean either an Incentive Stock Option or a Nonqualified Stock Option. (n) "Participant" shall mean anyone who is selected to participate in the Plan in accordance with Section 5. (o) "Subsidiary" shall mean any affiliate of the Company selected by the Board; provided, that, with respect to Incentive Stock Options, it shall mean any subsidiary of the Company that is a corporation and which at the time qualifies as a "subsidiary corporation" within the meaning of Section 424(f) of the Code. (p) "Substitute Awards" shall mean Options granted or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or with which the Company is combined. 3. Shares Subject to the Plan. (a) General. Subject to adjustment in accordance with Section 12, the total of the number of shares of Common Stock which shall be available for the grant of Options under the Plan shall not exceed 3,300,000 shares of Common Stock; provided, that, for purposes of this limitation, any Common Stock subject to an Option which is canceled, forfeited or expires prior to exercise whether such Option was granted under this Plan or the 1998 Non-Qualified Stock Option Plan, as amended, the 1996 Non-Qualified Stock Option Plan, as amended or the 1996 Incentive Stock Option Plan, as amended (together, the "Prior Plans") shall again become available for grant under the Plan. In addition, any shares of Common Stock tendered and/or withheld for the payment of all or a part of an Option (whether granted under this Plan or the Prior Plans) or any applicable withholding taxes shall again become available for the grant of an Option under the Plan. The Company may, but is not required to, use the proceeds it receives in connection with the exercise of an Option under this Plan, or under the Prior Plans for exercises occurring after the Effective Date, to purchase shares of its Common Stock in the open market and any such shares of Common Stock so purchased may be used for the issuance of Options under this Plan. Substitute Options shall not reduce the shares of Common Stock available for grants under the Plan or to a Participant over a period of time. Subject to adjustment in accordance with Section 12, no employee shall be granted, during any three (3) year period, Options to purchase more than 3,300,000 shares of Common Stock. Common Stock available for issue or distribution under the Plan shall be authorized and unissued shares or shares reacquired by the Company in any manner. (b) Incentive Stock Options. Notwithstanding Section 3(a), subject to adjustment in accordance with Section 12, the aggregate number of shares of Common Stock with respect to which Incentive Stock Options may be granted under the Plan shall not exceed 825,000 shares of Common Stock. Any shares of Common Stock subject to an Incentive Stock Option granted under this Plan or the 1996 Incentive Stock Option Plan, as EXHIBIT 99.8 amended which is canceled, forfeited or expires prior to exercise shall again be counted toward the aggregate number of shares available for the grant of Incentive Stock Options under this Plan. 4. Administration. (a) The Plan shall be administered by the Committee. All references to the Committee hereinafter shall mean the Board if no such Committee has been appointed. (b) The Committee shall (i) approve the selection of Participants, (ii) determine the type of Options to be made to Participants, (iii) determine the number of shares of Common Stock subject to Options, (iv) determine the terms and conditions of any Option granted hereunder (including, but not limited to, any forfeiture conditions on such Option) and (v) have the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Option in the manner and to the extent it shall deem desirable to carry it into effect. (c) Any action of the Committee shall be final, conclusive and binding on all persons, including the Company and its Subsidiaries and shareholders, Participants and persons claiming rights from or through a Participant. (d) The Committee may delegate to officers or employees of the Company or any Subsidiary, and to service providers, the authority, subject to such terms as the Committee shall determine, to perform administrative functions with respect to the Plan and Option awards. (e) Members of the Committee and any officer or employee of the Company or any Subsidiary acting at the direction of, or on behalf of, the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified by the Company with respect to any such action or determination. 5. Eligibility. Individuals eligible to receive Options under the Plan shall be the officers, employees, directors and consultants of the Company and its Subsidiaries selected by the Committee; provided, that, only employees of the Company and its Subsidiaries may be granted Incentive Stock Options. 6. Options. Options may be granted under the Plan in such form as the Committee may from time to time approve pursuant to terms set forth in an Option award. (a) Types of Options. Each Option award shall state whether or not the Option will be treated as an Incentive Stock Option or Nonqualified Stock Option. The aggregate Fair Market Value of the Common Stock for which Incentive Stock Options EXHIBIT 99.8 granted to any one employee under this Plan or any other incentive stock option plan of the Company or of any of its Subsidiaries may by their terms first become exercisable during any calendar year shall not exceed $100,000, determining Fair Market Value as of the date each respective Option is granted. In the event such threshold is exceeded in any calendar year, such excess Options shall be automatically deemed to be Nonqualified Stock