UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE IMCLONE SYSTEMS INCORPORATED : 02 Civ. 0163 (RO)
SHAREHOLDER DERIVATIVE LITIGATION :
NOTICE OF PROPOSED SETTLEMENT OF STOCKHOLDER
DERIVATIVE ACTION AND SETTLEMENT HEARING
TO: ALL RECORD OWNERS AND BENEFICIAL OWNERS OF COMMON STOCK OF IMCLONE SYSTEMS INCORPORATED,
AS OF MARCH 18, 2005.
IF YOU HOLD IMCLONE SYSTEMS INCORPORATED COMMON STOCK FOR THE BENEFIT OF ANOTHER, PLEASE
PROMPTLY TRANSMIT THIS NOTICE TO SUCH BENEFICIAL OWNER.
PLEASE READ THIS NOTICE CAREFULLY. THIS NOTICE RELATES TO THE PENDENCY AND PROPOSED
SETTLEMENT OF THIS STOCKHOLDER DERIVATIVE LITIGATION.
This Notice is being sent to you pursuant to an Order of the United States District Court for the Southern District of New York.
It describes the proposed settlement (the “Settlement”) of this stockholder derivative action (the “Action”), which has been brought in the
name of, and for the benefit of ImClone Systems Incorporated, a Delaware corporation with headquarters in New York, New York
(“ImClone”) against certain past or present officers or directors of ImClone. Subject to Court approval, the parties to the Action have
entered into a Stipulation of Settlement dated March 14, 2005 (the “Stipulation”) that sets forth the terms and conditions of the
A hearing (the “Settlement Hearing”) will be held on June 24, 2005, at 3:30 p.m. before United States District Judge Richard
Owen, in Courtroom 1106, of the United States Courthouse, at 40 Centre Street, New York, New York 10007, for the purpose of
determining: (1) whether to approve the proposed settlement of this action, and (2) if the settlement is approved, to consider an
application by plaintiffs’ counsel for an award of their reasonable attorneys’ fees and expenses. This Notice describes the nature of the
Action, the terms of the proposed settlement and what you need to do in case you wish to object to the settlement or the application by
plaintiffs’ counsel for an award of attorneys’ fees and expenses.
THE FOLLOWING RECITATION DOES NOT CONSTITUTE THE FINDINGS OF THE COURT. IT IS BASED ON
THE STATEMENTS OF THE PARTIES AND SHOULD NOT BE UNDERSTOOD AS AN EXPRESSION OF ANY
OPINION OF THE COURT AS TO THE MERITS OF ANY OF THE CLAIMS OR DEFENSES ASSERTED BY ANY
OF THE PARTIES.
What is the Lawsuit About?
The Action that is the subject of this Notice is brought by plaintiffs who claim that they are stockholders of ImClone.
It seeks to recover damages on behalf of ImClone based on certain claims plaintiffs have asserted against ImClone’s former chief
executive officer, Samuel D. Waksal, and against certain past or present members of ImClone’s board of directors.
ImClone is a biotechnology company. In early 2001, the U.S. Food and Drug Administration (the “FDA”) granted ImClone
“Fast Track” status, thereby providing for the possibility of accelerated regulatory approval of one of ImClone’s products, a monoclonal
antibody called Erbitux which, in combination with chemotherapy or radiation, had shown promise to combat various types of
cancerous tumors. On December 28, 2001, however, the FDA sent a letter informing ImClone that it was refusing to accept for filing
ImClone’s application for approval of Erbitux®. The FDA’s letter outlined a number of purported deficiencies in that application and in
the clinical studies underlying the application. That evening, ImClone announced that it had received the letter in a press release
issued after the markets closed.
