IMCLONE SYSTEMS INC/DE - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-19612

IMCLONE SYSTEMS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 04-2834797
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

180 VARICK STREET,
NEW YORK, NY 10014
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 645-1405
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $.001 AND THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS.

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 [ ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of voting and non-voting common equity held
by non-affiliates of the registrant as of June 28, 2002 was $467,794,883.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

i

As used in this Form 10-K, "ImClone Systems," "Company," "we," "ours,"
and "us" refer to ImClone Systems Incorporated, except where the context
otherwise requires or as otherwise indicated.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

This Form 10-K contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about our and our subsidiary's beliefs and
expectations, are forward-looking statements. These statements involve potential
risks and uncertainties; therefore, actual results may differ materially. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they were made. We do not undertake any
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.

Important factors that may affect these expectations include, but are
not limited to: the risks and uncertainties associated with completing
pre-clinical and clinical trials of our compounds that demonstrate such
compounds' safety and effectiveness; manufacturing losses and risks associated
therewith; obtaining additional financing to support our operations; obtaining
and maintaining regulatory approval for such compounds and complying with other
governmental regulations applicable to our business; obtaining the raw materials
necessary in the development of such compounds; consummating and maintaining
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity to manufacture, market and sell our products, either
directly or with collaborative partners; developing market demand for and
acceptance of such products; competing effectively with other pharmaceutical and
biotechnological products; obtaining adequate reimbursement from third party
payers; attracting and retaining key personnel; legal costs and the duration and
outcome of legal proceedings and investigations, including, but not limited to,
our investigations pertaining to tax withholding issues; avoiding delisting of
our securities on the Nasdaq Stock Market; obtaining patent protection for
discoveries and risks associated with commercial limitations imposed by patents
owned or controlled by third parties; and those other factors set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview and Risk Factors" and those other factors set forth in
"Risk Factors" in the Company's most recent Registration Statement.

We do not undertake to discuss matters relating to certain completed
clinical trials or our regulatory strategies beyond those which have already
been made public or discussed herein.

ii

PART I

ITEM 1. BUSINESS

OVERVIEW

We are a biopharmaceutical company whose mission is to advance oncology
care by developing a portfolio of targeted biologic treatments designed to
address the medical needs of patients with cancer. We focus on what we believe
are three promising strategies for treating cancer:

- growth factor blockers,

- angiogenesis inhibitors and

- cancer vaccines.

We were incorporated under the laws of the State of Delaware on April
26, 1984. Our corporate headquarters and research facility are located at 180
Varick Street, New York, New York 10014 and the telephone number is (212)
645-1405. We make available free of charge on our internet website
(http://www.imclone.com) our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange Commission.

Our lead product candidate, ERBITUX(TM) (cetuximab), formerly known as
IMC-C225, is an investigational IgG1 therapeutic monoclonal antibody that
inhibits stimulation of the Epidermal Growth Factor ("EGF") receptor upon which
certain solid tumors depend in order to grow. ERBITUX has been shown in several
early stage clinical trials to have an acceptable safety profile, to be well
tolerated and, when administered alone or in combination with radiation therapy
or chemotherapy, to cause tumor reduction in certain cases. We are conducting,
and in some cases have completed, potential registration studies evaluating
ERBITUX for the treatment of colorectal and head and neck cancers. Such studies
include a potential registration monotherapy study evaluating ERBITUX for the
treatment of colorectal cancer. We are also conducting potential registration
studies in other indications.

Subject to the receipt of regulatory approval, we intend to co-promote
ERBITUX in the United States and Canada together with our development, promotion
and distribution partner Bristol-Myers Squibb Company ("BMS") through its
wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"). We have
granted our development and marketing partner, Merck KGaA, rights to market
ERBITUX outside the United States and Canada. In Japan, ImClone Systems and E.R.
Squibb will share the development and marketing of ERBITUX, either together or
co-exclusively with Merck KGaA. We are manufacturing ERBITUX for clinical trials
and potential commercial sales. According to our agreements with BMS and Merck
KGaA, each will be obligated to pay us certain royalties on their sales of
ERBITUX.

On December 28, 2001, the United States Food and Drug Administration
("FDA") issued a "refusal to file" letter with respect to our rolling Biologics
License Application ("BLA") for the proposed indication of ERBITUX in
combination with irinotecan (CAMPTOSAR(R), CPT-11) for the treatment of
EGFR-positive colorectal cancer patients who are refractory to irinotecan
treatment. On February 26, 2002, we, along with representatives from our
strategic partners BMS and Merck KGaA, met with the FDA to discuss the FDA's
"refusal to file" letter and to seek guidance on how to proceed. At this
meeting, we discussed providing the FDA with data from a European clinical trial
in irinotecan-refractory colorectal cancer sponsored by Merck KGaA in a study
known as Trial EMR62202-007 in conjunction with reanalyzed clinical data from
our U.S. Phase II clinical trials discussed below. Significant effort has been
undertaken to address the concerns raised by the FDA since this meeting,
including the completion of the Trial EMR62202-007 in Europe, the results of
which are discussed below.

At a subsequent meeting in September 2002, we discussed with the FDA a
comprehensive clinical development program in colorectal cancer, including Trial
CP02-0144, our second monotherapy study in the refractory colorectal cancer
setting, for which we completed enrollment on April 4, 2003, as well as two

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Phase III randomized studies known as Trial CA225-006 and Trial CA225-014. We
have begun enrollment in both of these randomized studies.

On June 5, 2003, we met with the FDA to discuss the results of the
recently completed Merck KGaA Trial EMR62202-007 and opportunities to use these
results to support a filing for ERBITUX in combination with irinotecan for the
treatment of refractory colorectal cancer. As a result of these discussions, we
believe that we can re-submit the BLA for ERBITUX in the second half of 2003.

In addition to our work developing ERBITUX, we are also developing
inhibitors of angiogenesis, which could be used to treat various kinds of cancer
and other diseases. We have identified potential monoclonal antibody-based
inhibitors, collectively known to us as IMC-KDR antibodies. The IMC-KDR
antibodies bind selectively and with high affinity to the kinase insert
domain-containing receptor ("KDR"), a principal Vascular Endothelial Growth
Factor ("VEGF") receptor, thereby, we believe, inhibiting angiogenesis.

Our next most advanced product candidate, BEC2, is a cancer vaccine. In
partnership with Merck KGaA, we are testing BEC2 for preventing recurrence or
progression of limited disease small-cell lung cancer in a Phase III pivotal
trial. Subject to the receipt of regulatory approval, we intend to co-promote
BEC2 with Merck KGaA in North America. Merck KGaA will be responsible for
developing and marketing BEC2 outside North America and will be obligated to pay
us royalties on all such sales. In addition, we intend to be the worldwide
manufacturer of BEC2.

In addition to the development of our lead product candidates, we
continue to conduct research, both independently and in collaboration with
academic and corporate partners, in a number of areas related to our core focus
of growth factor blockers, angiogenesis inhibitors and cancer vaccines. We have
also developed diagnostic products and vaccines for certain infectious diseases,
and we have licensed the rights to these products and vaccines to corporate
partners.

DEVELOPMENT PROGRAMS

ERBITUX(TM) CANCER THERAPEUTIC

ERBITUX is an investigational IgG1 chimerized (part human, part mouse)
monoclonal antibody that selectively binds to the EGF receptor and thereby
inhibits growth of tumors dependent upon activation of the EGF receptor for cell
division and survival. The activation of the EGF receptor is believed to play a
critical role in the growth and survival of certain types of tumor cells and
select normal cells. Certain cancer types are characterized by the expression of
the EGF receptor. For example, according to the American Cancer Society, an
estimated 148,000 cases of colorectal cancer were diagnosed in the United States
in 2002. Trial CP02-9923 and other studies conducted by us have indicated that
approximately 72% of advanced stage refractory colorectal cancer cases have been
shown to express the EGF receptor in tumor cells. Also, according to the
American Cancer Society, an estimated 28,900 cases of head and neck cancer were
diagnosed in the United States in 2002. Similarly, according to the literature
in this area, approximately 95% to 100% of squamous cell head and neck cancer
cases have been shown to express the EGF receptor on the surface of the tumor
cells. Other types of cancer are also characterized, in certain patients, by
expression of the EGF receptor, including non-small cell lung, renal, and
pancreatic cancers. By preventing the binding of critical growth factors to the
EGF receptor, we believe it is possible to inhibit the growth and survival of
these tumors.

EARLY ERBITUX(TM) CLINICAL TRIALS

We have tested ERBITUX in numerous clinical trials. In these studies, we
have given ERBITUX intravenously at escalating doses, both alone and in
combination with radiation therapy or chemotherapy. We believe that results from
Phase I/II trials of ERBITUX completed in 1999 established an appropriate dosing
regimen and provided preliminary evidence of biologic activity of ERBITUX used
in combination with chemotherapy and radiation therapy. With the data from these
early trials, we continued our research in order to establish appropriate dosing
regimen and whether ERBITUX is safe and effective in treating cancer.

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RECENT ERBITUX(TM) CLINICAL TRIALS

In order to establish whether ERBITUX is safe and effective in treating
cancer in larger patient populations and to continue to determine the types of
tumors on which ERBITUX is most effective, we conducted and plan to conduct the
Phase II and Phase III clinical trials in the indications discussed below. We
have tested ERBITUX in approximately 1,500 patients with various solid cancers,
such as colorectal, head and neck, lung, renal, breast and prostate cancers. In
addition to the clinical trials sponsored by us and described in the tables
below, we also receive data, which may be registrational or otherwise supportive
of our own development efforts, from clinical trials conducted by Merck KGaA,
BMS and certain independent oncology groups.

COLORECTAL CANCER

At the May 2001 American Society of Clinical Oncologists ("ASCO")
meeting, we presented findings from our Phase II clinical study of ERBITUX and
irinotecan in patients with irinotecan-refractory colorectal cancer (Trial
CP02-9923). Of the 139 patients enrolled in Trial CP02-9923, 120 patients, in
the opinion of the investigators, had EGF receptor-positive,
irinotecan-refractory colorectal cancer. The findings demonstrated that 22.5% of
these 120 patients achieved a partial response (greater than 50% tumor
regression) according to an independent response assessment committee ("IRAC").
An additional nine patients (7.5%) achieved stabilization of disease (lack of
tumor progression) according to the IRAC. The median duration of response was
186 days.

At the May 2002 ASCO meeting, we presented the findings from two of our
Phase II trials in colorectal cancer: a first-line therapy trial in combination
with chemotherapy in patients with metastatic colorectal cancer (Trial
CP02-0038) and a single-agent trial in refractory-colorectal cancer patients
(Trial CP02-0141). In the monotherapy trial, 57 of the 61 enrolled patients were
treated. The findings demonstrated that, of the 57 patients that were treated, 6
patients (10.5%) achieved a partial response according to the treating
physicians and an additional 21 patients (36.8%) achieved stabilization of the
disease. In the combination trial, data was analyzed using 29 of the 30 enrolled
patients. The findings demonstrated that of the 29 patients, 14 patients (48.3%)
treated achieved a partial response, an additional 9 patients (31%)

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achieved a minor response (greater than 25% tumor regression) and 3 patients
(10.3%) achieved stabilization of disease, according to the treating physicians.

In February 2003, the Company and BMS initiated a limited access program
of ERBITUX in the United States (Trial CA225-041). The access program enrolls
and treats patients with EGF receptor-positive metastatic colorectal cancer who
are not eligible for other current clinical studies of ERBITUX and who have
exhausted all other available treatment options. The access program, which was
developed in collaboration with members of the cancer advocacy community, is
administered by the National Organization for Rare Disorders, and utilizes an
unbiased patient randomization system to select patients for entry into the
program.

As discussed above, on February 26, 2002, we, along with representatives
from our strategic partners BMS and Merck KGaA, met with the FDA to discuss the
"refusal to file" letter and to seek guidance on how to proceed. Based on
concerns raised by the FDA regarding our BLA, we discussed with the FDA an
approach to provide the FDA with (i) data from Trial EMR62202-007, a randomized
European Phase II clinical trial in irinotecan-refractory colorectal cancer
conducted by Merck KGaA, in conjunction with (ii) reanalyzed clinical data from
the two U.S. Phase II clinical trials, Trial CP02-9923 and Trial CP02-0141, that
had been included in our BLA, including a new independent response assessment of
both trials. Significant effort was undertaken in Europe and the United States,
resulting in the completion of Trial EMR62202-007 in Europe and, the completion
of reanalyses of the data from Trial CP02-9923 and Trial CP02-0141 in the United
States. In parallel, we have made significant effort to conduct Trial CP02-0144,
a second monotherapy study, as expeditiously as practicable, into which, as
stated above, enrollment was completed on April 4, 2003

At the May 2003 ASCO meeting, Merck KGaA presented findings from Trial
EMR62202-007. This study was designed to enroll only patients who were
clinically and radiographically refractory to irinotecan. Eligible patients had
to have failed one of three pre-defined irinotecan regimens not more than three
months prior to protocol entry. The primary endpoint of the 007 trial was to
measure the objective response rate of ERBITUX (greater than 50% tumor
regression) in combination with irinotecan or as a single agent in patients
progressing on an irinotecan-based regimen. Of the 329 patients enrolled in the
trial, 218 patients were randomized into the combination treatment arm and 111
patients into the monotherapy arm. The findings demonstrated that the response
rates according to an IRAC for the two treatment groups were 22.9% for the
combination arm versus 10.8% for the monotherapy arm. The median time to
progression was 4.1 months for the combination arm versus 1.5 months for the
monotherapy arm.

As stated above, on June 5, 2003, we, along with representatives from
our strategic partners BMS and Merck KGaA, met with the FDA to provide the
results of Trial EMR62202-007 as support for a proposed resubmission of a BLA
for the use of ERBITUX in combination with irinotecan for the treatment of
refractory colorectal cancer. We believe that this meeting with the FDA provided
us with direction for resubmitting the ERBITUX BLA and we have targeted the
timeframe of the second half of 2003 to do so.

In conjunction with our U.S. partner BMS, we have opened or expect to
open additional studies in colorectal cancer, including randomized studies in
first-line and second-line therapy settings for metastatic colorectal cancer. In
the second-line therapy setting, two studies are planned. One study, Trial
CA225-014, which opened for patient enrollment and treatment in March 2003,
tests the addition of ERBITUX to the combination of oxaliplatin, 5-fluorouracil,
and leucovorin in patients who have failed irinotecan, 5-fluorouracil, and
leucovorin. The second study, Trial CA225-006, which opened for patient
enrollment in May 2003, tests the addition of ERBITUX to irinotecan in patients
who have failed oxaliplatin, 5-fluorouracil, and leucovorin in the first line of
therapy. The latter study is being conducted in collaboration with Merck KGaA.

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HEAD AND NECK CANCER

At the May 2002 ASCO meeting, we presented findings from the recently
completed Phase II study (Trial CP02-9816) demonstrating that the combination of
ERBITUX and cisplatin, a standard chemotherapy, can produce significant
responses in patients with cisplatin-refractory head and neck cancer.
Specifically, this study demonstrated that 11.5% of patients with
cisplatin-refractory squamous cell cancer of the head and neck achieved a
partial response (greater than 50% tumor regression) to ERBITUX plus cisplatin.
At the same meeting, our strategic partner Merck KGaA presented their findings
from a similar Phase II trial of ERBITUX and cisplatin in patients with
platinum-refractory head and neck cancer. This study reported a 10% response
rate, consistent with the experience in the United States. Also, at ASCO 2002,
the Eastern Cooperative Oncology Group presented their findings from a
randomized Phase III trial of ERBITUX and cisplatin versus cisplatin alone in
metastatic head and neck cancer (Trial ECOG-5397). This study demonstrated that
the combination of ERBITUX plus cisplatin generated a 22% response rate,
compared to 9% for cisplatin alone. Furthermore, the addition of ERBITUX
increased two-year survival from 17% to 29%. These results did not reach
statistical significance, but they suggest that a larger trial in squamous cell
cancer of the head and neck would be necessary in order to convincingly
demonstrate the potential survival benefit of the addition of ERBITUX to
cisplatin-based therapy.

We expect that results could be available from our Phase III locally
advanced head and neck cancer study conducted in cooperation with Merck KGaA
(Trial CP02-9815) in late 2003.

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LUNG CANCER

At the May 2003 ASCO annual meeting, we presented the findings of all
three of the above studies involving treatment with ERBITUX in advanced
non-small cell lung cancer. Findings from Trial CP02-9932, a Phase I/II study of
ERBITUX combined with paclitaxel and carboplatin, showed that of 31 evaluable
previously untreated patients, nine patients (29.0%) demonstrated a partial
response and 11 patients (35.5%) demonstrated stable disease, resulting in a
total rate of disease control of 64.5%. The median overall survival was 472
days.

In Trial CP02-9925, a Phase Ib/IIa study combining ERBITUX with
gemcitabine and carboplatin in 35 patients with newly-diagnosed non-small cell
lung cancer, responses to treatment included 10 patients (28.6%) with a partial
response and 21 patients (60.0%) with stable disease, and an overall rate of
disease control of 88.6% of patients studied. Severe hematologic toxicities in
this trial included thrombocytopenia, leucopenia and anemia.

Finally, our Phase II study (Trial CP02-0036) of ERBITUX in combination
with docetaxel in a chemotherapy-refractory/resistant population of 47 evaluable
patients, one patient (1.9%) had a complete response (tumor no longer
detectable), 11 patients (20.4%) had a partial response and 18 patients (33.3%)
had stabilization of disease. Disease control was achieved in 55.6% of patients.
Four patients discontinued the study due to an allergic reaction.

In addition, our partner Merck KGaA reported at the same ASCO meeting
that in a randomized Phase II study of 61 evaluable patients with
chemotherapy-naive non-small cell lung cancer, the addition of ERBITUX to
cisplatin and vinorelbine significantly increased tumor response rates (53.3%
versus 32.3%).

In 2003, in conjunction with our U.S. partner BMS, we opened an ERBITUX
monotherapy study as a third-line therapy for patients with non-small cell lung
cancer (Trial CA225-012).

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PANCREATIC CANCER

At the May 2001 ASCO meeting, we presented findings from our Phase II
clinical study (Trial CP02-9814) evaluating the use of ERBITUX and gemcitabine,
a standard chemotherapy, in patients with EGF receptor-positive pancreatic
cancer. The findings from this 41 patient study demonstrated that the
combination therapy produced an one-year overall survival rate of 32.5%. The
findings also demonstrated that five patients (12%) achieved a partial response
(greater than 50% tumor regression), and an additional 21 patients (52%)
achieved stabilization of disease. The median time to disease progression was
approximately 3.5 months.

FUTURE STUDIES

We regularly meet with our partners Merck KGaA and BMS to review and
coordinate our clinical research efforts. We intend to explore additional
studies in solid tumors.

GENERAL

The primary side effects observed in ERBITUX trials to date have been a
skin rash that has varied in severity depending on the patient, and fatigue and
weakness (asthenia). The rash subsides following completion of therapy.
Additionally, a review of the data from ongoing and completed trials has shown
that approximately 4% of patients have experienced severe hypersensitivity
reactions to the drug, thereby requiring physician monitoring of drug
administration.

As described above, we are testing ERBITUX in several different types of
cancer. Whereas in certain cancer types, like head and neck cancer, the EGF
receptor is expressed in nearly every patient with such cancer, in other cancer
types, many patients will not be positive for the EGF receptor. For the purpose
of testing of patients in the colorectal cancer trials, a diagnostic assay has
been used to determine which patients are positive for the EGF receptor.
Patients must be positive for the EGF receptor to be included in these trials.
Currently, such diagnostic tests are being performed in a laboratory setting,
since there are no commercialized assays available for this purpose. If ERBITUX
is approved for treating particular cancer types, standard diagnostic kits may
need to be available commercially. We have an agreement with the DakoCytomation
A/S (formerly DAKO Corporation) for the development of an EGF receptor screening
kit. Under the terms of the agreement, DakoCytomation will develop the kit,
which will be used to screen tumors for expression of the EGF receptor to
identify patients that may be receptive to treatment with ERBITUX. We selected
DakoCytomation to develop the screening kit because of its reputation for
quality and its experience in the development of diagnostics for other
oncology-related monoclonal antibody therapeutics. In parallel with our
application for FDA marketing approval of ERBITUX, DakoCytomation will be
applying to the FDA for marketing approval of the EGF receptor screening kit.

COLLABORATIONS

On September 19, 2001, we entered into a development, promotion,
distribution and supply agreement with BMS and E.R. Squibb (the "Commercial
Agreement"), subsequently amended on March 5, 2002, pursuant to which, among
other things, BMS and E.R. Squibb will (a) co-develop and co-promote ERBITUX in
the United States and Canada with us, and (b) co-develop and co-promote ERBITUX
in Japan with us and together or co-exclusively with Merck KGaA. In accordance
with the terms of the Commercial Agreement, responsibilities associated with
clinical and other ongoing studies will be apportioned between the parties. The
Commercial Agreement provides for the establishment of clinical development
plans

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setting forth the activities to be undertaken by the parties for the purpose of
obtaining marketing approvals, providing market support and developing new
indications and formulations of ERBITUX. Except as otherwise agreed upon by the
parties, we will own all registrations for the product and will be primarily
responsible for the regulatory activities leading to the registration in each
country. E.R. Squibb will be primarily responsible for the regulatory activities
in each country after the product has been registered in that country.

In December 1998, we entered into a development and marketing agreement,
as subsequently amended, with Merck KGaA relating to ERBITUX. Under this
agreement, we have retained the right to develop and market ERBITUX within the
United States and Canada, and we have granted Merck KGaA the exclusive right,
except in Japan (where ImClone Systems and BMS will co-develop and co-market
ERBITUX together or co-exclusively with Merck KGaA) to develop and market
ERBITUX outside of the United States and Canada.

MONOCLONAL ANTIBODY INHIBITORS OF ANGIOGENESIS

Our general experience with growth factors, particularly the use of
ERBITUX to block the EGF receptor, is mirrored in our pursuit of what may be
another promising approach for the treatment of cancer, the inhibition of
angiogenesis. Angiogenesis is the natural process of new blood vessel growth.
VEGF is one of a group of molecules that helps regulate angiogenesis. Tumor
cells, as well as normal cells, produce VEGF. Once produced by the tumor cells,
VEGF stimulates the production of new blood vessels and ensures an adequate
blood supply to the tumor, enabling the tumor to grow. KDR is a growth factor
receptor found almost exclusively on the surface of human endothelial cells,
which are the cells that line all blood vessels. VEGF must recognize and bind to
this KDR receptor in order to stimulate the endothelial cells to grow and cause
new blood vessels to form. We believe that interference with the binding of VEGF
to the KDR receptor inhibits angiogenesis and can potentially be used to slow or
halt tumor growth. We have identified potential inhibitors collectively known by
us as IMC-KDR antibodies.

In 2001, we concluded a Phase I clinical trial with an anti-KDR antibody
known as IMC-1C11. In 2002, we identified several fully human monoclonal
anti-KDR antibodies with potent anti-KDR activity. We expect to file an
Investigational New Drug Application ("IND") for one of these fully human
antibody candidates and to start clinical trials studying its potential for
angiogenesis inhibition in cancer patients as soon as reasonably possible. This
fully human antibody is expected to replace IMC-1C11 in our development
pipeline.

We believe that such inhibitors could be effective in treating many
solid and liquid tumors and may also be useful in treating other diseases, such
as diabetic retinopathy, age-related macular degeneration, and rheumatoid
arthritis that, like cancer, depend on the growth of new blood vessels.

BEC2 CANCER VACCINE

A cancer vaccine works by the administration of an antigen or the mimic
of an antigen that is found on the surface of certain types of cancer cells.
Such treatment is intended to activate immune responses and in turn to protect
against metastasis or recurrence of the tumor. A cancer vaccine will generally
be given after the tumor has responded to initial treatment. Often, an antigen
mimic can produce a stronger immune response than that produced by the original
antigen that it resembles.

BEC2 is a monoclonal antibody that we are developing as a cancer
vaccine. BEC2 mimics GD3, a molecule expressed on the surface of several types
of cancer cells. By mimicking GD3, BEC2 stimulates an immune response against
cells expressing GD3.

We have tested BEC2 in Phase I clinical trials at Memorial
Sloan-Kettering Cancer Center against certain forms of cancer, including both
limited disease and extensive disease small-cell lung carcinoma and melanoma
(skin cancer). Limited disease small-cell lung carcinoma is limited to the
lungs. Extensive disease

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small-cell lung carcinoma means that the disease has migrated to other parts of
the body. In one such trial, 15 patients with small-cell lung carcinoma who had
previously received chemotherapy and radiation therapy and achieved a partial or
complete response were treated with BEC2. At the time the results were analyzed,
approximately 27% of the patients had survived nearly five years following
diagnosis. These survival rates were longer than historical survival rates for
similar patients receiving conventional therapy, and so formed the basis for
going forward with Phase III studies. However, this trial alone was not
sufficient to establish that BEC2 is safe and effective in treating cancer.

Therefore, in conjunction with Merck KGaA, we have initiated a
570-patient multinational pivotal Phase III trial for BEC2 in the treatment of
limited disease small-cell lung cancer. The trial will examine patient survival
two years after a course of therapy. Enrollment was completed in the third
quarter of 2002. Data from this study is expected in mid-2004.

In 1990, we entered into a BEC2 development and marketing agreement with
Merck KGaA, which has been amended from time-to-time. We have retained the right
to co-promote BEC2 with Merck KGaA within North America, and we have granted
Merck KGaA exclusive rights to develop and market BEC2 outside of North America.
Under the agreement, Merck KGaA is also funding a portion of the Phase III
pivotal trial. In addition, we intend to be the worldwide manufacturer of BEC2.

GP75 CANCER VACCINE

We are conducting research on a possible DNA-based melanoma vaccine
against the melanoma antigen gp75. Melanoma is a tumor or cancerous growth of
the skin. Animal studies have shown that a gp75 cancer vaccine is effective in
creating an immune response in the body of the animal against melanoma cells,
and may prevent or inhibit growth of experimental melanoma tumors in mice. We
submitted an IND for a gp75 DNA vaccine, referred to as IMC-GP75, and commenced
Phase I human clinical trials with this vaccine in March 2002. This dose finding
and proof of principle study continues to enroll patients. The primary objective
of the study is to establish the antigenicity of the vaccine, as measured by the
production of antibodies to gp75 resulting from vaccination.

RESEARCH PROGRAMS

GENERAL

In addition to concentrating on our products in development, we perform
ongoing research, including research in each of the areas of our ongoing
clinical programs of growth factor blockers, angiogenesis inhibitors and cancer
vaccines. We have assembled a scientific staff with expertise in a variety of
disciplines, including oncology, immunology, molecular and cellular biology,
antibody engineering, protein and medicinal chemistry and high-throughput
screening. In addition to pursuing research programs in-house, we collaborate
with academic institutions and corporations to support our research and
development efforts.

RESEARCH ON ANGIOGENESIS INHIBITORS

We are continuing to work with an experimental antibody known as DC101
in animal models. DC101 neutralizes the flk-1 receptor, which is the mouse
receptor to VEGF that corresponds to KDR in humans. Tumor models in mice have
shown that DC101 inhibits tumor growth, and we are now focusing on establishing
optimal protocols for combination therapies of DC101 with radiation therapy or
chemotherapy. Previous studies have shown that such combination results in
better efficacy in animals than therapy with the DC101 antibody alone.

In another approach to angiogenesis inhibition, we are exploring the
therapeutic potential of antibodies against vascular-specific cadherin
("VE-cadherin"). Cadherins are a family of cell surface molecules that help
organize tissue structures. VE-cadherin is believed to play an important role in
angiogenesis by organizing endothelial cells into vascular tubes, which is a
necessary step in the formation of new blood vessels. As we stated above,
advanced tumor growth is dependent on the formation of a capillary blood vessel
network in the tumor to ensure an adequate blood supply to the tumor. Therefore,
antibodies that

9

inhibit VE-cadherin may inhibit such capillary formation in tumors, and help
fight cancer by cutting off adequate blood supply to the tumor. Preclinical
studies using monoclonal antibodies against VE-cadherin have demonstrated that
inhibition of angiogenesis, tumor growth and metastasis occurs as a consequence
of interfering with the ability of VE-cadherin to form tubular structures. We
are evaluating antibodies that are efficacious in inhibiting angiogenesis and
tumor growth without negatively affecting existing vessels.

In connection with our VE-cadherin research program, we have an
exclusive license from ICOS Corporation to certain patent rights pertaining to
VE-cadherin and antibodies thereto for the treatment of cancer in humans.

RESEARCH ON GROWTH FACTOR BLOCKERS

We are conducting a research program to develop blockers of the
cell-signal transduction pathways of a class of enzymes referred to as tyrosine
kinases. Like those based on KDR and EGF receptors, these pathways have been
shown to be involved in the rapid proliferation of tumor cells. We are
developing monoclonal antibodies to block the binding of growth factors to a
number of cellular receptors that trigger these pathways, thereby potentially
inhibiting cell division and tumor growth. The more mature projects are briefly
outlined in the following section. We are also developing small molecule
inhibitors to tyrosine kinase pathways. Our small molecule program is discussed
below.

Research on VEGFR-1 inhibitors: We are investigating the activities of
antibodies that block the function of VEGFR-1 (flt-1), another receptor to which
VEGF binds. Like VEGFR-2, the target of our anti-KDR antibodies, the VEGFR-1
receptor is believed to be involved in blood vessel formation, but recent data
suggest that it may function in novel ways unrelated to angiogenesis. We have
discovered that VEGFR-1 is expressed by a number of human tumors, most notably
breast cancer. We have developed specific antibodies that block the function of
VEGFR-1 and have conducted preclinical studies showing that these antibodies can
inhibit the growth of human breast tumors in preclinical models. It is believed
that VEGFR-1 inhibitors could be useful in treatment of breast cancer and we are
developing therapeutic antibodies against this target for future clinical
studies.

We have also discovered that antibodies against VEGFR-1 may block
inflammatory processes in such diseases as atherosclerosis and arthritis.
Preclinical studies have demonstrated significant inhibition of atherosclerosis
or arthritis disease processes by treatment with VEGFR-1 antibodies in mouse
models. We are continuing research in this area to evaluate the therapeutic
potential of VEGFR-1 antibodies in inflammatory diseases.

Research on modulators of apoptosis (programmed cell death): We are
developing antibody therapeutics that interfere with anti-apoptotic signaling
and survival mechanisms of cancer cells. One mechanism involves the insulin-like
growth factor-1 receptor (IGF1R) which is frequently over-expressed in diverse
human tumor types. Activation of IGF1R in cancer cells increases the cells'
ability to survive, especially under conditions of chemo- or radiotherapy, and
it also contributes to cancer cell growth. We have developed and are evaluating
antibodies to IGF1R that block binding of insulin-like growth factor-1 to the
receptor, thus preventing its activation and triggering of survival and growth
mechanisms in cancer cells.

SMALL MOLECULE DRUG DISCOVERY

We have established a chemistry department, which is now fully
operational at our chemistry facility in Brooklyn, New York, with capabilities
in medicinal, combinatorial and computational chemistry, and high-throughput
screening. We are also establishing our own chemical compound library for
screening, and we are increasing our capacity to perform high-throughput
screening. This department, working together with our other research groups, is
concerned with the discovery of small molecules that inhibit the growth of
cancer by interfering with (a) the function of enzymes (kinases) which can
promote uncontrolled growth in cancer cells that have lost normal control
mechanisms, (b) the ability of cancer cells to resist cell death, (c) mechanisms
of cell cycle progression, and (d) angiogenesis.

10

RESEARCH ON CANCER VACCINES

We are conducting research to discover possible cancer vaccines as
another route to cancer treatment. Cancer vaccines would activate immune
responses to tumors to protect against metastasis or recurrence of cancer, after
initial remission or treatment. We are focusing our cancer vaccine research
efforts on developing melanoma vaccines.

In addition to the development of BEC2, we are conducting research on a
possible melanoma vaccine based on the melanoma antigen gp75. Melanoma is a
cancerous growth of the skin. Preclinical animal studies have shown that a gp75
antigen cancer vaccine is effective in creating an immune response in the
animal's body against melanoma cells, and may prevent or inhibit growth of
experimental melanoma tumors in mice. Additionally, we are investigating the use
of other melanoma antigens to be used in conjunction with gp75 for the
development of an effective vaccine. We are also investigating various modes of
enhancing the capacity of the vaccine to elicit an immune response. We have
retained North American marketing and manufacturing rights for gp75 antigen
vaccines and have licensed to Merck KGaA the rights to manufacture and market
gp75 antigen vaccines outside North America. We are collaborating with Memorial
Sloan-Kettering Cancer Center on BEC2 and gp75 in both the clinical and research
areas.

We are also conducting research on a multimeric vaccine consisting of
three human melanoma-associated antigens, gp75, TRP-2 and tyrosinase. The
vaccine, referred to as IMC-TRPx3, has demonstrated the ability to produce
antibody and cellular immune responses in mice. Additionally, preclinical
findings have shown that mice vaccinated with IMC-TRPx3 and challenged with
melanoma have a significantly reduced number of lung metastases as compared with
a control group.

MISCELLANEOUS RESEARCH AREAS

We are also conducting exploratory research outside of our principal
areas of clinical focus. These include efforts to identify new genes from
hematopoietic stem and stromal cell populations, as well as from tumor
endothelial cells, that are potential oncology targets.

CORPORATE COLLABORATIONS

In addition to our collaborations in the research and clinical areas
with academic institutions, we have a number of collaborations with other
corporations, the most significant of which are discussed below.

COLLABORATIONS WITH BRISTOL-MYERS SQUIBB COMPANY

On September 19, 2001, we 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 our common stock for $70.00 per share, net to the seller in
cash. The tender offer by BMS Biologics, available to all shareholders, allowed
for our then-current employees and directors who held exercisable options to
purchase shares of our common stock having exercise prices less than $70.00 per
share, to conditionally exercise any or all of those options and tender the
underlying shares in the tender offer. In connection with the Acquisition
Agreement, we entered into a stockholder agreement with BMS and BMS Biologics,
dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which
we agreed with BMS and BMS Biologics to various arrangements regarding each of
our respective rights and obligations with respect to, among other things, the
ownership of shares of our common stock by BMS and BMS Biologics. Concurrently
with the execution of the Acquisition Agreement and the Stockholder Agreement,
we entered into the Commercial Agreement with BMS and E.R. Squibb, pursuant to
which, among other things, BMS and E.R. Squibb are (a) co-developing and
co-promoting the biologic pharmaceutical product candidate ERBITUX in the United
States and Canada with us, and (b) co-developing and co-promoting ERBITUX in
Japan with us and either together or co-exclusively with Merck KGaA.

On March 5, 2002, we 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

11

strategic role of BMS in the ERBITUX development program. One of the principal
economic changes to the Commercial Agreement is that we received $140,000,000 on
March 7, 2002 and an additional payment of $60,000,000 was received on March 5,
2003. Such payments are in lieu of the $300,000,000 payment we would have
received on acceptance by the FDA of the ERBITUX BLA under the original terms of
the Commercial Agreement. In addition, we agreed to resume and have resumed
construction of our multiple product manufacturing facility (the "Multiple
Product Facility"). The terms of the Commercial Agreement, as amended on March
5, 2002, are set forth in more detail below.

ACQUISITION AGREEMENT

On October 29, 2001 BMS Biologics accepted for payment pursuant to the
tender offer 14,392,003 shares of our common stock on a pro rata basis from all
tendering shareholders and those conditionally exercising stock options.

STOCKHOLDER AGREEMENT

Pursuant to the Stockholder Agreement, our Board of Directors (the
"Board") was increased from ten to twelve members. BMS received the right to
nominate two directors to our Board of Directors (each a "BMS director") so long
as its ownership interest in ImClone Systems is 12.5% or greater. If BMS'
ownership interest is 5% or greater but less than 12.5%, BMS will have the right
to nominate one BMS director, and if BMS' ownership interest is less than 5%,
BMS will have no right to nominate a BMS director. If the size of our Board is
increased to a number greater than twelve, the number of BMS directors would be
increased, subject to rounding, such that the number of BMS directors is
proportionate to the lesser of BMS' then-current ownership interest and 19.9%.
Notwithstanding the foregoing, BMS will have no right to nominate any BMS
directors if (i) we have terminated the Commercial Agreement due to a material
breach by BMS or (ii) BMS' ownership interest were to remain below 5% for 45
consecutive days.

Based on the number of shares of common stock acquired pursuant to the
tender offer, BMS has the right to nominate two directors. BMS designated Andrew
G. Bodnar, M.D. J.D., BMS' Senior Vice President, Strategy and Medical &
External Affairs, as one of the initial BMS directors. The nomination of Dr.
Bodnar was approved by the Board on November 15, 2001. The other BMS director
position was initially filled by Peter S. Ringrose, M.A, Ph.D. Dr. Ringrose, who
recently retired from his position of Chief Scientific Officer and President,
Pharmaceutical Research Institute at BMS, also resigned from his director
position with us. BMS has not yet designated a replacement to fill Dr.
Ringrose's vacated Board seat.

Voting of Shares. During the period in which BMS has the right to
nominate at least one BMS director, BMS and its affiliates are required to vote
all of their shares in the same proportion as the votes cast by all of our other
stockholders with respect to the election or removal of non-BMS directors.

Committees of the Board of Directors. During the period in which BMS
has the right to nominate at least one BMS director, BMS also has the right,
subject to certain exceptions and limitations to have one member of each
committee of the Board be a BMS director.

Approval Required for Certain Actions. We may not take any action that
constitutes a prohibited action under the Stockholder Agreement without the
consent of the BMS directors, until September 19, 2006 or earlier if any of the
following occurs: (i) a reduction in BMS's ownership interest to below 5% for 45
consecutive days, (ii) a transfer or other disposition of shares of our common
stock by BMS or any of its affiliates such that BMS and its affiliates own or
have control over less than 75% of the maximum number of shares of our common
stock owned by BMS and its affiliates at any time after September 19, 2001,
(iii) an acquisition by a third party of more than 35% of the outstanding shares
of our common stock, (iv) a termination of the Commercial Agreement by BMS due
to significant regulatory or safety concerns regarding ERBITUX, or (v) a
termination of the Commercial Agreement due to a material breach by BMS. 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 (A) the principal amount of indebtedness incurred
since September 19,
12

2001 and then-outstanding, and (B) the net proceeds from the issuance of any
redeemable preferred stock then-outstanding, would exceed our amount of
indebtedness for borrowed money 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 our aggregate value at the time the binding agreement relating
to such acquisition was entered into; (iv) disposing of all or any substantial
portion of our non-cash assets; (v) entering into non-competition agreements
that would be binding on BMS, its affiliates or any BMS director; (vi) taking
certain actions that would have a discriminatory effect on BMS or any of its
affiliates as a stockholder; and (vii) issuing capital stock with more than one
vote per share.

Limitation on Additional Purchases of Shares and Other Actions. Subject
to the exceptions set forth below, until September 19, 2006 or, if earlier, the
occurrence of any of (i) an acquisition by a third party of more than 35% of our
outstanding shares, (ii) the first anniversary of a reduction in BMS's ownership
interest in us to below 5% for 45 consecutive days, or (iii) our taking a
prohibited action under the Stockholder Agreement without the consent of the BMS
directors, neither BMS nor any of its affiliates will acquire beneficial
ownership of any shares of our common stock or take any of the following
actions: (i) encourage any proposal for a business combination with us or an
acquisition of our shares; (ii) participate in the solicitation of proxies from
holders of shares of our common stock; (iii) form or participate in any "group"
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934)
with respect to shares of our common stock; (iv) enter into any voting
arrangement with respect to shares of our common stock; or (v) seek any
amendment to or waiver of these restrictions.

The following are exceptions to the standstill restrictions described
above: (i) BMS Biologics may acquire beneficial ownership of shares of our
common stock either in the open market or from us pursuant to the option
described below, so long as, after giving effect to any such acquisition of
shares, BMS' ownership interest would not exceed 19.9%; (ii) BMS may make,
subject to certain conditions, a proposal to the Board to acquire shares of our
common stock if we provide material non-public information to a third party in
connection with, or begin active negotiation of, an acquisition by a third party
of more than 35% of the outstanding shares; (iii) BMS may acquire shares of our
common stock if such acquisition has been approved by a majority of the non-BMS
directors; and (iv) BMS may make, subject to certain conditions, including that
an acquisition of shares be at a premium of at least 25% to the prevailing
market price, non-public requests to the Board to amend or waive any of the
standstill restrictions described above. Certain of the exceptions to the
standstill provisions described above will terminate upon the occurrence of: (i)
a reduction in BMS's ownership interest in us to below 5% for 45 consecutive
days, (ii) a transfer or other disposition of shares of our common stock by BMS
or any of its affiliates such that BMS and its affiliates own or have control
over less than 75% of the maximum number of shares owned by BMS and its
affiliates at any time after September 19, 2001, (iii) a termination of the
Commercial Agreement by BMS due to significant regulatory or safety concerns
regarding ERBITUX, or (iv) a termination of the Commercial Agreement by us due
to a material breach by BMS.

Option to Purchase Shares in the Event of Dilution. BMS Biologics has
the right under certain circumstances to purchase additional shares of common
stock from us at market prices, pursuant to an option granted to BMS by us, in
the event that BMS's ownership interest is diluted (other than by any transfer
or other disposition by BMS or any of its affiliates). BMS can exercise this
right (i) once per year, (ii) if we issue shares of common stock in excess of
10% of the then-outstanding shares in one day, and (iii) if BMS's ownership
interest is reduced to below 5% or 12.5%. BMS Biologics' right to purchase
additional shares of common stock from us pursuant to this option will terminate
on September 19, 2006 or, if earlier, upon the occurrence of (i) an acquisition
by a third party of more than 35% of the outstanding shares, or (ii) the first
anniversary of a reduction in BMS's ownership interest in us to below 5% for 45
consecutive days.

Transfers of Shares. Until September 19, 2004, neither BMS nor any of
its affiliates may transfer any shares of our common stock or enter into any
arrangement that transfers any of the economic consequences associated with the
ownership of shares. After September 19, 2004, neither BMS nor any of its
affiliates may transfer any shares or enter into any arrangement that transfers
any of the economic consequences associated with the ownership of shares, except
(i) pursuant to registration rights granted to
13

BMS with respect to the shares, (ii) pursuant to Rule 144 under the Securities
Act of 1933, as amended or (iii) for certain hedging transactions. Any such
transfer is subject to the following limitations: (i) the transferee may not
acquire beneficial ownership of more than 5% of the then-outstanding shares of
common stock; (ii) no more than 10% of the total outstanding shares of common
stock may be sold in any one registered underwritten public offering; and (iii)
neither BMS nor any of its affiliates may transfer shares of common stock
(except for registered firm commitment underwritten public offerings pursuant to
the registration rights described below) or enter into hedging transactions in
any twelve-month period that would, individually or in the aggregate, have the
effect of reducing the economic exposure of BMS and its affiliates by the
equivalent of more than 10% of the maximum number of shares of common stock
owned by BMS and its affiliates at any time after September 19, 2001.
Notwithstanding the foregoing, BMS Biologics may transfer all, but not less than
all, of the shares of common stock owned by it to BMS or to E.R. Squibb or
another wholly-owned subsidiary of BMS.

Registration Rights. We granted BMS customary registration rights with
respect to shares of common stock owned by BMS or any of its affiliates.

COMMERCIAL AGREEMENT

Rights Granted to E.R. Squibb. Pursuant to the Commercial Agreement, as
amended on March 5, 2002, we granted to E.R. Squibb (i) the exclusive right to
distribute, and the co-exclusive right to develop and promote (together with us)
any prescription pharmaceutical product using the compound ERBITUX (the
"product") in the United States and Canada, (ii) the co-exclusive right to
develop, distribute and promote (together with us and together or co-exclusively
with Merck KGaA and its affiliates) the product in Japan, and (iii) the
non-exclusive right to use our registered trademarks for the product in the
United States, Canada and Japan (collectively, the "territory") in connection
with the foregoing. In addition, we agreed not to grant any right or license to
any third party, or otherwise permit any third party, to develop ERBITUX for
animal health or any other application outside the human health field without
the prior consent of E.R. Squibb (which consent may not be unreasonably
withheld).

Rights Granted to the Company. Pursuant to the Commercial Agreement,
E.R. Squibb has granted to us and our affiliates a license, without the right to
grant sublicenses (other than to Merck KGaA and its affiliates for use in Japan
and to any third party for use outside the territory), to use solely for the
purpose of developing, using, manufacturing, promoting, distributing and selling
ERBITUX or the product, any process, know-how or other invention developed
solely by E.R. Squibb or BMS that has general utility in connection with other
products or compounds in addition to ERBITUX or the product ("E.R. Squibb
Inventions").

Up-Front and Milestone Payments. The Commercial Agreement provides for
up-front and milestone payments by E.R. Squibb to us of $900,000,000 in the
aggregate, of which $200,000,000 was paid on September 19, 2001, $140,000,000
was paid on March 7, 2002, $60,000,000 was paid 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.

Distribution Fees. The Commercial Agreement provides that E.R. Squibb
shall pay us distribution fees based on a percentage of "annual net sales" of
the product (as defined in the Commercial Agreement) 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 the product in Japan by E.R. Squibb or ImClone Systems 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 shall pay us
the amount of such distribution fee, and in the event of an operating loss, we
shall credit E.R. Squibb the amount of such distribution fee.

14

Development of the Product. Responsibilities associated with clinical
and other ongoing studies are apportioned between the parties as determined by
the product development committee described below. The Commercial Agreement
provides for the establishment of clinical development plans setting forth the
activities to be undertaken by the parties for the purpose of obtaining
marketing approvals, providing market support and developing new indications and
formulations of the product. After transition of responsibilities for certain
clinical and other studies, each party is primarily responsible for performing
the studies designated to it in the clinical development plans. In the United
States and Canada, the Commercial Agreement provides that E.R. Squibb is
responsible for 100% of the cost of all clinical studies other than those
studies undertaken post-launch which are not pursuant to an IND (e.g. Phase IV
studies), the cost of which is shared equally between E.R. Squibb and ImClone
Systems. As between E.R. Squibb and ImClone Systems, each is responsible for 50%
of the costs of all studies in Japan. We have also agreed, and may agree in the
future, to share with E.R. Squibb, on terms other than the foregoing, costs of
clinical trials that we believe are not potentially registrational but should be
undertaken prior to launch in the United States, Canada or Japan. Except as
otherwise agreed upon by the parties, we will own all registrations for the
product and are primarily responsible for the regulatory activities leading to
registration in each country. E.R. Squibb will be primarily responsible for the
regulatory activities in each country after the product has been registered in
that country. Pursuant to the terms of the Commercial Agreement, as amended,
Andrew G. Bodnar, M.D., J.D., Senior Vice President , Strategy and Medical &
External Affairs of BMS, and a member of our Board of Directors, will oversee
the implementation of the clinical and regulatory plan for ERBITUX.

Distribution and Promotion of the Product. Pursuant to the Commercial
Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to
launch, promote and sell the product in the territory with the objective of
maximizing the sales potential of the product and promoting the therapeutic
profile and benefits of the product in the most commercially beneficial manner.
In connection with its responsibilities for distribution, marketing and sales of
the product in the territory, E.R. Squibb is performing all relevant functions,
including but not limited to the provision of all sales force personnel,
marketing (including all advertising and promotional expenditures), warehousing
and physical distribution of the product. However, we have the right, at our
election and sole expense, to co-promote with E.R. Squibb the product in the
territory. Pursuant to this co-promotion option, which we have exercised, we are
entitled on and after April 11, 2002 (at our sole expense) to have our sales
force participate in the promotion of the product consistent with the marketing
plan agreed upon by the parties, provided that E.R. Squibb will retain the
exclusive rights to sell and distribute the product. 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 as between E.R. Squibb and ImClone Systems, each is responsible for
50% of the distribution, sales, marketing costs and other related costs and
expenses in Japan.

Manufacture and Supply. The Commercial Agreement provides that we are
responsible for the manufacture and supply of all requirements of ERBITUX in
bulk form ("API") for clinical and commercial use in the territory, and that
E.R. Squibb will purchase all of its requirements of API for commercial use from
us. We will supply API for clinical use at our fully burdened manufacturing
cost, and will supply API for commercial use at our fully burdened manufacturing
cost plus a mark-up of 10%. Upon the expiration, termination or assignment of
any existing agreements between ImClone Systems and third party manufacturers,
E.R. Squibb will be responsible for processing API into the finished form of the
product.

Management. The parties have formed the following committees for
purposes of managing their relationship and their respective rights and
obligations under the Commercial Agreement:

- a Joint Executive Committee (the "JEC"), which consists of certain
senior officers of each party. The JEC is co-chaired by a
representative of each of BMS and us. The JEC is responsible for,
among other things, managing and overseeing the development and
commercialization of ERBITUX pursuant to the terms of the Commercial
Agreement, approving the annual budgets and multi-year expense
forecasts, and resolving disputes, disagreements and deadlocks arising
in the other committees;

15

- a Product Development Committee (the "PDC"), which consists of members
of senior management of each party with expertise in pharmaceutical
drug development and/or marketing. The PDC is chaired by our
representative. The PDC is responsible for, among other things,
managing and overseeing the development and implementation of the
clinical development plans, comparing actual versus budgeted clinical
development and regulatory expenses, and reviewing the progress of the
registrational studies;

- a Joint Commercialization Committee (the "JCC"), which consists of
members of senior management of each party with clinical experience
and expertise in marketing and sales. The JCC is chaired by a
representative of BMS. The JCC is responsible for, among other things,
overseeing the preparation and implementation of the marketing plans,
coordinating the sales efforts of E.R. Squibb and us, and reviewing
and approving the marketing and promotional plans for the product in
the territory; and

- a Joint Manufacturing Committee (the "JMC"), which consists of members
of senior management of each party with expertise in manufacturing.
The JMC is chaired by our representative (unless a determination is
made that a long-term inability to supply API exists, in which case
the JMC will be co-chaired by representatives of E.R. Squibb and us).
The JMC is responsible for, among other things, overseeing and
coordinating the manufacturing and supply of API and the product, and
formulating and directing the manufacturing strategy for the product.

Any matter which is the subject of a deadlock (i.e., no consensus
decision) in the PDC, the JCC or the JMC will be referred to the JEC for
resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved
as follows: (i) if the matter was also the subject of a deadlock in the PDC, by
the co-chairperson of the JEC designated by us, (ii) if the matter was also the
subject of a deadlock in the JCC, by the co-chairperson of the JEC designated by
BMS, or (iii) if the matter was also the subject of a deadlock in the JMC, by
the co-chairperson of the JEC designated by us. All other deadlocks in the JEC
will be resolved by arbitration.

Right of First Offer. E.R. Squibb has a right of first offer with
respect to our IMC-KDR antibodies should we decide to enter into a partnering
arrangement with a third party with respect to IMC-KDR antibodies at any time
prior to the earlier to occur of September 19, 2006 and the first anniversary of
the date which is 45 days after any date on which BMS's ownership interest in
ImClone Systems is less than 5%. If we decide to enter into a partnering
arrangement during such period, we must notify E.R. Squibb. If E.R. Squibb
notifies us that it is interested in such an arrangement, we will provide our
proposed terms to E.R. Squibb and the parties will negotiate in good faith for
90 days to attempt to agree on the terms and conditions of such an arrangement.
If the parties do not reach agreement during this period, E.R. Squibb must
propose the terms of an arrangement which it is willing to enter into, and if we
reject such terms we may enter into an agreement with a third party with respect
to such a partnering arrangement (provided that the terms of any such agreement
may not be more favorable to the third party than the terms proposed by E.R.
Squibb).

Right of First Negotiation. If, at any time during the restricted
period (as defined below), we are interested in establishing a partnering
relationship with a third party involving certain compounds or products not
related to ERBITUX, the product or IMC-KDR antibodies, we must notify E.R.
Squibb and E.R. Squibb will have 90 days to enter into a non-binding heads of
agreement with us with respect to such a partnering relationship. In the event
that E.R. Squibb and ImClone Systems do not enter into a non-binding heads of
agreement, we are free to negotiate with third parties without further
obligation to E.R. Squibb. The "restricted period" means the period from
September 19, 2001 until the earliest to occur of (i) September 19, 2006, (ii) a
reduction in BMS's ownership interest in ImClone Systems to below 5% for 45
consecutive days, (iii) a transfer or other disposition of shares of our common
stock by BMS or any of its affiliates such that BMS and its affiliates own or
have control over less than 75% of the maximum number of shares of our common
stock owned by BMS and its affiliates at any time after September 19, 2001, (iv)
an acquisition by a third party of more than 35% of the outstanding Shares, (v)
a termination of the Commercial Agreement by BMS due to significant regulatory
or safety concerns regarding ERBITUX, or (vi) our termination of the Commercial
Agreement due to a material breach by BMS.

16

Restriction on Competing Products. During the period from the date of
the Commercial Agreement until September 19, 2008, the parties have agreed not
to, directly or indirectly, develop or commercialize a competing product
(defined as a product that has as its only mechanism of action an antagonism of
the EGF receptor) in any country in the territory. In the event that any party
proposes to commercialize a competing product or purchases or otherwise takes
control of a third party which has developed or commercialized a competing
product, then such party must either divest the competing product within 12
months or offer the other party the right to participate in the
commercialization and development of the competing product on a 50/50 basis
(provided that if the parties cannot reach agreement with respect to such an
agreement, the competing product must be divested within 12 months).

Ownership. The Commercial Agreement provides that we own all data and
information concerning ERBITUX and the product and (except for the E.R. Squibb
Inventions) all processes, know-how and other inventions relating to the product
and developed by either party or jointly by the parties. E.R. Squibb, however,
has the right to use all such data and information, and all such processes,
know-how or other inventions, in order to fulfill its obligations under the
Commercial Agreement.

Product Recalls. If E.R. Squibb is required by any regulatory authority
to recall the product in any country in the territory (or if the JCC determines
such a recall to be appropriate), then E.R. Squibb and ImClone Systems shall
bear the costs and expenses associated with such a recall (i) in the United
States and Canada, in the proportion of 39% for ImClone Systems and 61% for E.R.
Squibb and (ii) in Japan, in the proportion for which each party is entitled to
receive operating profit or loss (unless, in the territory, the predominant
cause for such a recall is the fault of either party, in which case all such
costs and expenses shall be borne by such party).

Mandatory Transfer. Each of BMS and E.R. Squibb has agreed under the
Commercial Agreement that in the event it sells or otherwise transfers all or
substantially all of its pharmaceutical business or pharmaceutical oncology
business, it must also transfer to the transferee its rights and obligations
under the Commercial Agreement.

Indemnification. Pursuant to the Commercial Agreement, each party has
agreed to indemnify the other for (i) its negligence, recklessness or wrongful
intentional acts or omissions, (ii) its failure to perform certain of its
obligations under the agreement, and (iii) any breach of its representations and
warranties under the agreement.

Termination. 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 JEC 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 PDC concerning such
additional clinical studies.

We incurred approximately $2,250,000 during the year ended December 31,
2002 in legal and other advisor fees associated with the amendment to the
Commercial Agreement with BMS and affiliates, and $16,055,000 during the year
ended December 31, 2001, in legal and other advisor fees associated with
consummating the Acquisition Agreement, the Stockholder Agreement and the
Commercial Agreement with

17

BMS and affiliates. These costs have been expensed and included as a separate
line item in operating expenses in the consolidated statements of operations.

COLLABORATIONS WITH MERCK KGAA

ERBITUX Development and License Agreement. In December 1998, we entered
into an agreement with Merck KGaA relating to the development and
commercialization of ERBITUX. Under this agreement:

- we retained the rights to market ERBITUX within the United States and
Canada;

- we granted Merck KGaA exclusive rights, except in Japan, to market
ERBITUX outside of the United States and Canada;

- we agreed to supply Merck KGaA, and Merck KGaA agreed to purchase from
us, ERBITUX for conducting clinical trials and the commercialization
of the product outside of the United States and Canada (which we are
now currently supplying to Merck KGaA, and Merck KGaA is currently
purchasing from us);

- we (along with E.R. Squibb pursuant to the terms of the Commercial
Agreement) will co-develop and co-market ERBITUX in Japan either
together or co-exclusively with Merck KGaA;

- we granted Merck KGaA an exclusive license outside of the United
States and Canada, without the right to sublicense, to apply certain
of our patents to a humanized EGF receptor antibody on which Merck
KGaA has performed preclinical studies.

In return, Merck KGaA:

- has paid to us $30,000,000 in up-front fees and early cash-based
milestone payments based upon achievement of certain milestones set
forth in the agreement, all of which had been received as of June
2001;

- has paid or will pay to us an additional $30,000,000 assuming
achievement of further milestones for which Merck KGaA will receive
equity (the "milestone shares") in our company, priced at varying
premiums to the then market price of the common stock depending upon
the timing of the achievement of the respective milestones. For the
first three of these milestones we received $5,000,000 for which we
issued 63,027 shares of common stock as of December 31, 2002,
$6,000,000 for which we issued 334,471 shares of common stock as of
May 16, 2003 and $3,000,000 for which we issued 150,007 shares of
common stock as of June 16, 2003;

- is funding clinical development of ERBITUX outside of the United
States and Canada; and

- is required to pay us royalties on its future sales of ERBITUX outside
of the United States and Canada, if any.

On May 16, 2003, we achieved a third equity-based milestone when Merck
KGaA acknowledged that the results of a Phase II study sponsored by Merck KGaA
in patients with chemotherapy-naive non-small cell lung cancer enabled the
further development of ERBITUX in the European Union for the treatment of
non-small cell lung cancer. The achievement of this third equity-based milestone
triggered a payment by Merck KGaA of $3,000,000 which we received on June 16,
2003. Upon receipt of this payment, we issued to Merck KGaA 150,007 shares of
our common stock, based upon a price of $20.00 per share, representing the sale
of these shares at a ten percent premium to market value as provided in the
license.

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 our single product
manufacturing facility (the "Single Product Facility"). In addition, the
amendment provides that the companies have co-exclusive rights to develop
ERBITUX in

18

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 rights to
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.

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 receive back 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).

Through December 31, 2002, we have received the $30,000,000 in up-front
fees and cash-based milestone payments as well as $5,000,000 of the equity-based
milestone payments. On April 16, 2003, Merck KGaA was issued an import license
by the Regierungspraesidium Darmstadt for the import of ERBITUX into Germany.
Issuance of this license constituted achievement of a second equity-based
milestone that triggered a payment by Merck KGaA of $6,000,000, which we
received on May 16, 2003. Upon receipt of this payment, we issued to Merck KGaA
334,471 shares of ImClone Systems' common stock at a price of $17.94 per share,
representing the sale of these shares at a ten percent premium to market value
as provided in the license. As stated above, on May 16, 2003, we achieved a
third equity-based milestone when Merck KGaA acknowledged that the results of a
Phase II study sponsored by Merck KGaA in patients with chemotherapy-naive
non-small cell lung cancer enabled the further development of ERBITUX in the
European Union for the treatment of non-small cell lung cancer. The achievement
of this third equity-based milestone triggered a payment by Merck KGaA of
$3,000,000, which we received on June 16, 2003. Upon receipt of this payment, we
issued to Merck KGaA 150,007 shares of our common stock, based upon a price of
$20.00 per share, representing the sale of these shares at a ten percent premium
to market value as provided in the license. Of the cash-based milestone payments
received through December 31, 2002, $2,000,000 was received and recognized as
revenue in the year ended December 31, 2001. A total of $28,000,000 was received
prior to January 1, 2001 and originally recorded as fees potentially refundable
to corporate partner and not as revenue due to the fact that they were
refundable to Merck KGaA in the event a condition relating to obtaining certain
collateral license agreements was not satisfied by us. In March 2001, this
condition was satisfied and $24,000,000 in milestone payments was recognized as
revenue by us during the three months ended March 31, 2001. The remaining
$4,000,000 represents the up-front payment associated with the agreement and has
been recorded as deferred revenue.

In September 2002, we entered into a binding term sheet with Merck KGaA,
effective as of April 15, 2002, for the supply of ERBITUX. The term sheet sets
forth certain terms and obligations of each party including procedures for
forecasting and ordering ERBITUX for clinical and commercial supply, cost of
product, delivery terms, insurance and indemnification obligations and
technology transfer to allow Merck KGaA or a third party to manufacture ERBITUX
for supply in Merck KGaA's territory in accordance with the development and
license agreement. The term sheet will continue in effect for the term of the
development and license agreement, unless terminated for cause.

BEC2 Research and License Agreement. Effective April 1990, we entered
into an agreement with Merck KGaA relating to the development and
commercialization of BEC2 and the recombinant gp75 antigen. Under this
agreement:

- we granted Merck KGaA a license, with the right to sublicense, to
make, have made, use, sell, or have sold BEC2 and gp75 antigen outside
North America;

- we granted 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;

19

- we 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 antigen in North
America;

- we are required to give Merck KGaA the opportunity to negotiate a
license in North America to gp75 antigen before granting such a
license to any third party.

In return, Merck KGaA:

- has made research support payments to us totaling $4,700,000;

- is required to make milestone payments to us of up to $22,500,000, of
which $4,000,000 has been received through December 31, 2002, based on
milestones achieved in the product development of BEC2;

- is required to make royalty payments to us on all sales of the
licensed products outside North America, if any, with a portion of the
earlier funding received under the agreement being creditable against
the amount of royalties due.

Merck KGaA is responsible for conducting the clinical trials and
regulatory submissions outside North America, and we are responsible for
conducting those within North America. Costs worldwide to conduct a multi-site,
multinational Phase III clinical trial investigating the treatment of limited
disease small-cell lung carcinoma with BEC2 are the responsibility of Merck
KGaA. These include our out-of-pocket costs (but do not include costs of
establishing a manufacturing facility) for manufacturing materials for clinical
trials, conduct of clinical trials and regulatory submissions (other than drug
approval fees, which are the responsibility of Merck KGaA or ImClone Systems in
our respective territories). If these expenses, including such expenses of Merck
KGaA, exceed DM17,000,000, such excess expenses will be shared 60% by Merck KGaA
and 40% by us. This expense level was reached during the fourth quarter of 2000
and all expenses from that point forward are being shared 60% by Merck KGaA and
40% by us. We will negotiate with Merck KGaA the allocation of costs for the
conduct of additional clinical trials for other indications. We are responsible
for providing the supply of the active agent outside of North America at the
expense of Merck KGaA, and the parties intend that the cost of goods sold in
North America be paid out of gross sales of any licensed product in North
America in accordance with a co-promotion agreement to be negotiated.

The agreement terminates upon the later of (1) the last to expire of any
patents issued and covered by the technology or (2) fifteen years from the date
of the first commercial sale. After termination, the license will survive
without further royalty payment and is irrevocable. The agreement may be
terminated earlier by us in the event Merck KGaA fails to pursue in a timely
fashion regulatory approval or sale of a licensed product in a country in which
it has the right to do so. It also may be terminated earlier by Merck KGaA if
milestones are not achieved.

In connection with the December 1997 amendment to the agreement with
Merck KGaA for BEC2, Merck KGaA purchased from us 400,000 shares of our series A
convertible preferred stock (the "series A preferred stock") for a total price
of approximately $40,000,000. Of its 400,000 shares of series A preferred stock,
Merck KGaA converted 100,000 shares in 1999 and 100,000 shares in 2000 into a
total of 2,099,220 shares of common stock. In December 2000, we redeemed the
remaining 200,000 outstanding shares of series A preferred stock for a total
redemption price of $24,000,000 plus accrued and unpaid dividends of
approximately $1,200,000. We also paid Merck KGaA a dividend of approximately
$574,000 in connection with the 100,000 shares of series A preferred stock
converted in December 2000.

OTHER CORPORATE COLLABORATIONS

ABBOTT LABORATORIES

We have licensed some of our diagnostic products and techniques to
Abbott Laboratories ("Abbott") on a worldwide basis. In mid-1995, Abbott
launched its first DNA-based diagnostic test in Europe, using our Repair Chain
Reaction ("RCR") DNA probe technology. Abbott's test is used to diagnose the
sexually transmitted diseases chlamydia and gonorrhea, as well as mycobacteria.
The RCR DNA probe
20

technology uses DNA amplification techniques to detect the presence of DNA or
RNA in biological samples thereby indicating the presence of disease.

In December 1996, we amended our agreement with Abbott to allow Abbott
to exclusively license our patented DNA signal amplification technology,
Ampliprobe, to Chiron Diagnostics. DNA signal amplification technology such as
Ampliprobe also uses DNA signal amplification techniques in detecting the
presence of DNA or RNA in biological samples, thereby indicating the presence of
disease. Abbott receives a royalty payment from Chiron on all sales of Chiron
branched DNA diagnostic probe technology in countries covered by our patents.
Abbott, in turn, pays any such royalties it receives to us. The Chiron branched
DNA diagnostic probe technology was sold to Bayer Pharmaceutical Corporation in
2000.

Under the agreement Abbott has paid us up-front fees and research
support, and is obligated to pay milestone fees and royalties on sales. In June
1997, we received two milestone payments from Abbott totaling $1,000,000, as a
result of a patent issuance in Europe for our RCR technology. This was partially
credited against royalties. The issuance of the patent also entitles ImClone
Systems to receive royalty payments on sales in covered European countries for
products using our RCR technology. In December 1999, a U.S. patent was issued
for the RCR technology for which we have received a $500,000 milestone payment
from Abbott and have received royalties on sales by Abbott of products using the
RCR technology. In February 2000, a Japanese patent was issued on this
technology and as a result we received a $250,000 milestone payment. The
agreement terminates upon the later of (1) the last to expire of any patents
issued covered by the technology or (2) if no patents are granted, twenty years,
subject to certain earlier termination provisions contained in the agreement. We
have an exclusive worldwide fully paid up license to the RCR technology and the
patents issued with respect to it.

For the year ended December 31, 2002 we earned total royalty revenues of
$1,352,000 pursuant to our strategic alliance with Abbott.

WYETH

In December 1987, we entered into a vaccine development and licensing
agreement with American Cyanamid Company ("Cyanamid") that provided Cyanamid an
exclusive worldwide license to manufacture and sell vaccines developed during
the research period of the agreement. During the research period of the
agreement, we were engaged in the development of two vaccine candidates, the
first of which was for N. gonorrhea based on recombinant proteins, and the
second of which was for Herpes Simplex Virus based on recombinant glycoproteins
B and D.

In September 1993, Cyanamid's Lederle-Praxis Biologicals division and
ImClone Systems entered into a research collaboration agreement, which by its
terms supersedes the earlier agreement as to N. gonorrhea vaccine candidates,
but not as to Herpes Simplex Virus vaccine candidates.

The successor to Cyanamid, Wyeth (formerly known as American Home
Products Corporation) has the responsibility under both agreements for
conducting pre-clinical and clinical trials of the vaccine candidates, obtaining
regulatory approval, and manufacturing and marketing the vaccines. Wyeth is
required to pay royalties to us in connection with sales of the vaccines, if
any.

In the year ended December 31, 2002, no revenues were recorded under the
Wyeth agreements.

GLAXOSMITHKLINE PLC

In February 2000, we licensed to GlaxoSmithKline plc (formerly known as
SmithKline Beecham) certain patents and patent applications to meningitis
antigens along with related know-how and materials, exclusively for the purpose
of developing meningitis vaccines. In return we will receive license fees, as
well as milestone fees should an antigen or antigens based on our claims be
included in its vaccine candidate, and royalties on sales of such vaccine.

In the year ended December 31, 2002, we recorded revenues of $58,000
under the GlaxoSmithKline plc agreement, which consisted of a license fee.

21

DAKOCYTOMATION A/S

We have an agreement with DakoCytomation A/S (formerly known as DAKO
Corporation) for the development of an EGF receptor screening kit. Under the
terms of the agreement, DakoCytomation will develop the kit, which will be used
to screen tumors for expression of EGF receptor to identify patients that may be
receptive to treatment with ERBITUX. We selected DakoCytomation to develop the
screening kit because of its reputation for quality and its experience in the
development of diagnostics for other oncology-related monoclonal antibody
therapeutics. DakoCytomation is a global provider of cancer diagnostics and
research products that use antibodies, nucleic acid probes and proprietary
detection technologies to identify specific disease-associated molecules in
tissues and cells. In parallel with our application for FDA marketing approval
of ERBITUX, DakoCytomation will be applying to the FDA for marketing approval of
the EGF receptor screening kit.

AMGEN, INC.

We have entered into a non-exclusive license and supply agreement with
Amgen, Inc. (formerly Immunex Corporation) under which we granted Amgen an
exclusive worldwide license to the flk-2/flt-3 receptor for the limited use of
the manufacture of the flk-2/flt-3 growth factor. Under this agreement, we are
to receive certain royalty and licensing fees.

In the year ended December 31, 2002, no revenues were recorded under
this agreement.

MANUFACTURING

We own and operate a pilot manufacturing facility for biologics in
Somerville, New Jersey for the manufacture of clinical trial materials. At our
pilot facility, we previously manufactured a portion of the ERBITUX utilized for
clinical trials. We now are using our pilot facility to develop the cell culture
and purification process for IMC-KDR antibodies and are in the early stages of
production for clinical trials. We also plan to use the pilot manufacturing
facility for the manufacture of other monoclonal antibodies in early
development. Our pilot facility is operated in accordance with current Good
Manufacturing Practices ("cGMP"), which is a requirement for product
manufactured for use in clinical trials and for commercial sale.

Production in commercial quantities required the expansion of our
manufacturing capabilities and the hiring and training of additional personnel.
In July 2001, we completed construction of an 80,000 square foot Single Product
Facility on our Somerville, New Jersey campus. The Single Product Facility
contains three 10,000 liter (production volume) fermenters and is dedicated to
the clinical and commercial production of ERBITUX. The construction of the
Single Product Facility cost a total of approximately $53,000,000, excluding
capitalized interest of approximately $1,966,000. The Single Product Facility
was ready for its intended use and was put in operation in July 2001. We expect
that the Single Product Facility will be included in the resubmission of our BLA
and material produced in the Single Product Facility will be used to support
ongoing clinical trials and product launch. In July 2002, the FDA gave us
clearance to use ERBITUX produced at the Single Product Facility in clinical
studies. The Single Product Facility had a satisfactory cGMP inspection by the
Regierungsprasidium Darmstadt that resulted in a Product Import license being
granted to Merck KGaA in April 2003, covering the period November 2002 to
October 2004.

In December 1999, we 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 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 December 31, 2002, we incurred approximately $7,068,000 for services
provided under the development and manufacturing services agreement. Lonza has
completed its obligations under the development and manufacturing services
agreement. In September 2000, we entered into a three-year commercial
manufacturing services agreement with Lonza relating to ERBITUX. This agreement
was amended in June 2001 and again in September 2001 to include additional
services. As of December 31, 2002,
22

we incurred approximately $61,833,000 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 approved 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 at the time of sale. In the event
we terminate the commercial manufacturing services agreement with Lonza 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 the subsequent batches
contained in the amendment to the commercial manufacturing services agreement
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. Certain batches have been cancelled at other
negotiated rates agreed to by the parties. These amounts are subject to
mitigation should Lonza use its manufacturing capacity caused by such
termination for another customer.

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. As of
December 31, 2002, we incurred approximately $7,183,000 for services provided
under this agreement. During 2002, Merck KGaA reimbursed us for the services
provided under this agreement. Lonza has completed its obligations under the
2000 liter supply agreement.

On January 2, 2002, we executed a letter of intent with Lonza to enter
into a long-term supply agreement. The long-term supply agreement would have
applied to a large scale manufacturing facility that Lonza is constructing,
which would have been able to produce ERBITUX in 20,000 liter batches. We paid
Lonza $3,250,000 upon execution of the letter of intent for the exclusive right
to negotiate a long-term supply agreement for a portion of the facility's
manufacturing capacity. In September 2002, we wrote-off the deposit because the
exclusive negotiation period ended on September 30, 2002. In light of the
assistance we provided to a third party with respect to preserving and then
relinquishing the manufacturing capacity described above, the third party paid
us $3,250,000 in April 2003 and this amount is being recognized as a reduction
to operating expenses in 2003.

We rely entirely on third party manufacturers for filling and finishing
services with respect to ERBITUX. If our current third party manufacturers or
critical raw material suppliers fail to meet our expectations, we cannot be
assured that we will be able to enter into new agreements with other suppliers
or third party manufacturers without an adverse effect on our business.

We may have insufficient quantities of ERBITUX for the product launch if
we obtain FDA approval to market ERBITUX before obtaining FDA approval required
to permit our Single Product Facility to manufacture ERBITUX for commercial use,
or if a contract manufacturer retained for such contingency is unable to deliver
approved product to us on a timely basis. In any event, we may continue to seek
to enter into arrangements with contract manufacturers in order to provide a
second source of supply or additional capacity for the manufacture of our
products, if necessary.

We have completed detailed design plans for, and are proceeding with
construction of, the Multiple Product Facility. The Multiple Product Facility
will have a capacity of up to 110,000 liters (production volume). The Multiple
Product Facility is being built on property we purchased that is adjacent to our
Single Product Facility. The cost for the Multiple Product Facility is expected
to be approximately $260,000,000, excluding capitalized interest, with
anticipated mechanical completion by the end of 2005.

23

MARKETING AND SALES

Pursuant to the terms of the Commercial Agreement, E.R. Squibb has
primary responsibility for distribution, marketing and sales of ERBITUX in the
United States and Canada and will provide sales force personnel and marketing
services for ERBITUX. We have the right, at our election and sole expense, to
co-promote ERBITUX with E.R. Squibb. As part of our strategy to develop the
capacity to market our cancer therapeutic products, we have exercised this
co-promotion right and are therefore entitled to have our sales force
participate in the co-promotion of ERBITUX. Pursuant to the terms of the
Commercial Agreement, E.R. Squibb retains the exclusive rights to sell and
distribute the product.

We also have co-promotion rights for commercialization of our BEC2
cancer vaccine in North America pursuant to our BEC2 agreement with Merck KGaA.

In order to develop our internal marketing and sales capabilities, in
1999 ImClone Systems hired a strategic marketing team with experience in the
commercial launch of a monoclonal antibody cancer therapeutic and we intend to
build an internal sales force and an infrastructure to support our cancer
therapeutic products.

We will continue to evaluate future arrangements and opportunities with
respect to other products we may develop in order to optimize our profits and
our distribution, marketing and sales capabilities.

PATENTS AND TRADEMARKS

GENERAL

We seek patent protection for our proprietary technology and products in
the United States and abroad. Patent applications have been submitted and are
pending in the United States, Canada, Europe and Japan, as well as other
countries. The patent position of biopharmaceutical firms generally is highly
uncertain and involves complex legal and factual questions. Our success will
depend, in part, on whether we can:

- obtain patents to protect our own products

- obtain licenses to use the technologies of third parties, which may be
protected by patents

- protect our trade secrets and know-how

- operate without infringing the intellectual property and proprietary
rights of others

PATENT RIGHTS; LICENSES

We currently have exclusive licenses or assignments to 93 issued patents
worldwide that relate to our proprietary technology in the United States and
foreign countries, 53 of which are issued United States patents. In addition, we
currently have exclusive licenses or assignments to approximately 67 families of
patent applications.

ERBITUX(TM). We have an exclusive license from the University of
California at San Diego to an issued United States patent for the murine form of
ERBITUX, our EGF receptor antibody product. We believe that this patent's scope
should be its literal claim scope as well as other antibodies not literally
embraced but potentially covered under the patent law doctrine of equivalents.
Whether or not a particular antibody is found to be an equivalent to the
antibodies literally covered by the patent can only be determined at the time of
a potential infringement, and in view of the technical details of the
potentially infringing antibody in question. Our licensor of this patent did not
obtain patent protection outside the United States for this antibody.

We are pursuing additional patent protection relating to the field of
EGF receptor antibodies in the treatment of cancer that may limit the ability of
third parties to commercialize EGF receptor antibodies for such use.
Specifically, we are pursuing patent protection for the use of EGF receptor
antibodies in combination with chemotherapy to inhibit tumors or tumor growth.
We have exclusively licensed from Rhone-Poulenc Rorer Pharmaceuticals, now known
as Aventis, patent applications seeking to cover the

24

therapeutic use of antibodies to the EGF receptor in conjunction with
anti-neoplastic agents. A U.S. patent, a Canadian patent and a European patent
were issued in this family. In December 2002, Opposition Proceedings seeking to
revoke the European patent were brought by the Scripps Research Institute, Amgen
Inc., Abgenix, Inc., and YM Biosciences Inc. An Opposition Proceeding is an
administrative process, the outcome of which may be that our European patent
will be revoked. We have filed additional patent applications, based in part on
our own research, that would cover the use of ERBITUX and other EGF receptor
antibodies in conjunction with radiation therapy, and the use of ERBITUX and
other EGF receptor inhibitors in refractory patients, either alone or in
combination with chemotherapy or radiation therapy. We have also filed patent
applications that include claims on the use of conjugated forms of ERBITUX, as
well as humanized forms of the antibody and fragments.

Our license agreements with the University of California, San Diego and
Aventis require us to pay royalties on sales of ERBITUX that are covered by
these licenses.

There can be no assurance that patent applications related to the field
of antibodies in the treatment of cancer to which we hold rights will result in
the issuance of patents, that any patents issued or licensed to our company
related to ERBITUX or its use will not be challenged and held to be invalid or
of a scope of coverage that is different from what we believe the patent's scope
to be, or that our present or future patents related to these technologies will
ultimately provide adequate patent coverage for or protection of our present or
future EGF receptor antibody technologies, products or processes. Since, until
recently, patent applications were secret until patents were issued in the U.S.,
or corresponding applications were published in foreign countries, and since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, we cannot be certain that we were the first to make
our inventions, or that we were the first to file patent applications for such
inventions. In addition, patents do not give the holder the right to
commercialize technology covered by the patents, should our production or our
use be found by a court to be embraced by the patent of another.

In the event that we are called upon to defend and/or prosecute patent
suits and/or related legal or administrative proceedings, such proceedings are
costly and time consuming and could result in loss of our patent rights,
infringement penalties or both. Litigation and patent interference proceedings
could result in substantial expense to us and significant diversion of efforts
by our technical and management personnel. An adverse determination in any such
interference or in patent litigation, particularly with respect to ERBITUX, to
which we may become a party could subject us to significant liabilities to third
parties or require us to seek licenses from third parties. If required, the
necessary licenses may not be available on acceptable financial or other terms
or at all. Adverse determinations in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent us, in whole or in part, from
commercializing our products, which could have a material adverse effect on our
business, financial condition and results of operations.

In the event that there is patent litigation involving one or more of
the patents issued to us, there can be no guarantee that the patents will be
held valid and enforceable. The scope of patents are expected to be called into
question and could result in a decision by a court that the claims have a
different scope than we believe them to have. Further, the outcome of patent
litigation is subject to intangibles that cannot be adequately quantified in
advance, including the demeanor and credibility of witnesses that will be called
to testify and the identity of the adverse party. This is especially true in
biotechnology-related patent cases that may turn on the testimony of experts as
to technical facts upon which experts may reasonably disagree.

We are aware of a U.S. patent issued to a third party that includes
claims covering the use, subject to certain restrictions, of antibodies to the
EGF receptor and cytotoxic factors to inhibit tumor growth. Our patent counsel
has advised us that in its opinion, subject to the assumptions and
qualifications set forth in such opinion, no valid claim of this third party
patent is infringed by reason of our manufacture or sale, or medical
professionals' use of ERBITUX alone or in combination with chemotherapy or
radiation therapy and, therefore, in the event of litigation for infringement of
this third party patent, a court should find that no valid claim of this third
party patent is infringed. Based upon this opinion, as well as our review, in
conjunction with our patent counsel, of other relevant patents, we believe that
we will be able to commercialize ERBITUX alone and in combination with
chemotherapy and radiation therapy provided we successfully complete our

25

clinical trials and receive the necessary FDA approvals. This opinion of
counsel, however, is not binding on any court or the U.S. Patent and Trademark
Office. In addition, there can be no assurance that we will not in the future,
in the U.S. or any other country, be subject to patent infringement claims,
patent interference proceedings or adverse judgments in patent litigation.

There can be no assurance that we will not be subject to claims in
patent suits, that one or more of our products or processes infringe their
patents or violate the proprietary rights of third parties. Defense and
prosecution of such patent suits can result in the diversion of substantial
financial, management and other resources from our other activities. An adverse
outcome could subject us to significant liability to third parties, require us
to obtain licenses from third parties, or require that we cease any related
product development activities or product sales.

An adverse determination by a court in any such patent litigation, or by
the U.S. Patent and Trademark Office in a patent interference proceeding,
particularly with respect to ERBITUX, to which we may become a party, would
subject us to significant liabilities to third parties or require us to seek
licenses from third parties, or result in loss in whole or part of our ability
to continue to sell our product. If required, the necessary licenses may not be
available on acceptable terms or at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us, in whole or in part, from commercializing our products, which could have a
material adverse effect on our business, financial condition and results of
operations.

ERBITUX is a "chimerized" monoclonal antibody, which means it is made of
antibody fragments derived from more than one type of animal. Patents have been
issued to other biotechnology companies that relate to chimerized antibodies or
their manufacture. Therefore, we may be required to obtain licenses under these
patents before we can commercialize our own chimerized monoclonal antibodies,
including ERBITUX. We cannot be certain that we will ever be able to obtain such
patent licenses related to chimerized monoclonal antibodies in the U.S. or in
other territories of the world where we would want to commercialize ERBITUX.
Even if we are able to obtain other licenses as requested, there can be no
assurance that we would be able to obtain a license on financial or other terms
acceptable to us or that we would be able to successfully redesign our products
or processes to avoid the scope of such patents. In either such case, such
inability would have a material adverse effect on our business, financial
condition and results of operations. We cannot guarantee that the cost of such
licenses would not materially affect the ability to commercialize ERBITUX.

ANGIOGENESIS INHIBITORS. With respect to our research on inhibitors to
angiogenesis based on the flk-1 receptor (VEGFR2), we are the exclusive licensee
from Princeton University of a family of patents and patent applications
covering recombinant nucleic acid molecules that encode the murine flk-1
receptor and antibodies to extracellular portions of the receptor and its human
homolog, KDR. We are also the assignee of a family of patents and patent
applications filed by our scientists generally related to
angiogenesis-inhibiting antibodies to receptors that bind VEGF, for example
human flt-1 (VEGFR1) and KDR (VEGFR2). One of the patents licensed from
Princeton University claims the use of flk-1 receptor antibodies to isolate
cells expressing the flk-1 receptor on their cell surfaces. Additionally, we are
a co-owner of a patent application claiming the use of flk-1/KDR receptor
antibodies to isolate endothelial stem cells that express flk-1/KDR on their
cell surfaces. At present, we are seeking exclusive rights to this invention
from the co-owners.

Our license from Princeton University requires us to pay royalties on
sales that would otherwise infringe the licensed patents, which cover antibodies
to the flk-1/KDR receptor.

IMC-1C11 and recently identified fully human IMC-KDR antibodies that we
are developing are phage-derived antibodies, which means they are made using
phage technology. Since patents have been issued to biotechnology companies that
relate to phage-derived antibodies and their manufacture, we may be required to
obtain licenses under these patents before we can commercialize certain
phage-derived antibodies. In March 2003, we entered into a license with Dyax
Corp. ("Dyax") for certain of Dyax's patents rights and know-how covering
certain phage display technology and a proprietary phage display library. This
license also includes sublicense or non-enforcement covenant rights from other
companies that possess patent and other intellectual property rights relating to
phage display technology. We believe, though we cannot be certain, that

26

this license will provide us with the freedom to operate in the
commercialization of phage-derived antibody inhibitors to KDR, as well as
certain other phage-derived antibodies.

IMC-1C11 is a "chimerized" monoclonal antibody (which means it is made
of antibody fragments derived from more than one type of animal). Patents have
been issued to other biotechnology companies that relate to chimerized
antibodies or their manufacture. Therefore, we may be required to obtain
licenses under these patents before we can commercialize our own chimerized
monoclonal antibodies, including IMC-1C11. Similarly, commercialization of a
newer fully human IMC-KDR antibody may require obtaining licenses pertaining to
the use of certain discovery and manufacturing technologies.

We cannot be certain that we will ever be able to obtain such patent
licenses related to chimerized and/or phage-derived monoclonal antibodies in the
U.S. or in other territories of the world where we would want to commercialize
such IMC-KDR antibodies. Even if we are able to obtain other licenses as
requested, there can be no assurance that we would be able to obtain a license
on financial or other terms acceptable to us or that we would be able to
successfully redesign our products or processes to avoid the scope of such
patents. In either such case, such inability could have a material adverse
effect on our business, financial condition and results of operations. We cannot
guarantee that the cost of such licenses would not materially affect the ability
to commercialize IMC-KDR antibodies.

There can be no assurance that others will not be, or have not been,
issued patents that may prevent the sale of one or more of our products or the
practice of one or more of our processes, or require licensing and the payment
of significant fees or royalties by us to third parties in order to enable us to
conduct business.

There can be no assurance that we will not be subject to claims that one
or more of our products or processes infringe other patents or violate the
proprietary rights of third parties. In the event that we are called upon to
defend and/or prosecute patent suits, the related legal and administrative
proceedings would be costly and time consuming and could result in loss of
patent rights, infringement penalties or both. In addition, defense and
prosecution of patent suits can result in the diversion of substantial
financial, management and other resources from our other activities. An adverse
outcome could subject us to significant liability to third parties, require us
to obtain licenses from third parties, or require us to cease any related
product development activities or product sales and might have a material
adverse effect on our business.

VE-CADHERIN. We have obtained an exclusive license from ICOS
Corporation to certain patent rights pertaining to VE-cadherin and antibodies
thereto for the treatment of cancer in humans. We are also the assignee of a
family of patent applications filed by an employee related to methods of
generating therapeutically valuable antibodies that bind VE-cadherins. These two
families of patent applications cover cadherin molecules that are involved in
endothelial cell interactions. These interactions are believed to be involved in
angiogenic processes. The subject patents and patent applications also cover
antibodies that bind to, and affect the cadherin molecules.

Our license from ICOS requires us to pay royalties on the sale of
certain VE-cadherin antibodies.

BEC2. We have exclusively licensed from Memorial Sloan-Kettering Cancer
Center a family of patents and patent applications relating to our BEC2
monoclonal anti-idiotypic antibody. We know that others have been issued patents
in the U.S. and Europe relating to anti-idiotypic antibodies or their use for
the treatment of tumors. These patents could be alleged by the third party
patent holders in a suit for patent infringement to be valid and to cover BEC2
or certain uses of BEC2. We have entered into a license agreement with Merck
KGaA, which entitles Merck KGaA to market BEC2 worldwide, with the exception of
North America, where we are entitled to co-promote BEC2 in North America with
Merck KGaA. Merck KGaA has informed us that it has obtained non-exclusive,
worldwide licenses to some of these patents in order for Merck KGaA to market
BEC2 within its territory.

Our license from Memorial Sloan-Kettering Cancer Center requires us to
pay royalties on sales of BEC2.

Even if the BEC2-related patent applications mature into issued patents,
there can be no assurance that others will not be, or have not been, issued
patents that may prevent the sale of one or more of our
27

products or the practice of one or more of our processes, or require licensing
and the payment of significant fees or royalties by us to third parties in order
to enable us to conduct our business.

There can be no assurance that we will not be subject to claims that one
or more of its products or processes infringe other patents or violate the
proprietary rights of third parties. In the event that we are called upon to
defend and/or prosecute patent suits, the related legal and administrative
proceedings would be costly and time consuming and could result in loss of
patent rights, infringement penalties or both. In addition, defense and
prosecution of patent suits can result in the diversion of substantial
financial, management and other resources from our other activities. An adverse
outcome could subject us to significant liability to third parties, require us
to obtain licenses from third parties, or require us to cease any related
product development activities or product sales and might have a material
adverse effect on our business.

In the event we are required to seek other patent licenses related to
BEC2, we cannot be certain that we will ever be able to obtain such patent
licenses in the U.S. or other parts of the world where we would want to
commercialize BEC2. Even if we are able to obtain other licenses as requested,
there can be no assurance that we would be able to obtain a license on financial
or other acceptable terms or that we would be able to successfully redesign our
products or processes to avoid such patents. We cannot guarantee that the cost
of such licenses would not materially affect the ability to commercialize BEC2.

GP75 CANCER VACCINE. We have exclusively licensed from Memorial
Sloan-Kettering Cancer Center a family of patents and patent applications
relating to our work with the melanotic protein, gp75. We have exclusively
licensed patents and patent applications that relate to both the human protein
gp75 and the gene encoding human protein gp75, as well as the use of murine gp75
protein and nucleic acids used to elicit an immune response in humans. We have
entered into a license agreement with Merck KGaA, which entitles Merck KGaA to
market human gp75 protein as a vaccine. In Europe, Aventis Pasteur Ltd. has
brought an Opposition Proceeding seeking to revoke a granted European patent
claiming aspects of a gene encoding human gp75 protein. An Opposition Proceeding
is an administrative process, the outcome of which may be that our European
patent will be revoked.

Our license agreements with Memorial Sloan-Kettering Cancer Center
require us to pay royalties on future sales of products covered by these
licenses.

DIAGNOSTICS. Our diagnostics program has been licensed for commercial
development to Abbott. The program includes target amplification technology and
detection methods, such as RCR technology, signal amplification technology, such
as Ampliprobe, and p53 mutation detection for assisting in cancer diagnosis. We
have pending patent applications and have obtained patents that relate to our
diagnostics program. We have either an assignment from our own scientists or
exclusive licenses from academic institutions to these families of patents and
patent applications. We have an exclusive license to an issued patent assigned
to Princeton University related to the underlying technology for our Ampliprobe
signal amplification and detection system. We are aware that patent applications
have been filed by, and that patents have been issued to, third parties in the
field of DNA amplification technology. This could affect Abbott's ability to
commercialize our diagnostic products, and our ability to collect royalties for
such commercialization.

Even if the diagnostics-related patent applications mature into issued
patents, there can be no assurance that others will not be, or have not been,
issued patents that may prevent the commercial development of one or more of the
technologies included in the diagnostics program or practice of one or more of
the technologies included in the diagnostics program, or require licensing and
the payment of significant fees or royalties by our company to third parties in
order to enable us to conduct our business.

There can be no assurance that we will not be subject to claims that one
or more of our products or processes infringe other patents or violate the
proprietary rights of third parties. In the event that we are called upon to
defend and/or prosecute patent suits the related legal and administrative
proceedings would be costly and time consuming and could result in loss of
patent rights, infringement penalties or both. In addition, defense and
prosecution of patent suits can result in the diversion of substantial
financial, management and other resources from our other activities. An adverse
outcome could subject us to significant liability to third

28

parties, require us to obtain licenses from third parties, or require us to
cease any related product development activities or product sales.

TRADEMARKS. ERBITUX, IMCLONE, IMCLONE SYSTEMS, IMCLONE SYSTEMS
INCORPORATED, TARGETED ONCOLOGY and the ANTIBODY DESIGN (pantone #172 "Orange"),
our corporate icon, are trademarks and/or service marks of ImClone Systems.
Applications are pending or registrations have been issued for various of these
marks in the United States and/or foreign jurisdictions.

TRADE SECRETS. With respect to certain aspects of our technology, we
rely, and intend to continue to rely, on our confidential trade secrets,
unpatented proprietary know-how and continuing technological innovation to
protect our competitive position. Such aspects of our technology include methods
of isolating and purifying antibodies and other proteins, collections of
plasmids in viable host systems, and antibodies that are specific for proteins
that are of interest to us. We cannot be certain that others will not
independently develop substantially equivalent proprietary information or
techniques, or that we are free of the patent or other rights of third parties
to commercialize this technology.