Options. To the extent that any Option granted under this Plan which is intended to be an Incentive Stock Option fails for any reason to qualify as such at any time, such Option shall be a Nonqualified Stock Option. (b) Option Price. The purchase price per share of the Common Stock purchasable under an Option shall be determined by the Committee and shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant. In the case of Incentive Stock Options granted to an employee owning stock possessing more than 10% of the total combined voting power of all classes of shares of the Company and its Subsidiaries (a "10% Shareholder") the price per share specified in the agreement relating to such Option shall not be less than 110% of the Fair Market Value per share of the Common Stock on the date of grant. (c) Option Period. Unless otherwise provided in an Option award, the term of each Option shall be ten (10) years from the date the Option is granted; provided, that, in the case of Incentive Stock Options granted to 10% Shareholders, the term of such Option shall not exceed five (5) years from the date of grant. Notwithstanding the foregoing, unless otherwise provided in an Option award, upon the death or Disability of a Participant, Options (other than Incentive Stock Options) that would otherwise remain exercisable following such death or Disability shall remain exercisable for one year following such death or Disability notwithstanding the term of such Option. (d) Exercisability. Each Option shall vest and become exercisable at a rate determined by the Committee on the date of grant. (e) Termination of Continuous Service. Unless otherwise provided in an Option award, any Options held by a Participant upon termination of Continuous Service shall remain exercisable as follows: (i) If the Participant's termination of Continuous Service is due to death, all unvested Options shall automatically terminate and all vested Options shall be exercisable by the Participant's designated beneficiary, or, if none, the person(s) to whom such Participant's rights under the Option are transferred by will or the laws of descent and distribution for 1 year following such termination of Continuous Service (but in no event beyond the term of the Option, except as provided in clause (c) above), and shall thereafter terminate. (ii) If the Participant's termination of Continuous Service is due to Disability, all unvested Options shall automatically terminate and all vested Options shall be exercisable by the Participant for 1 year following such Disability (but in no event EXHIBIT 99.8 beyond the term of the Option, except as provided in clause (c) above), and shall thereafter terminate. (iii) If the Participant's termination of Continuous Service is for Cause, the Option shall terminate upon such termination of Continuous Service, regardless of whether the Option was then vested and exercisable. (iv) If the Participant's termination of Continuous Service is for any other reason, all unvested Options shall terminate on the date of termination and all Options (to the extent exercisable as of the date of termination) shall be exercisable for a period of 30-days following such termination of employment or service (but in no event beyond the term of the Option), and shall thereafter terminate. The Participant's status as an employee shall not be considered terminated in the case of a leave of absence agreed to in writing by the Company (including, but not limited to, military and sick leave); provided, that, with respect to Incentive Stock Options, such leave is for a period of not more than three-months or re-employment upon expiration of such leave is guaranteed by contract or statute. (f) Method of Exercise. Options may be exercised, in whole or in part, by giving written notice of exercise to the Company in a form approved by the Company specifying the number shares of Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the Option exercise price. Unless otherwise provided at the time of grant, the exercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of Common Stock held by the Participant for at least six (6) months prior to exercise (or such longer or shorter period as may be required to avoid a charge to earnings for financial accounting purposes) or the attestation of ownership of such shares, in either case, if so permitted by the Company, (iii) through a "same day sale" commitment from a Participant and a broker-dealer, who is reasonably acceptable to the Company and who is a member of the National Association of Securities Dealers, under such terms and conditions which are reasonably acceptable to the Company, (iv) through additional methods prescribed by the Committee, as deemed appropriate by the Committee in its discretion, or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law. A Participant's subsequent transfer or disposition of any Common Stock acquired upon exercise of an Option shall be subject to any Federal and state laws then applicable, specifically securities law, and the terms and conditions of this Plan. 7. Special Provisions. (a) Change in Control. Unless otherwise provided in an Option award, upon the occurrence of a Change in Control, all Options and shall automatically become vested and exercisable in full. The Committee may, in its discretion, include such further provisions and limitations in any award documenting such Options as it may deem equitable and in the best interests of the Company. (b) Forfeiture. Notwithstanding anything in the Plan to the contrary and unless otherwise specifically provided in an Option award, in the event of a serious breach EXHIBIT 