Beginning on January 13, 2002 and continuing thereafter, nine separate purported stockholder derivative complaints were filed
in the United States District Court for the Southern District of New York (the “Court”), the Delaware Court of Chancery and the Supreme
Court of the State of New York for the County of New York, purportedly on behalf of ImClone. The actions filed in the Court originally
were styled Lefanto v. Waksal, et al., No. 02 Civ. 0163 (LLS), and Forbes v. Barth, et al., No. 02 Civ. 1400 (RO), and were later
consolidated by Order dated March 31, 2003 under the caption In re ImClone Systems, Inc. Shareholder Derivative Litigation, Master
File No. 02 Civ. 0163 (RO) (referred to herein as the “Action”). By agreement of the parties, the Delaware and New York State
Supreme Court actions were stayed in favor of proceedings in the Action.
On August 8, 2003, plaintiffs filed a supplemental verified consolidated amended derivative complaint in the Action
(the “Complaint”). In the Complaint, plaintiffs Leo Deuster, Michael LeFanto, Glenn Forbes, Edward Dymek, Elliott Diggs, Jeff Johnson
and Fayez Swailem (“Plaintiffs”) claimed to be stockholders of ImClone and to be asserting claims derivatively, on ImClone’s behalf.
They asserted derivative claims against Samuel D. Waksal, ImClone’s former chief executive officer and a director, and several past or
present members of ImClone’s board of directors, Robert Goldhammer, Vincent T. DeVita, Jr., David M. Kies, Paul B. Kopperl, Arnold
J. Levine, John Mendelsohn, William R. Miller and Harlan W. Waksal. The Complaint also named ImClone as a “nominal defendant.”
In addition, the Complaint named as a defendant Jack Waksal, the father of Samuel Waksal and Harlan Waksal, but it did not assert
any claim against him.
In the Complaint, Plaintiffs generally alleged that ImClone’s directors breached their fiduciary duties to ImClone and its
stockholders by failing to ensure that appropriate procedures were followed with respect to the preparation and submission of
ImClone’s application to the FDA for approval of Erbitux and by causing or allowing ImClone and its management to issue public
statements regarding the prospects for Erbitux that were alleged to have been false or misleading. The Complaint also alleged two
causes of action against Samuel D. Waksal, the first for recovery, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, of certain
compensation that he received, and the second for alleged violations of the federal RICO statute. The last of these claims
subsequently was abandoned by plaintiffs’ counsel.
On January 9, 2004, ImClone filed a motion to dismiss the Complaint for failure to satisfy the pre-suit demand requirements
arising for derivative actions under applicable law. The individual defendants in the Action joined in ImClone’s motion and filed
separate motions to dismiss on the same date. Oral argument on the motions took place on November 4, 2004. The Court had not yet
decided these motions at the time that the parties reached their agreement to settle the Action.
What Are the Terms of the Proposed Settlement?
Under the proposed Settlement of the Action, which is subject to Court approval, ImClone will be paid $8,750,000 in cash by
directors and officers liability insurance carriers, less any amount for attorneys’ fees and expenses awarded by the Court to Plaintiffs’
counsel (as discussed below). ImClone’s board of directors also will amend the charter of the Company’s research oversight
committee to formally provide for regular meetings with the ImClone officer responsible for interactions with the FDA.
If the Settlement is approved, the Plaintiffs on behalf of themselves and all other stockholders of ImClone during the time of
the events alleged in the Complaint shall be deemed to have fully, finally and forever released, relinquished and discharged each and
every derivative claim, right, cause of action and right to seek recovery for liabilities, damages, losses, attorney’s fees, costs or
expenses, whether known or unknown, suspected or unsuspected, matured or unmatured, and whether based upon federal, state or
local statutory or common law, or any other rule or regulation, that has been, or could have been, asserted in the Action derivatively, or
that arises out of, or is in any way based upon, connected with or related to any allegations of the Complaint or any prospectus,
registration statement, proxy statement, annual report (initial or restated), quarterly earnings report (initial or restated), press release or
other publicly disseminated documents or public statements of ImClone during or relating to any period prior to August 8, 2003
(the “Settled Claims”), against any of the individual defendants in the Action and each of their respective families, heirs, executors,
trustees, personal representatives, estates or administrators, attorneys, counselors, financial or investment advisors, or against
ImClone, its present or former officers, directors, employees, co-venturers (including without limitation Bristol-Myers Squibb Company),
agents, attorneys, representatives and affiliates (within the meaning of Rule 12b-2 of the Securities Exchange Act of 1934), successors
and assigns (the “Released Parties”).