Relationships between us and our employees, scientific consultants and
collaborators provide these persons with access to our trade secrets, know-how
and technological innovation under confidentiality agreements with the parties
involved. Similarly, our employees and consultants enter into agreements with us
that require that they do not disclose confidential information of ours and that
they assign to us all rights to any inventions relating to our activities made
while in our employ or while consulting for us.

GOVERNMENT REGULATION

The research and development, manufacture and marketing of human
therapeutic and diagnostic products are subject to regulation, primarily by the
FDA in the United States and by comparable authorities in other countries. These
national agencies and other federal, state and local entities regulate, among
other things, research and development activities (including testing in animals
and in humans) and the testing, manufacturing, handling, labeling, storage,
record keeping, approval, advertising and promotion of the products that we are
developing. Noncompliance with applicable requirements can result in various
adverse consequences, including delay in approval or refusal to approve product
licenses or other applications, suspension or termination of clinical
investigations, revocation of approvals previously granted, fines, criminal
prosecution, recall or seizure of products, injunctions against shipping
products and total or partial suspension of production and/or refusal to allow a
company to enter into governmental supply contracts.

The process of obtaining requisite FDA approval has historically been
costly and time consuming. Current FDA requirements for a new human drug or
biological product to be marketed in the United States include: (1) the
successful conclusion of pre-clinical laboratory and animal tests, if
appropriate, to gain preliminary information on the product's safety; (2) filing
with the FDA of an IND, to conduct human clinical trials for drugs or biologics;
(3) the successful completion of adequate and well-controlled human clinical
investigations to establish the safety and efficacy of the product for its
recommended use; and (4) filing by a company and acceptance and approval by the
FDA of a New Drug Application ("NDA") for a drug product or a Biological License
Application ("BLA") for a biological product to allow commercial distribution of
the drug or biologic. Overall, conducting clinical trials is a lengthy,
time-consuming and expensive process.

Pre-clinical tests include the evaluation of the product in the
laboratory and in animal studies to assess the potential safety and efficacy of
the product and its formulation. The results of the pre-clinical tests are
submitted to the FDA as part of an IND to support the evaluation of the product
in human patients. Historically, the results from pre-clinical testing and early
clinical trials have often not been predictive of results obtained in later
clinical trials. A number of new drugs and biologics have shown promising
results in clinical trials, but subsequently failed to establish sufficient
safety and efficacy data to obtain necessary regulatory approvals. Data obtained
from pre-clinical and clinical activities are susceptible to varying
interpretations, which may delay, limit or prevent regulatory approval. In
addition, we may encounter regulatory delays or rejections as a result or many
factors, including changes in regulatory policy during the period of product
development.

29

Clinical trials involve administration of the product to patients under
supervision of a qualified principal investigator. Such trials are typically
conducted in three sequential phases, although the phases may overlap. In Phase
I, the initial introduction of the drug into human patients, the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution, and
excretion. Phase II involves studies in a limited patient population to: (1)
determine the biological or clinical activity of the product for specific,
targeted indications; (2) determine dosage tolerance and optimal dosage; and (3)
identify possible adverse effects and safety risks. If Phase II evaluations
indicate that a product is effective and has an acceptable benefit-to-risk
relationship, Phase III trials may be undertaken to further evaluate clinical
efficacy and to further test for safety within an expanded patient population.
Phase IV studies, or post-marketing studies, may also be required to provide
additional data on safety or efficacy.

The FDA reviews the results of the clinical trials and may order the
temporary or permanent discontinuation of clinical trials at any time if it
believes the product candidate exposes clinical subjects to an unacceptable
health risk. Investigational products used in clinical studies must be produced
in compliance with cGMP pursuant to FDA regulations.

Some of our cancer treatments require the use of in vitro diagnostic
products to test patients for particular traits. In vitro diagnostic products
are generally regulated by the FDA as medical devices. Before a medical device
may be marketed in the United States, the manufacturer generally must obtain
either clearance through a 510(k) pre-market notification ("510(k)") process or
approval through the pre-market approval application ("PMA") process. Section
510(k) notifications may be filed only for those devices that are "substantially
equivalent" to a legally marketed predicate device. If a device is not
"substantially equivalent" to a legally marketed predicate device, a PMA must be
filed. The pre-market approval procedure generally involves more complex and
lengthy testing, and a longer review process than the 510(k) process.

Under current law, each domestic and foreign drug and device
product-manufacturing establishment must be registered with the FDA before
product approval. Domestic and foreign manufacturing establishments must meet
strict standards for compliance with cGMP regulations and licensing
specifications after the FDA has approved an NDA, BLA or PMA for a product
manufactured at such facility. The FDA and foreign regulatory authorities
periodically inspect domestic and foreign manufacturing facilities where
applicable.

Sales outside the United States of products we develop will also be
subject to regulatory requirements governing human clinical trials and marketing
for drugs and biological products and devices. The requirements vary widely from
country to country, but typically the registration and approval process takes
several years and requires significant resources. In most cases, if the FDA has
not approved a product for sale in the United States the product may be exported
to any country if it complies with the laws of that country and has valid
marketing authorization by the appropriate authority (i) in Canada, Australia,
New Zealand, Japan, Israel, Switzerland or South Africa, or (ii) in the European
Union or a country in the European Economic Area if the drug is marketed in that
country or the drug is authorized for general marketing in the European Economic
Area. There are specific FDA regulations that govern this process.

Our ability to earn sufficient returns on our products may depend in
part on the extent to which government health administration authorities,
private health coverage insurers and other organizations will provide
reimbursement for the costs of such products and related treatments. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third-party coverage will
be available.

ENVIRONMENTAL AND SAFETY MATTERS

We use hazardous chemicals, biological agents and various radioactive
isotopes and compounds in our research and development and manufacturing
activities. Accordingly, we are subject to regulations under federal, state and
local laws regarding employee safety, environmental protection and hazardous
substance control, and to other present and possible future federal, state and
local regulations. While we believe that we are in compliance with these
regulations, we cannot completely eliminate the risk of environmental
contamination or accidental injury. We could be held liable for any resulting
damages, injuries or civil

30

penalties, and our trials could be suspended. In addition, environmental laws or
regulations may impose liability for the clean-up of contamination at properties
we own or operate, regardless of fault.

These environmental laws and regulations do not currently materially
adversely affect our operations, business or assets. However, these laws may
change, our processes may change, or other facts may emerge which could affect
our operations, business or assets and therefore the amount and timing of
expenditures in the future may vary substantially from those currently
anticipated.

COMPETITION

Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors. These factors include the
availability of patent and other protection for technology and products, the
ability to commercialize technological developments and the ability to obtain
governmental approval for testing, manufacturing and marketing. We compete with
specialized biopharmaceutical firms in the United States, Europe and elsewhere,
as well as a growing number of large pharmaceutical companies that are applying
biotechnology to their operations. Many biopharmaceutical companies have focused
their development efforts in the human therapeutics area, including cancer. Many
major pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical
companies. Further, such companies have substantially greater financial
resources and greater access to capital markets than we do. These companies, as
well as academic institutions, governmental agencies and private research
organizations, also compete with us in recruiting and retaining highly qualified
scientific, technical and professional personnel and consultants. Our ability to
compete successfully with other companies in the biopharmaceutical field will
also depend to a considerable degree on the continuing availability of capital
to us.

We are aware of certain products under development or manufactured by
competitors that are used for the prevention, diagnosis, or treatment of certain
diseases that we have targeted for product development. Various companies are
developing biopharmaceutical products that potentially compete directly with our
product candidates. These include areas such as (1) the use of biopharmaceutical
products targeted to the EGF receptor or antibodies to that receptor to treat
cancer, (2) the development of inhibitors to angiogenesis and (3) the use of
anti-idiotypic antibody or recombinant antigen approaches to cancer vaccines. On
May 5, 2003 AstraZeneca Pharmaceuticals received approval from the FDA for
IRESSA(R) (gefitinib), a small molecule EGF receptor inhibitor indicated as
monotherapy for the treatment of patients with locally advanced or metastatic
non-small cell lung cancer after failure of both platinum-based and docetaxel
chemotherapies. In addition, several product candidates are in advanced stages
of clinical trials. We are aware of several companies that have potential
antibody or other product candidates in clinical testing that target the EGF
receptor and therefore may compete with our lead product candidate, ERBITUX.
These companies include, but are not limited to: (1) OSI Pharmaceuticals, Inc.
in collaboration with Genentech, Inc., (2) Abgenix, Inc. in collaboration with
Amgen, Inc., (3) Pfizer, Inc., (4) GlaxoSmithKline plc, (5) Novartis, (6) Merck
KGaA, (7) Wyeth, (8) Medarex and (9) YM Bioscience Inc. Further, Genentech, Inc.
recently announced that a Phase III study of Avastin(TM) (bevacizumab,
rhuMAb-VEGF) plus chemotherapy in previously-untreated metastatic colorectal
cancer patients met its primary endpoint of improving overall survival. Avastin
is an investigational therapeutic antibody designed to inhibit Vascular
Endothelial Growth Factor (VEGF), a protein that plays a role in tumor
angiogenesis (the formation of new blood vessels to the tumor) and maintenance
of existing tumor blood vessels. While Avastin(TM) does not target the EGF
receptor and, in this study, was studying a patient population different than
the patient population in the pivotal studies that we intend to submit as the
basis of our resubmitted BLA for ERBITUX (i.e., previously-untreated metastatic
colorectal cancer patients versus refractory colorectal cancer patients), it may
compete perhaps significantly with ERBITUX as a potential treatment for
colorectal cancer or other cancers, or with IMC-KDR as an anti-angiogenic agent.

We expect that our products under development and in clinical trials
will address major markets within the cancer sector. Our competition will be
determined in part by the potential indications for which drugs are developed
and ultimately approved by regulatory authorities. Additionally, the timing of
market introduction of some of our potential products or of competitors'
products may be an important competitive
31

factor. Accordingly, the relative speed with which we can develop products,
complete pre-clinical testing, clinical trials and approval processes and supply
commercial quantities to market are expected to be important competitive
factors. We expect that competition among products approved for sale will be
based on various factors, including product efficacy, safety, reliability,
availability, price, patent position, manufacturing capacity and capability,
distribution capability and government action.

OUR EMPLOYEES

We have assembled a scientific staff with a variety of complementary
skills in a broad base of advanced research technologies, including oncology,
immunology, molecular and cell biology, antibody engineering, protein and
medicinal chemistry and high-throughput screening. We have also recruited a
staff of technical and professional employees to carry out manufacturing at our
Somerville, New Jersey facilities. Of our 501 full-time personnel on June 1,
2003, 357 were employed at our New Jersey facilities, 115 were employed at our
New York headquarters and 29 were employed at our Brooklyn facility. Our staff
includes 47 persons with PhD's and 5 with MD's.

32

ITEM 2. PROPERTIES

180 VARICK STREET, NEW YORK, NEW YORK

We have occupied two contiguous leased floors at 180 Varick Street in
New York City since 1986. The property currently serves as our corporate
headquarters and research facility. The current lease for the two floors was
effective as of January 1, 1999 and expires in December 2004. The rent under the
lease increases by 3% per year. During 2000, we completed renovations of this
facility to better fit our needs at a cost of approximately $2,800,000. In
December 2000, we modified our lease to provide for another approximately 1,800
square feet on a contiguous floor for an initial annual rent of $63,000, which
increases annually by 3%. In May 2001, we again modified our lease to provide
for an additional 1,800 square feet of office space on the fifth floor and 1,600
square feet on the eighth floor for an initial annual rent of $151,800, which
increases annually by 3%. Effective January 1, 2003, we again modified our lease
to add 5,800 square feet of laboratory space on the eighth floor for a lump sum
advance rent payment of $232,625 paid in January 2003, plus an annual rent of
$12,000 to be paid from February 2003 until December 2004. Rent expense for the
Varick Street facility was approximately $975,000 for the year ended December
31, 2002.

The original acquisition, construction and installation of our New York
research and development facilities were financed principally through the sale
of three Industrial Development Agency Revenue Bonds (the "IDA Bonds") issued by
the New York Industrial Development Agency ("NYIDA"). Two of these IDA Bonds
have been redeemed in full and, on May 22, 2003, we notified the trustee for the
one remaining IDA Bonds that we intended to exercise our option to redeem the
IDA Bonds in full on June 30, 2003.

BROOKLYN, NEW YORK

On May 1, 2001, we leased a 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 "Brooklyn facility"). The term of the lease
is for five years with five successive one-year extensions. The initial annual
lease rate was $92,250 until six months after we have received all necessary
permits for our improvements to the Brooklyn facility, at which time the annual
base rent became $184,500. The Brooklyn facility was ready for its intended use
and put in operation as our chemistry and high-throughput screening facility in
December 2002. As of December 31, 2002, we have incurred approximately
$4,395,000 for the retrofit of the Brooklyn facility. In the year ended December
31, 2002, we incurred rent expense for the premises of approximately $182,000.

325 SPRING STREET, NEW YORK, NEW YORK

In October 2001, we entered into a sublease for a four-story building
located at 325 Spring Street, New York, New York. The space, which may or may
not be designed and improved and used by us 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 $50,325,000 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. In addition, we
paid the owner of the building a consent fee in the amount of $500,000. In the
year ended December 31, 2002, we incurred rent expense of approximately
$2,124,000 for this sublease.

22 CHUBB WAY, SOMERVILLE, NEW JERSEY

In 1992, we acquired a 5.1 acre parcel of land and a 54,400 square foot
building located at 22 Chubb Way, Somerville, New Jersey at a cost to us of
approximately $4,665,000, including expenses. We have retrofitted the building
to serve as our pilot facility for biologics manufacturing. When purchased, the
facility had in place various features, including clean rooms, air handling,
electricity, and water for injection systems and administrative offices. The
cost for completion of facility modifications was approximately $5,400,000. We
currently operate the facility to develop and manufacture biologics for a
portion of our clinical trials. Under certain circumstances, we also may use the
facility for the manufacturing of commercial products. In January

33

1998, we completed the construction and commissioning of a 1,750 square foot
process development center at this facility dedicated to manufacturing process
optimization for existing products and the pre-clinical and Phase I development
of new biological therapeutics. The cost of this construction activity was
approximately $1,730,000.

33 CHUBB WAY, SOMERVILLE, NEW JERSEY

On May 20, 2002, we purchased a 45,800 square foot warehouse on 6.94
acres of property located on 33 Chubb Way. The purchase price for both land and
building was approximately $4,515,000. Extensive site work and exterior and
interior renovations began in late June 2002. The newly renovated location
houses the clinical, regulatory, sales, marketing, finance, human resources,
legal, project management and MIS departments, as well as certain executive
offices and other campus amenities. As of December 31, 2002, we have incurred
approximately $4,486,000, for the renovation and fit-out of this facility. The
total cost for the renovation is expected to be approximately $5,200,000. The
administrative facility was ready for its intended use and put in operation in
December 2002.

36 CHUBB WAY, SOMERVILLE, NEW JERSEY

In July 2001, we completed the construction of the 80,000 square foot
Single Product Facility adjacent to the pilot facility in Somerville, New
Jersey. The Single Product Facility was built on a 5.7 acre parcel of land we
purchased in December 1999 for approximately $700,000. The Single Product
Facility contains three 10,000 liter (production volume) fermenters and is
dedicated to the clinical and commercial production of ERBITUX. The Single
Product Facility was ready for its intended use and put in operation in July
2001. The Single Product Facility cost a total of approximately $53,000,000,
excluding capitalized interest of approximately $1,966,000.

50 CHUBB WAY, SOMERVILLE, NEW JERSEY

We have completed detailed design plans for, and are proceeding with
construction of, the Multiple Product Facility. The Multiple Product Facility
will have a capacity of up to 110,000 liters (production volume). The facility
is being built on a 7.12 acre parcel of land that we purchased in July 2000 for
approximately $950,000, which is the parcel immediately to the west of 36 Chubb
Way. The cost of this facility, for two completely fitted out suites and a third
suite with utilities only, is expected to be approximately $260,000,000,
excluding capitalized interest, with anticipated mechanical completion by the
end of 2005. We have incurred approximately $87,057,000, excluding capitalized
interest of approximately $2,614,000, in costs through December 31, 2002.

41 CHUBB WAY, SOMERVILLE, NEW JERSEY

In September 2000, we entered into a one-year lease with GM Stainless,
Inc. for approximately 7,600 square feet of office space in a building across
the street from the Single Product Facility in order to house the additional
personnel being hired in connection with our expansion of our clinical, medical
and regulatory affairs functions. Upon transfer of these functional departments
to our 33 Chubb Way facility, we are using this facility to house personnel
required for the startup of the Multiple Product Facility located at 50 Chubb
Way. The lease will automatically renew each year for up to three additional
years unless terminated three months prior to the expiration of that year. In
the year ended December 31, 2002, we incurred rent expense of approximately
$94,000 for this lease.

CORNER OF CHUBB WAY AND WEST COUNTY DRIVE, SOMERVILLE, NEW JERSEY

On May 2, 2001, we purchased a 4.45 acre parcel of land on the corner of
Chubb Way and West County Drive, for approximately $597,000, which is the parcel
immediately to the east of 22 Chubb Way. We are currently using this parcel for
our construction parking and as a material and equipment lay-down area to
support our construction at 50 Chubb Way.

34

1181 ROUTE 202N, SOMERVILLE, NEW JERSEY

On January 31, 2002, we purchased a 7.36 acre parcel of land located at
1181 Route 202, which is the parcel immediately to the north of 36 Chubb Way and
immediately to the east of 50 Chubb Way. The parcel includes a 51,400 square
foot building, approximately 39,000 square feet of which is warehouse space and
approximately 12,000 square feet of which is office space. The purchase price
for the property and improvements was approximately $7,020,000. We are currently
using this property for warehousing and logistics for our Somerville campus.
Extensive renovations to the 12,000 square feet of office area were completed in
the 1st quarter of 2003 to accommodate the relocation and consolidation of
Engineering, Warehousing, Logistics and Quality Assurance personnel from other
campus locations. Interior renovations included office space, as well as the
construction of a raw materials sampling laboratory, associated
temperature-controlled storage locations and the addition of emergency power
generation. Extensive site work at the recently occupied facility allowed for
the physical connection of this location to the campus' other buildings to
facilitate the use of this location as our central warehouse. As of December 31,
2002, we have incurred approximately $1,050,000 for the renovation of this
facility. The total cost for the renovation is expected to be approximately
$1,150,000.

35

ITEM 3. LEGAL PROCEEDINGS

A. LITIGATION

1. FEDERAL SECURITIES ACTIONS

Beginning in January 2002, a number of complaints asserting claims under
the federal securities laws against us and certain of our directors and officers
were filed in the U.S. District Court for the Southern District of New York.
Those actions were consolidated under the caption Irvine v. ImClone Systems
Incorporated et al., No. 02 Civ. 0109 (RO), and on September 16, 2002, a
consolidated amended complaint was filed in that consolidated action, which
plaintiffs corrected in limited respects on October 22, 2002. The corrected
consolidated amended complaint names us, as well as our former Chief Executive
Officer, Dr. Samuel D. Waksal, our former Chief Executive Officer and current
Chief Scientific Officer, Dr. Harlan W. Waksal, the former Chairman of our Board
of Directors and current Director, Robert Goldhammer, current or former
directors Richard Barth, David Kies, Paul Kopperl, John Mendelsohn and William
Miller, our former General Counsel, John Landes, and our Vice President for
Marketing and Sales, Ronald Martell, as defendants. The complaint asserts claims
for securities fraud under sections 10(b), 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934, on behalf of a purported class of persons who
purchased our publicly traded securities between March 27, 2001 and January 25,
2002. The complaint also asserts claims against Dr. Samuel D. Waksal under
section 20A of the Exchange Act on behalf of a separate purported sub-class of
purchasers of our securities between December 27, 2001 and December 28, 2001.
The complaint generally alleges that various public statements made by or on
behalf of us or the other defendants during 2001 and early 2002 regarding the
prospects for FDA approval of ERBITUX were false or misleading when made, that
the individual defendants were allegedly aware of material non-public
information regarding the actual prospects for ERBITUX at the time that they
engaged in transactions in our common stock and that members of the purported
stockholder class suffered damages when the market price of our common stock
declined following disclosure of the information that allegedly had not been
previously disclosed. The complaint seeks to proceed on behalf of the alleged
class described above, seeks monetary damages in an unspecified amount and seeks
recovery of plaintiffs' costs and attorneys' fees. On November 25, 2002, all
defendants other than Dr. Samuel D. Waksal filed a motion to dismiss the
complaint for failure to state a claim. On June 3, 2003, the court granted that
motion in part, dismissing the complaint as to defendants Messrs. Goldhammer,
Barth, Kies, Kopperl, Landes, Martell, Mendlesohn and Miller, but not dismissing
it as to the Company, Dr. Harlan W. Waksal and Dr. Samuel D. Waksal.

Separately, on September 17, 2002, an individual purchaser of our common
stock filed an action on his own behalf asserting claims against the Company,
Dr. Samuel D. Waksal and Dr. Harlan W. Waksal under sections 10(b) and 20(a) of
the Exchange Act and SEC Rule 10b-5. That action is styled Flynn v. ImClone
Systems Incorporated, et al., No. 02 Civ. 7499 and, in contrast to the Ivrine
case discussed above, this case was not filed against any of our outside
directors. In this case, the Plaintiff alleges that he purchased shares on
various dates in late 2001, that various public statements made by us or the
other defendants during 2001 regarding the prospects for FDA approval of ERBITUX
were false or misleading when made and that plaintiff relied on such allegedly
false and misleading information in making his purchases. Plaintiff seeks
compensatory damages of not less than $180,000 and punitive damages of $5
million, together with interest, costs and attorneys' fees. On November 25,
2002, both defendants other than Dr. Samuel D. Waksal filed a motion to dismiss
the complaint for failure to state a claim. Briefing on that motion was
completed on March 5, 2003. Oral argument on the motion to dismiss was held on
May 5, 2003. On June 3, 2003, the court denied that motion.

We intend to vigorously defend against the claims asserted in these
actions, which are in their earliest stages. We are unable to predict the
outcome of these actions at this time. Because we do not believe that a loss is
probable, no legal reserve has been established.

2. DERIVATIVE ACTIONS

Beginning on January 13, 2002, and continuing thereafter, nine separate
purported shareholder derivative actions have been filed against members of our
Board of Directors, certain of our present and former

36

officers, and us, as nominal defendant, among others, advancing claims based on
allegations similar to the allegations in the federal securities class action
complaints. Four of these derivative cases were filed in the Delaware Court of
Chancery and have been consolidated in that court under the caption In re
ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC.
Three of these derivative actions were filed in New York State Supreme Court in
Manhattan, (styled Boghosian v. Barth, et al., Index No. 100759/02, Johnson v.
Barth, et al., Index No. 601304/02, and Henshall v. Bodnar, et al., Index No.
603121/02) and have been consolidated under the caption In re ImClone Systems,
Inc. Shareholder Derivative Litigation, Index No. 02-100759. In addition, two
purported derivative actions, Lefanto v. Waksal, et al., No. 02 Civ. 0163 (RO)
and Forbes v. Barth, et al., No. 02 Civ. 1400 (RO), have been filed in the U.S.
District Court for the Southern District of New York and consolidated under the
caption In re ImClone Systems, Inc. Shareholder Derivative Litigation, Master
File No. 02 CV 163 (RO). A verified consolidated amended complaint, reflecting
the consolidation described above, was filed in the Southern District of New
York action on June 16, 2003. All of these actions assert, purportedly on behalf
of ImClone Systems, claims including breach of fiduciary duty by certain members
of our Board of Directors and current and former officers, among others, based
on allegations including that they engaged in transactions in our common stock
while in possession of material, non-public information concerning the
regulatory and marketing prospects for ERBITUX, or improperly disclosed such
information to others, and that they failed to maintain adequate controls and to
exercise due care with regard to the Company's ERBITUX application to the FDA
and certain public statements by or on behalf of the Company. No response to the
complaints in those actions has been required to date.

We intend to vigorously defend against the claims asserted in these
actions, which are in their earliest stages. We are unable to predict the
outcome of these actions at this time. Because we do not believe that a loss is
probable, no legal reserve has been established.

B. GOVERNMENT INQUIRIES AND INVESTIGATIONS

As previously reported, we have received subpoenas and requests for
information in connection with investigations by the Securities and Exchange
Commission, the Subcommittee on Oversight and Investigations of the U.S. House
of Representatives Committee on Energy and Commerce and the U.S. Department of
Justice relating to the circumstances surrounding the disclosure of the FDA
"refusal to file" letter dated December 28, 2001 and trading in our securities
by certain ImClone Systems insiders in 2001. We have also received subpoenas and
requests for information pertaining to document retention issues in 2001 and
2002, and to certain communications regarding ERBITUX in 2000. We are
cooperating with all of these inquiries and intend to continue to do so.

On June 19, 2002, we received a written "Wells Notice" from the staff of
the Securities and Exchange Commission (the "SEC"), indicating that the staff of
the SEC is considering recommending that the SEC bring an action against us
relating to our disclosures immediately following the receipt of a "refusal to
file" letter from the FDA on December 28, 2001 for our BLA for ERBITUX. We filed
a Wells submission on July 12, 2002 in response to the staff's Wells Notice.

In January 2003, the New York State Department of Taxation and Finance
("New York State") notified us that we were liable for the New York State and
City income taxes that were not withheld because one or more of our employees
who exercised certain non-qualified stock options in 1999 and 2000 failed to pay
New York State and City income taxes for those years. On March 13, 2003, we
entered into a closing agreement with New York Sate, paying $4,500,000 to settle
the matter. We believe that substantially all of the underpayment of New York
State and City income tax identified by New York State is attributable to the
exercise of non-qualified stock options by our former President and Chief
Executive Officer, Dr. Samuel D. Waksal. At the same time, we informed the
Internal Revenue Service, the SEC and the United States Attorney's Office,
responsible for the prosecution of Dr. Samuel D. Waksal, of this issue. In order
to confirm whether our liability in this regard was limited to Dr. Samuel D.
Waksal's failure to pay income taxes, we contacted current and former officers
and employees who had exercised non-qualified stock options to confirm that
those individuals had properly reported and paid their personal income tax
liabilities for the years 1999 and 2000 in which they exercised options, which
would reduce or eliminate our potential liability for failure to
37

withhold income taxes on the exercise of those options. In the course of doing
so, we became aware of another potential income and employment tax withholding
liability associated with the exercise of certain warrants granted in the early
years of our existence that were held by certain officers, directors and
employees, including our former President and Chief Executive Officer, Samuel D.
Waksal, our former General Counsel, John B. Landes, our Chief Scientific
Officer, Harlan W. Waksal, and our former Chairman of the Board, Robert F.
Goldhammer. Again, we informed the Internal Revenue Service, the SEC and the
United States Attorney's Office of this issue. We also informed New York State
of this issue. On June 17, 2003, New York State notified us that, based on this
issue, they are continuing a previously conducted audit of the Company and are
evaluating the terms of the closing agreement to determine whether or not it
should be re-opened.

On March 31, 2003, we received notification from the SEC that it was
conducting an informal inquiry into both of these matters and on April 2, 2003,
we received a request from the SEC for the voluntary production of related
documents and information. We are cooperating fully with this SEC inquiry and
are updating the SEC, United States Attorney's Office and the applicable taxing
authorities on an ongoing basis and intend to continue to do so.

C. INDICTMENT AND PLEA OF DR. SAMUEL D. WAKSAL; ACTION AGAINST DR. SAMUEL D.
WAKSAL

On August 7, 2002, a federal grand jury in the Southern District of New
York returned an indictment charging Dr. Samuel D. Waksal with, inter alia,
securities fraud and conspiracy to commit securities fraud. On October 15, 2002,
Dr. Samuel D. Waksal entered a plea of guilty to several counts in that
indictment, including that on December 27, 2001 he directed a family member to
sell shares of our common stock and attempted to sell shares that he owned in
advance of an expected announcement that the FDA had issued a "refusal to file"
letter with respect to our application for approval of ERBITUX. We received such
a "refusal to file" letter from the FDA on December 28, 2001 and announced our
receipt of that letter following the close of trading that day. On June 10,
2003, Dr. Samuel D. Waksal was sentenced to an eighty-seven month prison term
and ordered to pay $4,200,000 in fines and restitution.

On August 14, 2002, after the federal grand jury indictment of Dr.
Samuel D. Waksal had been issued but before Dr. Samuel D. Waksal's guilty plea
to certain counts of that indictment, we filed an action in New York State
Supreme Court seeking recovery of certain compensation, including advancement of
certain defense costs, that we had paid to or on behalf of Dr. Samuel D. Waksal.
That action, styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No.
02/602996, is in its earliest stages.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

38

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

Our common stock is traded in the over-the-counter market and prices are
reported on the Nasdaq National Market tier of The Nasdaq Stock Market
("Nasdaq") under the symbol "IMCLE."

Due to our inability to timely file this annual report on Form 10-K, as
required by Nasdaq Marketplace Rule 4310(c)(14), on April 9, 2003, we received a
letter from Nasdaq stating that our securities are subject to delisting from
Nasdaq. In addition, we were informed that the trading symbol for our common
stock would be changed from IMCL to IMCLE. We appealed the delisting of our
securities, and, after a hearing before The Nasdaq Listing Qualifications Panel
(the "Panel"), we received a written determination from the Panel regarding our
listing status. The Panel's determination provided for the continued listing of
our common stock on The Nasdaq National Market subject to our satisfying certain
requirements. These requirements include, but are not limited to, meeting the
following deadlines: (1) filing this 2002 annual report on Form 10-K on or
before June 23, 2003; (2) filing our first quarter 2003 report on Form 10-Q on
or before July 7, 2003; and (3) issuing a press release on or before June 6,
2003, updating our previously disclosed estimates of the financial statement
impact of certain option and warrant exercises by current and former officers,
directors and employees. We are filing this 2002 annual report on Form 10-K on
or prior to June 23, 2003 and issued the required press release on June 6, 2003.

On June 10, 2003, we received notification that the Panel's decision was
called for review by the Nasdaq Listing Hearing and Review Council (the "Review
Council"). Following this notification, on June 20, 2003, we received
notification from the Review Council that it had vacated, on the basis that it
was premature, a portion of the Panel's decision pertaining to a determination
of the Company's intent with respect to the tax liability issues and associated
accounting matters discussed in Item 7 below. The Review Council affirmed the
remainder of the Panel's decision and remanded the matter to the Panel for
further consideration.

Should we fail to meet any of the deadlines or other requirements
established by the Panel, our securities will be delisted. We would then be
eligible for re-listing on Nasdaq, at any time after being delisted, provided we
are able to meet all requirements for listing on that market. Further, following
such a delisting, trading in our common stock may continue to be conducted on
the OTC Bulletin Board or in a non-Nasdaq over-the-counter market, such as the
"pink sheets". Delisting of our common stock would result in limited access to
market price data and limited news coverage of ImClone Systems and could
restrict investors' interest in our common stock. Also, a delisting could
materially and adversely affect the trading market and prices for our common
stock and our ability to issue additional securities or to secure additional
financing.

The following table sets forth, for the periods indicated, the range of
high and low sale prices for the common stock on the Nasdaq National Market, as
reported by The Nasdaq Stock Market. The quotations shown represent inter-dealer
prices without adjustment for retail mark-ups, mark-downs or commissions, and
may not necessarily reflect actual transactions.

On June 16, 2003, the closing price of our common stock was $35.20.

STOCKHOLDERS

As of the close of business on June 15, 2003, there were approximately
407 holders of record of our common stock. We estimate that there are
approximately 33,500 beneficial owners of our common stock.

DIVIDENDS

We have never declared cash dividends on our common stock and have no
present intention of declaring any cash dividends in the foreseeable future.

RECENT SALES BY THE COMPANY OF UNREGISTERED SECURITIES

In 2002, we had no sales of unregistered securities.

40

ITEM 6. SELECTED FINANCIAL DATA

- ---------------
(1) Net interest and other (income) expense is presented net of interest income,
interest expense and gains and losses on securities and investments.

(2) As disclosed in Note 3 to our consolidated financial statements included
elsewhere herein, we have restated our consolidated financial statements (a)
to recognize withholding tax liabilities, related withholding tax assets and
certain write-downs and (b) to recognize a tax liability and related expense
attributable to our non-compliance with the terms of our 1990 IDA Bonds.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

As discussed in Note 3 to our consolidated financial statements included
elsewhere herein and below under the "Overview and Risk Factors" section of Item
7, we have restated our Consolidated Financial Statements for the years ended
December 31, 2001 and 2000. All amounts included in this discussion and analysis
reflect the effects of the restatement. 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 (the "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
this Form 10-K, we believe the following accounting policies to be critical:

Revenue Recognition -- We adopted Staff Accounting Bulletin No. 101
("SAB No. 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 11 to our consolidated financial statements.

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., and a wholly-owned subsidiary of BMS ("E.R. Squibb"),
relating to ERBITUX, are being deferred and recognized as revenue based upon the
actual

42

product research and development costs incurred since September 19, 2001 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 December 31, 2002,
approximately $20,608,000 was recognized as revenue during the year ended
December 31, 2002 and $23,161,000 from the commencement of the Commercial
Agreement through December 31, 2002.

The methodology used to recognize deferred revenue involves a number of
estimates and judgments, such as the estimate of total product research and
development costs to be incurred under the Commercial Agreement. Changes in
these estimates and judgments can have a significant effect on the amount 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, are recognized as
revenue upon the achievement of the specified milestone.

Withholding Taxes -- The estimated amounts recorded in the accompanying
Consolidated Financial Statements do not include penalties and interest that may
be imposed with respect to the withholding tax issues described below and other
related contingencies, including the period covered by the statue of limitations
and our determination of certain exercise dates because we do not believe that
losses from such contingencies are probable. With respect to the statute of
limitations and our determination of certain exercise dates, while we do not
believe a loss is probable, there is a potential additional liability with
respect to these issues that may be asserted by a taxing authority. However, if
our assessment of these withholding tax issues and other related contingencies
is incorrect, the liability that could be imposed by taxing authorities may be
substantial. The potential interest on the withholding tax liabilities recorded
on our Consolidated Balance Sheet could be up to a maximum amount of $7,200,000
at December 31, 2002. Potential additional withholding tax liability on other
related contingencies amount to approximately $11,000,000, exclusive of any
interest or penalties, and excluding the amount potentially attributable to Mr.
Goldhammer noted below.

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 binding obligations from our corporate partners for
commercial 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 at the time of sale. If ERBITUX is approved by the United States
Food and Drug Administration ("FDA"), any subsequent sale of this inventory that
was 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 15 to our consolidated financial statements
and "Item 3. Legal Proceedings" of this Form 10-K. In accordance with Statement
of Financial Accounting Standards No. 5, no reserve has been established in our
financial statements for these legal proceedings because the Company does not
believe that a loss is probable. However, if in a future period events in any
such legal proceedings render it probable that a loss will be incurred, and if
such loss is reasonably estimable at that time, we will establish such a
reserve. Thus, it is possible that legal proceedings discussed in
"Contingencies," Note 15, may have a material adverse impact on the operating
results for 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 Single Product Facility, are building
a Multiple Product Facility, purchased a material logistics and warehousing
facility and purchased an administrative facility, all of which are summarized
in "Property, Plant and Equipment" Note 5 to the consolidated financial
statements and "Item 2. Properties" to this Form 10-K. The Single Product
Facility is dedicated to the clinical and commercial production of ERBITUX and
the Multiple Product Facility will be a multi-use production facility. ERBITUX
is currently being produced for clinical trials and potential commercialization.
The material logistics and warehousing facility
43

includes office space, a storage location and sampling laboratory for ERBITUX.
The newly renovated administrative facility houses the clinical, regulatory,
sales, marketing, finance, human resources, project management and MIS
departments, as well as certain executive and legal offices and other
necessities. If ERBITUX is ultimately approved for commercialization, the full
carrying values of the Single Product Facility, the Multiple Product Facility,
the material logistics and warehouse facility and the administrative facility
will be recovered. Changes in regulatory or other business conditions in the
future could change our judgments about the carrying value of these facilities,
which could result in the recognition of material impairment losses.

Manufacturing Contracts -- As summarized under "Contract Services," Note
16 to the consolidated financial statements and "Item 1. Business-Manufacturing"
of this Form 10-K, 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. As of December 31, 2002,
the estimated remaining future commitments under the amended commercial
manufacturing services agreement with Lonza were $25,080,000. If ERBITUX were
not to receive regulatory approval, it is possible that a liability would need
to be recognized for any remaining commitments to Lonza.

Valuation of Stock Options and Warrants -- We apply Accounting
Principles Board 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. No options have been granted with an exercise
price less than the fair market value of our common stock at the date of grant.
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 statements 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.

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In August 2001, Statement of Financial Accounting Standards ("SFAS") No.
143, "Accounting for Asset Retirement Obligations" was issued by the Financial
Accounting Standards Board ("FASB") and was effective for us in the first
quarter of the year ending December 31, 2003. The new rule requires the fair
value of a liability for an asset retirement obligation to be recognized in the
period in which it is incurred. When the liability is initially recorded, a cost
is capitalized by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. To settle the liability, the obligation for its recorded amount is paid
or a gain or loss upon settlement is incurred. Management is analyzing this
requirement and does not expect the adoption of this statement to have a
material effect on the Company's financial statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for
Restructuring Costs," which 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 No. 146, a company will record a liability for a cost associated with an
exit, disposal or other covered activity when that liability is incurred and can
be measured at fair value. SFAS No. 146 will require a company to disclose
information about its exit, disposal and other covered 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 No.
146 is effective prospectively for exit, disposal or other covered activities
initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires a guarantor to
recognize a liability at the inception of the guarantee for the fair value of
the obligation

44

undertaken in issuing the guarantee and include more detailed disclosure with
respect to guarantees. FIN 45 is effective for guarantees issued or modified
after December 31, 2002. The initial adoption of this accounting pronouncement
will not have a material effect on the Company's consolidated financial
statements.

OVERVIEW AND RISK FACTORS

We are a biopharmaceutical company whose mission is to advance oncology
care by developing a portfolio of targeted biologic treatments, which address
the unmet medical needs of patients with cancer. Our three primary programs
include growth factor blockers, angiogenesis inhibitors and cancer vaccines.
Since our inception in April 1984, we have devoted substantially all of our
efforts and resources to research and development conducted on our own behalf
and through collaborations with corporate partners and academic research and
clinical institutions. We have not derived any revenue from commercial product
sales. As a result of our substantial research and development costs, we have
incurred significant operating losses and have generated an accumulated deficit
of approximately $530,106,000 as of December 31, 2002. We expect to incur
additional operating losses, which could be substantial.

Substantially all of our revenues were generated from collaborative
arrangements with our partners. Such revenues, as well as our results of
operations, have fluctuated and are expected to continue to fluctuate
significantly from period to period due to several factors, including but not
limited to:

- the status of development of our various product candidates

- the time at which we enter into collaborative arrangements with
corporate partners that provide for payments to us, and the timing and
accounting treatment of payments to us under these agreements

- whether or not we achieve specified research or commercialization
milestones

- timely payment by our corporate partners of amounts payable to us

- the addition or termination of research programs or funding support

- variations in the level of expenses related to our proprietary product
candidates during any given period

To be commercialized, our product candidates will require additional
development and clinical testing. Generally, to make a profit we will need to
successfully develop, test, introduce and market our products at an adequate
price. It is not certain that any of our products will be successfully developed
or that required regulatory approvals to commercialize them can be obtained.
Moreover, even if we successfully develop a product, there is no assurance that
we will be able to successfully manufacture or market that product or that
potential customers will buy it if, for example, a competitive product is deemed
more cost effective. Additionally, the process of obtaining requisite FDA
approval has historically been costly and time consuming. Current FDA
requirements for a new human drug or biological product to be marketed in the
United States include: (1) the successful conclusion of pre-clinical laboratory
and animal tests, if appropriate, to gain preliminary information on the
product's safety; (2) filing with the FDA of an IND, to conduct human clinical
trials for drugs or biologics; (3) the successful completion of adequate and
well-controlled human clinical investigations to establish the safety and
efficacy of the product for its recommended use; and (4) filing by a company and
acceptance and approval by the FDA of a New Drug Application ("NDA") for a drug
product or a Biological License Application ("BLA") for a biological product to
allow commercial distribution of the drug or biologic. Overall, conducting
clinical trials is a lengthy, time-consuming, expensive and risky process.

In December 1998, we entered into a development and license agreement
with Merck KGaA, a Germany-based drug company, relating to the development,
marketing and sale of ERBITUX. Under the terms of this agreement (which was
subsequently amended in August 2001, as discussed below): (1) we retained the
rights to develop and market ERBITUX within the United States and Canada (which
we subsequently licensed, in part, to BMS and E.R. Squibb pursuant to the terms
of the Commercial Agreement) (2) we granted Merck KGaA exclusive rights, except
in Japan, to develop and market ERBITUX outside of the United States and Canada;
(3) we agreed to supply Merck KGaA, and Merck KGaA agreed to purchase from us,
ERBITUX for conducting clinical trials and the commercialization of the product
outside of the

45

United States and Canada (which we are now currently supplying to Merck KGaA,
and Merck KGaA is currently purchasing from us); (4) we along with E.R. Squibb
pursuant to the terms of the Commercial Agreement, will co-develop and co-market
ERBITUX in Japan, either together or co-exclusively with Merck KGaA; and (5) we
granted Merck KGaA an exclusive license outside of the United States and Canada,
without the right to sublicense, to certain of our patents to apply to a
humanized antibody to the EGF receptor that Merck KGaA currently has in
development.

In return, Merck KGaA: (1) has paid us $30,000,000 in up-front fees and
early cash-based milestone payments based upon our achievement of the milestones
set forth in the agreement; (2) has agreed, subject to the terms of the
agreement, to pay us an additional $30,000,000 if further milestones are
achieved, for which Merck KGaA will receive equity in ImClone Systems that will
be priced at varying premiums to the then-market price of our common stock
depending upon the timing of the achievement of the respective milestones. The
first equity-based milestone was achieved and we received $5,000,000 in 2001.
The second equity-based milestone was recently achieved and we received
$6,000,000 on May 16, 2003. The third equity-based milestone was recently
achieved and we received $3,000,000 on June 16, 2003; (3) is funding clinical
development of ERBITUX outside of the United States and Canada, except in Japan
where co-exclusive development rights exist; and (4) will pay us royalties on
future sales of ERBITUX in its territory, 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 receive back 50% of the up-front fees and
cash-based 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, we 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 our 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 our Single Product Facility. In addition, the
amendment provides that the companies have co-exclusive rights to develop
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 us of rights to
ERBITUX in our territory. We also agreed to a reduction in royalties payable by
Merck KGaA on sales of ERBITUX in Merck KGaA's territory.

As of December 31, 2002, we had received $30,000,000 in up-front fees
and cash-based milestone payments. In August 2001, we received our first
equity-based milestone payment totaling $5,000,000 and accordingly issued to
Merck KGaA 63,027 shares of our common stock. The number of shares issued for
this milestone payment was determined using a price of $79.33 per share. On
April 16, 2003, Merck KGaA was issued an import license by the
Regierungspraesidium Darmstadt for the import of ERBITUX into Germany. Issuance
of this license constituted our achievement of a second equity-based milestone
that triggered a payment by Merck KGaA of $6,000,000, which we received on May
16, 2003. Upon receipt of this payment, we issued to Merck KGaA 334,471 shares
of ImClone Systems' common stock at a price of $17.94 per share, representing
the sale of these shares at a ten percent premium to market value as provided in
the license. As stated above, on May 16, 2003, we achieved a third equity-based
milestone when Merck KGaA acknowledged that the results of a Phase II study
sponsored by Merck KGaA in patients with chemotherapy-naive non-small cell lung
cancer enabled the further development of ERBITUX in the European Union for the
treatment of non-small cell lung cancer. The achievement of this third
equity-based milestone triggered a payment by Merck KGaA of $3,000,000 which we
received on June 16, 2003. Upon receipt of this payment, we issued to Merck KGaA
150,007 shares of our common stock, based upon a price of $20.00 per share,
representing the sale of these shares at a ten percent premium to market value
as provided in the license. Of the cash-based milestone payments received
through December 31, 2002, $2,000,000 was received and recognized as revenue in
the year ended December 31, 2001. A total of $28,000,000 was received prior to
January 1, 2001 and originally recorded as fees potentially refundable to
corporate partner and not as revenue due to the fact that

46

they were refundable to Merck KGaA in the event a condition relating to
obtaining certain collateral license agreements was not satisfied by us. In
March 2001, this condition was satisfied and we recognized $24,000,000 in
milestone payments as revenue during the three months ended March 31, 2001. The
remaining $4,000,000 represents the up-front payment associated with the
agreement and has been recorded as deferred revenue. This revenue is being
recognized ratably over the anticipated life of the agreement. We recognized
approximately $222,000 of the up-front payment as revenue during the year ended
December 31, 2002. During the year ended December 31, 2001, we recognized
revenue of approximately $1,760,000 representing the excess of the amount paid
by Merck KGaA for these shares over the fair value of our common stock.

We have also granted Merck KGaA a license, with the right to sublicense,
to make, have made, use, sell, or have sold BEC2 and the recombinant gp75
antigen 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 us. Pursuant to the terms of the
agreement, we have retained the rights, (1) without the right to sublicense, to
make, have made, use, sell, or have sold BEC2 in North America in conjunction
with Merck KGaA and (2) with the right to sublicense, to make, have made, use,
sell, or have sold gp75 antigen in North America. In return, Merck KGaA has made
research support payments to us totaling $4,700,000 and is required to make
milestone payments to us of up to $22,500,000, of which $4,000,000 has been
received through December 31, 2002. In addition, Merck KGaA is required to make
royalty payments to us on any sales of BEC2 or gp75 antigen outside North
America, with a portion of the milestone and research support payments received
under the agreement being creditable against the amount of royalties due.

On September 19, 2001, we 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 our common stock for $70.00 per share, net to the seller in
cash. The tender offer by BMS Biologics, available to all shareholders, allowed
for our then-current employees and directors who held exercisable options to
purchase shares of our common stock having exercise prices less than $70.00 per
share to conditionally exercise any or all of those options and tender the
underlying shares in the tender offer. In connection with the Acquisition
Agreement, we 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 our common stock by BMS and BMS Biologics. Concurrently with the
execution of the Acquisition Agreement and the Stockholder Agreement, we entered
into the Commercial Agreement with BMS and E.R. Squibb, relating to ERBITUX,
pursuant to which, among other things, we are co-developing and co-promoting
ERBITUX in the United States and Canada, and co-developing ERBITUX (either
together or co-exclusively with Merck KGaA) in Japan.

On March 5, 2002, we 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 role of BMS in the ERBITUX development
program. One of the principal economic changes to the Commercial Agreement is
that we received $140,000,000 on March 7, 2002 and an additional payment of
$60,000,000 on March 5, 2003. Such payments are in lieu of the $300,000,000
payment we would have received on acceptance by the FDA of the ERBITUX BLA under
the original terms of the Commercial Agreement. In addition, we agreed to
resume, and have resumed, construction of our Multiple Product Facility. The
terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in
more detail in "Item 1. Business" to this Form 10-K.

On October 29, 2001, pursuant to the Acquisition Agreement, BMS
Biologics accepted for payment pursuant to the tender offer 14,392,003 shares
our common stock on a pro rata basis from all tendering shareholders and those
conditionally exercising stock options. The terms of the Acquisition Agreement
are set forth in more detail in "Item 1. Business" to this Form 10-K.

Among other things, the Stockholder Agreement described in greater
detail in "Item 1. Business" to this Form 10-K gave BMS the right to nominate
two initial directors to our Board of Directors and also set

47

forth BMS's (i) limitation on additional purchases of shares, (ii) option to
purchase shares in the event of dilution and (iii) restrictions as to transfer
of shares.

In exchange for the rights granted to BMS under 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 on September 19, 2001,
$140,000,000 was received on March 7, 2002, $60,000,000 was received 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. Except for our expenses incurred pursuant to the co-promotion option
that we have exercised, E.R. Squibb is also responsible for 100% of the
distribution, sales and marketing costs in the United States and Canada, and as
between ImClone Systems and E.R. Squibb, each is 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 the 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 are 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 are
supplying 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, the Commercial Agreement provides that E.R.
Squibb is 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 ("IND") (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 ImClone Systems, each is responsible for 50% of the cost
of all clinical studies in Japan. We have also agreed, and may agree in the
future, to share with E.R. Squibb, on terms other than the foregoing, the costs
of clinical trials that we believe are not potentially registrational but should
be undertaken prior to launch in the United States, Canada or Japan.

Unless earlier terminated pursuant to the termination rights discussed
below, the Commercial Agreement expires with regard to ERBITUX in each country
in the Territory on the later of September 19, 2018 or the date on which the
sale of ERBITUX 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")
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 (the "PDC") concerning such additional clinical studies.

The Company incurred approximately $2,250,000 during the year ended
December 31, 2002 in legal and other advisor fees associated with the amendment
to the Commercial Agreement with BMS and affiliates, and $16,055,000 during the
year ended December 31, 2001, in legal and other advisor fees associated with
consummating the Acquisition Agreement, the Stockholder Agreement and the
Commercial Agreement with

48

BMS and affiliates, which have been expensed and included as a separate line
item in operating expenses in the consolidated statements of operations.

Amounts due from BMS related to this agreement totaled approximately
$9,739,000 and $6,714,000 at December 31, 2002 and 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
$20,382,000 and $6,714,000 in the years ended December 31, 2002 and 2001,
respectively. Of these amounts, $9,221,000 in the year ended December 31, 2002
related to reimbursable costs associated with supplying ERBITUX for use in
clinical trials associated with this agreement. A portion of the ERBITUX sold to
BMS was produced in prior periods and the related manufacturing costs designated
as a research and development expense, amounting to $4,854,000, were expensed in
prior periods when the related raw materials were purchased and the associated
direct labor and overhead were 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
$11,161,000 and $6,714,000 in the years ended December 31, 2002 and 2001,
respectively. 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.

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

Due to the information set forth below, we have restated our
consolidated financial statements. The restatement impacts the Consolidated
Balance Sheet as of December 31, 2001, and the Consolidated Statements of
Operations, Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders' Equity (Deficit) for the years ended December 31, 2001 and 2000.
The Consolidated Statement of Stockholders' Equity (Deficit) includes a line
entitled "Effect of Restatement" reflecting an opening adjustment to Accumulated
Deficit as of December 31, 1999. In addition to these annual restatements, the
Form 10-Q for the three months ended March 31, 2002 and 2001, the three and six
months ended June 30, 2002 and 2001, and the three and nine months ended
September 30, 2002 and 2001 also have been restated and Form 10-Q/A reports for
those periods are being filed concurrently with this Form 10-K.

Federal and applicable state tax laws require an employer to withhold
income taxes at the time of an employee's exercise of non-qualified stock
options or warrants issued in connection with the performance of services by the
employee. An employer that does not do so is liable for the taxes not withheld
if the employee fails to pay his or her taxes for the year in which the
non-qualified stock options or warrants are exercised. In 2000 and prior years,
we generally did not require the withholding of federal, state or local income
taxes and in certain years, employment payroll taxes at the time of the exercise
of non-qualified stock options or warrants. Prior to 1996, we did not comply
with tax reporting requirements with respect to the exercise of non-qualified
stock options or warrants.

In January 2003, the New York State Department of Taxation and Finance
("New York State") notified us that we were liable for the New York State and
City income taxes that were not withheld because one or more of our employees
who exercised certain non-qualified stock options in 1999 and 2000 failed to pay
New York State and City income taxes for those years. At December 31, 2002, we
have recorded a gross New York State and City withholding tax liability of
approximately $6,800,000. On March 13, 2003, we entered into a closing agreement
with New York State, paying $4,500,000 to settle the matter. We believe that
substantially all of the underpayment of New York State and City income tax
identified by New York State is attributable to the exercise of non-qualified
stock options by our former President and Chief Executive Officer, Dr. Samuel D.
Waksal.

On March 13, 2003, we initiated discussions with the Internal Revenue
Service (the "IRS") relating to federal income taxes on the exercise of
non-qualified stock options on which income tax was not properly withheld.
Although the IRS has not yet asserted that we are required to make a payment
with respect to such failure to withhold, the IRS may assert that such a
liability exists, and may further assert that we are liable for interest and
penalties. We have requested and received confirmation from all of our current
and substantially all of our former employees who exercised non-qualified stock
options in 1999 and 2000, on which no income

49

tax was withheld, that they have reported the appropriate amount of income on
their tax returns and paid the taxes shown as due on those returns. Based on
this information, we determined that all but an insignificant amount of the
potential liability for withholding taxes with respect to exercises of
non-qualified stock options in 1999 and 2000 is attributed to those amounts
related to Dr. Samuel D. Waksal.

In addition, in the course of our investigation into our potential
liability in respect of the non-qualified stock options described above, we
identified certain warrants that were granted in 1991 and prior years to current
and former officers, directors and advisors (including the four individuals
discussed below) that we previously treated as non-compensatory warrants and
thus not subject to tax withholding and information reporting requirements upon
exercise. Accordingly, when exercised in 2001 and prior years, we did not deduct
income and payroll taxes upon exercise or report applicable information to the
taxing authorities. Based on the information discovered in the course of our
recent investigation, we now believe that such treatment was incorrect, and that
the exercise of such warrants by current and former officers of the Company
should have been treated in the same manner for withholding and reporting
purposes as the exercise of non-qualified stock options. We have informed the
relevant authorities, including the IRS and New York State, of this matter and
intend to resolve our liability in respect of these warrants with these taxing
authorities in conjunction with our resolution of the matters described above.
On June 17, 2003, New York State notified us that, based on the issue identified
above, they are continuing a previously conducted audit of the Company and are
evaluating the terms of the closing agreement to determine whether or not it
should be re-opened.

On April 2, 2003, we received a request from the SEC for the voluntary
production of documents and information relating to the above matters. We are
cooperating fully with the SEC, and intend to continue to do so, while also
updating the United States Attorney's Office on an ongoing basis.

One of the officers and directors to whom warrants were issued and
previously treated as non-compensatory warrants is Dr. Harlan W. Waksal, our
Chief Scientific Officer. In June 2003, Dr. Harlan W. Waksal represented to us
that he has paid the taxes associated with the exercise of these warrants and
further agreed to indemnify us for any withholding taxes that may be assessed
and are attributable to our failure to deduct income and payroll taxes on all
warrants and options that he or his transferee has previously exercised, subject
to the consent of Dr. Harlan W. Waksal, which cannot be unreasonably withheld.

Two of the other officers and directors to whom warrants were issued and
previously treated as non-compensatory warrants are Dr. Samuel D. Waksal and our
former General Counsel, John B. Landes. We have made demands on both of these
individuals to pay the taxes associated with the exercise of these warrants and
certain non-qualified stock options and to indemnify us against any liability
that we may incur to taxing authorities in respect of the warrants or
non-qualified stock options that they have previously exercised.

The Company has recognized assets at the time of exercise relating to
the above individuals. These assets are based on the fact that individuals are
required by law to pay their personal income taxes, as well as our determination
that these individuals had the means and intention to satisfy their tax
liabilities and legal claims we have against these individuals both during and
after their employment with the Company. We decided to write-down these assets
during the periods noted in the paragraph below.

Regarding Dr. Samuel D. Waksal, we determined that subsequent to our
receipt of the "refusal to file" letter, his financial condition deteriorated
and therefore the recoverability of the asset became doubtful. Regarding Mr.
Landes, based on the limited information available to us, due to the decrease in
our stock price during 2002 and corresponding decrease in the value of Mr.
Landes' ownership of our securities, we determined that recoverability of the
asset became doubtful. Based upon these determinations, the asset write-downs of
$25,269,000 and $3,384,000 were recorded during the fourth quarter of 2001 for
Dr. Samuel D. Waksal and the second quarter of 2002 for Mr. Landes,
respectively. The withholding tax liabilities relating to Dr. Samuel D. Waksal
and Mr. Landes will remain on our Consolidated Balance Sheets, until such time
as these liabilities are satisfied. Should we negotiate settlements with the IRS
and New York State tax authorities for amounts less than those noted above, we
would reduce operating expenses for the difference between the withholding tax
liabilities and settlement amounts in the period of settlement.

50

We have not recognized withholding tax liabilities in respect of
exercises of certain warrants by our then-current and now-former Chairman of the
Board, Robert F. Goldhammer, the final of the four aforementioned officers or
directors to whom warrants were issued and previously treated as
non-compensatory warrants. Based on our investigation, we believe that, although
such warrants were compensatory, such warrants were received by Mr. Goldhammer
in connection with the performance of services by him in his capacity as a
director, rather than as an employee, and, as such, are not subject to tax
withholding requirements. In addition, in 1999, Mr. Goldhammer erroneously
received a portion of a stock option grant to him in the form of incentive stock
options, which under federal law may only be granted to employees. There can be
no assurance, however, that the taxing authorities will agree with our position
and will not assert that we are liable for the failure to withhold income and
employment taxes with respect to the exercise of such warrants by Mr.
Goldhammer. If we became liable for the failure to withhold these taxes on the
exercise of such warrants and any stock options by Mr. Goldhammer, the potential
liability, exclusive of any interest or penalties, would be approximately
$12,600,000.

In April 2003, we discovered that we are in breach of certain covenants
of our outstanding Industrial Development Revenue Bonds issued in 1990 (the
"1990 IDA Bonds"). These bonds are tax-exempt and we are required to continue to
use the proceeds for a qualified tax-exempt purpose (in this case,
manufacturing), until maturity. These bonds, in principal amount of $2,200,000,
bearing 11.25% annual interest, mature on May 1, 2004. While the bond proceeds
were originally used for manufacturing purposes, a recent internal investigation
concluded that in August 1995, this qualified purpose was abandoned and the
proceeds have been used for a non-qualified purpose in later periods. As a
result, the bond proceeds likely became taxable to the bondholders in August
1995. We are required to indemnify the bondholders from any taxes imposed upon
them. We intend to attempt to settle any tax liability directly with the
relevant taxing authorities using procedures established for that purpose. Based
on our understanding of these procedures, we have recognized a tax liability of
$953,000 and $851,000 for the years ended December 31, 2002 and 2001,
respectively, on the Consolidated Balance Sheet. We recorded Industrial
Development Revenue Bond tax expense of $98,000 for the years ended December 31,
2002, 2001 and 2000 and interest expense of $4,000, $11,000 and $20,000 for the
same periods, respectively. On May 22, 2003, we notified the bond trustee of its
intent to redeem in full the bonds by repaying the principal amount plus accrued
and unpaid interest. This redemption is scheduled to occur on June 30, 2003.

As part of our investigation into the matters discussed above regarding
our tax liability in respect of the exercise of non-qualified stock options and
warrants, the independent members of our Board of Directors concluded that a
change in executive and Board leadership was appropriate. As a result, on April
29, 2003, Mr. Goldhammer resigned as Chairman of the Board of Directors and
announced that he will not stand for re-election to the Board at the next annual
shareholders' meeting. Mr. Goldhammer will serve out his current term as a
Director. Effective May 14, 2003, the Board of Directors appointed Mr. Kies to
the position of Lead Director. Dr. Harlan W. Waksal has resigned from the
position of President and Chief Executive Officer and has been named our Chief
Scientific Officer, with responsibility for research, clinical, regulatory,
quality assurance and manufacturing. Daniel S. Lynch, formerly our Senior Vice
President, Finance and Chief Financial Officer, has been named Senior Vice
President and Chief Administrative Officer, and is our acting Chief Executive
Officer. In addition to his existing responsibilities for finance, control and
compliance, human resources, communications, and information technology, Mr.
Lynch has responsibility for our sales and marketing, legal and business
development departments. Mr. Lynch will serve as acting Chief Executive Officer
until a permanent Chief Executive Officer has been named. Michael J. Howerton,
formerly our Vice President, Business Development, has been named Vice
President, Finance and Business Development, and is our acting Chief Financial
Officer. The Board of Directors has appointed a committee of directors to
conduct a search for a new Chief Executive Officer. Because our reconfigured
management structure does not include an officer with the title President, our
Board of Directors has amended our by-laws to make it optional for the Company
to have a President appointed.

Due to our inability to timely file this annual report on Form 10-K, as
required by Nasdaq Marketplace Rule 4310(c)(14), on April 9, 2003, we received a
letter from Nasdaq stating that our securities are subject to delisting from
Nasdaq. In addition, we were informed that the trading symbol for our common

51

stock would be changed from IMCL to IMCLE. We appealed the delisting of our
securities, and, after a hearing before The Nasdaq Listing Qualifications Panel
(the "Panel"), we received a written determination from the Panel regarding our
listing status. The Panel's determination provided for the continued listing of
our common stock on The Nasdaq National Market subject to our satisfying certain
requirements. These requirements include, but are not limited to, meeting the
following deadlines: (1) filing this 2002 annual report on Form 10-K on or
before June 23, 2003; (2) filing our first quarter 2003 report on Form 10-Q on
or before July 7, 2003; and (3) issuing a press release on or before June 6,
2003, updating our previously disclosed estimates of the financial statement
impact of certain option and warrant exercises by current and former officers,
directors and employees. We are filing this 2002 annual report on Form 10-K on
or prior to June 23, 2003 and issued the required press release on June 6, 2003.

On June 10, 2003, we received notification that the Panel's decision was
called for review by the Nasdaq Listing Hearing and Review Council (the "Review
Council"). Following this notification, on June 20, 2003, we received
notification from the Review Council that it had vacated, on the basis that it
was premature, a portion of the Panel's decision pertaining to a determination
of the Company's intent with respect to the tax liability issues and associated
accounting matters discussed herein. The Review Council affirmed the remainder
of the Panel's decision and remanded the matter to the Panel for further
consideration.

Should we fail to meet any of the deadlines or other requirements
established by the Panel, our securities will be delisted. We would then be
eligible for re-listing on Nasdaq, at any time after being delisted, provided we
are able to meet all requirements for listing on that market. Further, following
such a delisting, trading in our common stock may continue to be conducted on
the OTC Bulletin Board or in a non-Nasdaq over-the-counter market, such as the
"pink sheets". Delisting of our common stock would result in limited access to
market price data and limited news coverage of ImClone Systems and could
restrict investors' interest in our common stock. Also, a delisting could
materially and adversely affect the trading market and prices for our common
stock and our ability to issue additional securities or to secure additional
financing.

Until we file our first quarter 2003 report on Form 10-Q, we would also
be unable to comply with Rule 144 registration rights of an affiliated investor
holding our unregistered shares who is contractually able and wished to sell
those shares, which could potentially give rise to an indemnification claim for
any loss of value of such stock during a period of sale postponement or to a
right to terminate the corresponding contract if such non-compliance were not
cured in a timely manner.

On May 2, 2003, we informed the trustee for the Convertible Subordinated
Notes of our withholding tax issues and the delay in filing this Form 10-K and
of our intention to satisfy our tax liabilities upon completion of discussions
with the relevant taxing authorities and to file Form 10-K as soon as possible.
The indenture for the Convertible Subordinated Notes includes covenants
requiring us to timely pay taxes and timely make Exchange Act filings. Under the
indenture, there can be no acceleration of payment of the notes until we receive
a notice of default from the trustee or a specified percentage of the note
holders and a 60-day grace period lapses. We have not received any such notice.
If, at some point in the future, we were to receive such a notice and if it was
determined at that time that we were not in compliance with the applicable
covenants, we intend to and believe we would be able to cure such non-compliance
within the 60-day grace period.

Restatement Impact on the Consolidated Balance Sheets

We have restated our Consolidated Balance Sheet as of December 31, 2001,
primarily to reflect the withholding tax liabilities and withholding tax assets
primarily relating to the exercises of certain non-qualified stock options and
warrants described above. The restatement includes recording withholding tax
assets of $13,510,000, a withholding tax liability of $38,779,000, an Industrial
Development Revenue Bonds tax liability of $851,000, and a cumulative increase
to accumulated deficit of $26,120,000 as of December 31, 2001. The $26,120,000
increase to accumulated deficit reflects the year 2001 write-off of the
$25,269,000 withholding tax asset noted above regarding Samuel D. Waksal and the
$851,000 expense recorded during the years 1995 through 2001 on the 1990 IDA
Bonds. We recorded an adjustment of $624,000 to increase accumulated

52

deficit as of December 31, 1999, for the estimated taxes and accrued interest on
the 1990 IDA Bonds and includes the cumulative expense impact from 1995 through
1999.

In addition, the Consolidated Balance Sheets as of March 31, 2002, June
30, 2002 and September 30, 2002 have been updated to reflect the impact of the
restatement. As noted above, we are making these quarterly changes by filing
Form 10-Q/A reports with the SEC concurrently with this Form 10-K.

Restatement Impact on the Consolidated Statements of Operations

We have restated our Consolidated Statement of Operations for the year
ended December 31, 2001 primarily to reflect the write-off of the $25,269,000
withholding tax asset regarding Samuel D. Waksal noted above. The asset
write-down reflects the withholding taxes with respect to exercises of certain
non-qualified stock options and certain warrants attributable to Dr. Samuel D.
Waksal. The majority of these exercise transactions occurred during the years
ended December 31, 1999 and 2000. In addition, $109,000 of expenses were
recorded in connection with the 1990 IDA Bonds, including interest expense of
$11,000.

The restatement amount of $118,000 for the year ended December 31, 2000
reflects the expenses recorded in connection with the 1990 IDA Bonds, including
interest expense of $20,000.

In addition, the Consolidated Statements of Operations for each of the
first three quarters of the years ended December 31, 2002 and 2001 have been
restated to reflect the expenses on the 1990 IDA Bonds. As a result of the
restatement, an expense of approximately $24,000 was recorded for each of the
quarters ended March 31, June 30, and September 30, 2002 and 2001. In addition,
interest expense has been increased by approximately $1,000 to $3,000 per
quarter for each of the quarters ended March 31, June 30, and September 30, 2002
and 2001. Operating expenses for the fourth quarter of 2001 increased by
$25,297,000

Restatement Impact on the remaining Consolidated Financial Statements

See the financial statement section in Part II of this Form 10-K for the
restatement impact on the Consolidated Statements of Cash Flows and the
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 2000 and 2001.

Penalties, Interest and Other Related Contingencies

We have not recognized accruals for penalties and interest that may be
imposed with respect to the withholding tax issues described above and other
related contingencies, including the period covered by the statute of
limitations and our determination of certain exercise dates because we do not
believe that losses from such contingencies are probable. With respect to the
statute of limitations and our determination of certain exercise dates, while we
do not believe a loss is probable, there is a potential additional liability
with respect to these issues that may be asserted by a taxing authority. If
taxing authorities assert such issues and prevail related to these withholding
tax issues and other related contingencies, including penalties, the liability
which could be imposed by taxing authorities would be substantial. The potential
interest on the withholding tax liabilities recorded on the Consolidated Balance
Sheets could be up to a maximum amount of $7,200,000 at December 31, 2002.
Potential additional withholding tax liability on other related contingencies
amounts to approximately $11,000,000, exclusive of any interest or penalties,
and excluding the amount potentially attributable to Mr. Goldhammer noted above.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2002 AND 2001

REVENUES

Revenues for the years ended December 31, 2002 and 2001 were $60,005,000
and $50,237,000, respectively, an increase of $9,768,000 or 19% in 2002.
Revenues for the year ended December 31, 2002 primarily included $20,608,000 in
license fee revenue and $20,382,000 in collaborative agreement revenue from our
ERBITUX Commercial Agreement with BMS and its wholly-owned subsidiary, E.R.
Squibb. The collaborative agreement revenue represents the fully burdened
manufacturing cost of ERBITUX supplied for or used in clinical trials and
certain research and development and marketing expenses that have been incurred

53

by us and are reimbursable by BMS as provided for in the Commercial Agreement.
License fee revenue from payments under this agreement are being recognized as
revenue over the product research and development life of ERBITUX. Revenues for
the year ended December 31, 2002 also included $16,864,000 in collaborative
agreement revenue from our ERBITUX development and license agreement with Merck
KGaA and $222,000 of the $4,000,000 up-front payment received upon entering into
this agreement with Merck KGaA. Revenues for the year ended December 31, 2002
also included $1,352,000 in royalty revenue from our strategic corporate
alliance with Abbott Laboratories ("Abbott") in diagnostics and $163,000 in
license fee revenue and $355,000 in collaborative agreement revenue from our
strategic corporate alliance with Merck KGaA for our principal cancer vaccine
product candidate, BEC2. Revenues for the year ended December 31, 2001 primarily
included $27,760,000 in milestone revenue and $9,924,000 in collaborative
agreement revenue from our ERBITUX development and license agreement with Merck
KGaA. In addition, revenues for the year ended December 31, 2001 included
license fee revenue of $222,000 of the $4,000,000 up-front payment received upon
entering into this agreement. Revenues for the year ended December 31, 2001 also
included $1,480,000 in royalty revenue from our strategic corporate alliance
with Abbott in diagnostics, as well as $1,000,000 in milestone revenue, $162,000
in license fee revenue and $380,000 of collaborative agreement revenue from our
strategic corporate alliance with Merck KGaA for BEC2. Finally, revenues for the
year ended December 31, 2001 also included $2,553,000 in license fee revenue and
$6,714,000 in collaborative agreement revenue from our Commercial Agreement with
BMS and E.R. Squibb relating to ERBITUX.

OPERATING EXPENSES

Total operating expenses for the years ended December 31, 2002 and 2001
were $214,854,000 and $177,597,000, respectively, an increase of $37,257,000, or
21% in 2002. Operating expenses included $2,250,000 in legal and other advisor
fees associated with completing the amended Commercial Agreement with BMS and
E.R. Squibb during the year ended December 31, 2002, and included $16,055,000 in
legal and other advisor fees associated with consummating each of the
Acquisition Agreement, the Stockholder Agreement and the Commercial Agreement
(the "BMS agreements") with BMS and affiliates during the year ended December
31, 2001.

Operating Expenses: Research and Development

Research and development expenses for the years ended December 31, 2002
and 2001 were $163,301,000 and $110,979,000, respectively, an increase of
$52,322,000 or 47% in 2002. Research and development expenses for the years
ended December 31, 2002 and 2001 as a percentage of total operating expenses,
excluding the legal and other advisor fees associated with the amended
Commercial Agreement and the original BMS agreements, the write-down of
withholding tax assets and the 1990 IDA Bonds tax expense, in the years ended
December 31, 2002 and 2001, were 78% and 81%, 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
binding obligations of our corporate partners to acquire commercial 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 year ended December 31,
2002 was primarily attributable to (1) the costs associated with full scale
production at our Single Product Facility, (2) costs related to the
manufacturing services agreements with Lonza, (3) expenditures in the functional
areas of product development and pilot plant manufacturing associated with our
other monoclonal antibodies and (4) increased expenditures associated with
discovery research. We expect research and development costs to increase in
future periods as we continue to manufacture ERBITUX prior to any approval of
the product that we may obtain for commercial use or until we receive committed
purchase obligations from our corporate partners. In the event of such approval
or committed purchase obligations from our corporate partners, the subsequent
costs associated with manufacturing ERBITUX for supply to corporate partners for
commercial use will be included in inventory and expensed as cost of goods sold
at the time of sale. We expect research and development costs associated with
discovery research and product development also to continue to increase in
future periods.

54

The largest component of our total operating expenses is our ongoing
investments in research and development and, in particular, the clinical
development of our product pipeline. The process of the requisite clinical
research necessary to obtain FDA approval is costly and time consuming. Current
FDA requirements for a new human drug or biological product to be marketed in
the United States include: (1) the successful conclusion of pre-clinical
laboratory and animal tests, if appropriate, to gain preliminary information on
the product's safety; (2) filing with the FDA of an IND, to conduct human
clinical trials for drugs or biologics; (3) the successful completion of
adequate and well-controlled human clinical investigations to establish the
safety and efficacy of the product for its recommended use; and (4) filing by a
company and acceptance and approval by the FDA of a New Drug Application ("NDA")
for a drug product or a Biological License Application ("BLA") for a biological
product to allow commercial distribution of the drug or biologic.

In light of the factors mentioned above, we consider the active
management and development of our clinical pipeline to be crucial to the
long-term success of the Company. As described in Part I, we currently have
three candidates in clinical development, including our most advanced candidate,
ERBITUX. Due to the inherent risks associated with candidate discovery and
development, as well as the regulatory approval process, we, by necessity,
manage our overall research, development and in-licensing efforts in a manner
designed to generate new clinical candidates into development.

The actual probability of success for each candidate and clinical
program may be impacted by a variety of factors, including the quality of the
candidate, the validity of the target and disease indication, early clinical
data, investment in the program, competition and commercial viability. Due to
these factors, it is difficult to give accurate guidance on the anticipated
proportion of our research and development investments assigned to any one
program prior to the Phase III stage of development or the future cash inflows
from these programs.

Operating Expenses: Marketing, General and Administrative

Marketing, general and administrative expenses include marketing and
administrative personnel costs, including related facility costs, additional
costs to develop internal marketing and sales capabilities, costs to pursue
arrangements with strategic corporate partners and technology licensors, and
expenses associated with applying for patent protection for our technology and
products. Marketing, general and administrative expenses also include amounts
reimbursable by our corporate partners. Marketing, general and administrative
expenses for the years ended December 31, 2002 and 2001 were $45,815,000 and
$25,196,000, respectively, an increase of $20,619,000, or 82% in 2002. The
increase in Marketing, general and administrative expenses is attributable to
(1) the separation compensation and other post-employment benefits associated
with the resignation of our former President and Chief Executive Officer, Dr.
Samuel D. Waksal (2) legal expenses associated with the pending class action
lawsuits, shareholder derivative lawsuits and investigations by the SEC, the
Subcommittee on Oversight and Investigation of the U.S. House of Representatives
Committee on Energy and Commerce and the U.S. Department of Justice, (3)
expenses associated with higher public relations costs due to the factors noted
in (2) above, (4) expenses associated with higher insurance premiums with
respect to director and officer liability insurance, (5) the write-off of an
expired negotiating right with Lonza and (6) expenses associated with general
corporate activities. Excluding legal, public relations and insurance expenses
discussed in (2) through (4) above, whose level in the future is uncertain
because it depends upon the manner in which these investigations and proceedings
progress, and excluding the amount of the separation compensation and the amount
written-off for the expired negotiating right discussed in (1) and (5) above, we
expect marketing, general and administrative expenses to increase in future
periods to support our continued commercialization efforts for ERBITUX.

Operating Expenses: Write-down of Withholding Tax Assets and IDA Bonds Tax
Expense

Write-downs of withholding tax assets for the years ended December 31,
2002 and 2001 were $3,390,000 and $25,269,000, respectively, a decrease of
$21,879,000 or 87% in 2002. The Consolidated Statement of Operations for the
year ended December 31, 2001 reflects the write-down of a $25,269,000 asset
offsetting withholding tax liabilities of the same amounts incurred upon the
exercise of certain non-qualified stock options and certain warrants granted to
our former President and Chief Executive Officer, Dr. Samuel
55

D. Waksal. In 2000 and prior years, we did not withhold federal, state or local
income taxes at the time of exercise of non-qualified stock options or warrants.
The majority of these exercise transactions occurred during the years ended
December 31, 1999 and 2000. During the second quarter of 2002, we determined to
write-off an amount of $3,384,000 relating to the June 2000 warrant exercise
transaction of John B. Landes, our former General Counsel. In April 2003, we
discovered that we are in breach of certain tax covenants in our 1990 IDA Bonds.
We therefore recorded additional tax expense of $98,000 for each of the years
ended December 31, 2002 and 2001 relating to these Bonds.

Facts surrounding our restatement are set forth above in "Overview and
Risk Factors -- Restatement of Consolidated Financial Statements".

Interest Income, Interest Expense and Other (Income) Expense

Interest income was $9,301,000 for the year ended December 31, 2002
compared with $14,990,000 for the year ended December 31, 2001, a decrease of
$5,689,000, or 38%. The decrease was primarily attributable to a decrease in
interest rates associated with our portfolio of debt securities. Interest
expense was $13,179,000 and $13,596,000 for the years ended December 31, 2002
and 2001, respectively, a decrease of $417,000 or 3% in 2002. The overall
decrease from 2001 to 2002 was primarily attributable to an increase in the
amount of interest capitalized during the construction of our Multiple Product
Facility. Interest expense for the years ended December 31, 2002 and 2001 was
offset by the capitalization of interest costs of $2,077,000 and $1,656,000,
respectively, during the construction period of our Single Product Facility and
our Multiple Product Facility for which design, engineering, and
pre-construction and 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 the 1990 IDA Bonds 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 $1,503,000 and losses of $1,641,000 for
the years ended December 31, 2002 and 2001, respectively. The net losses on
securities and investments for the year ended December 31, 2001 included a
$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. These
losses were partially offset by gains in our portfolio of debt securities of
$3,734,000 during the year ended December 31, 2001.

INCOME TAXES

Income taxes of $725,000 for the year ended December 31, 2002 are the
result of various tax law changes in the State of New Jersey, one of which is
the establishment of the Alternative Minimum Assessment tax ("AMA") to which we
are subject.

NET LOSSES

We had a net loss to common stockholders of $157,949,000 or $2.15 per
share for the year ended December 31, 2002, compared with a net loss of
$127,607,000 or $1.84 per share for the year ended December 31, 2001. The
increase in the net loss and net loss per share to common stockholders was due
to the factors noted above.

YEARS ENDED DECEMBER 31, 2001 AND 2000

REVENUES

Revenues for the years ended December 31, 2001 and 2000 were $50,237,000
and $6,253,000, respectively, an increase of $43,984,000 in 2001. Revenues for
the year ended December 31, 2001 primarily included $27,760,000 in milestone
revenue and $9,924,000 in collaborative agreement revenue from our development
and license agreement with Merck KGaA for ERBITUX. In addition, we recognized
license fee revenue of $222,000 of the $4,000,000 up-front payment received upon
entering into this agreement. Revenues for the year ended December 31, 2001 also
included $1,480,000 in royalty revenue from our strategic corporate alliance
with Abbott, as well as $1,000,000 in milestone revenues, $162,000 in license
fee revenues and
56

$380,000 in collaborative agreement revenue from our research and license
agreement with Merck KGaA for BEC2, and $2,553,000 in license fee revenue and
$6,714,000 in collaborative agreement revenue from our Commercial Agreement with
BMS and E.R. Squibb relating to ERBITUX. License fee revenues from payments
under this agreement are being recognized as revenue over the product research
and development life of ERBITUX. Revenues for the year ended December 31, 2000
primarily consisted of $4,476,000 in collaborative agreement revenue from our
development and license agreement with Merck KGaA for ERBITUX. Revenues for the
year ended December 31, 2000 also included $250,000 in milestone revenue and
$961,000 in royalty revenue from our strategic corporate alliance with Abbott in
diagnostics and $162,000 in license fee revenue and $364,000 in collaborative
agreement revenue from our research and license agreement with Merck KGaA for
BEC2.

OPERATING EXPENSES

Total operating expenses for the years ended December 31, 2001 and 2000
were $177,597,000 and $78,973,000, respectively, an increase of $98,624,000, or
125% in 2001. Operating expenses for the year ended December 31, 2001 included
$16,055,000 in legal and other advisor fees associated with the BMS agreements
during the year ended December 31, 2001.

Operating Expenses: Research and Development

Research and development expenses for the years ended December 31, 2001
and 2000 were $110,979,000 and $62,201,000, respectively, an increase of
$48,778,000 or 78% in 2001. Research and development expenses for the years
ended December 31, 2001 and 2000 as a percentage of total operating expenses,
excluding the legal and other advisor fees associated with consummating the BMS
agreements the write-down of withholding tax assets and the 1990 IDA Bonds tax
expense, in the year ended December 31, 2001 were 81% and 79%, 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
binding obligations of our corporate partners to acquire commercial product from
us, quality assurance and quality control costs, and costs to conduct our
clinical trials and associated regulatory activities. Research and development
expenses included costs that are reimbursable by our corporate partners. The
increase in research and development expenses for the year ended December 31,
2001 was primarily attributable to (1) the costs associated with newly initiated
and ongoing clinical trials of ERBITUX, (2) costs related to the manufacturing
services agreements with Lonza, (3) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with ERBITUX 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 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
corporate partners for commercial use will be included in inventory and expensed
as cost of goods sold at the time of sale. 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 facility costs, additional
costs to develop internal marketing and sales capabilities, costs to pursue
arrangements with strategic corporate partners and technology licensors, and
expenses associated with applying for patent protection for our technology and
products. Marketing, general and administrative expenses also include amounts
reimbursable by our corporate partners. Marketing, general and administrative
expenses for the years ended December 31, 2001 and 2000 were $25,196,000 and
$16,674,000, respectively, an increase of $8,522,000 or 51% in 2001. The
increase in marketing, general and administrative expenses primarily reflected:
(1) costs associated with our marketing efforts; (2) additional administrative
staffing required to support our commercialization efforts for ERBITUX and (3)
expenses associated with general

57

corporate activities. We expect marketing, general and administrative expenses
to increase in future periods to support our continued commercialization efforts
for ERBITUX.

Operating Expenses: Write-down of Withholding Tax Assets and IDA Bonds Tax
Expense

Write-downs of withholding tax assets for the years ended December 31,
2001 and 2000 were $25,269,000 and $0, respectively. The Consolidated Statement
of Operations for the year ended December 31, 2001 reflects the write-down of a
$25,269,000 asset offsetting withholding tax liabilities of the same amount
incurred upon the exercises of certain non-qualified stock options and certain
warrants attributable to our former President and Chief Executive Officer, Dr.
Samuel D. Waksal. In 2000 and prior years, we did not withhold federal, state or
local income taxes at the time of exercise of non-qualified stock options or
warrants. The majority of these exercise transactions of Dr. Samuel D. Waksal
occurred during the years ended December 31, 1999 and 2000. In April 2003, we
discovered that we may have been in breach of tax covenants in our 1990 IDA
Bonds. The $98,000 expense for the years ended December 31, 2001 and 2000
relates to the 1990 IDA Bonds.

Facts surrounding our restatement are set forth above in "Overview and
Risk Factors -- Restatement of Consolidated Financial Statements".

Interest Income, Interest Expense and Other (Income) Expense

Interest income was $14,990,000 for the year ended December 31, 2001
compared with $20,819,000 for the year ended December 31, 2000, a decrease of
$5,829,000, or 28%. The decrease was primarily attributable to (1) a decrease in
interest rates associated with our portfolio of debt securities as well as (2) a
lower average portfolio balance during the year ended December 31, 2001 when
compared with the year ended December 31, 2000. Interest expense was $13,596,000
and $12,105,000 for the years ended December 31, 2001 and 2000, respectively, an
increase of $1,491,000 or 12% in 2001. The increase was primarily attributable
to the interest on the convertible subordinated notes issued in February 2000.
We have increased interest expense for the years ended December 31, 2001 and
2000 by $11,000 and $20,000, respectively versus the amounts previously
reported. Interest expense for the years ended December 31, 2001 and 2000 was
offset by the capitalization of interest costs of $1,656,000 and $846,000,
respectively, during the construction period of our Single Product Facility and
our Multiple Product Facility for which design, engineering, and pre-
construction costs were incurred. Interest expense for both periods included (1)
interest on the convertible subordinated notes, (2) interest on the outstanding
1990 IDA Bonds 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 losses on securities and
investments of $1,641,000 and $3,867,000 for the years ended December 31, 2001
and 2000, respectively. The net losses on securities and investments for the
year ended December 31, 2001 included $4,375,000 in 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. These losses were partially offset by gains in our
portfolio of debt securities of $3,734,000 during the year ended December 31,
2001. The net losses on securities available for sale for the year ended
December 31, 2000 included a $5,125,000 write-down of our investment in ValiGen
N.V., which was partially offset by gains associated with our investment
portfolio.

NET LOSSES

We had a net loss to common stockholders of $127,607,000 or $1.84 per
share for the year ended December 31, 2001, compared with a net loss of
$77,242,000 or $1.23 per share for the year ended December 31, 2000. Included in
the net loss for the year ended December 31, 2000 was a non-cash charge of
$2,596,000 related to the cumulative effect of a change in accounting policy
(see Notes 2(g) and 11 to the accompanying consolidated financial statements).
The increase in the net losses and per share net loss to common stockholders was
due to the factors noted above offset by $6,773,000 associated with the
redemption premium and dividends on the series A preferred stock in 2000.

58

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, our principal sources of liquidity consisted of
cash and cash equivalents and securities available for sale of approximately
$248,000,000. From our inception on April 26, 1984 through December 31, 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 $154,451,000 from license fees, contract
research and development fees, reimbursements from our corporate
partners and royalties from collaborative partners. Additionally, we
have approximately $322,504,000 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 during
the terms of the respective agreements (see Notes 2(g) and 12 to the
consolidated financial statements).

- We have earned approximately $56,415,000 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
primarily for the acquisition, construction and installation of our
research and development facility in New York City, and of which
$2,200,000 is outstanding and scheduled for redemption on June 30,
2003.

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, product divestitures, sale leaseback
transactions, outlicensing opportunities, 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 BMS Biologics, 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; and (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 (either together or co-exclusively
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 paid 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 that we have
exercised, E.R. Squibb is responsible for 100% of the distribution, sales and
59

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, 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 IND (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. We have also
agreed, and may agree in the future, to share with E.R. Squibb, on terms other
than the foregoing, costs of clinical trials that we believe are not potentially
registrational but should be undertaken prior to launch in the United States,
Canada or Japan. As of December 31, 2002, we have incurred $4,093,000 pursuant
to such cost sharing. As of December 31, 2002, we have also incurred $377,000
related to the agreement with respect to development in Japan.

In February 2000, we completed a private placement of $240,000,000 in
5 1/2% convertible subordinated notes due March 1, 2005. We received net
proceeds of approximately $231,500,000, after deducting expenses associated with
the offering. Accrued interest on the notes was approximately $4,400,000 at
December 31, 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. 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
current Good Manufacturing Practices ("cGMP"). These steps were taken to assure
that the manufacturing process would produce bulk material that conforms with
our reference material and to support, in part, our regulatory filing with the
FDA. We incurred approximately $7,068,000 for services provided under this
agreement through December 31, 2002. Lonza has completed its obligations under
the development and manufacturing service agreement. In September 2000, we
entered into a three-year commercial manufacturing services agreement with Lonza
relating to ERBITUX. This agreement was amended in June 2001 and again in
September 2001 to include additional services. As of December 31, 2002, we
incurred approximately $61,833,000 for services provided under the commercial
manufacturing services agreement. Lonza is currently manufacturing ERBITUX at
the 5,000 liter scale under cGMP and is delivering it to us over a term ending
no later than December 2003. The costs associated with both of these agreements
are included in research and development expenses when incurred and will
continue to be so classified until such time as ERBITUX may be approved for sale
or until we obtain obligations from our corporate partners for commercial 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
at the time of sale. 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
60

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. Certain
batches have been cancelled at other negotiated rates agreed to by the parties.
At December 31, 2002, the estimated remaining future commitments under the
amended commercial manufacturing services agreement were $25,080,000.

In December 2001, we entered into an agreement with Lonza to manufacture
ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. We
had incurred approximately $7,183,000 for services provided under this
agreement. During 2002, Merck KGaA reimbursed the Company this entire
obligation. At December 31, 2002, there are no remaining future commitments
under this agreement.

On January 2, 2002, we executed a letter of intent with Lonza to enter
into a long-term supply agreement. The long-term supply agreement would apply to
a large scale manufacturing facility that Lonza is constructing, which would be
able to produce ERBITUX in 20,000 liter batches. We paid Lonza $3,250,000 upon
execution of the letter of intent for the exclusive right to negotiate a
long-term supply agreement for a portion of the facility's manufacturing
capacity. In September 2002, we wrote-off the deposit because the exclusive
negotiation period ended on September 30, 2002. The $3,250,000 is included in
Marketing, general and administrative expenses in the Consolidated Statement of
Operations for the year ended December 31, 2002. In light of the assistance we
provided to a third party with respect to preserving and then relinquishing the
manufacturing capacity described above, the third party paid us $3,250,000 in
April 2003 and this amount will therefore be recognized as a reduction to
operating expenses in 2003.

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
antigen outside North America. The agreement also grants Merck KGaA a license,
without the right to sublicense, to use, sell, or have sold, but not to make,
BEC2 within North America in conjunction with ImClone Systems. Pursuant to the
terms of the agreement, we have retained the rights, (1) without the right to
sublicense, to make, have made, use, sell, or have sold BEC2 in North America in
conjunction with Merck KGaA and (2) with the right to sublicense, to make, have
made, use, sell, or have sold gp75 antigen in North America. In return, we have
received 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
received, 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 December 31, 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 could be
received, depending upon the achievement of further milestones for which Merck
KGaA receives equity in ImClone Systems. Of this additional $30,000,000,
$5,000,000 had been received as of December 31, 2002 and $6,000,000 was received
on May 16, 2003. As stated above, on May 16, 2003, we achieved a third
equity-based milestone when Merck KGaA acknowledged that the results of a Phase
II study sponsored by Merck KGaA in patients with chemotherapy-naive non-small
cell lung cancer enabled the further development of ERBITUX in the European
Union for the treatment of non-small cell lung cancer. The achievement of this
third equity-based milestone triggered a payment by
61

Merck KGaA of $3,000,000, which we received on June 16, 2003. Upon receipt of
this payment, we issued to Merck KGaA 150,007 shares of our common stock, based
upon a price of $20.00 per share, representing the sale of these shares at a ten
percent premium to market value as provided in the license. The equity
underlying these milestone payments have been or 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. 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 our Single Product
Facility. In addition, the amendment provides that the companies have
co-exclusive rights to develop 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.

In September 2002, we entered into a binding term sheet, effective as of
April 15, 2002, with Merck KGaA for the supply of ERBITUX. The term sheet sets
forth certain terms and obligations of each party including procedures for
forecasting and ordering ERBITUX for clinical and commercial supply, cost of
product, delivery terms, insurance and indemnification obligations and
technology transfer to allow Merck KGaA or a third party to manufacture ERBITUX
for supply in Merck's territory in accordance with the development and license
agreement. The term sheet will continue in effect for the term of the
development and license agreement, unless terminated for cause.

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 has now expired. We have elected to
exercise the fair market value purchase option on four of these leases in 2002
and two of these leases in 2003, each at the expiration of the lease term.

We rent our current New York corporate headquarters and research
facility at 180 Varick Street, New York under an operating lease that expires in
December 2004. In 2000, we completed renovations of the facility at a cost of
approximately $2,800,000. Effective January 1, 2003, we amended the lease to add
an additional 5,800 square feet of laboratory space for a lump sum advance rent
payment of approximately $233,000, plus annual rent through December 2004.

In October 2001, we entered into a sublease for a four-story building at
325 Spring Street, New York, New York, which includes between 75,000 and 100,000
square feet of usable space. We are currently analyzing our options with respect
to relocating our headquarters and research laboratory to this subleased space.
This subleased space may or may not be designed, improved and used by us in the
future, depending on our business needs. The sublease has a term of 22 years,
followed by two five-year renewal option periods. The future minimum lease
payments are approximately $50,325,000 over the term of the sublease. In order
to induce the sublandlord to enter into the sublease, we made a loan to the
sublandlord in the principal amount of a $10,000,000 note receivable. The loan
is secured by a leasehold mortgage on the prime lease as well as a collateral
assignment of rents by the sublandlord. The loan is payable by the sublandlord
over 20 years and
62

bears interest at 5 1/2% in years one through five, 6 1/2% in years six through
ten, 7 1/2% in years eleven through fifteen and 8 1/2% in years sixteen through
twenty. In addition, we paid the owner a consent fee in the amount of $500,000.

On May 1, 2001, we entered into a lease for an approximately 4,000
square foot portion of a 15,000 square foot building known as 710 Parkside
Avenue, Brooklyn, New York, and we have leased an adjacent 6,250 square foot
building known as 313-315 Clarkson Avenue, Brooklyn, New York, to serve as our
new chemistry and high-throughput screening facility. The term of the lease is
for five years with five successive one-year extensions. As of December 31,
2002, we have incurred approximately $4,395,000 for the retrofit of this
facility to better fit our needs. The chemistry and high-throughput screening
facility was ready for its intended use and put in operation in December 2002
and we commenced depreciation at that time. In the year ended December 31, 2002
we incurred rent expense for the premises of approximately $182,000.

We built a new 80,000 square foot Single Product Facility adjacent to
the pilot facility at 36 Chubb Way Somerville, New Jersey. The Single Product
Facility was built on a 5.7 acre parcel of land we purchased in December 1999
for approximately $700,000. The Single Product Facility contains three 10,000
liter (production volume) fermenters and is a single product facility dedicated
to the clinical and commercial production of ERBITUX. The cost of the facility
was approximately $53,000,000, excluding capitalized interest of approximately
$1,966,000. The cost of the facility was funded from our cash reserves,
consisting primarily of the proceeds from the issuance of debt and equity
securities. The Single Product Facility was ready for its intended use and put
in operation in July 2001 and we commenced depreciation at that time.

We have completed detailed design plans for, and are proceeding with
construction of, our Multiple Product Facility. The Multiple Product 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
(production volume). The facility is being 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 $260,000,000 excluding
capitalized interest with anticipated mechanical completion by the end of 2005.
The actual cost of the Multiple Product Facility may change depending upon
various factors. We have incurred approximately $87,057,000, excluding
capitalized interest of approximately $2,614,000, in conceptual design,
engineering, equipment and construction costs through December 31, 2002.

On January 31, 2002, we purchased a 7.36 acre parcel of land located
adjacent to the Single Product Facility and our Multiple Product Facility at
1181 Route 202 North, Somerville, New Jersey. The real estate included an
existing 51,400 square foot building, 39,000 square feet of which is warehouse
space and 12,000 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 are using this property for
warehousing and material logistics for our Somerville campus. Extensive
renovations to the 12,000 square feet of office area were completed in the first
quarter of 2003 to accommodate the relocation and consolidation of Engineering,
Warehousing, Logistics and Quality Assurance personnel from other campus
locations. Interior renovations included office space, as well as the
construction of a raw materials sampling laboratory, associated
temperature-controlled storage locations and the addition of emergency power
generation. Extensive site work at the recently occupied facility allowed for
the physical connection of this location to the campus' other buildings to
facilitate the use of this location as our central warehouse. As of December 31,
2002, we have incurred approximately $1,050,000, for the renovation of this
facility. The total cost for the renovation is expected to be approximately
$1,150,000.

On May 20, 2002 we purchased real estate consisting of a 6.94 acre
parcel of land located across the street from our Single Product Facility at 33
Chubb Way, Somerville, New Jersey. The real estate includes an existing building
with approximately 45,800 square feet of warehouse 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. As of December 31, 2002, we have incurred
approximately $4,486,000 for the renovation and fit-out of this facility
converting the 45,800 square feet of warehouse space into office space. The
total cost for the retrofit is expected to be approximately

63

$5,200,000. The administration facility was ready for its intended use and put
in operation in December 2002 and we commenced depreciation at that time.

Total capital expenditures made during the year ended December 31, 2002
were $85,928,000 including $2,288,000 related to the purchase of equipment for
and leasehold improvement costs associated with our corporate office and
research laboratories in our 180 Varick Street facility, $59,257,000 related to
the conceptual design, preliminary engineering plans, capitalized interest costs
and construction costs for our Multiple Product Facility, $8,070,000 for the
purchase and related retrofit of our warehousing and material logistics
facility, $9,001,000 for the purchase of and related retrofit of our
administration facility, $3,147,000 for the retrofit of our Brooklyn chemistry
lab, $1,483,000 related to improving and equipping our product launch
manufacturing facility, $1,568,000 related to improving and equipping our Single
Product Facility, and approximately $1,107,000 for updating and upgrading our
computer and telephonic software and hardware systems.

We incurred legal fees totaling $10,022,000 during the year ended
December 31, 2002. In addition, we have estimated and recorded a receivable
totaling $5,340,000 for a portion of the above-mentioned legal fees that we
believe are recoverable from our insurance carriers. This receivable is included
in other current assets in the consolidated balance sheet at December 31, 2002.

Federal and applicable state tax laws require an employer to withhold
income taxes at the time of an employee's exercise of non-qualified stock
options or warrants issued in connection with the performance of services by the
employee. An employer that does not do so is liable for the taxes not withheld
if the employee fails to pay his or her taxes for the year in which the
non-qualified stock options or warrants are exercised. In 2000 and prior years,
we generally did not require the withholding of federal, state or local income
taxes and in certain years, employment payroll taxes at the time of the exercise
of non-qualified stock options or warrants. Prior to 1996, we did not comply
with tax reporting requirements with respect to the exercise of non-qualified
stock options or warrants.

In January 2003, the New York State Department of Taxation and Finance
("New York State") notified us that we were liable for the New York State and
City income taxes that were not withheld because one or more of our employees
who exercised certain non-qualified stock options in 1999 and 2000 failed to pay
New York State and City income taxes for those years. At December 31, 2002, we
have recorded a gross New York State and City withholding tax liability of
approximately $6,800,000. On March 13, 2003, we entered into a closing agreement
with New York State, paying $4,500,000 to settle the matter. We believe that
substantially all of the underpayment of New York State and City income tax
identified by New York State is attributable to the exercise of non-qualified
stock options by our former President and Chief Executive Officer, Dr. Samuel D.
Waksal.

On March 13, 2003, we initiated discussions with the IRS relating to
federal income taxes on the exercise of non-qualified stock options on which
income tax was not properly withheld. Although the IRS has not yet asserted that
we are required to make a payment with respect to such failure to withhold, the
IRS may assert that such a liability exists, and may further assert that we are
liable for interest and penalties. We have requested and received confirmation
from all of our current and substantially all of our former employees who
exercised non-qualified stock options in 1999 and 2000, on which no income tax
was withheld, that they have reported the appropriate amount of income on their
tax returns and paid the taxes shown as due on those returns. Based on this
information, we determined that all but an insignificant amount of the potential
liability for withholding taxes with respect to exercises of non-qualified stock
options in 1999 and 2000 is attributed to those amounts related to Dr. Samuel D.
Waksal.

In addition, in the course of our investigation into our potential
liability in respect of the non-qualified stock options described above, we
identified certain warrants that were granted in 1991 and prior years to current
and former officers, directors and advisors (including the four individuals
discussed below) that we previously treated as non-compensatory warrants and
thus not subject to tax withholding and information reporting requirements upon
exercise. Accordingly, when exercised in 2001 and prior years, we did not deduct
income and payroll taxes upon exercise or report applicable information to the
taxing authorities. Based on the information discovered in the course of our
recent investigation, we now believe that such
64

treatment was incorrect, and that the exercise of such warrants by current and
former officers of the Company should have been treated in the same manner for
withholding and reporting purposes as the exercise of non-qualified stock
options. We have informed the relevant authorities, including the IRS and New
York State, of this matter and intend to resolve our liability in respect of
these warrants with these taxing authorities in conjunction with our resolution
of the matter described above. On June 17, 2003, New York State notified us
that, based on the issue identified above, they are continuing a previously
conducted audit of the Company and are evaluating the terms of the closing
agreement to determine whether or not it should be re-opened.

On April 2, 2003, we received a request from the SEC for the voluntary
production of documents and information relating to the above matters. We are
cooperating fully with the SEC, and intend to continue to do so, while also
updating the United States Attorney's Office on an ongoing basis.

One of the officers and directors to whom warrants were issued and
previously treated as non-compensatory warrants is Dr. Harlan W. Waksal, the
Company's Chief Scientific Officer. In June 2003, Dr. Harlan W. Waksal
represented that he has paid the taxes associated with the exercise of these
warrants and further agreed to indemnify the Company for any withholding taxes
that may be assessed and are attributable to our failure to deduct income and
payroll taxes on all warrants and options that he or his transferee have
previously exercised, subject to the consent of Dr. Harlan W. Waksal, which
cannot be unreasonably withheld.

Two of the other officers and directors to whom warrants were issued and
previously treated as non-compensatory warrants are Dr. Samuel D. Waksal, and
our former General Counsel, John B. Landes. We have made demands on both of
these individuals to pay the taxes associated with the exercise of these
warrants and certain non-qualified stock options and to indemnify us against any
liability that we may incur to taxing authorities in respect of the warrants or
non-qualified stock options that were previously exercised.

We have not recognized withholding tax liabilities in respect of
exercises of certain warrants by our then-current and now-former Chairman of the
Board, Robert F. Goldhammer, the final of the four officers or directors to whom
warrants were issued and previously treated as non-compensatory warrants. Based
on our investigation, we believe that, although such warrants were compensatory,
such warrants were received by Mr. Goldhammer in connection with the performance
of services by him in his capacity as a director, rather than as an employee,
and, as such, are not subject to tax withholding requirements. In addition, in
1999, Mr. Goldhammer erroneously received a portion of a stock option grant to
him in the form of incentive stock options, which under federal law may only be
granted to employees. There can be no assurance, however, that the taxing
authorities will agree with our position and will not assert that we are liable
for the failure to withhold income and employment taxes with respect to the
exercise of such warrants and any stock options by Mr. Goldhammer. If we became
liable for the failure to withhold taxes on the exercise of such warrants and
any stock options by Mr. Goldhammer, the potential liability, exclusive of any
interest or penalties, would be approximately $12,600,000.

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 at least June 2004. We are also entitled to
reimbursement for certain marketing and research and development expenditures
and certain other payments, some of which are payable contingent upon the
achievement of research and development milestones. Such contingent amounts
include $500,000,000 in cash-based payments under our Commercial Agreement with
BMS and E.R. Squibb, as well as up to $16,000,000 in equity-based milestone
payments under our ERBITUX development and license agreement with Merck KGaA and
up to $18,500,000 in cash-based milestone payments under our BEC2 development
agreement with Merck KGaA. There can be no assurance that we will achieve these
milestones. Our future working capital and capital requirements will depend upon
numerous factors, including, but not limited to:

- progress and cost of our research and development programs,
pre-clinical testing and clinical trials

- our corporate partners fulfilling their obligations to us

65

- 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

- the adequacy of our estimations of liabilities for tax-related matters
discussed above

In order to fund our capital needs after June 2004, we may 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. 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.
If our common stock were to be delisted by Nasdaq, this may have a material
adverse effect on our ability to raise capital in the public markets.

Below is a table that presents our contractual obligations and
commercial commitments as of December 31, 2002 (in thousands):

- ---------------

(1) Redemption of this debt requires payment on June 30, 2003.

(2) Amounts in the above table do not include milestone-type payments under
collaborative agreements.

At December 31, 2002, our estimated net operating loss carryforwards for
United States Federal income tax purposes were approximately 369,000,000, which
expire at various dates from 2003 through 2022. Of our $369,000,000 in estimated
net operating loss carryforwards, we have approximately $327,000,000 available
to use in 2003, approximately $5,159,000 available to use in each year from 2004
through 2011 and approximately $672,000 available to use in 2012. Any of these
net operating loss carryforwards which are not utilized are available for
utilization in future years, subject to applicable statutory expiration dates.

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 the Company would not be
able to utilize its NJ net operating loss

66

carryover to offset such taxable income. A second provision establishes the
Alternative Minimum Assessment ("AMA") which applies to companies like ours that
currently pay no corporate business tax. This provision requires that we assess
an alternate tax liability with a formula that uses either reported gross
receipts or gross profits as a determining factor. We are then required to pay
the greater of the regular NJ Corporation Business Tax or the AMA. The AMA tax
paid is creditable and can be carried forward to reduce the income tax in future
periods. We have recorded a tax provision of approximately $725,000 for the year
ended December 31, 2002 associated with the NJ AMA.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our holdings of financial instruments comprise a mix of 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 or commodities or use financial
derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these
funds accordingly. We seek reasonable assurance 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. We also have
certain foreign exchange currency risk as described in Note 2 of the
consolidated financial statements. The table below presents the principal
amounts and related weighted average interest rates by year of maturity for our
investment portfolio as of December 31, 2002 (table in thousands, except
interest rates).

- ---------------

(1) These holdings consist of U.S. corporate and foreign corporate floating rate
notes. Interest on the securities is adjusted monthly, quarterly or
semi-annually, depending on the instrument, using prevailing interest rates.
These holdings are highly liquid and we consider the potential for loss of
principal to be minimal.

Our 5 1/2% convertible subordinated notes in the principal amount of
$240,000,000 due March 1, 2005 and other long-term debt have fixed interest
rates. The subordinated notes are convertible into our common stock at a
conversion price of $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 as well. The fair
value of the 5 1/2% convertible subordinated notes (which have a carrying value
of $240,000,000) was approximately $167,700,000 at December 31, 2002.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted as a separate section of this
report as Part II commencing on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

67

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our directors and executive officers and their positions with the
Company are set forth in the table below.

- ---------------

(1) Member of Audit Committee

(2) Member of Compensation and Stock Option Committee

(3) Member of Nominating and Corporate Governance Committee

(4) Member of Research Oversight Committee

(5) Member of Special Committee

(6) Member of the Chief Executive Officer Search Committee

ANDREW G. BODNAR, M.D., J.D., 55, has been a Director of the Company
since November 2001. Dr. Bodnar was designated and is being nominated as a
Director pursuant to a Stockholder Agreement, dated as of September 19, 2001,
among the Company, Bristol-Myers Squibb Company and Bristol-Myers Squibb

68

Biologics Company. Dr. Bodnar is Senior Vice President, Strategy and Medical &
External Affairs of Bristol-Myers Squibb Company. Previously, Dr. Bodnar served
as President, Oncology/Immunology and Worldwide Strategic Business Development
for Bristol-Myers Squibb's Pharmaceutical Group. Prior to joining Bristol-Myers
Squibb, Dr. Bodnar was Associate Chief of Internal Medicine, Acting Chief of
Cardiology and Director of the Internal Medicine Residency Program at
Massachusetts General Hospital in Boston. Dr. Bodnar serves on the Board of
Trustees of The New York Blood Center, The Fox Chase Cancer Center and The
American Boychoir School.

VINCENT T. DEVITA, JR., M.D., 68, has been a Director of the Company
since February 1992. Since 1993, Dr. DeVita has served as Director of the Yale
Cancer Center as well as Professor of Medicine and Professor of Epidemiology and
Public Health at Yale University School of Medicine, New Haven, Connecticut.
From September 1988 through June 1995, Dr. DeVita served as Attending Physician
at Memorial Sloan-Kettering Cancer Center ("Sloan Kettering"), New York, and
through June 1991 as Physician-in-Chief. From 1980 to 1988, he served under
Presidential appointment as Director of the National Cancer Institute ("NCI"),
where he had held various positions since 1966. During his years with the NCI,
Dr. DeVita was instrumental in developing the first successful combination
cancer chemotherapy program. This work ultimately led to effective regimens of
curative chemotherapy for a variety of cancers. Dr. DeVita's numerous awards
include the 1990 Armand Hammer Cancer Prize and the 1982 Albert and Mary Lasker
Medical Research Award for his contribution to the cure of Hodgkin's disease.
Dr. DeVita received his M.D. from the George Washington University School of
Medicine, Washington, D.C. in 1961.

JOHN A. FAZIO, 59, has served as a Director of the Company since
February 2003. Mr. Fazio is a Certified Public Accountant and Certified
Management Accountant and was with PricewaterhouseCoopers ("PwC") from 1966 to
2000. As a Senior General Practice Partner, he served as the lead audit partner
to a number of PwC's key multinational and national clients. Mr. Fazio was also
a National Business Leader in PwC's pharmaceutical practice in which he was
responsible for developing and delivering services on business issues impacting
the industry to assist clients in creating value-adding opportunities. As the
head of PwC's Strategic Risk Services practice, he managed a group of senior
specialists to assist companies in identifying key risks within their businesses
and to establish controls to mitigate such risks. Mr. Fazio is a Director of
Dendrite International, Inc. Also active in several professional organizations,
he was Chairman of the Accounting and Auditing Standards Committee of the New
Jersey Society of Certified Public Accountants, the State Society's senior
technical committee. Mr. Fazio earned his Bachelor of Science in Accounting from
Penn State University in 1965 and a Masters Degree in Accounting from Ohio State
University in 1967.

ROBERT F. GOLDHAMMER, 72, has been a Director of the Company since
October 1984. Mr. Goldhammer served as Chairman of the Board from February 1991
until April 2003. Mr. Goldhammer was the Vice Chairman of the Executive
Committee of the Board of Directors of Kidder, Peabody & Company, where he was
employed from 1956 to 1989. While at Kidder, he was also Chairman of the Boston
Stock Exchange (1969-1972), a member of the Board of Governors of the Investment
Bankers Association (1967) and the Chairman of the New England Group IBA
(1966-1967). He has been since 1991, a partner of Concord International Group,
L.P. He serves as a director on the Boards of Esterline Corporation and
Community Connect Incorporated. Mr. Goldhammer has served as a trustee of the
Episcopal Diocese of Massachusetts. He also served as a trustee of Boston
University and the Kennedy Center of Performing Arts in Washington D.C.
Throughout his career, Mr. Goldhammer has advised numerous firms in the area of
fundraising, operations, marketing, finance, strategy and management. He is a
graduate of Boston University.

DAVID M. KIES, 59, has been a Director of the Company since June 1996.
Mr. Kies is a Partner of the New York-based law firm Sullivan & Cromwell,
specializing in mergers and acquisitions, securities and general corporate
matters. On May 14, 2003, the Board of Directors of the Company appointed Mr.
Kies to the position of Lead Director.

PAUL B. KOPPERL, 70, has been a Director of the Company since December
1993. He has served as President of Delano & Kopperl, Inc., a private business
strategy and venture investing firm and its predecessor firms from 1976 to the
present. In 2001, Mr. Kopperl retired as President of Pegasus Investments, Inc.,
a private investment management firm in Boston. From 1967 through 1975, he was
Vice President and a

69

principal of Kidder, Peabody & Co. Incorporated, New York, an investment banking
firm. From 1959 to 1967 he was an associate with Goldman, Sachs & Co., New York.
Mr. Kopperl is a Trustee of the Dana-Farber Cancer Institute, Boston, a member
of its Executive and Trustee Science Committees and a Trustee of Dana-
Farber/Children's Hospital Cancer Care, Inc. He serves as Advisor to the Dean,
Harvard School of Public Health, and is a visiting lecturer at the United States
Military Academy, West Point. Over the years he has served as a director trustee
of numerous businesses and not-for-profit educational, performing arts and
social welfare organizations.

ARNOLD J. LEVINE, PH.D., 63, has been a Director of the Company since
April 2000. Dr. Levine is a cancer biologist and is currently a professor of
molecular biology in the school of Natural Sciences of the Institute for
Advanced Studies, Princeton, New Jersey. He was President of Rockefeller
University from November 1998 to January 2002. Previously, Dr. Levine was the
Harry C. Wiess Professor of Life Sciences at Princeton University, where he
founded Princeton's molecular biology department during a 12-year tenure that
saw the department grow to include two research laboratories and 35 faculty
members. Prior to his work at Princeton, Dr. Levine was Chairman at SUNY Stony
Brook School of Medicine. Dr. Levine is also a Director of Applera Corporation,
and Infinity Pharmaceuticals.

JOHN MENDELSOHN, M.D., 66, has been a Director of the Company since
February 1998. He has served as the President of M.D. Anderson Cancer Center,
University of Texas, where he has also been Professor of Medicine since 1996.
From 1985 to 1996 he was Chairman of the Department of Medicine at Sloan
Kettering, New York, as well as holder of the Winthrop Rockefeller Chair in
Medical Oncology at Sloan Kettering. He was also Professor and Vice-Chairman of
Medicine at Cornell University Medical College and an attending physician at
both Memorial and New York Hospitals. Dr. Mendelsohn served on the faculty of
the University of California, San Diego and was instrumental in the creation of
the University's Cancer Center, where he served as Director from 1976 to 1985.
Dr. Mendelsohn's work has focused on growth factors and their role in regulating
the proliferation of cancer cells through cell surface receptors. Dr. Mendelsohn
was responsible for developing specific monoclonal antibodies that block
receptors, including epidermal growth factor receptors, which mediate growth
factor activation of cell growth and division. Dr. Mendelsohn is currently a
board member of the Greater Houston Partnership and is a fellow of the New York
Academy of Medicine. In 1997, Dr. Mendelsohn was elected to the Institute of
Medicine of the National Academy of Sciences.

WILLIAM R. MILLER, 75, has been a Director of the Company since June
1996. Mr. Miller served as Vice Chairman of the Board of Directors of the
Bristol-Myers Squibb Company from 1985 until 1991, at which time he retired. Mr.
Miller is a director of Transkaryotic Therapies, Inc. and Chairman of the Board
of Vion Pharmaceuticals, Inc. He is Chairman of the Board of Trustees of the
Cold Spring Harbor Laboratory and is a past Chairman of the Board of the
Pharmaceutical Manufacturers Association. Mr. Miller is a Trustee of the
Manhattan School of Music, a director of Opera Orchestra of New York and a
Managing Director of the Metropolitan Opera Association. He is a member of
Oxford University Chancellor's Court of Benefactors, Honorary Fellow of St.
Edmund Hall and Chairman of the English-Speaking Union of the United States.

HARLAN W. WAKSAL, M.D., 50, is a founder of the Company and has been a
Director since April 1984. He has directed the Company's research and
development since April 1985, and has served as the Company's Chief Scientific
Officer since April 2003. Dr. Waksal served as the Company's President and Chief
Executive Officer from May 2002 until April 2003. From March 1987 to May 2002,
Dr. Waksal served as the Company's Executive Vice President and Chief Operating
Officer. From 1985 to March 1987, Dr. Waksal served as the Company's President.
Dr. Waksal received his training in Internal Medicine from Tufts-New England
Medical Center Hospital and in Pathology from Kings County Hospital in Brooklyn,
New York from 1982 to 1987. From 1984 to 1985, Dr. Waksal was Chief Resident in
Pathology at Kings County Hospital. He received his Medical Degree from Tufts
University School of Medicine in 1979. He is currently Adjunct Assistant
Professor in the Department of Pathology at Downstate Medical Center, New York.

DANIEL S. LYNCH, 45, joined the Company in April 2001 as its Vice
President, Finance and Chief Financial Officer. In September 2001, he was
promoted to Senior Vice President, Finance and Chief Financial

70

Officer and in February 2002 was appointed Secretary of the Company. In April
2003, he became acting Chief Executive Officer and was appointed Senior Vice
President and Chief Administrative Officer. From May 1999 through March 2001, he
served as Chief Financial Officer of Derby Cycle Corporation. Prior to this, Mr.
Lynch served for 15 years in various capacities at Bristol-Myers Squibb Company,
including from December 1998 through May 1999, as its Vice President, Finance,
U.S. Pharmaceutical, Worldwide Medicines Group; from April 1998 through November
1998 as its Vice President, Finance, Technical Operations, Worldwide Medicines
Group; from July 1997 through March 1998 as its Vice President, Finance,
Intercontinental, Worldwide Medicines Group; and from February 1995 through June
1997 as its Vice President, Finance, Worldwide Consumer Medicines Group.

PETER BOHLEN, PH.D., 60, has been Senior Vice President, Research of the
Company since January 2001. He joined the Company as Vice President, Research in
September 1996 and served in that capacity through December 2000. Prior to
joining ImClone, Dr. Bohlen has held managerial positions in drug discovery with
pharmaceutical and biotechnology concerns, and he has spent 15 years in various
academic positions. Dr. Bohlen received his doctoral degree in chemistry from
the University of Berne, Switzerland. His scientific work has focused on the
function of growth factors that regulate the formation of new blood vessels in
tumors.

CLIFFORD R. SAFFRON, 45, has served as the Company's Senior Vice
President and General Counsel since January 2003. He joined the Company on
February 1, 2002, as Vice President, Legal and Special General Counsel. From
February 1, 1994 through November 30, 2001, he was Senior Vice President --
Deputy General Counsel of ICN Pharmaceuticals, Inc. Prior to this, from October
1989 through January 1994, he was a litigation associate with the law firm of
Proskauer Rose LLP in its New York City office.

S. JOSEPH TARNOWSKI, PH.D., 49, has served as the Company's Senior Vice
President, Manufacturing Operations and Product Development since April 2001. He
was Vice President, Product and Process Development from January 1999 through
April 2001. Prior to joining the Company, he held various positions with
CellPro, Inc., the principal business of which was the development, manufacture
and marketing of automated systems that utilize monoclonal antibodies to purify
large quantities of specific cells for therapeutic and diagnostic applications.
He joined CellPro in June 1992 as Vice President of Operations, was appointed to
Vice President of Research and Development in June 1995 and became Senior Vice
President and Chief Technical Officer in December 1996. From November 1986 to
May 1992, Dr. Tarnowski was Director, Process and Product Development of Scios
Nova Inc. (formerly California Biotechnology Inc.), a company that develops
recombinant human proteins for therapeutic uses. Dr. Tarnowski received a Ph.D.
in Biochemistry from the University of Tennessee in 1979 and was a Postdoctoral
Fellow at the Roche Institute of Molecular Biology from 1979 through 1981.

MICHAEL P. BAILEY, 37, has served as the Company's Vice President,
Marketing since January 2003. Mr. Bailey joined the Company in 1999 as Director
of Marketing and has served as a key member of the commercial team overseeing
both the product management and strategic planning groups. Prior to joining the
Company, Mr. Bailey served at Genentech, Inc. from 1997 through 1999 where he
managed the company's Cardiovascular Development Portfolio as Group Manager
Product Manager. From 1992 through 1997, Mr. Bailey served as one of two MBA
graduates selected for Smith-Kline Beecham's Executive Marketing Program. Within
the program, Mr. Bailey held a variety of commercial roles, including sales
(hospital and retail), strategic planning (new product marketing and managed
care), and product management. Mr. Bailey holds an MBA in International
Marketing from the University of Notre Dame.

PETER R. BORZILLERI, 46, joined the Company on September 16, 2002, as
Vice President, Internal Audit. Prior to joining the Company, Mr. Borzilleri
held financial and administrative management positions with various
international companies. Most recently, he was Vice President, Assistant
Corporate Controller for Automatic Data Processing, Inc., one of the world's
largest providers of computerized transaction processing, data communication and
information services. From 1999 to 2001, he was Vice President, Corporate
Controller for United Rentals, Inc., the largest equipment rental company in
North America. From 1994 to 1999 he was Vice President, Group Controller for
Mannesmann Corp., the U.S. operations of a German industrial company. Prior to
that, he spent nine years with the Volvo North America Group, with most of his
time as the top financial and administrative executive of their U.S. marine and
industrial engine business,

71

Volvo Penta North America. He started his career in public accounting with the
firm Deloitte & Touche, where he spent seven years in their audit group. Mr.
Borzilleri is a Certified Public Accountant.

MARGARET DALESANDRO, PH.D., 56, joined the Company on September 30, 2002
as Vice President, Project Management. She has responsibility for both Project
and Alliance Management functions within the Company. From February 2000 to
September 2002, Dr. Dalesandro was Senior Director of Project and Portfolio
Management at GlaxoSmithKline plc where she led global multi-disciplinary
project teams in the development and delivery of market-aligned Cardiovascular
and Urology therapies. From October 1998 through January 2000, Dr. Dalesandro
led the Technology Assessment practice in the U.S. for Cambridge Pharma
Consultancy. She consulted with major pharmaceutical and biotechnology companies
to develop business strategies based on evaluation of commercial opportunities
and risk in new product development. From September 1989 through September 1998,
Dr. Dalesandro held various positions in R&D at Centocor, Inc., including
director of the departments of Emerging Technologies and Immunobiology. She also
established the department of Cardiovascular Research within Centocor
Diagnostics. Dr. Dalesandro received both M.A. and Ph.D. degrees in Biochemistry
from Bryn Mawr College. She was an NIH Postdoctoral Fellow in Molecular
Immunology at Bowman Gray School of Medicine, Winston-Salem, NC.

CHARLES DUNNE, 38, has been Vice President, Management Information
Systems and Facilities since January 2001. Mr. Dunne, one of the Company's first
employees, joined the Company in 1984 and has served it in a number of
capacities, including Assistant Vice President, Management Information Systems
and Facilities during 2000, Senior Director, Management Information Systems
during 1999 and Director, Management Information Systems during 1998. Mr. Dunne
supervised the construction of the Company's corporate headquarters and research
laboratories and has implemented all systems at the Company since 1984.

PAUL A. GOLDSTEIN, 38, has been Vice President, Financial Operations
since January 2001. He joined the Company in January 1992 and has served in
various capacities since that date, including Assistant Vice President, Finance
during 2000, Senior Director, Finance and Controller from January 1998 through
December 1999 and Controller from January 1995 through December 1997. Prior to
joining the Company, he was employed by Laventhol & Horwath, a certified public
accounting firm in New York City. Mr. Goldstein is a certified public
accountant.

MICHAEL J. HOWERTON, 51, has served as the Company's Vice President,
Finance and Business Development, and as its acting Chief Financial Officer and
Secretary since May 2003. From August 2001 until May 2003, Mr. Howerton served
as the Company's Vice President, Business Development and was responsible for
the pursuit and development of new business opportunities for the Company,
including acquisitions, product in-licensing and out-licensing and strategic
alliances. Prior to joining the Company, Mr. Howerton built a 25-year career at
Bristol-Myers Squibb Company. In his most recent position at Bristol-Myers
Squibb, Mr. Howerton served as Vice President, Financial Analysis and Assistant
Controller from 1998 to 2001, directing activities relating to the financial and
strategic analysis, budgeting and profit planning of the Company. Prior to this
position, Mr. Howerton served as Vice President, Corporate Development for eight
years, and was responsible for activities relating to the acquisitions,
divestitures and strategic alliances for the Company's Worldwide Medicines
Group.

LILY WAIYEE LEE, PH.D., 47, joined the Company in April 2001 as its Vice
President, Regulatory Affairs and Biostatistics. Dr. Lee was employed at The
Lipsome Company, Division of Elan Corporation, as its Vice President, Clinical &
Regulatory Operations and Biostatistics from 1995 to April 2001 and as its
Executive Director, Biostatistics and Data Management from 1993 through 1994.
Prior to that time she was employed for over eight years in various statistical
positions at Ciba Consumer Pharmaceuticals, Division of Ciba Geigy and at
Janssen Pharmaceutical, a division of Johnson & Johnson. Dr. Lee earned a
bachelor degree in statistics from the University of Minnesota and both a
masters' degree in Biostatistics and Ph.D. in Demography from the University of
California, Berkeley.

RONALD A. MARTELL, 41, has served as the Company's Vice President,
Marketing and Sales since November 1998. Prior to joining the Company he worked
at Genentech, Inc. for ten years where he held various positions. Most recently,
from 1996 until joining the Company, he served as Genentech's Group
72

Manager of Oncology Products where he directed the launch of Herceptin,
Genentech's monoclonal antibody product approved to treat breast cancer. From
1995 to 1996, he served as Senior Product Manager where he launched Pulmozyme
for cystic fibrosis in Europe. From 1994 through 1995, he served as Manager of
Genentech's Piedmont Sales Division. Prior to that, he served from 1993 as
Associate Product Manager for Genentech's Pulmozyme.

MICHAEL NEEDLE, M.D., 43, has served as the Company's Vice President,
Clinical Affairs since January 2001. He joined the Company in April 2000 as its
Assistant Vice President, Clinical Affairs. Prior to joining the Company, Dr.
Needle served as Director, Oncology Clinical Research of G.D. Searle, a Monsanto
Company. From July 1993 through November 1997 Dr. Needle served as Assistant
Professor of Pediatrics and Neurology, Children's Hospital of Philadelphia,
University of Pennsylvania School of Medicine. Dr. Needle received a Bachelor of
Arts degree in Physics from Binghamton University and a Doctor of Medicine
degree from the State University of New York, Health Science Center at Brooklyn.
Dr. Needle performed his residency in Pediatrics at Kings County Hospital in
Brooklyn and his Pediatric Hematology/ Oncology fellowship at the Fred
Hutchinson Cancer Research Center in Seattle and the University of Texas, M.D.
Anderson Cancer Center in Houston.

ANDREA F. RABNEY, 36, has served as the Company's Vice President,
Corporate Communications since January 2001. She joined the Company in 1993 as
its Director, Corporate Development and Investor Relations and has served in
several other managerial positions since that time, including Senior Director,
Corporate Development & Investor Relations from 1998 to 1999 and Assistant Vice
President, Corporate Communications during 2000. Prior to joining the Company,
Ms. Rabney served as a compliance analyst at Smith Barney Shearson Inc. (now
Salomon Smith Barney) where she was responsible for defining capital markets
guidelines and procedures for foreign and institutional accounts and trading
desks. Ms. Rabney holds a law degree from the Jacob D. Fuchsberg Law Center of
Touro College.

ERIK D. RAMANATHAN, 32, has served as the Company's Vice President,
Legal and Associate General Counsel since January 2003. He joined the Company in
July 2000 as its Director, Legal and was promoted to Senior Director, Legal in
January 2002 and to Assistant Vice President, Legal in August 2002. From
September 1996 until January 2002, he specialized in health care transactions as
an attorney at the New York law firm of Proskauer Rose LLP. Mr. Ramanathan holds
a law degree from Harvard Law School and an undergraduate science degree from
The Johns Hopkins University.

Our Board of Directors is currently composed of ten members, as listed
above, each of whom expects to serve until the next annual meeting of
stockholders, or until a successor is duly elected.

Pursuant to a Stockholder Agreement, dated as of September 19, 2001,
among us, Bristol-Myers Squibb Company and Bristol-Myers Squibb Biologics
Company, Bristol-Myers Squibb Company received the right to nominate two
Directors so long as its ownership interest in us is 12.5% or greater.
Bristol-Myers Squibb Company continues to have an ownership interest greater
than 12.5% and to possess the right to nominate two Directors. However,
Bristol-Myers Squibb Company has not yet nominated a replacement to fill the
seat on the Board of Directors vacated by Peter S. Ringrose, M.A., Ph.D., who
recently retired from his position of Chief Scientific Officer and President,
Pharmaceutical Research Institute at Bristol-Myers Squibb Company, and also
resigned from his Director position at the Company. Therefore, we currently
expect that Bristol-Myers Squibb Company will nominate only one Director for
election at the next annual meeting of stockholders.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file with the SEC reports of
ownership of our securities and changes in reported ownership. Officers,
directors and greater than ten percent shareholders are required by SEC rules to
furnish us with copies of all Section 16(a) reports they file.

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Based solely on a review of the copies of such reports furnished to us,
or written representations from the reporting persons that no Form 5 was
required, we believe that, during the fiscal year ended December 31, 2002, all
Section 16(a) filing requirements applicable to our executive officers,
directors, and greater than ten percent beneficial owners were met.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The Summary Compensation Table sets forth the cash and non-cash
compensation awarded to, earned by, or paid to our Chief Executive Officers
during fiscal year 2002 and the four most highly compensated executive officers
(other than the Chief Executive Officers) for each of the years ended December
31, 2002, 2001 and 2000 who were serving as executive officers at December 31,
2002 and whose total salary and bonus exceeded $100,000 for the year ended
December 31, 2002.

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(1) Amounts shown include compensation deferred pursuant to Section 401(k) of
the Internal Revenue Code.

(2) Although we have no formal bonus plan, our Compensation and Stock Option
Committee, in its discretion, may award bonuses to our officers and other
employees. We have paid bonuses based on individual and Company
performance. Certain employment agreements also provide for the payment of
minimum guaranteed bonuses. Amounts shown include awards paid relative to
services rendered in each of the last three fiscal years. All bonus awards
for each of the last three fiscal years were paid in cash. Bonuses are
recorded for the period in which they were earned.

(3) Excludes certain perquisites and other personal benefits for each Named
Executive Officer which did not equal or exceed the lesser of $50,000 or
10% of such individual's annual salary plus bonus.

(4) Amounts shown include amounts paid by us as a matching contribution to
employees' 401(k) accounts.

(5) Dr. Harlan W. Waksal was our President and Chief Executive Officer from May
22, 2002 until April 29, 2003. He is currently our Chief Scientific
Officer.

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(6) Pursuant to the terms of an employment agreement dated September 19, 2001,
Dr. Harlan W. Waksal is guaranteed a minimum annual bonus that is not less
than the difference between $1,000,000 and his base salary for the relevant
bonus year. Dr. Harlan W. Waksal elected to forgo his bonus for 2002 and he
was paid in 2002 his guaranteed bonus for 2001 of $545,000.

(7) Includes the cost of tickets to New York City area sporting events for
personal use at $71,911, $76,703 and $44,950 for 2002, 2001 and 2000,
respectively.

(8) Mr. Lynch commenced employment with us in April 2001. Effective April 29,
2003, Mr. Lynch was promoted to Senior Vice President and Chief
Administrative Officer, Acting Chief Executive Officer.

(9) Pursuant to the terms of an employment agreement dated September 19, 2001,
Mr. Lynch is guaranteed a minimum annual bonus that is not less than his
base salary for the relevant bonus year.

(10) Includes $99,741 for initiation costs, dues and other fees relating to
membership at a country club.

(11) Consists of a $75,000 sign-on bonus and a performance bonus of $450,000
paid pursuant to the terms of an employment agreement dated September 19,
2001.

(12) Dr. Lee commenced employment with us in April 2001.

(13) Consists of relocation expenses associated with Dr. Tarnowski joining us.

(14) Mr. Saffron commenced employment with us in February 2002.

(15) Dr. Samuel D. Waksal was our President and Chief Executive Officer from
March 1987 until May 22, 2002, at which time he resigned all positions with
us.

(16) Includes $24,000 for personal tax planning and financial advice and $15,436
for personal automobile expenses.

(17) Pursuant to a Separation Agreement dated May 22, 2002, we paid Dr. Samuel
D. Waksal $7,000,000. In an action brought by us in August 2002 against Dr.
Samuel D. Waksal, we are seeking repayment from Dr. Samuel D. Waksal of
this and other amounts paid under the Separation Agreement.

(18) Pursuant to the terms of an employment agreement dated September 19, 2001,
Dr. Samuel D. Waksal was guaranteed a minimum annual bonus that is not less
than the difference between $1,000,000 and his base salary for the relevant
bonus year. Dr. Samuel D. Waksal's was paid in 2002 his guaranteed bonus
for 2001 of $450,000. This employment agreement is no longer in effect.

(19) Includes $73,463 for personal tax planning and financial advice and $94,600
for the cost of tickets to New York City area sporting events for personal
use.

(20) Includes $135,802 for personal tax planning and financial advice.

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OPTION GRANTS IN FISCAL 2002

The following table sets forth certain information relating to stock
option grants to the named executive officers during the year ended December 31,
2002.

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(1) We granted options to purchase a total of 3,559,557 shares of common stock
to employees during 2002.

(2) Options were granted to purchase common stock at an exercise price that
equaled the fair market value of the common stock at the time of grant.

(3) The amounts set forth in the three columns represent hypothetical gains that
might be achieved by the holders if the respective options are exercised at
the end of their terms. These gains are based on assumed rates of stock
price appreciation of 0%, 5% and 10% compounded annually from the dates the
respective options were granted.

(4) Options granted on the basis of 2001 performance were granted in 2002 and
are included in this Table. Options granted on the basis of 2002 performance
were also granted in 2002 and are included in this Table.

(5) These options are exercisable as to 50% of the shares on each of the first
and second anniversaries of the date of grant.

(6) These options are exercisable as to 100% of the shares on the second
anniversary of the date of grant.

(7) These options were granted pursuant to the terms of Mr. Saffron's employment
agreement entered into as of February 1, 2002 and are exercisable as to 25%
of the shares on the date of grant and are exercisable as to 25% of the
shares on each of the first, second and third anniversaries of the date of
grant.

(8) These options were granted pursuant to the terms of the April 18, 2002
letter agreement effecting Mr. Saffron's promotion to Senior Vice President
and Special General Counsel and are exercisable as to 25% of the shares on
the date of grant and are exercisable as to 25% of the shares on each of the
first, second, and third anniversaries of the date of grant.

(9) Samuel D. Waksal served as our President and Chief Executive Officer during
the portion of the fiscal year beginning January 1, 2002 and ending May 22,
2002. Harlan W. Waksal served as our President and Chief Executive Officer
during the portion of the fiscal year beginning on May 22, 2002 and ending
on December 31, 2002.

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OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The following table sets forth option exercises during the year ended
December 31, 2002 by the named executive officers and the value of the options
held by such persons on December 31, 2002, whether or not exercisable on such
date.

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(1) The values were calculated by multiplying the closing market price of the
common stock on December 31, 2002 ($10.62 per share as reported by the
Nasdaq National Market on that date) by the respective number of shares and
subtracting the aggregate exercise price, without making any adjustments for
vesting, termination contingencies or other variables. If the exercise price
of an option is equal to or greater than $10.62, the option is deemed to
have no value.

(2) In an action brought by us on August 14, 2002 against Dr. Samuel D. Waksal
in Supreme Court of the State of New York, New York County, we are seeking
the cancellation of 833,333 of these options. See "Employment and Separation
Agreements".

OTHER BENEFIT PLANS

We have no defined benefit or defined contribution retirement plans
other than the ImClone Systems Incorporated 401(k) Employee Savings Plan (the
"401(k) Plan") established under Section 401(k) of the Internal Revenue Code of
1986, as amended. Contributions to the 410(k) Plan are voluntary, and
substantially all full-time employees are eligible to participate. For 2003, we
have elected to make voluntary matching contributions equal to 25% of the first
6% of an employee's eligible compensation contributed by the employee, limited
to $2,750 per employee. Neither the employee contributions nor our voluntary
matching contributions are invested in our securities. We made such a matching
contribution for 2002, which totaled approximately $314,000. We anticipate
evaluating the level of our matching contribution, if any, on an annual basis.

COMPENSATION OF DIRECTORS

CASH COMPENSATION

Exclusive of the Chairman of the Board, each non-employee Director of
the Company received compensation of $30,000 for 2002 services as a Director, or
a pro rated portion thereof for persons not serving the full fiscal year, and
will receive $30,000 for 2003 services as a Director, as well as reimbursement
of the Director's reasonable out-of-pocket expenses incurred in connection with
his Board and Board committee activities. For 2002, the Chairman of the Board
received $150,000 for his services as Chairman as well as reimbursement of his
reasonable out-of-pocket expenses incurred in connection with his Board and
Board committee activities. On January 24, 2003, the annual compensation for the
Chairman of the Board was lowered to $50,000 for 2003, or a pro rated portion
thereof if not serving the full fiscal year, and on May 14, 2003, the annual
compensation for the Chairman of the Board was again lowered to $45,000 for
2003, or a pro rated portion thereof if not serving the full fiscal year. Mr.
Robert F. Goldhammer resigned as Chairman of the Board in April 2003 and will
continue service as a Director until the Company's 2003 annual meeting.

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Accordingly, Mr. Goldhammer's compensation was amended to $36,575.34 on an
annual basis. On May 14, 2003, Mr. David Kies was named Lead Director of the
Board of Directors and as such will receive $39,478.02 as his annual
compensation. In addition, the Chairman of each Board committee, exclusive of
the Chairman of the Board, will receive $10,000 in 2003, or a pro rated portion
thereof for persons not serving the full fiscal year, as compensation for
services as committee Chairman. For 2003, each Director, including the Chairman
of the Board, will receive an additional $1,000 per meeting fee where such
meeting is in addition to the Board's regularly scheduled meetings for the year.
For each Board committee meeting that such Director attends, where such meeting
is in addition to the Board committee's regularly scheduled meetings for the
year, such Director will receive an additional $400 per meeting.

DIRECTORS' STOCK OPTIONS

Each Director who is not an employee of the Company was granted for 2002
options to purchase 30,000 shares of common stock, except that the Chairman of
the Board was granted for each of 2002 and 2003 options to purchase 60,000
shares of common stock. On January 24, 2003, the Chairman of the Board, Mr.
Goldhammer, was granted options to purchase 60,000 shares of common stock,
vesting as to 25% on each of April 24, 2003; July 24, 2003; October 24, 2003 and
January 24, 2004. In light of his resignation as Chairman of the Board in April
2003 and continued service as a Director until the Company's 2003 annual
meeting, Mr. Goldhammer's option grant was amended to 37,912 shares of common
stock, vesting as to 15,000 shares on April 24, 2003; 7,912 shares on July 24,
2003; 7,500 shares on October 24, 2003 and 7,500 shares on January 24, 2004. On
May 14, 2003, the designated 60,000 share option grant for the Chairman of the
Board was lowered to 45,000 shares. Additionally, on May 14, 2003, David Kies
was named Lead Director of the Board of Directors and was granted an option to
purchase 10,467 shares of common stock, vesting as to 2,967 shares on July 24,
2003; 3,750 shares on October 24, 2003 and 3,750 shares on January 24, 2003.
Each individual newly joining or resigning from the Board during the fiscal year
receives a pro rated portion thereof based on the portion of the fiscal year
served. Such options generally vest after 12 months of service on the Board from
the date of grant, except that the options granted in 2003 vest quarterly,
subject to such individual's continued service on the Board on the scheduled
date of vesting and have an exercise price equal to the fair market value of the
common stock on the date of grant. In addition, each Director newly joining the
Board who is not an employee of the Company is made a one-time grant of options
to purchase 50,000 shares of common stock. Such options vest as to 25% of the
shares of common stock over the four-year period commencing with the date of
grant, subject to such individual's continued service on the Board on the
scheduled date of vesting, and have an exercise price equal to the fair market
value of the common stock on the date of grant. From time to time, Directors who
are not employees of the Company may be granted additional options in
consideration for providing services on the Board. No such additional grants
were made during 2002. In 2003, options to purchase 5,000 shares of common stock
having an exercise price equal to the fair market value of the common stock on
the date of grant, which fully vested on the date of grant were granted to each
of Drs. DeVita, Levine and Mendelsohn and Messrs. Goldhammer, Kies, Kopperl and
Miller.

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The table below sets forth option grants are made during the year ended
December 31, 2002 in consideration for such Directors serving on the Board to
Directors who are not employees of the Company:

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(1) These options were granted automatically, pursuant to the terms of the 1996
Non-Qualified Stock Option Plan, on February 15, 2002 at a per share
exercise price of $18.44, which is equal to the fair market value of the
common stock on the date of grant. The options vested and became exercisable
in their entirety on February 15, 2003 and will terminate on February 14,
2012.

(2) Mr. Fazio joined the Board in 2003.

(3) Mr. Barth and Dr. Ringrose resigned from the Board in 2002 and therefore
forfeited these options.

EMPLOYMENT AND SEPARATION AGREEMENTS

EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS. On September 19,
2001, Harlan W. Waksal, Daniel S. Lynch, S. Joseph Tarnowski and Samuel D.
Waksal entered into employment agreements with us to be effective as of that
date. The period of employment, during which salary, bonus and benefits were to
be provided to Dr. Harlan W. Waksal, Mr. Lynch, Dr. Tarnowski, and Dr. Samuel D.
Waksal began on September 19, 2001 and were to end on the third anniversary
thereof; provided that, with respect to Dr. Harlan W. Waksal and Dr. Samuel D.
Waksal, the term was to automatically be extended for one additional day each
day, unless a notice not to extend is provided. The employment agreement with
Dr. Samuel D. Waksal is no longer in effect.

As of February 1, 2002 Clifford R. Saffron entered into an employment
agreement with us, effective as of that date and for a term of one year from
that date, during which period salary, bonus and benefits were to be provided to
Mr. Saffron. This employment agreement was amended by letter agreement dated
April 18, 2002, which provided for promotion of Mr. Saffron and a corresponding
additional grant of options. This employment agreement is no longer in effect.

The terms and conditions of these employment and separation agreements
are discussed below.

HARLAN W. WAKSAL. Pursuant to the employment agreement with Dr. Waksal,
he originally served as the Company's Executive Vice President and Chief
Operation Officer and Director, then as the Company's President and Chief
Executive Officer and Director and currently as the Company's Chief Scientific
Officer and Director. Dr. Waksal's base salary is required to be not less than
$455,000 and he is eligible to receive an annual bonus; provided, that, the
annual bonus shall not be less than $1,000,000 minus his base salary for the
relevant year.

Dr. Waksal is entitled to participate in customary employee benefit
plans and programs sponsored by us. In addition, we will reimburse Dr. Waksal
for up to $15,000 annually for personal tax planning and financial advice and
will provide him with a term life insurance policy with a death benefit of at
least $5,000,000. On September 19, 2001, pursuant to the terms of the employment
agreement, Dr. Waksal was

79

granted a ten year stock option to acquire 1,000,000 shares of our common stock
at an exercise price per share equal to $50.01, the fair market value at the
time of the grant. The stock options will vest as to 100% of the shares subject
thereto on the third anniversary of the date of grant; provided, that, 33 1/3%
of the shares subject to the stock option will each automatically vest when our
ten day average stock price reaches $60, $80 and $100 per share, respectively.
In addition, the stock option shall become 100% vested upon a "change in
control" of the Company. These options vested as to the first 33 1/3% on October
31, 2001.

If Dr. Waksal's employment is terminated by the Company without "cause"
or by Dr. Waksal for "good reason," Dr. Waksal will be paid or provided, in
addition to accrued but unpaid compensation and benefits and pro-rata bonus, a
(a) lump-sum cash payment equal to three times the sum of his base salary and
highest bonus paid in last three years (with highest bonus paid deemed to be at
least two times his then current base salary); (b) continuation of health and
welfare benefits for three years; (c) immediate vesting of all stock-based
awards, including the stock options discussed above and all outstanding options
shall remain exercisable until the remainder of their term regardless of any
termination of employment provisions therein contained; (d) lump sum payment
equal to the present value of our contributions which would have been made under
all of our retirement plans if he had continued to be employed by us for an
additional three years and (e) payment by us of all contributions or payments
for the year of termination under all insurance benefits or policies for the
benefit of Dr. Waksal of which he shall become the owner.

If any of the payments to be made to Dr. Waksal could result in the
imposition of an excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended, we shall pay Dr. Waksal an additional amount to fully gross
him up for such taxes, unless, by reducing the amounts payable to him by 10%, no
amounts would be subject to the excise tax, in which case the payments shall be
so reduced.

The employment agreement contains confidentiality, non-competition and
non-solicitation provisions.

For purposes of the employment agreement, we will have "cause" to
terminate Dr. Waksal upon (a) a final conviction or plea of guilty or no contest
to a felony involving moral turpitude or (b) willful misconduct that is
materially and demonstrably injurious economically to us. Among other events,
Dr. Waksal will have "good reason" to terminate his employment with the Company
(a) if there is any material and adverse change in his duties or
responsibilities, (b) if there is a reduction in his base salary, bonus
opportunity, or any material benefit, (c) for any reason during the thirty-day
period following the first anniversary of a change in control of us, (d) if we
provide a notice of non-renewal of the term, (e) if he is required to relocate,
or (f) if there is a breach of any material provision of the employment
agreement by us. Since its execution, this employment agreement has not been
amended to reflect any of the changes in Dr. Waksal's responsibilities or title.

DANIEL S. LYNCH. Mr. Lynch's employment agreement is substantially the
same as the employment agreement with Dr. Harlan W. Waksal, except that: (a) he
serves as Senior Vice President and Chief Administrative Officer; (b) the term
of his agreement does not automatically renew; (c) his base salary is required
to be not less than $360,000 and his minimum guaranteed bonus is $360,000; (d)
he was granted stock options to acquire 200,000 shares of our common stock which
vest as to 33 1/3% of the shares on each of the first three anniversaries of the
date of grant; and (e) upon any termination of his employment by us without
"cause" or by Mr. Lynch for "good reason," his bonus is deemed to be no less
than $360,000. In addition, among other events, Mr. Lynch will have "good
reason" to terminate his employment with us (a) if there is any material and
adverse change in his duties or responsibilities, (b) if there is a reduction in
his base salary, bonus opportunity, or any material benefit, (c) if he is
required to relocate, or (d) if there is a breach of any material provision of
the employment agreement by us. Since its execution, this employment agreement
has not been amended to reflect any of the changes in Mr. Lynch's
responsibilities or title.

S. JOSEPH TARNOWSKI. Dr. Tarnowski's employment agreement is
substantially the same as the employment agreement with Dr. Harlan W. Waksal,
except that: (a) he will serve as Senior Vice President, Manufacturing
Operations and Product Development; (b) the term of his agreement does not
automatically renew; (c) his base salary is required to be not less than
$225,000 and his minimum guaranteed bonus is $100,000, (d) he was not granted
stock options; and (e) upon any termination of his employment by us
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without "cause" or by Dr. Tarnowski for "good reason," his bonus is deemed to be
no less than $100,000. In addition, among other events, Dr. Tarnowski will have
"good reason" to terminate his employment with us (a) if there is any material
and adverse change in his duties or responsibilities, (b) if there is a
reduction in his base salary, bonus opportunity, or any material benefit, (c) if
he is required to relocate, or (d) if there is a breach of any material
provision of the employment agreement by us.

CLIFFORD R. SAFFRON. Pursuant to the employment agreement with Mr.
Saffron, he originally served as our Vice President and Special General Counsel
and later served as our Senior Vice President and Special General Counsel. Mr.
Saffron currently serves as our Senior Vice President and General Counsel, but
his employment agreement expired on February 1, 2003 after its one-year term.

Under Mr. Saffron's employment agreement, Mr. Saffron's base salary was
$225,000 per year and he was eligible to receive an annual target bonus of
$100,000 upon attaining performance goals established by us. Mr. Saffron was
entitled to participate in customary employee benefit plans and programs
sponsored by us. Pursuant to the terms of the employment agreement, Mr. Saffron
was granted stock options to acquire 60,000 shares of our common stock at an
exercise price per share equal to $18.44, the fair market value at the time the
grant was approved by the Board of Directors. The stock options vested as to 25%
of the shares on the date of grant and as to 25% of the shares on the first
anniversary of the date of grant. The remaining options will vest as to 25% of
the shares on each of the second and third anniversaries of the date of grant.
In addition, Mr. Saffron was paid a signing bonus of $25,000 in March 2002
pursuant to the employment agreement.

Mr. Saffron's employment agreement was amended by letter agreement dated
April 18, 2002, providing for Mr. Saffron's promotion to Senior Vice President
and Special General Counsel. Under the letter agreement, Mr. Saffron was also
granted additional options to acquire 10,000 shares of our stock at an exercise
price per share equal to $21.54, the fair market value at the time the grant was
approved by the Board of Directors. These stock options vested as to 25% of the
shares on the date of grant and will vest as to 25% of the shares on each of the
first, second and third anniversaries of the date of grant.

SAMUEL D. WAKSAL. Dr. Samuel D. Waksal's employment agreement with us
was substantially the same as the employment agreement with Dr. Harlan W. Waksal
except that: (a) he served as the Company's President and Chief Executive
Officer; (b) his base salary was required to be not less than $500,000 per year;
and (c) he was granted stock options to acquire 1,250,000 shares of our common
stock. On May 22, 2002, we entered into a Separation Agreement with Dr. Samuel
D. Waksal pursuant to which Dr. Samuel D. Waksal resigned his directorship,
offices and positions within the Company effective as of that date and
terminated his employment agreement with the Company. Pursuant to the terms of
the Separation Agreement, we agreed to provide to Dr. Samuel D. Waksal: (i) a
cash payment of $7,000,000; (ii) medical, hospitalization, dental and life
insurance programs for a period of three years at the level in effect while Dr.
Samuel D. Waksal was employed by the Company; (iii) term life insurance
purchased by the Company for the benefit of Dr. Samuel D. Waksal or his
designated beneficiaries with a death benefit of $5,000,000, to be maintained by
us for six years; (iv) the immediate vesting of 833,333 unvested employee stock
options held by Dr. Samuel D. Waksal; (v) the payment of all reasonable business
expenses incurred by Dr. Samuel D. Waksal prior to his termination; (vi)
payments that the Dr. Samuel D. Waksal was entitled to receive under Section
8(e) of his employment agreement; (vii) payment of the cost of a crisis
management consultant for a period of six months; and (vii) payment for legal
fees incurred in connection with the negotiation of the Separation Agreement of
up to $35,000. In an action brought by us in August 2002 against Dr. Samuel D.
Waksal, we are seeking repayment from Dr. Samuel D. Waksal of all of the
above-described amounts paid under the Separation Agreement and the cancellation
of the 833,333 employee stock options that became vested pursuant to the
Separation Agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended December 31, 2002, the following Directors
served on the Compensation Committee: Robert F. Goldhammer, Richard Barth, David
M. Kies, Paul B. Kopperl, Peter S. Ringrose and William R. Miller, none of whom
is an employee of the Company, or any of its subsidiaries nor has ever been an
executive officer of the Company or any of its subsidiaries. Dr. Ringrose
resigned from the

81

Compensation Committee on March 19, 2002, Mr. Barth resigned from the Board on
April 2, 2002 and Mr. Goldhammer resigned from the Compensation Committee on
April 3, 2002. Dr. Ringrose was an executive officer of Bristol-Myers Squibb
Company ("BMS") prior to his recent retirement from BMS. See, Item
13 -- "Certain Relationships and Transactions" for a description of our
relationship with BMS.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table shows the amount of our common stock beneficially
owned (unless otherwise indicated) by persons or groups of related persons that
beneficially own greater than 5% of the our common stock, our current directors,
our named executive officers and our current directors and executive officers as
a group. Except as otherwise indicated, all information is as of April 15th,
2003. "Beneficial Ownership" is a technical term defined by the SEC to mean more
than ownership in the usual sense. For example, you "beneficially own" the
Company's common stock if you own it directly or indirectly (e.g., through a
relationship, a position as a trustee or through an agreement) or if you have
the right to acquire it within 60 days (e.g., upon the exercise of options).

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* Less than 1%

(1) Unless otherwise noted, each person's address is in care of ImClone Systems
Incorporated, 180 Varick Street, Sixth Floor, New York, New York 10014.

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(2) The percentage of voting stock owned by each stockholder is calculated by
dividing (1) the number of shares deemed to be beneficially held by such
stockholder as of April 15, 2003, as determined in accordance with Rule 13d
3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
by (2) the sum of (A) 74,007,744, which is the number of shares of common
stock outstanding as of June 15, 2003, plus (B) the number of shares of
common stock issuable upon exercise of currently exercisable options and
other derivative securities held by such stockholder. For purposes of this
security ownership table, "currently exercisable options" consist of
options exercisable as of April 15, 2003 or within 60 days after April 15,
2003. Except as indicated by footnote, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.

(3) This information is as of March 6, 2002 and was obtained from Amendment No.
2 to Schedule 13D, filed with the SEC on March 6, 2002.

(4) These percentages have been calculated based upon the number of shares
reported as beneficially owned in the stockholder's latest Schedule 13G or
Schedule 13D filing prior to April 15, 2003 and the number of shares
outstanding as of June 15, 2003.

(5) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 10, 2003. It includes 363,040 shares of
common stock resulting from the assumed conversion of the $20,000,000
principal amount of ImClone Systems Incorporated 5 1/2% convertible notes
due March 1, 2005.

(6) This information was obtained from Amendment No. 4 to Schedule 13G, filed
with the SEC on February 14, 2002. This number includes 4,766,438 shares
beneficially owned by Fidelity Management & Research Company, a wholly
owned subsidiary of FMR Corp. and a registered investment adviser, as a
result of acting as an investment adviser to various registered investment
companies. FMR Group is the parent company of various Fidelity funds and
related parties. Edward C. Johnson 3d, Chairman of FMR Corp., and Abigail
P. Johnson, a Director of FMR Corp., are also listed on the Schedule 13G as
beneficial owners of the 4,775,560 shares.

(7) Includes 333,334 shares issuable upon the exercise of currently exercisable
options, 4,086 shares owned by Dr. Harlan W. Waksal's sons and 157 shares
owned in a joint account with his wife.

(8) Includes 200,000 shares issuable upon the exercise of currently exercisable
options and 11,785 shares held by Mr. Goldhammer's spouse.

(9) Includes 1,250,000 shares issuable upon exercise of currently exercisable
options. In an action brought by the Company on August 14, 2002 against Dr.
Samuel D. Waksal in Supreme Court of the State of New York, New York
County, the Company is seeking the cancellation of 833,333 of these
options. See, "Employment and Separation Agreements". Dr. Samuel D. Waksal
formerly served as the Company's President and Chief Executive Officer.

(10) Includes 102,500 shares issuable upon the exercise of currently exercisable
options; 30,000 shares held by a family foundation of which Mr. Kies is one
of the trustees; 16,400 shares held as co-trustee for a trust for Mr. Kies'
eldest minor son and 615 shares held by Mr. Kies' spouse as to which Mr.
Kies disclaims beneficial ownership.

(11) Consists of 415,726 shares issuable upon the exercise of currently
exercisable options.

(12) Includes 278,584 shares issuable upon the exercise of currently exercisable
options.

(13) Includes 96,070 shares issuable upon the exercise of currently exercisable
options; an aggregate of 139,486 shares held by trusts of which Mr. Kopperl
is sole beneficiary and 500 shares held by Mr. Kopperl's spouse as to which
Mr. Kopperl disclaims beneficial ownership.

(14) Includes 102,500 shares issuable upon exercise of currently exercisable
options.

(15) Consists of 196,667 shares issuable upon exercise of currently exercisable
options.

(16) Includes 173,176 shares issuable upon exercise of currently exercisable
options.

(17) Includes 131,474 shares issuable upon exercise of currently exercisable
options.

(18) Address is in care of Bristol-Myers Squibb Company, 345 Park Avenue, New
York, New York 10154.
83

(19) Consists of 50,000 shares issuable upon exercise of currently exercisable
options.

(20) Includes 42,000 shares issuable upon exercise of currently exercisable
options.

(21) Includes 32,500 shares issuable upon exercise of currently exercisable
options.

(22) Consists of 6,308 shares issuable upon exercise of currently exercisable
options.

(23) Includes an aggregate of (i) 4,512,643 shares issuable upon the exercise of
currently exercisable options and (ii) 1,115 shares as to which beneficial
ownership is disclaimed.

The following table sets forth certain information regarding equity
compensation plan information for the year ended December 31, 2002.

1998 NON-QUALIFIED STOCK OPTION PLAN

Our 1998 Non-Qualified Stock Option Plan was adopted on May 27, 1998 and
has not been approved by shareholders. Under the plan, non-qualified stock
options to purchase our common stock may be granted to persons who at the time
of grant are consultants, advisors or non-officer employees of the Company or a
subsidiary. The maximum number of shares that may be issued under the plan is 10
million, subject to adjustments for corporate transactions. The plan is
administered by the Compensation and Stock Option Committee (the "Compensation
Committee").

No options may be granted after May 27, 2008 and each option must have a
term not exceeding 10 years. The number of underlying shares, the exercise price
and other terms and conditions of the stock options granted under the plan are
determined by the Compensation Committee, but, except as otherwise provided by
the Compensation Committee, unvested options are forfeited immediately upon a
termination of employment for any reason except death or disability and vested
options are exercisable for 30 days after such termination. In the case of a
termination by reason of death or disability vested options are generally
exercisable for 12 months.

Options are not transferable except in the case of death or, if
permitted by the Compensation Committee, to certain members of the immediate
family of the optionee. The Board of Directors may amend or terminate the plan
at any time except for actions which are adverse to options previously granted.

ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS

RELATIONSHIP WITH BRISTOL-MYERS SQUIBB COMPANY

One of our Directors, Dr. Andrew G. Bodnar is also an officer of
Bristol-Myers Squibb Company, a Delaware corporation ("BMS"). Our relationship
with BMS is described below.

On September 19, 2001, we entered into an acquisition agreement (the
"Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a
Delaware corporation which is a wholly-owned subsidiary of BMS ("BMS
Biologics"), 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. The tender

84

offer by BMS Biologics, available to all stockholders, allowed for our
then-current employees and Directors who held exercisable options to purchase
our shares of common stock having exercise prices less than $70.00 per share to
conditionally exercise any or all of those options and tender the underlying
shares in the tender offer. In connection with the Acquisition Agreement, we
entered into a stockholder agreement with BMS and BMS Biologics, dated as of
September 19, 2001 (the "Stockholder Agreement"), pursuant to which we agreed
with BMS and BMS Biologics 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. The
Stockholder Agreement also sets forth BMS's (i) limitation on additional
purchases of shares, (ii) option to purchase shares in the event of dilution and
(iii) restrictions as to transfer of shares. Concurrently with the execution of
the Acquisition Agreement and the Stockholder Agreement, we entered into a
development, promotion, distribution and supply agreement (the "Commercial
Agreement") with BMS and E.R. Squibb & Sons, L.L.C., a Delaware limited
liability company which is a wholly-owned subsidiary of BMS ("E.R. Squibb"),
relating to ERBITUX, our lead therapeutic product candidate, pursuant to which,
among other things, the parties are co-developing and co-promoting ERBITUX in
the United States and Canada, and co-developing and co-promoting ERBITUX in
Japan (either together or co-exclusively with Merck KGaA).

On March 5, 2002, we 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 role of BMS in the ERBITUX development
program. One of the principal economic changes to the Commercial Agreement is
that we received $140,000,000 on March 7, 2002 and an additional payment of
$60,000,000 was received on March 5, 2003. Such payments are in lieu of the
$300,000,000 payment we would have received on acceptance by the United States
Food and Drug Administration ("FDA") of the ERBITUX Biologics License
Application under the original terms of the Commercial Agreement. In addition,
we agreed to resume construction of our Multiple Product Facility as soon as
reasonably practicable after the execution of the amendment.

On October 29, 2001, pursuant to the Acquisition Agreement, BMS
Biologics accepted for payment pursuant to the tender offer 14,392,003 shares of
our common stock on a pro rata basis from all tendering shareholders and those
conditionally exercising stock options.

The Stockholder Agreement gave BMS the right to nominate two Directors
so long as its ownership interest in the Company is 12.5% or greater. Initially,
BMS designated Dr. Peter S. Ringrose, BMS's former Chief Scientific Officer and
President, Pharmaceutical Research Institute, and Dr. Andrew G. Bodnar, BMS's
Senior Vice President, Strategy and Medical & External Affairs, as the BMS
Directors. BMS continues to have an ownership interest greater than 12.5% and to
possess the right to nominate two Directors. However, BMS has not yet nominated
a replacement to fill the seat on the Board vacated by Dr. Ringrose, who
recently retired from his position at BMS, and also resigned from his Director
position with us. Therefore, we currently expect that BMS will nominate only one
Director for election at the meeting.

In exchange for the rights granted to BMS under 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 on September 19, 2001,
$140,000,000 was received on March 7, 2002, $60,000,000 was received on March 5,
2003, $250,000,000 is payable upon receipt of marketing approval from the FDA
with respect to the 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. Except for our expenses incurred pursuant to a co-promotion option
that we have exercised, E.R. Squibb is responsible for 100% of the distribution,
sales and marketing costs for ERBITUX in the United States and Canada, and we
and E.R. Squibb will each 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
85

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. The Company will supply ERBITUX in bulk form for
clinical use at our fully burdened manufacturing cost plus a mark-up of 10%. In
addition to the up-front and milestone payments, the Commercial Agreement
provides that 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
(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 us, each will be responsible
for 50% of the cost of all clinical studies in Japan.

ITEM 14. CONTROLS AND PROCEDURES

We have strengthened and will continue to strengthen our controls and
procedures and improve our corporate governance in order to ensure the accuracy
and timeliness of our financial reporting, as well as our compliance with tax
and other regulatory requirements. As part of this commitment, we have initiated
a number of steps, including those in response to the Sarbanes-Oxley Act of 2002
and corresponding SEC and Nasdaq requirements or proposals. Specific actions
taken or planned by us include the following:

- We have adopted Corporate Governance Guidelines, a Code of Business
Conduct and Ethics, and formal charters for all of our Board
committees. In addition, all employees, officers, directors,
consultants and Scientific Advisory Board members will be required to
sign an acknowledgement on an annual basis that they have read the
Code of Business Conduct and Ethics policy, understand its contents,
and agree to abide by its terms as a condition of employment or
association with the Company.

- We strengthened our Audit Committee Charter and appointed a new member
to our Board of Directors and Audit Committee, John A. Fazio. Mr.
Fazio is a former Senior General Practice Partner of
PricewaterhouseCoopers, qualifies as a "financial expert" under the
Sarbanes-Oxley Act, and brings considerable financial expertise in the
pharmaceutical industry.

- We established a Disclosure Committee to formally organize and oversee
the disclosure process. The Committee consists of finance, investor
relations, business development, operations and legal personnel, with
a mandate to design and establish controls and other procedures to
assist our senior officers in overseeing the accuracy and timeliness
of our disclosures.

- We created an Internal Audit function with a formal charter, which
mandates that the department provide independent, objective and timely
analyses and assurances to senior management and the Board of
Directors as to the adequacy and effectiveness of our risk management,
control and governance processes.

- We are conducting a comprehensive review of the adequacy of our
policies and procedures with respect to the administration of our
equity compensation plans (including stock option and warrant plans)
and purchases and sales of our securities. We revised our Insider
Trading Policy and require that all employees, officers, directors,
consultants and Scientific Advisory Board members sign an
acknowledgement that they have read the policy, understand its
contents and agree to abide by its terms as a condition of employment
or association with the Company. In addition, we significantly
increased the number of senior managers designated as executive
officers obligated to file reports under Section 16(a) of the Exchange
Act. In addition, we are conducting an internal review of our
withholding and reporting policies and established procedures to
ensure that we are in compliance with federal, state and local tax
codes and regulations.

- We are taking steps to ensure that we are in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act. The Company
intends to modify and enhance its internal control

86

structure based on the recommendations of the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The COSO Integrated
Framework -- Internal Controls report provides a sound basis for establishing
internal control systems and determining their effectiveness. It is
generally regarded as providing the most recognizable and suitable set
of control criteria against which internal controls and procedures for
financial reporting may be judged, and it meets the test of an
authoritative framework that is widely accepted. The SEC's rules for
Section 404 refer to the COSO framework and U.S. professional auditing
literature embraces COSO. For this purpose, we will engage the
assistance of a professional services firm that, in addition to
providing expert advice and guidance, will ensure that an objective
assessment is performed.

- We have established the position of Chief Tax Officer, a new position
charged with the responsibility of supervising our policies and
procedures with respect to federal, state, local and foreign tax
administration and compliance, including, but not limited to,
compliance with tax withholding requirements.

Our acting Chief Executive Officer and acting Chief Financial Officer
have evaluated the effectiveness of our "disclosure controls and procedures" (as
defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date (the
"Evaluation Date") within 90 days of the filing date of this annual report.
Based on the steps outlined in the preceding paragraph, our acting Chief
Executive Officer and acting Chief Financial Officer have concluded that, as of
the Evaluation Date, our disclosure controls and procedures were effective and
designed to ensure that material information relating to us and our consolidated
subsidiary would be made known to them by others within those entities. We are
committed to performing ongoing periodic reviews of the effectiveness of our
disclosure controls and procedures and we will continue to make improvements to
our control structure as needed.

87

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) and (2) The response to this portion of Item 15 is submitted as a
separate section of this report commencing on page F-1.
(a)(3) Exhibits (numbered in accordance with Item 601 of Regulation
S-K).

- ---------------

(A) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064.

(B) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064. Confidential
treatment was granted for a portion of this exhibit.

(C) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-48240. Confidential
treatment was granted for a portion of this exhibit.

(D) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed June 26, 1992.

(E) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992. Confidential treatment was granted for a portion of this Exhibit.

(F) Previously filed with the Commission; incorporated by reference to Amendment
No. 1 to Registration Statement on to Form S-1, File No. 33-61234.

(G) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993. Confidential Treatment was granted for a portion of this Exhibit.

(H) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.

(I) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994.

(J) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-2, File No. 33-98676.

(K) Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.

94

(L) Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.

(M) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, as amended. Confidential treatment was granted for a portion of this
Exhibit.

(N) Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated February 10, 1998.

(O) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(P) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted for a portion of this Exhibit.

(Q) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.

(R) Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-67335.
Confidential treatment was granted for a portion of this Exhibit.

(S) Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-8, File No. 333-64827.

(T) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.

(U) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

(V) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
Confidential Treatment has been granted for a portion of this exhibit.

(W) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.

(X) Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-8; File No. 333-30172.

(Y) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000.

(Z) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000.

(AA) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, for the year ended December 31, 2000.

(AB) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended June 30,
2001.

(AC) Previously filed with the Commission; incorporated by reference to the
Company's Schedule 14D-9 filed on September 28, 2001.

(AD) Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated February 19, 2002.

(AE) Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated March 6, 2002.

(AF) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, for the year ended December 31, 2001.

95

(AG) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, for the year ended December 31, 2001,
and Confidential Treatment has been requested for a portion of this
exhibit.

(AH) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended June 30,
2002.

(AI) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30,
2002.

(AJ) Filed herewith.

(b) Reports on Form 8-K

On November 15, 2002, we filed a report on Form 8-K regarding the issuance
of a press release announcing (i) our financial results for the third quarter
2002 and (ii) an update on our joint colorectal cancer clinical development
program with Bristol-Myers Squibb Company for our lead drug candidate ERBITUX.

96

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

IMCLONE SYSTEMS INCORPORATED
June 23, 2003
By /s/ DANIEL S. LYNCH
------------------------------------
(DANIEL S. LYNCH)
ACTING CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

98

SECTION 302 CERTIFICATIONS --

CERTIFICATION

I, Daniel S. Lynch, Senior Vice President, Chief Administrative Officer
and Acting Chief Executive Officer of ImClone Systems Incorporated, certify
that:

1. I have reviewed this annual report on Form 10-K for the Year ending December
31, 2002 of ImClone Systems Incorporated;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date.

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the Audit Committee
of registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: June 23, 2003

/s/ DANIEL S. LYNCH
--------------------------------------
Daniel S. Lynch
Acting Chief Executive Officer

99

SECTION 302 CERTIFICATIONS --

CERTIFICATION

I, Michael J. Howerton, Vice President, Finance and Business
Development, Secretary and Acting Chief Financial Officer of ImClone Systems
Incorporated, certify that:

1. I have reviewed this annual report on Form 10-K for the Year ending December
31, 2002 of ImClone Systems Incorporated;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date.

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the Audit Committee
of registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: June 23, 2003

/s/ MICHAEL J. HOWERTON
--------------------------------------
Michael J. Howerton
Acting Chief Financial Officer

100

INDEX TO FINANCIAL STATEMENTS

AUDITED FINANCIAL STATEMENTS:

Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 31, 2002 and 2001... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000.......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 2002, 2001 and 2000...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.......................... F-6
Notes to Consolidated Financial Statements.................. F-7

F-1

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
IMCLONE SYSTEMS INCORPORATED:

We have audited the consolidated financial statements of ImClone Systems
Incorporated and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ImClone Systems
Incorporated and subsidiary as of December 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Notes 2(g) and 11 to the consolidated financial statements, the
Company changed its method of revenue recognition for certain upfront
non-refundable fees in 2000.

As discussed in Note 3 to the consolidated financial statements, the Company
restated its consolidated financial statements for the years ended December 31,
2001 and 2000.

KPMG LLP

Princeton, New Jersey
June 20, 2003

F-2

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

See accompanying notes to consolidated financial statements
F-3

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements
F-4

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements
F-5

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes to consolidated financial statements
F-6

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The numbers are shown in the text of these Notes to Consolidated
Financial Statements as actual amounts. Tables and charts note where numbers are
shown in thousands.

(1) BUSINESS OVERVIEW AND BASIS OF PREPARATION

ImClone Systems Incorporated (the "Company") is a biopharmaceutical
company advancing oncology care by developing a portfolio of targeted biologic
treatments designed to address the medical needs of patients with cancer. The
Company's three primary programs include growth factor blockers, angiogenesis
inhibitors and cancer vaccines. A substantial portion of the Company's efforts
and resources are devoted to research and development conducted on its own
behalf and through collaborations with corporate partners and academic research
and clinical institutions. The Company has not derived any commercial revenue
from product sales. The Company is operated as one business and is
comprehensively managed by a single management team that reports to the acting
Chief Executive Officer. The Company does not operate separate lines of business
or separate business entities with respect to any of its product candidates. In
addition, the Company does not conduct any of its operations outside of the
United States. Accordingly, the Company does not prepare discrete financial
information with respect to separate product areas or by location and
accordingly the Company does not have separately reportable segments. The
Company employs accounting policies that are in accordance with accounting
principles generally accepted in the United States of America.

The biopharmaceutical industry is subject to rapid and significant
technological change. The Company has numerous competitors, including major
pharmaceutical companies, specialized biotechnology firms, universities and
other research institutions. These competitors may succeed in developing
technologies and products that are more effective than any that are being
developed by the Company or that would render the Company's technology and
products obsolete and non-competitive. Many of these competitors have access to
substantially greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in
pre-clinical testing and human clinical trials of new or improved pharmaceutical
products. The Company is aware of various products under development or
manufactured by competitors that are used for the prevention, diagnosis or
treatment of certain diseases the Company has targeted for product development,
some of which use therapeutic approaches that compete directly with certain of
the Company's product candidates. The Company has limited experience in
conducting and managing pre-clinical testing necessary to enter clinical trials
required to obtain government approvals and has limited experience in conducting
clinical trials. Accordingly, the Company's competitors may succeed in obtaining
United States Food and Drug Administration ("FDA") approval for products more
rapidly than the Company, which could adversely affect the Company's ability to
further develop and market its products. If the Company commences significant
commercial sales of its products it will also be competing, among other factors,
with respect to manufacturing efficiency and marketing capabilities, areas in
which the Company has limited experience.

The Company's lead product candidate, ERBITUX(TM) (cetuximab), formerly
known as IMC-C225, is an investigational IgG1 therapeutic monoclonal antibody
that inhibits stimulation of the epidermal growth factor receptor upon which
certain solid tumors depend in order to grow.

Upon the receipt of regulatory approval, the Company intends to
co-promote ERBITUX in the United States and Canada together with its
development, promotion and distribution partner Bristol-Myers Squibb Company
("BMS") through its wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R.
Squibb"). The Company has granted its development and marketing partner, Merck
KGaA, rights to market ERBITUX outside the United States and Canada. In Japan,
the Company and E.R. Squibb will share the development and marketing of ERBITUX,
either together or co-exclusively with Merck KGaA. The Company is manufacturing
ERBITUX for clinical trials and potential commercial sales. According to the
agreements with BMS and Merck KGaA each will be obligated to pay the Company
certain royalties on the sales of ERBITUX.

F-7

On December 28, 2001, the FDA issued a "refusal to file" letter with
respect to the Company's rolling Biologics License Application ("BLA") for the
proposed indication of ERBITUX in combination with irinotecan (CAMPOSTAR(R),
CPT-11) for the treatment of EGFR-positive colorectal cancer patients who are
refractory to irinotecan treatment. On February 26, 2002, the Company, along
with representatives from its strategic partners BMS and Merck KGaA, met with
the FDA to discuss the FDA's "refusal to file" letter and to seek guidance on
how to proceed. Significant ERBITUX development efforts have been undertaken to
address the concerns raised by the FDA. The Company believes that ERBITUX will,
if approved, be an important drug in the oncology field and the Company will
continue to focus its efforts on gaining approval for this product.

The Company believes that its existing cash on hand, marketable
securities and amounts to which it is entitled should enable the Company to
maintain its current and planned operations at least through December 31, 2003
and beyond. The Company is 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 contingent amounts include $500,000,000 in cash-based payments under the
development, promotion, distribution and supply agreement (the "Commercial
Agreement") dated September 19, 2001 with BMS and E.R. Squibb, as well as up to
$16,000,000 in equity-based milestone payments under the ERBITUX development and
license agreement with Merck KGaA and up to $18,500,000 in cash-based milestone
payments under the BEC2 development agreement with Merck KGaA. There can be no
assurance that the Company will achieve these milestones. In order to fund the
capital needs after June 2004, the Company may require significant levels of
additional capital and the Company intends 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 the Company will be successful in consummating any such
arrangements. If adequate funds are not available, the Company may be required
to significantly curtail its planned operations. The Company was unable to
timely file this annual report on Form 10-K and its first quarter 2003 report on
Form 10-Q, as required by Nasdaq Marketplace Rule 4310(c)(14). Should the
Company be delisted as a result, such a delisting may have a material adverse
effect on the Company's ability to raise capital in the public markets.

On October 16, 2000, the Company effected a 2-for-1 stock split in the
form of a stock dividend. Accordingly, shareholders of record as of September
29, 2000 of the Company's approximately 32.4 million shares of common stock
outstanding each received one additional share of common stock for each share of
common stock they owned on the record date. The stock split was recorded in the
December 31, 2000 consolidated balance sheet as a transfer of $32,000 from
additional paid-in capital to common stock. All references to number of shares,
per share amounts, weighted average shares, option and warrant shares and
related exercise prices for all periods presented in the accompanying
consolidated statements of operations, and notes to the consolidated financial
statements have been retroactively adjusted to give effect to the stock split.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements
of ImClone Systems Incorporated and its wholly-owned subsidiary, Endoclone
Incorporated. All significant intercompany balances and transactions have been
eliminated in consolidation.

(b) CASH EQUIVALENTS

Cash equivalents consist primarily of U.S. Government instruments,
commercial paper, master notes and other readily marketable debt instruments.
The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents.

(c) INVESTMENTS IN SECURITIES

The Company classifies its investments in debt and marketable equity
securities as available-for-sale.

F-8

Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of accumulated comprehensive income (loss) until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis.

A decline in the market value of any available-for-sale security below
cost that is deemed to be other than temporary results in a reduction in
carrying amount to fair value. The impairment is charged to earnings and a new
cost basis for the security is established. Dividend and interest income are
recognized when earned.

The Company accounts for its investments in non-marketable equity
securities using the cost method of accounting for investments where the
Company's ownership is less than 20% and the equity method of accounting for
investments where the Company's ownership is between 20% and 50%. The Company
utilizes these methods of accounting for its investments in non-marketable
equity securities unless there is an other-than-temporary impairment, at which
point the Company writes the investment down to its estimated net realizable
value.

(d) LONG-LIVED ASSETS

Property, plant and equipment are stated at cost. Equipment under
capital leases is stated at the present value of minimum lease payments.
Depreciation of fixed assets is provided by straight-line methods over estimated
useful lives of three to twenty years, and leasehold improvements are being
amortized over the related lease term or the service lives of the improvements,
whichever is shorter.

Patent and patent application costs are capitalized and amortized on a
straight-line basis over their respective expected useful lives, up to a 15-year
period.

The Company reviews long-lived assets for impairment when events or
changes in business conditions indicate that their full carrying value may not
be recovered. Assets are considered to be impaired and are written down to fair
value if expected associated undiscounted cash flows are less than the carrying
amounts. Fair value is generally the present value of the expected associated
cash flows.

(e) DEFERRED FINANCING COSTS

Costs incurred in issuing the 5 1/2% Convertible Subordinated Notes and
in obtaining the Industrial Development Revenue Bonds issued in 1990 (the "1990
IDA Bonds") (see Note 9) are amortized using the straight-line method over the
terms of the related instrument. The amortization of deferred financing costs is
included in interest expense in the consolidated statements of operations.

(f) COMPUTER SOFTWARE COSTS

The Company records the costs of internal-use computer software in
accordance with AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires that certain internal-use computer software costs be capitalized and
amortized over the useful life of the asset. Total costs capitalized under this
policy are included in property and equipment.

(g) REVENUE RECOGNITION

The Company adopted Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") in the fourth quarter of its
fiscal year ended December 31, 2000. Accordingly, the Company implemented a
change in accounting policy effective January 1, 2000 with respect to revenue
recognition associated with non-refundable fees received upon entering into
research and licensing arrangements in accordance with the guidance provided in
SAB 101. Beginning January 1, 2000, non-refundable fees received upon entering
into license and other collaborative agreements where the Company has continuing
involvement are recorded as deferred revenue and recognized over the estimated
service period. Payments received under the Commercial Agreement 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
F-9

to the estimated total of such costs to be incurred over the term of the
agreement. In previous years, prior to SAB 101, non-refundable upfront fees from
licensing and other collaborative agreements were recognized as revenue when
received, provided all contractual obligations of the Company relating to such
fees had been fulfilled.

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.

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, are recognized as
revenue upon the achievement of the specified milestone.

Research and development funding revenue is derived from collaborative
agreements and is recognized in accordance with the terms of the respective
contracts.

Royalty revenue is recognized when earned and collection is probable.
Royalty revenue is derived from sales of products by corporate partners using
licensed Company technology.

Revenue recognized in the accompanying consolidated statements of
operations is not subject to repayment. Amounts received that are subject to
repayment if certain specified goals are not met are classified as fees
potentially refundable to corporate partner; revenue recognition of such amounts
will commence upon the achievement of such specified goals. Payments received
that are related to future performance are classified as deferred revenue and
recognized when the revenue is earned.

(h) FOREIGN CURRENCY TRANSACTIONS

Gains and losses from foreign currency transactions, such as those
resulting from the translation and settlement of receivables and payables
denominated in foreign currencies, are included in the consolidated statements
of operations. The Company does not currently use derivative financial
instruments to manage the risks associated with foreign currency fluctuations.
The Company recorded losses on foreign currency transactions of approximately
$57,000 and $35,000 for the years ended December 31, 2002 and 2001,
respectively, and gains on foreign currency transactions of approximately
$25,000 for the year ended December 31, 2000. Gains and losses from foreign
currency transactions are included as a component of operating expenses.

(i) STOCK-BASED COMPENSATION PLANS

The Company has two types of stock-based compensation plans: stock
option and stock purchase. The Company accounts for its stock-based compensation
plans in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations including the Statement of Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- An Interpretation of APB Opinion No. 25" ("Interpretation No.
44"). Accordingly, compensation expense would be recorded on the date of grant
of an option to an employee or member of the Board of Directors (the "Board")
only if the market price of the underlying stock on the date of grant exceeded
the exercise price. During the years 2000-2002 the Company's stock option grants
were based on the closing market price of the Company's stock on the date of
grant.

The fair value of stock options was estimated using the Black-Scholes
option pricing model. The Black-Scholes model considers a number of variables
including the exercise price and the expected life of the option, the current
price of the common stock, the expected volatility and the dividend yield of the
underlying
F-10

common stock, and the risk-free interest rate during the expected term of the
option. The following summarizes the weighted average assumptions used:

Changes in assumptions used could have a material effect upon the
pro-forma results.

Had compensation cost for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the fair value method of SFAS No. 123, the Company's net loss to common
stockholders and net loss per common share would have been increased to the pro
forma amounts indicated below:

The pro forma effect on the net loss for the years ended December 31,
2002, 2001 and 2000 is not necessarily indicative of the pro forma effect on
future years' operating results.

(j) RESEARCH AND DEVELOPMENT

Research and development expenses are comprised of the following types
of costs incurred in performing research and development activities: salaries
and benefits, allocated overhead and occupancy costs, clinical trial and related
clinical manufacturing costs, contract services and other outside costs.
Research and development expenses also include costs related to activities
performed on behalf of corporate partners that are subject to reimbursement.
Research and development costs are expensed as incurred. The Company is
currently producing clinical and commercial grade ERBITUX in its single product
manufacturing facility (the "Single Product Facility") and under a third-party
manufacturing arrangement. The cost associated with these manufacturing
activities is being recognized as research and development expense and will
continue to be until regulatory approval for commercial use is received or until
the Company receives binding purchase obligations for the commercial supply of
ERBITUX from its corporate partners.

(k) INTEREST

Interest costs are expensed as incurred, except to the extent such
interest is related to construction in progress, in which case interest is
capitalized. Interest costs capitalized for the years ended December 31, 2002,
2001 and 2000, were $2,077,000, $1,656,000, and $846,000, respectively. Interest
expense includes the amortization of deferred financing costs associated with
the Company's February 2000 private placement of $240,000,000 in 5 1/2%
convertible subordinated notes and the IDA Bonds. See Note 9.

F-11

(l) INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income or expense in the period that includes
the enactment date of the rate change.

(m) USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and related revenue and
expense accounts and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with generally
accepted accounting principles in the United States of America. Actual results
could differ materially from those estimates.

(n) NET LOSS PER COMMON SHARE

Basic and diluted net loss per common share is based on the net loss for
the relevant period, adjusted for series A convertible preferred stock ("series
A preferred stock") dividends, redemption premiums and the assumed incremental
yield attributable to the beneficial conversion feature aggregating $6,773,000
for the year ended December 31, 2000, divided by the weighted average number of
shares issued and outstanding during the period. For purposes of the diluted
loss per share calculation, the exercise or conversion of all potential common
shares is not included since their effect would be anti-dilutive for all years
presented. Potential common shares outstanding which represent new shares that
could be issued under convertible preferred stock, convertible debt, stock
options and stock warrants by the Company totaled approximately 17,870,000,
15,418,000 and 19,143,000 as of December 31, 2002, 2001 and 2000, respectively.

(o) COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income (loss) consists of net
income (loss) and net unrealized gains (losses) on securities and is presented
in the consolidated statements of stockholders' equity.

(p) RECLASSIFICATION

Certain amounts previously reported have been reclassified to conform to
the current year's presentation.

(q) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the Company adopted the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which establishes new accounting and reporting guidelines for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. SFAS No. 133 was subsequently amended
by SFAS Nos. 137 and 138. SFAS No. 133 generally requires the recognition of all
derivative financial instruments as either assets or liabilities in the
consolidated balance sheets and measurement of those derivatives at fair value.
The adoption of SFAS No. 133 did not have an effect on the results of operations
or the financial position of the Company because the Company has not and does
not currently use derivative financial instruments or engage in hedging
activities.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", effective for fiscal years
beginning after December 15, 2001. This standard addresses

F-12

financial accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-Lived Assets to Be Disposed Of." The Company adopted this
standard on January 1, 2002 and such adoption did not have an impact on its
consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure", effective for fiscal
years ending after December 15, 2002. This standard amends SFAS No. 123
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. The Company has elected to continue to
follow the intrinsic value method of accounting for employee stock options in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
Opinion No. 25. APB No. 25 does not require the recognition of compensation
expense unless the exercise price of employee stock options is less than the
market price of the Company's stock on the date of grant. During the years
2000-2002 the Company's stock option grants were based on the closing market
price of its stock on the date of grant. SFAS No. 148 also amends certain
disclosure requirements related to stock-based employee compensation, which the
Company has adopted and which are reflected under "Stock-Based Compensation
Plans" above.

(3) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

The Company has restated its Consolidated Balance Sheet as of December
31, 2001, primarily to reflect the withholding tax liability and withholding tax
assets primarily relating to the exercises of certain non-qualified stock
options and compensatory warrants described below. The restatement includes
recording withholding tax assets of $13,510,000, a withholding tax liability of
$38,779,000, an Industrial Development Revenue Bonds tax liability of $851,000
and a cumulative increase to accumulated deficit of $26,120,000 as of December
31, 2001. The $26,120,000 increase to accumulated deficit reflects the year 2001
write-down of the $25,269,000 withholding tax asset noted below regarding Dr.
Samuel D. Waksal and the $851,000 expense recorded during the years 1995 through
2001 on the 1990 IDA Bonds. The Company recorded an adjustment of $624,000 to
accumulated deficit as of December 31, 1999. This adjustment was made for the
estimated taxes and accrued interest on the 1990 IDA Bonds and includes the
cumulative expense impact from 1995 through 1999.

The Company has restated its Consolidated Statement of Operations for
the year ended December 31, 2001 primarily to reflect the write-down of the
$25,269,000 withholding tax asset discussed below. The asset write-down reflects
the withholding taxes with respect to exercises of certain non-qualified stock
options and certain warrants attributable to Dr. Samuel D. Waksal. The majority
of these exercise transactions occurred during the years ended December 31, 1999
and 2000. In addition, a $109,000 expense was recorded in connection with the
1990 IDA Bonds, including interest expense of $11,000.

The restatement amount of $118,000 for the year ended December 31, 2000
reflects the expenses recorded in connection with the 1990 IDA Bonds, including
interest expense of $20,000.

Federal and applicable state tax law requires an employer to withhold
income taxes at the time of an employee's exercise of non-qualified stock
options or warrants issued in connection with the performance of services by the
employee. An employer that does not do so is liable for the taxes not withheld
if the employee fails to pay his or her taxes for the year in which the
non-qualified stock options or warrants are exercised. In 2000 and prior years,
the Company generally did not require the withholding of federal, state or local
income taxes and in certain years, employment payroll taxes at the time of the
exercise of non-qualified stock options or warrants. Prior to 1996, the Company
did not comply with tax reporting requirements with respect to the exercise of
non-qualified stock options or warrants.

In January 2003, the New York State Department of Taxation and Finance
("New York State") notified the Company that it was liable for the New York
State and City income taxes that were not withheld because one or more of the
Company's employees who exercised certain non-qualified stock options in 1999
and 2000 failed to pay New York State and City income taxes for those years. At
December 31, 2002, the Company has recorded a gross New York State and City
withholding tax liability of approximately $6,800,000
F-13

related to this matter. On March 13, 2003, the Company entered into a closing
agreement with New York State, paying $4,500,000 to settle the matter. The
Company believes that substantially all of the underpayment of New York State
and City income tax identified by New York State is attributable to the exercise
of non-qualified stock options by its former President and Chief Executive
Officer, Dr. Samuel D. Waksal.

On March 13, 2003, the Company initiated discussions with the Internal
Revenue Service (the "IRS") relating to federal income taxes on the exercise of
non-qualified stock options on which income tax was not properly withheld.
Although the IRS has not yet asserted that the Company is required to make a
payment with respect to such failure to withhold, the IRS may assert that such a
liability exists, and may further assert that the Company is liable for interest
and penalties. The Company has requested and received confirmation from all of
its current and substantially all of its former employees who exercised
non-qualified stock options in 1999 and 2000, on which no income tax was
withheld, that they have reported the appropriate amount of income on their tax
returns and paid the taxes shown as due on those returns. Based on this
information, the Company has determined that all but an insignificant amount of
the potential liability for withholding taxes with respect to exercises of
non-qualified stock options in 1999 and 2000 is attributed to those amounts
related to Dr. Samuel D. Waksal.

In addition, in the course of the Company's investigation into its
potential liability in respect of the non-qualified stock options described
above, the Company has identified certain warrants that were granted in 1991 and
prior years to current and former officers, directors and advisors (including
the four individuals discussed herein) that the Company previously treated as
non-compensatory warrants and thus not subject to tax withholding and
information reporting requirements upon exercise. Accordingly, when exercised in
2001 and prior years, the Company did not deduct income and payroll taxes upon
exercise or report applicable information to the taxing authorities. Based on
the information discovered in the course of the Company's recent investigation,
the Company now believes that such treatment was incorrect, and that the
exercise of such warrants by current and former officers of the Company should
have been treated in the same manner for withholding and reporting purposes as
the exercise of non-qualified stock options. The Company has informed the
relevant authorities, including the IRS and New York State, of this matter and
intends to resolve its liability in respect of these warrants with these taxing
authorities in conjunction with its resolution of the matter described above. On
June 17, 2003, New York State notified the Company that, based on the issue
identified above, they are continuing a previously conducted audit of the
Company and are evaluating the terms of the closing agreement to determine
whether or not it should be re-opened.

On April 2, 2003, the Company received a request from the SEC for the
voluntary production of documents and information relating to the above matters.
The Company is cooperating fully with the SEC, and intends to continue to do so,
while also updating the United States Attorney's Office on an ongoing basis.

One of the officers and directors to whom warrants were issued and
previously treated as non-compensatory warrants is Dr. Harlan W. Waksal, the
Company's Chief Scientific Officer. In June 2003, Dr. Harlan W. Waksal
represented to the Company that he has paid the taxes associated with the
exercise of these warrants and further agreed to indemnify the Company for any
withholding taxes that may be assessed and are attributable to the Company's
failure to deduct income and payroll taxes on all warrants and options that he
or his transferee has previously exercised, subject to the consent of Dr. Harlan
W. Waksal, which cannot be unreasonably withheld.

Two of the other officers and directors to whom warrants were issued and
previously treated as non-compensatory warrants are Dr. Samuel D. Waksal and the
Company's former General Counsel, John B. Landes. The Company has made demands
on both of these individuals to pay the taxes associated with the exercise of
these warrants and certain non-qualified stock options and to indemnify the
Company against any liability that it may incur to taxing authorities in respect
of the warrants or non-qualified stock options that were previously exercised.

The Company has recognized assets at the time of exercise relating to
the above individuals. These assets are based on the fact that individuals are
required by law to pay their personal income taxes, as well as

F-14

the Company's determination that these individuals had the means and intention
to satisfy their tax liabilities, and legal claims the Company has against these
individuals both during and after their employment with the Company. The Company
decided to write-down these assets during the periods noted in the paragraph
below.

Regarding Dr. Samuel D. Waksal, the Company determined that subsequent
to the Company's receipt of the "refusal to file" letter, his financial
condition deteriorated and therefore the recoverability of the asset became
doubtful. Regarding Mr. Landes, based on the limited information available to
it, due to the decrease in the Company's stock price during 2002 and
corresponding decrease in the value of Mr. Landes' ownership of the Company's
securities, the Company determined that recoverability of the asset became
doubtful. Based upon these determinations, the asset write-downs of $25,269,000
and $3,384,000 were recorded during the fourth quarter of 2001 for Dr. Samuel D.
Waksal and the second quarter of 2002 for Mr. Landes, respectively. The
withholding tax liabilities relating to Dr. Samuel D. Waksal and Mr. Landes will
remain on the Company's Consolidated Balance Sheets, until such time as these
liabilities are satisfied. Should the Company negotiate settlements with the IRS
and New York State tax authorities for amounts less than those noted above, the
Company would reduce operating expenses for the difference between the
withholding tax liabilities and settlement amounts in the period of settlement.

In April 2003, the Company discovered that it is in breach of certain
covenants in its outstanding 1990 IDA Bonds. These bonds are tax-exempt and the
Company is required to continue to use the proceeds for a qualified tax-exempt
purpose (in this case, manufacturing), until maturity. These bonds, in principal
amount of $2,200,000, bearing 11.25% annual interest, mature on May 1, 2004.
While the bond proceeds were originally used for manufacturing purposes, a
recent internal investigation concluded that in August 1995, this qualified
purpose was abandoned and the proceeds have been used for a non-qualified
purpose in later periods. As a result, the bond proceeds likely became taxable
to the bondholders in August 1995. The Company is required to indemnify the
bondholders from any taxes imposed upon them. The Company intends to attempt to
settle any tax liability directly with the relevant taxing authorities using
procedures established for that purpose. Based on the Company's understanding of
these procedures, the Company has recognized a tax liability of $953,000 and
$851,000 for the years ended December 31, 2002 and 2001, respectively, on the
Consolidated Balance Sheets. The Company has recorded Industrial Development
Revenue Bonds tax expense of $98,000 for the years ended December 31, 2002, 2001
and 2000 and interest expense of $4,000, $11,000 and $20,000 for the same
periods, respectively. On May 22, 2003, the Company notified the bond trustee of
its intent to redeem in full the bonds by repaying the principal amount plus
accrued and unpaid interest and has reclassified this debt to current
liabilities on the Consolidated Balance Sheets as of December 31, 2002. This
redemption is scheduled to occur on June 30, 2003.

The following charts present the impact of the restatement on a
condensed basis:

F-15

- ---------------

* Reflects the impact of the restatement amounts discussed herein and the change
in classification for corporate partner reimbursements in accordance with EITF
No. 01-14 as discussed in Note 2(g) which amounted to $17,018,000 and
$4,840,000 for the years ended December 31, 2001 and 2000, respectively.

The restatement did not impact the amounts presented in the consolidated
statements of cash flows for net cash (used in) provided by operating
activities, net cash provided by (used in) investing activities or net cash
provided by financing activities, although it did impact certain components of
cash flows from operating activities.

(4) SECURITIES AVAILABLE FOR SALE

The securities available for sale by major security type at December 31,
2002 and 2001 were as follows (in thousands):

At December 31, 2002:

At December 31, 2001:

F-16

Maturities of debt securities classified as available for sale were as
follows at December 31, 2002 (in thousands):

Proceeds from the sale of investment securities available for sale were
$275,175,000, $155,497,000 and $110,772,000 for the years ended December 31,
2002, 2001 and 2000, respectively. Gross realized gains included in income in
the years ended December 31, 2002, 2001 and 2000 were $1,757,000, $3,778,000 and
$1,280,000, respectively, and gross realized losses included in income in the
years ended December 31, 2002, 2001 and 2000 were $254,000, $44,000 and $22,000,
respectively.

These holdings primarily consist of U.S. corporate and foreign corporate
floating rate notes. Interest on the securities is adjusted monthly, quarterly
or semi-annually, depending on the instrument, using prevailing interest rates.
These holdings are highly liquid and we consider the potential for loss of
principal to be minimal. All holdings are denominated in U.S. currency.

(5) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and consist of the
following (in thousands):

The Company built a Single Product Facility on its campus in Somerville,
New Jersey. The facility is approximately 80,000 square feet, contains three
10,000 liter (production 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
Single Product Facility was ready for its intended use and put in operation in
July 2001 and depreciation commenced at that time.

The Company is building a multiple product manufacturing facility (the
"Multiple Product Facility") adjacent to its Single Product Facility in
Somerville (Branchburg Township), New Jersey. This new facility will be a
multi-use facility with capacity of up to 110,000 liters (production volume).
The 250,000 square foot facility will cost approximately $260,000,000, and is
being built on land purchased in July 2000. The actual cost of the new facility
may change depending upon various factors. The Company incurred approximately
$87,057,000 (included in construction in progress in the preceding table),
excluding capitalized interest of approximately $2,614,000, in conceptual
design, engineering pre-construction and construction

F-17

costs through December 31, 2002. Through May 6, 2003, committed purchase orders
totaling approximately $101,974,000 have been placed for subcontractors and
equipment related to this project. In addition, $63,196,000 in engineering,
procurement, construction management and validation costs were committed. As of
December 31, 2002, $72,332,000 has been paid relating to these committed
purchase orders. During August 2002, the Company executed an escrow agreement
with Branchburg Township (the "Township"). The agreement required the Company to
deposit $5,040,000 in an escrow account until the Company supplies the Township
with certain New Jersey Department of Environmental Protection permits and also
certain water and sewer permits related to the construction of this facility.
The escrow agreement requires the permits to be supplied to the Township by July
1, 2003, at which time the Company will receive back the escrow deposit.
Interest that accrues on the escrow deposit is allocated two-thirds to the
Company and one-third to the Township. The escrow deposit was requested by the
Township to insure that funds would be available to restore the site to its
original condition should the Company fail to obtain such permits required for
construction at the site. The escrow deposit, including the Company's portion of
the interest, totaled $5,073,000 at December 31, 2002 and is included in other
current assets in the consolidated balance sheet. The Company has satisfied the
requirements of the Township and received the escrow principal and accrued
interest totaling $5,101,000 during April 2003.

In January 2002, the Company purchased real estate consisting of a
7.5-acre parcel of land located adjacent to the Company's Single Product
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 is using this
property for warehousing and material logistics for its Somerville campus. As of
December 31, 2002, the Company has incurred approximately $1,050,000 (included
in construction in progress in the preceding table), for the retrofit of this
facility. The total cost for the retrofit will be approximately $1,150,000.

In May 2002, the Company purchased real estate consisting of a 6.94-acre
parcel of land located across the street from the Company's Single Product
Facility in Somerville, New Jersey. The real estate includes an existing
building with 46,000 square feet of office space. The purchase price for the
property was approximately $4,515,000, of which approximately $1,041,000 was
related to the purchase of the land and approximately $3,474,000 was related to
the purchase of the building. The Company is using this property as the
administrative building for its Somerville campus. As of December 31, 2002, the
Company has incurred approximately $4,486,000 for the retrofit of this facility.
The administrative building was ready for its intended use and put in operation
in December 2002 and depreciation commenced at that time. The total cost for the
retrofit will be approximately $5,200,000.

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 Single Product
Facility and its Multiple Product Facility currently being built will depend on
(1) receiving FDA approval of ERBITUX, (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.

(6) INVESTMENT IN EQUITY SECURITIES

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
F-18

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 (gain) on securities and investments are
write-downs of the Company's investment in ValiGen of $4,375,000 for the year
ended December 31, 2001. In the spring of 2001, the Company also entered into a
no-cost Discovery Agreement with ValiGen to evaluate certain of its technology.
After the Company made its investment in ValiGen, the Company's former President
and Chief Executive Officer, Dr. Samuel D. Waksal, became a member of ValiGen's
Board of Directors.

During the second quarter of 2001, the Company made a $1,000,000 loan to
A.C.T. Group, Inc. ("A.C.T. Group") and received its convertible promissory note
and five-year warrant to purchase its common stock as consideration. A.C.T.
Group is developing cloned cells and tissues for application in cell and organ
transplant therapy. The promissory note was due November 30, 2001, did not bear
interest, and was converted, as stipulated in the promissory note, to common
stock with a right to purchase up to an additional $1,000,000 worth of A.C.T.
Group common stock at $1.60 per share. The Company has opted not to purchase
additional shares of common stock. The warrant to purchase common stock entitles
the Company to buy $1,000,000 worth of A.C.T. Group common stock beginning
November 30, 2001 at a per share price of $1.60. Due to the uncertainty
regarding the ultimate collection of the note and the absence of a readily
determinable market value for A.C.T. Group's common and preferred stock, the
Company recorded a $1,000,000 write-down of the note during the year ended
December 31, 2001. The write-down is included in loss (gain) on securities and
investments in the accompanying consolidated statement of operations for the
year ended December 31, 2001. During April 2002, the Company executed its right
to convert the note into A.C.T. Group common stock and received 625,000 shares
of common stock in A.C.T. Group, Inc. The Company's former President and Chief
Executive Officer, Dr. Samuel D. Waksal, was a member of A.C.T. Group's Board of
Directors during 2001 and resigned from its Board during 2002.

(7) ACCRUED EXPENSES

The following items are included in accrued expenses: (in thousands)

DECEMBER 31, DECEMBER 31,
2002 2001
------- -------

Salaries and other payroll related
expenses................................... $ 4,496 $ 4,818
Research and development contract services... 26,337 4,360
Other........................................ 6,544 2,632
------- -------
$37,377 $11,810
======= =======

F-19

(8) WITHHOLDING TAXES

Amounts related to the following items are included in withholding tax
assets: (in thousands)

* In June 2003, Dr. Harlan W. Waksal represented to the Company that he
has paid the taxes associated with the exercise of these warrants and further
agreed to indemnify the Company for any withholding taxes that may be assessed
and are attributable to the Company's failure to deduct income and payroll taxes
on all warrants and options that he or his transferee has previously exercised,
subject to the consent of Dr. Harlan W. Waksal, which cannot be unreasonably
withheld.

Amounts related to the following items are included in withholding tax
liability: (in thousands)

Amounts related to the following items are included in Industrial
Development Revenue Bonds tax liability: (in thousands)

(9) LONG-TERM DEBT

Long-term debt consists of the following: (in thousands)

In February 2000, the Company completed a private placement of
$240,000,000 in convertible subordinated notes due March 1, 2005. The Company
received net proceeds from this offering of approximately $231,500,000, after
deducting costs associated with the offering. Accrued interest on the notes was
approximately $4,400,000 at December 31, 2002 and 2001, respectively. The
holders may convert all or a portion of the notes 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. The notes are subordinated to all
existing and future senior indebtedness. The Company may redeem any or all of
the notes at any time prior to March 6, 2003, at a redemption price equal to
100% of the principal amount plus accrued and unpaid interest to the

F-20

redemption date if the closing price of the common stock has exceeded 150% of
the conversion price for at least 20 trading days in any consecutive 30-trading
day period, provided the Company makes an additional payment of $152.54 per
$1,000 aggregate principal amount of notes, minus the amount of any interest
actually paid thereon prior to the redemption notice date. On or after March 6,
2003, the Company may redeem any or all of the notes at specified redemption
prices, plus accrued and unpaid interest to the day preceding the redemption
date. The Company was required to file with the SEC and obtain the effectiveness
of a shelf registration statement covering resales of the notes and the common
stock. Such registration statement was declared effective in July 2000. Upon the
occurrence of a "fundamental change" as defined in the agreement, holders of the
notes may require the Company to redeem the notes at a price equal to 100% of
the principal amount to be redeemed.

On May 2, 2003, the Company informed the trustee for the Convertible
Subordinated Notes of its withholding tax issues and the delay in filing this
Form 10-K and of the Company's intention to satisfy its tax liabilities upon
completion of its discussions with the relevant taxing authorities and to file
its Form 10-K as soon as possible. The indenture for the Convertible
Subordinated Notes includes covenants requiring the Company to timely pay taxes
and timely make Exchange Act filings. Under the indenture, there can be no
acceleration of payment of the notes until the Company receives a notice of
default from the trustee or a specified percentage of the note holders and a
60-day grace period lapses. The Company has not received any such notice. If, at
some point in the future, the Company were to receive such a notice and if it
was determined at that time that the Company was not in compliance with
applicable covenants, the Company intends to and believes it would be able to
cure such non-compliance within the 60-day grace period.

In August 1990, the NYIDA issued $2,200,000 principal amount of its
11 1/4% Industrial Development Revenue Bonds due May 2004 (the "1990 IDA
Bonds"). The proceeds from the sale of the 1990 IDA Bonds were used by the
Company at its research and development facility in downtown New York City. The
Company has granted a security interest in certain equipment located in this New
York City facility purchased with the proceeds from the 1990 IDA Bonds to secure
the obligations of the Company relating to the 1990 IDA Bonds. In April 2003,
the Company discovered that it is in breach of certain covenants in its 1990 IDA
Bonds. These bonds are tax-exempt and the Company is required to continue to use
the proceeds for a qualified tax-exempt purpose (in this case, manufacturing),
until maturity. While the bond proceeds were originally used for manufacturing
purposes, a recent internal investigation concluded that in August 1995, this
qualified purpose was abandoned and the proceeds have been used for a
non-qualified purpose in later periods. As a result, the bond proceeds likely
became taxable to the bondholders in August 1995. The Company is required to
indemnify the bondholders from any taxes imposed upon them. The Company intends
to attempt to settle any tax liability directly with the relevant taxing
authorities using procedures established for that purpose. The Company has
recognized a tax liability of $953,000 and $851,000 in its Consolidated Balance
Sheets as of December 31, 2002 and 2001, respectively. The estimate of this tax
liability was based upon the Voluntary Closing Agreement Program ("VCAP")
projected penalty rate on the 1990 IDA Bonds interest payments for the period
August 1995 through December 31, 2002 for federal income tax purposes. On May
22, 2003, the Company notified the bond trustee of its intent to redeem in full
the bonds by repaying the principal amount plus accrued and unpaid interest and
has reclassified this debt to current liabilities on the Consolidated Balance
Sheet as of December 31, 2002. This redemption is scheduled to occur on June 30,
2003.

F-21

(10) OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following: (in thousands)

The Company has obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under two financing agreements with Finova Technology Finance, Inc.
("Finova") entered into in 1996 and 1998. The financing agreements allowed the
Company 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 42-month or 48-month term.
Pursuant to the financing agreement entered into in 1996, the Company issued to
Finova a warrant to purchase 46,440 shares of common stock at an exercise price
of $4.85 per share which was exercised in November 1999. The Company recorded a
non-cash debt discount of approximately $125,000 in connection with this
financing. This discount has been amortized over the 42-month term of the first
lease. The Company has entered into twelve individual leases under the financing
agreements aggregating a total cost of $3,695,000. There is no further funding
available under these agreements. During the years ended December 31, 2002, 2001
and 2000, the Company elected to exercise the fair market value purchase option
at the expiration of the first ten leases under the 1996 and 1998 agreements.
There are no covenants associated with these financing agreements that
materially restrict the Company's activities. See Notes 16 and 18.

At December 31, 2002 and 2001, the amounts of laboratory, office and
computer equipment, building improvements and furniture and fixtures and the
related accumulated depreciation recorded under all capital leases were as
follows: (in thousands)

(11) CHANGE IN ACCOUNTING POLICY FOR REVENUE RECOGNITION

The Company adopted 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. See Note 2(g). The adoption of SAB 101
resulted in a $2,596,000 cumulative effect of a change in accounting policy
related to nonrefundable upfront licensing fees received from Merck KGaA in
connection with the development and commercialization agreement with Merck KGaA
with respect to the Company's principal cancer vaccine product candidate, BEC2
and the recombinant gp75 antigen. The cumulative effect represents revenue
originally recorded upon receipt of such payments that now is recorded as
deferred revenue and recognized over the life of the related patent(s). During
the year ended December 31, 2000, the impact of the change in accounting policy
increased net loss by $2,434,000, or $0.04 per share, comprising the $2,596,000
cumulative effect of the change described above, net of $162,000 of related
deferred revenue that was recognized during the period.

F-22

(12) COLLABORATIVE AGREEMENTS

(a) MERCK KGAA

In 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
antigen 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 antigen in North America. In return, the
Company has recognized research support payments totaling $4,700,000 and is not
entitled to any 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 December 31, 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. The Company incurred approximately $1,138,000, $657,000 and
$412,000 associated with this agreement in the years ended December 31, 2002,
2001 and 2000, respectively. 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, 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-exclusive development rights in Japan, the Company received
through December 31, 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 through
December 31, 2002, $6,000,000 was received on May 16, 2003, and $3,000,000 was
received on June 16, 2003, assuming the achievement of further milestones for
which Merck KGaA will receive equity in the Company. In August 2001, the Company
received its first equity-based milestone payment totaling $5,000,000 and
accordingly issued to Merck KGaA 63,027 shares of its common stock. The number
of shares issued for this milestone payment was determined using a price of
$79.33 per share. During the year ended December 31, 2001, the Company
recognized revenue of approximately $1,760,000 representing the excess of the
amount paid by Merck KGaA for these shares over the fair value of the Company's
common stock. On April 16, 2003, the Company achieved a second equity-based
milestone that triggered a payment of $6,000,000. On May 16, 2003, the Company
received payment from Merck KGaA of $6,000,000 for this milestone. Upon receipt
of this payment, the Company issued to Merck KGaA 334,471 shares of ImClone
Systems' common stock, at a price of $17.94 per share, representing the sale of
these shares at a ten percent premium to market value as provided in the
license. On May 16, 2003, the Company achieved a third equity-based milestone
that triggered a payment of $3,000,000. On June 16, 2003, the Company received
payment from Merck KGaA of $3,000,000 for this milestone. Upon receipt of this
payment, the Company issued to Merck KGaA 150,007 shares of ImClone Systems'
common stock, at a price of $20.00 per share, representing the sale of these
shares at a ten percent premium to market value as provided in the license. The
equity underlying the remaining 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. 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

F-23

unfeasible (in which case Merck KGaA is entitled to receive back 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 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 Single
Product 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 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. In
order to support clinical trials, Merck KGaA has agreed to purchase ERBITUX
manufactured by Lonza Biologics plc ("Lonza") and the Company for use in these
trials and has further agreed to reimburse the Company for one-half of the
outside contract service costs incurred with respect to the Phase III clinical
trial of ERBITUX for the treatment of head and neck cancer in combination with
radiation. In September 2002, the Company entered into a binding term sheet,
effective as of April 15, 2002, for the supply of ERBITUX to Merck KGaA, which
replaces previous supply arrangements. The term sheet provides for Merck KGaA to
purchase bulk and finished ERBITUX ordered from the Company during the term of
the December 1998 development and license agreement at a price equal to the
Company's fully loaded cost of goods. The term sheet also provides for Merck
KGaA to use reasonable efforts to enter into its own contract manufacturing
agreements for supply of ERBITUX by 2004 and obligates Merck KGaA to reimburse
the Company for costs associated with transferring technology and any other
services requested by Merck KGaA relating to establishing its own manufacturing
or contract manufacturing capacity. Amounts due from Merck KGaA related to these
arrangements totaled approximately $2,462,000 and $1,503,000 at December 31,
2002 and 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 $16,864,000, $9,924,000 and $4,476,000 for
the years ended December 31, 2002, 2001 and 2000, respectively. Of these
amounts, $13,941,000, $6,531,000 and $1,897,000 for the years ended December 31,
2002, 2001 and 2000, 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 amounting to $6,594,000 and $3,168,000 for the years ended
December 31, 2002 and 2001 respectively, 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. Reimbursable research and development expenses were
incurred and totaled approximately $2,494,000 $3,393,000 and $2,579,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. These amounts have
been recorded as research and development expenses and also as collaborative
agreement revenue in the consolidated statements of operations.

(b) BRISTOL-MYERS SQUIBB COMPANY

On September 19, 2001, the Company entered into an acquisition agreement
(the "Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics
Company, a Delaware corporation ("BMS Biologics"), which is a wholly-owned
subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase
up to 14,392,003 shares of the Company's common stock for $70.00 per share, net
to the seller in cash. In connection with the Acquisition Agreement, the Company
entered into a stockholder agreement with BMS and BMS Biologics, dated as of
September 19, 2001 (the "Stockholder Agreement"), pursuant to which all parties
agreed to various arrangements regarding the respective rights and obligations
of each party with respect to, among other things, the ownership of shares of
the Company's common stock by BMS and BMS Biologics. Concurrent with the
execution of the Acquisition Agreement and the Stockholder Agree-
F-24

ment, the Company entered into the Commercial Agreement with BMS and E.R.
Squibb, relating to ERBITUX, pursuant to which, among other things, BMS and E.R.
Squibb are co-developing and co-promoting ERBITUX in the United States and
Canada with the Company, and are co-developing and co-promoting ERBITUX with the
Company and either together or co-exclusively with Merck KGaA.

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 payments of $140,000,000 on
March 7, 2002 and $60,000,000 on March 5, 2003. Such payments are in lieu of the
$300,000,000 milestone payment the Company would have received upon acceptance
by the FDA of the ERBITUX BLA under the original terms of the Commercial
Agreement. In addition, the Company agreed to resume and has resumed
construction of its Multiple Product Facility. The terms of the Commercial
Agreement, as amended on March 5, 2002, are set forth in more detail below.

ACQUISITION AGREEMENT

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.

STOCKHOLDER AGREEMENT

Pursuant to the Stockholder Agreement, the Company's Board of Directors
(the "Board") was increased from ten to twelve members. BMS received the right
to nominate two directors to the Company's Board of Directors (each a "BMS
director") so long as its ownership interest in ImClone Systems is 12.5% or
greater. If BMS' ownership interest is 5% or greater but less than 12.5%, BMS
will have the right to nominate one BMS director, and if BMS' ownership interest
is less than 5%, BMS will have no right to nominate a BMS director. If the size
of the Board is increased to a number greater than twelve, the number of BMS
directors would be increased, subject to rounding, such that the number of BMS
directors is proportionate to the lesser of BMS' then-current ownership interest
and 19.9%. Notwithstanding the foregoing, BMS will have no right to nominate any
BMS directors if (i) the Company has terminated the Commercial Agreement due to
a material breach by BMS or (ii) BMS' ownership interest were to remain below 5%
for 45 consecutive days.

Based on the number of shares of common stock acquired pursuant to the
tender offer, BMS has the right to nominate two directors. BMS designated Andrew
G. Bodnar, M.D., J.D., BMS' Senior Vice President, Strategy and Medical &
External Affairs, as one of the initial BMS directors. The nomination of Dr.
Bodnar was approved by the Board on November 15, 2001. The other BMS director
position was initially filled by Peter S. Ringrose, M.A, Ph.D. Dr. Ringrose, who
recently retired from his position of Chief Scientific Officer and President,
Pharmaceutical Research Institute at BMS, also resigned from his director
position with the Company. BMS has not yet designated a replacement to fill Dr.
Ringrose's vacated Board seat.

Voting of Shares. During the period in which BMS has the right to
nominate at least one BMS director, BMS and its affiliates are required to vote
all of their shares in the same proportion as the votes cast by all of the
Company's other stockholders with respect to the election or removal of non-BMS
directors.

Committees of the Board of Directors. During the period in which BMS
has the right to nominate at least one BMS director, BMS also has the right,
subject to certain exceptions and limitations to have one member of each
committee of the Board be a BMS director.

Approval Required for Certain Actions. The Company may not take any
action that constitutes a prohibited action under the Stockholder Agreement
without the consent of the BMS directors, until September 19, 2006 or earlier if
any of the following occurs: (i) a reduction in BMS's ownership interest to
below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares
of the Company's common stock by BMS or any of its affiliates such that BMS and
its affiliates own or have control over less than 75% of the maximum number of
shares of the Company's common stock owned by BMS and its affiliates at any time

F-25

after September 19, 2001, (iii) an acquisition by a third party of more than 35%
of the outstanding shares of the Company's common stock, (iv) a termination of
the Commercial Agreement by BMS due to significant regulatory or safety concerns
regarding ERBITUX, or (v) a termination of the Commercial Agreement due to a
material breach by BMS. Such prohibited actions include (i) issuing additional
shares or securities convertible into shares in excess of 21,473,002 shares of
the Company's common stock in the aggregate, subject to certain exceptions; (ii)
incurring additional indebtedness if the total of (A) the principal amount of
indebtedness incurred since September 19, 2001 and then-outstanding, and (B) the
net proceeds from the issuance of any redeemable preferred stock
then-outstanding, would exceed the Company's amount of indebtedness for borrowed
money 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 our
aggregate value at the time the binding agreement relating to such acquisition
was entered into; (iv) disposing of all or any substantial portion of the
Company's non-cash assets; (v) entering into non-competition agreements that
would be binding on BMS, its affiliates or any BMS director; (vi) taking certain
actions that would have a discriminatory effect on BMS or any of its affiliates
as a stockholder; and (vii) issuing capital stock with more than one vote per
share.

Limitation on Additional Purchases of Shares and Other Actions. Subject
to the exceptions set forth below, until September 19, 2006 or, if earlier, the
occurrence of any of (i) an acquisition by a third party of more than 35% of the
Company's outstanding shares, (ii) the first anniversary of a reduction in BMS's
ownership interest in the Company to below 5% for 45 consecutive days, or (iii)
the Company's taking a prohibited action under the Stockholder Agreement without
the consent of the BMS directors, neither BMS nor any of its affiliates will
acquire beneficial ownership of any shares of the Company's common stock or take
any of the following actions: (i) encourage any proposal for a business
combination with the Company's or an acquisition of our shares; (ii) participate
in the solicitation of proxies from holders of shares of the Company's common
stock; (iii) form or participate in any "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934) with respect to shares of the
Company's common stock; (iv) enter into any voting arrangement with respect to
shares of the Company's common stock; or (v) seek any amendment to or waiver of
these restrictions.

The following are exceptions to the standstill restrictions described
above: (i) BMS Biologics may acquire beneficial ownership of shares of the
Company's common stock either in the open market or from the Company pursuant to
the option described below, so long as, after giving effect to any such
acquisition of shares, BMS' ownership interest would not exceed 19.9%; (ii) BMS
may make, subject to certain conditions, a proposal to the Board to acquire
shares of the Company's common stock if the Company provides material non-public
information to a third party in connection with, or begin active negotiation of,
an acquisition by a third party of more than 35% of the outstanding shares;
(iii) BMS may acquire shares of the Company's common stock if such acquisition
has been approved by a majority of the non-BMS directors; and (iv) BMS may make,
subject to certain conditions, including that an acquisition of shares be at a
premium of at least 25% to the prevailing market price, non-public requests to
the Board to amend or waive any of the standstill restrictions described above.
Certain of the exceptions to the standstill provisions described above will
terminate upon the occurrence of: (i) a reduction in BMS's ownership interest in
the Company to below 5% for 45 consecutive days, (ii) a transfer or other
disposition of shares of the Company's common stock by BMS or any of its
affiliates such that BMS and its affiliates own or have control over less than
75% of the maximum number of shares owned by BMS and its affiliates at any time
after September 19, 2001, (iii) a termination of the Commercial Agreement by BMS
due to significant regulatory or safety concerns regarding ERBITUX, or (iv) a
termination of the Commercial Agreement by the Company due to a material breach
by BMS.

Option to Purchase Shares in the Event of Dilution. BMS Biologics has
the right under certain circumstances to purchase additional shares of common
stock from the Company at market prices, pursuant to an option granted to BMS by
the Company, in the event that BMS's ownership interest is diluted (other than
by any transfer or other disposition by BMS or any of its affiliates). BMS can
exercise this right (i) once per year, (ii) if the Company issues shares of
common stock in excess of 10% of the then-outstanding shares in one day, and
(iii) if BMS's ownership interest is reduced to below 5% or 12.5%. BMS
Biologics' right to

F-26

purchase additional shares of common stock from the Company pursuant to this
option will terminate on September 19, 2006 or, if earlier, upon the occurrence
of (i) an acquisition by a third party of more than 35% of the outstanding
shares, or (ii) the first anniversary of a reduction in BMS's ownership interest
in the Company to below 5% for 45 consecutive days.

Transfers of Shares. Until September 19, 2004, neither BMS nor any of
its affiliates may transfer any shares of the Company's common stock or enter
into any arrangement that transfers any of the economic consequences associated
with the ownership of shares. After September 19, 2004, neither BMS nor any of
its affiliates may transfer any shares or enter into any arrangement that
transfers any of the economic consequences associated with the ownership of
shares, except (i) pursuant to registration rights granted to BMS with respect
to the shares, (ii) pursuant to Rule 144 under the Securities Act of 1933, as
amended or (iii) for certain hedging transactions. Any such transfer is subject
to the following limitations: (i) the transferee may not acquire beneficial
ownership of more than 5% of the then-outstanding shares of common stock; (ii)
no more than 10% of the total outstanding shares of common stock may be sold in
any one registered underwritten public offering; and (iii) neither BMS nor any
of its affiliates may transfer shares of common stock (except for registered
firm commitment underwritten public offerings pursuant to the registration
rights described below) or enter into hedging transactions in any twelve-month
period that would, individually or in the aggregate, have the effect of reducing
the economic exposure of BMS and its affiliates by the equivalent of more than
10% of the maximum number of shares of common stock owned by BMS and its
affiliates at any time after September 19, 2001. Notwithstanding the foregoing,
BMS Biologics may transfer all, but not less than all, of the shares of common
stock owned by it to BMS or to E.R. Squibb or another wholly-owned subsidiary of
BMS.

Registration Rights. The Company granted BMS customary registration
rights with respect to shares of common stock owned by BMS or any of its
affiliates.

COMMERCIAL AGREEMENT

Rights Granted to E.R. Squibb. Pursuant to the Commercial Agreement, as
amended on March 5, 2002, the Company granted to E.R. Squibb (i) the exclusive
right to distribute, and the co-exclusive right to develop and promote (together
with the Company) any prescription pharmaceutical product using the compound
ERBITUX (the "product") in the United States and Canada, (ii) the co-exclusive
right to develop, distribute and promote (together with the Company and together
or co-exclusively with Merck KGaA and its affiliates) the product in Japan, and
(iii) the non-exclusive right to use the Company's registered trademarks for the
product in the United States, Canada and Japan (collectively, the "territory")
in connection with the foregoing. In addition, the Company agreed not to grant
any right or license to any third party, or otherwise permit any third party, to
develop ERBITUX for animal health or any other application outside the human
health field without the prior consent of E.R. Squibb (which consent may not be
unreasonably withheld).

Rights Granted to the Company. Pursuant to the Commercial Agreement,
E.R. Squibb has granted to the Company and the Company's affiliates a license,
without the right to grant sublicenses (other than to Merck KGaA and its
affiliates for use in Japan and to any third party for use outside the
territory), to use solely for the purpose of developing, using, manufacturing,
promoting, distributing and selling ERBITUX or the product, any process,
know-how or other invention developed solely by E.R. Squibb or BMS that has
general utility in connection with other products or compounds in addition to
ERBITUX or the product ("E.R. Squibb Inventions").

Up-Front and Milestone Payments. The Commercial Agreement provides for
up-front and milestone payments by E.R. Squibb to the Company of $900,000,000 in
the aggregate, of which $200,000,000 was paid on September 19, 2001,
$140,000,000 was paid on March 7, 2002, $60,000,000 was paid 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.

F-27

Distribution Fees. The Commercial Agreement provides that E.R. Squibb
shall pay the Company distribution fees based on a percentage of "annual net
sales" of the product (as defined in the Commercial Agreement) 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 the product in Japan by E.R. Squibb or ImClone Systems 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 shall pay the
Company the amount of such distribution fee, and in the event of an operating
loss, the Company shall credit E.R. Squibb the amount of such distribution fee.

Development of the Product. Responsibilities associated with clinical
and other ongoing studies are apportioned between the parties as determined by
the product development committee described below. The Commercial Agreement
provides for the establishment of clinical development plans setting forth the
activities to be undertaken by the parties for the purpose of obtaining
marketing approvals, providing market support and developing new indications and
formulations of the product. After transition of responsibilities for certain
clinical and other studies, each party is primarily responsible for performing
the studies designated to it in the clinical development plans. In the United
States and Canada, the Commercial Agreement provides that E.R. Squibb is
responsible for 100% of the cost of all clinical studies other than those
studies undertaken post-launch which are not pursuant to an IND (e.g. Phase IV
studies), the cost of which is shared equally between E.R. Squibb and ImClone
Systems. As between E.R. Squibb and ImClone Systems, each is responsible for 50%
of the costs of all studies in Japan. The Company has also agreed, and may agree
in the future, to share with E.R. Squibb, on terms other than the foregoing,
costs of clinical trials that the Company believes are not potentially
registrational but should be undertaken prior to launch in the United States,
Canada or Japan. Except as otherwise agreed upon by the parties, the Company
will own all registrations for the product and are primarily responsible for the
regulatory activities leading to registration in each country. E.R. Squibb will
be primarily responsible for the regulatory activities in each country after the
product has been registered in that country. Pursuant to the terms of the
Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice
President, Strategy and Medical & External Affairs of BMS, and a member of the
Company's Board of Directors, will oversee the implementation of the clinical
and regulatory plan for ERBITUX.

Distribution and Promotion of the Product. Pursuant to the Commercial
Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to
launch, promote and sell the product in the territory with the objective of
maximizing the sales potential of the product and promoting the therapeutic
profile and benefits of the product in the most commercially beneficial manner.
In connection with its responsibilities for distribution, marketing and sales of
the product in the territory, E.R. Squibb is performing all relevant functions,
including but not limited to the provision of all sales force personnel,
marketing (including all advertising and promotional expenditures), warehousing
and physical distribution of the product. However, the Company has the right, at
its election and sole expense, to co-promote with E.R. Squibb the product in the
territory. Pursuant to this co-promotion option, which the Company has
exercised, the Company is entitled on and after April 11, 2002 (at the Company's
sole expense) to have the Company's sales force participate in the promotion of
the product consistent with the marketing plan agreed upon by the parties,
provided that E.R. Squibb will retain the exclusive rights to sell and
distribute the product. Except for the Company's 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 as
between E.R. Squibb and ImClone Systems, each is responsible for 50% of the
distribution, sales, marketing costs and other related costs and expenses in
Japan.

Manufacture and Supply. The Commercial Agreement provides that the
Company is responsible for the manufacture and supply of all requirements of
ERBITUX in bulk form ("API") for clinical and commercial use in the territory,
and that E.R. Squibb will purchase all of its requirements of API for commercial
use from the Company. The Company will supply API for clinical use at the
Company's fully burdened manufacturing cost, and will supply API for commercial
use at the Company's fully burdened manufacturing cost plus a mark-up of 10%.
Upon the expiration, termination or assignment of any existing

F-28

agreements between ImClone Systems and third party manufacturers, E.R. Squibb
will be responsible for processing API into the finished form of the product.

Management. The parties have formed the following committees for
purposes of managing their relationship and their respective rights and
obligations under the Commercial Agreement:

- a Joint Executive Committee (the "JEC"), which consists of certain
senior officers of each party. The JEC is co-chaired by a
representative of each of BMS and the Company. The JEC is responsible
for, among other things, managing and overseeing the development and
commercialization of ERBITUX pursuant to the terms of the Commercial
Agreement, approving the annual budgets and multi-year expense
forecasts, and resolving disputes, disagreements and deadlocks arising
in the other committees;

- a Product Development Committee (the "PDC"), which consists of members
of senior management of each party with expertise in pharmaceutical
drug development and/or marketing. The PDC is chaired by the Company's
representative. The PDC is responsible for, among other things,
managing and overseeing the development and implementation of the
clinical development plans, comparing actual versus budgeted clinical
development and regulatory expenses, and reviewing the progress of the
registrational studies;

- a Joint Commercialization Committee (the "JCC"), which consists of
members of senior management of each party with clinical experience
and expertise in marketing and sales. The JCC is chaired by a
representative of BMS. The JCC is responsible for, among other things,
overseeing the preparation and implementation of the marketing plans,
coordinating the sales efforts of E.R. Squibb and the Company, and
reviewing and approving the marketing and promotional plans for the
product in the territory; and

- a Joint Manufacturing Committee (the "JMC"), which consists of members
of senior management of each party with expertise in manufacturing.
The JMC is chaired by the Company's representative (unless a
determination is made that a long-term inability to supply API exists,
in which case the JMC will be co-chaired by representatives of E.R.
Squibb and the Company). The JMC is responsible for, among other
things, overseeing and coordinating the manufacturing and supply of
API and the product, and formulating and directing the manufacturing
strategy for the product.

Any matter which is the subject of a deadlock (i.e., no consensus
decision) in the PDC, the JCC or the JMC will be referred to the JEC for
resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved
as follows: (i) if the matter was also the subject of a deadlock in the PDC, by
the co-chairperson of the JEC designated by the Company, (ii) if the matter was
also the subject of a deadlock in the JCC, by the co-chairperson of the JEC
designated by BMS, or (iii) if the matter was also the subject of a deadlock in
the JMC, by the co-chairperson of the JEC designated by the Company. All other
deadlocks in the JEC will be resolved by arbitration.

Right of First Offer. E.R. Squibb has a right of first offer with
respect to our IMC-KDR antibodies should the Company decide to enter into a
partnering arrangement with a third party with respect to IMC-KDR antibodies at
any time prior to the earlier to occur of September 19, 2006 and the first
anniversary of the date which is 45 days after any date on which BMS's ownership
interest in ImClone Systems is less than 5%. If the Company decides to enter
into a partnering arrangement during such period, the Company must notify E.R.
Squibb. If E.R. Squibb notifies the Company that it is interested in such an
arrangement, the Company will provide its proposed terms to E.R. Squibb and the
parties will negotiate in good faith for 90 days to attempt to agree on the
terms and conditions of such an arrangement. If the parties do not reach
agreement during this period, E.R. Squibb must propose the terms of an
arrangement which it is willing to enter into, and if the Company rejects such
terms the Company may enter into an agreement with a third party with respect to
such a partnering arrangement (provided that the terms of any such agreement may
not be more favorable to the third party than the terms proposed by E.R.
Squibb).

F-29

Right of First Negotiation. If, at any time during the restricted
period (as defined below), the Company is interested in establishing a
partnering relationship with a third party involving certain compounds or
products not related to ERBITUX, the product or IMC-KDR antibodies, the Company
must notify E.R. Squibb and E.R. Squibb will have 90 days to enter into a
non-binding heads of agreement with the Company with respect to such a
partnering relationship. In the event that E.R. Squibb and ImClone Systems do
not enter into a non-binding heads of agreement, the Company is free to
negotiate with third parties without further obligation to E.R. Squibb. The
"restricted period" means the period from September 19, 2001 until the earliest
to occur of (i) September 19, 2006, (ii) a reduction in BMS's ownership interest
in ImClone Systems to below 5% for 45 consecutive days, (iii) a transfer or
other disposition of shares of the Company's common stock by BMS or any of its
affiliates such that BMS and its affiliates own or have control over less than
75% of the maximum number of shares of the Company's common stock owned by BMS
and its affiliates at any time after September 19, 2001, (iv) an acquisition by
a third party of more than 35% of the outstanding Shares, (v) a termination of
the Commercial Agreement by BMS due to significant regulatory or safety concerns
regarding ERBITUX, or (vi) the Company's termination of the Commercial Agreement
due to a material breach by BMS.

Restriction on Competing Products. During the period from the date of
the Commercial Agreement until September 19, 2008, the parties have agreed not
to, directly or indirectly, develop or commercialize a competing product
(defined as a product that has as its only mechanism of action an antagonism of
the EGF receptor) in any country in the territory. In the event that any party
proposes to commercialize a competing product or purchases or otherwise takes
control of a third party which has developed or commercialized a competing
product, then such party must either divest the competing product within 12
months or offer the other party the right to participate in the
commercialization and development of the competing product on a 50/50 basis
(provided that if the parties cannot reach agreement with respect to such an
agreement, the competing product must be divested within 12 months).

Ownership. The Commercial Agreement provides that the Company own all
data and information concerning ERBITUX and the product and (except for the E.R.
Squibb Inventions) all processes, know-how and other inventions relating to the
product and developed by either party or jointly by the parties. E.R. Squibb,
however, has the right to use all such data and information, and all such
processes, know-how or other inventions, in order to fulfill its obligations
under the Commercial Agreement.

Product Recalls. If E.R. Squibb is required by any regulatory authority
to recall the product in any country in the territory (or if the JCC determines
such a recall to be appropriate), then E.R. Squibb and ImClone Systems shall
bear the costs and expenses associated with such a recall (i) in the United
States and Canada, in the proportion of 39% for ImClone Systems and 61% for E.R.
Squibb and (ii) in Japan, in the proportion for which each party is entitled to
receive operating profit or loss (unless, in the territory, the predominant
cause for such a recall is the fault of either party, in which case all such
costs and expenses shall be borne by such party).

Mandatory Transfer. Each of BMS and E.R. Squibb has agreed under the
Commercial Agreement that in the event it sells or otherwise transfers all or
substantially all of its pharmaceutical business or pharmaceutical oncology
business, it must also transfer to the transferee its rights and obligations
under the Commercial Agreement.

Indemnification. Pursuant to the Commercial Agreement, each party has
agreed to indemnify the other for (i) its negligence, recklessness or wrongful
intentional acts or omissions, (ii) its failure to perform certain of its
obligations under the agreement, and (iii) any breach of its representations and
warranties under the agreement.

Termination. 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

F-30

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 JEC 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 PDC concerning such
additional clinical studies.

The Company has also agreed, and may agree in the future, to share with
E.R. Squibb, on terms other than the foregoing, costs of clinical trials that
the Company believes are not potentially registrational but should be undertaken
prior to launch in the United States, Canada or Japan. The Company has incurred
$4,093,000 pursuant to such cost sharing in the year ended December 31, 2002.
The Company has also incurred $377,000 related to the agreement with respect to
development in Japan in the year ended December 31, 2002.

The Company incurred approximately $2,250,000 during the year ended
December 31, 2002 in legal and other advisor fees associated with the amendment
to the Commercial Agreement with BMS and affiliates, and $16,055,000 during the
year ended December 31, 2001, in legal and other advisor fees associated with
consummating the Acquisition Agreement, the Stockholder Agreement and the
Commercial Agreement with BMS and affiliates, which have been expensed and
included as a separate line item in operating expenses in the consolidated
statements of operations.

Amounts due from BMS related to this agreement totaled approximately
$9,739,000 and $6,714,000 at December 31, 2002 and 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
$20,382,000 and $6,714,000 in the years ended December 31, 2002 and 2001,
respectively. Of these amounts, $9,221,000 in the year ended December 31, 2002
related to reimbursable costs associated with supplying ERBITUX for use in
clinical trials associated with this agreement. A portion of the ERBITUX sold to
BMS was produced in prior periods and the related manufacturing costs amounting
to $4,854,000, were 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.
Reimbursable research and development and marketing expenses were incurred and
totaled approximately $11,161,000 and $6,714,000 in the years ended December 31,
2002 and 2001, respectively. These amounts have been recorded as research and
development and marketing, general and administrative expenses and also as
collaborative agreement revenue in the consolidated statements of operations.

In June 2002, the Company and BMS agreed that certain ERBITUX clinical
trial costs incurred by the Company but billed to BMS under the Commercial
Agreement would in fact be borne by the Company due to such trials'
non-registrational nature. This resulted in the issuance of credit memos to BMS
during the year ended December 31, 2002 totaling approximately $2,949,000, which
ultimately reduced collaborative agreement revenue and license fee revenue in
the year ended December 31, 2002.

F-31

License fees and milestone revenue consists of the following: (in
thousands)

Collaborative agreement revenue (see Note 2(g)) from corporate partners
consists of the following: (in thousands)

Amounts due from corporate partners consist of the following: (in
thousands)

Deferred revenue consists of the following: (in thousands)

The Company receives royalty revenue from a strategic corporate alliance
with Abbott Laboratories in diagnostics. Royalty revenue for the years ended
December 31, 2002, 2001 and 2000, primarily includes

F-32

amounts associated with the Abbott Laboratories alliance totaling $1,352,000,
$1,480,000 and $961,000, respectively.

Revenues were derived from the following geographic areas: (in
thousands)

(13) STOCKHOLDER' EQUITY

(a) COMMON STOCK

In June 2002, the stockholders approved the amendment of 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.

(b) PREFERRED STOCK

In connection with a December 1997 amendment to the research and license
agreement between them for BEC2 and the recombinant gp75 antigen, Merck KGaA
purchased from the Company 400,000 shares of the Company's series A preferred
stock for total consideration of $40,000,000. Cumulative annual dividends of
$6.00 per share were accrued on the outstanding series A preferred stock. In
1999, Merck KGaA converted 100,000 shares of series A preferred stock into
1,600,000 shares of common stock at a conversion price of $6.25 per share. In
2000, Merck KGaA converted another 100,000 shares of the series A preferred
stock into 499,220 shares of common stock at a conversion price of $20.03 per
share.

On December 28, 2000, the Company exercised its redemption right for the
remaining 200,000 outstanding shares of series A preferred stock at the stated
redemption price of $120 per share. The above mentioned redemption price and the
accrued dividends on the 100,000 shares of series A preferred stock converted on
December 15, 2000 and the 200,000 shares of series A preferred stock called for
redemption on December 28, 2000 both were paid in January 2001. The redemption
premium of $4,000,000 has been included as preferred dividends in the year ended
December 31, 2000.

In accordance with the terms of the series A preferred stock, the
Company calculated an assumed incremental yield of $5,455,000 at the date of
issuance based on a beneficial conversion feature included in the terms of the
security. Such amount was being amortized as a preferred stock dividend over the
four-year period beginning with the date of issuance. The assumed incremental
yield and related amortization period for the respective period after the
December 2000 and 1999 conversions and the December 2000 redemption of the
series A preferred stock has been adjusted to reflect a decrease in the
aggregate assumed incremental yield of $1,796,000 as a result of the
aforementioned conversions and redemption prior to the period in which the
beneficial conversion feature was available. The assumed incremental yield
associated with the shares of series A preferred stock converted has been
amortized through each respective conversion date and the assumed incremental
yield associated with the shares of series A preferred stock redeemed has been
amortized through the call for redemption date. The Company has recognized a
total incremental yield attributable to the beneficial conversion feature of
$3,659,000 for the period from the date of issuance through December 31, 2000
and there is no remaining unamortized amount. The Company has filed with the
State of Delaware a Certificate of Elimination with respect to its series A
preferred stock.

(c) 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
the Company's common stock outstanding at the close of

F-33

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 which 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 the Company's 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 which 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.

(d) STOCK OPTIONS AND WARRANTS

STOCK OPTION PLANS

In February 1986, the Company adopted and the shareholders thereafter
approved an Incentive Stock Option Plan and a Non-Qualified Stock Option Plan
(the "86 Plans"). Options may no longer be granted under the 86 Plans pursuant
to the terms of the 86 Plans. In February 1996, the Company's Board of Directors
adopted and the shareholders thereafter approved an additional Incentive Stock
Option Plan and Non-Qualified Stock Option Plan (the "96 Plans"). In May 1998,
the Company's Board of Directors adopted an additional Non-Qualified Stock
Option Plan (the "98 Plan"), which shareholders were not required to approve. On
June 11, 2002, the shareholders approved and the Company adopted the 2002 Stock
Option Plan (the "02 Plan"). Effective with the adoption of the 02 Plan, the
Company will not award new grants from the 96 Plans or the 98 Plan. The 02 Plan
provides for the granting of both incentive stock options and non-qualified
stock options to purchase, subject to adjustment under the plan, 3,300,000
shares of the Company's common stock to employees, directors, consultants and
advisors of the Company. Any common stock subject to an option which is
cancelled, forfeited or expires prior to exercise whether such option was
granted under this plan or the 96 Plans or the 98 Plan, shall again become
available for grant under the 02 Plan. Options granted under the 02 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 02 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.

In November 2001, the Board of Directors approved the amendment of the
96 Plans and the 98 Plan whereby upon the occurrence of a change in control, as
defined in the amended plan documents, each outstanding option under the 96
Plans and the 98 Plan shall become fully vested and exercisable. In the event a
change in control triggers the acceleration of vesting of stock option awards,
the Company would be required to recognize compensation expense, in accordance
with Interpretation No. 44, for those options that would have otherwise expired
unexercisable pursuant to the original terms.

Combined, the 86 Plans, the 96 Plans, as amended, the 98 Plan, as
amended, and the 02 Plan provide as of December 31, 2002 for the granting of
options to purchase up to 27,300,000 shares of common stock to employees,
directors, consultants and advisors of the Company. Incentive stock options may
not be

F-34

granted at a price less than the fair market value of the stock at the date of
grant and may not be granted to non-employees. Options under all the plans,
unless earlier terminated, expire ten years from the date of grant. Options
granted under these plans generally vest over one-to-five-year periods. At
December 31, 2002, options to purchase 13,513,133 shares of common stock were
outstanding and 2,038,765 shares were available for grant.

A summary of stock option activity follows:

The following table summarizes information concerning stock options
outstanding at December 31, 2002:

In September 2001, and in connection with the Board of Directors'
approval of certain employment agreements (see Note 16), the Company granted
options to purchase, in the aggregate, 2,450,000 shares of its common stock to
its former President and Chief Executive Officer, Dr. Samuel D. Waksal, its
former President and Chief Executive Officer and current Chief Scientific
Officer, Dr. Harlan W. Waksal and its then-current Senior Vice President,
Finance, and Chief Financial Officer and current Acting Chief Executive Officer,
Daniel S. Lynch. The options have a per-share exercise price equal to $50.01,
the last reported sale price of the common stock preceding the date Board of
Director approval was obtained. The terms of the options granted to Dr. Samuel
D. Waksal and Dr. Harlan W. Waksal provide that they vest in their entirety

F-35

three years from the date of grant, but may vest earlier as to 33.33% of the
shares if certain targets in the Company's common stock price are achieved. The
options granted to Daniel S. Lynch vest equally over three years. In connection
with the resignation of Dr. Samuel D. Waksal, and the associated May 24, 2002
Separation Agreement between the Company and Dr. Samuel D. Waksal, (see Note
21), the Company amended the CEO's September 2001 stock option award such that
the then unvested portion totaling 833,332 shares would vest immediately as of
the date of termination. In August 2002, the Company filed an action against Dr.
Samuel D. Waksal in New York State Supreme Court seeking, among other things
(see Notes 15 and 21), the cancellation of all stock options that vested as a
result of the separation agreement.

The Company's employee stock option plans generally permit option
holders to pay for the exercise price of stock options and any related income
tax withholding with shares of the Company's common stock that have been vested
by the option holders for at least six months. During the year ended December
31, 2001, 138,433 shares of common stock were delivered to the Company in
payment of the aggregate exercise price and related income tax withholding
associated with the exercise of stock options to purchase an aggregate of
240,000 shares of common stock. The 138,433 shares delivered to the Company had
a value of approximately $3,608,000 determined by multiplying the closing price
of the common stock on the date of delivery by the number of shares presented
for payment. These shares are included as treasury stock in the consolidated
balance sheet at December 31, 2002 and 2001.

During the year ended December 31, 2000, the Company granted options to
purchase 95,000 shares of its common stock to certain Scientific Advisory Board
members and outside consultants in consideration for future services. The
Company recognized compensation expense associated with the options granted to
Scientific Advisory Board members and outside consultants of $957,000 and
$4,425,000 in the years ended December 31, 2001 and 2000, respectively. No
compensation expense was recognized in the year ended December 31, 2002 with
respect to these grants because these grants were fully vested during 2001. At
December 31, 2002, options to purchase 330,500 shares of the Company's common
stock related to all grants of options to Scientific Advisory Board members and
outside consultants were vested and outstanding. The fair value of these options
was subject to remeasurement through the vesting date using the Black-Scholes
option pricing model using assumptions generally comparable to those disclosed
in Note 2(i). During the years ended December 31, 2002, 2001 and 2000, the
Company granted options to non-employee members of its Board of Directors to
purchase approximately 330,000, 420,000 and 341,474 shares, respectively, of its
common stock. No compensation expense was recorded for these option grants.

In May 1999, the Company's stockholders approved the grant of options to
the Company's former President and Chief Executive Officer, Dr. Samuel D.
Waksal, and the Company's then-Executive Vice President and Chief Operating
Officer, Dr. Harlan W. Waksal, to purchase 2,000,000 and 1,300,000 shares,
respectively, of common stock at a per share exercise price equal to $9.125, the
last reported sale price of the common stock on the date stockholder approval
was obtained. The original terms of the options provided that they vest in their
entirety seven years from the date of grant, but may vest earlier as to 20% of
the shares annually if certain targets in the Company's common stock price are
achieved at various points in time. In May 2000, the Company's stockholders
approved an amendment to these options to provide that each tranche vests
immediately upon achievement of the relevant target stock price associated with
such tranche without regard to the passage of time. The options became fully
vested and exercisable upon the approval of the amendments.

During April 1995, the Company completed the sale of the remaining
one-half of its shares of capital stock of Cadus Pharmaceutical Corporation
("Cadus") for $3,000,000 to High River Limited Partnership ("High River"). In
exchange for receiving a now-expired right to repurchase all outstanding shares
of capital stock of Cadus held by High River, the Company granted to High River
two options to purchase shares of common stock of the Company. One option is for
300,000 shares at an exercise price per share equal to $1.00, subject to
adjustment under certain circumstances, and the other option is for 600,000
shares at an exercise price per share equal to $0.34, subject to adjustment
under certain circumstances. Both options were exercised in March 2000.

F-36

WARRANTS

As of December 31, 2002, there were no outstanding warrants. Warrants
have been issued to certain officers, directors and other employees of the
Company, certain Scientific Advisory Board members, certain investors and
certain credit providers and investors. A summary of warrant activity follows:

SFAS NO. 123 DISCLOSURES

The following table summarizes the weighted average fair value of stock
options and warrants granted to employees and directors during the years ended
December 31, 2002, 2001 and 2000:

- ---------------

(1) Does not include 95,000 shares in 2000 under options granted to certain
Scientific Advisory Board members and outside consultants. The fair value of
these grants has been recorded as compensation expense as prescribed by SFAS
No. 123.

(E) EMPLOYEE STOCK PURCHASE PLAN

In April 1998, the Company's Board of Directors adopted the ImClone
Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"), subject to
shareholders' approval, which was received in May 1998. The ESPP, as amended,
allows eligible employees to purchase shares of the Company's common stock
through payroll deductions at the end of quarterly purchase periods. To be
eligible, an individual must be an employee, work more than 20 hours per week
for at least five months per calendar year and not own greater than 5% of the
Company's common stock. Pursuant to the ESPP, the Company has reserved 1,000,000
shares of common stock for issuance. Prior to the first day of each quarterly
purchase period, each eligible employee may elect to participate in the ESPP.
The participant is granted an option to purchase a number of shares of common
stock determined by dividing each participant's contribution accumulated prior
to the last day of the quarterly period by the purchase price. The participant
has the ability to withdraw from the ESPP until the second-to-last day of the
quarterly purchase period. The purchase price is equal to 85% of the market
price per

F-37

share on the last day of each quarterly purchase period. An employee may
purchase stock from the accumulation of payroll deductions up to the lesser of
15% of such employee's compensation or $25,000 in aggregate purchase price, per
year. Participating employees have purchased 52,593 shares of common stock at an
aggregate price of $502,000 for the year ended December 31, 2002, 18,390 shares
of common stock at an aggregate purchase price of $708,000 for the year ended
December 31, 2001, and 11,153 shares of common stock (adjusted for the October
16, 2000 stock split) at an aggregate purchase price of $420,000 for the year
ended December 31, 2000. As of December 31, 2002, 895,582 shares were available
for future purchases. No compensation expense has been recorded in connection
with the ESPP. Pro forma compensation expense of $89,000, $125,000 and $74,000
related to the discount given to employees is included in the pro forma
operating results disclosed in Note 2(i) for the years ended December 31, 2002,
2001 and 2000, respectively.

(14) INCOME TAXES

The Company has established a valuation allowance because, more likely
than not, substantially all of its gross deferred tax assets will not be
realized. The net change in the total valuation allowance for the years ended
December 31, 2002 and 2001 was an increase of $43,631,000 and $158,609,000,
respectively. The valuation allowance includes approximately $109,000,000
pertaining to tax deductions relating to stock option exercises for which any
subsequently recognized tax benefit will be recorded as an increase to
additional paid-in capital. In addition, in 2002 the Company recognized current
State tax expense of $725,000 as a result of legislation in New Jersey, which
has enacted the alternative minimum assessment tax effect on January 1, 2002.

The tax effects of temporary differences that give rise to significant
portions of the gross deferred tax assets and gross deferred tax liabilities at
December 31, 2002, and 2001, are presented below: (in thousands)

At December 31, 2002, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $369,000,000, which expire at
various dates from 2003 through 2022. At December 31, 2002, the Company had
research credit carryforwards for federal and state of approximately
$29,235,000, which expire at various dates from 2009 through 2022. Under Section
382 of the Internal Revenue Code of 1986, as amended, a corporation's ability to
use net operating loss and research credit carryforwards may be limited if the
corporation experiences a change in ownership of more than 50 percentage points
within a three-year period. Since 1986, the Company experienced two such
ownership changes. As a result, the Company is only permitted to use in any one
year approximately $5,159,000 of its available net operating loss carryforwards
that occurred prior to February 1996. Similarly, the Company is limited in using
its research credit carryforwards. The Company has determined that its November
1999 public stock offering, its February 2000 private placement of convertible
subordinated notes, its August 2001 issuance of common stock to Merck KGaA
associated with an equity milestone payment under the ERBITUX development and
license agreement and its September 2001 acquisition agreement with BMS did not
cause an additional

F-38

ownership change that would further limit the use of its net operating losses
and research credit carryforwards. Of the $369,000,000 in net operating loss
carry forwards, approximately $327,000,000 is available to use in 2003,
approximately $5,159,000 is available to use in each year from 2004 through 2011
and approximately $672,000 is available to use in 2012. Any of the
aforementioned net operating loss carryforwards which are not utilized are
available for utilization in future years, subject to the statutory expiration
dates of such net operating loss carryforwards.

(15) CONTINGENCIES

Beginning in January 2002, a number of complaints asserting claims under
the federal securities laws against the Company and certain of its directors and
officers were filed in the U.S. District Court for the Southern District of New
York. Those actions were consolidated under the caption Irvine v. ImClone
Systems Incorporated et al., No. 02 Civ. 0109 (RO), and on September 16, 2002, a
consolidated amended complaint was filed in that consolidated action, which
plaintiffs corrected in limited respects on October 22, 2002. The corrected
consolidated amended complaint names the Company, as well as its former Chief
Executive Officer, Dr. Samuel D. Waksal, its former Chief Executive Officer and
current Chief Scientific Officer, Dr. Harlan W. Waksal, its former Chairman of
the Board of Directors and current director, Robert F. Goldhammer, current or
former directors Richard Barth, David Kies, Paul Kopperl, John Mendelsohn and
William Miller, its former General Counsel, John Landes, and its Vice President
for Marketing and Sales, Ronald Martell, as defendants. The complaint asserts
claims for securities fraud under sections 10(b), 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934, on behalf of a purported class of persons who
purchased our publicly traded securities between March 27, 2001 and January 25,
2002. The complaint also asserts claims against Dr. Samuel D. Waksal under
section 20A of the Exchange Act on behalf of a separate purported sub-class of
purchasers of the Company's securities between December 27, 2001 and December
28, 2001. The complaint generally alleges that various public statements made by
or on behalf of the Company or the other defendants during 2001 and early 2002
regarding the prospects for FDA approval of ERBITUX were false or misleading
when made, that the individual defendants were allegedly aware of material
non-public information regarding the actual prospects for ERBITUX at the time
that they engaged in transactions in the Company's common stock and that members
of the purported stockholder class suffered damages when the market price of the
Company's common stock declined following disclosure of the information that
allegedly had not been previously disclosed. The complaint seeks to proceed on
behalf of the alleged class described above, seeks monetary damages in an
unspecified amount and seeks recovery of plaintiffs' costs and attorneys' fees.
On November 25, 2002, all defendants other than Dr. Samuel D. Waksal filed a
motion to dismiss the complaint for failure to state a claim. On June 3, 2003,
the court granted that motion in part, dismissing the complaint as to defendants
Messrs. Goldhammer, Barth, Kies, Kopperl, Landes, Martell, Mendlesohn and
Miller, but not dismissing it as to the Company, Dr. Harlan W. Waksal and Dr.
Samuel D. Waksal.

Separately, on September 17, 2002, an individual purchaser of the
Company's common stock filed an action on his own behalf asserting claims
against the Company, Dr. Samuel D. Waksal and Dr. Harlan W. Waksal under
sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. That action is
styled Flynn v. ImClone Systems Incorporated, et al., No. 02 Civ. 7499 and, in
contrast to the Ivrine case discussed above, this case was not filed against any
of our outside directors. In this case, Plaintiff alleges that he purchased
shares on various dates in late 2001, that various public statements made by the
Company or the other defendants during 2001 regarding the prospects for FDA
approval of ERBITUX were false or misleading when made and that plaintiff relied
on such allegedly false and misleading information in making his purchases.
Plaintiff seeks compensatory damages of not less than $180,000 and punitive
damages of $5,000,000, together with interest, costs and attorneys' fees. On
November 25, 2002, both defendants other than Dr. Samuel D. Waksal filed a
motion to dismiss the complaint for failure to state a claim. Briefing on that
motion was completed on March 5, 2003. Oral argument on the motion to dismiss
was held on May 5, 2003. On June 3, 2003, the court denied that motion.

Beginning on January 13, 2002, and continuing thereafter, nine separate
purported shareholder derivative actions have been filed against members of the
Company's Board of Directors, certain of its present and former officers, and
the Company, as nominal defendant, among others, advancing claims based on

F-39

allegations similar to the allegations in the federal securities class action
complaints. Four of these derivative cases were filed in the Delaware Court of
Chancery and have been consolidated in that court under the caption In re
ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC.
Three of these derivative actions were filed in New York State Supreme Court in
Manhattan, (styled Boghosian v. Barth, et al., Index No. 100759/02, Johnson v.
Barth, et al. Index No. 601304/02, and Henshall v. Bodnar, et al., Index No.
603121/02) and have been consolidated under the caption In re ImClone Systems,
Inc. Shareholder Derivative Litigation, Index No. 02-100759. In addition, two
purported derivative actions, Lefanto v. Waksal, et al., No. 02 Civ. 0163 (RO)
and Forbes v. Barth, et al., No. 02 Civ. 1400 (RO), have been filed in the U.S.
District Court for the Southern District of New York and consolidated under the
caption In re ImClone Systems, Inc. Shareholder Derivative Litigation, Master
File No. 02 CV 163 (RO). A verified consolidated amended complaint, reflecting
the consolidation described above, was filed in the Southern District of New
York action on June 16, 2003. All of these actions assert, purportedly on behalf
of ImClone Systems, claims including breach of fiduciary duty by certain members
of the Company's Board of Directors and current and former officers, among
others, based on allegations including that they 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, or improperly
disclosed such information to others, and that they failed to maintain adequate
controls and to exercise due care with regard to the Company's ERBITUX
application to the FDA and certain public statements by or on behalf of the
Company. No response to the complaints in those actions has been required to
date.

The Company intends to vigorously defend itself against the claims
asserted in these actions, which are in their earliest stages. The Company is
unable to predict the outcome of these actions at this time. Because the Company
does not believe that a loss is probable, no legal reserve has been established.

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
"refusal to file" letter dated December 28, 2001 and trading in the Company's
securities by certain Company insiders in 2001. The Company has also received
subpoenas and requests for information pertaining to document retention issues
in 2001 and 2002, and to certain communications regarding ERBITUX in 2000. The
Company is cooperating with all of these inquiries and intends to continue to do
so.

On June 19, 2002, the Company received a written "Wells Notice" from the
staff of the Securities and Exchange Commission (the "SEC"), indicating that the
staff of the SEC is considering recommending that the SEC bring an action
against the Company relating to our disclosures immediately following the
receipt of a "refusal to file" letter from the FDA on December 28, 2001 for the
Company's BLA for ERBITUX. The Company filed a Wells submission on July 12, 2002
in response to the staff's Wells Notice.

On August 7, 2002, a federal grand jury in the Southern District of New
York returned an indictment charging Dr. Samuel D. Waksal with, inter alia,
securities fraud and conspiracy to commit securities fraud. On October 15, 2002,
Dr. Samuel D. Waksal entered a plea of guilty to several counts in that
indictment, including that on December 27, 2001 he directed a family member to
sell shares of the Company's common stock and attempted to sell shares that he
owned in advance of an expected announcement that the FDA had issued a "refusal
to file" letter with respect to the Company's application for approval of
ERBITUX. The Company received such a "refusal to file" letter from the FDA on
December 28, 2001 and announced the receipt of that letter following the close
of trading that day. On June 10, 2003, Dr. Samuel D. Waksal was sentenced to an
eighty-seven month prison term and ordered to pay $4,200,000 in fines and
restitution.

On August 14, 2002, after the federal grand jury indictment of Dr.
Samuel D. Waksal had been issued but before Dr. Samuel D. Waksal's guilty plea
to certain counts of that indictment, the Company filed an action in New York
State Supreme Court seeking recovery of certain compensation, including
advancement of certain defense costs, that the Company had paid to or on behalf
of Dr. Samuel D. Waksal. That action, styled ImClone Systems Incorporated v.
Samuel D. Waksal, Index No. 02/602996, is in its earliest stages.

F-40

The Company incurred legal fees associated with these matters totaling
approximately $10,022,000 during the year ended December 31, 2002. The Company
has estimated and recorded a receivable totaling $5,340,000 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 December 31, 2002.

In January 2003, the New York State Department of Taxation and Finance
("New York State") notified the Company that it was liable for the New York
State and City income taxes that were not withheld because one or more of the
Company's employees who exercised certain non-qualified stock options in 1999
and 2000 failed to pay New York State and City income taxes for those years. On
March 13, 2003, the Company entered into a closing agreement with New York
State, paying $4,500,000 to settle the matter. The Company promptly informed the
Internal Revenue Service, the SEC and the United States Attorney's Office,
responsible for the prosecution of Dr. Samuel D. Waksal, of this issue. In order
to confirm whether its liability in this regard was limited to Dr. Samuel D.
Waksal's failure to pay income taxes, the Company contacted current and former
officers, directors and employees who had exercised non-qualified stock options
in 1999 and 2000 to confirm that those individuals had satisfied their personal
income tax liabilities, which payments would reduce or eliminate the Company's
potential liability for failure to withhold income taxes on the exercise of
non-qualified stock options. In the course of doing so, the Company became aware
of another potential income and employment tax withholding liability associated
with the exercise of certain warrants granted in the early years of the
Company's existence that were held by certain officers, directors and employees,
including its former President and Chief Executive Officer, Samuel D. Waksal,
our former General Counsel, John B. Landes, its Chief Scientific Officer, Harlan
W. Waksal, and its former Chairman of the Board, Robert F. Goldhammer. Again,
the Company promptly informed the Internal Revenue Service, the SEC and the
United States Attorney's Office of this issue. On June 17, 2003, New York State
notified the Company that, based on the issue identified above, they are
continuing a previously conducted audit of the Company and are evaluating the
terms of the closing agreement to determine whether or not it should be re-
opened.

The Company has not recognized withholding tax liabilities in respect of
exercises of certain warrants by the Company's then-current and now-former
Chairman of the Board, Robert F. Goldhammer, the final of the four officers or
directors to whom warrants were issued and previously treated as
non-compensatory warrants. Based on the Company's investigation, it believes
that, although such warrants were compensatory, such warrants were received by
Mr. Goldhammer in connection with the performance of services by him in his
capacity as a director, rather than as an employee, and, as such, are not
subject to tax withholding requirements. In addition, in 1999, Mr. Goldhammer
erroneously received a portion of a stock option grant to him in the form of
incentive stock options, which under federal law may only be granted to
employees. There can be no assurance, however, that the taxing authorities will
agree with the Company's position and will not assert that the Company is liable
for the failure to withhold income and employment taxes with respect to the
exercise of such warrants and any stock options by Mr. Goldhammer. If the
Company became liable for the failure to withhold taxes on the exercise of such
warrants and any stock options by Mr. Goldhammer, the potential liability,
exclusive of any interest or penalties, would be approximately $12,600,000.

The Company has not recognized accruals for penalties and interest that
may be imposed with respect to the withholding tax issues described above and
other related contingencies, including the period covered by the statute of
limitations and the Company's determination of certain exercise dates because it
does not believe that losses from such contingencies are probable. With respect
to the statute of limitations and the Company's determination of certain
exercise dates, while the Company does not believe a loss is probable, there is
a potential additional liability with respect to these issues that may be
asserted by a taxing authority. If taxing authorities assert such issues and
prevail related to these withholding tax issues and other related contingencies,
including penalties, the liability which could be imposed by taxing authorities
would be substantial. The potential interest on the withholding tax liabilities
recorded on the Consolidated Balance Sheets could be up to a maximum amount of
$7,200,000 at December 31, 2002. Potential additional withholding tax liability
on other related contingencies amounts to approximately $11,000,000, exclusive
of any interest or penalties, and excluding the amount potentially attributable
to Mr. Goldhammer noted above.

F-41

On March 31, 2003, the Company received notification from the SEC that
it was conducting an informal inquiry into both of these matters and on April 2,
2003, the Company received a request from the SEC for the voluntary production
of related documents and information. The Company is cooperating fully with this
SEC inquiry and is updating the SEC, United States Attorney's Office and the
applicable taxing authorities on an ongoing basis and intends to continue to do
so.

Until the Company files its first quarter 2003 report on Form 10-Q, the
Company would also be unable to comply with Rule 144 registration rights of an
affiliated investor holding the Company's unregistered shares if such holder
wished to sell those shares, which could potentially give rise to an
indemnification claim for any loss of value of such stock during a period of
sale postponement or to a right to terminate the corresponding contract if such
non-compliance were not cured in a timely manner.

(16) COMMITMENTS

LEASES

The Company leases office, operating and laboratory space under various
lease agreements. Rent expense was approximately $3,376,000, $1,576,000 and
$838,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

The Company leases its research and development and corporate
headquarters in New York City, under an operating lease, as amended, which
expires in December 2004. (See also Note 9.) In January 2003, the Company again
modified its lease to add 5,800 square feet of laboratory space on the eighth
floor for a lump sum advance rent payment of $232,625 paid in January 2003 plus
an annual rent of $12,000 to be paid from February 2003 until December 2004.
This lease amendment will expire concurrently with the remainder of the lease in
December 2004.

In May 2001, the Company entered into an operating lease for a 4,000
square foot portion of a 15,000 square foot building and an adjacent 6,250
square foot building (collectively the "Brooklyn facility") in Brooklyn, New
York. The Company has completed renovations to the premises and relocated its
chemistry and high throughput screening personnel during November 2002, from its
corporate headquarters and research facility in downtown New York. The term of
the lease is for five years and contains five successive one-year extensions. As
of December 31, 2002, the Company has incurred approximately $4,395,000 for the
retrofit of this facility to better fit its needs. The chemistry facility was
ready for its intended use and put into operation in December 2002 and
depreciation commenced at that time.

In October 2001, the Company entered into a sublease for a four-story
building at 325 Spring Street, New York, New York, which includes between 75,000
and 100,000 square feet of usable space. The Company is currently analyzing its
options with respect to relocating its headquarters and research laboratory to
this subleased space. This subleased space may or may not be designed, improved
or expanded and used by the Company in the future, depending on the Company's
business needs. The sublease has a term of 22 years, followed by two five-year
renewal option periods. The future minimum lease payments are approximately
$50,325,000 over the term of the sublease. In order to induce the sublandlord to
enter into the sublease, the Company made a loan to the sublandlord in the
principal amount of a $10,000,000 note receivable. The loan is secured by a
leasehold mortgage on the prime lease as well as a collateral assignment of
rents by the sublandlord. The loan is payable by the sublandlord over 20 years
and bears interest at 5 1/2% in years one through five, 6 1/2% in years six
through ten, 7 1/2% in years eleven through fifteen and 8 1/2% in years sixteen
through twenty. In addition, the Company paid the owner a consent fee in the
amount of $500,000. The sublease is classified as an operating lease, and rent
expense is recorded on a straight-line basis over the term of the sublease. In
addition, the interest payments received on the related note receivable are
being recorded as a reduction to rent expense. The consent fee is being
recognized as rent expense over the term of the lease.

F-42

Future minimum lease payments under the capital and operating leases are
as follows: (in thousands)

EMPLOYMENT AGREEMENTS

In September 2001 and February 2002, the Company entered into employment
agreements with six senior executive officers, including, in September 2001,
then-President and Chief Executive Officer, Dr. Samuel D. Waksal, and then-Chief
Operating Officer and current Chief Scientific Officer, Dr. Harlan W. Waksal.
Dr. Samuel D. Waksal, resigned and entered into a separation agreement with the
Company in May 2002 and Dr. Harlan W. Waksal was appointed President and Chief
Executive Officer. Dr. Harlan W. Waksal has recently resigned from the position
of President and Chief Executive Officer and has been named the Company's Chief
Scientific Officer, with responsibility for research, clinical, regulatory,
quality assurance and manufacturing. The September 2001 agreements each have
three-year terms and the February 2002 agreement has a one-year term. The
February 2002 agreement was amended in April 2002 and is now expired. The term
of employment for Dr. Harlan W. Waksal will be automatically extended for one
additional day each day during the term of employment unless either the Company
or Dr. Harlan W. Waksal otherwise gives notice. The employment agreements
provided for stated base salaries, minimum bonuses and benefits aggregating
$3,765,000 annually. In October 2002, the Company accepted the resignation and
entered into a separation agreement with an executive officer who held one of
the aforementioned employment agreements. See Note 21 for discussion of the
separation agreements.

In August 2002 and September 2002, the Company entered into one-year
employment agreements with two executive officers. The employment agreements
provide for aggregate stated base salaries of $390,000.

SUPPORTED RESEARCH

The Company has entered into various research and license agreements
with certain academic institutions and others to supplement the Company's
research activities and to obtain rights to certain technologies. The agreements
generally require the Company to fund the research, to pay milestones upon the
achievement of defined events, such as the submission or approval of regulatory
filings and to pay royalties based upon percentages of revenues, if any, on
sales of products developed from technology arising under these agreements.

CONSULTING AGREEMENTS

The Company has consulting agreements with several of its Scientific
Advisory Board members and other consultants. These agreements generally are for
a term of one year and are terminable at the Company's option. See Note 19.

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CONTRACT SERVICES

In December 1999, the Company 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 was responsible
for process development and scale-up to manufacture ERBITUX in bulk form under
current Good Manufacturing Practices ("cGMP"). These steps were taken to assure
that the manufacturing process would produce bulk material that conforms with
the Company's reference material and to support in part, the Company's
regulatory filings with the FDA. The Company incurred approximately $38,000,
$5,353,000 and $1,677,000 for the years ended December 31, 2002, 2001 and 2000,
respectively, and $7,068,000 from inception through December 31, 2002 under the
development and manufacturing services agreement. As of December 31, 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 $86,913,000. The
Company has incurred approximately $51,520,000, $4,913,000 and $5,400,000 for
the years ended December 31, 2002, 2001 and 2000, respectively, and $61,833,000
from inception through December 31, 2002 for services provided under the
commercial manufacturing services agreement.

Under the December 1999 and September 2000 agreements, Lonza
manufactures ERBITUX at the 5,000 liter scale under cGMP and delivers 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 binding 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. Certain batches have been
cancelled at other negotiated rates agreed to by the parties. These amounts are
subject to mitigation should Lonza use its manufacturing capacity caused by such
termination for another customer. At December 31, 2002, the estimated remaining
future commitments under the commercial manufacturing services agreement are
$25,080,000 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 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
statements of operations. The Company has incurred approximately $4,700,000 and
$2,483,000 for the years ended December 31, 2002 and 2001, respectively, and
$7,183,000 from inception through December 31, 2002 for services provided under
this agreement. As of December 31, 2002, Merck KGaA has reimbursed the Company
in full for all the services provided under this agreement and Lonza has
completed its responsibilities under such agreement.

On January 2, 2002, the Company executed a letter of intent with Lonza
to enter into a long-term supply agreement. The long-term supply agreement would
have applied to a large scale manufacturing facility that Lonza is constructing,
which would have been able to produce ERBITUX in 20,000 liter batches. The
Company paid Lonza $3,250,000 upon execution of the letter of intent for the
exclusive right to negotiate a long-term supply agreement for a portion of the
facility's manufacturing capacity. In September 2002, the Company wrote-off the
deposit because the exclusive negotiation period ended on September 30, 2002. In

F-44

light of the assistance the Company provided to a third party with respect to
preserving and then relinquishing the manufacturing capacity described above,
the third party paid the Company $3,250,000 in April 2003 and this amount will
therefore be recognized as a reduction to operating expenses in 2003.

(17) RETIREMENT PLAN

The Company maintains a 401(k) retirement plan available to all
full-time, eligible employees. Employee contributions are voluntary and are
determined by the individual, limited to the maximum amount allowable under
federal tax regulations. The Company, at its discretion, may make certain
contributions to the plan. The Company contributed approximately $314,000,
$243,000 and $108,000 in cash to the plan for the years ended December 31, 2002,
2001 and 2000, respectively. Amounts that are held in the 401(k) plan are
invested in designated investment funds and participants cannot purchase Company
stock in this plan.

(18) SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING
ACTIVITIES: (IN THOUSANDS)

(19) CERTAIN RELATED PARTY TRANSACTIONS

The Company had scientific consulting agreements with two members of the
Board of Directors. Expenses relating to these agreements were $28,000, $112,000
and $112,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
These consulting agreements were terminated during the year ended December 31,
2002.

Certain transactions engaged in by the Company's former President and
Chief Executive Officer, Dr. Samuel D. Waksal, in securities of the Company were
deemed to have resulted in "short-swing profits" under Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"). In accordance with Section
16(b) of the Exchange Act, Dr. Samuel D. Waksal has paid the Company an
aggregate amount of approximately $486,000 in March 2002, and an additional
amount of approximately $79,000 in July 2002, as disgorgement of "short-swing
profits" he was deemed to have realized. The amounts received were recorded as
an increase to additional paid-in capital.

In December 2001, the Company entered into an agreement to sublease a
1,520 square foot portion of its corporate headquarters and research facility in
New York City to Scientia Health Group Inc ("Scientia"). Base rent under the
sublease was $5,496 per month and was subject to annual escalation. Scientia was
also responsible for additional rent representing its pro-rata share of
operating expenses. The

F-45

amount charged to Scientia represented a direct pass through of the Company's
cost. The term of the sublease was to continue month-to-month until notice of
termination by the Company. During the second quarter of 2002, the Company
terminated its agreement with Scientia and Scientia subsequently moved out of
the Company's corporate headquarters and research facility. During the year
ended December 31, 2001, the Company incurred, and was subsequently reimbursed
by Scientia, approximately $111,000 in cost associated with preparing the
premises for occupancy. In July 2002, the Company agreed to refund approximately
$88,000 of such costs to Scientia if Scientia also paid certain rent and legal
invoices due to the Company of approximately the same amount. This
reconciliation has not been performed and is not likely to be performed. The
Company's former President and Chief Executive Officer, Dr. Samuel D. Waksal,
was the Executive Chairman of Scientia when the agreement was in effect.

In July 2001, the Company accepted a promissory note from each of its
then-President and Chief Executive Officer, Dr. Samuel D. Waksal, its
then-Executive Vice President and Chief Operating Officer and current Chief
Scientific Officer, Dr. Harlan W. Waksal, and its former Chairman of the Board,
Robert F. Goldhammer, and in August 2001 the Company accepted a promissory note
from another member of its Board of Directors, in payment of the aggregate
exercise price associated with the exercise of stock options and warrants they
held to purchase a total of approximately 4,473,000 shares of the Company's
common stock. Dr. Samuel D. Waksal's promissory note was in the amount of
$18,178,750; Dr. Harlan W. Waksal's promissory note was in the amount of
$15,747,550; Mr. Goldhammer's promissory note was in the amount of $1,228,065;
and the other Board member's promissory note was in the amount of $87,000. The
unsecured promissory notes were full recourse notes, payable on the earlier of
one year from the date of the notes or on demand by the Company and bore
interest at the prime lending rate plus 1% (7 3/4% on the date of the note).
Interest was payable quarterly and the interest rate adjusted quarterly during
the term of each note to the then current prime lending rate plus 1%. On October
31, 2001, the Company made demand for repayment, by November 23, 2001, of the
principal amount of the notes and accrued interest thereon. The principal amount
of all of these notes totaling $35,241,000 and accrued interest totaling
$879,000 were paid in full in November 2001.

On December 21, 2000, the Company accepted from its then-President and
Chief Executive Officer, Dr. Samuel D. Waksal, a full recourse, unsecured
promissory note in the principal amount of $282,200. The note was payable upon
the earlier of June 21, 2001 or demand by the Company and bore interest at 10.5%
(the prime lending rate plus 1% on the date of the note) for the period that the
loan was outstanding. The Company subsequently extended the term of the note to
be payable December 21, 2001. The principal amount of this note and accrued
interest totaling $310,000 were paid in full in November 2001.

In January 1998, the Company accepted a promissory note totaling
approximately $131,000 from its then President and Chief Executive Officer, Dr.
Samuel D. Waksal, in connection with the exercise of a warrant to purchase
174,610 shares of the Company's common stock. The note was due no later than two
years from issuance and was a full recourse note. Interest was payable on the
first anniversary date of the promissory note and on the stated maturity or any
accelerated maturity at the annual rate of 8 1/2%. The note, including all
interest, was paid in full during 2000.

The Company uses Concord Investment Management, a New York-based money
management firm, to manage a substantial portion of the Company's debt security
portfolio tabulated in Note 4. The Company's former Chairman of the Board has
been and is a limited partner of Concord International Holdings, LP. Concord
International Holdings, LP is a holding company that controls Concord Investment
Management. The Company paid investment management fees to Concord Investment
Management of approximately $452,000, $370,000 and $412,000 in the years ended
December 31, 2002, 2001 and 2000, respectively.

F-46

(20) FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2002 and 2001, the following methods and assumptions
were used to estimate the fair value of each class of financial instrument:

CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES, ACCOUNTS PAYABLE, AND OTHER
CURRENT LIABILITIES

The carrying amounts approximate fair value because of the short
maturity of those instruments.

LONG-TERM OBLIGATIONS

The fair value of the 5 1/2% convertible subordinated notes was
approximately $167,700,000 and $255,000,000 at December 31, 2002 and 2001,
respectively based on their quoted market price. Discounted cash flow analyses
were used to determine the fair value of other long-term obligations because no
quoted market prices on these instruments were available. The fair value of
other long-term obligations approximated their carrying amount.

(21) SEPARATION AGREEMENTS

On May 22, 2002, the Company accepted the resignation of its
then-President and Chief Executive Officer, Dr. Samuel D. Waksal. In connection
with the resignation, on May 24, 2002 the Company and Dr. Samuel D. Waksal
executed a separation agreement whereby Dr. Samuel D. Waksal received a lump sum
payment totaling $7,000,000 and was entitled to receive for defined periods of
time the continuation of certain benefits including health care and life
insurance coverage with an estimated cost of $283,000. The related expense of
$7,283,000 is included in Marketing, general and administrative expenses in the
consolidated statements of operations for the year ended December 31, 2002. In
addition, 1,250,000 stock option awards granted to Dr. Samuel D. Waksal on
September 19, 2001 which were exercisable at a per share exercise price of
$50.01 and constituted all outstanding stock option awards held by Dr. Samuel D.
Waksal, were deemed amended such that the unvested portion vested immediately as
of the date of termination. The amended stock option awards can be exercised at
any time until the end of the term of such awards. No compensation expense was
recorded because the fair market value of the Company's common stock was below
the $50.01 exercise price on the date the option award was amended. On August 7,
2002, a federal grand jury indicted Dr. Samuel D. Waksal. The Company has
learned that Dr. Samuel D. Waksal, in contravention of Company policy, directed
the destruction of certain of his personal records that were, or could be
perceived to be relevant to the pending government investigations. Accordingly,
on August 14, 2002, the Company filed an action against Dr. Samuel D. Waksal in
New York State Supreme Court seeking repayment of amounts paid to him by the
Company pursuant to the separation agreement, cancellation or recovery of other
benefits provided under that agreement (including cancellation of all stock
options that vested as a result of the agreement), disgorgement of amounts
previously advanced by the Company on behalf of Dr. Samuel D. Waksal for his
legal fees and expenses, and repayment of certain amounts paid under Dr. Samuel
D. Waksal's previous employment agreement. The action, styled ImClone Systems
Incorporated v. Samuel D. Waksal, Index No. 02/602996, is in its earliest
stages.

In October 2002, the Company accepted the resignation of an executive
officer. The Company and the officer executed a separation agreement whereby the
officer will receive his stated base salary from the date of termination through
October 2003 and certain benefits including healthcare and life insurance
coverage through December 2002. In May 2003, the Company suspended payments
under this separation agreement in response to the withholding tax liabilities
discussed in Note 3.

(22) QUARTERLY FINANCIAL DATA (UNAUDITED)

As disclosed in Note 3, the Company has restated its 2001 consolidated
financial statements. Also, the Company's consolidated financial statements for
the first three quarters of 2002 have been restated as a result of the matters
disclosed in Note 3. The tables below summarize the Company's unaudited
quarterly operating results for 2002 and 2001 as previously reported and
restated for the effect of the adjustments disclosed in Note 3 (in thousands,
except per share data).
F-47

* Amount has been reclassified as a result of the adoption of EITF No. 01-14 as
described in Note 2(g).

F-48