99.8 of conduct by a Participant or former Participant (including, without limitation, any conduct prejudicial to or in conflict with the Company or its Subsidiary) the Committee may (i) cancel any outstanding Option granted to such Participant or former Participant, in whole or in part, whether or not vested, and/or (ii) if such conduct or activity occurs within one (1) year following the exercise of an Option, require such Participant or former Participant to repay to the Company any gain realized upon the exercise of such Option (with such gain or payment valued as of the date of exercise). Such cancellation or repayment obligation shall be effective as of the date specified by the Committee. Any repayment obligation shall be satisfied in cash or, if permitted in the sole discretion of the Committee, it may be satisfied in shares of Common Stock (based upon the Fair Market Value of the share of Common Stock on the date of payment), and the Committee may provide for an offset to any future payments owed by the Company or any Subsidiary to the Participant or former Participant if necessary to satisfy the repayment obligation. The determination of whether a Participant or former Participant has engaged in a serious breach of conduct shall be determined by the Committee in good faith and in its sole discretion. 8. Withholding. Upon (a) disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option granted pursuant to the Plan within two years of the grant of the Incentive Stock Option or within one year after exercise of the Incentive Stock Option, or (b) exercise of a Nonqualified Stock Option (or an Incentive Stock Option treated as a Nonqualified Stock Option), or (c) under any other circumstances determined by the Committee in its sole discretion, the Company shall have the right to require any Participant, and such Participant by accepting the Options granted under the Plan agrees, to pay to the Company the amount of any taxes which the Company shall be required to withhold with respect thereto. In the event of clauses (a), (b) or (c), with the consent of the Committee, at its sole discretion, such Participant may elect to have the Company withhold shares of Common Stock having a Fair Market Value equal to the amount of the withholding tax obligation as determined by the Company; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law. Such shares so delivered to satisfy the minimum withholding obligation may be either shares withheld by the Company upon the exercise of the Option or other shares. At the Committee's sole discretion, a Participant may elect to have additional taxes withheld and satisfy such withholding with cash or shares of Common Stock held for at least six (6) months prior to exercise, if, in the opinion of the Company's outside accountants, doing so, would not result in a charge against earnings. If the Option is an Incentive Stock Option, and if the Participant sells or otherwise disposes of any of the shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two (2) years after the date of grant, and (ii) the date one (1) year after transfer of such shares to the Participant upon exercise of the Option, the Participant shall immediately notify the Company in writing of such disposition. 9. Nontransferability, Beneficiaries. Unless otherwise determined by the Committee with respect to the transferability of Nonqualified Stock Options by a Participant to his Immediate Family Members (or to trusts or partnerships or limited liability companies established for such family members), no Options shall be assignable or EXHIBIT 99.8 transferable by the Participant, otherwise than by will or the laws of descent and distribution or pursuant to a beneficiary designation, and Options shall be exercisable, during the Participant's lifetime, only by the Participant (or by the Participant's legal representatives in the event of the Participant's incapacity). Each Participant may designate a beneficiary to exercise any Option held by the Participant at the time of the Participant's death. If no beneficiary has been named by a deceased Participant, any Option held by the Participant at the time of death shall be transferred as provided in his will or by the laws of descent and distribution. Except in the case of the holder's incapacity, an Option may only be exercised by the holder thereof. 10. No Right to Continuous Service. Nothing contained in the Plan or in any Option under the Plan shall confer upon any Participant any right with respect to the continuation of service with the Company or any of its Subsidiaries, or interfere in any way with the right of the Company or its Subsidiaries to terminate his or her Continuous Service at any time. Nothing contained in the Plan shall confer upon any Participant or other person any claim or right to any Option under the Plan. 11. Governmental Compliance. Each Option under the Plan shall be subject to the requirement that if at any time the Committee shall determine that the listing, registration or qualification of any shares issuable or deliverable thereunder upon any securities exchange or under any Federal or state law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition thereof, or in connection therewith, no such Option may be exercised or shares issued or delivered unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 12. Adjustments; Corporate Events. (a) In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event (an "Event"), and in the Committee's opinion, such event affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Option, then the Committee shall, in such manner as it may deem equitable, including, without limitation, adjust any or all of the following: (i) the number and kind of shares of Common Stock (or other securities or property) with respect to which Options may be granted; (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options; and (iii) the exercise price with respect to any Option. The Committee determination under this Section 12(a) shall be final, binding and conclusive. EXHIBIT 99.8 (b) Upon the occurrence of an Event in which outstanding Options are not to be assumed or otherwise continued following such an Event, the Committee may, in its discretion, terminate any outstanding Option (whether or not vested) without a Participant's consent and (i) provide for either (A) the purchase of any such Option for an amount of cash equal to the product of (I) and (II), where (I) is equal to the number of shares of Common Stock subject to such Option and (II) is equal to the difference between (a) the Fair Market Value of one share of Common Stock and (b) the per share exercise price of such Option; provided, that, if such amount would result in a negative number, the Option shall automatically terminate and cease to be exercisable without payment for such termination or (B) the replacement of such Option with other rights or property selected by the Committee in its sole discretion and/or (ii) provide that such Option shall be exercisable (whether or not vested) as to all shares covered thereby for at least thirty (30) days prior to such Event. (c) The existence of the Plan, the Option awards and the Options granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 13. Option Awards. Each Option under the Plan shall be evidenced by a written document setting forth the terms and conditions, as determined by the Committee, which shall apply to such Option, in addition to the terms and conditions specified in the Plan. 14. Amendment. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that (a) no amendment shall be made without shareholder approval if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and (b) except as provided in Section 12, no amendment shall be made that would adversely affect the rights of a Participant under an Option theretofore granted, without such Participant's written consent. 15. General Provisions. (a) The Committee may require each Participant acquiring shares pursuant to an Option under the Plan to represent to and agree with the Company in writing that such Participant is acquiring the shares for investment and without a view to distribution thereof. (b) All certificates for Common Stock delivered under the Plan pursuant to any Option shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock EXHIBIT 99.8 is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. If the Committee determines that the issuance of Common Stock hereunder is not in compliance with, or subject to an exemption from, any applicable Federal or state securities laws, such shares shall not be issued until such time as the Committee determines that the issuance is permissible. (c) It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict with the intent expressed in this Section 15(c), such provision to the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict. (d) Except as otherwise provided by the Committee in the applicable Option award, a Participant shall have no rights as a shareholder with respect to any shares of Common Stocks subject to an Option until a certificate or certificates evidencing shares of Common Stock shall have been issued to the Participant and, subject to Section 12, no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date on which Participant shall become the holder of record thereof. (e) The law of the State of Delaware shall apply to all Options and interpretations under the Plan regardless of the effect of such state's conflict of laws principles. (f) Where the context requires, words in any gender shall include any other gender. (g) Headings of Sections are inserted for convenience and reference; they do not constitute any part of this plan. 16. Expiration of the Plan. Subject to earlier termination pursuant to Section 14, the Plan shall have an indefinite term; provided, that, the ability to grant Incentive Stock Options will terminate on April 3, 2012 which is the tenth (10th) anniversary of the date on which the Board adopted the Plan. 17. Effective Date; Approval of Shareholders. The Plan is effective as of the date it is approved by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware (the "Effective Date"). If the Plan is approved, no further grants shall be made under the terms of the Prior Plans on or after the Effective Date; provided, that, any outstanding Options made thereunder EXHIBIT 99.8 shall be governed and controlled by the terms and conditions of such Prior Plans and any Option awards evidencing such Options. EX-99.9 8 y62899exv99w9.txt CERTIFICATION OF CEO EXHIBIT 99.9 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ImClone Systems Incorporated (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harlan W. Waksal, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ Harlan W. Waksal - ------------------------------ Harlan W. Waksal Chief Executive Officer August 14, 2002 EX-99.10 9 y62899exv99w10.txt CERTIFICATION OF CFO EXHIBIT 99.10 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ImClone Systems Incorporated (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel S. Lynch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ Daniel S. Lynch - ------------------------------ Daniel S. Lynch Chief Financial Officer August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----