Certain claims that ImClone has in its own right will not be subject to this release. They include claims and affirmative
defenses that ImClone has asserted or could assert in certain litigation and arbitration proceedings that it has brought against its former
chief executive officer, Samuel D. Waksal, for recovery of certain compensation, repayment of certain income tax liabilities and other
relief. They also include claims that ImClone might have against other present or former officers or directors of ImClone relating to
income tax matters.
If the Court approves the Settlement, then the Action will be dismissed with prejudice and without costs other than as provided
in the Stipulation. In addition, the parties will ask the Delaware Court of Chancery and the Supreme Court of the State of New York to
dismiss, with prejudice, the ImClone derivative cases that were filed in those courts but that have been stayed pending the outcome of
Although it is not a term of the Settlement, ImClone plans to use the net proceeds it receives from the insurance carriers under
the settlement of the Action (along with other funds) to contribute toward the proposed settlement of a class action brought on behalf of
purchasers of ImClone securities during a period before and following the announcement of the FDA letter, which is called
Irvine v. ImClone Systems Incorporated, No. 02 Civ. 0109 (RO), and which is also pending in the Court before U.S. District Judge
Richard Owen. If the proposed Settlement of the Irvine action is not approved or is terminated by the parties to that Settlement, then
the proposed settlement of this Action also will be terminated because approval of that other settlement is a condition to the Settlement
of the Action.
The foregoing is only a summary of the terms of the Settlement. If you are interested in additional information, copies of the
Stipulation and of other submissions in the Action are on file with the Clerk of the Court, United States Courthouse, 500 Pearl Street,
New York, New York 10007.
What Are the Reasons for the Settlement?
Plaintiffs, through their counsel, have, over the last three years, conducted a thorough investigation relating to the claims and
the underlying events alleged in the Complaint, including the inspection of hundreds of thousands of pages of documents produced by
defendants in the Irvine action and the analysis of the legal principles applicable to plaintiffs’ claims and the potential defenses thereto.
Although Plaintiffs believe their claims have merit, they recognize the expense and length of continued proceedings necessary
to prosecute such claims through trial. Moreover, the defendants have asserted substantial arguments in support of their motions to
dismiss Plaintiffs’ derivative claims, thereby rendering the outcome of the Action uncertain. Plaintiffs’ counsel also have taken into
account the costs and risks inherent in proceeding further in this Action. With these factors in mind, Plaintiffs, through their counsel,
engaged in arm’s-length negotiations with counsel for the defendants with a view to achieving the benefits of a positive outcome as
reflected in the proposed settlement, and Plaintiffs and their counsel believe the proposed settlement is reasonable, adequate and in
the best interests of ImClone and its stockholders.
For their part, the defendants have denied, and continue to deny, each and every allegation of liability and wrongdoing on their
part and assert that the claims asserted against them in the Complaint are without merit and fail to state a cause of action; deny that
they breached any duty, violated any law or engaged in wrongdoing of any form; and believe that they have strong factual and legal
defenses to all claims alleged. The defendants have agreed to the proposed settlement solely in order to fully and finally settle and
dispose of all claims that have been or could have been raised in the Action and to avoid the continuing burden, expense,
inconvenience and distraction of this protracted litigation. Notwithstanding the foregoing, defendant Samuel D. Waksal has pleaded
guilty to certain criminal charges and has entered into a consent judgment with the Securities and Exchange Commission, and nothing
in this recital is intended to contradict any admission of wrongdoing by Samuel D. Waksal in those proceedings.
What Attorneys’ Fees and Expenses Will Be Paid?
At the Settlement Hearing, Plaintiffs’ counsel intend to apply to the Court for an award of attorneys’ fees and for
reimbursement of costs and expenses incurred in connection with the Action in an amount not to exceed in the aggregate $875,000.
ImClone has agreed to pay to plaintiffs’ counsel the amount awarded, up to this limit, out of the proceeds it will receive from the
insurance companies under the Settlement. The defendants have agreed not to oppose this application.
What Will Happen at the Settlement Hearing and How Do I Participate?
As mentioned above, the Settlement Hearing will be held on June 24, 2005, at 3:30 p.m. before United States District Judge
Richard Owen, in Courtroom 1106, of the United States Courthouse, at 40 Centre Street, New York, New York 10007. At the
Settlement Hearing, the Court will consider whether the proposed Settlement is fair, reasonable, adequate and in the best interests of
ImClone, on whose behalf the Action was brought by plaintiffs. In addition, the Court will consider plaintiffs’ counsel’s application for an
award of attorneys’ fees and expenses, as described in the preceding section.
YOU ARE NOT REQUIRED TO PARTICIPATE IN OR ATTEND THE SETTLEMENT HEARING.
If you wish to participate in the Settlement Hearing, you may do so if you beneficially owned the shares of ImClone common
stock as of March 18, 2005, and continued to own such shares. At the Settlement Hearing you can be heard as to whether (i) the
proposed Settlement should be approved and the Action dismissed with prejudice; and/or (ii) the application of Plaintiffs’ counsel for
reasonable attorneys’ fees and expenses should be granted. In order to be heard at the Settlement Hearing, however, you must have
been a stockholder at those times and you must serve your written objection to the Settlement and/or the award of attorneys’ fees and
expenses, on or before June 3, 2005.
Your written objection and any supporting papers and briefs must include the name and index number of the Action,
In re ImClone Systems Incorporated Shareholders Derivative Litigation, No. 02 Civ. 0163 (RO), and must include a sworn statement
setting forth the date on which you purchased ImClone common stock and stating that you still own shares of such stock. The papers
also must set forth the reasons why you object to the proposed Settlement or the application for attorneys’ fees and expenses.
Copies of your papers must be filed by mail with the Clerk of the Court, U.S. District Court for the Southern District of
New York, 500 Pearl Street, New York, New York 10007 and be served on the following attorney:
Jeffrey S. Abraham, Esq.
Abraham Fruchter & Twersky LLP
One Pennsylvania Plaza
New York, New York 10119
Any ImClone stockholder who does not make his or her objection or opposition in this manner will be deemed to have waived any right
to appear and object and will not be heard as to the fairness, reasonableness and adequacy of the proposed Settlement or to the
request of Plaintiffs’ counsel for reasonable attorneys’ fees and expenses.
NOTICE TO BROKERAGE FIRMS, BANKS AND OTHER NOMINEES
Brokerage firms, banks or other persons or entities who held shares of ImClone common stock as of March 18, 2005 for the
benefit of others are directed promptly to send this Notice to all of their respective beneficial owners. ImClone will reimburse nominees
for the cost of forwarding this Notice to the beneficial owners. Beneficial owners may request additional copies of the Notice, or may
supply mailing labels for the purpose of mailing copies of the Notice to such beneficial owners, by written inquiry to the following
In re ImClone Systems Incorporated Shareholder Derivative Litigation
c/o The Garden City Group, Inc.
P.O. Box 9000 #6313
Merrick, NY 11566-9000
Where Can I Learn More?
For a more detailed statement of the matters involved in this Action, reference is made to the pleadings, to the
Stipulation and to all other papers filed in the Action, filed under In re ImClone Systems Incorporated Shareholders Derivative Litigation,
No. 02 Civ. 0163 (RO), which may be inspected at the Office of the Clerk for the United States District Court for the
Southern District of New York, 500 Pearl Street, New York, New York 10007, during regular business hours of each business day.
Any inquiry concerning the Action should be addressed to plaintiff’s counsel:
Jeffrey S. Abraham, Esq.
Abraham Fruchter & Twersky LLP
One Pennsylvania Plaza
New York, New York 10119
PLEASE DO NOT ADDRESS INQUIRIES TO THE COURT.
BY ORDER OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK