-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IZGgU+Xtjj9Qs/2HB12Y8uRoKpPd3Hix+95R6gOKaaBKIpL3TaXSy3/F/yZ8HghS mPylxxoAg4AdA4iGlJTy9g== 0000950133-98-001045.txt : 19980331 0000950133-98-001045.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950133-98-001045 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUILFORD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000918066 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521841960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-23736 FILM NUMBER: 98577193 BUSINESS ADDRESS: STREET 1: 6611 TRIBUTARY ST CITY: BALTIMORE STATE: MD ZIP: 21224 BUSINESS PHONE: 4106316300 10-K405 1 FORM 10-K405 GUILFORD PHARMACEUTICALS 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 0-23736 ---------------- GUILFORD PHARMACEUTICALS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 52-1841960 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 6611 TRIBUTARY STREET BALTIMORE, MARYLAND 21224 (410) 631-6300 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01 PAR VALUE TITLE OF CLASS 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ] As of March 17, 1998, the aggregate value of the approximately 19,445,145 shares of common stock of the Registrant issued and outstanding on such date, excluding approximately 3,577,015 shares held by all affiliates of the Registrant, was approximately $366,950,506. This figure is based on the closing sales price of $23.125 per share of the Registrant's common stock as reported on the Nasdaq(R) National Market on March 17, 1998. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 2 PART I ITEM 1. BUSINESS. OVERVIEW Guilford Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the "Company") is a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic products for neurological diseases and conditions. Drug Delivery Business The Company's first product in its drug delivery business is GLIADEL(R) wafer ("GLIADEL"), a novel treatment for glioblastoma multiforme, the most common and rapidly fatal form of brain cancer. GLIADEL was cleared for marketing by the U.S. Food and Drug Administration ("FDA") in September 1996 for use as an adjunct to surgery to prolong survival in patients with recurrent glioblastoma multiforme for whom surgical resection is indicated. GLIADEL was commercially launched in the United States in February, 1997 by the Company's worldwide (except for Scandinavia) marketing partner, Rhone-Poulenc Rorer Pharmaceuticals, Inc. (together with its parent, Rhone-Poulenc Rorer, Inc., "RPR"). RPR has informed the Company that it has applied for regulatory clearance in several other countries, including France, Canada, Argentina, South Africa, Brazil, Korea and New Zealand, and is preparing to make filings in other countries. During the first quarter of 1998, RPR obtained regulatory clearance to market GLIADEL in Argentina and Brazil. The Company and RPR plan to seek expansion of the labeling for GLIADEL for malignant glioma at the time of initial surgery, and in this regard commenced patient enrollment in December, 1997 in a multi-center Phase III clinical trial in Europe, the United States and Israel for GLIADEL in patients undergoing initial surgery for malignant glioma. Additionally, in October, 1996 the Company commenced a Phase I dose-escalation clinical trial for a high-dose formulation of GLIADEL at varying concentrations of BCNU, the chemotherapeutic agent used in GLIADEL, with levels ranging from 6.5% up to 20%, in contrast to the 3.85% concentration contained in the currently marketed formulation of GLIADEL. RPR is also preparing to initiate clinical trials for GLIADEL for pediatric and metastatic brain cancer in 1998. Under its agreements with RPR, the Company is eligible to receive up to an aggregate of $40 million in milestone and other payments from RPR in the event that RPR is able to achieve certain specified international marketing clearances and to expand the marketing indication for GLIADEL to first surgery patients. The Company is also working to broaden its line of polymer-based oncology products through the use of other chemotherapeutic agents, different polymer systems and various formulations. The Company's first product candidate in this program is a controlled release formulation of the chemotherapeutic agent, paclitaxel (Taxol(R)) for peritoneal administration. In this formulation, the paclitaxel is delivered via a proprietary biodegradable polyphosphoester ("PPE") polymer exclusively developed in collaboration with scientists at The Johns Hopkins University ("Johns Hopkins"), and is initially targeted for the treatment of ovarian cancer. Other cancers that may be suitable for this type of targeted therapeutic approach include tumors of the prostate, head and neck, breast, liver and lungs. Neurological Products Program In Guilford's neurological business, the Company is developing DOPASCAN(R) Injection ("DOPASCAN"), a radio-labeled tropane derivative imaging agent for the diagnosis and monitoring of Parkinson's disease, as well as neurotrophic (i.e., nerve regenerative) and neuroprotectant small molecules as potential treatments for a range of neurodegenerative diseases and conditions such as Parkinson's disease, Alzheimer's disease, stroke, ALS, multiple sclerosis, spinal cord injury and peripheral neuropathies. In addition, the Company is researching small molecule therapeutics for cocaine and possibly other addictions. In 1997, the Company completed a multi-center Phase II clinical trial in North America of DOPASCAN in conjunction with the Parkinson Study Group, the results of which indicate that DOPASCAN can differentiate subjects with a Parkinsonian disorder (i.e., Parkinson's disease and progressive supranuclear palsy) from subjects without a Parkinsonian disorder (e.g., essential tremor and healthy controls) with a high sensitivity (98%) and specificity (97%). No serious adverse events were attributed to DOPASCAN in this study. The Company's neurotrophic program is based on observations first made in Dr. Solomon Snyder's laboratory at Johns Hopkins that immunophilins, which are intracellular proteins which bind to immunosuppressant drugs such as FK 506 and cyclophilin A, are enriched 10-40 fold in the central nervous system. The Company is the exclusive licensee from Johns Hopkins of a U.S. patent application covering the neurotrophic effects of certain immunosuppressant drugs and other immunophilin ligands. Guilford scientists, together with their academic collaborators, further demonstrated that the neurotrophic pathway could be separated from the immunosuppressant pathway, and Guilford scientists have synthesized hundreds of proprietary small molecules which are potently neurotrophic, orally-bioavailable and cross the blood-brain barrier. Certain in vivo pre-clinical results with one of the Company's novel neuroimmunophilin ligands, GPI 1046, were published in the March 4, 1997 issue of the Proceedings of the National Academy of Sciences. These experiments demonstrated that GPI 2 3 1046 induced significant nerve regeneration and functional recovery in rodent models of both central neuronal degeneration and peripheral nerve damage. In September 1997, the Company announced interim results from preliminary experiments which appear to confirm these findings in a primate model of Parkinson's disease. In August, 1997, the Company entered into a collaboration with Amgen Inc. ("Amgen") respecting the research, development and commercialization of the Company's FKBP-based neuroimmunophilin ligand technology ("Neuroimmunophilin Technology") for all human therapeutic and diagnostic applications. Pursuant to the terms of the Company's agreements with Amgen (the "Amgen Agreements"), Amgen initially paid the Company a one time, non-refundable payment of $15 million and invested an additional $20 million in the Company in exchange for 640,095 shares of the Company's common stock and five-year Warrants to purchase up to an additional 700,000 shares of Company common stock at an exercise price of $35.15 per share. Amgen also agreed to pay up to $13.5 million in the aggregate, payable quarterly over three years, to support research activities at the Company relating to the Neuroimmunophilin Technology, with an option to fund a fourth year of research, or under certain conditions, to terminate the research program after two years. Further, in the event Amgen achieves certain specified development and regulatory milestones in each of ten different clinical indications, Amgen has agreed to pay to the Company up to $392 million in the aggregate. The Company will receive royalties on product sales, if any, related to the Neuroimmunophilin Technology in the future. There can be no assurance, however, that Amgen will be able to successfully develop any FKBP-based neuroimmunophilin compound into a safe and effective regulatory approved drug for neurological or other uses, and that Guilford will thereby earn any of the milestone payments related to such development activities or any royalties related to product sales. In its neuroprotectant program, Guilford is developing novel compounds to protect brain cells from ischemia (the lack of oxygen delivery from reduced blood flow) and other disorders caused by massive release of excitatory amino acid neurotransmitters such as glutamate. The Company is exploring three distinct intervention points in a biochemical pathway in neuronal damage: (i) pre-synaptic inhibition of glutamate release by inhibiting the enzyme, NAALADase; (ii) post-synaptic inhibition of poly(ADP-ribose) polymerase ("PARP"); and (iii) post-synaptic inhibition of nitric oxide via inhibition of Nitric Oxide Synthase ("NOS"). The Company's prototype NAALADase inhibitor, GPI 5000, has demonstrated significant neuroprotectant activity in several cell culture and animal models of neurodegeneration. In in vitro and in vivo models of focal ischemia, GPI-5000 exhibited approximately 95% and 65% neuroprotection of cortical neurons, respectively. In addition, in 1997, Company scientists presented data on GPI 5000 in models of stroke, ALS, Parkinson's disease, myelination, nerve crush, and spinal cord injury at the Annual Meeting of the Society for Neuroscience. With respect to the Company's current prototype PARP inhibitor Compound, GPI-6150, data suggest that this compound is several times more potent as a PARP inhibitor than the prototype compound, GPI 6000, previously used by the Company to establish proof of principle of the relevant mechanism of action. In a study presented in September, 1997, GPI 6000 was shown to be effective in reducing neuronal damage in a rat model of stroke. The Company is currently testing GPI 6150 and other proprietary small molecule PARP inhibitors in various animal models of ischemia. The Company also focused its efforts on researching and developing therapeutics for cocaine and other addictions, and in 1997, was awarded a Small Business Innovation Research (SBIR) grant and a one year contract with the Office of National Drug Control Policy to provide funding for certain aspects of the Company's addiction therapeutics program in the amounts of $100,000 and $650,000, respectively. * * * * * Any statements made by the Company in this annual report that are forward looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this annual report, include, but are not limited to, those concerning application for international regulatory clearances and labeling expansions for GLIADEL, polymer product line extensions, the commencement and completion of the research program relating to the Company's FKBP-based neuroimmunophilin ligand technology and other technologies, clinical development activities, including without limitation commencement and conduct of clinical trials related to GLIADEL, the Company's strategic plans, anticipated expenditures and the need for additional funds, all of which involve significant risks and uncertainties. Investors are cautioned that these forward-looking statements involve risks and uncertainties that could cause the actual results to differ from those expressed in or implied by those statements. Information concerning factors that could affect such results are set forth herein and in the Company's filings with the Securities and Exchange Commission, including the section entitled "Risk Factors" set forth herein. GLIADEL(R) and DOPASCAN(R) are registered trademarks of the Company. Taxol(R) is a registered trademark of Bristol-Myers Squibb Company. 3 4 PRODUCT AND DEVELOPMENT PROGRAMS The following table summarizes the current status of the Company's product, product candidates and research programs:
PROGRAM/PRODUCT CANDIDATES DISEASE INDICATIONS/CONDITIONS STATUS (1) CORPORATE PARTNER -------------------------- ------------------------------ -------------------- ------------------------- DRUG DELIVERY BUSINESS GLIADEL Recurrent glioblastoma Market RPR (2); Orion Farmos (3) (3.85% BCNU) multiforme Malignant glioma at time of Phase III RPR (2); Orion Farmos (3) initial surgery GLIADEL Malignant glioma Phase I RPR (2); Orion Farmos (3) (6.5% up to 20% BCNU) Controlled-release paclitaxel Ovarian Cancer Preclinical __ (paclitaxel in PPE microspheres) NEUROLOGICAL PRODUCTS PROGRAM DOPASCAN Imaging agent to diagnose and Phase II DRL (5) monitor Parkinson's disease NEUROTROPHIC DRUGS (6) Neuroimmunophilin ligands Parkinson's disease Preclinical Amgen Other nerve growth and repair indications (Alzheimer's disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy, stroke and others) NEUROPROTECTIVE DRUGS (6) NAALADase inhibitors Stroke, head trauma, ALS, Preclinical -- Parkinson's disease, and peripheral neuropathies PARP inhibitors Stroke, cardiac ischemia, septic Preclinical -- shock NOS inhibitors Stroke, head trauma Research -- ADDICTION THERAPEUTICS (6) Dopamine transporter ligand Cocaine addiction Research --
- ---------- (1) "Research" includes initial research related to specific molecular targets, synthesis of new chemical entities and assay development for the identification of lead compounds. "Preclinical" includes testing of lead compounds in vitro and in animal models, pharmacology and toxicology testing, product formulation and process development prior to the commencement of clinical trials. (2) RPR is the Company's corporate partner throughout the world, excluding Scandinavia (3) Orion Farmos is the Company's corporate partner in Scandinavia for GLIADEL. (4) Orion Farmos has certain rights of first refusal regarding Scandinavia. 4 5 (5) Daiichi Redioisotope Laboratories, Ltd. ("DRL") is the Company's corporate partner in Japan, Korea and Taiwan for DOPASCAN. (6) As used in this annual report, a "prototype" compound is one which the Company uses to establish proof of principle of the relevant mechanism of action, but which it does not intend to develop into a product because of pharmacokinetic characteristics of the compound, the Company's proprietary position with respect to such compound or for other reasons. Upon in vitro and in vivo proof of principal of intervention in a biochemical mechanism of action, the Company seeks to develop proprietary lead compounds in this program through medicinal chemistry both around the prototype compounds and other compounds. Development and commercialization of the Company's product and product candidates are subject to numerous risks and uncertainties, certain of which are set forth under the section herein captioned "Risk Factors" and in this annual report. DRUG DELIVERY BUSINESS The Company's drug delivery business currently involves the use of biodegradable polymers for targeted and controlled drug delivery of chemotherapeutic drugs to treat cancer. Delivering high drug concentrations locally for a sustained period of time may increase the efficacy of chemotherapy in slowing tumor growth and/or reducing tumor mass and may decrease the side effects associated with systemic drug administration. Guilford has developed expertise in the discovery, clinical development and manufacturing of polymer-based drug delivery products. GLIADEL The Company's first product in its drug delivery business is GLIADEL, a novel treatment for malignant glioma, the most common and rapidly fatal form of primary brain cancer. GLIADEL is a white wafer about the size of a dime made of a proprietary biodegradable polymer which contains the cancer chemotherapeutic drug BCNU (carmustine). Up to eight GLIADEL wafers are implanted in the cavity created when a neurosurgeon removes the brain tumor. The wafers gradually degrade in the cavity and deliver BCNU directly to the tumor site in high concentrations for an extended period of time without exposing the rest of the body to the toxic side effects of BCNU. GLIADEL is used to complement standard therapy with surgery, radiation therapy and systemic chemotherapy in patients with recurrent glioblastoma multiforme. In a North American Phase III clinical trial, GLIADEL was shown to increase the six-month survival rate by more than 50% in these patients. The availability of GLIADEL gives physicians a new treatment option for this rapidly fatal disease. The Company entered into a strategic agreement with RPR in June 1996 granting RPR the worldwide (excluding Scandinavia) rights to market, sell and distribute GLIADEL. During 1996, RPR paid Guilford $27.5 million in milestone payments, $7.5 million in an equity investment in Company Common Stock and extended to the Company a $7.5 million line of credit to support future expansion of the Company's GLIADEL and other polymer manufacturing capacity. Under its agreements with RPR, Guilford receives a combined transfer price and royalty of 35% up to 40% of the net sales of GLIADEL. For 1997, the Company's revenues related to GLIADEL sales were $7.3 million, $5.7 million of which were paid as a transfer price on units sold to RPR and $1.6 million of which were paid as royalties on RPR sales to end-users. In addition, the Company could earn additional payments totaling up to $40.0 million (including $7.5 million in the form of an equity investment), subject to achievement of certain milestone events, including expanded labeling to include use of GLIADEL at the time of initial surgery and specified international marketing approvals. There can be no assurance however that the Company will receive any or all of these payments as they are contingent on obtaining clearances for GLIADEL, the timing and extent of which are not within the control of the Company, and there can be no assurance that any or all of such regulatory objectives will be attained. The Company pays a royalty to Massachusetts Institute of Technology ("MIT") on sales of GLIADEL pursuant to the license agreement under which the Company acquired the underlying technology for this product. On September 23, 1996 the FDA approved the Company's New Drug Application ("NDA") for GLIADEL for use as an adjunct to surgery to prolong survival in patients with recurrent glioblastoma multiforme for whom surgery is indicated. RPR, the Company's worldwide (except for Scandinavia) marketing partner for GLIADEL, commercially launched GLIADEL in the United States in February, 1997 through RPR's existing oncology sales force. RPR has informed that Company that it has applied for regulatory clearance in several other countries, including [France], Canada, Argentina, South Africa, Brazil, Korea and New Zealand, and is preparing to make similar filings in other countries. During the first quarter of 1998, RPR obtained regulatory clearance to market GLIADEL in Argentina and Brazil. The Company and RPR are also planning to seek expansion of the labeling for GLIADEL. Guilford and RPR have initiated a series of new clinical trials for the purpose of seeking to expand the market for GLIADEL. Patient enrollment commenced in December, 1997 for a multi-center Phase III randomized, double-blind, placebo-controlled trial in Europe, the United States and Israel in patients undergoing initial surgery for malignant glioma. In addition, following completion of preclinical studies suggesting that higher concentrations of BCNU in GLIADEL may be even more effective and appear to be safe, Guilford initiated a Phase I clinical trial in October, 1996 to test the safety of escalating the concentration of BCNU in GLIADEL from its current level of 3.85% up to 20%. RPR is also preparing to initiate clinical trials for GLIADEL for pediatric and metastatic brain cancer in 5 6 1998. The Company entered into its agreement with Orion Farmos, a major Scandinavian health care company, for the sales, marketing and distribution of GLIADEL in Scandinavia in October 1995. The agreement provides for payments to Guilford based on GLIADEL sales made by Orion Farmos in Scandinavia. Orion Farmos has commenced sales of GLIADEL in Scandinavia on a named hospital basis. Future sales of GLIADEL are subject to certain risks, including the following. The Company's agreements with RPR do not impose any minimum purchase requirements on the part of RPR, and there can be no assurance that RPR will be successful in marketing and selling GLIADEL. In particular, prior to the commercial launch of GLIADEL in the United States in February 1997, RPR's oncology sales force had no prior experience marketing and selling a product to neurosurgeons. Furthermore, GLIADEL represents a novel approach to the treatment of brain cancer, and there can be no assurance of broad acceptance by the medical or patient communities. The Company currently relies on a single supplier for BCNU, the chemotherapeutic agent used in GLIADEL, and on its own single manufacturing facility to produce GLIADEL. Inability to secure timely, sufficient, or GMP quality supply of BCNU, unforeseen plant shutdowns due to personnel or plant or equipment problems, risks associated with regulatory compliance (including the need to manufacture GLIADEL in accordance with the FDA's current Good Manufacturing Practice (cGMP) regulations), uncertainties regarding the receipt and timing of international regulatory clearances for GLIADEL, the potential inability to meet future product demand, the risk of product recalls due to excessive product breakage or other reasons, among others, could adversely affect the timing and extent of any future revenues related to GLIADEL sales. For discussion of these and other risks, see the section herein captioned "Risk Factors". Other Polymer-Based Drug Delivery Products. The Company is working to broaden its line of polymer-based products to include drug delivery products for the treatment of tumors outside the central nervous system. Other cancers that may be suitable for this type of targeted therapeutic approach include tumors of the prostate, ovaries, head and neck, breast, esophagus, liver, pancreas, lung and colon. In addition, the Company is investigating other polymer systems and additional configurations such as micro- and nanospheres, gels, beads and rods for stereotactic implantation. The Company's first product candidate in this program is a controlled release formulation of the chemotherapeutic agent, paclitaxel (Taxol(R)) for peritoneal administration. In this formulation the paclitaxel is delivered via a PPE polymer developed in collaboration with scientists at Johns Hopkins, and is initially targeted for the treatment of ovarian cancer. As part of this effort, the Company has entered into two research collaborations with a biomedical engineering laboratory at Johns Hopkins to discover new polymers and to advise the Company on new product development. In June 1996, the Company entered into a license agreement with MIT and Johns Hopkins relating to a patent application claiming certain biodegradable polymers for use in connection with the controlled local delivery of certain chemotherapeutic agents (including paclitaxel (Taxol(R)) and camptothecin) for treating solid tumors. In July 1996, the Company entered into a license agreement with Johns Hopkins relating to two issued U.S. patents relating to PPE polymers. Neurological Products Program DOPASCAN. The Company's product candidate for the diagnosis and monitoring of Parkinson's disease, DOPASCAN, is administered intravenously in trace quantities and allows physicians to obtain images of dopamine neurons in the brain. Dopamine neurons are highly concentrated in a specialized area of the brain that degenerates in Parkinson's disease. Parkinson's disease is a common neurodegenerative disorder affecting more than 600,000 patients in the United States. In its early stages, Parkinson's disease can be very difficult to distinguish clinically from other diseases with similar symptoms but which do not respond well or at all to specific therapy for Parkinson's disease. Unfortunately, there are no diagnostic tests currently available that can reliably detect the neuronal degeneration in Parkinson's disease, and the typical delay between the onset of symptoms and clinical diagnosis is more than two years. The primary way to establish the diagnosis at present is through repeated physician visits and the use of therapeutic trials of drugs such as L-Dopa, which carry with them the risk of unnecessary, sometimes severe, side effects. Following intavenous injections with DOPASCAN, images of a subject's brain are obtained with the SPECT camera and can identify loss of dopamine neurons in the brain, and to date, over 1,000 patients have been imaged in the United States and Europe using DOPASCAN. In a multi-center Phase IIb clinical trial conducted by the Parkinson's Study Group in the United States and completed in 1997, DOPASCAN accurately differentiated patients clinically diagnosed with a Parkinsonian disorder (i.e., Parkinson's disease and progressive supranuclear palsy) from subjects without a Parkinsonian disorder (e.g., essential tremor and healthy controls) with a high sensitivity (98%) and specificity (97%). In addition, no serious adverse events were attributed to DOPASCAN in this study. There can be no assurance, however, that similar results will be seen in any other clinical trials for DOPASCAN that may be conducted in the future or that DOPASCAN will be approved as a safe and effective FDA-cleared diagnostic. The Company has entered into an agreement with DRL, a leading Japanese radiopharmaceutical company, to develop and commercialize DOPASCAN in Japan, Korea and Taiwan. DRL has informed the Company that it has completed Phase II clinical trials in Japan and anticipates commencing Phase III clinical trials in 1998. The Company intends to seek partners for distribution of this 6 7 product in other territories, including the United States and Europe. Neurotrophic Drugs Guilford, together with it corporate partner, Amgen, is developing small molecule, orally bioavailable compounds to promote nerve growth and repair (neurotrophic agents) for the treatment of neurological disorders. The degeneration or damage of nerve cells in the brain and peripheral neurons resulting from certain diseases and conditions causes a loss of either central nervous system function (e.g., Alzheimer's disease, Parkinson's disease, multiple sclerosis, spinal cord injury and stroke) or peripheral nerve function (e.g., diabetic neuropathy and other peripheral neuropathies). Under normal circumstances, damaged nerves have a very limited ability to regrow, which poses a major obstacle for the treatment of these conditions. In 1990, scientists at Johns Hopkins led by Dr. Solomon H. Snyder discovered that a binding protein for commonly used immunosuppressive agents such as tacrolimus (FK-506), was concentrated 10 to 40 fold higher in the brain than in the immune system. The Johns Hopkins scientists went on to discover that commonly used immunosuppressive drugs can promote nerve growth, and Guilford has exclusively licensed from Johns Hopkins a U.S. patent application claiming these discoveries. Guilford and Johns Hopkins scientists further discovered that the mechanism of nerve growth promotion is independent of the mechanism responsible for immunosuppression, and is mediated by binding to the major neuroimmunophilin in the brain. This binding was discovered to initiate a previously unknown neurotrophic cascade. Based on these discoveries, the Company has synthesized hundreds of proprietary small molecule neuroimmunophilin ligands in several distinct chemical series that promote nerve growth without being immunosuppressive. The Company has filed numerous patent applications in the United States and internationally relating to both novel compositions and methods of treating neurological disorders utilizing these compounds. These compounds induce nerve growth directly, as well as potentiate nerve growth in the presence of nerve growth factors. Several of Guilford's lead compounds have exhibited neurotrophic effects at picomolar and even sub-picomolar concentrations in in vitro nerve cell cultures. Experimental results for one of these compounds, GPI-1046, were reported in 1996 and published in the March 4, 1997 issue of the Proceedings of the National Academy of Sciences. In two animal models of Parkinson's disease, GPI-1046 demonstrated neuroprotective and neuroregenerative effects and recovery of behavioral function. In one experiment where a neurotoxin and GPI-1046 were administered simultaneously, the compound produced a 90% protection and/or regeneration of the nigral-striatal dopamine neurons, the dopamine neurons which are selectively lost in Parkinson's disease. In another experiment where GPI-1046 was administered up to one month following the administration of the neurotoxin, a 45% regeneration of functional striatal dopamine neurons and near complete normalization of behavior in the affected animals was observed. In September 1997, the Company announced interim results from preliminary experiments which appear to confirm these findings in a primate model of Parkinson's disease. In addition to animal models of Parkinson's disease, GPI-1046 has been shown to promote nerve regeneration in a rat model of peripheral nerve injury. In this model, GPI-1046 increased the size and number of axons and also increased the degree of myelination of nerve cells in a damaged sciatic nerve, leading to partial functional improvement in the paralyzed leg. Data also show that Guilford's neuroimmunophilin ligand compounds exhibit systemic activity, oral bioavailability, and the ability to cross the blood-brain barrier, unlike many naturally occurring nerve growth factors. The preclinical results discussed above and elsewhere in this annual report are based on a limited number of animal studies and animal models of disease, and there can be no assurance that the Company and its collaborative partner, Amgen, will be able to successfully develop one or more of these compounds or that they will be approved as a safe and effective drug. Company scientists have designed and synthesized additional compounds from several distinct chemical series with improved potency and pharmacokinetic profiles compared to GPI-1046. One such example, GPI-1216, potently promotes neurite outgrowth in chick sensory neurons in cell culture in sub-picomolar concentrations, and has been shown to be efficacious in an in vivo model of Parkinson's disease. Additional compounds from other patent series, such as GPI-1511, GPI-1234 and GPI-1485, have been shown in animal models to be orally useful and more potent than GPI-1046 in vivo. Company data indicate that the Company's neuroimmunophilin ligands can produce nerve regeneration following multiple routes of administration, including oral administration. Further, neuroimmunophilin ligands are able to cross the blood-brain barrier, while many naturally-occurring nerve growth factors, proteins and peptides are not orally bioavailable and do not cross the blood-brain barrier. Several of the Company's neuroimmunophilin ligand compounds have shown neurotrophic effects in a range of different types of neurons such as dopaminergic, cholinergic, serotonergic and peripheral, and therefore could be useful in a range of disorders, including potentially certain neurological disorders, such as Parkinson's disease and Alzheimer's disease, and other non-neurological diseases and conditions. In August 1997, the Company entered into a collaboration with Amgen respecting the research, development and commercialization of the Neuroimmunophilin Technology for all human therapeutic and diagnostic applications. Pursuant to the terms of the Amgen 7 8 Agreements, Amgen initially paid the Company a one time, non-refundable payment of $15 million and invested an additional $20 million in the Company in exchange for 640,095 shares of the Company's common stock and five-year Warrants to purchase up to an additional 700,000 shares of Company common stock at an exercise price of $35.15 per share. In connection with the sale of these securities, the Company granted Amgen certain demand and "piggyback" registration rights under applicable securities laws. Amgen also agreed to provide to the Company up to $13.5 million in the aggregate, payable quarterly over three years, to support research activities at the Company relating to the Neuroimmunophilin Technology, with an option to fund a fourth year of research or, under certain conditions, to terminate the research program after two years. Subject to its obligation to fund two years of research at Guilford, Amgen has the right to discontinue all its activities relating to the development and commercialization of the Neuroimmunophilin Technology at any time. The Amgen Agreements provide for milestone payments of up to $392 million in the aggregate to the Company in the event Amgen achieves certain specified development milestones in each of ten different clinical indications, seven of which are neurological (i.e., Parkinson's disease, Alzheimer's disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy and stroke) and three of which are non-neurological. In addition, the Company will receive royalties on product sales, if any, related to the Neuroimmunophilin Technology in the future. Under the Amgen Agreements, Amgen will conduct and pay for the development and commercialization of products related to the Neuroimmunophilin Technology. Under certain limited circumstances, Guilford has the option to conduct certain Phase I and Phase II clinical trials on one product candidate and has the right to co-promote in the United States one product commercialized under the Amgen Agreements. As noted in the section herein captioned "Risk Factors" and elsewhere in this annual report, there can be no assurance Amgen will be able to successfully develop any FKBP-based neuroimmunophilin compound or that such compounds will be approved as safe and effective drugs for neurological or other uses and that Guilford will earn any of the milestone payments related to such development activities. In particular, there can be no assurance that Amgen will be able to achieve any of the development milestones set forth in the Amgen Agreements with respect to any specified indication. The research, development and commercialization of early stage technology like the Neuroimmunophilin Technology is subject to significant risks and uncertainty respecting, among other things, selection of an appropriate lead compound, successful completion of the pre-clinical and clinical development activities, regulatory clearances, formulation of final product dosage forms, scale-up from bench quantities to commercial quantities and manufacture of products and commercialization of such products as well as the successful preservation and extension of the patent and other intellectual property rights. For discussion of these and other risks, see the section herein captioned "Risk Factors". Neuroprotective Drugs Guilford is developing novel compounds to protect brain cells against damage from ischemia (the lack of oxygen delivery from reduced blood flow) and other insults and disorders which cause damage due to massive release of excitatory amino acid neurotransmitters such as glutamate. The Company's approach is to identify and clinically test compounds that have the ability to intervene at three distinct steps in a biochemical pathway leading to neuronal damage: (i) inhibition of NAALADase; (ii) inhibition of PARP; and (iii) inhibition of NOS. In normal brain function, the pre-synaptic release of the neurotransmitter glutamate, resulting in stimulation of post-synaptic glutamate receptors (including n-methyl-D-aspartate (NMDA)), plays a critical role in many central neuronal functions. However, in conditions such as ischemia, epilepsy and Huntington's disease, there is a massive increase in pre-synaptic glutamate release, which results in excessive activation of post-synaptic glutamate receptors. This, in turn, causes excess production of the neurotransmitter nitric oxide, mediated by the enzyme NOS, which results in damage to cellular DNA. The nerve cell then attempts to repair such damage, mediated by the enzyme PARP, which leads to depletion of cell energy and cell death. NAALADase Inhibitors To date, a number of biopharmaceutical companies have attempted to find compounds which might block the effects of excess glutamate on post-synaptic glutamate receptors. However, a number of post-synaptic glutamate antagonists have been associated with toxicities. Guilford scientists have succeeded in inhibiting an enzyme, NAALADase, involved in the pre-synaptic release of glutamate, that is, preventing excessive levels of glutamate from being produced and released in the first place. The Company has identified compounds which exhibit nanomolar potency in vitro. The Company has filed a number of composition of matter patent applications, relating to several series of novel compounds, and method of use patent applications, relating to the use of NAALADase inhibitors for neurological and anti-cancer uses. GPI-5000, the Company's prototype pre-synaptic glutamate inhibitor, has demonstrated significant neuroprotectant activity in several cell culture and animal models of neurodegeneration. In both in vitro and in vivo models of focal ischemia, GPI-5000 exhibited approximately 95% and 65% neuroprotection of cortical neurons , respectively. To the Company's knowledge, such a magnitude of neuroprotection is significantly greater than that reported by post-synaptic glutamate receptor antagonists, calcium channel antagonists or pH modulators tested under similar conditions. In addition, because GPI-5000, as well as Guilford's other series of 8 9 proprietary compounds, do not interact with post-synaptic glutamate receptors, they may not be associated with the toxicities associated with post-synaptic glutamate antagonists. In addition, in 1997, Company scientists presented data on GPI 5000 in models of stroke, ALS, Parkinson's disease, myelination, nerve crush, and spinal cord injury at the Annual Meeting for the Society for Neuroscience. PARP Inhibitors The Company is developing compounds which inhibit PARP, a nuclear enzyme that is involved in the repair of damaged DNA. Nitric oxide has been shown to damage DNA in nerve cells and to trigger the activation of PARP, which in turn leads to depletion of energy in the cell, resulting in cell death. Guilford and Johns Hopkins scientists have shown that inhibitors of PARP can prevent neurotoxicity in cultures of cerebral cortical neurons, suggesting that they may be effective in treating stroke and neurodegenerative diseases. Guilford scientists have developed a high throughput assay to screen for PARP inhibitors, and the Company has filed U.S. and international patent applications for several series of PARP inhibitors and has an exclusive license to a U.S. patent for the use of PARP inhibitors to treat disease conditions caused by NMDA neurotoxicity, such as stroke. Among the series of PARP inhibitors, the Company's proprietary GPI 6150 family of compounds has been shown to be the most potent. Animal data suggest that GPI 6150 is several times more potent as a PARP inhibitor than the prototype compound, GPI 6000, previously used by the Company to establish proof of principle of the relevant mechanism of action. In a study presented in September, 1997, GPI 6000 was shown to be effective in reducing neuronal tissue damage in a rat model of stroke. The Company is currently testing another prototype compounds, GPI 6150, and other proprietary small molecule PARP inhibitors in various animal models of ischemia, and Guilford scientists have found that GPI 6150 can significantly protect against neuronal damage in a rat model of focal ischemia, although chemical studies are necessary to confirm these results from animal studies. NOS Inhibitors The Company is researching compounds that inhibit the formation of nitric oxide, a neurotransmitter that mediates certain important actions of glutamate. When excess glutamate is released (e.g., due to stroke or severe head trauma), a variety of biochemical effects occur, including activation of NOS, an enzyme that synthesizes nitric oxide from the amino acid arginine. In animal models of vascular stroke, treatment with nitroarginine, a NOS inhibitor, blocked 70% of neuronal damage. There are three distinct known forms of NOS: neuronal NOS (nNOS), inducible NOS (iNOS) and endothelial NOS (eNOS). In animal models of stroke, there is a 50% reduction of neuronal damage in a "knock-out" mouse lacking nNOS. In contrast, inhibition of eNOS will reduce blood flow to the brain during stroke, thus aggravating nerve cell damage. Consequently, there is considerable interest in identifying compounds which selectively inhibit nNOS. The Company is currently investigating novel mechanisms to selectively inhibit nNOS activity. The Company has an exclusive license to an issued U.S. patent which relates to the use of NOS inhibitors to prevent or treat disease conditions caused by glutamate neurotoxicity. Addiction Therapeutics The Company is also focusing its efforts on the development of therapeutics for cocaine addiction and other addictive behaviors. The Company's cocaine addiction therapeutics program focuses on the development of drugs which prevent cocaine from binding to dopamine transporters while minimally affecting normal dopamine transport function, thus potentially limiting the effects of cocaine. Guilford scientists have identified and synthesized novel compounds with specificity for the cocaine recognition site in the brain and the Company has filed patent applications covering several classes of compounds. A prototype compound, GPI-2138, is 17 times more potent in binding to the cocaine binding site than in inhibiting dopamine uptake, compared to cocaine. In animal experiments, GPI-2138 blocked certain behavioral effects produced by cocaine, including hyperlocomotion and cocaine self-administration. Company scientists have synthesized other compounds which exhibit a binding-to-uptake ratio in vitro of as high as 38 times greater than cocaine. The Company has also entered into a cooperative research and development agreement with the National Institute of Drug Abuse to identify and develop cocaine antagonists. In addition to cocaine addiction, other forms of addiction, including alcohol and heroin addiction, may result from facilitation of dopaminergic neurotransmission in certain areas of the brain. As a result, Guilford scientists are currently investigating whether GPI-2138 and related compounds may block the addictive properties of alcohol and heroin in laboratory animals. The Company is using GPI-2138 to establish proof of principle of the relevant mechanism of action but does not intend to further develop this compound into a product. The Company is currently seeking to develop proprietary lead compounds in this program through medicinal chemistry around GPI-2138 and other compounds. In 1997, the Company was awarded a Small Business Innovation Research (SBIR) grant and a one year contract with the Office of National Drug Control Policy to provide funding for certain aspects of the Company's addiction therapeutics program in the amounts of $100,000 and $650,000, respectively. MANUFACTURING AND RAW MATERIALS The Company currently manufactures GLIADEL using a proprietary process at its 12,500 square foot manufacturing facility in Baltimore, Maryland. Approximately 5,500 square feet of packaging, quality control, laboratory, and warehouse space were added in 9 10 1996 to support the commercial launch of GLIADEL. The facility has been in operation since April 1995 and was inspected by the FDA in October 1995. The Company's current facilities are designed to enable the Company to produce up to 8,000 GLIADEL treatments (each consisting of eight GLIADEL wafers) annually. In January, 1998 the Company completed construction of an expansion of its manufacturing facilities to allow for the additional synthesis of the polyanhydride co-polymer used in the manufacture of GLIADEL. The Company also will be able to use this facility to produce its newest proprietary biodegradable polymers, the PPEs, in connection with the development of other polymer-based products. In addition, the Company has commenced construction of a second clean room facility, which the Company expects to be completed by the end of 1998 and will increase the Company's GLIADEL manufacturing capacity to 20,000-30,000 treatments annually. Furthermore, the Company expects that this second clean room facility will also provide sufficient capacity to produce any clinical supply of PPE polymer based product candidates needed in the future, including its paclitaxel/PPE polymer product candidate currently under development for ovarian cancer. The Company believes that the various materials used in GLIADEL are readily available and will continue to be available at reasonable prices. Nevertheless, while the Company believes that it has an adequate supply of BCNU, the active chemotherapeutic ingredient in GLIADEL, to meet current demand and has entered into an agreement for process development of BCNU with a potential second source of BCNU, any interruption in the ability of the current supplier to deliver this ingredient could prevent the Company from delivering the product on a timely basis. The Company depends upon the availability of certain single-source raw materials in its formulations, but is seeking alternate suppliers for most of these raw materials as well. There can be no assurance that such sources can be secured successfully on terms acceptable to the Company, or at all. Failure of any supplier to provide sufficient quantities of raw material in accordance with cGMP could cause delays in clinical trials and commercialization of products. Pursuant to its agreements with Nordion International Inc., a leading supplier of radiolabeled products based in Canada, and its European subsidiary, Nordion Europe S.A. (collectively, "Nordion"), the Company synthesizes the precursor of DOPASCAN and supplies it to Nordion, which then radiolabels DOPASCAN with Iodine-123 for distribution to hospitals involved in the clinical trials in North America and Europe, respectively. During the term of these agreements, Nordion has agreed not to perform development, manufacture or supply services for any competing Iodine-123 radiolabeled imaging diagnostic for Parkinson's disease based on dopamine transporter binding. GOVERNMENT REGULATION AND PRODUCT TESTING All domestic prescription pharmaceutical manufacturers are subject to extensive regulation by the federal government, principally the FDA and, to a lesser extent, by state and local and perhaps foreign governments if products are marketed abroad. Biologics and controlled drug products, such as vaccines and narcotics, and radiolabeled drugs, are often regulated more stringently than are other drugs. The Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations govern or influence the development, testing, manufacture, labeling, storage, approval, advertising, promotion, sale and distribution of prescription pharmaceutical products. Pharmaceutical manufacturers are also subject to certain recordkeeping and reporting requirements. Noncompliance with applicable requirements can result in warning letters, fines, recall or seizure of products, total or partial suspension of production and/or distribution, refusal of the government to enter into supply contracts or to approve marketing applications and criminal prosecution. Upon FDA approval, a drug may only be marketed for the approved indications in the approved dosage forms and at the approved dosage levels. The FDA also may require post-marketing testing and surveillance to monitor the record of the approved product. Manufacturers of approved drug products are subject to ongoing compliance with FDA regulations. For example, the FDA mandates that drugs be manufactured in conformity with cGMP regulations. In complying with the cGMP regulations, manufacturers must continue to expend time, money and effort in production, recordkeeping and quality control to ensure that the product meets applicable specifications and other requirements. The FDA periodically inspects drug manufacturing facilities to ensure compliance with applicable cGMP requirements. Failure to comply subjects the manufacturer to possible FDA action, such as suspension of manufacturing, seizure of the product or voluntary recall of a product. Adverse experiences with the product must be reported to the FDA. The FDA also may require the submission of any lot of the product for inspection and may restrict the release of any lot that does not comply with FDA regulations, or may otherwise order the suspension of manufacture, voluntary recall or seizure. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval. FULL CLINICAL TESTING REQUIREMENTS The steps required before a newly marketed drug may be commercially distributed in the United States include: (i) conducting appropriate preclinical laboratory and animal tests; (ii) submitting to the FDA an application for an IND, which must become effective before clinical trials may commence; (iii) conducting well-controlled human clinical trials that establish the safety and efficacy of the drug product; (iv) filing with the FDA a NDA for non-biological drugs; and (v) obtaining FDA approval of the NDA prior to any commercial sale or shipment of the non-biological drug. In addition to obtaining FDA approval for each indication to be treated with each product, each domestic drug manufacturing establishment must register with the FDA, list its drug products with the FDA, comply 10 11 with cGMP requirements and be subject to inspection by the FDA. Foreign manufacturing establishments distributing drugs in the United States also must comply with cGMP requirements, list their products, and are subject to periodic inspection by FDA or by local authorities under agreement with FDA. Under the FDA Modernization Act of 1997 ("FDAMA"), which was enacted on November 21, 1997 and which became effective in many respects on February 19, 1998, foreign manufacturers are now required to register their establishments. The FDAMA also contains numerous other provisions pertaining to or involving the review and approval of drugs and devices. One of its purposes is to streamline or improve the FDA drug application review and approval process. The precise impact that these new statutory provisions will have on Guilford's product candidates is unclear, however, particularly until the FDA begins to implement the new law. With respect to a drug product with an active ingredient not previously approved by the FDA, the manufacturer must usually submit a full NDA, including complete reports of preclinical, clinical and laboratory studies, to prove that the product is safe and effective. Under the FDAMA, the FDA is to issue a guideline that describes when abbreviated study reports may be submitted. A full NDA may also need to be submitted for a drug product with a previously approved active ingredient if studies are required to demonstrate safety and efficacy, such as when the drug will be used to treat an indication for which the drug was not previously approved, or where the method of drug delivery is changed. In addition, the manufacturer of an approved drug may be required to submit for the FDA's review and approval a supplemental NDA, including reports of appropriate clinical testing, prior to marketing the drug with additional indications or making other significant changes to the product or its manufacture. The FDAMA also contains provisions on the approval of supplemental applications. By May 21, 1998 the FDA is required to publish or issue standards for the review of such applications and guidelines clarifying data requirements. A manufacturer intending to conduct clinical trials ordinarily will be required first to submit an IND to the FDA containing information relating to previously conducted preclinical studies. Preclinical testing includes formulation development, laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product formulation. Preclinical tests usually must be conducted in accordance with the FDA regulations concerning Good Laboratory Practices ("GLPs"). The results of the preclinical tests are submitted to the FDA as part of the IND and are reviewed by the FDA prior to authorizing the sponsor to conduct clinical trials in human subjects. Unless the FDA issues a clinical hold on an IND, the IND will become effective 30 days following its receipt by the FDA. There is no certainty that submission of an IND will result in the commencement of clinical trials or that the commencement of one phase of a clinical trial will result in commencement of other phases or that the performance of any clinical trials will result in FDA approval. Clinical trials for new drugs typically are conducted in three phases and are subject to detailed protocols. Clinical trials involve the administration of the investigational drug product to human subjects. Each protocol indicating how the clinical trial will be conducted usually must be submitted for review to the FDA as part of the IND. The FDA's review of a study protocol does not necessarily mean that, if the study is successful, it will constitute proof of efficacy or safety. Further, each clinical study must be conducted under the auspices of an independent institutional review board ("IRB") established pursuant to FDA regulations. The IRB considers, among other factors, ethical concerns and informed consent requirements. The FDA or the IRB may require changes in a protocol both prior to and after the commencement of a trial. There is no assurance that the IRB or the FDA will permit a study to go forward or, once started, to be completed. Clinical trials may be placed on hold at any time for a variety of reasons, particularly if safety concerns arise, or regulatory requirements are not met. The three phases of clinical trials are generally conducted sequentially, but they may overlap. In Phase I, the initial introduction of the drug into humans, the drug is tested for safety, side effects, dosage tolerance, metabolism and clinical pharmacology. Phase II involves controlled tests in a larger but still limited patient population to determine the efficacy of the drug for specific indications, to determine optimal dosage and to identify possible side effects and safety risks. Phase II testing for an indication typically takes at least from one and one-half to two and one-half years to complete. If preliminary evidence suggesting effectiveness has been obtained during Phase II evaluations, expanded Phase III trials are undertaken to gather additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling. Phase III studies for a specific indication generally take at least from two and one-half to five years to complete. There can be no assurance that Phase I, Phase II or Phase III testing will be completed successfully within any specified time period, if at all, with respect to any of the Company's product candidates. Reports of results of the preclinical studies and clinical trials for non-biological drugs are submitted to the FDA in the form of an NDA for approval of marketing and commercial shipment. New user fee legislation enacted in 1997 now requires the submission in fiscal year 1997 of $256,846 to cover the costs of FDA review of a full NDA. Annual fees also exist for certain approved prescription drugs and the establishments that make them. The NDA typically includes information pertaining to the preparation of drug substances, analytical methods, drug product formulation, details on the manufacture of finished product as well as proposed product packaging and labeling. Submission of an NDA does not assure FDA approval for marketing. The FDAMA requires FDA, not later than 180 days after enactment, to issue proposed regulations governing the approval of radiopharmaceuticals, such as DOPASCAN. Not later than 18 months after enactment, FDA is required to promulgate final regulations. It is unclear how these other provisions may affect the potential for approval of DOPASCAN. 11 12 The median FDA approval time is currently about 14 months, although reviews and approvals of treatments for cancer and other serious or life-threatening diseases may be accelerated or expedited. The approval process may take substantially longer if, among other things, the FDA has questions or concerns about the safety and/or efficacy of a product. In general, the FDA requires at least two properly conducted, adequate and well-controlled clinical studies demonstrating efficacy with sufficient levels of statistical assurance. The FDAMA now provides that FDA may consider one clinical study, as appropriate. The FDA also may request long-term toxicity studies or other studies relating to product safety or efficacy. For example, the FDA may require additional clinical tests following NDA approval to confirm product safety and efficacy (Phase IV clinical tests). Notwithstanding the submission of such data, the FDA ultimately may decide that the application does not satisfy its regulatory criteria for approval. Phase III or other clinical studies may be conducted after, rather than before, FDA approval under certain circumstances. Traditionally, for example, the FDA may determine under its expedited or accelerated approval regulations that earlier studies may establish an adequate basis for drug product approval, provided that the sponsor agrees to conduct additional studies after approval to verify safety and effectiveness. Treatment with an experimental drug of patients not in clinical trials may also be allowed under a Treatment IND before general marketing begins and pending FDA approval. Charging for an investigational drug also may be allowed under a Treatment IND to recover certain costs of development if various requirements are met. These cost-recovery, treatment and expedited or accelerated approval regulations are limited, for example, to drug products intended to treat AIDS or other serious or life-threatening diseases and that provide meaningful therapeutic benefit to patients over existing treatments or that are for diseases for which no satisfactory alternative therapy exists. The FDAMA contains provisions for the approval of "Fast Track Products" and for "Expanded Access to Investigational Therapies and Diagnostics". These new statutory provisions apply to many products covered by the FDA's regulations. Not later than November 21, 1998, FDA must issue guidance on the policies and procedures to "fast track" drugs. The provisions governing investigational products became effective on February 19, 1988. No assurances exist that the Company's product candidates will qualify for cost-recovery, expedited or accelerated approvals or for treatment use under the FDA's old regulations or the new statutory provisions. The full NDA process for newly marketed non-biological drugs takes a number of years and involves the expenditure of substantial resources. There can be no assurance that any approval will be granted on a timely basis, or at all or that the Company will have sufficient resources to carry such potential products through the regulatory approval process. ABBREVIATED TESTING REQUIREMENTS The Drug Price Competition and Patent Term Restoration Act of 1984 ("DPC-PTR Act") established abbreviated procedures for obtaining FDA approval for many non-biological drugs which are off-patent and whose marketing exclusivity has expired. Applicability of the DPC-PTR Act means that a full NDA is not required for approval of a competitive product. Abbreviated requirements are applicable to drugs which are, for example, either bioequivalent to brand name drugs, or otherwise similar to brand name drugs, such that all the safety and efficacy studies previously done on the innovator product need not be repeated for approval. Changes in approved drug products, such as in the delivery system, dosage form, or strength, can be the subject of abbreviated application requirements. There can be no assurance that abbreviated applications will be available or suitable for the Company's non-biological drug products or that FDA approval of such applications can be obtained. A five year period of market exclusivity is provided for newly marketed active ingredients of drug products not previously approved and a three-year period for certain changes in approved drug products that require for approval the submission of safety and efficacy information (other than bioequivalence studies). A period of five years is available for new chemical entities not previously approved by FDA. A period of three years is available for changes in approved products, such as in delivery systems of previously approved products. Both periods of marketing exclusivity mean that abbreviated applications, which generally rely to some degree on approvals or on some data submitted by previous applicants for comparable innovator drug products, cannot be approved during the period of exclusivity. The market exclusivity provisions of the DPC-PTR Act bar only the marketing of competitive products that are the subject of abbreviated applications, not products that are the subject of full NDAs. The DPC-PTR Act also may provide a maximum time of five years to be restored to the life of any one patent for the period it takes to obtain FDA approval of a drug product, including biological drugs. No assurances exist that the exclusivity or patent restoration benefits of the DPC-PTR Act will apply to any product candidates of the Company. OTHER REGULATION Products marketed outside the United States which are manufactured in the United States are subject to certain FDA regulations, as well as regulation by the country in which the products are to be sold. The Company also would be subject to foreign regulatory requirements governing clinical trials and pharmaceutical sales, if products are marketed abroad. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must usually be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country and the time required may be longer or shorter than that required for FDA approval. 12 13 The Company also is governed by other federal, state and local laws of general applicability. These laws include, but are not limited to, those regulating working conditions enforced by the Occupational Safety and Health Administration and regulating environmental hazards under such statutes as the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other environmental laws enforced by the United States Environmental Protection Agency ("USEPA"). The DEA regulates controlled substances, such as narcotics. Establishments handling controlled substances must, for example, be licensed and inspected by the DEA, and may be subject to export, import, security and production quota requirements. Radiolabeled products, including drugs, are also subject to regulation by the Department of Transportation and to state and federal licensing requirements. Various states often have comparable health and environmental laws, such as those governing the use and disposal of controlled and radiolabeled products. While the Company is not actively involved in product areas involving biotechnology and has no current plans to develop products utilizing modern biotechnology, if the Company were to move in that direction, it would potentially be subject to extensive regulation. The USEPA, the FDA and other federal and state regulatory bodies have developed or are in the process of developing specific requirements concerning products of biotechnology that may affect research and development programs and product lines. The Company is unable to predict whether any governmental agency will adopt requirements, including regulations, which would have a material and adverse effect on any future product applications involving biotechnology. PATENTS AND PROPRIETARY TECHNOLOGY Guilford believes that patent and trade secret protection is crucial to its business and that its future will depend in part on its ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of others. As of December 31, 1997, the Company owned or had licensed rights to 58 U.S. and 123 foreign patents and 74 U.S. and 299 foreign patent applications with claims relating to its biodegradable polymer, imaging, neurotrophic, neuroprotective, addiction therapeutics and other programs. The role, validity and value of patents, licenses and proprietary technology in the business of the Company are subject to various uncertainties and contingencies. The Company's success will depend in part on its ability to obtain, maintain and enforce patent protection for its products and processes or license rights to patents, maintain trade secret protection and operate without infringing upon the proprietary rights of others. The degree of patent protection afforded to pharmaceutical and biotechnological inventions is uncertain, and a number of Guilford's product candidates are subject to this uncertainty. The Company is aware of a company which has asserted in a public filing that it has patent applications claiming the use of certain of its immunosuppressive compounds and multidrug resistance compounds for nerve growth applications, as well as a patent and patent applications relating to compounds which it claims are useful in nerve growth applications. While the Company does not believe that its neurotrophic compounds infringe on such company's patent, no assurance can be given as to the ability of the Company's patents and patent applications to adequately protect the Company's neurotrophic product candidates or that the Company's neurotrophic product candidates will not infringe or be dominated by this company's patent or patent applications, if issued. There can be no assurance that any patent applications filed by, or assigned or licensed to, the Company will be granted, that the Company will develop additional products or processes that are patentable, or that any patents issued to, or licensed by, the Company will provide the Company with any competitive advantages or adequate protection for its products. In addition, there can be no assurance that any existing or future patents or intellectual property issued to, or licensed by, the Company will not subsequently be challenged, invalidated or circumvented by others. It is Guilford's policy to control the disclosure and use of Guilford's know-how and trade secrets under confidentiality agreements with employees, consultants and other parties. There can be no assurance, however, that its confidentiality agreements will be honored, that others will not independently develop equivalent or competing technology, that disputes will not arise concerning the ownership of intellectual property or the applicability of confidentiality obligations, or that disclosure of Guilford's trade secrets will not occur. To the extent that consultants or other research collaborators use intellectual property owned by others in their work with the Company, disputes may also arise as to the rights to related or resulting intellectual property. Guilford supports and collaborates in research conducted in universities and in governmental research organizations. There can be no assurance that the Company will have or be able to acquire exclusive rights to the inventions or technical information derived from such collaborations or that disputes will not arise as to rights in derivative or related research programs conducted by the Company. In addition, in the event of a contractual breach by the Company, certain of the Company's collaborative research contracts provide for transfer of technology (including any patents or patent applications) to the contract sponsors. If the Company is required to defend against charges of infringement of patent or proprietary rights of third parties or to protect its own patent or proprietary rights against third parties, the Company may incur substantial costs and could lose rights to develop or market certain products or be required to pay monetary damages or royalties to license proprietary rights from third parties. In response to actual or threatened litigation, the Company may seek licenses from third parties or attempt to redesign its products or processes to avoid infringement; however, there can be no assurance that the Company will be able to obtain licenses on acceptable terms or at all or redesign its products or processes. In addition to being a party to patent infringement litigation, the Company could be required to 13 14 participate in patent interference proceedings declared by the U.S. Patent and Trademark Office, which would be expensive and time-consuming, even if the Company were to prevail in such a proceeding. The Company may also be forced to initiate legal proceedings to protect its patent position or other proprietary rights. These proceedings typically are costly, protracted, and offer no assurance of success. TECHNOLOGY LICENSING AGREEMENTS In March 1994, the Company entered into an agreement (the "GLIADEL Agreement") with Scios Inc. ("Scios") pursuant to which the Company licensed from Scios exclusive worldwide rights to 35 U.S. patents and patent applications as well as 115 corresponding international patents and patent applications for polyanhydride biodegradable polymer technology for use in the field of tumors of the central nervous system and cerebral edema. GLIADEL is covered by three U.S. patents which expire between 2005 and 2010 and certain related international patents and patent applications. In April 1994, Scios assigned all of its rights and obligations under the GLIADEL Agreement to MIT. Under the terms of the GLIADEL Agreement, Guilford is obligated to pay a royalty on all net sales of products incorporating such technology as well as a percentage of all royalties received by Guilford from sublicensees and certain advance and minimum annual royalty payments. In 1997, Guilford paid $301,000 in royalty payments to MIT related to payments made to the Company from RPR and Orion Farmos related to GLIADEL. Guilford has exclusive worldwide rights to the technology for brain cancer therapeutics, subject to certain conditions, including a requirement to perform appropriate preclinical tests and file an IND with the FDA within 24 months of the identification of a drug-polymer product having greater efficacy than GLIADEL. In addition, Guilford is obligated to spend a minimum dollar amount in developing products resulting from the technology through 1997 and to meet certain development milestones. Although the Company believes that it can comply with such obligations, failure of the Company to perform these obligations could result in the Company losing its right to the new polymer-based product. In June 1996, the Company entered into a license agreement with MIT and Johns Hopkins respecting a patent application covering certain biodegradable polymers for use in connection with the controlled local delivery of certain chemotherapeutic agents (including paclitaxel (Taxol(R)) and camptothecin) for treating solid tumors. Under this agreement, the Company is obligated to make certain annual and milestone payments to MIT and to pay royalties based on any sales of products incorporating the technology licensed to Guilford. Furthermore, under the terms of the agreement, the Company has committed to spend minimum amounts to develop the technology and to meet certain development milestones. Although the Company believes that it can comply with such obligations, failure of the Company to perform these obligations could result in the Company losing its rights to such technology. In July 1996, the Company entered into a license agreement with Johns Hopkins for two U.S. patents respecting certain PPE polymers developed at Johns Hopkins. This agreement, among other things, requires Guilford to pay certain processing, maintenance and/or up-front fees, milestone payments and royalties, a portion of proceeds from sublicenses, and fees and costs related to patent prosecution and maintenance and to spend minimum amounts for and meet deadlines regarding development of this technology. In the event of termination of these licenses, the Company could lose its rights to use of the licensed technology. The Company has also entered into a sponsored research agreement with Johns Hopkins with respect to this PPE technology and has a right of first negotiation regarding inventions that result from this work. As of December 31, 1997, including the patents mentioned above, the Company owned or had licensed rights to five U.S. patents and six U.S. patent applications with claims relating to PPE polymers. The Company obtained exclusive worldwide rights to DOPASCAN pursuant to a March 1994 license agreement (the "RTI Agreement") with Research Triangle Institute ("RTI"), which grants Guilford rights to various U.S. and international patents and patent applications relating to binding ligands for certain receptors in the brain which are or may be useful as dopamine neuron imaging agents. DOPASCAN and certain related precursors and analogues are covered by U.S. patents which start expiring in 2009, as well as certain related international patents and patent applications. Under the RTI Agreement, the Company reimbursed RTI for certain past patent-related expenses and agreed to make annual payments to RTI to support mutually agreed upon research to be conducted at RTI through March 1999. In addition, the Company is obligated to pay RTI a royalty on gross revenues to Guilford from products derived from the licensed technology and from sublicensee proceeds and to make certain minimum royalty payments following the first commercial sale of such products. In January 1997, the Company paid RTI $32,000 as a result of a payment received from DRL, the Company's DOPASCAN partner in Japan. Guilford must use commercially reasonable efforts to develop products related to the licensed technology and to meet certain performance milestones. Failure of the Company to perform its obligations under the RTI Agreement in the future could result in termination of the license. Guilford and Johns Hopkins are parties to exclusive license agreements covering the neurotrophic use of neuroimmunophilin ligands, which was jointly discovered by scientists at, and is jointly owned by, Johns Hopkins and Guilford; and inhibition of NOS and PARP for neuroprotective uses and certain other technologies. These agreements, among other things, require Guilford to pay certain processing, maintenance, and/or up-front fees, milestone payments and royalties, a portion of proceeds from sublicenses, and fees and costs related to patent prosecution and maintenance and to spend minimum amounts for and meet deadlines regarding development of the technologies. In the event of termination of these licenses, the Company could lose its rights to use of the licensed technology (or in the case of joint inventions, exclusive use of such technology). 14 15 United States Government Rights Aspects of the technology licensed under the Company's license agreements may be subject to certain Government Rights. These rights include a non-exclusive, royalty-free worldwide license to practice or have practiced such inventions for any governmental purpose. In addition, the U.S. government has the right to grant licenses which may be exclusive under any of such inventions to a third-party if it determines that: (i) adequate steps have not been taken to commercialize such inventions; (ii) such action is necessary to meet public health or safety needs; or (iii) such action is necessary to meet requirements for public use under federal regulations. The government also has the right to take title to a subject invention if there is failure to disclose the invention and elect title within specified time limits. In addition, the government may acquire title in any country in which a patent application is not filed within specified time limits. Federal law requires any licensor of an invention that was partially funded by the federal government to obtain a covenant from any exclusive licensee to manufacture products using the invention substantially in the United States. Further, the Government Rights include the right to use and disclose without limitation technical data relating to licensed technology that was developed in whole or in part at government expense. Provisions recognizing these Government Rights are contained in the Company's principal technology license agreements. SALES, MARKETING AND DISTRIBUTION In general, the Company's strategy is to seek to establish strategic alliances with larger pharmaceutical companies to develop and promote products that require extensive development, sales and marketing resources. Within the United States, the Company may seek to retain co-promotion rights with respect to some or all compounds or indications in any such strategic alliances, or the Company may elect to market and distribute its products directly where the commercial prospects so warrant. In June 1996, the Company entered into a marketing, sales and distribution rights agreement and other related agreements with RPR granting RPR worldwide (excluding Scandinavia) marketing, sales, promotion and distribution rights for GLIADEL. Upon execution of these agreements, the Company received $7.5 million for 281,531 shares of Common Stock. Furthermore, in addition to an aggregate of $27.5 million in rights payments made by RPR upon execution of the agreements in June 1996 and FDA clearance of the GLIADEL NDA in September 1996, the agreements with RPR provide for up to an additional $40 million in payments in the event that certain regulatory and other milestones are achieved, although there can be no assurance that any or all of such milestones will be attained and certain of these payments are contingent on international regulatory filings and clearances, the timing and extent of which are largely within the control of RPR. Moreover, RPR may, under certain circumstances, fund up to approximately $17 million for the development of higher dose forms of GLIADEL being developed by the Company and for certain additional clinical studies related to GLIADEL. Finally, under these agreements, the Company has the right under certain circumstances to borrow up to an aggregate of $7.5 million to expand the Company's GLIADEL manufacturing and related facilities. In addition to the payments outlined above, the Company will act as the exclusive manufacturer of GLIADEL and will receive transfer price payments and royalties based on any "net sales" (as defined in the agreements with RPR) of GLIADEL. RPR's exclusive rights terminate in a particular country upon the later of the expiration of the last to expire of certain patents applicable in that country or the last commercial sale of GLIADEL in that country. Under the Company's agreements with RPR, RPR has an exclusive six-month period following development of new polymer technology by the Company to make an offer to license such technology for oncology applications. In October 1995, the Company entered into an agreement appointing Orion Farmos distributor for GLIADEL in Scandinavia, and in December 1995 the Company entered into an agreement with DRL for the marketing, sale and distribution of DOPASCAN in Japan, Korea and Taiwan. In August 1997, the Company entered into a collaboration with Amgen respecting the research, development and commercialization of the Neuroimmunophilin Technology for all human therapeutic and diagnostic applications. Pursuant to the terms of the Amgen Agreements, Amgen initially paid the Company a one time, non-refundable payment of $15 million and invested an additional $20 million in the Company in exchange for 640,095 shares of the Company's common stock and five-year Warrants to purchase up to an additional 700,000 shares of Company common stock at an exercise price of $35.15 per share. In connection with the sale of these securities, the Company granted Amgen certain demand and "piggyback" registration rights under applicable securities laws. Amgen also agreed to provide to the Company up to $13.5 million in the aggregate, payable quarterly over three years, to support research activities at the Company relating to the Neuroimmunophilin Technology, with an option to fund a fourth year of research or, under certain conditions, to terminate the research program after two years. The Amgen Agreements provide for milestone payments of up to $392 million in the aggregate to the Company in the event Amgen achieves certain specified development milestones in each of ten different clinical indications, seven of which are neurological (i.e., Parkinson's disease, Alzheimer's disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy and stroke) and three of which are non-neurological. In addition, the Company will receive royalties on product sales, if any, related to the Neuroimmunophilin Technology in the future. Amgen has agreed to fund, develop and commercialize the Neuroimmunophilin Technology. Under certain limited circumstances, Guilford has the option to conduct certain Phase I and Phase II clinical trials on certain product candidates and has the right to co-promote in the United States 15 16 one product commercialized under the Amgen Agreements. Amgen has the right to and may elect at any time to discontinue all activities relating to the development and commercialization of the Neuroimmunophilin Technology. COMPETITION The Company is involved in evolving technological fields in which developments are expected to continue at a rapid pace. Guilford's success depends upon its ability to compete effectively in the research, development and commercialization of products and technologies in its areas of focus. Competition from pharmaceutical, chemical and biotechnology companies, universities and research institutes is intense and expected to increase. Many of these competitors have substantially greater research and development capabilities, experience and manufacturing, marketing, financial and managerial resources and represent significant competition for the Company. Acquisitions of competing companies by large pharmaceutical or other companies could enhance the financial, marketing and other resources available to these competitors. These competitors may develop products which are superior to those under development by the Company. The Company is aware of several competing approaches under development for the treatment of malignant glioma including using radioactive seeds for interstitial radiotherapy, increasing the permeability of the blood-brain barrier to chemotherapeutic agents, sensitizing cancer cells to chemotherapeutic agents using gene therapy and developing chemotherapeutics directed to specific receptors in brain tumors. To the Company's knowledge, none of these approaches has resulted in compounds studied in randomized, controlled trials which have shown them to be superior to conventional therapy. The Company believes that two other companies are clinically evaluating imaging agents for dopamine neurons. In addition, a variety of radiolabeled compounds for use with Positron Emission Tomography ("PET") scanners have been used to image dopamine neurons successfully in patients with Parkinson's disease. PET scanning is currently only available in a limited number of hospitals in the United States and Europe. A number of companies have shown interest in trying to develop neurotrophic agents to promote nerve growth and repair in neurodegenerative disorders and traumatic central nervous system injuries. However much of this activity has focused on naturally occurring growth factors. Such large molecules generally cannot cross the blood-brain barrier and thus present problems in administration and delivery. One company has announced that certain of its neuroimmunophilin ligands showed positive results in stimulating nerve growth in an animal model of nerve crush, and has disclosed that it has made patent filings covering compounds and uses in connection with nerve growth promotion. In addition, another company announced that IGF-1 showed positive results in clinical trials of a peripheral neurodegenerative disorder. There is intense competition to develop an effective and safe neuroprotective drug or biological agent. Calcium channel antagonists, calpain inhibitors, adenosine receptor antagonists, free radical scavengers, superoxide dismutase inducers, proteoloytic enzyme inhibitors, phospholipase inhibitors and a variety of other agents are under active development by others. Glutamate or NMDA receptor antagonists are under development by several other companies. In the field of cocaine addiction, most of the investigated compounds to date have been studied by academic and government groups. Further, much of this work has been with known agents, such as carbamazepine, that are commercially available for other indications. Guilford is aware of another company that is investigating the use of butylcholinesterase as a treatment for acute cocaine overdose. The Company is aware of one company that is investigating an immunological approach in an attempt to develop a cocaine vaccine. The Company is not aware of other commercial research programs targeting specific cocaine antagonists, which do not interfere with normal dopamine neuron function. Any product candidate that the Company develops and for which it gains regulatory approval, including GLIADEL, must then compete for market acceptance and market share. For certain of the Company's product candidates, an important factor will be the timing of market introduction of competitive products. Accordingly, the relative speed with which the Company and competing companies can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market is expected to be an important determinant of market success. Other competitive factors include capabilities of the Company's collaborators, product efficacy and safety, timing and scope of regulatory approval, product availability, marketing and sales capabilities, reimbursement coverage, the amount of clinical benefit of the Company's product candidates relative to their cost, method of administration, price and patent protection. There can be no assurance that the Company's competitors will not develop more effective or more affordable products or achieve earlier product development completion, patent protection, regulatory approval or product commercialization than the Company. The achievement of any of these goals by the Company's competitors could have a material adverse effect on the Company's business, financial condition and results of operations. PRODUCT LIABILITY AND INSURANCE 16 17 Product liability risk is inherent in the testing, manufacture, marketing and sale of the Company's product candidates, and there can be no assurance that the Company will be able to avoid significant product liability exposure. While the Company currently maintains $10,000,000 of product liability insurance covering clinical trials and product sales, there can be no assurance that such or any future insurance coverage obtained by the Company will be adequate or that claims will be covered by the Company's insurance. The Company's insurance policies provide coverage on a claims-made basis and are subject to annual renewal. Product liability insurance varies in cost, can be difficult to obtain and may not be available to the Company in the future on acceptable terms, or at all. EMPLOYEES At December 31, 1997, the Company employed 198 individuals. Of these 198 employees, 167 were employed in the areas of research and product development and in manufacturing and quality control of GLIADEL. The remaining 31 employees performed general and administrative functions, including executive, finance and administration, legal and business development. None of the Company's employees are currently represented by a labor union. To date, the Company has experienced no work stoppages related to labor issues and believes its relations with its employees are good. All employees are required to enter into a confidentiality agreement with the Company. Hiring and retaining qualified personnel are important factors for the Company's future success. The Company is likely to continue to add personnel particularly in the areas of research, clinical research and operations, including manufacturing. Intense competition exists for these qualified personnel from other biotechnology and biopharmaceutical companies, academic, research and governmental organizations. There can be no assurance that the Company will be able to continue to hire qualified personnel and, if hired, that the Company will be able to retain these individuals. SCIENTIFIC ADVISORY BOARD Guilford's Scientific Advisory Board consists of individuals with recognized expertise in fields related to Guilford's research and development programs. The Scientific Advisory Board meets with the Company at least twice a year to discuss research priorities and new developments in neuroscience and consults with and meets informally with the Company on an as-needed basis. The following persons are members of Guilford's Scientific Advisory Board: SOLOMON H. SNYDER, M.D. has been a Director of the Company and Chairman of the Scientific Advisory Board since the Company's inception in July 1993. Dr. Snyder received his M.D. in 1962 from Georgetown Medical School, trained as a Research Associate with Julius Axelrod at the National Institute of Mental Health and completed his Psychiatry Residency at Johns Hopkins Hospital. He is presently Director of the Department of Neuroscience at Johns Hopkins Medical School and Distinguished Service Professor of Neuroscience, Pharmacology and Molecular Sciences, and Psychiatry. Dr. Snyder has received a number of awards including the Albert Lasker Award in Basic Biomedical Research, the Wolf Prize and the Bower Award. He is a member of the U.S. National Academy of Sciences, the Institute of Medicine and the American Academy of Arts and Sciences. Dr. Snyder is a director of Scios. Dr. Snyder has provided consulting services to the Company under consulting agreements since August 1993. In September 1995, the Company and Dr. Snyder entered into a new consulting agreement pursuant to which Dr. Snyder will provide consulting services to the Company through August 1998, unless the agreement is further extended or earlier terminated. Under the agreement, Dr. Snyder performs consulting and advisory services as requested by the Company for a minimum of 24 days and a maximum of 38 days per year, subject to adjustment under certain circumstances. With certain limited exceptions, Dr. Snyder has agreed not to engage in any business activity with or provide any consulting or related services to any organization which directly competes with the Company during the term of the agreement and for a period of one year thereafter. JOSEPH COYLE, M.D. is Chairman of the consolidated Department of Psychiatry and Ebens Draper Professor of Psychiatry and Neuroscience at the Harvard Medical School. He obtained his M.D. from Johns Hopkins in 1969 and completed his Psychiatry Residency at Johns Hopkins. His research involves clinical as well as basic studies of neurotransmitter systems and drug actions in the brain. He has received numerous honors, including the McAlpin Award of the National Mental Health Association, the Gold Medal Award of the Society for Biological Psychiatry and election to the Institute of Medicine of the National Academy of Sciences. SAMUEL H. BARONDES, M.D. is the Jeanne and Sanford Robertson Professor of Neurobiology and Psychiatry and Director of the Center for Neurobiology and Psychiatry at the University of California, San Francisco. He received his M.D. from Columbia University in 1958, trained in internal medicine at the Peter Bent Brigham Hospital, in molecular biology at the National Institutes of Health and in psychiatry at the McLean and Massachusetts General Hospitals. Dr. Barondes has received a number of awards including the Royer Award and the Stillmark Medal, is a member of the Institute of Medicine, and also serves as President of the McKnight Endowment Fund for Neuroscience. 17 18 Paul Greengard, Ph.D. Received his Ph.D. from Johns Hopkins in 1953. Following service as the Director of the Biochemistry Department at Ciba-Geigy Research Laboratories and as Professor of Pharmacology at Yale University, he assumed his present position as Professor at Rockefeller University in 1983. His research on molecular mechanisms of signal transduction and drug action has been recognized by numerous awards including the Life Sciences Award of the Federation of American Societies for Experimental Biology and the Bristol-Myers Award for Neuroscience. Dr. Greengard is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. ROBERT LANGER, Ph.D. is presently Germeshausen Professor in the Department of Chemical Engineering at MIT. Dr. Langer obtained his Ph.D. from MIT in 1974 and since then has been a member of the MIT faculty. Dr. Langer is a leading authority on polymer drug delivery systems. He has received numerous awards including election to the U.S. National Academy of Sciences, the National Academy of Engineering and the Institute of Medicine. IRA SHOULSON, M.D. obtained his M.D. from the University of Rochester in 1971 where he completed internal medicine and neurology residencies. He is presently Louis C. Lasagna Professor of Experimental Therapeutics and Professor of Neurology, Pharmacology and Medicine at the University of Rochester. He is the recipient of numerous honors including the Modern Medicine Award for Distinguished Achievement. Dr. Shoulson is a national leader in the design and execution of major clinical trials evaluating drug actions in Parkinson's disease, Huntington's disease and other movement disorders. Dr. Shoulson has served two terms as a member of the Peripheral and Central Nervous System Advisory Committee of the FDA. ANNE YOUNG, M.D., Ph.D. obtained her M.D. and Ph.D. degrees from Johns Hopkins Medical School in 1973 and 1974, respectively, and completed her Neurology Residency at the University of California in San Francisco. She served on the faculty of the Neurology Department at the University of Michigan and since 1991 has been Julieanne Dorn Professor of Neurology at the Harvard Medical School and Chief of the Neurology Service at the Massachusetts General Hospital. She has received numerous honors including election to the American Academy of Arts and Sciences. Her laboratory research focuses on the actions of excitatory amino acids in the brain, while her clinical research deals with movement disorders. ITEM 1A. EXECUTIVE OFFICERS OF REGISTRANT CRAIG R. SMITH, M.D., age 52, joined the Corporation as a Director at the Corporation's inception in July 1993. Dr. Smith was elected President and Chief Executive Officer in August 1993 and was elected Chairman of the Board in January 1994. Prior to joining the Corporation, Dr. Smith was Senior Vice President for Business and Market Development at Centocor, Inc., a biotechnology corporation. Dr. Smith joined Centocor in 1988 as Vice President of Clinical Research after serving on the Faculty of the Department of Medicine at Johns Hopkins Medical School for 13 years. Dr. Smith received his M.D. from the State University of New York at Buffalo in 1972 and received training in Internal Medicine at Johns Hopkins Hospital from 1972 to 1975. JOHN P. BRENNAN, age 55, joined the Corporation as Vice President, Operations in January 1994 and became Senior Vice President, Operations in January 1997. From 1980 to 1993, he was Vice President, Technical Operations and Manufacturing for G.D. Searle and Co., a pharmaceutical company, and was responsible for the operation of manufacturing plants in North America, Latin America and Europe and the worldwide pharmaceutical and process technology from 1980 to 1993. From 1977 to 1980, Mr. Brennan was General Manager of the E.R. Squibb & Sons, Inc. manufacturing facility in Humacao, Puerto Rico. Mr. Brennan held various technical positions at Smith Kline Corporation from 1960 to 1977. Mr. Brennan has over 37 years of experience in the pharmaceutical industry. Mr. Brennan received his B.S. in Chemistry from the Philadelphia College of Pharmacy and Science in 1968 and attended the Wharton Graduate Management Program in 1976. ANDREW R. JORDAN, age 50, joined the Corporation as Vice President, Secretary, Treasurer and Chief Financial Officer in September 1993 and became Senior Vice President, Treasurer and Chief Financial Officer in January 1997. Prior to joining the Corporation, Mr. Jordan held various positions with KPMG Peat Marwick LLP, a public accounting firm, beginning in 1973, including partner since 1983. Mr. Jordan's experience at KPMG Peat Marwick LLP included advising early stage and emerging technology companies and initial and secondary public equity and debt offerings. He received his B.A. from Rutgers College in 1969 and his MBA from Rutgers Graduate School of Business in 1973 and is a Certified Public Accountant. DAVID R. SAVELLO, Ph.D., age 52, joined the Corporation as Senior Vice President, Drug Development in April 1997. Prior to joining the Corporation, Dr. Savello was employed by Glaxo Wellcome, Inc. ("Glaxo") since 1985, most recently as Vice President, North American Regulatory Affairs from 1995 to 1997. Prior to 1995, Dr. Savello served as Vice President, Drug Development and later as Vice President, Regulatory Affairs and Compliance, at the affiliated entity Glaxo Research Institute. Dr. Savello's duties at Glaxo included leading U.S. and Canadian regulatory operations and International Research and Development, Quality Assurance, and Good Manufacturing Practices for all bulk drug substance and clinical supplies manufacturing and packaging. Dr. Savello received his Ph.D. and M.S. in pharmaceuticals from the University of Maryland in 1972 and 1971, respectively, and his B.S. in pharmacy in 18 19 1968 from the Massachusetts College of Pharmacy. NICHOLAS LANDEKIC, age 39, joined the Corporation in March 1995 as Vice President, Business Development. From January 1992 to February 1995, Mr. Landekic was Senior Director of Business Development at Cephalon, Inc. and was responsible for licensing and other corporate collaborations. From 1989 to 1992, he was a Senior Manager of Product Planning at Bristol-Myers Squibb Company and was responsible for worldwide commercial development and strategic planning for currently marketed and new central nervous system products. From 1985 to 1989, Mr. Landekic worked for Johnson & Johnson Corporation in a variety of positions in business development and finance. Mr. Landekic received his M.B.A. in Finance/Marketing from the State University of New York at Albany, an M.A. in Biology from Indiana University and a B.S. in Biology from Marist College. THOMAS C. SEOH, age 40, joined the Corporation in April 1995 as Vice President, General Counsel and Secretary. From 1992 to 1995, Mr. Seoh was affiliated with the ICN Pharmaceuticals, Inc. ("ICN") group, as Vice President and Associate General Counsel of ICN from 1994 to 1995, Vice President, General Counsel and Secretary of Viratek, Inc. from 1993 to 1994 and Deputy General Counsel of SPI Pharmaceuticals, Inc. from 1992 to 1994, providing legal function support for pharmaceutical operations, research and development and corporate development. From 1990 to 1992, Mr. Seoh was General Counsel and Secretary of Consolidated Press U.S., Inc., the North American holding corporation of the Sydney, Australia-based Consolidated Press group. Prior thereto, Mr. Seoh was associated with the New York and London law offices of Lord, Day & Lord, Barrett Smith. Mr. Seoh received his J.D. and A.B. from Harvard University. PETER D. SUZDAK, Ph.D., age 39, joined the Corporation in March 1995 as Vice President, Research. Prior thereto, Dr. Suzdak was Director of Neurobiology at Novo Nordisk A/S and was responsible for all neurobiology research from 1993 to 1995, and Department Head for Receptor Neurochemistry from 1988 to 1992 as well as a member of the drug discovery management group from 1989 to 1995. Prior thereto, Dr. Suzdak was a Pharmacology Research Associate in the Clinical Neuroscience Branch of the National Institute of Mental Health in Bethesda, Maryland from 1985 to 1988. Dr. Suzdak received his Ph.D. in Neuroscience from the University of Connecticut and a B.S. in Pharmacy from St. Johns University. WILLIAM C. VINCEK, Ph.D., age 50, joined the Company as Vice President, Corporate Quality in August 1997. From November 1993 until Dr. Vincek joined the Company, he was Group Director, CMC & Preclinical Regulatory Affairs and Global Research and Development GMP Quality Assurance at Glaxo. Prior thereto from 1984 until October 1993, Dr. Vincek held various positions at SmithKline Beecham Pharmaceuticals and related entities, most recently from July 1992 until October 1993 as Director, Pharmaceutical Analysis Department. Dr. Vincek received his Ph.D. in Medicinal Chemistry from the University of Kansas, where he also received a M.S. in Medicinal Chemistry. Dr. Vincek received a B.S. in Chemistry from Colorado State University. ITEM 2. PROPERTIES. In August 1994, the Company entered into a master lease for an approximately 83,000 square foot building in Baltimore, Maryland. The Company currently occupies 23,000 square feet for office space, 18,000 square feet for manufacturing space, and 42,000 square feet of research and development laboratories. The Company is currently in the process of adding 5,000 square feet to its animal handling facilities and expects completion by April, 1998. The master lease expires in July 2005. Two five-year renewal options are available to the Company or the Company may exercise a purchase option any time after the ninth year for the then current fair market value. In June 1997, the Company entered into a lease with an affiliate of Scios for approximately 16,200 square feet of laboratory and office space with an initial term ending on December 31, 1998. In October, 1997, the Company exercised its option under the lease to extend the term until June 30, 1999. In February, 1998 the parties amended this lease to include an additional 16,500 square feet of laboratory and office space and extended the term until July 31, 1999. In February 1998, the Company entered into an operating lease with a trust affiliated with First Union National Bank ("First Union") respecting the construction and occupancy of a new laboratory and office facility, consisting of approximately 72,500 square feet and scheduled to be completed in the second quarter, 1999. The lease expires in February 2005, at which time the Company has an option (i) to purchase the property or (ii) to sell the property on behalf of the trust (subject to certain limitations and related obligations). In addition, the Company may, with the consent of First Union, enter into a new lease arrangement. See "Management's Discussion of Financial Condition and Results of Operations -- Liquidity and Capital Resources" for a more complete description of the Company's arrangements with First Union. The Company expects to consolidate all its operations into its current and this new facility in 1999. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 19 20 None. ITEM 4A. RISK FACTORS An investment in the shares of the Company's common stock is speculative in nature and involves a high degree of risk. In addition to the other information contained in this annual report, the following factors should be considered carefully in evaluating the Company and its business before purchasing the shares of the Company's common stock. This annual report contains, in addition to historical information, forward-looking statements, including, but not limited to, those concerning application for international regulatory clearances and labeling expansions for GLIADEL, polymer product line extensions, the commencement and completion of the research program relating to the Company's FKBP-based neuroimmunophilin ligand technology and other technologies, clinical development activities, including without limitation commencement and conduct of clinical trials related to GLIADEL, the Company's strategic plans, anticipated expenditures and the need for additional funds, all of which involve risks and uncertainties. The Company's actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, as well as those discussed elsewhere in this annual report. HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The Company incurred annual net operating losses from its inception through the end of fiscal 1997, with the sole exception of fiscal 1996 and, as of December 31, 1997, had an accumulated deficit of $26.3 million. Prior to February 25, 1997, the date on which GLIADEL was commercially launched in the United States, substantially all of the Company's revenues had been recognized as research and development or non-recurring milestone payments under the Company's collaborations, and again in fiscal 1997, the majority of the Company's revenues came in the form of non-recurring milestone payments. Except for revenues from sales and non-recurring milestone payments related to GLIADEL under the Company's agreements with RPR and the research funding and non-recurring rights and milestone payments payable under the Company's collaboration with Amgen relating to the Company's Neuroimmunophilin Technology, the Company's product candidates are not expected to generate revenues for at least the next several years, if at all, and whether GLIADEL sales will generate any significant revenues remains uncertain. Furthermore, whether the Company will ever recognize revenues from milestone payments or royalties paid on product sales under its collaboration with Amgen is subject to significant risk and uncertainty, including but not limited to, risks associated with new product development, the conduct of pre-clinical studies and human clinical trials, obtaining regulatory approval, scale-up and manufacturing of new products and commercialization of new products, all of which risks are discussed below in this "Risk Factors" section. While the Company reported net income for the second and third quarters of 1996 and the third quarter of 1997, the income recognized in the 1996 periods was the result of significant and non-recurring payments from RPR with respect to GLIADEL and the income reported in the third quarter 1997 was primarily be due to receipt of a one-time, non-recurring rights payment from Amgen. The Company does not anticipate that fiscal 1998 will be profitable, and there can be no assurance that the Company will ever achieve or sustain profitability in the future. Furthermore, the Company expects to experience quarter-to-quarter and year-to-year fluctuations in its operating results due to a variety of factors, including, but not limited to, the timing and amount of sales of GLIADEL, the timing and realization of milestone and other payments under the Company's collaborative agreements, including its collaboration with Amgen, and expenses relating to the Company's research and development, clinical and manufacturing activities as well as activities undertaken in connection with the preservation and extension of the Company's intellectual property rights. The Company's ability to realize sustained profitability in the future will depend upon, among other things, the successful marketing of GLIADEL by RPR, receipt of regulatory clearance for additional indications for GLIADEL in the United States as well as Europe and other countries, the successful completion of clinical trials for and, if completed, receipt of regulatory clearance for the marketing of, DOPASCAN, and the successful development of any product candidates falling under the Company's collaboration with Amgen. In addition, the Company must enter into collaborative arrangements and license agreements on acceptable terms with others with respect to its product candidates and earlier stage technologies as they are developed. The Company will be required to conduct substantial additional research, development and clinical trials and to receive necessary regulatory clearances that, together with future general and administrative expenses, are expected to result in significant expenses for the foreseeable future. No assurance can be given as to the ability of the Company to achieve significant and sustained revenues or realize sustained profitable operating results. DEPENDENCE ON GLIADEL AND RPR. The Company's prospects are highly dependent on sales by RPR of the Company's first commercial product, GLIADEL, which was commercially launched in the United States in February, 1997. The Company currently has insufficient information upon which to assess the ability of the product to gain market acceptance or the extent of the marketing efforts necessary to gain any such acceptance. The failure of GLIADEL to gain market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. To date, the Company has received clearance from the FDA to market GLIADEL in the United States only for patients with recurrent glioblastoma multiforme for whom surgical resection is indicated. The number of patients undergoing surgery for recurrent glioblastoma multiforme is very limited. The Company believes that the total number of patients in the United States who undergo surgery for recurrent glioblastoma multiforme may be less than 10,000 per year. In order to expand the indications for which GLIADEL may be used, the Company and RPR must successfully complete additional lengthy clinical trials and thereafter receive clearance from 20 21 the FDA. No assurance can be given as to the ability of the Company or RPR to successfully complete these clinical trials and to receive appropriate regulatory clearance on a timely basis, or at all, and the inability to do so would have a material adverse effect on the Company's business, financial condition and results of operations. To date, RPR has received international regulatory approvals in only two countries to market GLIADEL, and there can be no assurance that any other such approvals will be obtained. The Company granted RPR exclusive worldwide (excluding Scandinavia) marketing, sales and distribution rights for GLIADEL. The Company's agreements with RPR do not impose any minimum purchase or sale requirements on RPR. Therefore, the success of GLIADEL is entirely dependent upon the sales and marketing efforts of RPR. The Company has limited experience in dealing with RPR for the sale of products, and prior to the February, 1997 commercial launch of GLIADEL in the United States, RPR's oncology sales force had no prior experience in marketing a product to neurosurgeons. There can be no assurance that RPR will elect to aggressively market and promote GLIADEL and will successfully do so, and the inability or unwillingness of RPR to do so would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, GLIADEL is a very fragile product. Product recalls due to excessive breakage of the GLIADEL wafers or for other reasons could also have a material adverse effect on the Company's business, financial condition and results of operations. The Company's agreements with RPR provide for additional payments to the Company upon the timely achievement of designated milestones relating to further clinical development and regulatory approvals. In many instances, achievement of the milestone is dependent on the efforts of RPR. No assurance can be given that any of these milestones will be satisfied in such a manner as will allow the Company to become entitled to these payments. The potential milestone payments under the RPR agreements are significant. Therefore, failure to meet the milestones under the agreements could have a material adverse effect on the Company's business, financial condition and result of operations. THE AMGEN COLLABORATION. The amounts payable to the Company under the Amgen Agreements in the form of future potential development milestone payments and royalty payments on product sales are dependent on a number of factors, many of which are not within the Company's control, including the selection of an appropriate lead compound(s), successful completion of the pre-clinical and clinical development activities, regulatory clearances and commercialization of the Neuroimmunophilin Technology, as well as the successful preservation and extension of the patent and other intellectual property rights licensed to Amgen, all of which are subject to significant risks and uncertainties. For a description of these and other material risks related to the research, development and commercialization of the Neuroimmunophilin Technology, see the Risk Factor sections set forth below entitled "Technological Uncertainties," "Uncertainty Regarding Patent and Proprietary Technology," "Dependence on Licenses of Intellectual Property," "Uncertainty of Preclinical and Clinical Trial Results," "Government Regulation and Product Approvals," "Novel Alternative Technologies and Therapeutic Approaches" and "Competition and Technological Change." Moreover, under the terms of the Amgen Agreements, the Company has no control over the development activities regarding the Neuroimmunophilin Technology which have been left to the sole discretion of Amgen. The Amgen Agreements also do not specify a timetable for achieving developmental and commercialization goals with respect to the Neuroimmunophilin Technology. In the event that Amgen determines to conduct clinical trials on a product candidate resulting from its collaboration with the Company, there can be no assurance as to the ability of Amgen to successfully complete any such clinical trials and thereafter to receive clearance from domestic or foreign regulatory authorities to market any such products. Further, the Neuroimmunophilin Technology represents a new approach to the treatment of certain types of neurological and other diseases and conditions, and Guilford and Amgen have limited experience in the formulation of and in scaling-up and manufacturing the types of compounds covered by the Neuroimmunophilin Technology, and there can be no assurance that Amgen will ever be successful in scaling up any such compounds needed for commercial sale. For a more complete description of the kinds of risks associated with product manufacture, see the second paragraph under the section entitled "Limited Manufacturing Capabilities" below. In the event Amgen is able to obtain all regulatory approvals necessary to market a product resulting from its collaboration with the Company, the Amgen Agreements do not specify any minimum sales requirements for Amgen, and thus any royalty amounts payable to the Company in the future will be entirely dependent upon the sales and marketing efforts of Amgen, over which Guilford will have no control. In addition, there can be no assurance that Amgen will not in the future pursue technologies for product candidates competitive with the Neuroimmunophilin Technology. RELIANCE ON SUPPLIERS. The Company currently is able to purchase certain key components for GLIADEL and its product candidates only from single suppliers. These suppliers are subject to many strict regulatory requirements. There can be no assurance that these suppliers will comply, or have complied, with applicable regulatory requirements or that they will otherwise continue to supply the Company with the key components for its product candidates. In the event that suppliers are unable or refuse to supply the Company, or will supply the Company only at a prohibitive cost, there can be no assurance that the Company could access additional sources at acceptable prices, on a timely basis, or at all. The current formulation of GLIADEL utilizes BCNU (carmustine) as its chemotherapeutic agent. BCNU is currently 21 22 available only from a single source in the United States and the Company is not aware of any supplier outside of the United States. The Company currently obtains its BCNU from this U.S. supplier on a purchase order basis and not pursuant to any long-term supply agreement. While the Company is taking steps to obtain an additional supplier, the process of qualifying a second supplier is lengthy, and there can be no assurance that the Company's efforts will be successful. Failure to receive key supplies necessary for the manufacture of GLIADEL on a timely basis at a reasonable cost could result in delays of product shipments, which would have a material adverse effect on the Company's business, financial condition and results of operations. The manufacture of DOPASCAN requires a precursor to be labeled with a radioactive isotope of iodine to form the final product. Only a limited number of companies are capable of performing the necessary radioiodination of the precursor and distribution of the final radioiodinated product. While the Company currently has a development and supply arrangement with one of these companies for planned phase III clinical trials, there can be no assurance that the Company, if necessary or desirable, will be able to enter into an agreement with another of these companies for the radioiodination of the precursor on acceptable terms, or at all, or that the Company's current supplier will meet the Company's need for DOPASCAN. LIMITED MANUFACTURING CAPABILITIES. To commercialize GLIADEL, the Company must be able to manufacture this product in commercial quantities in compliance with regulatory requirements and at acceptable costs. The Company is manufacturing its initial product candidate, GLIADEL, at its manufacturing facility in Baltimore, Maryland, which consists of production laboratories and a cleanroom occupying approximately 12,500 square feet. The facility currently has the capacity to manufacture approximately 8,000 GLIADEL treatments per year. Although the Company believes the facility meets current Good Manufacturing Practices ("cGMP") requirements and the facility has been inspected by the FDA, the Company has manufactured only limited quantities of GLIADEL in the facility. There can be no assurance that the Company will be able to continue to satisfy applicable regulatory standards, including cGMP requirements, and other requirements relating to the manufacture of GLIADEL in the facility. The Company also faces risks inherent in the operation of a single facility for manufacture of GLIADEL, including risks of unforeseen plant shutdowns due to personnel, equipment or other factors, and the possible inability of the facility to produce GLIADEL in quantities sufficient to meet demand. Any delay in the manufacturing of GLIADEL could result in delays of product shipments, which would have a material adverse effect on the Company's business, financial condition and results of operations. Currently, the Company has no manufacturing capabilities for its product candidates, and in order to complete the commercialization process of its product candidates, the Company must either acquire, build or expand its manufacturing facilities or rely on third parties to manufacture product candidates. There can be no assurance that the Company or its collaboration partners will be able to acquire, build or expand facilities that will meet the Company's quality, quantity and timing requirements on acceptable terms, or at all, or that the Company or its collaboration partners will be able to enter into manufacturing contracts with others on acceptable terms, or at all, and the inability of the Company or its collaboration partners to do so could have a material adverse effect on the Company's business, financial condition and results of operations. Third-party manufacturers must also comply with FDA, DEA, and other regulatory requirements for their facilities, including cGMP regulations. Moreover, there can be no assurance that the manufacturing of product candidates on a limited basis for investigational use will lead to a successful transition to commercial, large-scale production. Small changes in methods of manufacture may affect the safety, efficacy or controlled release of the product. Changes in methods of manufacture, including commercial scale-up, can, among other things, require the performance of new clinical studies. Should the Company decide to manufacture its other product candidates, substantial start-up expenses would be incurred, expansion of facilities would be required and additional personnel would have to be hired. TECHNOLOGICAL UNCERTAINTIES. Except for GLIADEL, the Company does not expect to generate revenues from product sales, including any products that may result from its collaboration with Amgen, for at least the next several years, if at all. Substantially all of the Company's resources have been, and for the foreseeable future will continue to be, dedicated to the discovery, development and commercialization of proprietary products for the diagnosis, treatment and prevention of neurological diseases and conditions and for targeted, controlled drug delivery using biodegradable polymers for the treatment of cancer and other diseases. The Company's product candidates will require additional development, extensive preclinical and clinical trials, regulatory approval and additional investment prior to any commercialization. In certain cases, the Company's compounds, such as GPI-5000, GPI-6000, GPI-6150, and GPI-2138, are "prototypes," which the Company is using to establish proof of principle of the relevant mechanism of action, but which the Company does not intend to develop into a product because of pharmacokinetic characteristics of the compound, the Company's proprietary position with respect to such compound or for other reasons. There can be no assurance that the Company's product development efforts will progress as expected, or at all. In addition, the Company's product candidates are subject to the risks of failure inherent in the development of products based on new technologies. These risks include the possibilities that the Company's new approaches to the diagnosis, treatment and prevention of neurological diseases and conditions and targeted, controlled drug delivery will not result in any products that gain market acceptance; that any or all of the Company's product candidates will be found to be unsafe, ineffective, or otherwise fail to receive necessary regulatory clearances or, if granted, such clearances will not be revoked; that any or all of the products, if safe and effective, will be difficult to manufacture on a large scale or uneconomical to market; that proprietary rights of third parties will preclude the Company from 22 23 marketing such products; or that third parties will market superior or more cost-effective products. As a result, there can be no assurance that the Company's activities, either directly or through collaboration partners, will result in any commercially viable products. NEED FOR ADDITIONAL PARTNERS. The Company's strategy for the research, development and commercialization of its product candidates has required, and will continue to require, the Company to enter into various arrangements with corporate and academic collaborators, licensors, licensees and others, and the Company will, therefore, be dependent upon the success of these parties in performing their responsibilities and obligations. The Company is actively seeking partners to assist in the development of DOPASCAN as well as in the Company's neuroprotective drug program. There can be no assurance that the Company will be able to enter into collaborative arrangements or license agreements that the Company deems necessary or appropriate to develop and commercialize its product candidates, or that any or all of the contemplated benefits from such collaborative arrangements or license agreements will be realized. Failure to obtain such arrangements or agreements could result in delays in marketing the Company's product candidates or the inability to proceed with the development, manufacture or sale of product candidates. Certain of the collaborative arrangements that the Company currently has or may enter into in the future may place responsibility on the collaborative partner for preclinical testing, clinical trials and/or preparation and submission of applications for regulatory approval of potential pharmaceutical or other products. Should a collaborative partner fail to develop or commercialize successfully any product candidate to which it has rights, the Company's business, financial condition and results of operations could be materially and adversely affected. There can be no assurance that collaborators, including Amgen, will not pursue alternative technologies or product candidates either on their own or in collaboration with others, including the Company's competitors, as a means for developing treatments for the diseases or disorders targeted by the Company's collaborative arrangements. Collaborative arrangements may also require the Company to meet certain regulatory, research or other development milestones and expend minimum levels of funds, and there can be no assurance that the Company will be successful in doing so. Failure of the Company to meet its obligations under its collaborative arrangements could result in a termination of those arrangements and could have a material adverse effect on the Company's business, financial condition and results of operations. LIKELY VOLATILITY OF STOCK PRICE. The market price of the Company's common stock has been and is likely to continue to be highly volatile, and an investment in these securities involves substantial risks. The market prices for securities of biotechnology companies (including the Company) have been highly volatile, and the stock market from time to time has experienced significant price and volume fluctuations that may be unrelated to the operating performance of a particular company. A number of factors could result in the Company's failure to meet the expectations of securities analysts or investors and may have a significant impact on the price of the Company's common stock. Such factors include, but are not limited to, announcements by the Company or its competitors of clinical results, technological innovations, product sales, new products or product candidates, developments or disputes concerning patent or proprietary rights, regulatory developments affecting the Company's products, as well as market conditions for emerging growth companies and biopharmaceutical companies, economic and other internal and external factors and period-to-period fluctuations in results of operations. UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success will depend in part on its ability to obtain, maintain and enforce patent protection for its products and processes or license rights to patents, maintain trade secret protection and operate without infringing upon the proprietary rights of others. The degree of patent protection afforded to pharmaceutical and biotechnological inventions is uncertain, and a number of Guilford's product candidates are subject to this uncertainty. Guilford is aware of a company which has asserted in a public filing that it has patent applications claiming the use of certain of its immunosuppressive compounds and certain multidrug resistance compounds for nerve growth applications. Such other company has also publicly claimed holding patents and patent applications relating to compounds which it claims are useful in nerve growth applications. While the Company does not believe that its neurotrophic compounds infringe on such company's patents, no assurance can be given as to the ability of Guilford's patents and patent applications to adequately protect its neurotrophic product candidates, or that Guilford's neurotrophic product candidates will not infringe or be dominated by this company's patents or patent applications, if issued, or those of any other company. There can be no assurance that any patent applications filed by, or assigned or licensed to, the Company will be granted, that the Company will develop additional products or processes that are patentable, or that any patents issued to, or licensed by, the Company will provide the Company with any competitive advantages or adequate protection for its products. In addition, there can be no assurance that any existing or future patents or intellectual property issued to, or licensed by, the Company will not subsequently be challenged, invalidated or circumvented by others. Guilford's policy is to control the disclosure and use of its know-how and trade secrets under confidentiality agreements with employees, consultants and other parties. There can be no assurance, however, that its confidentiality agreements will be honored, that others will not independently develop equivalent or competing technology, that disputes will not arise concerning the ownership of intellectual property or the applicability of confidentiality obligations, or that disclosure of Guilford's trade secrets will not occur. To the extent that consultants or other research collaborators use intellectual property owned by others in their work with the Company, disputes may also arise as to the rights to related or resulting intellectual property. 23 24 Guilford supports and collaborates in research conducted in universities and in governmental research organizations. There can be no assurance that the Company will have or be able to acquire exclusive rights to the inventions or technical information derived from such collaborations or that disputes will not arise as to rights in derivative or related research programs conducted by the Company. In addition, in the event of a contractual breach by the Company, certain of the Company's collaborative research contracts provide for the return of technology rights (including any patents or patent applications) to the contract sponsors. Questions of infringement of intellectual property rights, including patent rights, may involve highly technical and subjective analyses. There can be no assurance that any of the Company's existing or future products or technologies do not or will not infringe the rights of other parties, that such other parties may not in the future initiate legal action against the Company to enforce their claims or that, if such actions are brought, the Company would be successful in defending itself. If the Company is required to defend against charges of infringement of patent or proprietary rights of third parties or to protect its own patent or proprietary rights against third parties, including its neurotrophic product candidates, the Company may incur substantial costs and could lose rights to develop or market certain products or be required to pay monetary damages or royalties to license proprietary rights from third parties. In response to actual or threatened litigation, the Company may seek licenses from third parties or attempt to redesign its products or processes to avoid infringement; however, there can be no assurance that the Company will be able to obtain licenses on acceptable terms, or at all, or redesign its products or processes. In addition to being a party to patent infringement litigation, the Company could be required to participate in patent interference proceedings declared by the U.S. Patent and Trademark Office, which would be expensive and time-consuming, even if the Company were to prevail in such a proceeding. The Company may also be forced to initiate legal proceedings to protect its patent position or other proprietary rights. These proceedings typically are costly, protracted, and offer no assurance of success. Furthermore, under the Company's collaboration with Amgen, Amgen is responsible for the preparation, filing, prosecution, maintenance and defense of patent applications and patents relating to technology covered by the Amgen Agreements, and there can be no assurance that Amgen will pursue such activities in the same manner or as vigorously as the Company would if it had such responsibility. Furthermore, Amgen has the option to take the lead in bringing actions to enforce patent rights subject to the Amgen Agreements and to defend against third party infringement suits regarding the Neuroimmunophilin Technology. While Amgen and Guilford have agreed to consult with each other on such matters, in the event of disagreement, Amgen's decisions shall control. DEPENDENCE ON LICENSES OF INTELLECTUAL PROPERTY. The Company has licensed certain intellectual property from third parties, including certain intellectual property underlying GLIADEL, DOPASCAN and the Neuroimmunophilin Technology. Under the terms of its license agreements, the Company is obligated to exercise diligence, achieve certain milestones, and expend minimum amounts of resources in bringing potential products to market and make certain royalty, milestone and patent cost reimbursement payments. In addition, each of these agreements contains certain record keeping and reporting obligations. Each agreement is terminable by either party, upon notice, if the other party defaults in its obligations. There can be no assurance that the Company will be able to meet its obligations under these agreements on a timely basis, or at all or that these obligations will not conflict with those under the Company's other corporate collaborations. Should the Company default under any of these agreements, the Company may lose its right to market and sell any products based on the licensed technology. In such event, the Company's business, financial condition and results of operations would be materially and adversely affected. The agreements also require the Company to pay a royalty to these parties on sales of GLIADEL and, if successfully developed, milestone and/or royalty payments in connection with DOPASCAN or other compounds developed and commercialized under the Neuroimmunophilin Technology. RIGHTS WITH RESPECT TO GOVERNMENT SUPPORTED RESEARCH. Aspects of the technology licensed under the Company's license agreements may be subject to certain rights held by the U.S. government (the "Government Rights"). These rights include a non-exclusive, royalty-free, worldwide license to practice or have practiced such inventions for any governmental purpose. In addition, the United States government has the right to grant licenses which may be exclusive under any of such inventions to a third-party if it determines that: (i) adequate steps have not been taken to commercialize such inventions, (ii) such action is necessary to meet public health or safety needs or (iii) such action is necessary to meet requirements for public use under federal regulations. The government also has the right to take title to a subject invention if there is failure to disclose the invention and elect title within specified time limits. In addition, the government may acquire title in any country in which a patent application is not filed within specified time limits. Federal law requires any licensor of an invention that was partially funded by the federal government to obtain a covenant from any exclusive licensee to manufacture products using the invention substantially in the United States. Further, the Government Rights include the right to use and disclose without limitation technical data relating to licensed technology that was developed in whole or in part at government expense. Provisions recognizing these Government Rights are contained in the Company's principal technology license agreements. The Company has entered into a contract with the U.S. Army, funded by the Office of National Drug Control Policy, to provide certain financial support for research being conducted by Guilford on a potential cocaine inhibitor. That contract permits the U.S. government to obtain unlimited rights in data developed in the course of performing under the contract in the event the Company fails to make use 24 25 of the data within five years after termination of the contract in conducting further laboratory investigation and/or clinical trials toward the development of a commercial product to combat drug abuse. UNCERTAINTY OF PRECLINICAL AND CLINICAL TRIAL RESULTS. Before obtaining regulatory approval for the commercial sale of any of its product candidates, the Company must demonstrate through preclinical and clinical trials that the product is safe and effective for use in the clinical indication for which approval is sought. The Company and RPR commenced a Phase III clinical trial for GLIADEL in December, 1997 for initial surgery for malignant glioma, and the Company intends to carry out a Phase III clinical trial for DOPASCAN. There can be no assurance that the results of these trials will be successful, and adverse results from either of these trials would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will be permitted to undertake or continue clinical trials for any of its product candidates, or, if permitted, that such products will be demonstrated to be safe and effective. Moreover, the results from preclinical studies and early clinical trial may not be predictive of results that will be obtained in later stage clinical trials. There can be no assurance that the Company's present or future clinical trials will demonstrate the safety and efficacy of any product candidates or will result in any necessary regulatory approval to market products. GOVERNMENT REGULATION AND PRODUCT APPROVALS. The Company's research, preclinical development and clinical trials and the manufacturing and marketing of its product candidates are subject to extensive regulation by numerous governmental authorities in the United States and other countries, including, but not limited to, the FDA and the DEA. Except for GLIADEL, none of the Company's product candidates has received marketing clearance from the FDA, and and except with respect to GLIADEL in a very limited number of foreign countries, none has received clearance from any other foreign regulatory authority for commercial sale. As a condition to approval of the Company's product candidates under development, the FDA could require additional preclinical, clinical or other studies. Any such requirement for the Company to perform additional preclinical, clinical or other studies or purchase data from other companies could have a material adverse effect on the Company's business, financial condition and results of operations. In order to obtain FDA approval of a new drug product for an indication, the Company must demonstrate to the satisfaction of the FDA that the product is safe and effective for its intended use and that the product is capable of being manufactured in accordance with applicable regulatory standards. There can be no assurance that the Company will be able to satisfy the foregoing requirements with respect to any of its drug product candidates or with respect to the proposed new labeling of GLIADEL for malignant glioma at the time of initial surgery, that the FDA will approve any of its drug product candidates or such labeling or that, if such product candidates or such new labeling is approved, the FDA will approve the full scope of uses and labeling sought by the Company and its corporate partner, RPR. Failure to obtain regulatory drug approvals on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. Once FDA approval is obtained, the FDA may also require post-marketing testing and surveillance to monitor the record of the approved product and continued compliance with regulatory requirements. In addition, product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval. The process of obtaining FDA and other required approvals or licenses and of meeting other regulatory requirements to test and market drugs, including controlled substances and radiolabeled drugs, is rigorous and lengthy and has required, and will continue to require, the expenditure of substantial resources. All of the Company's product candidates will need to be the subject of further clinical and other studies. Unsatisfactory clinical trial results and other delays in obtaining regulatory approvals or licenses would prevent the marketing of products developed by the Company, and pending the receipt of such approvals or licenses and the meeting of other regulatory requirements, the Company will not receive product revenues or royalties. The Company hopes to capitalize on current FDA regulations and the new provisions of the FDA Modernization Act of 1997, as applicable, that permit fast track approval or treatment use of, and cost recovery for, certain experimental drugs. The FDA's fast track accelerated or expedited regulations are limited to drug products intended to treat seriously debilitating or life-threatening diseases and that provide meaningful therapeutic benefit to patients over existing treatments or that are for diseases for which no satisfactory or alternative therapy exists, among other requirements. The FDAMA contains certain provisions patterned after the accelerated approval regulations and other provisions pertaining to expanded access, i.e. treatment uses. Since some of the new statutory provisions and current FDA relations are different from each other, it is unclear how they will apply, if at all, to the Company's drug candidates. There can be no assurance that the Company's drug candidates will qualify for fast track approvals or for treatment use and cost recovery. Controlled drug products and radiolabeled drugs are subject to special regulations in addition to those applicable to other drugs. Certain of the Company's products and product candidates (including DOPASCAN) are or may be subject to regulation by the DEA as controlled substances and other federal agencies as radiolabeled drugs. The failure to continue to obtain exceptions from DEA for shipment abroad or other activities could have a material adverse effect on the Company. The Company has obtained registrations for its facilities from the DEA and exceptions from the DEA with respect to various of its activities involving DOPASCAN, including the shipment of certain quantities of a precursor of this product candidate to an overseas collaborative partner. However, there can be no 25 26 assurance that such exceptions will be sufficient to cover future activities of the Company, will not be revoked, or that other requirements to test, manufacture and market controlled substances or radiolabeled drugs can be satisfied, or that the Company will be able to obtain additional necessary approvals or licenses to meet state, federal and international regulatory requirements to manufacture and distribute such products. The FDAMA requires FDA to issue and finalize within one and one-half years regulations governing the approval of radiolabeled drugs. It is unclear how these and other provisions may affect the potential for approval of DOPASCAN. NOVEL ALTERNATIVE TECHNOLOGIES AND THERAPEUTIC APPROACHES. Many of the Company's product development efforts represent novel alternative therapeutic approaches and new technologies used, among other things, in the diagnosis and monitoring of Parkinson's disease, the promotion of nerve growth and the prevention of neuronal damage, and have not been widely studied. There is no assurance that these approaches and technologies will be successful. Moreover, the Company is applying these approaches and technologies to discover new treatments for conditions that are also the subject of research and development efforts by numerous other companies. The Company's competitors may succeed in developing technologies or products that are more efficacious or cost-effective than those of the Company. Rapid technological change or developments by others may result in the Company's technology or product candidates becoming obsolete or noncompetitive. COMPETITION AND TECHNOLOGICAL CHANGE. The Company is involved in evolving technological fields in which developments are expected to continue at a rapid pace. Guilford's future success depends upon maintaining its ability to compete in the research, development and commercialization of products and technologies in its areas of focus. Competition from pharmaceutical, chemical and biotechnology companies, universities and research institutions is intense and expected to increase. Many of these competitors have substantially greater research and development capabilities and experience and manufacturing, marketing, financial and managerial resources than the Company and represent significant competition for the Company. Acquisitions of competing companies by large pharmaceutical companies or other companies could enhance financial, marketing and other resources available to these competitors. These competitors may develop products which are superior to those under development by the Company The Company is aware of the development by other companies and research scientists of alternative approaches to the treatment of malignant glioma, the diagnosis of Parkinson's disease, the promotion of nerve growth and repair, the treatment and prevention of neuronal damage, and the treatment of cocaine addiction. There can be no assurance that developments by others will not render the Company's products or technologies noncompetitive or obsolete, or that the Company will be able to keep pace with technological developments. Any product candidate that the Company develops and for which it gains regulatory approval, including GLIADEL, must then compete for market acceptance and market share. For certain of the Company's product candidates, an important factor will be the timing of market introduction of competitive products. Accordingly, the relative speed with which the Company and competing companies can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market is expected to be an important determinant of market success. Other competitive factors include capabilities of the Company's collaborators, product efficacy and safety, timing and scope of regulatory approval, product availability, marketing and sale capabilities, reimbursement coverage, the amount of clinical benefit of the Company's product candidates relative to their cost, method of administration, price and patient protection. There can be no assurance that the Company's competitors will not develop more effective or more affordable products or achieve earlier product development completion, patent protection, regulatory approval or product commercialization than the Company. The achievement of any of these goals by the Company's competitors could have a material adverse effect on the Company's business, financial conditions and results of operations. FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company will require substantial funds in order to continue its research and development programs and preclinical and clinical testing and to manufacture and, where applicable, market its products. The Company's capital requirements depend on numerous factors, including the progress of its research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative arrangements, the development of collaborative and licensing agreements and other arrangements and the progress of manufacturing scale-up efforts. The Company believes that its existing resources will be sufficient to fund the Company's activities at least for the next twelve months. There can be no assurance, however, that changes in the Company's research and development and commercialization plans or other factors affecting the Company's operating expenses including potential acquisitions will not result in the expenditure of these resources before that time. The Company anticipates that it will fund future capital requirements through a combination of revenues generated under its agreements with RPR relating to GLIADEL, public or private financings (as necessary), additional collaborative or other research and development agreements, commercialization and marketing arrangements with corporate partners or other potential sources. The Company's ability to raise future capital on acceptable terms is dependent on conditions in the public and private equity markets and the performance of the Company, as well as the overall performance of other companies in the biopharmaceutical and 26 27 biotechnology sectors. There can be no assurance that required future financing arrangements will be available on acceptable terms, or at all. LIMITED CLINICAL AND REGULATORY COMPLIANCE CAPABILITIES. The Company has limited resources in the areas of product testing and regulatory compliance, and thus will have to expend capital to acquire and expand such capabilities, reach collaborative arrangements with third parties to provide these capabilities or contract with third parties to provide these capabilities in order to carry its products through the necessary regulatory approvals and prepare its product candidates for commercialization and marketing. REIMBURSEMENT UNCERTAINTY. Sales of the Company's product candidates will depend in part on the availability of reimbursement from third-party health care payors, such as government and private insurance plans. Reimbursement policies for GLIADEL remain uncertain. No assurance can be given that any reimbursement will be available at all or will be available at price levels sufficient to realize an appropriate return on the Company's investment in GLIADEL or other products in development. RISK OF PRODUCT LIABILITY. The Company may potentially become subject to large liability claims and significant defense costs as a result of the design, manufacture or marketing of, or the conduct of clinical trials involving, its products. A product liability related claim or recall could have a material adverse effect on the Company. The Company currently maintains only $10 million of product liability insurance covering clinical trials and product sales, and there can be no assurance that such or any future insurance coverage obtained by the Company will be adequate or that claims, if any, will be covered by the Company's insurance. Product liability insurance varies in cost, can be difficult to obtain and may not be available in the future on terms acceptable to the Company, if at all. An inability to obtain or maintain sufficient insurance coverage at an acceptable cost or otherwise protect against potential product liability claims could prevent or inhibit the clinical development and/or commercialization of any products developed by the Company. DEPENDENCE ON QUALIFIED PERSONNEL AND CONSULTANTS. The Company is highly dependent on the principal members of its management and scientific staff, including the Company's Chief Executive Officer, Craig R. Smith, M.D., and member of the Company's Board of Directors and Chairman of the Company's Scientific Advisory Board, Solomon H. Snyder, M.D. The loss by the Company of the services of either of these individuals or other members of its senior management could have a material adverse effect on the Company's business, financial condition and results of operations. Although the Company has entered into a consulting agreement with Dr. Snyder and an employment agreement with Dr. Smith that provide for the protection of the Company's proprietary rights, either Dr. Snyder or Dr. Smith may terminate his relationship with the Company at any time. Accordingly, there can be no assurance that either of these individuals or other employees or consultants will remain with the Company or that, in the future, these employees or consultants will not organize, or become employed by or associated with companies competitive with the Company. The Company's planned activities will require individuals with expertise in many areas including, without limitation, preclinical testing, clinical trial management, regulatory affairs, manufacturing and business development. These activities will require the addition of new personnel, including management personnel and the development of additional expertise by existing management personnel. Recruiting and retaining qualified personnel, collaborators, advisors and consultants will be critical to the Company's activities, and there can be no assurance that the Company will be able to attract and retain the personnel necessary for the development of the Company's business. There is significant competition for experienced scientists from numerous pharmaceutical, biotechnology and health care companies and academic and other research institutions. The inability to hire such personnel or to develop such expertise could have a material adverse effect on the Company's operations. In addition, the Company is dependent on collaborators at research institutions and its Scientific Advisory Board members and consultants. LACK OF SALES AND MARKETING EXPERIENCE. The Company currently has not established a sales force, and the Company has no experience in marketing or selling a product in a commercial setting. In the event the Company decides to establish an in-house sales force, there can be no assurance its efforts will be successful. In addition, if the Company succeeds in bringing additional products to market, it will compete with many other companies that currently have extensive and well-funded marketing and sales operations. There can be no assurance that the Company's marketing and sales efforts would compete successfully against such other companies. HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS; ANIMAL TESTING. Research and development processes sponsored by the Company involve the controlled use of hazardous and radioactive materials. The Company and its collaborative partners are subject to international, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous and radioactive materials. The Company believes that the safety procedures relating to its in-house research and development and manufacturing efforts comply in all material respects with the standards prescribed by such laws and regulations. However, the risk of accidental contamination or injury from these materials cannot be completely eliminated. Moreover, there can be no assurance that the Company's collaborative partners are in compliance with such standards or that the Company and its collaborative partners will be in compliance with such standards in the future. In such event, the business, operations or finances of the Company may be materially adversely affected, and the Company and/or its collaborative partners could be held liable for damages, fines or other 27 28 liability, and any such liability could exceed the resources of the Company. Although the Company believes that it is and will continue to be in compliance in all material respects with applicable environmental laws and regulations and currently does not expect to make material capital expenditures for environmental control facilities in the near term, there can be no assurance that the Company will not be required to incur significant costs to comply with environmental laws and regulations in the future or that the operations, business or assets of the Company will not be materially adversely affected by current or future environmental laws or regulations. In addition, much of the research and development efforts sponsored by the Company involves use of laboratory animals. The Company may be adversely affected by changes in laws, regulations or accepted clinical procedures or by social pressures that would restrict the use of animals in testing or by actions against the Company or its collaborators by groups or individuals opposed to such testing. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION AND EXCHANGE RIGHTS. As of March 17, 1998, the Company had approximately 19,445,145 shares of common stock outstanding. As of that date, there were options to purchase approximately an aggregate of 3,139,288 shares of common stock and warrants to purchase 1,012,934 shares outstanding. A significant portion of the outstanding common stock and shares issuable upon exercise of outstanding options are freely tradable. Holders of the Company's common stock and warrants (representing approximately an aggregate of 1,853,029 shares), including Amgen, have demand and/or piggyback registration rights. The foregoing registration rights may be exercised at any time and would permit the resale of some or all of such shares in the public market. If the Company were required to include shares in a Company-initiated registration pursuant to the exercise of registration rights, the sale of such shares could have a material adverse effect on the Company's ability to raise additional capital. No prediction can be made as to the effect, if any, that sales of shares of the Company's common stock or the availability of such shares for sale will have on the market prices of the common stock of the Company prevailing from time to time. The possibility that substantial amounts of the Company's common stock may be sold in the public market may adversely affect prevailing market prices for its common stock and could impair the Company's ability to raise capital through the sale of its equity securities. ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK. The Company's Amended and Restated Certificate of Incorporation, as amended, and the Delaware General Corporation Law contain certain provisions, including the requirements of Section 203 of the Delaware General Corporation Law, that may delay or prevent an attempt by a third party to acquire control of the Company. The Company has adopted a stockholder rights plan intended to deter hostile or coercive attempts to acquire the Company through the distribution of rights to stockholders enabling those stockholders to acquire shares of the Company's common stock, or that of an acquirer, at a substantial discount to the public market price should any person or group acquire more than 20% of the Company's common stock without approval of the Board of Directors under certain circumstances. The Company has reserved 300,000 shares of Series A Junior Participating Preferred Stock for issuance in connection with the stockholder rights plan. The Company is authorized to issue an additional 4,700,000 shares of Preferred stock in one or more series, having terms fixed by the Board of Directors without a stockholder vote. No shares of preferred stock of the Company are currently outstanding. While the Board of Directors has no current intentions or plans to issue any Preferred Stock, issuance of these shares could also be used as an anti-takeover device. ABSENCE OF DIVIDENDS. The Company has never declared or paid any cash dividends on its common stock and does not intend to do so for the foreseeable future. In addition, the Company is prohibited from paying any cash dividends under the terms of its current loan and lease agreements. YEAR 2000 COMPLIANCE. The Company uses a significant number of computer software programs and operating systems in its internal operations, including applications used in financial business systems, manufacturing processes and various administrative functions. To the extent that these systems contain source code that is unable to appropriately interpret the upcoming calendar year "2000", some level of modification or even the possible replacement of such source code or application may be necessary. The Company is in the process of identifying the software applications that may not be "Year 2000" compliant. Based upon the information known at this time about the Company's current systems, there can be no assurance that the Company will be able to address the "Year 2000" issues in a timely manner. 28 29 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is listed on the Nasdaq(R) National Market under the symbol "GLFD." The following table sets forth the range of high and low sale prices for the Common Stock as reported on the Nasdaq(R) National Market for the periods indicated below.
High Low ---- --- 1995 First Quarter . . . . . . . . . . . . . . . . $ 4.25 $ 2.96 Second Quarter . . . . . . . . . . . . . . . . 4.25 3.17 Third Quarter . . . . . . . . . . . . . . . . 9.42 4.17 Fourth Quarter . . . . . . . . . . . . . . . . 11.00 7.50 1996 First Quarter . . . . . . . . . . . . . . . . 16.58 10.33 Second Quarter . . . . . . . . . . . . . . . . 23.83 13.33 Third Quarter . . . . . . . . . . . . . . . . 19.92 11.58 Fourth Quarter . . . . . . . . . . . . . . . . 23.25 16.50 1997 First Quarter . . . . . . . . . . . . . . . . 29.00 20.75 Second Quarter . . . . . . . . . . . . . . . . 27.00 20.25 Third Quarter . . . . . . . . . . . . . . . . 30.63 20.75 Fourth Quarter . . . . . . . . . . . . . . . . 32.00 18.38 1998 First Quarter (through March 17, 1998) . . . . 23.75 17.63
As of March 17, 1998, there were approximately 196 holders of record of the Company's common stock and in excess of 400 beneficial stockholders. The Company has never declared or paid any cash dividends and does not intend to do so for the foreseeable future. The Company currently intends to retain all earnings, if any, to finance the development of its business. Under the Company's various loan and lease agreements with certain financial institutions, the Company may not declare, during the term of these agreements, any cash dividends on its common stock without the prior written consent of these financial institutions and, in certain cases, the Maryland Industrial Development Financing Authority. 29 30 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. The following selected consolidated financial data with respect to the Company for the period from inception on July 14, 1993 through December 31, 1993 and for each of the years in the four year period ended December 31, 1997 have been derived from the Company's consolidated financial statements which have been audited by KPMG Peat Marwick LLP, the Company's independent auditors. The Company's consolidated financial statements as of December 31, 1996 and 1997, and for each of the years in the three year period ended December 31, 1997, including the Notes thereto, are included elsewhere in this annual report. The information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
JULY 14, 1993 (DATE OF INCEPTION) YEARS ENDED DECEMBER 31, TO DECEMBER 31, ------------------------------------------------------------- 1993 1994 1995 1996 1997 ------------------ ------------- ------------- ------------- ------------ STATEMENT OF OPERATIONS DATA: Total revenues................ $ -- $ -- $ 586 $28,020 $23,828 Costs and Expenses: Cost of sales -- -- -- -- 2,585 Research and development................... 1,061 2,869 9,688 18,761 30,293 General and administrative................ 367 2,369 4,367 6,736 9.076 Compensation -- warrants........ -- 991 -- -- -- ------------------ ------------- ------------- ------------- ------------ Total costs and expenses................. 1,428 6,229 14,055 25,497 41,954 ------------------ ------------- ------------- ------------- ------------ Operating income (loss) ........ (1,428) (6,229) (13,469) 2,523 (18,126) Other income (expense), net......................... 15 332 832 2,550 6,689 ------------------ ------------- ------------- ------------- ------------ Net income (loss)............. $(1,413) $(5,897) $ (12,637) $ 5,073 $ (11,437) ------------------ ------------- ------------- ------------- ------------ Basic earnings (loss) per common share (1)............. $ (0.67) $ (1.45) $ (1.72) $ 0.39 $ (0.65) ------------------ ------------- ------------- ------------- ------------ Average common shares outstanding (1).............. 2,111 4,067 7,354 13,001 17,570 Diluted earnings (loss) per common share (1)......... $ (0.67) $ (1.45) $ (1.72) $ 0.35 $ (0.65) ------------------ ------------- ------------- ------------- ------------ Average common and dilutive equivalent shares outstanding (1).............. 2,111 4,067 7,354 14,634 17,570
DECEMBER 31, --------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ------------------ ------------- ------------- ------------- ------------ BALANCE SHEET DATA: Cash, cash equivalents and investments (2) ................ $2,562 $11,834 $19,454 $77,439 $160,219 Total assets (2).................. 3,258 14,562 26,048 93,659 180,081 Long-term debt.................... -- 1,431 4,696 10,905 10,926 Total stockholders' equity........ 2,887 11,421 17,773 75,877 158,294
- ---------- (1) For information concerning the calculation of earnings (loss) per share, see Note 2 of Notes to Consolidated Financial Statements. (2) Includes restricted investments of $1.2 million, $3.6 million, $10.1 million, and $12.1 million at December 31, 1994, 1995, 1996 and December 31, 1997, respectively. See Note 6 of Notes to Consolidated Financial Statements. 30 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this annual report. The forward-looking statements contained in this annual report, include, but are not limited to, those concerning application for international regulatory clearances and labeling expansion for GLIADEL, polymer product line extensions, the commencement and completion of the research program relating to the Company's FKBP-based neuroimmunophilin ligand technology and other technologies, clinical development activities, including without limitation commencement and conduct of clinical trials related to GLIADEL, the Company's strategic plans, anticipated expenditures and the need for additional funds, all of which involve significant risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section herein captioned "Risk Factors" and elsewhere in this annual report. GENERAL Guilford is a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery products for the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic products for neurological diseases and conditions. The Company anticipates that its future revenues will come primarily from two sources: (i) transfer payments and/or royalties related to sales of GLIADEL and other products that may be developed in the future, including products developed under the Amgen collaboration, and (ii) milestone, rights and other payments made under the Company's current and any future collaboration agreements relating to the research, development and/or commercialization of the Company's technologies. The Company is eligible for certain milestone and other payments in the future under its collaborations with RPR and Amgen if certain regulatory and/or development objectives are attained and views these potential payments as significant future revenue opportunities. As noted in the section herein captioned "Risk Factors" and elsewhere in this annual report, there can be no assurance, however, that the Company will be successful in its efforts to enter into future collaborations for the research, development and/or commercialization of its technologies or will receive any or all of the milestone payments for which it is eligible under its existing or any future collaborations. Through December 31, 1996, substantially all the Company's revenues had been recognized as non-refundable research and development or rights and milestone payments under the Company's collaborations. While the Company reported net income of $5.1 million for fiscal 1996, the Company incurred net operating losses from its inception through the first quarter of 1996 and again in the fourth quarter of 1996. For the year ended December 31, 1997, the Company incurred a net loss of $11.4 million. Through December 31, 1997, the Company had an accumulated deficit of $26.3 million. In addition to revenues related to GLIADEL, the Company's only other significant revenues recognized in fiscal year 1997 consist of the one-time, non-refundable signing fee of $15 million from Amgen and $1.125 million in payments from Amgen related to certain research activities conducted at Guilford. Pursuant to the Amgen Agreements, effective October 1, 1997, Amgen agreed to pay up to $13.5 million in the aggregate, payable quarterly over three years, to support research activities at the Company relating to the Neuroimmunophilin Technology, with an option to fund a fourth year of research, or under certain conditions, to terminate the research program after two years. In addition, in the future the Company may be entitled to certain non-refundable, milestone payments in the event certain development milestones are achieved by Amgen and to royalties on future product sales, if any. As noted in the section herein captioned "Risk Factors" and elsewhere in this annual report, whether the Company will ever recognize future revenues in the form of milestone payments and royalties under the Amgen Agreement is subject to significant risk and uncertainty, and there can be no assurance that the Company will recognize significant revenues, if any, from these sources in the future. The Company was not profitable in 1997, and there can be no assurance that the Company will ever achieve or sustain profitability in the future. Furthermore, the Company expects to experience quarter-to-quarter and year-to-year fluctuations in its operating results based upon the timing and amount of sales of GLIADEL, the timing and realization of milestone and other payments under the Company's agreements with RPR and Amgen and other existing and potential collaborations, expenditures relating to the Company's research and development, clinical and manufacturing activities, and the extent and timing of costs related to the Company's patenting activities and other activities undertaken in connection with the preservation and extension of the Company's intellectual property rights. The Company expects that expenses related to research and product development, preclinical testing, clinical trials, regulatory matters, operations, manufacturing and general and administrative expenses will continue to increase as the Company commercializes GLIADEL through its marketing partners and conducts research and development activities to develop its other technologies and potential products. The Company has experienced substantial personnel growth since its inception. At December 31, 1997 the Company had 198 full-time employees as compared to 140 full-time employees at December 31, 1996. The Company's ability to achieve consistent profitability in 31 32 the future will depend, among other things, upon future sales of GLIADEL as well as the Company's ability, either alone or with others, to develop its product candidates successfully including any product candidates identified pursuant to activities under the collaboration with Amgen, conduct clinical trials, obtain required regulatory clearances, manufacture at reasonable cost and successfully market its product candidates and enter into collaborative arrangements and license agreements on acceptable terms. For discussion of these and other risks, see the section herein captioned "Risk Factors". RESULTS OF OPERATIONS Years Ended December 31, 1997, 1996 and 1995 In 1997, the Company recognized $23.8 million in revenues, consisting primarily of the one-time, non-refundable signing payment of $15 million from Amgen, $1.125 million from Amgen to fund research at Guilford related to the Neuroimmunophilin Technology, and revenues from product sales and royalties relating to GLIADEL as well as amounts reimbursed by RPR relating to the Company's efforts to develop a high dose GLIADEL product. In 1996, the Company recognized $28.0 million in revenues, primarily consisting of a total of $27.5 million in non-recurring milestone payments made by RPR in June and September 1996. In 1995, the Company recognized $0.6 million in revenues, primarily consisting of a non-refundable license fee payment pursuant to the Company's agreement with DRL related to DOPASCAN. Revenues from GLIADEL sales consist of two main components: (i) transfer price payments related to sales of product directly to RPR and (ii) royalty payments made by RPR to the Company on product sales to end-users. GLIADEL was commercially launched in the United States by RPR on February 25, 1997. The majority of the revenues from GLIADEL in each of the first two quarters of 1997 consisted of transfer price payments related to sales of GLIADEL to RPR in order for RPR to build up an initial inventory of the product. The reduction in revenues related to GLIADEL sales in the second half of 1997 as compared to the first half of 1997 primarily resulted from the reduction in the level of transfer payments made by RPR from $3.8 million in the first half of 1997 to $1.9 million in the second half of 1997, reflecting a stabilization in RPR's current inventory requirements for GLIADEL. This decrease in GLIADEL revenues was partially offset by an increase in royalties recognized on end-user sales from $650,000 in royalties in the first half of 1997 to $972,000 in the second half of 1997. As noted in the section herein captioned "Risk Factors" and elsewhere in this annual report, future GLIADEL sales are subject to a number of risks and uncertainties, and there can be no assurance that GLIADEL sales will generate significant revenues for the Company. Cost of sales for the year ended December 31, 1997 were $2.6 million. Included in this amount is approximately $281,000 representing royalty payments made to a third party from which the Company has licensed certain technologies related to GLIADEL and certain costs specifically related to the commercial product launch of GLIADEL in the United States. As GLIADEL was commercially launched in the United States in February 1997, the Company did not incur cost of sales prior to 1997. To the extent GLIADEL production levels increase, the Company expects that per unit product costs may decrease as economies of scale are achieved. There can be no assurance, however, that GLIADEL product sales will ever reach levels necessary for the Company to realize significant costs savings related to manufacturing economies of scale. Research and development expenses increased to $30.3 million as compared to $18.8 million in 1996 and $9.7 million in 1995. The increase of $11.5 million in research and development costs from 1996 to 1997 was primarily attributable to expenses related to increased personnel costs, contracted research, consulting, laboratory supplies, and in addition royalties owed to a third-party licensor of certain technology relating to contract revenues recognized under the Amgen Agreements. In 1997, the Company continued to accelerate its neuroimmunophilin, pre-synaptic glutamate inhibitor, polymer, and other research and development programs, continued to fund development activities at the third party manufacturer for DOPASCAN, and continued with Phase I clinical trials for a high dose formulation of GLIADEL. The increase in research and development costs from 1995 to 1996 of $9.1 million was primarily attributable to expenses related to increased personnel costs and contracted research, consulting and laboratory supplies. During 1996, the Company accelerated its neuroimmunophilin, neurotrophic and addictive therapeutics research and development programs, initiated and completed enrollment of a multi-center Phase II clinical trial in the United States for DOPASCAN, finalized preparation of its new drug application for GLIADEL (submitted in February 1996) and prepared for the commercial launch of GLIADEL. In addition, in 1997 and 1996 research and development expenses included charges relating to certain consulting agreements entered into in April 1996, consisting of non-cash compensation expense of $985,000 and $1.2 million, respectively, and cash compensation expense of $244,000 and $135,000, respectively. These agreements are intended to enhance the Company's ability to develop new polymer technologies and products for the delivery of chemotherapeutics in indications where local tumor recurrence is likely and controlled release may be more effective than current therapies. The Company expects it will be required to record varying amounts of non-cash compensation charges in research and development expenses through 2001 relating to these agreements of up to an additional $1.2 million in the aggregate. The Company anticipates that its research and development expenses will continue to increase in future periods. General and administrative expenses increased to $9.1 million in 1997 as compared to $6.7 million in 1996 and $4.4 million in 1995. The increases in general and administrative expenses of $2.4 million from 1996 to 1997 and of $2.3 million from 1995 to 1996 were 32 33 attributable to higher personnel costs related to an increase in the number of employees necessary to support the Company's research and development and commercialization activities. Additionally, indirect personnel costs, including recruiting and relocation costs, have increased as the total number of such employees has increased. Increases in costs related to patenting and other activities related to establishment and preservation of the Company's intellectual property rights and costs related to operations as a public company also contributed to increased general and administrative expenditures over these periods. The Company anticipates that its general and administrative expenses will continue to increase in future periods. Other income and expense relates primarily to interest income and interest expense. Interest income increased to $7.5 million in 1997 compared to $3.1 million in 1996 and $0.8 million in 1995. The increase in 1997 was primarily attributable to an increase in the average invested capital in 1997 as compared to the prior periods. The increase in average invested capital was primarily due to the public sale of the Company's Common Stock in April, 1997, the one-time, non-refundable signing fee of $15 million paid by Amgen in August 1997 and the sale of shares of Company common stock and warrants to Amgen for $20 million consummated in October, 1997. The increase in 1996 as compared to 1995 was primarily attributable to an increase in the average invested capital resulting from the Company's equity offering in March, 1996 and from revenues from RPR. In 1997, 1996 and 1995, the Company incurred interest expense of $0.8 million, $0.5 million and $0.2 million, respectively, relating to borrowings under its loan agreements with First Union (formerly Signet Bank) providing for the construction of manufacturing, administrative and research and development facilities and the purchase of related equipment. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and investments were $160.2 million at December 31, 1997. Included in this amount is $12.1 million of restricted cash held as collateral with respect to certain of the Company's indebtedness. The Company had incurred an accumulated deficit at December 31, 1997 of $26.3 million and expects to continue to incur additional operating losses from time to time in the future. The Company incurred capital expenditures of $6.4 million in 1997 as compared to $9.1 million in 1996 and $3.7 million in 1995. These capital expenditures were related to the construction of the Company's GLIADEL manufacturing facility and related tenant improvements for research and development laboratories and administrative offices. Additionally, other purchases included capital equipment, including laboratory and manufacturing equipment, and computer hardware and software to support the Company's activities. In 1997, the Company utilized its $5.0 million operating lease arrangement with General Electric Capital Corporation to lease certain equipment. In March, 1998, the Company entered into master equipment lease arrangements for up to an aggregate of $10.75 million, pursuant to which the Company expects to lease additional equipment, including computer hardware and software, furniture and fixtures. Depending on the type of equipment covered and certain other factors, the term of any lease entered into under these arrangement can range from two to four years. Such financing, along with the Company's internal resources as well as external sources of funds, is expected to provide for the Company's equipment needs for the foreseeable future. In February 1998, in order to meet the Company's future facilities needs, the Company entered into an operating lease with a trust affiliated with First Union for an approximately 72,500 square foot facility to be constructed on a lot adjacent to the Company's current headquarters in Baltimore, Maryland in order to support the Company's future research, development and administrative activities over the next several years. During the construction period, the Company will act as construction agent for the trust, responsible for performing all duties associated with the development of the property and anticipates that the facility will be ready for occupancy prior to the end of the second quarter of 1999. The lease expires in February, 2005 and the Company anticipates that the lease payments for this facility will not exceed $2.0 million annually. At the expiration of the lease term, the Company has two options under its agreement with the trust. The Company can purchase the property for an amount equal to any and all unamortized acquisition and construction costs as well as accrued but unpaid interest and similar costs incurred by the trust as part of its acquisition and construction activities related to the property (the"Termination Amount"), or the Company can sell the property on behalf of the trust, which is then obligated to apply the proceeds from such sale against repayment of the Termination Amount. If such sale proceeds are insufficient to cover the entire Termination Amount, the Company is then obligated to repay any such shortfall subject to a total cap on such payments equal to 83% of the Termination Amount. In addition, the Company may, with the consent of First Union, enter into a new lease arrangement. The Company has available up to $7.5 million under a loan agreement with RPR respecting expansion of the Company's GLIADEL and polymer manufacturing capacity. As of January 2, 1997, $4.0 million was available under the loan agreement; the remainder is available no earlier than 12 nor later than 18 months following funding of the initial tranche. Any principal amounts borrowed under this loan agreement are due five years from the date borrowed and will carry an interest rate equal to the lowest rate paid by RPR from time to time on its most senior indebtedness. No amounts were outstanding under this loan at December 31, 1997. The Company has not yet determined whether to draw on the capital available under its loan agreement with RPR to fund the expansion of the Company's manufacturing facilities. 33 34 The Company will require substantial funds in order to continue its research and development programs and preclinical and clinical testing, to manufacture and, where applicable, market its products and to meet its future facilities needs. The Company's capital requirements depend on numerous factors, including the progress of its research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative arrangements, the development of collaborative and licensing agreements and other arrangements and the progress of manufacturing scale-up efforts. The Company believes that its existing resources, including the proceeds from the sale of common stock and warrants to Amgen in October, 1997 and the interest earned thereon, will be sufficient to fund the Company's activities for at least the next 12 months. There can be no assurance, however, that changes in the Company's research and development and commercialization plans or other factors affecting the Company's operating expenses including potential acquisitions, and anticipated capital expenditures will not result in the expenditure of these proceeds and the Company's other resources before that time. The Company anticipates that it will fund future capital requirements through a combination of its existing working capital, revenues (including product sales, royalty income, and milestones/licensing fees) generated under its agreements with RPR relating to GLIADEL and Amgen relating to the Neuroimmunophilin Technology, public or private equity or debt financing (as necessary), additional collaborative or other research and development agreements, commercialization and marketing arrangements with corporate partners or other potential sources. The Company's ability to raise future capital on acceptable terms is dependent on conditions in the public and private equity markets and the performance of the Company, as well as the overall performance of other companies in the biopharmaceutical and biotechnology sectors. There can be no assurance that any required future financing arrangements will be available on acceptable terms, or at all. The Company has assessed and continues to assess the impact of the "Year 2000" issue on its reporting systems and operations. The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the century date occurs, date sensitive systems will recognize the year 2000 as 1900 or not at all. This inability to recognize or properly treat the year 2000 may cause the Company's systems to process critical financial and operational information incorrectly. The Company does not expect the costs associated with becoming Year 2000 compliant will be material. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 34 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. GUILFORD PHARMACEUTICALS INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Independent Auditors' Report . . . . . . . . . 36 Consolidated Balance Sheets . . . . . . . . . 37 Consolidated Statements of Operations . . . . 38 Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . 39 Consolidated Statements of Cash Flows . . . . 40 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 41 35 36 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Guilford Pharmaceuticals Inc.: We have audited the accompanying consolidated balance sheets of Guilford Pharmaceuticals Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guilford Pharmaceuticals Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Baltimore, Maryland February 13, 1998 36 37 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data)
DECEMBER 31, 1997 DECEMBER 31, 1996 ---------------------- ---------------------- ASSETS ------ Current assets: Cash and cash equivalents $ 24,980 $ 16,560 Short-term investments 27,946 20,097 Short-term investments - restricted 2,428 1,608 Accounts receivable 606 376 Inventories 1,342 1,533 Other current assets 494 435 ---------------------- ---------------------- Total current assets 57,796 40,609 Investments 95,174 30,653 Investments - restricted 9,691 8,521 Property and equipment, net 17,153 13,455 Other assets 267 421 ---------------------- ---------------------- $ 180,081 $ 93,659 ====================== ====================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 2,743 $ 2,038 Current portion of long-term debt 2,159 1,481 Accrued expenses and other current liabilities 4,834 3,358 Deferred income 1,125 - ---------------------- ---------------------- Total current liabilities 10,861 6,877 Long-term liabilities: Long-term debt, net of current portion 10,926 10,905 ---------------------- ---------------------- Total liabilities 21,787 17,782 Stockholders' equity: Preferred stock, par value $.01 per share Authorized 4,700,000 shares, none issued - - Series A junior participating preferred stock, par value $.01 per share. Authorized 300,000 shares, none issued - - Common stock, par value $.01 per share. Authorized 40,000,000 shares 19,387,946 and 13,979,490 issued and outstanding at December 31, 1997 and December 31, 1996 194 140 Additional paid-in capital 185,205 90,880 Accumulated deficit (26,311) (14,874) Notes receivable on common stock (60) (129) Unrealized gain on available for sale securities 426 62 Treasury stock, at cost (878) - Deferred compensation (282) (202) ---------------------- ---------------------- Total stockholders' equity 158,294 75,877 ---------------------- ---------------------- $ 180,081 $ 93,659 ====================== ======================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 37 38 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Statements Of Operations (in thousands, except share data)
YEAR ENDED DECEMBER 31, 1997 1996 1995 ------------------------------------------------- Revenues: Contract revenues $ 15,000 $ 27,600 $ 556 Net product sales 5,741 - - License fees and royalties 1,628 - - Revenues under collaborative agreements 1,459 420 30 ------------------------------------------------- Total revenues 23,828 28,020 586 Costs and Expenses: Cost of sales 2,585 - - Research and development 30,293 18,761 9,688 General and administrative 9,076 6,736 4,367 ------------------------------------------------- Total costs and expenses 41,954 25,497 14,055 ------------------------------------------------- Operating income (loss) (18,126) 2,523 (13,469) Other income (expense): Interest income 7,477 3,070 823 Interest expense (837) (528) (190) Other income 49 8 199 ------------------------------------------------- Net income (loss) $ (11,437) $ 5,073 $ (12,637) ================================================= Basic earnings (loss) per common share $ (0.65) $ 0.39 $ (1.72) ================================================= Average common shares outstanding 17,570 13,001 7,354 ================================================= Diluted earnings (loss) per common share $ (0.65) $ 0.35 $ (1.72) ================================================= Average common and dilutive equivalent shares outstanding 17,570 14,634 7,354 =================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 38 39 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES
COMMON STOCK ------------ ADDITIONAL NUMBER PAID-IN OF SHARES AMOUNT CAPITAL --------- ------ ------- BALANCE, JANUARY 1, 1995 3,657,315 $ 37 $ 19,048 Issuance of common stock in follow-on public offering at $6.50* per share, net of offering costs 3,000,000 30 17,901 Other issuances of common stock 63,286 1 280 Exercise of warrants by Scios Inc. 72,464 166 Equity proceeds from Gell Pharmaceuticals relating to the put option 726 Amortization of deferred compensation Reduction in notes receivable on common stock Net loss for the year ------------ ------------ -------------- BALANCE, DECEMBER 31, 1995 6,793,065 $ 68 $ 38,121 Issuance of common stock in follow-on public offering at $20.00* per share, net of offering costs 2,300,000 23 42,880 Other issuances of common stock 226,595 2 7,679 Three-for-two stock split 4,659,830 47 (47) Equity proceeds from Gell Pharmaceuticals relating to the put option 1,076 Amortization of stock option compensation 1,171 Amortization of deferred compensation Reduction in notes receivable on common stock Unrealized gain on available for sale securities Net income for the year ------------ ------------ -------------- BALANCE, DECEMBER 31, 1996 13,979,490 $ 140 $ 90,880 Issuance of common stock in follow-on public offering at $20.00 per share, net of offering costs 3,737,500 37 70,429 Other issuances of common stock 1,670,956 17 22,911 Purchase of 9,360 shares of common stock Amortization of stock option compensation 985 Amortization of deferred compensation Reduction in notes receivable on common stock Unrealized gain on available for sale securities Net loss for the year ------------ ------------ -------------- BALANCE, DECEMBER 31, 1997 19,387,946 $ 194 $ 185,205 ============ ============ ============== NOTES UNREALIZED RECEIVABLE GAIN ON ACCUMULATED ON COMMON AVAILABLE FOR DEFICIT STOCK SALE SECURITIES ------- ----- --------------- BALANCE, JANUARY 1, 1995 $ (7,310) $ (149) $ - Issuance of common stock in follow-on public offering at $6.50* per share, net of offering costs Other issuances of common stock Exercise of warrants by Scios Inc. Equity proceeds from Gell Pharmaceuticals relating to the put option Amortization of deferred compensation Reduction in notes receivable on common stock 10 Net loss for the year (12,637) -------------- -------------- -------------- BALANCE, DECEMBER 31, 1995 $ (19,947) $ (139) $ - Issuance of common stock in follow-on public offering at $20.00* per share, net of offering costs Other issuances of common stock Three-for-two stock split Equity proceeds from Gell Pharmaceuticals relating to the put option Amortization of stock option compensation Amortization of deferred compensation Reduction in notes receivable on common stock 10 Unrealized gain on available for sale securities 62 Net income for the year 5,073 -------------- -------------- -------------- BALANCE, DECEMBER 31, 1996 $ (14,874) $ (129) $ 62 Issuance of common stock in follow-on public offering at $20.00 per share, net of offering costs Other issuances of common stock Purchase of 9,360 shares of common stock Amortization of stock option compensation Amortization of deferred compensation Reduction in notes receivable on common stock 69 Unrealized gain on available for sale securities 364 Net loss for the year (11,437) -------------- -------------- -------------- BALANCE, DECEMBER 31, 1997 $ (26,311) $ (60) $ 426 ============== ============== ============== TOTAL TREASURY DEFERRED STOCKHOLDERS' STOCK, AT COST COMPENSATION EQUITY --------------- -------------- -------------- BALANCE, JANUARY 1, 1995 $ - $ (205) $ 11,421 Issuance of common stock in follow-on public offering at $6.50* per share, net of offering costs 17,931 Other issuances of common stock (237) 44 Exercise of warrants by Scios Inc. 166 Equity proceeds from Gell Pharmaceuticals relating to the put option 726 Amortization of deferred compensation 112 112 Reduction in notes receivable on common stock 10 Net loss for the year (12,637) --------------- -------------- -------------- BALANCE, DECEMBER 31, 1995 $ - $ (330) $ 17,773 Issuance of common stock in follow-on public offering at $20.00* per share, net of offering costs 42,903 Other issuances of common stock 7,681 Three-for-two stock split - Equity proceeds from Gell Pharmaceuticals relating to the put option 1,076 Amortization of stock option compensation 1,171 Amortization of deferred compensation 128 128 Reduction in notes receivable on common stock 10 Unrealized gain on available for sale securities 62 Net income for the year 5,073 --------------- -------------- -------------- BALANCE, DECEMBER 31, 1996 $ - $ (202) $ 75,877 Issuance of common stock in follow-on public offering at $20.00 per share, net of offering costs 70,466 Other issuances of common stock (331) 22,597 Purchase of 9,360 shares of common stock (878) (878) Amortization of stock option compensation 985 Amortization of deferred compensation 251 251 Reduction in notes receivable on common stock 69 Unrealized gain on available for sale securities 364 Net loss for the year (11,437) --------------- -------------- -------------- BALANCE, DECEMBER 31, 1997 $ (878) $ (282) $ 158,294 =============== ============== ==============
*Per share prices are pre-stock split SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 39 40 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Statements Of Cash Flows (in thousands)
YEAR ENDED DECEMBER 31, 1997 1996 1995 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (11,437) $ 5,073 $ (12,637) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,735 1,102 567 Noncash compensation expense 1,236 1,309 122 Changes in assets and liabilities: Accounts receivable (230) - - Collaborative research receivable - 180 (556) Inventory 191 (1,533) - Other current assets (59) (144) (177) Other assets 154 (130) 4 Accounts payable 705 398 428 Accrued expenses and other liabilities 1,476 1,712 1,177 Deferred income 1,125 - - ----------------- ---------------- ---------------- Net cash provided by (used in) operating activities (4,104) 7,967 (11,072) ----------------- ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in purchases of property and equipment (6,433) (9,101) (3,706) Maturities of held-to-maturity investments 42,619 48,368 40,071 Maturities of available-for-sale investments 57,499 - - Purchases of held-to-maturity investments (42,249) (56,557) (47,470) Purchases of available-for-sale investments (132,204) (36,076) - Restricted investments 339 (1,358) - ----------------- ---------------- ---------------- Net cash (used in) investing activities (80,429) (54,724) (11,105) ----------------- ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuances of common stock 93,063 50,584 18,113 Purchase of treasury stock (878) - - Proceeds from bond and term loan issuances 1,843 7,867 3,558 Equity proceeds from Gell Pharmaceuticals, Inc. relating to the put option - 1,076 726 Payment of notes receivable on common stock 69 - - Principal payments on bond payable (941) (470) - Principal payments on term loan payable (203) - - ----------------- ---------------- ---------------- Net cash provided by financing activities 92,953 59,057 22,397 ----------------- ---------------- ---------------- Net increase in cash and cash equivalents 8,420 12,300 220 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR 16,560 4,260 4,040 ----------------- ---------------- ---------------- CASH AND CASH EQUIVALENTS AT THE END OF YEAR $ 24,980 $ 16,560 $ 4,260 ================= ================ ================ Supplemental disclosures of cash flow information: Net interest paid $ 828 $ 470 $ 165 Unrealized gain on available-for-sale securities 364 62 - Issued shares of common stock in lieu of cash bonus - - 28 Issuances of common stock to executive officers - - 237 Collateral transferred from unrestricted to restricted investments, net $ 1,170 $ 5,129 $ 2,490 ================= ================ ================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 40 41 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 (1) ORGANIZATION AND BUSINESS ACTIVITIES Guilford Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the "Company") is a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic products for neurological diseases and conditions. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of Guilford Pharmaceuticals Inc. and subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and cash equivalents Highly liquid investments with a maturity of three months or less at the date of purchase are classified as cash equivalents. Investments The Company classifies investments at the time of purchase as either available-for-sale or held-to-maturity. Investments in securities that are classified as available-for-sale are carried at their fair values. Changes in the fair values of available-for-sale securities are recognized as a separate component of stockholders' equity as unrealized gains and losses. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. Held-to-maturity securities are carried at cost adjusted for amortized premium or discount. A decline in the market value of any available-for-sale or held to maturity security below cost that is deemed to be other than temporary would result in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividends and interest income are recognized when earned. 41 42 Inventories Inventories are stated at the lower of cost or market. Cost is determined using a weighted-average approach which approximates the first-in, first-out method. Property and equipment Property and equipment are recorded at cost, including interest on funds borrowed to finance construction of real property. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, generally three to seven years for furniture and equipment, and over the shorter of the estimated useful life of leasehold improvements or the related lease term for such improvements. Upon the disposition of assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statements of operation. Expenditures for repairs and maintenance are expensed as incurred. Revenue recognition Product sales are recognized at the time the product is certified and shipped. Title of the goods passes to the buyer upon shipment. Sales are reported net of estimated discounts, rebates, chargebacks and product returns. Royalty revenue is recognized at such time as the Company's sales, marketing and distribution partner(s) ships product(s) and the title passes to third parties. Collaborative research revenue is recognized, up to the contractual limits, when the Company meets its performance obligations under the respective agreements. Contract and non-refundable licensing revenue is recognized when milestones are met and the Company's significant performance obligations have been satisfied in accordance with the terms of the respective agreements. Payments received that relate to future performance are deferred and recognized as revenue at the time such future performance has been accomplished. Research and development, patent and royalty costs Research and development, patent, and royalty costs are expensed as incurred. Royalty expense related to product sales is recognized concurrently with the recognition of product revenue and included as part of cost of sales. Royalty expense from third party sales is expensed as incurred and is offset against royalty revenue related to third party sales. Accounting for income taxes Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are not expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. 42 43 Stock-based compensation Prior to January 1, 1996, the Company accounted for its share option plans in accordance with the provisions of APB No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. As such, compensation expense is recorded on the date of grant if the market value at the date of grant exceeds the exercise price. Compensation expense is amortized and charged against earnings over the respective vesting periods. Under the Company's share option plans, share options are granted to employees at an exercise price that equals the current fair market value at the date of grant. On January 1, 1996, the Company adopted the SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which permits companies to continue to apply the provisions of APB 25 related to employee share options. Under SFAS 123, the Company is required to provide pro forma net earnings (loss) and pro forma earnings (loss) per share footnote disclosures for employee stock option grants as if the fair-value based method defined in SFAS 123 had been applied. Stock-based awards issued to non-employees are accounted for under the fair-value based method defined in SFAS 123 (see note 11). Earnings (loss) per share Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per Share", which replaces the presentation of Primary and Fully Diluted earnings per share ("EPS") with that of Basic EPS and Diluted EPS. Basic EPS is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The computation of Diluted EPS is similar to Basic EPS except that the weighted-average number of shares outstanding for the period is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive. All prior period EPS data have been restated to reflect Basic and Diluted EPS. The following table presents the computations of basic and diluted EPS:
1997 1996 1995 ---- ---- ---- (in thousands, except share data) Net earnings (loss) applicable to common stockholders $ (11,437) $ 5,073 $ (12,637) ========== ========= ========== Weighted-average shares outstanding 17,570 13,001 7,354 Employee stock options - 751 - Warrants and put options - 882 - ---------- --------- ---------- Dillutive potential common shares - 1,633 - ---------- --------- ---------- Total weighted-average diluted shares (1) 17,570 14,634 7,354 ========== ========= ========== Basic EPS $ (.65) $ .39 $ (1.72) ========== ========= ========== Diluted EPS $ (.65) $ . 35 $ (1.72) ========== ========= ==========
(1) At December 31, 1997 and 1995, there were 1,692,458 and 539,075 instruments, respectively, that were considered antidilutive and accordingly excluded in the above calculation. 43 44 Impairment of long-lived assets The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Such asset is deemed impaired and written down to its fair value if expected future cash flows are less than its carrying amount. Fair value of financial instruments The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. The fair values of financial instruments approximate their recorded value. Concentration of credit risk The Company invests excess cash in accordance with a policy objective that seeks to preserve both liquidity and safety of principal. The policy limits investments to certain instruments issued by institutions with strong investment grade credit ratings at the time of purchase and places restrictions on their terms and concentrations by type and issuer. The Company has not realized any significant losses on its investments. Year 2000 date conversion The Company has established policies and procedures for the identification, evaluation, and implementation of potential changes to existing systems and applications necessary to achieve a year 2000 date conversion with no disruption to business operations. Management does not believe that costs associated with the conversion will be material to the results of operations or financial position of the Company. Uncertainties The Company is subject to certain risks common to companies within the biotechnology industry. These include, but are not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, estimation by the Company of the size and characteristics of the market for the Company's product(s), acceptance of the Company's product(s), health care containment initiatives and product liability and compliance with government regulations and agencies, including the U.S. Food and Drug Administration. Use of estimates The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 44 45 Significant Customer and Product The Company sells only one product, GLIADEL, a novel treatment for recurrent malignant gliablastome multiforme, the most fatal form of brain cancer. The Company markets, sells and distributes its product through two customers who are larger pharmaceutical companies. In 1997, approximately 98% of sales were with one of these customers. The Company expects that future sales will also be derived largely from the same customer and will be relying upon that customer's ability to obtain regulatory clearance where necessary and then market, sell and distribute the product. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. . 45 46 (3) INVESTMENTS Investments in marketable securities as of December 31, 1997 and 1996 are as follows:
Gross Gross Unrealized Unrealized Holding Holding Fair 1997 Costs Gains Losses Value ---- ----- ----- ------ ----- (in thousands) Available-for-sale: U.S. Treasury Securities $ 97,499 $ 458 $ (89) $ 97,868 Corporate Debt Securities 6,990 13 (5) 6,998 Other Debt Securities 6,292 49 - 6,341 --------- -------- --------- --------- $ 110,781 $ 520 $ (94) $ 111,207 --------- -------- --------- --------- Held-to-maturity: U.S. Treasury Securities $ 20,162 $ 24 $ (4) $ 20,182 Corporate Debt Securities 3,870 7 (4) 3,873 --------- -------- --------- --------- $ 24,032 $ 31 $ (8) $ 24,055 --------- -------- --------- --------- $ 134,813 $ 551 $ (102) $ 135,262 ========= ======== ========= ========= 1996 ---- Available-for-sale: U.S. Treasury Securities $ 33,459 $ 167 $ (106) $ 33,520 Corporate Debt Securities 1,190 4 (1) 1,193 Other Debt Securities 1,427 13 (15) 1,425 --------- -------- --------- --------- $ 36,076 $ 184 $ (122) $ 36,138 --------- -------- --------- --------- Held-to-maturity: U.S. Treasury Securities $ 23,051 $ 83 $ (88) $ 23,046 Corporate Debt Securities 1,690 18 (2) 1,706 --------- -------- --------- --------- $ 24,741 $ 101 $ (90) $ 24,752 --------- -------- --------- --------- $ 60,817 $ 285 $ (212) $ 60,890 ========= ======== ========= =========
46 47 Maturities of debt securities classified as available-for-sale and held-to-maturity were as follows at December 31, 1997 and 1996 (maturities of mortgage-backed securities and collateralized mortgage obligations have been presented based upon estimated cash flows, assuming no change in the current interest rate environment):
December 31, 1997 December 31, 1996 ----------------- ----------------- Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- (in thousands) (in thousands) Available-for-sale Due in 1 year or less $ 10,584 $ 10,572 $ 9,177 $ 9,291 Due in 1-2 years 41,489 41,694 14,945 14,885 Due in 2-5 years 58,708 58,941 11,954 11,962 --------- --------- -------- -------- $ 110,781 $ 111,207 $ 36,076 $ 36,138 --------- --------- -------- -------- Held-to-maturity Due in 1 year or less $ 22,009 $ 22,033 $ 20,935 $ 20,975 Due in 1-2 years 2,023 2,022 3,806 3,777 --------- --------- -------- -------- $ 24,032 $ 24,055 $ 24,741 $ 24,752 --------- --------- -------- -------- $ 134,813 $ 135,262 $ 60,817 $ 60,890 ========= ========= ======== ========
(4) Inventories Inventories are stated at the lower of cost or market. Cost is determined using a weighted-average approach which approximates the first-in, first-out (FIFO) method. Inventories are shown net of applicable reserves and allowances. Inventories consist of the following:
December 31, --------------------- 1997 1996 ------- ------- (in thousands) Inventory: Raw materials $ 386 $ 600 Work in process 497 432 Finished goods 459 501 ------- ------- $ 1,342 $ 1,533 ======= =======
Inventories includes products and materials that may be either available for sale and/or production or utilized internally in the Company's development activities. Inventories identified for development activities are expensed immediately upon designation as intended for such use. 47 48 (5) COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
December 31, ----------------------------- 1997 1996 --------- --------- (in thousands) Property and Equipment: Laboratory equipment $ 4,779 $ 1,322 Manufacturing equipment 2,299 1,677 Computer and office equipment 3,825 2,126 Leasehold improvements 7,773 9,767 Construction in process 2,925 276 --------- --------- $ 21,601 $ 15,168 Less accumulated depreciation and amortization (4,448) (1,713) --------- --------- $ 17,153 $ 13,455 ========= ========= Accrued Expenses and Other Current Liabilities: Consulting and contracted research costs $ 862 $ 935 Legal and professional 665 231 Payroll and related costs 2,000 1,238 Other current liabilities 1,307 954 --------- --------- $ 4,834 $ 3,358 ========= =========
(6) INDEBTEDNESS Long-term debt at December 31, 1997 and 1996 consists of the following:
December 31, -------------------------------- 1997 1996 --------- --------- (in thousands) Borrowings under bond financing arrangement, payable in monthly installments of $78,000, plus interest at LIBOR + .75% (6.75% at December 31,1997), with final payment due December, 2004 $ 6,588 $ 7,530 Borrowings under term loan, payable in monthly installments of $101,515, plus interest at LIBOR + .625% (6.625% at December 31, 1997), with final payment due April, 2003 6,497 4,856 -------- --------- Total long-term debt $ 13,085 $ 12,386 Less current installments (2,159) (1,481) -------- --------- Long-term debt, excluding current installments $ 10,926 $ 10,905 ======== =========
48 49 Bond financing arrangement In 1994, the Company entered into a $8 million bond financing arrangement with a commercial bank. The bond was issued by the Maryland Economic Development Corporation and 50% of the outstanding borrowings are guaranteed by the Maryland Industrial Development Financing Authority. Term loan agreement In 1996, the Company entered into a term loan agreement, as amended, with a commercial bank for up to $6.7 million. During 1997, the Company borrowed $1.8 million, the remaining available principal amount under the term loan agreement. The outstanding principal balance was $6.5 million and $4.9 million at December 31, 1997 and 1996, respectively. Restrictive covenants The aforementioned debt agreements contain restrictions which require the Company to meet certain financial covenants. Under the bond financing arrangement, the Company is required to maintain cash collateral equal to approximately 50% of the outstanding principal balance, $3.2 million and $3.7 million at December 31, 1997 and 1996, respectively. In accordance with the term loan agreement, the Company is required to maintain cash collateral equal to 100% of the outstanding principal balance, $6.5 million and $4.9 million at December 31, 1997 and 1996, respectively. The cash collateral is included in the accompanying consolidated balance sheets as "Investments-restricted". In addition to the cash collateral, the Company may not declare any dividends on its common stock without prior written consent. (7) LEASES The Company has several non-cancelable operating leases for equipment and buildings. Rent expense for operating leases was approximately $1.5 million, $ .7 million and $.5 million at December 31, 1997, 1996 and 1995, respectively. The Company's future minimum lease payments under these non-cancelable operating leases for years subsequent to December 31, 1997 are as follows:
Amount Year (in thousands) -------------- -------------- 1998 $ 2,165 1999 1,712 2000 1,146 2001 486 2002 306 Beyond 2002 790 ------- $ 6,605 =======
49 50 Included in the data presented above is a Master Lease Agreement ("Master Agreement"), which agreement expired December 31, 1997, for financing certain equipment up to a maximum of $5 million. Each equipment lease the Company executes under the Master Agreement is for a term of 49 months and requires the Company to post an irrevocable letter of credit equal to 70% of the equipment cost covered by each lease as collateral. Under the terms of the Master Agreement, the percentage of collateral required for each lease is reduced at the anniversary of each such equipment lease. The Company had leased $3.4 million and $2.0 million in equipment as of December 31, 1997 and 1996, respectively. All of the equipment leased under these agreements has been accounted for as operating leases. The Company had set aside $2.4 million and $1.4 million as collateral to support the letters of credit at December 31, 1997 and 1996, respectively. The collateral is included in the accompanying consolidated balance sheets under "Short-term investments-restricted". Also included above, is a Master Lease Arrangement, related to the land and building which the Company presently occupies, which expires in July 2005 with options to renew for two five-year periods. The Company has the option to purchase the building after the ninth year for its then current fair market value. In addition, the Company has several short-term (18 months or less) leases to support current research and development activities. The annual minimum facility rents aggregate approximately $1.3 million. In January 1998, the Company entered into a new Master Agreement to finance up to $10 million of additional capital equipment. The agreement is effective until December 31, 1999 (see note 17). (8) INCOME TAXES As of December 31, 1997, the Company had net operating loss ("NOL") carryforwards available for federal income tax purposes of approximately $23 million, which expire at various dates between 2008 to 2012, including approximately $1.7 million acquired in a tax free stock transaction from GELL Pharmaceuticals Inc. in 1997. NOL carryforwards are subject to ownership change limitations and may also be subject to various other limitations on the amounts to be utilized. As of December 31, 1997, the Company had foreign tax credit carryforwards of approximately $61,000 expiring in 2000 and 2001, and general business tax credit carryforwards of approximately $1.7 million expiring between 2008 and 2012. Actual income tax expense differs from the expected income tax expense computed at the effective federal rate as follows:
1997 1996 1995 -------- --------- ---------- (in thousands) Computed "expected" tax expense at statutory rate $(3,889) $1,725 $ (4,296) State income tax, net of federal benefit ( 515) 230 ( 567) Research collaboration revenue - 557 - Compensatory stock awards (373) - - Change in valuation allowance increase (decrease) 4,734 (2,552) 4,849 Other 43 40 14 ------- ------- -------- $ - $ - $ - ======= ======= ========
50 51 Realization of net deferred tax assets related to the Company's NOL carryforwards and other items is dependent on future earnings, which are uncertain. Accordingly, a valuation allowance has been established equal to net deferred tax assets which are not likely to be realized in the future, resulting in net deferred tax assets of approximately $138,000 at December 31, 1997. The change in the valuation allowance was an increase of approximately $6.6 million in 1997 and a decrease of approximately $2.6 million in 1996. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1997 and 1996 are shown below.
December 31, ------------------------- 1997 1996 -------- --------- (in thousands) Deferred tax assets: Net operating loss carryforwards $ 8,869 $ 3,971 Research and experimentation credits 1,710 450 Compensatory stock grants 1,228 861 Alternative minimum tax credit carryforwards 138 179 Accrued expenses 403 257 Contribution carryover and capitalized start-up costs 51 38 -------- -------- 12,399 5,756 Deferred tax liabilities: Prepaid expenses, depreciation and stock gains (215) (153) -------- -------- Net deferred tax assets 12,184 5,603 Valuation allowance (12,046) (5,424) -------- -------- Net deferred tax assets reported $ 138 $ 179 ======== ========
(9) CAPITAL TRANSACTIONS On October 1, 1997, the Company sold 640,095 shares of common stock to Amgen Inc. ("Amgen") for $15 million (see note 13). In addition, the Company issued for $5 million a five-year warrant to purchase up to 700,000 shares of the Company's common stock at an exercise price of $35.15 per share. In April 1997, the Company completed a follow-on public equity offering of approximately 3.7 million shares of its common stock providing net proceeds of approximately $71 million to the Company. On October 15, 1996, the Board of Directors declared a three-for-two stock split. Equity transactions (including number of shares) prior to that date have been adjusted to reflect the stock split. In June 1996, the Company entered into a stock purchase agreement with Rhone-Poulenc Rorer Pharmaceuticals Inc. and its parent corporation (collectively "RPR") (see note 13) whereby, RPR purchased 281,531 shares of the Company's common stock for $7.5 million. In March 1996, the Company completed a follow-on public equity offering of approximately 3.5 million shares of its common stock, providing net proceeds of approximately $43 million to the Company. In August 1995, the Company completed a follow-on public offering of approximately 4.5 million shares of common stock, providing net proceeds of approximately $18 million to the Company. 51 52 (10) STOCKHOLDER RIGHTS PLAN In September 1995, the Board of Directors adopted a Stockholder Rights Plan in which preferred stock purchase rights ("Rights") were granted at the rate of one Right for each share of common stock. All rights expire on October 10, 2005. At December 31, 1997, the Rights were neither exercisable nor traded separately from the Company's common stock, and become exercisable only if a person or group becomes the beneficial owner of 20% or more of the Company's common stock or announces a tender or exchange offer which would result in its ownership of 20% or more of the Company's common stock. Each holder of a Right, other than the acquiring person, would be entitled to purchase $120 worth of common stock of the Company for each Right at the exercise price of $60 per Right, which would effectively enable such Rights holders to purchase common stock at one-half of the then current price. If the Company is acquired in a merger, or 50% or more of the Company's assets are sold in one or more related transactions, each Right would entitle the holder thereof to purchase $120 worth of common stock of the acquiring company at the exercise price of $60 per Right. At any time after a person or group of persons becomes the beneficial owner of 20% or more of the common stock, the Board of Directors, on behalf of all stockholders, may exchange one share of common stock for each Right, other than Rights held by the acquiring person. (11) SHARE OPTION AND RESTRICTED SHARE PLANS The 1993 Employee Share Option and Restricted Share Plan The 1993 Employee Share Option and Restricted Share Plan, as amended, (the "1993 Plan"), was established to provide eligible individuals with an opportunity to acquire or increase an equity interest in the Company and to encourage such individuals to continue in the employment of the Company. Share options are granted at the fair market value of the stock on the day immediately preceding the date of grant or date of initial employment, if later. Share options are exercisable for a period not to exceed ten years from the date of grant. In general, share options vest over four years. Shares awarded under the restricted share provisions of the 1993 Plan are valued at the fair market value of the stock on the day immediately preceding the date of award (date of grant, if later) and require a vesting period determined by the Board of Directors. Should an individual leave the employment of the Company for any reason (other than by reason of death or permanent disability), the award recipient would forfeit their ownership rights for all share options and restricted shares not otherwise fully vested. At December 31, 1997, the maximum share options issuable under the 1993 Plan are 3,435,000, of which up to 300,000 may be issuable under the restricted share provisions. At December 31, 1997, there were 1,299,715 share options available for grant under the 1993 Plan. 52 53 The Directors' Plan The Director's Stock Option Plan (the "Directors' Plan") was established to provide non-employee directors an opportunity to acquire or increase an equity interest in the Company. Under the Directors' Plan, 300,000 shares of common stock are reserved for issuance at an exercise price not less than fair value of the Company's common stock on the day immediately preceding the date of grant. Such share options vest 50% at the end of year one and 100% at the end of year two. Under the Directors' Plan 22,500, 37,500 and 60,000 share options were granted during 1997, 1996 and 1995, respectively. As of December 31, 1997, 120,000 share options were outstanding under the Directors' Plan, of which 78,750 are exercisable as of December 31, 1997. In 1996, the Company granted 120,000 options outside of the Directors' Plan to two directors with an exercise price of $13.54 (market value at date of grant). Approximately 105,000 share options were fully vested in 1997 and the remaining 15,000 share options fully vest in 1998. At December 31, 1997, there were 180,000 share options available for grant under the Directors' Plan. Consultants In 1996, the Company granted share options to each of two consultants to purchase up to 225,000 shares of the Company's common stock, valid for 10 years from issuance, with varying exercise prices. Vesting periods are based on either the passage of time or based upon the achievement of certain milestones, which, if ever achieved, would result in accelerated vesting of up to 150,000 of the aforementioned share options for each consultant, of which 75,300 were exercisable as of December 31, 1997. The Company recognized $985,000 and $1.2 million in non-cash compensation expense in accordance with SFAS 123 relating to the value of such share options (as established using the Black Scholes pricing model) for the years ended December 31, 1997 and 1996, respectively, and it expects to charge varying amounts (up to an additional $1.2 million in the aggregate) of non-cash compensation expense to operations through 2001 relating to such agreements. Additional information with respect to the Company's share option plan(s) activity is summarized as follows:
Weighted - Share Average Options Exercise Price ------------ -------------- Balance, January 1, 1995 221,627 $ 2.09 Granted 586,725 5.28 Exercised (19,565) 0.77 Canceled ( 6,750) 3.75 ---------- --------- Balance, December 31, 1995 782,037 4.47 Granted 1,786,740 15.71 Exercised (58,363) 3.02 Canceled (6,658) 10.82 ---------- --------- Balance, December 31, 1996 2,503,756 12.24 Granted 329,600 25.07 Exercised (262,925) 6.58 Canceled (150,511) 13.29 ---------- --------- Balance, December 31, 1997 2,419,920 $ 14.53 ========== =========
53 54 Share options outstanding and exercisable by price range are as follows:
Options Outstanding Options Exercisable ----------------------------------------------------------------------------- ---------------------------------- Outstanding Weighted Average Weighted- Exercisable Weighted- Range of as of Remaining Average as of Average Exercise Prices Dec. 31, 1997 Contractual Life Exercise Price Dec. 31, 1997 Exercise Price --------------- ----------------- -------------------- ---------------- --------------- -------------- $ 0.00 - $10.00 553,890 7.2 $5.10 326,072 $ 5.39 $10.01 - $20.00 1,486,279 7.8 $15.47 347,172 $15.56 $20.01 - $30.00 379,751 9.3 $24.62 41,250 $25.29 ---------- ---- ------ ------- ------ 2,419,920 7.9 $14.53 714,494 $11.48 ========= ==== ====== ======= ======
Pro forma option information The per share weighted-average fair value of all share options granted during 1997 and 1996 was $10.00 and $7.21 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1997 expected dividend yield 0%, risk-free interest rate of 6.2%, volatility of 40% and an expected life of 4 years; 1996 expected dividend yield 0%, risk-free interest rate of 6.1%, volatility of 50% and an expected life of 4 years. The per share weighted-average fair value of share options granted during 1996 to consultants was $6.12 using similar assumptions. The Company applies APB 25 in accounting for share options granted to employees and, accordingly, no compensation expense has been recognized related to such share options to the extent that such share options were granted at an exercise price that equaled the fair market value at the grant date. Had the Company determined compensation cost based on the fair value at the grant date for its share options under SFAS 123, (using the Black-Scholes pricing model), the Company's net earnings (loss) would have been reduced (increased) to the pro forma amounts indicated below:
1997 1996 1995 ----------- ----------- ---------- in thousands, (except per share data) Net earnings (loss) As reported ($11,437) $ 5,073 ($12,637) Pro forma ( 12,532) 4,373 ( 12,740) Basic earnings (loss) per share As reported (0.65) 0.39 (1.70) Pro forma (0.71) 0.34 (1.73) Diluted earnings (loss) per share As reported (0.65) 0.35 (1.70) Pro forma (0.71) 0.30 (1.73)
54 55 Pro forma net earnings (loss) reflects only stock option grants beginning in 1995. Accordingly, the full impact of calculating compensation cost for share options under SFAS 123 is not reflected in the pro forma net earnings (loss) amounts presented above since compensation costs for share options granted prior to January 1, 1995 is not considered. (12) 401(k) PROFIT SHARING PLAN The Company has a 401(k) Profit Sharing Plan (the "401(k) Plan") available to all employees meeting certain eligibility criteria which permits participants to contribute up to 15% of their compensation not to exceed the limits established by the Internal Revenue Code. The Company may make "matching contributions" equal to a percentage of a participant's contribution or may contribute a discretionary amount to the Plan. Effective January 1997, the Company has elected to make "matching contributions" in the Company's common stock equal to 50% of the first 6% of an employee's salary contributed to such employees 401(k) Plan account. Such amounts vest 25% per year based on a participant's years of service with the Company. (13) SIGNIFICANT CONTRACTS AND LICENSING AGREEMENTS Agreements with Amgen Inc. In August 1997, the Company entered into an agreement with Amgen (the "Agreement") respecting the research, development and commercialization of the Company's FKBP-based neuroimmunophilin ligand technology ("Neuroimmunophilin Technology") for all human therapeutic and diagnostic applications. Pursuant to the terms of the Agreement, Amgen initially paid the Company an aggregate of $35 million, consisting of a one-time non-refundable payment of $15 million upon the signing of the Agreement and $20 million for 640,095 shares of the Company's common stock and five-year warrants to purchase up to an additional 700,000 shares of the Company's common stock at an exercise price of $35.15 per share. In connection with the sale of these securities, the Company granted Amgen certain demand and "piggyback" registration rights under the applicable securities laws. Under the terms of the Agreement, Amgen agreed to provide the Company up to $13.5 million over three years in the aggregate to support research activities relating to the Neuroimmunophilin Technology, with an option to fund a fourth year of research. Additionally, the Agreement provides for certain milestone payments to the Company, in up to ten different specified clinical indications, in the event Amgen achieves certain development milestones. In addition, the Company will receive royalties on product sales, if any, related to the Neuroimmunophilin Technology. 55 56 Agreements with Rhone-Poulenc Rorer Pharmaceuticals Inc. In June 1996, the Company entered into a Marketing, Sales and Distribution Rights Agreement (together with related agreements, the "RPR Agreements") with RPR granting RPR worldwide marketing rights (excluding Scandinavia) for GLIADEL. The Company received $15 million upon the signing of these agreements ($7.5 million as an equity investment and $7.5 million as a non-refundable rights payment). On September 23, 1996, the Company obtained clearance from the FDA for GLIADEL for recurrent glioblastoma multiforme where surgical tumor removal is indicated and, accordingly, received a $20 million non-refundable milestone payment from RPR. RPR is obligated to make up to $40 million in additional milestone payments, including $7.5 million in the form of an equity investment, only if the Company achieves certain regulatory approvals. In addition, RPR may also fund up to $17 million for the development of a higher-dose GLIADEL product and to fund certain additional clinical studies, if any, related to GLIADEL. The Company manufactures and supplies GLIADEL to RPR and receives a transfer price and royalties based on sales. Under the RPR Agreements, the Company has the right to borrow up to an aggregate of $7.5 million under certain conditions, including $4 million which became available January 2, 1997, and the remainder no earlier than 12 nor later than 18 months following funding of the initial $4 million. The loan proceeds are available to provide for expansion of the Company's existing facility supporting the production of GLIADEL and the construction of a second facility for the scale-up, production of GLIADEL and other polymer systems. Any principal amounts borrowed under this loan agreement are due five years from the date borrowed and will carry an interest rate equal to the lowest rate paid by of RPR on its most senior indebtedness. Both the principal and interest due under this agreement may, at the Company's election, be repaid by offsetting certain amounts due to the Company under the RPR Agreements. The Company has not drawn down any of the available funds under the RPR Agreements. Other contracts and agreements In May 1997, the Company entered into a Development and Supply Agreement (together with related agreements, the "Nordion Agreement") with MDS Nordion Inc. and MDS Nordion S.A. (collectively "Nordion") for the development and the exclusive supply of DOPASCAN (R) Injection ("DOPASCAN") for Phase III clinical trials expected to be conducted by the Company in the United States, Canada and Europe. The Nordion Agreement provides for the Company to make certain milestone payments related to the development work and the purchase of certain manufacturing equipment aggregating up to $2.0 million, of which the Company paid or accrued $1.6 million through December 31, 1997. In October 1995, the Company entered into a license and distribution agreement with Orion Corporation Farmos ("Orion Farmos") respecting sales, marketing and distribution of GLIADEL in Scandinavia and pursuant to which Orion Farmos paid a licensing fee of $100,000 to the Company in 1996. Additionally, the Company will receive both a transfer price on materials shipped to Orion Farmos and royalties on future product sales, if any. 56 57 In December 1995, the Company entered into an agreement with Daiichi Radioisotope Laboratories, Ltd. ("DRL") respecting DOPASCAN in Japan, Taiwan and Korea for which the Company received a one-time non-refundable license fee of $555,000. Under this agreement, the Company will receive a milestone payment upon the filing of the first application for regulatory approval in certain foreign countries. Additionally the Company receives both a transfer price on materials shipped to DRL and royalties on future product sales, if any. The Company has entered into licensing, technology transfer and development agreements with The Johns Hopkins University under which it is required to make certain payments for patent maintenance costs, processing fees, license payments and development payments aggregating approximately $643,000 through 2001. The Company has also agreed to spend $500,000 per year through 2014 with respect to internal research and development activities to develop such technologies and may be required to make certain payments, as defined, to The Johns Hopkins University should agreed-upon milestones be attained. In addition, the Company will be required to pay a royalty on future net sales of all licensed products, if any, as well as a percentage (as defined) of royalties received by the Company from sublicensees, if any. The Company has also entered into various other licensing, research and development agreements which commit the Company to fund certain mutually agreed-upon research and development projects, either on a best efforts basis or upon attainment of certain performance milestones, as defined, or both, for various periods unless canceled by the respective parties. Such future amounts to be paid are approximately $1.9 million through 2001. In addition, the Company will be required to pay a royalty on future net sales of all licensed products, if any, as well as a percentage of all royalties received by the Company from sublicensees, if any. (14) GELL PHARMACEUTICALS INC. In February 1995, the Company and The Abell Foundation, Inc., a Baltimore-based not-for-profit corporation ("Abell"), established Gell Pharmaceuticals Inc. ("Gell"). Gell was formed primarily to track Abell's $2.5 million equity investment that, in substance, was intended to purchase 750,000 shares of the Company's common stock at the transaction date, which shares had an approximate fair market value of $2.4 million. Abell received an 80% equity interest in Gell for $2.5 million with a "put option" to exchange such equity interest for 750,000 shares of common stock of the Company. Guilford received a 20% equity interest for nominal cash consideration and technology "know-how," which had a net carrying value of zero at the transaction date. In March 1997, Abell exercised its put option to receive the 750,000 shares of the Company's common stock in exchange for its 80% interest in Gell. After such date, Gell became a wholly owned subsidiary of the Company and is included in the accompanying consolidated financial statements. 57 58 (15) RELATED PARTY TRANSACTIONS In September 1995, the Company entered into a three year consulting agreement with the Chairman of its Scientific Advisory Board (the "Consultant") who is also a non-employee director, under which the Consultant is to provide consulting and advisory services as requested by the Company. The Company is obligated to pay an annual consulting fee of $150,000 (1st year), $160,000 (2nd year), and $170,000 (3rd year) and has granted the Consultant 90,000 share options at fair market value. These options vest one-third upon each anniversary of the grant date so long as the individual remains a consultant under the agreement. Notes receivable on common stock aggregating $60,000 and $129,750 at December 31, 1997 and 1996, respectively, represent amounts due from officers of the Company and are reflected as a reduction from stockholders' equity. Scios Inc., a significant stockholder, has billed the Company for certain services, equipment purchases, and facility rents related to the Company's research and development activities aggregating $340,835, $295,000 and $233,000 in 1997, 1996 and 1995, respectively. (16) LEGAL MATTERS The Company from time to time is involved in routine legal matters incidental to its normal operations. In management's opinion, the resolution of such matters will not have a material effect on its financial condition or results of operations. (17) SUBSEQUENT EVENT (UNAUDITED) Lease Agreement - Facility In February 1998, the Company entered into several agreements relating to the Company's new research and development facility. The facility, which is expected to be approximately 72,000 square feet, is adjacent to the Company's existing facility in Baltimore and construction costs are estimated not to exceed $20 million in the aggregate. The lease term is for a maximum term of 84 months, which includes a construction period of up to 24 months. Lease Agreement - Equipment In March 1998, the Company entered into Master Lease Agreements to provide up to $10.8 million in computer and equipment financing, the term of which expires on December 31, 1999. The term of each lease may range from 24 to 48 months based upon the type of equipment being financed. 58 59 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 59 60 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's executive officers is contained in Item 1A of Part I. The information concerning the Company's directors and with regard to Item 405 of Regulation S-K is to be contained under the caption "Election of Directors" in the Company's 1998 Proxy Statement, which will be filed no later than 120 days following December 31, 1997, and is hereby incorporated herein by reference. The directors and executive officers of the Company as of March 16, 1998 are as follows:
NAME AGE POSITION ---- --- -------- Craig R. Smith, M.D. 52 Chairman of the Board, President, and Chief Executive Officer John P. Brennan 55 Senior Vice President, Operations Andrew R. Jordan 50 Senior Vice President, Chief Financial Officer and Treasurer David R. Savello, Ph.D. 52 Senior Vice President, Development Nicholas Landekic 39 Vice President, Business Development Thomas C. Seoh 40 Vice President, General Counsel and Secretary Peter D. Suzdak, Ph.D. 39 Vice President, Research William C. Vincek, Ph.D. 50 Vice President, Corporate Quality
ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is hereby incorporated by reference from the information to be contained under the caption "Executive Compensation" in the Company's 1998 Proxy Statement, which will be filed no later than 120 days following December 31, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is hereby incorporated by reference from the information to be contained under the caption "Beneficial Ownership of Common Stock" in the Company's 1998 Proxy Statement, which will be filed no later than 120 days following December 31, 1997. . ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is hereby incorporated by reference from the information to be contained under the caption "Beneficial Ownership of Common Stock" and "Certain Relationships and Related Party Transactions" in the Company's 1998 Proxy Statement, which will be filed no later than 120 days following December 31, 1997. 60 61 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements All required financial statements of the registrant as set forth under Item 8 of this report on Form 10-K. (a)(2) Financial Statement Schedules All schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto. (a)(3) Exhibits The following exhibits are filed with this Form 10-K or incorporated herein by reference to the document set forth next to the exhibit listed below:
EXHIBIT NUMBER DESCRIPTION ------------ ------------------------------------------------------------------------------------ 3.01A(1) Amended and Restated Certificate of Incorporation of the Company. 3.01B(13) Certificate of Amendment to Amended and Restated Certificate of Incorporation 3.02A(1) Amended and Restated By-laws of the Company. 3.02B(2) Amendments to Amended and Restated By-laws of the Company. 4.01(1) Specimen Stock Certificate. 4.02(5) Stockholder Rights Agreement dated September 26, 1995. 10.01A(1) 1993 Employee Share Option and Restricted Share Plan ("Option Plan"). 10.01B(6) (7) Amendments to Option Plan (11) (12) 10.02(1) Series A Preferred Stock Purchase Agreement, dated September 30, 1993, as amended between the Company and holders of its Series A Preferred Stock ("Series A Agreement"). 10.02A(4) Amendment, dated August 25, 1994, to Series A Agreement. 10.02B(3) Amendment, dated February 15, 1995, to Series A Agreement. 10.03(1)+ License Agreement, effective March 18, 1994, between the Company and Research Triangle Institute, a not-for-profit corporation existing under the laws of North Carolina. 10.03A(1) Appendix A to Exhibit 10.04. 10.04(1)+ License Agreement, dated March 15, 1994, between the Company and Scios Nova. 10.05(1) Employment Agreement between the Company and Craig R. Smith, M.D. 10.06(1) Employment Agreement between the Company and Andrew R. Jordan. 10.07(1) Employment Agreement between the Company and John P. Brennan. 10.08(12) Employment Agreement between the Company and David R. Savello, Ph.D. 10.09(14) Employment Agreement between the Company and William C. Vincek, Ph.D. 10.10(3) Employment Agreement between the Company and Peter D. Suzdak. 10.11(3) Employment Agreement between the Company and Nicholas Landekic. 10.12(6) Employment Agreement between the Company and Thomas C. Seoh. 10.13(7) Amendments to certain executive officer employment letter agreements 10.14(1) Restricted Share Agreement, dated February 14, 1994, between the Company and John P. Brennan. 10.15A(1) Consulting Agreement, dated August 1, 1993, as amended on February 28, 1994, between the Company and Solomon H. Snyder, M.D (the "Snyder Consulting Agreement"). 10.15B(8) September 1, 1995 amendment to Snyder Consulting Agreement. 10.15C November 19, 1997 amendment to Snyder Consulting Agreement. 10.16A(1)+ License Agreement, dated December 20, 1993, between the Company and The Johns Hopkins University ("JHU Agreement"). 10.16B(1) Appendix B to JHU Agreement.
61 62 10.17(1) Form of Director and Officer Indemnification Agreement. 10.18(1) Form of Tax Indemnity Agreement. 10.19A(1) Guilford Pharmaceuticals Inc. Directors' Stock Option Plan. 10.19B(7)(13) Amendments to Directors' Stock Option Plan 10.20(4) Lease Agreement, dated August 30, 1994, between Crown Royal, L.P. and the Company. 10.21 (13) Lease Agreement, dated June 9, 1997 between SN Properties, Inc. and the Company ("Freeport Lease"). 10.21A Amendment, dated February 10, 1998, to Freeport Lease. 10.22(6) Subscription and Stockholders Agreement, dated February 17, 1995, among Gell Pharmaceuticals Inc., the Company and the Abell Foundation, Inc. 10.23(3) Exchange and Registration Rights Agreement, dated February 17, 1995, among the Company and the Abell Foundation, Inc., and the several holders named in Appendix I. 10.24(3) Master Services Agreement, dated February 17, 1995, between the Company and Gell Pharmaceuticals Inc. 10.25(3) Loan and Financing Agreement between the Maryland Economic Development Corporation ("MEDCO"), the Company and Signet Bank/Maryland ("Signet"). 10.26(3) Leasehold Deed of Trust by and between the Company and Janice E. Godwin and Ross Chaffin (as trustees) for the benefit of MEDCO and Signet. 10.27A(3) Insurance Agreement between the Maryland Industrial Development Financing Authority and Signet. 10.27B (11) Letter, dated April 2, 1996, amending Insurance Agreement. 10.28(8)+ License Agreement, dated December 9, 1995, by and between the Company and Daiichi Radioisotope Laboratories, Ltd. 10.29(9)+ License and Distribution Agreement, dated October 13, 1995, by and between the Company and Orion Corporation Farmos. 10.30(10)+ DOPASCAN Supply Agreement, dated July 10, 1996, by and among the Company and Nordion International Inc. and Nordion Europe S.A. 10.31 (13) Development and Phase III Clinical Trail Supply Agreement, dated May 22, 1997 between MDS Nordion Inc. and MDS Nordion S.A., on the one hand, and the Company, on the other. 10.32(10)+ Bulk Pharmaceutical Sales Contract, dated September 23, 1994, between the Company and Aerojet-General Corporation. 10.33(10) Equipment Lease, dated September 18, 1996, between the Company and General Electric Capital Corporation 10.34 (11) Term Loan, dated April 30, 1996, as amended on December 6, 1996, by and between the Company and Signet Bank. 10.35(7) Marketing, Sales and Distribution Rights Agreement between Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR"), the Company and GPI Holdings, Inc., dated June 13, 1996. 10.36(7) Manufacturing and Supply Agreement between RPR and the Company, dated June 13, 1996. 10.37(7) Stock Purchase Agreement between the Company and Rhone-Poulenc Rorer Inc. ("RPR Inc."), dated June 13, 1996. 10.38(7) Loan Agreement between the Company and RPR Inc., dated June 13, 1996 10.39 (13) Non-Qualified Stock Option Agreement, dated April 1, 1997, with David R. Savello, Ph.D. 10.40+ Collaboration and License Agreement, dated December 15, 1997 and effective as of August 20, 1997, between Amgen Inc. ("Amgen"), GPI NIL Holdings, Inc. and the Company. 10.41 (14) Stock and Warrant Purchase Agreement, dated October 1, 1997, between Amgen and the Company. 10.42 (14) Registration Rights Agreement, dated October 1, 1997, between Amgen and the Company. 10.43 (14) Warrant, dated October 1, 1997 issued to Amgen 10.44 Security Agreement, dated as of February 5, 1998, between First Secruity Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Trust") and First Union. 10.45 Amended and Restated Trust Agreement, dated as of February 5, 1998 between the Several Holders from time to time parties thereto and the Trust. 10.46 Agency Agreement, dated as of February 5, 1998, between the Company and the Trust. 10.47 Credit Agreement, dated as of February 5, 1998, among the Trust, the Several Holders from time to time parties thereto and First Union.
62 63 10.48 Participation Agreement, dated as of February 5, 1998, among the Company, the Trust, the various and other lending institutions which are parties hereto from time to time, as Holders, the various and other lending institutions which are parties hereto from time to time, as Lenders, and First Union. 10.49 Lease Agreement, dated as of February 5, 1998, between the Trust and the Company. 11.01 Statement re: Computation of Per Share Earnings (See Notes to Consolidated Financial Statements, Note 2) 21.01 Subsidiaries of Registrant 23.01 Consent of KPMG Peat Marwick LLP. 24.01 Power of Attorney (contained in signature page). 27.01 Financial Data Schedule
- ---------- (1) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-76938) declared effective June 16, 1994. (2) Incorporated by reference from the Registrant's Registration Statement on Form S-8 (No. 333-17833) declared effective December 13, 1996. (3) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (4) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (5) Incorporated by reference from the Registrant's Form 8-K filed October 10, 1995. (6) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-94530) declared effective August 16, 1995. (7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. (8) Incorporated by reference from the Registrant's Form 10-K, filed February 23, 1996. (9) Incorporated by reference from the Registrant's Form 10-KA, filed March 4, 1996. (10) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (11) Incorporated by reference from the Registrant's Form 10-K, filed March 7, 1997. (12) Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (13) Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (14) Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. + Confidential treatment of certain portions of these agreements has been granted by the Securities and Exchange Commission. (b) Reports on 8-K: None 63 64 SIGNATURES AND POWER OF ATTORNEY 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. GUILFORD PHARMACEUTICALS INC. March 27, 1998 By: /s/ CRAIG R. SMITH, M.D. ----------------------------------------- Craig R. Smith, M.D. President and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints, Craig R. Smith, M.D., Andrew R. Jordan, Thomas C. Seoh, Jordan P. Karp and Michael J. Silver, and each of them, his or her true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution, from such person and in each person's name, place and stead, in any and all capacities, to sign the report and any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ CRAIG R. SMITH, M.D. Chief Executive Officer, March 27, 1998 ----------------------------------------- President and Director Craig R. Smith, M.D. (Principal Executive Officer) /s/ ANDREW R. JORDAN Sr. Vice President, Chief March 27, 1998 ----------------------------------------- Financial Officer, and Andrew R. Jordan Treasurer (Principal Financial Officer and Principal Accounting Officer) /s/ SOLOMON H. SNYDER, M.D. Director March 27, 1998 ------------------------------------------ Solomon H. Snyder, M.D. /s/ RICHARD L. CASEY Director March 27, 1998 ------------------------------------------ Richard L. Casey /s/ GEORGE L. BUNTING, JR. Director March 27, 1998 ------------------------------------------ George L. Bunting, Jr. /s/ W. LEIGH THOMPSON, M.D., Ph.D. Director March 27, 1998 ------------------------------------------ W. Leigh Thompson, M.D., Ph.D. /s/ ELIZABETH M. GREETHAM Director March 27, 1998 ------------------------------------------ Elizabeth M. Greetham
64 EX-10.15.C 2 NOVEMBER 19, 1997 AMENDMENT TO CONSULTING AGREE. 1 EXHIBIT 10.15C AMENDMENT TO CONSULTING AGREEMENT This AMENDMENT TO CONSULTING AGREEMENT, executed as of the dates set forth below by the signatories hereto, with an effective date of June 7, 1996, is made between Guilford Pharmaceuticals Inc., a Delaware corporation with a principal place of business at 6611 Tributary Street, Baltimore, Maryland 21224 (the "Company"), and Solomon H. Snyder, M.D. (the "Consultant"). WHEREAS, the Company and the Consultant are parties to a Consulting Agreement, dated as September 1, 1995 (the "Agreement"); and WHEREAS, the Consultant's academic institution, The Johns Hopkins University School of Medicine, has requested certain supplemental provisions and a modification to the Agreement; and WHEREAS, the parties hereto agree and consent to such supplemental provisions and modification; NOW, THEREFORE, in consideration of the foregoing and the mutual promises of the parties hereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Consultant hereby agree as follows: 1. The following language shall be added to the end of Section 5 of the Agreement: "The parties acknowledge that the Johns Hopkins University is not a party to this agreement, which is a private contract between the Consultant and the Company." 2. The following language shall be added as a new Section 21 to the end of the Agreement: "21. References to Johns Hopkins. With the limited exception of citing Consultant's faculty title, the Company and its affiliates will not use the names, likenesses, or logos of the Johns Hopkins University, any of its Schools or Divisions, or the Johns Hopkins Hospital and Health System in any of their fundraising or investment documents, general publications, advertisements, or marketing and promotional materials without the prior written permission of the Johns Hopkins University. A request for such permission must be submitted by Consultant to the School of Medicine's Conflict of Interest Review Coordinator, who in appropriate circumstances, will have it reviewed by the School of Medicine's Office of Public Affairs." 2 3. Section 7 of the Agreement is amended and restated in its entirety to read as follows: "7. Assignments; Inventions. The Consultant hereby agrees to use his best efforts without further compensation to assign or to have assigned to the Company all of his right, title and interest in and to, any and all inventions, processes, systems, improvements, modifications, secrets, designs or discoveries, etc., whether or not made, possessed, discovered or conceived by him, individually or jointly with any other person or persons, whether made in or out of working hours, free and clear of all liens, charges and encumbrances, created or conceived by him during the term of this Agreement and patented or reduced to practice within one year thereafter, which relate to the business of the Company and which are not owned by The Johns Hopkins University pursuant to the Johns Hopkins School of Medicine Intellectual Property Guidelines (dated January 1, 1995), a copy of which is attached hereto as Exhibit 1 and incorporated herein by reference (collectively, the "Inventions")." All other terms and provisions of the Agreement continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date and year first above written. GUILFORD PHARMACEUTICALS INC. By /s/Nicholas Landekic /s/ Solomon H. Snyder, M.D. ----------------------------------------- ---------------------------- Name: Nicholas Landekic Solomon H. Snyder, M.D. Title: Vice President, Business Development Date: 11/19/97 Date: 11/19/97 2 EX-10.21.A 3 AMENDMENT, FEBRUARY 10, 1998, TO FREEPORT LEASE 1 EXHIBIT 10.21A FIRST AMENDMENT TO LEASE AGREEMENT The FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") effective as of February 10, 1998, by and between SN Properties Inc., a Delaware corporation having an address of 2450 Bayshore Parkway, Mountain View, California 94043 ("Landlord"), and Guilford Pharmaceuticals Inc., a Delaware corporation having an address of 6611 Tributary Street, Baltimore, Maryland 21223 ("Tenant"). BACKGROUND A. Landlord and Tenant previously entered into a Lease Agreement (the "Lease") dated June 9, 1997 concerning certain space within the building at 6200 Freeport Centre, Baltimore, Maryland. B. Tenant has previously exercised its option to extend the term of the Lease so that it would expire on June 30, 1999. C. The parties hereto desire to amend the Lease to increase the space leased to Tenant, further extend the term of the Lease, and modify the rent as set forth herein and otherwise to clarify certain matters between them. THE PARTIES AGREE HEREBY AS FOLLOWS: 1. Definitions. Except as specifically defined herein, capitalized terms shall have the definition given to them in the Lease. 2. Amendment of Premises. Effective February 10, 1998, the definition of Premises in subparagraph (b) of Section I of the Lease is hereby amended so that the Premises consist of approximately thirty-two thousand seven hundred eight (32,708) square feet (the "Premises Square Footage") has described Article 2 below. Exhibit B of the Lease is amended to be as set forth in Addendum A to this Amendment. Landlord agrees that, in order for Tenant to make its leased space secure from other tenants of Landlord in the remainder of the Building, Tenant may, so long as fire and safety codes permit it, secure the door in hallway near room 123 so that other tenants in the building cannot enter Tenant's space and that Tenant may at Tenant's expense add a similar door in the hallway between rooms 171 and 182. The location of the doors are indicated on Addendum A. Tenant agrees that Landlord shall not be obligated to provide air conditioning or heating to rooms 182, 184, 184A, 190, 190A and192 as shown on Addendum A until such time as the remaining space serviced by the air handler serving such rooms has been leased by Landlord to another tenant. 3. Base Rent. The parties agree that the first paragraph of subparagraph (e) of Section I of the Lease is hereby amended to read in its entirety as follows: (e) Base Rent. During each month of the Lease after the date of this 2 Amendment, Tenant shall pay the Base Rent which is Two Dollars and Twenty-five Cents ($2.25) multiplied by the Premises Square Footage of the Premises (i.e. $73,593 per month). Rent for February, 1998, shall be $61,778.80 reflecting proration for 10 days in the original space and 18 days in the expanded space at the revised rent. 4. Lease Term. The parties agree that Section III of the Lease is hereby amended so that the term of the Lease shall now extend until midnight on July 31, 1999 as to the entire space included in the Premises following this Amendment. 5. Lease Condition of Premises. Tenant has inspected the new areas being added to the Premises and requested that Landlord address the items listed on Addendum B. Landlord agrees to address all items on Addendum B in a timely manner. In particular, the air handling systems and hoods will be energized so that the hoods may be checked prior to February 10 and the flooring and steel plate in the scale-up lab will be repaired prior to February 10. 6. Miscellaneous. Except as otherwise modified by this Amendment, the parties agree that the Lease continues in full force and effect. Landlord and Tenant expressly agree that neither has made any representation or promise with respect to the Premises or the Building except as set forth in the Lease or in the Amendment. This Amendment contains the entire agreement of the parties with respect to the subject matter of this Amendment and supersedes all prior agreements, negotiations, understandings, or discussions between the parties. This Amendment shall be governed by the laws of the jurisdiction in which the Building is located. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first written above. Landlord: Tenant: SN PROPERTIES INC. GUILFORD PHARMACEUTICALS INC. By: /s/ John H. Newman By: /s/ John P. Brennan -------------------------- ---------------------------------- John H. Newman John P. Brennan Vice President Vice President, Operations Attachments: Addendum A -- Floor plan indicating leased premises and common area after the Amendment. Addendum B -- Repair items EX-10.40 4 COLLABORATION AND LICENSE AGREEMENT 1 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. EXHIBIT 10.40 COLLABORATION AND LICENSE AGREEMENT DATED DECEMBER 15, 1997 AND EFFECTIVE AS OF AUGUST 20, 1997 AMONG GUILFORD PHARMACEUTICALS INC. GPI NIL HOLDINGS, INC. AND AMGEN INC. 2 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. TABLE OF CONTENTS
SECTION - ------- PAGE - ---- ARTICLE ONE - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Active Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Additional Indication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Alzheimer's Disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Amgen Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 Category Two Indications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.13 Co-Develop or Co-Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.14 Co-Development Indication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.15 COGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.16 Collaboration Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.17 Combined Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.18 Commercialize or Commercialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.19 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.20 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.21 Competition Impaired Licensed Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.22 Competitive Compounds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.23 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.24 Contract Research Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.25 Controls or Controlled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.26 Co-Promote or Co-Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.27 Co-Promotion Indication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.28 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.29 Develop or Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.30 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.31 Extension Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.32 FDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.33 Field of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.34 FTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.35 First Commercial Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.36 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.37 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.38 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.39 Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.40 Guilford Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.41 Guilford Researcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.42 Guilford Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.43 [*] Indications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.44 IND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.45 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.46 [*] Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.47 [*] License Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.48 Joint Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.49 Joint Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.50 Lead Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.51 Licensed Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.52 Major Market Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.53 Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.54 Milestones or Milestone Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
i 3 1.55 Multiple Sclerosis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.56 NDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.57 Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.58 Neuroimmunophilin Compounds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.59 Neuropathy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.60 [*] Indications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.61 Parkinson's Disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.62 Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.63 Patented Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.64 Patent Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.65 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.66 Pivotal Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.67 Regulatory Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.68 Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.69 Research Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.70 Research Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.71 Research Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.72 Research Program Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.73 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.74 Significant Medical Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.75 Stroke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.76 Third Party (ies) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.77 Third Party Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.78 Traumatic Brain Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.79 Traumatic Spinal Cord Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.80 Unpatented Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE TWO - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Guilford and Holdings Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 9 2.2 Amgen Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE THREE - EXCLUSIVITY AND LICENSE GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.1 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.2 License Grant to Amgen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.3 License Grant to Guilford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.4 Transfer of Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.5 [*] Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE FOUR - RESEARCH AND RESEARCH FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 Research Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Research Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 Guilford Researchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.4 Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.5 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.6 Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.7 Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE FIVE - STRATEGIES AND GOALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.1 Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.2 Development Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE SIX - DEVELOPMENT AND MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.1 Amgen Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.2 Guilford Option to Co-Develop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.3 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ii 4 6.4 Product Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.5 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.6 Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.7 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE SEVEN - SALES AND MARKETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.1 Commercialization of Licensed Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.2 Guilford Option to Co-Promote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.3 Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE EIGHT - FEES AND MILESTONES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.1 Signing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.2 Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.3 Category One Indication Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8.4 Category Two Indication Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.5 Category three Indication Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.6 Category Four Indication Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE NINE - ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.1 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.2 Maximum Royalty Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.3 Royalty Adjustment for Unpatented Products . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.4 Third Party Royalty Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.5 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.6 Adjustments for COGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 9.7 [*] Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.8 Term of Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.9 Calculation of Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.10 Reports and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE TEN - CONFIDENTIALITY, PUBLICATION AND PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . 24 10.1 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 10.2 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 10.3 Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 10.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 10.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 10.6 Authorized Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE ELEVEN - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 11.1 Indemnification by Amgen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 11.2 Indemnification by Guilford and Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 11.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 11.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE TWELVE - TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 12.2 Termination of Research Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 12.3 Termination of Licensed Product Development and Commercialization . . . . . . . . . . . . . . . 27 12.4 Termination of Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 12.5 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 12.6 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 12.7 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 12.8 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE THIRTEEN - INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
iii 5 13.1 Patent Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 13.2 Enforcement of Patent Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 13.3 Infringement Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 13.4 Cooperation Among the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE FOURTEEN - DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.2 Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.3 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 14.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 14.5 Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.6 Arbitration Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.8 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE FIFTEEN - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.2 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.3 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.8 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.11 Entire Agreement of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 15.12 Independent Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 15.13 No Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 15.14 Accrued Rights; Surviving Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
iv 6 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. COLLABORATION AND LICENSE AGREEMENT COLLABORATION AND LICENSE AGREEMENT (the "Agreement"), entered into on December 15, 1997 (the "Signing Date") and effective as of August 20, 1997 (the "Effective Date"), by and among Guilford Pharmaceuticals Inc., a Delaware corporation with its principal place of business at 6611 Tributary Street, Baltimore, Maryland 21224 ("Guilford"), GPI NIL Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Guilford with its principal place of business at 222 Delaware Avenue, Wilmington, Delaware 19899 ("Holdings"), and Amgen Inc., a Delaware corporation, with its principal place of business at Amgen Center, Thousand Oaks, California 91320-1789 ("Amgen"). WHEREAS, Amgen is engaged in the research, development and commercialization of human pharmaceutical products; WHEREAS, Guilford has developed and obtained or filed for patent protection and Guilford and/or Holdings is the owner and/or exclusive licensee of certain other rights relating to certain small molecule neuroimmunophilin ligands with neurotrophic and other activities which may have human pharmaceutical applications; WHEREAS, the parties have executed a Binding Term Sheet dated as of the Effective Date (the "Binding Term Sheet") and pursuant thereto entered into a collaboration respecting the research, development and commercialization of the Guilford proprietary small molecule FK 506 binding protein-based neuroimmunophilin compounds; WHEREAS, Section 35 of the Binding Term Sheet provides, among other things, that the parties will use good faith efforts to negotiate and executive definitive agreements relating to the transactions set forth therein; WHEREAS, prior to the Signing Date, Guilford and Amgen have entered into a (i) Stock and Warrant Purchase Agreement dated as of October 1, 1997, (ii) Registration Rights Agreement dated as of October 1, 1997 and (iii) Warrant dated as of October 1, 1997 (together with this Agreement, collectively, the "Definitive Agreements"), pursuant to Section 35 of the Binding Term Sheet; and WHEREAS, the parties now desire to enter into this Agreement, pursuant to Section 35 of the Binding Term Sheet. NOW, THEREFORE, the parties in consideration of the mutual representations, warranties and covenants contained herein and other good and valuable consideration, the parties agree as follows: ARTICLE ONE DEFINITIONS When used in this Agreement, each of the following capitalized terms shall have the meanings set forth in this Article One. Any terms defined elsewhere in this Agreement shall be given equal weight and importance as though set forth in this Article One. 1.1 "ACTIVE ENTITY" shall mean [*]. 1 7 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 1.2 "ACQUISITION" shall mean the acquisition, directly or indirectly, by any Third Party of (i) fifty percent (50%) or more of the shares of common stock entitled to vote for the election of directors of Guilford and/or Holdings and/or (ii) the sale or other transfer of all or substantially all of the assets of Guilford and/or Holdings or the assets to which this Agreement relates. 1.3 "ADDITIONAL INDICATION" will be as defined in Section 8.2(b) below. 1.4 "AFFILIATE" shall mean a Person that, directly or indirectly, through one or more intermediates, controls, is controlled by, or is under common control with the Person specified. 1.5 "ALZHEIMER'S DISEASE" shall mean [*] 1.6 "AMGEN CONFIDENTIAL INFORMATION" shall mean Confidential Information and Materials owned by Amgen or otherwise designated as Amgen Confidential Information hereunder but shall not include Joint Confidential Information or Research Program Materials. 1.7 "AMGEN GUILFORD-DERIVED TECHNOLOGY" shall mean all proprietary data, information, know-how and intellectual property developed, discovered or invented by Amgen personnel during the term of the Research Program directly resulting from the use of Guilford Technology, provided, however, in no event will Amgen Guilford-Derived Technology include any intellectual property owned or Controlled by Amgen prior to or on the Effective Date and, provided further, however, that Amgen Guilford-Derived Technology shall not include any improvements or modifications of such intellectual property owned or Controlled by Amgen on or prior to the Effective Date which do not primarily result from the collaboration among the Parties hereunder. 1.8 [*]. 1.9 "CATEGORY FOUR INDICATIONS" shall mean all indications other than the Category One Indication, the Category Two Indications or the Category Three Indications. 1.10 "CATEGORY ONE INDICATION" shall mean the first indication to be developed of Parkinson's Disease or Alzheimer's Disease. 1.11 "CATEGORY THREE INDICATIONS" shall mean [*]. 1.12 "CATEGORY TWO INDICATIONS" shall mean indications of (a) the second to be developed of Parkinson's Disease or Alzheimer's Disease, (b) Traumatic Brain Injury, (c) Traumatic Spinal Cord Injury, (d) Multiple Sclerosis, (e) Neuropathy and (f) Stroke. 1.13 "CO-DEVELOP" OR "CO-DEVELOPMENT" shall mean, with respect to Guilford's option to co-develop the Co-Development Indication as set forth in Article Six, Guilford's conduct of Phase I and Phase II (but not Phase III) clinical trials in the capacity of a contract clinical research organization, subject to Amgen's approval of sites, investigators, protocols, investigators' brochures, monitoring and data analysis plans, budgets and all other matters not limited to implementation of any of the foregoing. 1.14 "CO-DEVELOPMENT INDICATION" shall mean a single indication for a single Licensed Product for which Amgen has decided to file an IND (or in the event a new IND 2 8 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. is not required, an IND amendment) and which Amgen has selected and Guilford has accepted in accordance with Section 6.2 below. 1.15 "COGS" shall mean and include [*]. 1.16 "COLLABORATION TECHNOLOGY" shall mean all technology encompassed by the Guilford Technology, Amgen Guilford-Derived Technology and Joint Technology. 1.17 "COMBINED NET SALES" shall mean with respect to a Licensed Product, Net Sales of the Licensed Product in countries in which it is a Patented Product plus Net Sales of the Licensed Product in countries in which it is an Unpatented Product. 1.18 "COMMERCIALIZE" OR "COMMERCIALIZATION" shall mean those activities relating to the promotion, marketing and sale of Licensed Products. 1.19 "COMMERCIALLY REASONABLE EFFORTS" shall mean efforts and resources [*]. 1.20 "COMPETITION" shall exist with respect to a Licensed Product in a Major Market County if one or more Competitive Compounds shall be commercially available in such Major Market Country and shall have in the aggregate a [*] or more share of the total market (based on data provided by IMS International, or if such data are not available, based on such other data mutually agreed to by Amgen and Guilford) in that Major Market Country as measured by sales dollars [*]. In the event that IMS International data (or such other mutually agreed data) sufficient to determine the percentage market share in a particular Major Market Country of the European Union is unavailable, the average percent market share of the Major Market Countries of the European Union for which sufficient data is available will be deemed to be the percent market share in that particular Major Market Country of the European Union, unless Amgen and Guilford mutually agree to use another proxy. 1.21 "COMPETITION IMPAIRED LICENSED PRODUCT" shall mean a Licensed Product which is sold in a country in which Competition exists with respect to such Licensed Product. 1.22 "COMPETITIVE COMPOUNDS" shall mean and include compounds (other than Licensed Products Developed and Commercialized by Amgen pursuant to this Agreement) which [*]. 1.23 "CONFIDENTIAL INFORMATION" shall mean with respect to each Party, non-public proprietary data, information and/or materials which belong in whole or in part to such Party. 1.24 "CONTRACT RESEARCH AGREEMENT" shall mean the contract research agreement substantially in form attached hereto as Exhibit D to be executed by Amgen and Guilford in connection with Guilford's exercise of its option to Co-Develop. 1.25 "CONTROLS" OR "CONTROLLED" shall mean with respect to intellectual property possession of the ability to grant licenses or sublicenses without violating the terms of any agreement or other arrangement with, or the rights of, any Third Party. 1.26 "CO-PROMOTE" OR "CO-PROMOTION" shall mean, with respect to Guilford's option to co-promote the Co-Promotion Indication as set forth in Article Seven, that Amgen and Guilford shall each maintain a field sales force to promote and detail Licensed Products while Amgen shall control all marketing and shall make and record all sales of Licensed 3 9 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. Products. 1.27 "CO-PROMOTION INDICATION" will be as defined in Section 7.2 below. 1.28 "DEFAULT" shall mean with respect to a Party that (i) any representation or warranty of such Party shall have been untrue in any material respect when made or (ii) such Party shall have failed to perform any material obligation set forth in this Agreement. 1.29 "DEVELOP" OR "DEVELOPMENT" shall mean those activities related to the clinical development of Licensed Products including those activities related to the obtainment of Governmental Approvals for the clinical testing and commercial sale of Licensed Products. Development activities will specifically include (i) all activities relating to toxicology, in vitro assays, animal models of clinical efficacy and other studies required to support a Regulatory Filing to initiate clinical testing of a Licensed Product and (ii) all activities relating to clinical studies and determination of safety and efficacy of a Licensed Product in humans to support a Regulatory Filing to initiate Commercialization of a Licensed Product. 1.30 "EFFECTIVE DATE" shall mean August 20, 1997. 1.31 "EXTENSION OPTION" will be as defined in Section 4.1(d) below. 1.32 "FDA" shall mean the Federal Food and Drug Administration of the United States Department of Health and Human Services or any successor agency thereof. 1.33 "FIELD OF USE" shall mean all human therapeutic, prophylactic and diagnostic uses of Licensed Products. 1.34 "FTE" shall mean full time equivalent scientific person year (consisting of a minimum of a total of one thousand eight hundred eighty (1880) hours per year of scientific work on or directly related to the Research Program). Work on or directly related to the Research Program can include, but is not limited to, experimental laboratory work, recording and writing up results, reviewing literature and references, holding scientific discussions, managing and leading scientific staff, carrying out management duties related to the Research Program, and to the extent specifically approved by Amgen, writing up results for publications or presentation and attending or presenting appropriate seminars and symposia. 1.35 "FIRST COMMERCIAL SALE" shall mean with respect to any Licensed Product approved for commercial sale, the first transfer by Amgen, its Affiliates and/or its sublicensees of the Licensed Product to a non-Affiliate Third Party in exchange for cash or some equivalent to which value can be assigned. 1.36 "FORCE MAJEURE" shall mean any occurrence beyond the reasonable control of a Party that prevents or substantially interferes with the performance by the Party of any of its obligations hereunder, if such occurs by reason of any act of God, flood, fire, explosion, breakdown of plant, earthquake, strike, lockout, labor dispute, casualty or accident; or war, revolution, civil commotion, acts of public enemies, blockage or embargo; or any injunction, law order, proclamation, regulation, ordinance, demand or requirement of any government or of any subdivision, authority or representative or any such government, inability to procure or use materials, labor, equipment, transportation, or energy sufficient to meet manufacturing needs without the necessity of allocation, or any other cause whatsoever, whether similar or dissimilar to those above enumerated, 4 10 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. beyond the reasonable control of such Party, if and only if the Party affected shall have used reasonable efforts to avoid such occurrence and to remedy it promptly if it shall have occurred. 1.37 "GAAP" shall mean United States generally accepted accounting principles consistently applied. 1.38 "GOVERNMENTAL APPROVALS" shall mean any approvals, licenses, registrations, authorizations, or equivalents, of any foreign or United States federal, state or local regulatory agency, department, bureau or other government entity, including the FDA, necessary for the manufacture, use, storage, transport, export, import, clinical testing and/or sale of Licensed Products in a country. 1.39 "GOVERNMENTAL AUTHORITIES" shall mean all United States governmental entities, agencies and bureaus, including the FDA and comparable foreign governmental and/or regulatory agencies which control the manufacture, use, storage, transport, export, import, clinical testing and/or sale of pharmaceutical products. 1.40 "GUILFORD CONFIDENTIAL INFORMATION" shall mean Confidential Information and Materials owned by Guilford and/or Holdings or otherwise designated as Guilford Confidential Information hereunder but shall not include Joint Confidential Information or Research Program Materials. 1.41 "GUILFORD RESEARCHER" shall mean professional researchers and scientists employed by Guilford including, but not limited to, chemists, biologists and toxicologists having at least a Bachelors Degree in science. 1.42 "GUILFORD TECHNOLOGY" shall mean all proprietary data, information, know-how and intellectual property (a) developed, discovered or invented by Guilford personnel in the conduct of the Research Program, (b) owned or Controlled by Guilford and/or Holdings on the Effective Date and/or during the term of this Agreement which claim, describe and/or relate to Neuroimmunophilin Compounds and/or (c) owned or Controlled by Guilford and/or Holdings on the Effective Date and/or during the term of this Agreement and necessary or useful to make, use or sell Neuroimmunophilin Compounds. Guilford Technology will specifically include, without limitation, the Patent Rights set forth on Exhibit A attached hereto and incorporated herein. 1.43 [*]. 1.44 "IND" shall mean an Investigational New Drug Application covering a Licensed Product filed with the FDA pursuant to 21 CFR 312.20. 1.45 "INITIAL TERM" will be as defined in Section 4.1(d) below. 1.46 "[*] CONSENT" shall mean a Consent and Agreement among Amgen, Guilford, Holdings and [*] in the form attached hereto as Exhibit B. 1.47 "[*] LICENSE AGREEMENTS" shall mean the License Agreement between [*] and Guilford [*], and the [*] License Agreement between [*] and Guilford [*]. 1.48 "JOINT CONFIDENTIAL INFORMATION" shall mean Confidential Information owned jointly by Amgen and Guilford or otherwise designated as Joint Confidential Information hereunder. 5 11 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 1.49 "JOINT TECHNOLOGY" shall mean all proprietary data, information, know-how and intellectual property developed, discovered or invented jointly by Guilford personnel and Amgen personnel during the term of this Agreement. 1.50 "LEAD SELECTION" shall mean with respect to Licensed Product Development, the earlier of (i) commencement by Amgen of toxicology studies under FDA Good Laboratory Practices of at least one (1) month in duration or (ii) following Amgen's decision to file an IND on the Licensed Product, commencement by Amgen of toxicology studies under FDA Good Laboratory Practices of less than one month in duration. 1.51 "LICENSED PRODUCTS" shall mean all products described and/or claimed in and/or incorporating Collaboration Technology. For the purposes of Royalty payments under Article Nine below, a single Licensed Product will comprise all formulations (e.g., tablets, gel-caps, topical formulations, parenteral formulations, sustained release formulations, etc.) of the same Active Entity and all indications for which that Active Entity may be used. 1.52 "MAJOR MARKET COUNTRIES" shall mean the United States, European Union countries (as such countries may change from time to time) and Japan. 1.53 "MATERIALS" shall mean Amgen or Guilford, as the case may be, proprietary research materials including, but not limited to, compounds, assays, reagents, protocols, data and materials derived therefrom. Materials shall not include Research Program Materials. 1.54 "MILESTONES" OR "MILESTONE PAYMENTS" shall mean the payments to be made by Amgen to Holdings upon occurrence of certain events as set forth in Article Eight. 1.55 "MULTIPLE SCLEROSIS" shall mean [*] . 1.56 "NDA" shall mean a New Drug Application covering a Licensed Product filed with FDA pursuant to 21 CFR 314. 1.57 "NET SALES" shall mean [*]. 1.58 "NEUROIMMUNOPHILIN COMPOUNDS" shall mean compounds that [*] and, notwithstanding the foregoing, those compounds covered by the Guilford Technology Patent Rights set forth on Exhibit A attached hereto and incorporated by reference herein. 1.59 "NEUROPATHY" shall mean [*]. 1.60 [*] 1.61 "PARKINSON'S DISEASE" shall mean [*] . 1.62 "PARTY" shall mean Amgen, Guilford or Holdings, as the case may be, and "PARTIES" shall mean Amgen, Guilford and Holdings. 1.63 "PATENTED PRODUCT" shall mean a Licensed Product the sale of which would, but for the licenses granted under this Agreement, infringe one or more claims of a valid, issued patent included in the Collaboration Technology in the country of sale. 1.64 "PATENT RIGHT" shall mean patent applications, patents issuing thereon and any extensions or restorations by existing or future extension or restoration mechanisms, 6 12 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. including without limitation Supplementary Protection Certificates or the equivalent thereof, renewals, continuations, continuations-in-part, divisions, patents-of-addition, and/or reissues of any patent. 1.65 "PERSON" shall mean any individual, firm, corporation, partnership, limited liability company, trust, unincorporated organization or other entity or a government agency or political subdivision thereto, and shall include any successor (by merger or otherwise) of such Person. 1.66 "PIVOTAL TRIAL" shall mean a clinical trial which, if the defined end-points are met, is intended by Amgen as of the start of such trial to be the clinical trial which will constitute sufficient basis for receipt of marketing approval in the United States. 1.67 "REGULATORY FILINGS" shall mean, collectively, INDs, Biologics License Applications, Drug Master Files, NDAs and/or any other comparable filings as may be required by Governmental Authorities to obtain Governmental Approvals. 1.68 "RESEARCH" shall mean those activities directed to the chemistry and pre-clinical development of Licensed Products including screening metabolism, pharmacokinetics, toxicology, in vivo screening and assays, all of which are intended to determine whether clinical testing of a product candidate is warranted. 1.69 "RESEARCH PLAN" will be as defined in Section 4.1(a) below. 1.70 "RESEARCH PROGRAM" shall mean the research program conducted by Guilford and funded by Amgen in accordance with the provisions of Article Four below. 1.71 "RESEARCH PROGRAM FUNDING" will be as defined in Section 4.2(a) below. 1.72 "RESEARCH PROGRAM MATERIALS" shall mean and include compounds, assays, reagents, protocols, data and materials derived therefrom by Guilford in the conduct of the Research Program and/or which constitute Guilford Technology. 1.73 "ROYALTIES" shall mean those royalties payable by Amgen to Holdings pursuant to Article Nine of this Agreement. 1.74 "SIGNIFICANT MEDICAL MARKET" shall mean with respect to a Licensed Product that the product is expected to have greater than one hundred million dollars ($100,000,000) (adjusted annually by an amount equal to the percentage increase or decrease, if any, in the United States Consumer Price Index (or any comparable successor index) from the Effective Date to the year in which the determination is made) in market potential in the United States. If a dispute shall arise among the Parties with respect to a determination of Significant Medical Market, such dispute shall be submitted to Amgen's and Guilford's respective chief executive officers in accordance with Section 14.2 below during which time such officers may choose as an alternative to Arbitration under Sections 14.3 - 14.6 below to mutually agree on a mechanism to appoint a neutral third party expert of recognized national standing with appropriate experience to conclusively resolve such dispute. 1.75 "STROKE" shall mean either partial or total motor, sensory, or cognitive deficit directly attributable to acute cerebral ischemia. Clinical trials for Stroke will include patients with thrombo-occlusive or thrombo-embolic cerebrovascular disease and would be designed to measure the effect of acute administration of a drug on eventual functional 7 13 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. outcome as measured by an accepted clinical stroke scale. 1.76 "THIRD PARTY(IES)" shall mean any Person other than Guilford, Holdings and/or Amgen. 1.77 "THIRD PARTY ROYALTIES" shall mean royalties payable by Amgen, its Affiliates or sublicensees to a non-Affiliate Third Party (or multiple non-Affiliate Third Parties) to make, have made, use, sell, offer for sale or import Licensed Products where the royalty payable to such non-Affiliate Third Party is based on Patent Rights owned or Controlled by such Third Party. 1.78 "TRAUMATIC BRAIN INJURY" shall mean patients with closed head injuries of a traumatic etiology, including patients in coma or with significant neurologic deficit(s). Clinical trials for Traumatic Brain Injury will be designed to measure the effect of acute drug administration on acute and/or chronic outcome. 1.79 "TRAUMATIC SPINAL CORD INJURY" shall mean patients with traumatic (not ischemic or other etiologies) spinal cord injury, including patients with partial to total spinal cord lesions with the primary clinical deficit of motor weakness. Clinical trials for Traumatic Spinal Cord Injury will be designed to measure the effect of acute administration on acute and/or chronic outcome. 1.80 "UNPATENTED PRODUCT" shall mean a Licensed Product the sale of which would not infringe one or more claims of a valid, issued patent included in the Collaboration Technology in the country of sale. ARTICLE TWO REPRESENTATIONS AND WARRANTIES 2.1 GUILFORD AND HOLDINGS REPRESENTATIONS AND WARRANTIES. Guilford and Holdings represent and warrant that: (a) No Conflict. (i) [*] the terms of this Agreement do not conflict in any material respect with the terms of any other Guilford and/or Holdings contractual obligations and (ii) neither Guilford nor Holdings have granted to any Person any right which would conflict in any material respect with the rights granted to Amgen hereunder. (b) Binding Agreement. This Agreement is a legal and valid obligation binding upon Guilford and Holdings and enforceable in accordance with its terms except as (i) enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and (ii) equitable principles of general applicability. (c) Corporate Power. Guilford and Holdings are each duly organized and validly existing under the laws of Delaware and have full corporate power and authority to enter into this Agreement and carry out of provisions hereof. (d) Due Authorization. Guilford and Holdings are duly authorized to execute and deliver this Agreement. The Person executing this Agreement on behalf of Guilford and Holdings is duly authorized to so by all requisite corporate action. (e) Patent Rights. Guilford and/or Holdings own or Control all of the Patent Rights set forth on Exhibit A. The Patent Rights set forth on Exhibit A hereto include all 8 14 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. Patent Rights owned or Controlled by Guilford, Holdings or any Affiliate of Guilford and/or Holdings which claim or describe Neuroimmunophilin Compounds as of the Effective Date. Except as set forth on Schedule 2(e) hereto, neither Guilford nor Holdings is aware of any action, suit, inquiry or investigation which questions or threatens the validity of any Patent Rights included in the Guilford Technology. (f) [*] License Agreements. The [*] License Agreements are in full force and effect. 9 15 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 2.2 AMGEN REPRESENTATIONS AND WARRANTIES. Amgen represents and warrants that: (a) No Conflict. The terms of this Agreement do not conflict in any material respect with the terms of any other Amgen contractual obligations. (b) Binding Agreement. This Agreement is a legal and valid obligation binding upon Amgen and enforceable in accordance with its terms except as (i) enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and (ii) equitable principles of general applicability. (c) Corporate Power. Amgen is duly organized and validly existing under the laws of Delaware and has full corporate power and authority to enter into this Agreement and carry out of provisions hereof. (d) Due Authorization. Amgen is duly authorized to execute and deliver this Agreement. The Person executing this Agreement on behalf of Amgen is duly authorized to so by all requisite corporate action. (e) Other Research Programs. As of the Effective Date, except for the evaluation of the Guilford Technology for purposes of determining whether or not to enter into a business relationship with Guilford, Amgen is not engaged in a research program directed to the discovery of Neuroimmunophilin Compounds. ARTICLE THREE EXCLUSIVITY AND LICENSE GRANT 3.1 EXCLUSIVITY. Guilford, Holdings and Guilford's other wholly-owned subsidiaries will work exclusively with Amgen, and will not participate either alone or in collaboration with a Third Party, in the field of Research, Development and Commercialization of Neuroimmunophilin Compounds during the term of this Agreement; provided, however, Amgen acknowledges that the foregoing will not be construed to limit or otherwise prevent Guilford, Holdings and Guilford's other wholly-owned subsidiaries from conducting research, development and/or commercialization activities on compounds and/or products other than Neuroimmunophilin Compounds and Licensed Products. 3.2 LICENSE GRANT TO AMGEN. Guilford and Holdings hereby grant to Amgen an exclusive worldwide license, with a right to sublicense, under the Collaboration Technology to make, have made, use, sell, offer to sell and import Licensed Products in the Field of Use. 3.3 LICENSE GRANT TO GUILFORD. Amgen hereby grants to Guilford and Holdings a non-exclusive worldwide license, with no right to sublicense, under the Collaboration Technology to use Licensed Products in the Field of Use to the extent necessary for Guilford to conduct Research hereunder, Co-Develop a single indication for a single Licensed Product and Co-Promote a single indication for a single Licensed Product as set forth in this Agreement. This sublicense specifically excludes, without limitation, all rights and licenses under the Collaboration Technology to make, have made, sell or import Licensed Products. 3.4 TRANSFER OF TECHNOLOGY. Guilford and Holdings represent and warrant that prior 10 16 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. to the Signing Date each has provided to Amgen in writing (or other mutually agreed tangible form) all Guilford Technology that existed as of October 1, 1997. After October 1, 1997, Guilford shall transfer technology to Amgen in conjunction with Guilford's disclosure obligations under Section 4.4(d) below. All disclosures by Guilford and/or Holdings will be in sufficient detail to allow Amgen to practice all useful embodiments of Guilford Technology and Joint Technology, as the case may be. 3.5 [*] CONSENT. Guilford and Holdings represent and warrant that since the Effective Date they have used and agree to continue to use their best efforts to deliver to Amgen the [*] Consent as soon as possible. During the term of this Agreement, Guilford and Holdings will promptly provide to Amgen copies of any formal notice(s) of default received by Guilford and/or Holdings from [*] stating that Guilford and/or Holdings is in material breach or default of any of the terms and conditions of the [*] License Agreements. ARTICLE FOUR RESEARCH AND RESEARCH FUNDING 4.1 RESEARCH PROGRAM. (a) Research Plan. Guilford will conduct the Research Program in accordance with an annual research plan developed by Amgen and Guilford and approved by Amgen (the "Research Plan"). As the Research Program progresses and new data and information become available, Amgen, after discussion and consultation with Guilford, may amend the Research Plan. (b) Third Party Agreements. Amgen may elect to enter into agreements with Third Parties, including academic collaboration and contract research agreements, to conduct research and/or otherwise assist Amgen in the Research, Development and Commercialization of Neuroimmunophilin Compounds. All such agreements shall be at Amgen's sole expense. (c) Goal. The goal of the Research Program will be the discovery and selection of Neuroimmunophilin Compounds for Development by Amgen. (d) Term. The term of the Research Program, and Amgen's funding thereof, will begin as of October 1, 1997. The initial term of the Research Program will be three (3) years (the "Initial Term"), subject to Section 12.2 below. Amgen shall have the option to extend the Initial Term of the Research Program by one (1) year on the terms and conditions set forth herein (the "Extension Option"). Amgen shall exercise the Extension Option by providing written notice to Guilford on or before the date which is one hundred twenty days (120) days prior to the expiration of the Initial Term. 4.2 RESEARCH PROGRAM FUNDING. (a) Maximum Commitment. Amgen will fund a maximum of [*] Guilford Researcher FTEs at [*] (i.e., maximum four million five hundred thousand dollars ($4,500,000 per year in total) to conduct the Research Program (the "Research Program Funding"). (b) FTE Carry-Overs. Due to staffing limitations beyond Guilford's reasonable control, the number of Guilford Researcher FTEs devoted to the Research Program may fluctuate on a quarterly basis. In no event, however, will Guilford devote 11 17 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. less than [*] Guilford Researcher FTEs to the Research Program in any calendar quarter. In the event that Guilford devotes less than [*] Guilford Researcher FTEs to the Research Program in any quarter, Guilford shall be entitled to carry-over the difference between [*] and the actual number of Guilford Researcher FTEs devoted to the Research Program in that quarter against future quarters subject to the limitations that in no event will (i) Guilford devote more than [*] Guilford Researcher FTEs in any quarter without Amgen's prior consent and (ii) Amgen be required to fund more than [*] Guilford Researcher FTEs in any calendar year. (c) Payments and Credits. (i) Estimates. Subject to the limitations set forth in subsection (b) above, no less than thirty (30) days prior to first day of each calendar quarter, Guilford shall provide Amgen with an estimate of the number of Guilford Researcher FTEs to be devoted to the Research Program in the next calendar quarter. (ii) Reports. Subject to the limitations set forth in subsection (b) above, no less than thirty (30) days prior to first day of each calendar quarter, Guilford will provide Amgen with a report setting forth the number of Guilford Researcher FTEs actually devoted to the Research Program in the preceding quarter and a description of the activities of each Guilford Researcher in furtherance of the Research Program. Amgen shall be entitled to take as a one-time credit the amount by which the number of Guilford Researcher FTEs funded by Amgen in that quarter exceeds the number of Guilford Researcher FTEs actually devoted to the Research Program in that quarter against Amgen's future Research Funding commitment (the "Amgen Funding Credit"). (iii) Calculation of Payments. No later than five (5) days prior to first day of each calendar quarter, Amgen will provide Research Funding to Guilford for that calendar quarter. Research Funding payments by Amgen will be equal to the (FTE rate) multiplied by [(the number of Guilford Researcher FTEs set forth in the Guilford estimate for that quarter) minus (the Amgen Funding Credit, if any)]. (iv) First and Last Quarters. Guilford shall prior to the Signing Date provide Amgen with the Guilford estimate of the Guilford Researcher FTEs to be devoted to the Research Program for the first calendar quarter (or portion thereof) of the Research Program and Amgen shall provide Guilford with Research Funding based on such estimate within five (5) days after the Signing Date. Within sixty (60) days after termination of the Research Program, Guilford shall refund to Amgen any Amgen Funding Credit which has not been previously credited against Amgen's Research Funding commitment. 4.3 GUILFORD RESEARCHERS. (a) Allocation. It is Amgen's and Guilford's expectation that for the first year of the Research Program, [*] Guilford Researcher FTEs will be devoted to chemistry of Licensed Products and [*] Guilford Researcher FTEs will be devoted to pre-clinical development of Licensed Products (i.e., screening metabolism, pharmacokinetics and toxicology; assay development; and in vivo screening) in accordance with the Research Plan. Such allocation will be subject to review and if necessary will be modified pursuant to the Research Plan. 12 18 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. (b) Continuity. While Amgen recognizes Guilford's need for flexibility in staffing personnel for its overall business, Amgen and Guilford also acknowledge that it is important to the Research Program to have personnel devoted full-time to working in the Research Program. Accordingly, in order to maximize the effective conduct of the Research Program, Guilford will use reasonable best efforts to maximize the continuity of Guilford personnel conducting the Research Program and provide as devoted Research Program full-time personnel at least [*] of the Guilford Researcher FTEs funded by Amgen. (c) Invention Assignment Agreements. Each Guilford Researcher conducting the Research Program will enter into a non-disclosure and invention assignment agreement substantially in the form attached hereto as Exhibit C. Each scientist of Amgen conducting the Research Program will have executed Amgen's standard non-disclosure and invention assignment agreement. 4.4 REPORTING AND DISCLOSURE. (a) Reports. On a quarterly basis during the term of the Research Program Guilford will provide Amgen and Holdings with written reports summarizing all material data and information arising out of the conduct of the Research Program. In the event that after receipt of any such report, Amgen shall request additional data or information relating to Research Program data or Guilford Technology, Guilford shall promptly provide such data or information to Amgen with a copy to Holdings. (b) Quarterly Meetings. Amgen and Guilford will meet on a quarterly basis to review in reasonable detail (i) all data and information generated in the conduct of the Research Program by Guilford, (ii) all Guilford Technology and Joint Technology developed by Guilford and (iii) all Amgen Guilford-Derived Technology and Joint Technology developed by Amgen. (c) Monthly Meetings. On no less than a monthly basis, Amgen and Guilford will meet (whether in person, by video-conference or tele-conference) to discuss any material data or developments arising out of the Research Program or which constitute Guilford Technology, Joint Technology or Amgen Guilford-Derived Technology. (d) Disclosure. (i) Guilford. During the term of this Agreement, Guilford will promptly disclose to Amgen and Holdings all inventions, techniques and discoveries (whether patentable or not) arising out of the conduct of the Research Program by Guilford and all inventions, techniques and discoveries (whether patentable or not) included in Guilford Technology and Joint Technology. (ii) Amgen. During the term of this Agreement, Amgen will promptly disclose to Guilford and Guilford will disclose to Holdings all inventions, techniques and discoveries (whether patentable or not) included in Amgen Guilford-Derived Technology and Joint Technology. 4.5 DATA. All data and information arising out of the Research Program will be Joint Confidential Information. 4.6 MATERIALS. (a) Research Program Materials. Upon request by Amgen, Guilford will 13 19 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. promptly provide to Amgen such quantities of Research Program Materials as shall be reasonably available. (b) Guilford Owned Materials. Upon Amgen's request, Guilford will supply Amgen with Guilford owned Materials for use by Amgen in the Research and Development of Licensed Products, provided that supply of such Guilford owned Materials will not, in Guilford's judgment, (i) conflict with Guilford's internal or collaborative research programs, (ii) conflict with Guilford's internal policies regarding such materials or (iii) violate any agreement to which Guilford is a party. Any Guilford owned Materials provided to Amgen hereunder (i) may only be used by Amgen in the Research and Development of Licensed Products and (ii) may not be supplied to Third Parties without Guilford's prior written consent which can be withheld for any reason in Guilford's sole discretion. The provision of Guilford owned Materials hereunder will not constitute any grant, option or license under any Guilford Patent Rights, except as expressly set forth herein. (c) Amgen Owned Materials. Upon Guilford's request, Amgen will supply Guilford with Amgen owned Materials for use by Guilford in conducting the Research Program, provided that supply of such Amgen owned Materials will not, in Amgen's judgment, (i) conflict with Amgen's internal or collaborative research programs, (ii) conflict with Amgen's internal policies regarding such materials or (iii) violate any agreement to which Amgen is a party. Any Amgen owned Materials provided to Guilford hereunder (i) may only be used by Guilford in the conduct of the Research Program and (ii) may not be supplied to Third Parties without Amgen's prior written consent which can be withheld for any reason in Amgen's sole discretion. The provision of Amgen owned Materials hereunder will not constitute any grant, option or license under any Amgen Patent Rights, except as expressly set forth herein. 4.7 COVENANT. Guilford will use reasonable best efforts (a) to devote [*] Guilford Researcher FTEs per year to the conduct of the Research Program, (b) to pursue and conduct the Research Program to meet the goals of the Research Program and (c) to carry out all work performed in connection with the Research Program in compliance with any federal, state or local laws, regulations and guidelines governing the conduct of such work. ARTICLE FIVE STRATEGIES AND GOALS 5.1 STRATEGIES. Notwithstanding anything to the contrary set forth herein, including, but not limited to, Section 6.2 below, but subject to Sections 6.6 and 7.3 below, Amgen will determine all strategies for, and make all decisions regarding, and fund all activities related to, the Development and Commercialization of Licensed Products, including which IND candidates to take into Development, which indications to pursue and when, which Development candidates to Commercialize and which regulatory and marketing strategies to adopt. [*] 5.2 DEVELOPMENT GOALS. It is the hope and goal of the Parties that within the first [*] years of this Agreement, Guilford will identify at least [*] Neuroimmunophilin Compounds which are IND candidates and Amgen will file at least [*] INDs (which may be for a single Licensed Product or different Licensed Products) and initiate at least [*] Phase II and [*] Phase III clinical trials for Licensed Product(s). It is also the hope and goal of Amgen to Develop and Commercialize Licensed Products worldwide. The Parties recognize and agree that each of these events and the events described in Section 14 20 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 5.1 above depend on the scientific rationale for therapeutic activity of Licensed Products, the pre-clinical safety profiles demonstrated by Licensed Products, the clinical benefits demonstrated in clinical trials of Licensed Products and the commercial opportunity presented by Licensed Products. There can be no guarantee or commitment by Amgen or Guilford to meet these goals and, provided their obligation to use Commercially Reasonable Efforts has been met, it will not be a Default by Amgen or Guilford if these goals are not met. ARTICLE SIX DEVELOPMENT AND MANUFACTURING 6.1 AMGEN DEVELOPMENT. Notwithstanding anything to the contrary set forth in this Agreement, but subject to Section 6.6 below, Amgen will conduct, fund and make all decisions regarding the Development of Licensed Products. 6.2 GUILFORD OPTION TO CO-DEVELOP. Guilford shall have the option to Co-Develop the Co-Development Indication under the Contract Research Agreement. (a) Selection. Within six (6) months after Amgen's decision to file the third IND for a Licensed Product, Amgen, after consultation with Guilford (at which time Guilford may propose to Amgen a Co-Development Indication), will select a Co-Development Indication. It is understood that Amgen may file more than one (1) IND on the same Licensed Product and that the three (3) INDs referred to above may be for indications for the same or different Licensed Products. Notwithstanding the foregoing, Amgen will have no obligation to select a Co-Development Indication in the event that in Amgen's commercially reasonable judgment, pre-clinical studies do not suggest sufficient potential therapeutic application and/or commercial opportunity is insufficient to warrant clinical development of more than three (3) different indications. (b) Exercise of Option. Upon Amgen's selection of the Co-Development Indication, Amgen will notify Guilford in writing of Amgen's selection. Guilford will have sixty (60) days from receipt of written notice from Amgen to notify Amgen in writing of Guilford's election to exercise its option to Co-Develop the Co-Development Indication. Guilford's option to Co-Develop shall terminate upon exercise or if Guilford does not elect to exercise its option to Co-Develop, at the end of such sixty (60) day period. Without limiting the generality of the foregoing, under no circumstances shall Amgen be obligated to propose an alternative indication if Guilford does not elect to exercise its option to Co-Develop the indication selected by Amgen. (c) Guilford Co-Development Clinical Plan. In the event Guilford exercises its option to Co-Develop, Guilford may propose to Amgen for approval a clinical plan for the Phase I and Phase II clinical trials for the Co-Development Indication (the "Co-Development Clinical Plan"). The Co-Development Clinical Plan will be consistent with Amgen's overall development plan for Licensed Products, including regulatory strategies and timetables, and with Amgen standard development procedures and practices. Amgen may approve or reject one or more clinical trials contained in the proposed Co-Development Clinical Plan or may request additional clinical trials to be included in the Co-Development Clinical Plan. (d) Guilford Co-Development Activities. In the event Guilford exercises its option to Co-Develop the Co-Development Indication, Guilford and Amgen will execute the Contract Research Agreement prior to performance by Guilford of any Co-Development activities. Consistent with the Contract Research Agreement, Guilford will 15 21 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. prepare and submit to Amgen for approval draft protocols, monitoring plans, investigators' brochures, data analysis plans and lists of proposed sites and clinical investigators for each Phase I and Phase II clinical trial set forth in the Co-Development Clinical Plan. Subject to Amgen's approval, Guilford will conduct and monitor the studies in accordance with these protocols and plans. Clinical studies in the Co-Development Indication will be governed by Amgen's overall development plan for Licensed Products, including regulatory strategies and timetables, and will be consistent with Amgen standard development procedures and practices. In the event that Guilford elects to terminate the Contract Research Agreement pursuant to its terms other than for an uncured breach thereof by Amgen or Amgen elects to terminate the Contract Research Agreement pursuant to its terms because of an uncured breach thereof by Guilford, Guilford's right to Co-Develop the Co-Development Indication will terminate. (e) Regulatory Matters. Consistent with the Contract Research Agreement with respect to the Co-Development Indication, Amgen will be the regulatory sponsor of the Co-Development Indication clinical trials conducted by Guilford and will hold the IND and be responsible for all FDA contact. (f) Costs. Amgen will fund Guilford's outside costs associated with the conduct of the Co-Development Indication Phase I and Phase II clinical trials (per patient costs and site costs) as set forth in a budget proposed by Guilford and approved by Amgen. Amgen will also reimburse Guilford for internal costs actually incurred by Guilford in the conduct of the Co-Development Indication Phase I and II clinical trials, provided, however, that Amgen shall not be obligated to reimburse Guilford for any costs in excess of what a contract research organization would charge to conduct an equivalent study. 6.3 REGULATORY MATTERS. Notwithstanding anything to the contrary set forth in this Agreement, Amgen in its sole discretion will have complete control, authority and responsibility for the regulatory strategies adopted for the Development of all Licensed Products. Amgen will be responsible for and will own all Regulatory Filings for Licensed Products. 6.4 PRODUCT PLANS. Promptly upon approval by Amgen, Amgen will provide to Guilford and Holdings copies of the Amgen annual development plans for Licensed Products. 6.5 MEETINGS. Amgen and Guilford will meet on a quarterly basis to review the progress and status of development of Licensed Products. On no less than a monthly basis, Amgen and Guilford will meet (whether in person, by video-conference or tele-conference) to discuss any material data or developments arising out of Licensed Product Development. Amgen and Guilford will meet on a quarterly basis to review the progress and status of Guilford's development of the Co-Development Indication. On no less than a monthly basis, Guilford and Amgen will meet (whether in person, by video-conference or tele-conference) to discuss any material data or developments arising out of the Co-Development Indication development. 6.6 COVENANT. Amgen will use Commercially Reasonable Efforts to Develop Licensed Products. 6.7 MANUFACTURING. Amgen shall be responsible for the manufacturing of Licensed Products, directly and/or through contracted Third Parties. 16 22 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. ARTICLE SEVEN SALES AND MARKETING 7.1 COMMERCIALIZATION OF LICENSED PRODUCTS. Subject to Section 7.3 below, Amgen in its sole discretion will make all decisions regarding the Commercialization and sales and marketing of Licensed Products. 17 23 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 7.2 GUILFORD OPTION TO CO-PROMOTE. Guilford shall have the option to Co-Promote in the United States a single Licensed Product in a mutually agreed single indication other than Parkinson's Disease or Alzheimer's Disease (the "Co-Promotion Indication"). (a) Exercise of Option. For so long as Guilford's option to Co-Promote the Co-Promotion Indication is exercisable, promptly following Amgen's filing of an NDA for a Licensed Product in an indication other than Parkinson's Disease or Alzheimer's Disease, Amgen and Guilford will discuss whether the indication is an appropriate Co-Promotion Indication. Upon agreement by Amgen and Guilford, the indication will become the Co-Promotion Indication. If Amgen and Guilford fail to agree on whether the indication is an appropriate indication for Co-Promotion, Guilford's option to Co-Promote a single indication for a Licensed Product will remain in effect. (b) Guilford Co-Promotion Activities. In the event Guilford exercises its option to Co-Promote, Co-Promotion by Guilford will be limited to Guilford field sales force representatives double calling with Amgen's field sales force representatives on physician's offices. Guilford field sales force representatives will not call on national accounts. Co-Promotion by Guilford will be in accordance with Amgen's sales and marketing plan using Amgen's field sales materials. (c) Guilford Licensed Product Sales Force. Guilford will be entitled to have at least [*] field sales force representatives but in no event will the Guilford sales force exceed the lesser of [*] field sales force representatives or [*] of the allocated Amgen field sales force effort for the Co-Promotion Indication for the Licensed Product. (d) Costs. Amgen will reimburse Guilford for Co-Promotion activities by Guilford sales representatives at the fully-loaded cost to Amgen (salary, benefits, travel and district managers) of an equivalent number of Amgen sales representatives for the Co-Promotion Indication for the Licensed Product. 7.3 COVENANT. Amgen will use Commercially Reasonable Efforts to market and sell Licensed Products. ARTICLE EIGHT FEES AND MILESTONES 8.1 SIGNING FEE. Amgen has paid to Holdings a signing fee of fifteen million dollars ($15,000,000) on August 21, 1997. 8.2 MILESTONES. (a) Indication Basis. Milestones will be payable to Holdings one-time on an indication by indication basis in accordance with Sections 8.3 - 8.6 below, as applicable, regardless of the number of Licensed Products Developed. (b) Additional Indication Milestones. Notwithstanding anything to the contrary set forth in this Agreement, Milestones will be payable for an indication (an "Additional Indication") being Developed for a Licensed Product that was previously FDA approved for another indication if, and only if, (i) the indication represents a Significant Medical Market and the Licensed Product addresses the majority of eligible patients in the Significant Medical Market and (ii) the indication represents a disease category which is distinct from previously FDA approved indications (i.e., Additional Indication Milestones 18 24 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. will not be paid for studies and approvals to treat subpopulations within a previously FDA approved indication or new or different treatment regimens for previously FDA approved indications). The foregoing determination shall be made within thirty (30) days of each applicable milestone event set forth in Sections 8.3(b), 8.4(b), 8.5(b) and 8.6 below. (c) Milestone Events. The events which trigger Milestone Payments and the amounts thereof for the Category One Indication, Category Two Indications and Category Three Indications will depend on whether the indication is the first FDA approved indication for a Licensed Product or an Additional Indication. Milestone Payments for indications that are not Additional Indications will be payable in accordance with the events and corresponding amounts set forth in subsection (a) of Sections 8.3 - 8.5 below, as applicable. Milestone Payments for Additional Indications will be payable in accordance with the events and corresponding amounts set forth in subsection (b) of Sections 8.3 - 8.5 below, as applicable. In the event that different indications for a Licensed Product that has not been previously FDA approved for any indication are being Developed in parallel, each indication will be treated independently for the purposes of determining Milestone Payments until one of the indications is FDA approved; at which time the remaining indications in Development will be treated as Additional Indications and any unpaid Milestones with respect to that indication will be determined based on the percentage of such unpaid Milestones and upon the corresponding events as set forth below in this Section 8.2(c). The foregoing notwithstanding, in no event will total Milestone Payments for any indication exceed the total amounts set forth in Sections 8.3 - 8.5 below for the applicable category. Start of a Pivotal Trial in U.S. 15% NDA submission to FDA 30% NDA approval by FDA 55%
(d) Pivotal Trial. For the purposes of Milestone payments hereunder, in the event that the FDA shall notify Amgen that an NDA filing may be made based solely on the results of a clinical trial which would not otherwise constitute a Pivotal Trial, the Milestone Payments set forth herein below for "Start of a Pivotal Trial in U.S." will be payable upon receipt of such notice. The foregoing notwithstanding, the decision to seek FDA approval to file an NDA based solely on data from a clinical trial which would not otherwise constitute a Pivotal Trial will be made by Amgen in its business discretion consistent with Amgen's regulatory strategy for Licensed Products. 8.3 CATEGORY ONE INDICATION MILESTONES. (a) Category One Indication Milestones will be payable one-time on the occurrence of the milestone events set forth below the first time such events are achieved in the Development of a Licensed Product for the Category One Indication. Milestone Payments for the Category One Indication will total fifty-six million ($56,000,000) payable as set forth below. Lead Selection $1.0 million IND filing with FDA $5.0 million Start of a Pivotal Trial in U.S. $7.5 million NDA submission to FDA $15.0 million NDA approval by FDA $27.5 million --- -------- -- --- ----- ------- Total $56.0 million
(b) If the Category One Indication is an Additional Indication, the Category One 19 25 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. Milestones will (subject to Section 8.2 (b) above) be paid as set forth below. Start of a Pivotal Trial in U.S. $8.4 million NDA submission to FDA $16.8 million NDA approval by FDA $30.8 million --- -------- -- --- ----- ------- Total $56.0 million
8.4 CATEGORY TWO INDICATION MILESTONES. (a) Category Two Indication Milestones will be payable one-time on the occurrence of the milestone events set forth below the first time such events are achieved in the Development of a Licensed Product for a Category Two Indication. Milestones for each Category Two Indication will total forty-two million ($42,000,000) and be payable as set forth below. Lead Selection $0.75 million IND filing with FDA $3.75 million Start of a Pivotal Trial in U.S. $5.625 million NDA submission to FDA $11.25 million NDA approval by FDA $20.625 million --- -------- -- --- ------- ------- Total $42.0 million
(b) If a Category Two Indication is an Additional Indication, the Category Two Milestones will (subject to Section 8.2 (b) above) be paid as set forth below. Start of a Pivotal Trial in U.S. $6.3 million NDA submission to FDA $12.6 million NDA approval by FDA $23.1 million --- -------- -- --- ----- ------- Total $42.0 million
8.5 CATEGORY THREE INDICATION MILESTONES. (a) Category Three Indication Milestones will be payable one-time on the occurrence of the milestone events set forth below the first time such events are achieved in the Development of a Licensed Product for a Category Three Indication. Milestones for each Category Three Indication will total [*] and be payable as set forth below. Lead Selection $[*] IND filing with FDA $[*] Start of a Pivotal Trial in U.S. $[*] NDA submission to FDA $[*] NDA approval by FDA $[*] --- -------- -- --- ---- Total $[*]
(b) If a Category Three Indication is an Additional Indication, the Category Three Milestones will (subject to Section 8.2 (b) above) be paid as set forth below. Start of a Pivotal Trial in the U.S. $[*] NDA submission to FDA $[*] NDA approval by FDA $[*] --- -------- -- --- ---- Total $[*]
8.6 CATEGORY FOUR INDICATION MILESTONES. Category Four Indication Milestones will 20 26 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. (subject to Section 8.2(b) above) if an Additional Indication) be payable one-time on the occurrence of the milestone event set forth below the first time such event is achieved in the Development of a Licensed Product for a Category Four Indication. The Milestone payment for each Category Four Indication will total [*] payable as set forth below. NDA approval by FDA $[*]
ARTICLE NINE ROYALTIES 9.1 ROYALTIES. Royalties will be payable on a Licensed Product by Licensed Product basis (a) based upon annual Combined Net Sales of the Licensed Product aggregated in the Major Market Countries and (b) on a country by country basis outside the Major Market Countries as set forth below. Amgen will pay to Holdings, Royalties equal to: - [*] of that portion of annual Combined Net Sales of a Licensed Product in the Major Market Countries less than or equal to three hundred million dollars ($300,000,000); - [*] of that portion of annual Combined Net Sales of a Licensed Product in the Major Market Countries greater than three hundred million dollars ($300,000,000) and less than or equal to seven hundred million dollars ($700,000,000); - [*] of that portion of annual Combined Net Sales of a Licensed Product in the Major Market Countries greater than seven hundred million dollars ($700,000,000); and - [*] of Net Sales of a Licensed Product in each country outside the Major Market Countries. 9.2 MAXIMUM ROYALTY ADJUSTMENTS. Royalties on a Licensed Product are subject to reductions and adjustments as a result of certain events as set forth below; provided, however, in no event will Royalties on a Licensed Product in any country be reduced by more than fifty percent (50%) or reduced below a worldwide weighted average Royalty rate equal to [*] of worldwide annual Net Sales by reason of the Unpatented Product, Third Party Royalty, Competition, and COGS Royalty reductions and adjustments set forth below. 9.3 ROYALTY ADJUSTMENT FOR UNPATENTED PRODUCTS. Royalties payable to Holdings on Unpatented Products will be payable at [*] of the rates set forth in Section 9.1 above. Royalty adjustments for Unpatented Products will be made on a quarterly basis. 9.4 THIRD PARTY ROYALTY CREDIT. On a country by country basis, [*] of Third Party Royalties paid by Amgen will be creditable against Royalties payable to Holdings hereunder. Notwithstanding the foregoing, in no event will Amgen be entitled to credit against Royalties payable to Holdings, Third Party Royalties which exceed in the aggregate [*] of Net Sales of a Licensed Product in any country without the consent of Holdings, such consent not to be unreasonably withheld. Credit for Third Party Royalties will be made on a quarterly basis. 21 27 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 9.5 COMPETITION. The Royalty rates applicable to Net Sales of a Licensed Product in the Major Market Countries will be adjusted on a quarterly basis as set forth below in the event Competition exists in that Major Market Country. If Competition exists in a Major Market Country during the applicable period, the Royalty rates applicable to Net Sales of a Competition Impaired Licensed Product will be adjusted as set forth below based upon whether one (1) or more than one (1) Competitive Compound shall be commercially available. There will be no adjustment of the Royalty schedule for Competition outside the Major Market Countries. (a) One Competitive Compound. In the event Competition exists and one Competitive Compound is commercially available in a Major Market Country, the Royalty rate on the Competition Impaired Licensed Product in that Major Market Country will be as set forth below: (i) [*] of that portion of annual Combined Net Sales of the Competition Impaired Licensed Product in the Major Market Countries less than or equal to three hundred million dollars ($300,000,000); (ii) [*] of that portion of annual Combined Net Sales of the Competition Impaired Licensed Product in the Major Market Countries greater than three hundred million dollars ($300,000,000) and less than or equal to seven hundred million dollars ($700,000,000); and (iii) [*] of that portion of annual Combined Net Sales of the Competition Impaired Licensed Product in the Major Market Countries greater than seven hundred million dollars ($700,000,000). (b) More Than One Competitive Compound. In the event Competition exists and more than one Competitive Compound is commercially available in a Major Market Country, the Royalty rate on the Competition Impaired Licensed Product in that Major Market Country will be as set forth below: (i) [*] of that portion of annual Combined Net Sales of the Competition Impaired Licensed Product in the Major Market Countries less than or equal to three hundred million dollars ($300,000,000); (ii) [*] of that portion of annual Combined Net Sales of the Competition Impaired Licensed Product in the Major Market Countries greater than three hundred million dollars ($300,000,000) and less than or equal to seven hundred million dollars ($700,000,000); and (iii) [*] of that portion of annual Combined Net Sales of the Competition Impaired Licensed Product in the Major Market Countries greater than seven hundred million dollars ($700,000,000). (c) Additional Adjustment. The Royalty rate adjustments set forth above for competitive markets are intended to allow Amgen to profitably commercialize Licensed Products given the Royalties payable to Guilford and the pressures of the competitive environment. In the event the competitive environment for a Licensed Product in certain markets is such that commercialization of the Licensed Product becomes uneconomic to Amgen at the Royalty rates set forth above, the Parties will in good faith discuss an adjustment of the Royalty payable to Holdings on Licensed Products. In addition, in the event that market share data for a Major Market Country becomes unavailable, unless covered under Section 1.20 above, the Parties will in good faith discuss an appropriate 22 28 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. substitute for determining Competition for that Major Market County. 9.6 ADJUSTMENTS FOR COGS. On a Licensed Product by Licensed Product basis, in the event that at any time after the twenty-four (24) month period following the First Commercial Sale of a Licensed Product in any of the Major Market Countries, COGS, calculated on a combined worldwide annual basis, shall (i) be less than [*] of total worldwide annual Net Sales, the applicable Royalty on Net Sales will be increased by [*] for each [*] by which COGS for such annual period is less than [*] or (ii) exceed [*] of total worldwide annual Net Sales, the applicable Royalty rate will be reduced by [*] for each [*] by which COGS for such annual period is greater than [*] of total worldwide annual Net Sales. Subject to Section 9.9(a) below, adjustments for COGS, if any, will be made quarterly based on Amgen's estimate of COGS for the annual period. Such estimate shall be consistent with Amgen's internal cost accounting. 9.7 [*] ROYALTY. Notwithstanding anything to the contrary set forth in this Agreement, if the [*] License Agreements shall be terminated and Amgen shall enter into a license agreement with [*] regarding any Collaboration Technology (as contemplated by the [*] Consent), Amgen shall deduct the full amount of any royalties and other payments actually made by Amgen, its Affiliates or sublicensees to [*] from Royalties and Milestones payable to Holdings hereunder, provided, however, Holdings shall have approved the amounts of any payments under such license agreement, such approval not to be unreasonably withheld. 9.8 TERM OF ROYALTY. Royalties will be payable on a country by country basis on a Patented Product until the last to expire of the patents covering such Patented Product and on an Unpatented Product for [*] years from First Commercial Sale of the Unpatented Product. Upon the expiration of Amgen's obligation to pay Royalties to Guilford hereunder with respect to a Licensed Product, Amgen shall have a fully paid unrestricted license under the Collaboration Technology to make, have made, use, sell, offer to sell and import such Licensed Product. 9.9 CALCULATION OF ROYALTIES. (a) Adjustments. While Royalties for a Licensed Product will be calculated and paid quarterly (other than with respect to the maximum Royalty adjustments under Section 9.2 above), any difference between (x) annual Royalty based on aggregating quarterly calculations and (y) annual Royalty based on actual Net Sales for the year plus any required Royalty adjustments will be accounted for by an adjustment payment by Amgen at the time the fourth (4th) quarter Royalty payment is made or an adjustment credit against Amgen's future Royalty obligations. In addition, if at the time of determining any Competition adjustments, applicable IMS International data (or such other data as may be mutually agreed by the Parties) for such time period is unavailable, Amgen may make a reasonable estimate thereof based on prior available IMS International data (or such other data as may be mutually agreed by the Parties) and calculate the applicable Royalty based on such estimate, and any difference in Royalty payments made by Amgen based on such estimate and Royalty payments based on actual data, once available, will be accounted for by an adjustment payment by Amgen at the time the next quarter Royalty payment is made or an adjustment credit against Amgen's future Royalty obligations, as the case may be. (b) Competition Calculation. [*] (c) Full Periods. Royalties will be calculated based on full (not partial) periods (i.e., full calendar years and full quarters, as the case may be). In determining Royalties 23 29 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. and adjustments thereto, it will be assumed that the status with respect to a Licensed Product (e.g., whether a Licensed Product is a Patented Product or Unpatented Product, whether a Competitive Compound is commercially available, etc.) at the end of the applicable period was in effect for the entire period. (d) Example Calculation. An example Royalty calculation is attached hereto as Exhibit E. The Parties acknowledge and agree that the formulas used in such example may not be the only formulas that can be used to achieve, under the circumstances contained in the example, the same results and that such example does not contain all possible circumstances and formulas that may apply at any given period. 9.10 REPORTS AND PAYMENTS. (a) Cumulative Royalties. The obligation to pay Royalties under this Article Nine shall be imposed only once (i) with respect to any sale of the same unit of Licensed Product and (ii) with respect to a single unit of Licensed Product regardless of how many valid issued or, assuming they were to issue, patent claims included in the Collaboration Technology would, but for this Agreement, be infringed by the making, using or selling of such Licensed Product. (b) Statements and Payments. Amgen shall deliver to Holdings within sixty (60) days after the end of each calendar quarter, a statement certified by Amgen as accurate to the best of its ability based on information available to Amgen, setting forth for the previous quarter the following information on a country-by-country basis: (i) Net Sales of Patented Products in the Major Market Countries and non-Major Market Countries, (ii) Net Sales of Unpatented Products in the Major Market Countries and non-Major Market Countries, (iii) the basis for any Royalty adjustments and (iv) the Royalty due hereunder, which report shall be accompanied by a remittance of the Royalty due. (c) Taxes. All taxes levied on account of Royalties accruing under this Agreement shall be paid by Holdings. If laws or regulations require withholding of taxes from any payment by Amgen to Holdings hereunder, the taxes will be deducted by Amgen from remittable Royalty to Holdings and will be paid by Amgen to the proper taxing authority. Amgen will furnish Holdings with the original copies of all official receipts for such taxes. In the event of any such withholding, the Parties agree to confer and cooperate in good faith regarding any filings with tax authorities and other measures that may be taken to minimize the amount of any such withholding. (d) Currency. All amounts payable and calculations hereunder shall be in United States dollars, and all payments under this Article Nine shall be made to Holdings. As applicable, Net Sales and COGS shall be translated into United States dollars at the rate of exchange at which United States dollars are listed in International Financial Statistics (publisher, International Monetary Fund) or if it is not available, The Wall Street Journal for the currency of the country in which the sale is made at the average of the calendar quarter in which such sales were made. (e) Audit. Amgen, its Affiliates and sublicensees shall maintain books and records as necessary to allow the accurate calculation of Royalties due hereunder including any records required to calculate any Royalty adjustments hereunder. Once per year Holdings shall have the right to engage an independent accounting firm acceptable to Amgen, at Holdings' expense, which shall have the right to examine in confidence during normal business hours the relevant Amgen records in order to determine and/or verify the amount of Royalty payments due hereunder. The Holdings independent auditor will prepare a report confirming or challenging the Royalties paid by Amgen for any of the 24 30 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. preceding three (3) annual periods (except any period which has previously been subject to audit thereunder). In the event there was an under-payment by Amgen hereunder, Amgen shall promptly make payment to Holdings of any short-fall. In the event that there was an over-payment by Amgen hereunder, Amgen shall credit the excess amount against future payments. In the event any payment by Amgen shall prove to have been incorrect by more than (7%) to Holdings' detriment, Amgen will pay the fees and costs of Holdings' independent auditor. (f) Record Retention. Amgen shall keep complete and accurate records in sufficient detail to permit Holdings to confirm the accuracy of calculations of all payments hereunder. Such records shall be retained by Amgen for no less than a seven (7) year period following the year in which any such payments were made hereunder. (g) Survival. Subsections (e) and (f) of this Section 9.10 shall survive any termination of this Agreement for the period set forth therein. ARTICLE TEN CONFIDENTIALITY, PUBLICATION AND PUBLIC ANNOUNCEMENTS 10.1 CONFIDENTIAL INFORMATION. (a) Joint Confidential Information. Data and information arising out of the Research Program and Guilford's Co-Development of the Co-Development Indication will be Joint Confidential Information. Each Party will keep Joint Confidential Information confidential and use and disclose such information only in accordance with Section 10.6. (b) Amgen Confidential Information. Data and information arising out of the research, pre-clinical and clinical Development and Commercialization of Licensed Products by Amgen that is not Joint Confidential Information will be Amgen Confidential Information. (c) Ownership Upon Termination. Notwithstanding the foregoing, to the extent Amgen shall have transferred any pre-clinical and/or clinical data to Guilford in connection with a termination of this Agreement by Amgen as specifically provided in Sections 12.3 or 12.5 (b) below, (i) all raw in vivo, in vitro and clinical data included in the transferred data will be Guilford Confidential Information, (ii) all forms, methodologies and information used in the preparation of such data which are proprietary to Amgen will be Amgen Confidential Information (provided Amgen will grant to Guilford the right to use such information but only to the extent necessary to allow Guilford to use the transferred data) and (iii) and all other data and information will be Joint Confidential Information hereunder. 10.2 SEC FILINGS. The Parties understand that the financial terms of this Agreement will be of material importance to Guilford and of substantial interest to Guilford's shareholders and the investment community and that this Agreement will be filed with the SEC in connection with Guilford's SEC filings. The Parties will consult with one another on the terms of this Agreement to be redacted in SEC filings. Guilford agrees to seek confidential treatment in its SEC filings for the Royalty rates set forth in Article Nine and Amgen agrees that the signing fee, equity investment, Research Program Funding, total Milestone Payments, CNS indications and schedule of Category One and Category Two Milestone Payments will be disclosed. 25 31 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 10.3 PUBLICATIONS. No Party will publish the structure of any Licensed Product prior to publication of the structure in a patent application. Guilford will submit to Amgen for review and approval all proposed academic, scientific and medical publications relating to Licensed Products and/or Collaboration Technology no less than thirty (30) days prior to submission for publication. Amgen will use best efforts to provide to Guilford copies of all Amgen academic, scientific and medical publications relating to Licensed Products and/or Collaboration Technology prior to publication. Amgen and Guilford will each comply with standard academic practice regarding authorship of scientific publications and recognition of contribution of other parties in any publications relating to Licensed Products and/or Collaboration Technology. 10.4 PUBLIC ANNOUNCEMENTS. (a) Coordination. The Parties agree on the importance of coordinating their public announcements respecting this Agreement and the subject matter thereof (other than academic, scientific or medical publications which are subject to the publication provision set forth above). Guilford and Amgen will, from time to time, and at the request of the other Party discuss and agree on the general information content relating to this Agreement, Collaboration Technology and Licensed Products which may be publicly disclosed. (b) Guilford Announcements. Neither Guilford nor Holdings will make any public announcement (whether required by law or otherwise) regarding this Agreement, Collaboration Technology or Licensed Products (other than academic, scientific or medical publications which are subject to the publication provision set forth above) without giving Amgen the opportunity to review and comment prior to release unless Guilford shall deliver to Amgen a written opinion of outside counsel reasonably acceptable to Amgen that the specific disclosure is required by law and that time did not permit Amgen's review and Guilford indemnifies Amgen against any costs, expenses, damages or liabilities arising out of any material omission or false or misleading statements therein. (c) Use of Names. In no event will any Party use the name of any other Party in any press release or public announcement without the prior approval of the named Party. 10.5 CONFIDENTIALITY. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that, for the term of this Agreement and for five (5) years thereafter, each Party (the "Receiving Party"), receiving hereunder any Confidential Information of any other Party or Parties (the "Disclosing Party(ies)"), shall keep such information confidential and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement except, to the extent that it can be established: (a) by the Receiving Party that the Confidential Information was already known to the Receiving Party (other than under an obligation of confidentiality), at the time of disclosure by the Disclosing Party and such Receiving Party has documentary evidence to that effect; (b) by the Receiving Party that the Confidential Information was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (c) by the Receiving Party that the Confidential Information became generally 26 32 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. available to the public or otherwise part of the public domain after its disclosure or development, as the case may be, and other than through any act or omission of a party in breach of this confidentiality obligation; or (d) by the Receiving Party that the Confidential Information was disclosed to that Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others. 27 33 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 10.6 AUTHORIZED DISCLOSURE. Each Party. Each Party may disclose Confidential Information belonging to another Party or Parties to the extent such disclosure is reasonably necessary: (i) filing or prosecuting patent applications, (ii) prosecuting or defending litigation, and (iii) complying with applicable governmental laws and regulations. (b) Amgen. In addition pursuant to Section 10.6(a) above, Amgen shall have the right to disclose (i) Guilford Confidential Information in Developing and Commercializing Licensed Products under terms of confidentiality consistent with those contained in this Agreement and (ii) Joint Confidential Information in Developing and Commercializing Licensed Products as deemed necessary by Amgen. (c) Guilford. Guilford, with Amgen's prior approval, shall have the right to disclose Amgen Confidential Information and Joint Confidential Information in connection with Guilford's Co-Development of the Co-Development Indication and in Guilford's Co-Promotion of the Co-Promotion Indication in accordance with the terms and conditions set forth in this Agreement. ARTICLE ELEVEN INDEMNIFICATION 11.1 INDEMNIFICATION BY AMGEN. Amgen will indemnify Guilford and Holdings and hold Guilford and Holdings harmless from all liability, loss, damage and cost arising out of (i) any claims of any nature (other than claims by Third Parties relating to patent infringement) arising out of the research, development, marketing and/or sale of Licensed Products by, on behalf of or under authority of, Amgen and/or (ii) any Amgen representation or warranty set forth herein being untrue in any material respect when made. 11.2 INDEMNIFICATION BY GUILFORD AND HOLDINGS. Guilford and Holdings will indemnify Amgen and hold Amgen harmless from all liability, loss, damage and cost arising out of (i) any claims of any nature (other than claims by Third Parties relating to patent infringement) arising out of the research, development or promotion of Licensed Products by, on behalf of or under authority of, Guilford and/or Holdings and/or (ii) any Guilford and/or Holdings representation or warranty set forth herein having been untrue in any material respect when made. 11.3 PROCEDURE. Each Party will notify the others in the event it becomes aware of a claim for which indemnification may be sought hereunder. In case any proceeding (including any governmental investigation) shall be instituted involving any Party in respect of which indemnity may be sought pursuant to this Article Eleven, such Party (the "Indemnified Party") shall promptly notify the other Party (the "Indemnifying Party") in writing and the Indemnifying Party and Indemnified Party shall meet to discuss how to respond to any claims that are the subject matter of such proceeding. The Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, the 28 34 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. All such fees and expenses shall be reimbursed as they are incurred. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. The Indemnifying Party shall not, without the written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which the Indemnified Party is, or arising out of the same set of facts could have been, a party and indemnity could have been sought hereunder by the Indemnified Party, unless such settlement includes an unconditional release of the Indemnified Party from all liability on claims that are the subject matter of such proceeding. 11.4 INSURANCE. During the term of this Agreement, each Party will each maintain, through self insurance or commercially placed insurance, coverage for the indemnification obligations set forth herein. ARTICLE TWELVE TERM AND TERMINATION 12.1 TERM. This Agreement will continue in full force and effect until the last to expire of the Patents Rights included in Collaboration Technology. 12.2 TERMINATION OF RESEARCH PROGRAM. In the event that at the end of the second year of the Research Program, no Neuroimmunophilin Compound has been identified which, in Amgen's sole opinion, is an IND candidate or likely to lead to an IND candidate, Amgen shall have the option to terminate the Research Program upon thirty (30) days prior written notice to Guilford. Upon such termination, Amgen will have no further funding obligation for the Research Program. 12.3 TERMINATION OF LICENSED PRODUCT DEVELOPMENT AND COMMERCIALIZATION. Subject to satisfaction of Amgen's minimum Research Program Funding commitment (i.e., two (2) years of Research Program Funding), in the event that Amgen shall elect at any time to discontinue all activities relating to the Development and Commercialization of Licensed Products or shall elect to discontinue use of Commercially Reasonable Efforts in the Development and Commercialization of Licensed Products, Amgen shall provide written notice to Guilford and Holdings setting forth Amgen's election and upon Guilford and Holdings receipt of such notice this Agreement will terminate. In the event this Agreement shall be terminated pursuant to this Section 12.3: (a) Amgen shall be deemed to have met all of its obligations to use Commercially Reasonable Efforts under the terms of this Agreement; (b) Amgen will transfer to Guilford and Holdings all material pre-clinical and clinical data on Licensed Products reasonably available to Amgen on the date of termination; and (c) Amgen will grant to Guilford and Holdings a non-exclusive, royalty-free, 29 35 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. worldwide license to the Amgen Guilford-Derived Technology which relates primarily and specifically to Neuroimmunophilin Compounds to make, have made, use, sell and import Neuroimmunophilin Compounds in the Field of Use. 12.4 TERMINATION OF LICENSES. Amgen shall have the right to terminate any of its licenses to the Collaboration Technology, in whole or in part, upon sixty (60) days prior written notice to Guilford and Holdings. 12.5 DEFAULT. (a) Amgen. Upon the Default by Amgen under this Agreement, Guilford shall notify Amgen of such Default and require that Amgen cure such Default within sixty (60) days. In the event Amgen shall not have cured the Default at the end of the sixty (60) day grace period: (i) Guilford may terminate this Agreement and all licenses to the Collaboration Technology granted by Guilford and Holdings to Amgen herein will revert to Guilford and Holdings; (ii) Amgen will satisfy its minimum Research Funding commitment hereunder (i.e., two (2) years); (iii) Amgen will transfer to Guilford all material pre-clinical and clinical data on Licensed Products reasonably available to Amgen on the date termination; and (iv) Amgen will grant to Guilford and Holdings a non-exclusive, royalty-free, worldwide license to the Amgen Guilford-Derived Technology which relates primarily and specifically to Neuroimmunophilin Compounds to make, have made, use, sell and import Neuroimmunophilin Compounds in the Field of Use. (b) Guilford and Holdings. Upon the Default by Guilford and/or Holdings under this Agreement, Amgen shall notify Guilford and/or Holdings of such Default and require that Guilford and/or Holdings, as the case may be, cure such Default within sixty (60) days. In the event Guilford and/or Holdings shall not have cured the Default at the end of the sixty (60) day grace period Amgen may elect to do one or more of the following: (i) terminate the Research Program; (ii) terminate the sublicense to the Collaboration Technology granted by Amgen to Guilford and Holdings hereunder; (iii) terminate Guilford's option to Co-Develop the Co-Development Indication or, in the event the option has been exercised, the Contract Research Agreement; (iv) terminate Guilford's option to Co-Promote the Co-Promotion Indication or, in the event the option has been exercised, the right to conduct Co-Promotion activities; and (v) deduct from Royalties and Milestones payable to Holdings any costs, liabilities, damages, claims or expenses incurred by Amgen which result directly from Guilford's and/or Holdings' Default, including any Third Party liabilities. 30 36 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 12.6 BANKRUPTCY. Amgen may, in addition to any other remedies available to it by law or in equity, exercise the rights set forth below by written notice to Guilford and/or Holdings, as the case may be (the "Insolvent Party"), in the event the Insolvent Party shall have become insolvent or bankrupt, or shall have made an assignment for the benefit of its creditors, or there shall have been appointed a trustee or receiver of the Insolvent Party or for all or a substantial part of its property, or any case or proceeding shall have been commenced or other action taken by or against the Insolvent Party in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up arrangement, composition or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there shall have been issued a warrant of attachment, execution, distraint or similar process against any substantial part of the property of the Insolvent Party, and any such event shall have continued for sixty (60) days undismissed, unbonded and undischarged. (a) Rights in Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by Guilford and Holdings are, and shall otherwise be deemed to be, for purposes of Section 365 (n) of the U.S. Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that the Parties as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Guilford or Holdings under the U.S. Bankruptcy Code, Amgen shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in the their possession, shall be promptly delivered to them (i) upon any such commencement of a bankruptcy proceeding upon its written request therefor, unless the Party subject to such proceeding elects to continue to perform all of their obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by Amgen. (b) Guilford. In the event Guilford or Holdings shall be an Insolvent Party, Amgen: (i) may terminate the Research Program; (ii) may terminate Guilford's option to Co-Develop the Co-Development Indication or, in the event the option has been exercised, the Contract Research Agreement; (iii) may terminate Guilford's option to Co-Promote the Co-Promotion Indication or, in the event the option has been exercised, the right to conduct Co-Promotion activities; and (iv) shall retain all licenses to Collaboration Technology granted by Guilford and Holdings to Amgen herein, subject to the payment to Holdings of the Milestones and Royalties set forth above. 12.7 ACQUISITION. Upon the Acquisition of Guilford and/or Holdings by a Third Party, Guilford shall promptly notify Amgen in writing of such Acquisition and Amgen shall have the right within one hundred and twenty (120) days following such Acquisition to: (a) terminate the Research Program; 31 37 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. (b) terminate Guilford's option to Co-Develop or the Contract Research Agreement; (c) terminate Guilford's option to Co-Promote and/or right to conduct Co-Promotion activities; and (d) retain all licenses to Collaboration Technology granted by Guilford and Holdings to Amgen herein, subject to the payment to Holdings of the Milestones and Royalties set forth above. Notwithstanding the foregoing in this Section 12.7, the sale or other transfer of all of the shares or all or substantially all of the assets of Holdings to another direct or indirect wholly-owned subsidiary of Guilford shall not constitute an Acquisition for the purposes of this Section 12.7. 12.8 DAMAGES. No Party will be liable for consequential damages incurred by any other Party arising out of any Default under this Agreement. ARTICLE THIRTEEN INTELLECTUAL PROPERTY 13.1 PATENT PROSECUTION. Amgen, at its expense, shall be responsible for worldwide preparation, filing, prosecution, maintenance and defense of patent applications and patents claiming generically or specifically inventions included in Guilford Technology ("Guilford Inventions"), Joint Technology ("Joint Inventions") and Amgen Guilford-Derived Technology ("Amgen Inventions"). In the event Amgen elects not to prepare, file, prosecute, maintain or defend any Guilford Inventions or Joint Inventions, Amgen shall give Guilford and Holdings sufficient notice to afford Guilford the opportunity to do so at Guilford's cost, in which event, Guilford and Holdings will own any patents issuing thereon. 13.2 ENFORCEMENT OF PATENT RIGHTS. Amgen shall have the right but not the obligation, in its own name, to enforce Patent Rights included within the Collaboration Technology against any Third Party suspected of infringing a claim of a Patent Right included in Collaboration Technology. Amgen shall have exclusive control over the conduct of any such proceedings, including the right to settle or compromise such proceedings consistent with Amgen's licenses under Collaboration Technology. The expense of any proceeding Amgen initiates, including lawyers' fees and costs, shall be borne by Amgen. Guilford and Holdings agree to cooperate fully with Amgen in such action upon request by Amgen. Any award or recovery paid to Amgen by a Third Party as a result of such patent infringement proceedings (whether by way of settlement or otherwise) shall first be applied toward reimbursement of legal fees, costs and expenses incurred by the Parties. From the remainder, if any, Amgen shall pay to Holdings an amount equal to the applicable Royalty rate as applied to the remainder as though such remainder were Net Sales of Licensed Products in the year in which the award or recovery is received. 13.3 INFRINGEMENT DEFENSE. Amgen shall have the right, but not the obligation, to defend and control any suit against any of Amgen, Amgen's Affiliates or sublicensees, Guilford and/or Guilford's Affiliates alleging infringement of any patent or other intellectual property right of a Third Party arising out of the manufacture, use, sale, offer to sell or importation of a Licensed Product by Amgen, Amgen's Affiliates or sublicensees. In the event such suit or action is brought by [*]Amgen and Guilford will 32 38 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. each bear fifty percent (50%) of all costs and expenses, including lawyers' fees and costs, associated with such suit. Amgen will provide Guilford with quarterly reports setting forth Guilford's portion of such fees and costs and Guilford will make payment of such amounts to Amgen within thirty (30) days following receipt of Amgen's report. In the event such suit is brought by or on behalf of any other Third Party, Amgen shall be responsible for the costs and expenses, including lawyer's fees and costs, associated with any suit or action. In either case, promptly following the filing of any such suit or action, Amgen and Guilford will agree on the appropriate amount of cash reserve for Guilford to maintain against possible settlement or damages payments arising out of such suit or action. In no event will the Guilford cash reserve, at any time, be less than fifty percent (50%) of the amount of any settlement to a Third Party litigant proposed by Amgen of which Amgen notifies Guilford in writing. In the event the patent claim of any Third Party is held in a final and unappealable order of a court to be valid and infringed, or if Amgen enters into a settlement of such proceedings, Amgen shall pay the full amount of any damages and/or settlement amounts due to such Third Party and Guilford shall promptly reimburse Amgen for fifty percent (50%) of such amounts. 13.4 COOPERATION AMONG THE PARTIES. The Parties agree to cooperate with each other in the preparation, filing, prosecuting, maintenance, defense and enforcement of Patent Rights included in Collaboration Technology. In any action taken in the prosecution of, or in the defense of an action by a Third Party related to patent invalidity or non-patentability of any patent application or patent claiming Collaboration Technology, neither party shall admit the invalidity or non-patentability of any Patent Right or take any other action that may diminish Patent Rights within Collaboration Technology without the other party's prior written consent. Amgen agrees to provide Guilford and Holdings with sufficient time to review, comment and consult on all patent applications and patents and all correspondence to and from the various patent offices, including, but not limited to, proposed responses, interferences and oppositions, claiming Guilford Inventions, Joint Inventions or Amgen Inventions. The Parties agree to cooperate with each other and to use best efforts to ensure the cooperation of any of their respective personnel and licensee(s) or licensor(s) as might reasonably be requested in any such matters, and shall sign any necessary legal papers and provide the prosecuting party with data or other information in support thereof. The Parties will confer on what action to take with respect to the defense of infringement proceedings naming both Amgen and Guilford or in proceedings to enforce patents claiming Collaboration Technology against a Third Party. If the Parties cannot agree on the course of action to be taken in the filing, prosecution, maintenance, or enforcement of any patent application or patent within Collaboration Technology or in the defense of any Third Party infringement action, Amgen's decisions shall control. ARTICLE FOURTEEN DISPUTE RESOLUTION 14.1 GENERAL. The Parties desire to establish the procedures in this Article 14 to facilitate the resolution of any dispute pertaining to the rights and obligations of the Parties under this Agreement in an expedient and commercially reasonable manner by mutual cooperation and without resort to litigation. Except as otherwise provided in this Agreement or agreed by the Parties in writing, all disputes under this Agreement will be resolved as set forth in this Article 14. 14.2 DISPUTES. If the Parties are unable to resolve a dispute among them informally, Amgen, on the one hand, and Guilford and Holdings, on the other hand, by written notice to the other, may have such dispute referred to their respective executive officers 33 39 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. designated below or their successors, for attempted resolution by good faith negotiations: FOR AMGEN: Chief Executive Officer of Amgen FOR GUILFORD AND HOLDINGS: Chief Executive Officer of Guilford (a) Any such dispute shall be submitted to the above-designated executive officers no later than thirty (30) days following such request by either Amgen or Guilford and Holdings. In the event the designated executive officers are not able to resolve any such dispute within sixty (60) days after submission of the dispute to such executive officers, Amgen or Guilford, as the case may be, may by written notice to the other commence the Arbitration process set forth in Section 14.3 below. (b) All negotiations pursuant to this Section 14.2 shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such negotiations which is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation. 14.3 ARBITRATION. If a dispute has not been resolved by negotiation as provided in Section 14.2 above, then, except as otherwise provided in this Section 14.3, the Dispute shall be determined by arbitration in Denver, Colorado in accordance with the Commercial Arbitration Rules of the AAA and, if applicable, its Supplementary Procedures for Large, Complex Disputes or Patent Arbitration Rules, in effect on the Signing Date, by three (3) arbitrators each of whom (i) has the qualifications and experience set forth in subsection (a) of this Section 14.3 and (ii) is selected as provided in subsection (b) of this Section 14.3. Any issue as to whether or the extent to which the dispute is subject to the arbitration and other dispute resolution provisions contained in this Agreement, including, but not limited to, issues relating to the validity or enforceability of these arbitration provisions, the applicability of any statute of limitations or other defense relating to the timeliness of the assertion of any claim or any other matter relating to the arbitrability of such claim, shall be decided by the arbitrators; provided, however, that any person or entity who or which has not agreed to be bound by the provisions of this Agreement or these arbitration provisions shall not be bound by any arbitration award rendered by the arbitrators unless such person or entity participates in the arbitration proceeding and does not object to being bound by such award at or prior to the commencement of the arbitration hearing. The arbitrators shall base their award on the terms of this Agreement, and they shall endeavor to follow the law and judicial precedents which a U.S. District Judge sitting in the District of Delaware would apply in the event the dispute were litigated in such court; provided, however, that nothing contained herein shall be deemed to enlarge the grounds for vacating arbitral awards even if, despite such endeavors, the arbitrators fail to correctly follow applicable law. The arbitrators shall render their award in writing and, unless all Parties agree otherwise, shall include an explanation in reasonable detail of the reasons for their award. The arbitration shall be governed by the substantive laws of the State of Delaware and applicable to contracts made and to be performed therein, without regard to conflicts of law rules, and by the arbitration law of the Federal Arbitration Act (Title 9, U.S. Code), and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The Parties expressly waive any putative right they may otherwise have to seek an award of punitive damages arising out of any dispute hereunder. (a) Qualifications. Each person named on any lists of potential arbitrators shall be either (i) a neutral and impartial lawyer with excellent academic and professional credentials (x) who is or has been practicing law at least fifteen (15) years, specializing in 34 40 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. either general commercial litigation or general corporate and commercial matters, with experience in the field of the pharmaceutical/biotechnology industry and (y) who has had both training and experience as an arbitrator and is generally available to serve as an arbitrator, or (ii) an impartial and neutral retired U.S. federal court judge or an impartial and neutral retired judge from the highest state court who (x) served as a judge for at least ten (10) years and (y) has had both training and experience as an arbitrator and is generally available to serve as an arbitrator. (b) Selection. Each arbitrator shall be selected as provided in this Section 14.3 and otherwise in accordance with the AAA's Commercial Arbitration Rules in effect on the Signing Date. 14.4 EXPENSES. All expenses and fees of the arbitrators and expenses for hearing facilities and other expenses of the arbitration shall be borne equally by Amgen, on the one hand, and Guilford and Holdings, on the other hand, unless the Parties agree otherwise or unless the arbitrators in the award assess such expenses against one of the Parties or allocate such expenses other than equally between Amgen, on the one hand, and Guilford and Holdings, on the other hand. Each of the Parties shall bear its own counsel fees and the expenses of its witnesses except (i) to the extent otherwise provided in this Agreement or by applicable law or (ii) to the extent the arbitrators in their discretion determine for any reason to allocate such fees and expenses among the Parties in a different manner. Any attorney or retired judge who serves as an arbitrator shall be compensated at a rate equal to his or her current regular hourly billing rate unless otherwise mutually agreed upon by the Parties and the arbitrator. 14.5 CERTAIN TERMS. For purposes of this Article 14, the term "impartial" shall mean any person who is not nor has been within the previous five (5) years an employee or paid consultant of a Party, and does not have any other extended familial, close social, material ownership or other relationship to a Party. 14.6 ARBITRATION CONFIDENTIALITY. All aspects of an arbitration conducted pursuant to this Agreement shall be and remain confidential and all participants shall be bound by judicially enforceable obligations of strict confidentiality except to the extent (i) required by law, including, without limitation, securities laws, but subject to Section 10.4 above, or (ii) the Parties agree in writing to waive in whole or part such confidentiality. 14.7 SURVIVAL. Any duty to arbitrate under this Agreement shall survive and remain in effect and enforceable after termination of this Agreement for any reason. 14.8 JURISDICTION. For the purposes of this Article 14, the Parties acknowledge their diversity (Guilford having its principal place of business in Maryland, Holdings domiciled in Delaware and Amgen having its principal place of business in California) and agree to accept the jurisdiction of the Federal District Court in Denver, Colorado or the Colorado state courts of general jurisdiction in Denver, Colorado for purposes of enforcing any arbitral award hereunder. ARTICLE FIFTEEN MISCELLANEOUS 15.1 ASSIGNMENT. Neither this Agreement nor any interest hereunder shall be assignable by any Party without the prior written consent of the other Parties, except for assignment by operation of law in connection with a merger of a Party with or into another Person provided that such Party is the surviving and controlling entity or the sale 35 41 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. of all of the shares or all or substantially of the assets of Holdings to another direct or indirect wholly-owned subsidiary of Guilford. This Agreement shall be binding upon the successors and permitted assigns of the Parties and the name of a Party appearing herein shall be deemed to include the names of such Party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment not in accordance with this Section 15.1 shall be void. 15.2 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of the Agreement. 15.3 FORCE MAJEURE. No Party shall be liable to any other Party for loss or damages or shall have any right to terminate this Agreement for any default or delay attributable to any Force Majeure, if the Party affected shall give prompt notice of any such cause to the other Parties. The Party giving such notice shall thereupon be excused from such of its obligations hereunder as it is thereby disabled from performing for so long as it is so disabled, provided, however, that such affected Party commences and continues to take reasonable and diligent actions to cure such cause. 15.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the parties at the following addresses (or at such other address for a Party as shall be specified by like notice, provided, however, that notices of a change of address shall be effective only upon receipt thereof): All correspondence to Amgen shall be addressed as follows: Amgen Center 1840 DeHavilland Drive Thousand Oaks, California 91320-1789 Attn: Vice President Product Licensing cc: Corporate Secretary All correspondence to Guilford shall be addressed as follows: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attn: Corporate Secretary All correspondence to Holdings shall be addressed as follows: GPI NIL Holdings, Inc. 222 Delaware Avenue, 10th Floor Wilmington, Delaware 19899 Attn: Daniel P. McCollom Corporate Secretary 15.5 AMENDMENT. No amendment, modification or supplement of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 36 42 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. 15.6 WAIVER. No provision of the Agreement shall be waived by any act, omission or knowledge of any Party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party. 15.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement. 15.8 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are for convenience only, and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement. 15.9 GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware (without regard to conflict of law principles) and the Parties hereby submit to the exclusive jurisdiction of the Colorado courts, both state and federal, located in Denver, Colorado. 15.10 SEVERABILITY. In the event that any clause or portion thereof in this Agreement is for any reason held to be invalid, illegal or unenforceable, the same shall not affect any other portion of this Agreement, as it is the intent of the Parties that this Agreement shall be construed in such fashion as to maintain its existence, validity and enforceability to the greatest extent possible. In any such event, this Agreement shall be construed as if such clause of portion thereof had never been contained in this Agreement, and there shall be deemed substituted therefor such provision as will most nearly carry out the intent of the Parties as expressed in this Agreement to the fullest extent permitted by applicable law unless doing so would have the effect of materially altering the right and obligations of the Parties in which event this Agreement shall terminate and all the rights and obligations granted to the Parties hereunder shall cease and be of no further force and effect. 15.11 ENTIRE AGREEMENT OF THE PARTIES. This Agreement and the other Definitive Agreements constitute and contain the complete, final and exclusive understanding and agreement of the Parties and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, among the Parties, including, without limitation, the Binding Term Sheet (which shall be deemed null and void and of no further force and effect), respecting the subject matter hereof and thereof. 15.12 INDEPENDENT CONTRACTORS. The relationship between Amgen, Guilford and Holdings created by this Agreement is one of independent contractors and no Party shall have the power or authority to bind or obligate the other except as expressly set forth in this Agreement. 15.13 NO TRADEMARK RIGHTS. Expect as otherwise provided herein, no right, express or implied, is granted by this Agreement to use in any manner the name "Guilford Pharmaceuticals," "GPI NIL Holdings," "Amgen," or any other trade name or trademark of the other Party or its Affiliates in connection with the performance of this Agreement. 15.14 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. Unless explicitly provided otherwise in this Agreement, termination, relinquishment or expiration of the Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit to any Party prior to such termination, relinquishment or expiration, including damages arising from any breach hereunder. Such termination, relinquishment or expiration shall 37 43 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. not relieve any Party from obligations which are expressly indicated to survive termination or expiration of the Agreement. 38 44 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. IN WITNESS WHEREOF, duly authorized representatives of the Parties have duly executed this Agreement on the Signing Date to be effective as of the Effective Date. AMGEN INC. By /s/ Gordon M. Binder --- ------ -- ------ Name: Gordon M. Binder Title: Chief Executive Officer GUILFORD PHARMACEUTICALS INC. By /s/ Craig R. Smith, M.D. --- ----- -- ------ ---- Name: Craig R. Smith, M.D. Title: President and Chief Executive Officer GPI NIL HOLDINGS, INC. By /s/ Daniel P. McCollom --- ------ -- -------- Name: Daniel P. McCollom Title: Vice President 39 45 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. SCHEDULE 2(a) [*] 46 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. SCHEDULE 2(e) [*] 47 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. EXHIBIT A GUILFORD PATENT RIGHTS [*] 48 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. EXHIBIT B [*] 49 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. EXHIBIT C FORM OF GUILFORD NON-DISCLOSURE AND INVENTION AGREEMENT [Filed as Exhibit 10.01 to the Registration Statement on Form S-1 of Guilford Pharmaceuticals Inc. (SEC File No. 33-76938), declared effective June 16, 1994] 50 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. EXHIBIT D FORM OF CONTRACT RESEARCH AGREEMENT [*] 51 * Confidential Portions Omitted and Supplied Separately to the Securities and Exchange Commission. EXHIBIT E [*] EX-10.44 5 SECURITY AGREEMENT, DATED AS OF FEBRUARY 5, 1998 1 EXHIBIT 10.44 - -------------------------------------------------------------------------------- SECURITY AGREEMENT Dated as of February 5, 1998 between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 and FIRST UNION NATIONAL BANK, as the Agent for the Lenders and the Holders and accepted and agreed to by GUILFORD PHARMACEUTICALS INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. GRANT OF SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. PAYMENT OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4. OTHER COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5. DEFAULT; REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. REMEDIES NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7. PERFORMANCE BY THE AGENT OF THE BORROWER'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8. DUTY OF THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9. POWERS COUPLED WITH AN INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10. EXECUTION OF FINANCING STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 11. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 12. AUTHORITY OF THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 13. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 14. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 15. AMENDMENT IN WRITING; NO WAIVERS; CUMULATIVE REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 16. SECTION HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 17. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 18. THE BORROWER'S WAIVER OF RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 19. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 20. OBLIGATIONS ARE WITHOUT RECOURSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 21. PARTIAL RELEASE; FULL RELEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 22. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
i 3 23. CONFLICTS WITH PARTICIPATION AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 24. LESSEE AS A PARTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ii 4 SECURITY AGREEMENT This SECURITY AGREEMENT, dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, this "Security Agreement"), is made between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually, but solely as Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Borrower"), and FIRST UNION NATIONAL BANK, a national banking association ("Bank"), as agent for (a) the Lenders (hereinafter defined) under the Credit Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Credit Agreement") by and among the Borrower, the lending institutions from time to time parties thereto (the "Lenders") and Bank as the agent for the Lenders and (b) the holders of the certificates issued pursuant to the Amended and Restated Trust Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Trust Agreement") among the holders from time to time parties thereto (the "Holders") and the Borrower, in its individual capacity thereunder and in its capacity as Owner Trustee thereunder. The Lenders and the Holders, together with their successors and permitted assigns, are collectively referred to hereinafter as the "Secured Parties." Bank, in its capacity as agent for the Secured Parties is referred to hereinafter as the "Agent," and this Security Agreement is accepted and agreed to by GUILFORD PHARMACEUTICALS INC., a Delaware corporation. Preliminary Statement Pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Borrower in an aggregate amount not to exceed $19,400,000 upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by the Borrower under the Credit Agreement. Pursuant to the Trust Agreement, the Holders have agreed to purchase the ownership interests of the Trust created thereby in an aggregate amount not to exceed $600,000 upon the terms and subject to the conditions set forth therein, to be evidenced by the Certificates issued by the Borrower under the Trust Agreement. The Borrower is, or shall be upon the date of the initial Advance with respect to each Property, the legal and beneficial owner of such Property (except the Borrower may have a ground leasehold interest in certain Properties pursuant to one (1) or more Ground Leases). It is a condition, among others, to the obligation of the Lenders to make their respective Loans to the Borrower under the Credit Agreement and the Holders to make their respective Holder Advances under the Trust Agreement that the Borrower shall have executed and delivered this Security Agreement to the Agent, for the benefit of the Lenders and the Holders. NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make their respective Loans under the Credit Agreement and to induce the Holders to make their respective Holder Advances under the Trust Agreement, the Borrower hereby agrees with the Agent, for the benefit of the Lenders and the Holders, as follows: 5 1. DEFINITIONS. (a) As used herein, the following terms shall have the following respective meanings: "Accounts" shall mean all "accounts," as such term is defined in the Uniform Commercial Code, now owned or hereafter acquired by the Borrower, including without limitation (i) all accounts receivable, other receivables, book debts and other forms of obligations now owned or hereafter received or acquired by or belonging or owing to the Borrower, whether arising out of goods sold or leased or services rendered by it or from any other transaction (including without limitation any such obligations which may be characterized as an account under the Uniform Commercial Code), (ii) all of the Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (iii) all of the Borrower's rights to any goods represented by any of the foregoing (including without limitation unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (iv) all monies due or to become due to the Borrower under all purchase orders and contracts for the sale or lease of goods or the performance of services or both by the Borrower (whether or not yet earned by performance on the part of the Borrower now) or hereafter in existence, including without limitation the right to receive the proceeds of said purchase orders and contracts, and (v) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Chattel Paper" shall mean any and all "chattel paper," as such term is defined in the Uniform Commercial Code, now owned or hereafter acquired by the Borrower, wherever located. "Documents" shall mean any and all "documents", as such term is defined in the Uniform Commercial Code, now owned or hereafter acquired by the Borrower, wherever located, including without limitation each bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. "General Intangibles" shall mean any and all "general intangibles," as such term is defined in the Uniform Commercial Code, now owned or hereafter acquired by the Borrower, including without limitation all contracts, undertakings, or agreements (including without limitation any and all contracts and agreements with any and all contractors, sub-contractors and architects with respect to any Property) in or under which the Borrower may now or hereafter have any right (other than any right evidenced by Chattel Paper, Documents or Instruments), title or interest, including without limitation any agreements relating to the terms of payment or the terms of performance of any Account. 2 6 "Holders" shall have the meaning specified in the first paragraph of this Security Agreement. "Instruments" shall mean any and all "instruments", as such term is defined in the Uniform Commercial Code, now owned or hereafter acquired by the Borrower, wherever located, including without limitation all certificated securities, all certificates of deposit, and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Investment Property" shall mean any and all "investment property," as such term is defined in the Uniform Commercial Code, now owned or hereafter acquired by the Borrower, wherever located. "Lenders" shall have the meaning specified in the first paragraph of this Security Agreement. "Lessee" shall mean Guilford Pharmaceuticals Inc., a Delaware corporation, its successors, permitted assigns and permitted transferees. "Obligations" shall mean any and all obligations of the Borrower, now existing or hereafter arising under the Credit Agreement, the Notes, the Trust Agreement, the Certificates and/or any other Operative Agreement. (b) Capitalized terms used but not otherwise defined in this Security Agreement shall have the respective meanings specified in the Credit Agreement or Appendix A to the Participation Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among Lessee, the Borrower, the Holders, the Lenders and the Bank, as agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests. (c) The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Security Agreement. 2. GRANT OF SECURITY INTEREST. To secure payment of all the amounts advanced under the Credit Agreement in connection with the Notes, all the amounts advanced or contributed under the Trust Agreement in connection with the Certificates and all other amounts now or hereafter owing to the Lenders, the Holders or the Agent thereunder or under any other Operative Agreement, THE BORROWER HEREBY CONVEYS, GRANTS, ASSIGNS, TRANSFERS, HYPOTHECATES, MORTGAGES AND SETS OVER TO THE AGENT FOR THE BENEFIT OF THE SECURED PARTIES, A FIRST PRIORITY SECURITY INTEREST IN AND LIEN ON THE TRUST ESTATE, WHETHER 3 7 NOW EXISTING OR HEREAFTER ACQUIRED INCLUDING WITHOUT LIMITATION THE FOLLOWING: (a) all right, title and interest of the Borrower in and to the Operative Agreements now existing or hereafter acquired by the Borrower (including without limitation all rights to payment and indemnity rights of the Borrower under the Participation Agreement) (all of the foregoing in this paragraph (a) being referred to as the "Rights in Operative Agreements"); (b) all right, title and interest of the Borrower in and to all of the Equipment; (c) all right, title and interest of the Borrower in and to all of the Fixtures; (d) all the estate, right, title, claim or demand whatsoever of the Borrower, in possession or expectancy, in and to each Property, Fixture or Equipment or any part thereof; (e) all right, title and interest of the Borrower in and to all substitutes, modifications and replacements of, and all additions, accessions and improvements to, the Fixtures and Equipment, subsequently acquired or leased by the Borrower or constructed, assembled or placed by the Borrower on any Property, immediately upon such acquisition, lease, construction, assembling or placement, and in each such case, without any further conveyance, assignment or other act by the Borrower; (f) all right, title and interest of the Borrower in, to and under books and records relating to or used in connection with the operation of one (1) or more Properties or any part thereof; all rights of the Borrower to the payment of money and all property; and all rights in and to any causes of action or choices in action now or hereafter existing in favor of the Borrower and all rights to any recoveries therefrom; (g) all right, title and interest of the Borrower in and to all unearned premiums under insurance policies now held or subsequently obtained by the Lessee relating to one (1) or more Properties and the Borrower's interest in and to all proceeds of any insurance policies maintained by or for the benefit of the Borrower, including without limitation any right to collect and receive such proceeds; and all awards and other compensation, including without limitation the interest payable thereon and any right to collect and receive the same, made to the present or any subsequent owner of any Property for the taking by eminent domain, condemnation or otherwise, of all or any part of any Property or any easement or other right therein; 4 8 (h) all right, title and interest of the Borrower in and to (i) all consents, licenses, certificates and other governmental approvals relating to construction, completion, use or operation of any Property or any part thereof and (ii) all Plans and Specifications relating to any Property; (i) all right, title and interest of the Borrower in and to all Rent and all other rents, payments, purchase prices, receipts, revenues, issues and profits payable under the Lease or pursuant to any other lease with respect to any Property; (j) all right, title and interest of the Borrower in and to all Instruments and Documents; (k) all right, title and interest of the Borrower in and to all General Intangibles; (l) all right, title and interest of the Borrower in and to all Chattel Paper (including without limitation all rights under the Lease) and each Ground Lease; (m) all right, title and interest of the Borrower in and to all money, cash or cash equivalent and bank accounts; (n) all right, title and interest of the Borrower in and to all Accounts; (o) all right, title and interest of the Borrower in and to all proceeds of letters of credit issued in favor of the Borrower in connection with any Property; and (p) all right, title and interest of the Borrower in and to all proceeds, both cash and noncash, of any of the foregoing. (All of the foregoing property and rights and interests now owned or held or subsequently acquired by the Borrower and described in the foregoing clauses (a) through (p) are collectively referred to as the "Trust Property"). TO HAVE AND TO HOLD the Trust Property and the rights and privileges hereby granted unto the Agent (for the benefit of the Lenders and the Holders) its successors and assigns for the uses and purposes set forth, until all of the obligations of the Borrower under the Operative Agreements are paid in full; provided, that EXCLUDED from the Trust Property at all times and in all respects shall be all Excepted Payments. 5 9 3. PAYMENT OF OBLIGATIONS. The Borrower shall pay all Obligations in accordance with the terms of the Credit Agreement, the Notes, the Trust Agreement, the Certificates and the other Operative Agreements and perform each term to be performed by it under the Credit Agreement, the Notes, the Trust Agreement, the Certificates and the other Operative Agreements. 4. OTHER COVENANTS. At any time and from time to time, upon the written request of the Agent, and at the expense of the Borrower (with funds provided by the Lessee for such purpose), the Borrower will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Agent reasonably may request for the purposes of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers granted by this Security Agreement. 5. DEFAULT; REMEDIES. (a) If a Credit Agreement Event of Default has occurred and is continuing: (i) the Agent, in addition to all other remedies available at law or in equity, shall have the right forthwith to enter upon any Property (or any other place where any component of any Property is located at such time) without charge, and take possession of all or any portion of the Trust Property, and to re-let the Trust Property and receive the rents, issues and profits thereof, to make repairs and to apply said rentals and profits, after payment of all necessary or proper charges and expenses, on account of the amounts hereby secured (subject to the Excepted Payments); and (ii) the Agent, shall, as a matter of right, be entitled to the appointment of a receiver for the Trust Property, and the Borrower hereby consents to such appointment and waives notice of any application therefor. (b) If a Credit Agreement Event of Default has occurred and is continuing, the Agent may proceed by an action at law, suit in equity or other appropriate proceeding, to protect and enforce its rights, whether for the foreclosure of the Lien of this Security Agreement, or for the specific performance of any agreement contained herein or for an injunction against the violation of any of the terms hereof. The proceeds of any sale of any of the Trust Property shall be applied pursuant to Section 8.7 of the Participation Agreement. In addition, the Agent may proceed under Section 11 hereof. (c) The Borrower hereby waives the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of the Trust Property or any portion thereof or interest therein. 6 10 (d) Notwithstanding anything to the contrary in this Security Agreement, so long as no event of default on the part of Lessee under any Operative Agreement to which Lessee is a party shall exist which would entitle the Lessor to terminate the Lease, or if such an event of default shall exist, so long as Lessee's time to cure the default shall not have expired, the term of the Lease shall not be terminated or modified in any respect whatsoever and Lessee's right of possession to the Properties and its other rights arising out of the Lease will all be fully recognized and protected by the Agent and shall not be disturbed, canceled, terminated or otherwise affected by reason of this Security Agreement or any action or proceeding instituted by the Agent to enforce its rights under this Security Agreement, or any extension, renewal, consolidation or replacement of same, irrespective of whether Lessee shall have been joined in any action or proceeding. 6. REMEDIES NOT EXCLUSIVE. The Agent shall be entitled to enforce payment of the indebtedness and performance of the Obligations and to exercise all rights and powers under this Security Agreement or under any of the other Operative Agreements or other agreements or any laws now or hereafter in force, notwithstanding some or all of the Obligations may now or hereafter be otherwise secured, whether by deed of trust, mortgage, security agreement, pledge, Lien, assignment or otherwise. Neither the acceptance of this Security Agreement nor its enforcement, shall prejudice or in any manner affect the Agent's right to realize upon or enforce any other security now or hereafter held by the Agent, it being agreed that the Agent shall be entitled to enforce this Security Agreement and any other security now or hereafter held by the Agent in such order and manner as the Agent may determine in its absolute discretion. No remedy conferred hereunder or under any other Operative Agreement upon or reserved to the Agent is intended to be exclusive of any other remedy herein or therein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Agreements to the Agent or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Agent. In no event shall the Agent, in the exercise of the remedies provided in this Security Agreement (including without limitation in connection with the assignment of Rents to the Agent, or the appointment of a receiver and the entry of such receiver onto all or any part of the Land), be deemed a "mortgagee in possession" or a "pledgee in possession", and the Agent shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies. 7. PERFORMANCE BY THE AGENT OF THE BORROWER'S OBLIGATIONS. If the Borrower fails to perform or comply with any of its agreements contained herein the Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. The expenses of the Agent incurred in connection with actions undertaken as provided in this Section 7, together with interest thereon at a rate per annum equal to the Overdue Rate, from the date of payment by the Agent to the date 7 11 reimbursed by the Borrower, shall be payable by the Borrower (with funds provided by the Lessee for such purpose) to the Agent on demand and constitutes part of the Obligations secured hereby. 8. DUTY OF THE AGENT. The Agent's sole duty with respect to the custody, safekeeping and physical preservation of any Trust Property in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Agent deals with similar property for its own account. Neither the Agent, any Lender, any Holder nor any of their respective directors, officers, employees, shareholders, partners or agents shall be liable for failure to demand, collect or realize upon any of the Trust Property or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Trust Property upon the request of the Borrower or any other Person or to take any other action whatsoever with regard to the Trust Property or any part thereof. 9. POWERS COUPLED WITH AN INTEREST. All powers, authorizations and agencies contained in this Security Agreement are coupled with an interest and are irrevocable until this Security Agreement is terminated and the Liens created hereby are released. 10. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Uniform Commercial Code, the Borrower authorizes the Agent at the expense of the Borrower (such amounts to be paid with funds provided by the Lessee for such purpose) to file financing statements with respect to the Trust Property under this Security Agreement without the signature of the Borrower in such form and in such filing offices as the Agent reasonably determines appropriate to perfect the security interests of the Agent under this Security Agreement. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. For purposes of such financing statement, the Borrower shall be deemed to be the debtor, and the Agent shall be deemed to be the secured party. The address of the Borrower is 79 South Main Street, Salt Lake City, Utah 84111, Attention: Val T. Orton, Vice President, and the address of the Agent is First Union National Bank, c/o First Union Capital Markets Group, DC-6, 301 South College Street, Charlotte, North Carolina 28288-0166, Attention: Ms. Jane O. Hurley, Capital Markets Services. 11. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. (a) It is the intention of the parties hereto that this Security Agreement as it relates to matters of the grant, perfection and priority of security interests the subject hereof, shall constitute a security agreement within the meaning of the Uniform Commercial Code of the States in which the Trust Property is located. If a Credit Agreement Event of Default shall occur, then in addition to having any other right or remedy available at law or in equity, the Agent may proceed under the applicable Uniform Commercial Code and exercise such rights and remedies 8 12 as may be provided to a secured party by such Uniform Commercial Code with respect to all or any portion of the Trust Property which is personal property (including without limitation taking possession of and selling such property). If the Agent shall elect to proceed under the Uniform Commercial Code, then thirty (30) days' prior written notice of sale of the personal property shall be deemed reasonable notice and the reasonable expenses of retaking, holding, preparing for sale, selling and the like incurred by the Agent shall include, but not be limited to, reasonable attorneys' fees and legal expenses. At the Agent's request, the Borrower shall assemble such personal property and make it available to the Agent at a place designated by the Agent which is reasonably convenient to both parties. (b) The Borrower, upon request by the Agent from time to time, shall execute, acknowledge and deliver to the Agent one (1) or more separate security agreements, in form satisfactory to the Agent, covering all or any part of the Trust Property and will further execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any financing statement, affidavit, continuation statement or certificate or other document as the Agent may request in order to perfect, preserve, maintain, continue or extend the security interest under, and the priority of the Liens granted by, this Security Agreement and such security instrument. The Borrower further agrees to pay to the Agent (with funds provided by the Lessee for such purpose) on demand all costs and expenses incurred by the Agent in connection with the preparation, execution, recording, filing and re-filing of any such document and all reasonable costs and expenses of any record searches for financing statements the Agent shall reasonably require. The filing of any financing or continuation statements in the records relating to personal property or chattels shall not be construed as in any way impairing the right of the Agent to proceed against any property encumbered by this Security Agreement. 12. AUTHORITY OF THE AGENT. The Borrower acknowledges that the rights and responsibilities of the Agent under this Security Agreement with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Security Agreement shall be governed by the Credit Agreement and Section 8.6 of the Participation Agreement and by such other agreements with respect thereto as may exist from time to time (until such time as all amounts due and owing to the Secured Parties and the Agent under the Operative Agreements have been paid in full), but the Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and the Borrower shall be under no obligation, or entitlement, to make any inquiry respecting such authority. 13. NOTICES. All notices required or permitted to be given under this Security Agreement shall be in writing and delivered as provided in Section 12.2 of the Participation Agreement. 9 13 14. SEVERABILITY. Any provision of this Security Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 15. AMENDMENT IN WRITING; NO WAIVERS; CUMULATIVE REMEDIES. (a) None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except in accordance with the terms of Section 12.4 of the Participation Agreement. (b) No failure to exercise, nor any delay in exercising, on the part of the Agent, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Agent of any right or remedy hereunder on any one (1) occasion shall not be construed as a bar to any right or remedy which the Agent would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 16. SECTION HEADINGS. The section headings used in this Security Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 17. SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding upon the successors of the Borrower, and the Borrower shall not assign any of its rights or obligations hereunder or with respect to any of the Trust Property without the prior written consent of the Agent. This Security Agreement shall inure to the benefit of the Agent, the Lenders, the Holders and their respective successors and assigns, in accordance with their respective interest herein. 18. THE BORROWER'S WAIVER OF RIGHTS. Except as otherwise set forth herein, to the fullest extent permitted by law, the Borrower waives the benefit of all laws now existing or that may subsequently be enacted providing for (a) any appraisement before sale of any portion of the Trust Property, (b) any extension of the time for the enforcement of the collection of the indebtedness or the creation or extension of a period of redemption from any sale made in collecting such debt and (c) exemption of any portion of the Trust Property from attachment, levy or sale under execution or exemption from civil process. Except as otherwise set forth herein, to the fullest extent the Borrower may do so, the Borrower 10 14 agrees that the Borrower will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, exemption, extension or redemption, or requiring foreclosure of this Security Agreement before exercising any other remedy granted hereunder and the Borrower, for the Borrower and its successors and assigns, and for any and all Persons ever claiming any interest in the Trust Property, to the extent permitted by law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of the Obligations and marshalling in the event of foreclosure of the Liens hereby created. 19. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 11(a) HEREOF, THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MARYLAND. 20. OBLIGATIONS ARE WITHOUT RECOURSE. The provisions of the Participation Agreement relating to limitations on liability are hereby incorporated by reference herein, Mutatis Mutandis. 21. PARTIAL RELEASE; FULL RELEASE. The Agent may release for such consideration as it may require any portion of the Trust Property without (as to the remainder of the Trust Property) in any way impairing or affecting the Lien, security interest and priority herein provided for the Agent compared to any other Lien holder or secured party. Further, the Agent shall execute and deliver to the Borrower such documents and instruments as may be required to release the Lien and security interest created by this Security Agreement with respect to the Properties as provided in Section 8.8 of the Participation Agreement or to grant the easements and permit the other matters provided for in Section 8.5 of the Participation Agreement. 22. MISCELLANEOUS. (a) This Security Agreement is one (1) of the documents which create Liens and security interests that secure payment and performance of the Obligations. The Agent, at its election, may commence or consolidate in a single action all proceedings to realize upon all such Liens and security interests. The Borrower hereby waives (i) any objections to the commencement or continuation of an action to foreclose the Lien of this Security Agreement or exercise of any other remedies hereunder based on any action being prosecuted or any judgment entered with respect to the Obligations or any Liens or security interests that secure payment and performance of the Obligations and (ii) any objections to the commencement of, continuation of, or entry of a judgment in any such other action based on any action or judgment connected to this Security Agreement. In case of a foreclosure sale, the Trust Property may be sold, at the Agent's election, in one (1) parcel or in more than one (1) parcel and the Agent is specifically empowered 11 15 (without being required to do so, and in its sole and absolute discretion) to cause successive sales of portions of the Trust Property to be held. (b) This Security Agreement may not be amended, waived, discharged or terminated except in accordance with Section 12.4 of the Participation Agreement. Upon the prior written consent of the Majority Secured Parties and unless such matter is a Unanimous Vote Matter, the Agent may release any portion of the Trust Property or any other security, and grant such extensions and indulgences in relation to the Obligations secured hereby without in any manner affecting the priority of the Lien hereof on any part of the Trust Property. (c) THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS. 23. CONFLICTS WITH PARTICIPATION AGREEMENT. Notwithstanding any other provision hereof, in the event of any conflict between the terms of this Security Agreement and the Participation Agreement, the terms of the Participation Agreement shall govern. 24. LESSEE AS A PARTY. LESSEE HAS EXECUTED THIS SECURITY AGREEMENT FOR THE SOLE PURPOSE OF SUBJECTING TO THE SECURITY INTERESTS GRANTED HEREUNDER ALL OF ITS RIGHT, TITLE, ESTATE AND INTEREST, IF ANY, IN AND TO THE TRUST PROPERTY TO SECURE ITS OBLIGATIONS UNDER THE OPERATIVE AGREEMENTS. ACCORDINGLY, LESSEE HEREBY GRANTS TO THE AGENT (FOR THE BENEFIT OF THE LENDERS AND THE HOLDERS) A SECURITY INTEREST IN AND TO ALL OF ITS RIGHT, TITLE, ESTATE AND INTEREST, IF ANY, IN AND TO THE TRUST PROPERTY (TO THE EXTENT LESSEE HAS ANY RIGHT, TITLE OR INTEREST THEREIN AND WITHOUT REGARD TO ANY LANGUAGE IN SECTION 2 OR THE DEFINITION OF "TRUST PROPERTY' OR ANY DEFINITION OF ANY ITEM CONSTITUTING THE TRUST PROPERTY WHICH OTHERWISE WOULD LIMIT THE TRUST PROPERTY TO THE RIGHT, TITLE AND INTEREST OF THE BORROWER THEREIN) TO SECURE ITS OBLIGATIONS UNDER THE OPERATIVE AGREEMENTS. LESSEE ACKNOWLEDGES AND AGREES THAT, SUBJECT TO SECTION 5(D) OF THIS SECURITY AGREEMENT, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THE AGENT SHALL HAVE THE RIGHT TO EXERCISE ANY OR ALL OF ITS REMEDIES HEREUNDER AS AGAINST ANY SUCH RIGHT, TITLE, ESTATE OR INTEREST OF LESSEE IN OR TO THE TRUST PROPERTY. 12 16 IN WITNESS WHEREOF, each of the undersigned have caused the Security Agreement to be duly executed and delivered as of the date first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: /s/ Brett R. King ----------------------------------------------- Name: Brett R. King --------------------------------------------- Title: Assistant Vice President -------------------------------------------- FIRST UNION NATIONAL BANK, as the Agent for the Lenders and the Holders By: /s/ Louis E. Flori ----------------------------------------------- Name: Louis E. Flori --------------------------------------------- Title: Vice President -------------------------------------------- Accepted and Agreed to: GUILFORD PHARMACEUTICALS INC. By: /s/ Andrew R. Jordan ----------------------------------------------- Name: Andrew R. Jordan --------------------------------------------- Title: Senior Vice President & Chief Financial ------------------------------------------ Officer -------- EX-10.45 6 AMENDED AND RESTATED TRUST AGREEMENT 1 EXHIBIT 10.45 AMENDED AND RESTATED TRUST AGREEMENT dated as of February 5, 1998 between The Several Holders from Time to Time Parties Hereto, as the Holders, and FIRST SECURITY BANK, NATIONAL ASSOCIATION, as the Owner Trustee GUILFORD REAL ESTATE TRUST 1998-1 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II AUTHORITY TO EXECUTE AND PERFORM VARIOUS DOCUMENTS; DECLARATION OF TRUST BY TRUST COMPANY . . . . . . . . . . . . . . . . . 2 SECTION 2.1 Authority To Execute and Perform Various Documents . . . . . . . 2 SECTION 2.2 Declaration of Trust by Trust Company. . . . . . . . . . . . . . 2 ARTICLE III CONTRIBUTIONS AND PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3.1 Procedure for Holder Advances; Certificates. . . . . . . . . . . 3 SECTION 3.2 Holder Yield . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 3.3 Scheduled Return of Holder Advances. . . . . . . . . . . . . . . 5 SECTION 3.4 Early Return of Advances. . . . . . . . . . . . . . . . . . . . 5 SECTION 3.5 Payments from Trust Estate Only. . . . . . . . . . . . . . . . . 6 SECTION 3.6 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 3.7 Computation of Yield. . . . . . . . . . . . . . . . . . . . . . 6 SECTION 3.8 Conversion and Continuation Options. . . . . . . . . . . . . . . 7 SECTION 3.9 Notice of Amounts Payable. . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV COLLECTIONS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . 8 SECTION 4.1 Collections and Remittances by the Owner Trustee. . . . . . . . 8 SECTION 4.2 Priority of Distributions. . . . . . . . . . . . . . . . . . . . 9 SECTION 4.3 Excepted Payments. . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 4.4 Distributions after Default. . . . . . . . . . . . . . . . . . . 9 ARTICLE V DUTIES OF THE OWNER TRUSTEE. . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5.1 Notice of Certain Events. . . . . . . . . . . . . . . . . . . . 9 SECTION 5.2 Action Upon Instructions. . . . . . . . . . . . . . . . . . . . 10 SECTION 5.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 5.4 No Duties Except as Specified In Trust Agreement or Instructions. . . . . . . . . . . . . . . . . 11 SECTION 5.5 No Action Except Under Specified Documents or Instructions. . . 11 SECTION 5.6 Absence of Duties. . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE VI THE OWNER TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 6.1 Acceptance of Trust and Duties. . . . . . . . . . . . . . . . . 12 SECTION 6.2 Furnishing of Documents. . . . . . . . . . . . . . . . . . . . . 12 SECTION 6.3 No Representations or Warranties as to the Properties or Operative Agreements. . . . . . . . . . . . . . . 13 SECTION 6.4 No Segregation of Moneys; No Interest. . . . . . . . . . . . . . 13 SECTION 6.5 Reliance; Advice of Counsel. . . . . . . . . . . . . . . . . . . 13 SECTION 6.6 Liability With Respect to Documents. . . . . . . . . . . . . . . 14
i 3 SECTION 6.7 Not Acting In Individual Capacity. . . . . . . . . . . . . . . . 14 SECTION 6.8 Books and Records; Tax Returns. . . . . . . . . . . . . . . . . 14 ARTICLE VII INDEMNIFICATION OF THE OWNER TRUSTEE. . . . . . . . . . . . . . . . . 15 SECTION 7.1 Indemnification Generally. . . . . . . . . . . . . . . . . . . . 15 SECTION 7.2 Compensation and Expenses. . . . . . . . . . . . . . . . . . . . 15 ARTICLE VIII TERMINATION OF TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . 15 SECTION 8.1 Termination of Trust Agreement. . . . . . . . . . . . . . . . . 15 SECTION 8.2 Termination at Option of the Holders. . . . . . . . . . . . . . 16 SECTION 8.3 Termination at Option of the Owner Trustee. . . . . . . . . . . 16 SECTION 8.4 Actions by the Owner Trustee Upon Termination. . . . . . . . . . 16 ARTICLE IX SUCCESSOR OWNER TRUSTEES, CO-OWNER TRUSTEES AND SEPARATE OWNER TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 9.1 Resignation of the Owner Trustee; Appointment of Successor. . . 17 SECTION 9.2 Co-Trustees and Separate Trustees. . . . . . . . . . . . . . . . 18 SECTION 9.3 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE X AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 10.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 10.2 Limitation on Amendments. . . . . . . . . . . . . . . . . . . . 21 ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 11.1 No Legal Title to Trust Estate in the Holders. . . . . . . . . 21 SECTION 11.2 Sale of a Property by the Owner Trustee is Binding. . . . . . . 21 SECTION 11.3 Limitations on Rights of Others. . . . . . . . . . . . . . . . 22 SECTION 11.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 11.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 11.6 Limitation on the Holders' Liability. . . . . . . . . . . . . . 22 SECTION 11.7 Separate Counterparts. . . . . . . . . . . . . . . . . . . . . 22 SECTION 11.8 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 22 SECTION 11.9 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 11.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 11.11 Performance by the Holders. . . . . . . . . . . . . . . . . . 23 SECTION 11.12 Conflict with Operative Agreements. . . . . . . . . . . . . . 23 SECTION 11.13 No Implied Waiver. . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 11.14 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION. . . . . . . . 24 SECTION 11.15 AMENDMENT AND RESTATEMENT OF PRIOR TRUST AGREEMENT. . . . . . 24
Schedule I - Holder Commitments EXHIBIT A - Form of Holder Certificate ii 4 AMENDED AND RESTATED TRUST AGREEMENT THIS AMENDED AND RESTATED TRUST AGREEMENT, dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Trust Agreement"), is among the several banks and other financial institutions from time to time parties to this Trust Agreement (individually, each of the foregoing may be referred to as a "Holder," and collectively, the foregoing together with such other persons and entities that become holders hereunder, the "Holders"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, in its individual capacity ("Trust Company"), and in its capacity as owner trustee hereunder, together with its successors and assigns (the "Owner Trustee"). WHEREAS, the parties hereto wish to amend and restate in its entirety the Trust Agreement dated as of January 14, 1998 between such parties; WHEREAS, in order to provide a portion of the funds for carrying out the other transactions contemplated by the Operative Agreements, each Holder will make its respective Holder Advances pursuant to this Trust Agreement and the Participation Agreement (as defined below); WHEREAS, the Holders desire to provide for the Trust to exist solely for the purpose of (a) developing, acquiring, installing, designing, constructing and testing various Properties and leasing such Properties to Lessee and (b) carrying out certain transactions contemplated by the Operative Agreements; and WHEREAS, Trust Company is willing to act as trustee hereunder and to accept the trust created hereby (the "Trust"). NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. For purposes of this Trust Agreement (including without limitation the "WHEREAS" clauses set forth above), capitalized terms used in this Trust Agreement and not otherwise defined herein shall have the meanings assigned to them in Appendix A to that certain Participation Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among Guilford Pharmaceuticals Inc., the 5 Owner Trustee, the various banks and other lending institutions which are parties thereto from time to time, as the Holders, the various banks and other lending institutions which are parties thereto from time to time, as the Lenders, and First Union National Bank, as agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests. Unless otherwise indicated, references in this Trust Agreement to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Trust Agreement. SECTION 1.2 INTERPRETATION. The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Trust Agreement. ARTICLE II AUTHORITY TO EXECUTE AND PERFORM VARIOUS DOCUMENTS; DECLARATION OF TRUST BY TRUST COMPANY SECTION 2.1 AUTHORITY TO EXECUTE AND PERFORM VARIOUS DOCUMENTS. Each Holder hereby authorizes and directs the Owner Trustee (a) to execute and deliver, as trustee for and on behalf of each such Holder, each Operative Agreement to which the Owner Trustee is a party and any other agreements, instruments, certificates or documents related to the transactions contemplated hereby to which the Owner Trustee is a party, (b) to take whatever action shall be required to be taken by the Owner Trustee by the terms of, and exercise its rights and perform its duties under, each of the documents, agreements, instruments and certificates referred to in clause (a) above as set forth in such documents, agreements and certificates, and (c) subject to the terms of this Trust Agreement, to take such other action in connection with the foregoing as the Holders may from time to time direct. SECTION 2.2 DECLARATION OF TRUST BY TRUST COMPANY. (a) Trust Company hereby declares that it will hold all estate, right, title and interest of the Owner Trustee in, to and under each Property, each Holder Advance, the Operative Agreements and any other property contributed by any Holder, including without limitation all amounts of Rent, insurance proceeds and condemnation awards, indemnity or other payments of any kind (collectively, the "Trust Estate") as the Owner Trustee upon the trusts set forth herein and for the use and benefit of each Holder, subject, however, to the provisions of the Credit Agreement and the Security Documents. The name of the Trust shall be "Guilford Real Estate Trust 1998-1". (b) The sole purpose of the Trust is to hold title to the Trust Estate for the benefit of the Holders and to engage in activities ancillary and incidental thereto as the Holders shall determine to be desirable. Except in connection with the foregoing, the 2 6 Owner Trustee shall not (i) engage in any business activity, (ii) have any property, rights or interest, whether real or personal, tangible or intangible, (iii) incur any legal liability or obligation, whether fixed or contingent, matured or unmatured, other than in the normal course of the administration of the Trust or (iv) subject any of its property or assets to any mortgage, Lien, security interest or other claim or encumbrance, other than in favor of the Lenders or the Holders pursuant to the provisions of the Operative Agreements and this Trust Agreement. THIS TRUST IS NOT A BUSINESS TRUST. THE SOLE PURPOSE OF THE TRUST IS TO ACQUIRE AND HOLD TITLE TO THE TRUST ESTATE, SUBJECT TO THE RIGHTS OF THE LENDERS, FOR THE BENEFIT OF THE HOLDERS. THE OWNER TRUSTEE MAY NOT TRANSACT BUSINESS OF ANY KIND WITH RESPECT TO ANY PROPERTY COMPRISING THE TRUST ESTATE NOR SHALL THIS AGREEMENT BE DEEMED TO BE, OR CREATE OR EVIDENCE THE EXISTENCE OF A CORPORATION DE FACTO OR DE JURE, OR A MASSACHUSETTS TRUST, OR ANY OTHER TYPE OF BUSINESS TRUST, ASSOCIATION OR JOINT VENTURE BETWEEN THE OWNER TRUSTEE, THE HOLDERS, THE AGENT AND THE LENDERS. ARTICLE III CONTRIBUTIONS AND PAYMENTS SECTION 3.1 PROCEDURE FOR HOLDER ADVANCES; CERTIFICATES. (a) Upon receipt from Lessee by the Agent of a Requisition, and subject to the terms and conditions of the Participation Agreement, the Agent shall request from each Holder an Advance and each Holder shall make an Advance under the Holder Commitment of such Holder, as set forth on Schedule 1 hereto, on each date Advances are made pursuant to Section 5 of the Participation Agreement. The Agent may request an Advance under the Holder Commitments during the Commitment Period on any date that an Advance may be requested pursuant to the terms of Section 5.2(a) of the Participation Agreement, provided, that the Agent shall give each Holder irrevocable notice (which notice must be received by such Holder no less than five (5) Business Days prior to the requested date of the Holder Advance) specifying (i) the amount to be advanced (which on any date shall not be in excess of the then Available Holder Commitment), (ii) the requested date of advance, (iii) whether the Holder Advance is to be a Eurodollar Holder Advance or an ABR Holder Advance or a combination thereof, (iv) if the Holder Advance is to be a combination of Eurodollar Holder Advances and ABR Holder Advances, the respective amounts of each type of Holder Advance and (v) the Interest Period applicable to any Eurodollar Holder Advances. Pursuant to the terms of the Participation Agreement, the Agent shall be deemed to have delivered such notice upon the delivery of a notice by the Construction Agent or Lessee containing such required information. 3 7 (b) Upon receipt of any such notice delivered pursuant to Section 3.1(a), each Holder shall make the amount of its Advance available to the Agent for the account of the Owner Trustee at the office of the Agent referred to in Section 12.3 of the Participation Agreement prior to 12:00 Noon, Charlotte, North Carolina time on the date requested by Lessee in funds immediately available to the Owner Trustee. (c) Holder Yield accruing on each Holder Advance during the Construction Period with respect to any property shall, subject to the limitations set forth in Section 5.1(b) of the Participation Agreement, be added to the amount of the Holder Advance on the relevant Scheduled Interest Payment Date. On such Scheduled Interest Payment Date, the Holder Property Cost and Holder Construction Property Cost shall be increased by the amount of Holder Yield added to the Holder Advance. (d) The Holder Advances made by each Holder to the Trust Estate shall be evidenced by a Certificate of the Owner Trustee, substantially in the form of EXHIBIT A hereto, issued in the name of the Holder and in an amount equal to the Holder Commitment of such Holder. Each Certificate shall (i) be dated on or about the Initial Closing Date, (ii) be stated to mature on the Maturity Date and (iii) bear a yield on the unpaid Holder Amount thereof from time to time outstanding at the Holder Yield. (e) To the extent that the Owner Trustee, in its capacity as Borrower under the Credit Agreement, shall have elected to terminate or reduce the amount of the Commitments pursuant to Section 2.5(a) of the Credit Agreement, a pro rata election shall be deemed to have been made with respect to the Holder Commitment. The Holder Commitments respecting any particular Property shall automatically be reduced to zero (0) sixty (60) days after the occurrence of the Rent Commencement Date respecting such Property. On any date on which the Commitments shall be reduced to zero (0) as a result of a Credit Agreement Event of Default, the Holder Commitments shall automatically be reduced to zero (0) and the Owner Trustee shall prepay the Certificate in full for the outstanding Holder Amount, together with accrued but unpaid Holder Yield thereon and all other amounts owing under the Certificate. SECTION 3.2 HOLDER YIELD. (a) The Owner Trustee shall pay to each Holder, from the Trust Estate, its pro rata portion of Holder Yield on Holder Advances made hereunder. Payment of Holder Yield to each Holder shall be made in arrears on each Scheduled Interest Payment Date occurring after the Rent Commencement Date or as otherwise provided herein or in Section 2.6 of the Credit Agreement or Section 8.7 of the Participation Agreement. (b) If all or a portion of Holder Yield shall not be received by the Holders when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, without limiting the rights of the Holders hereunder or under any Operative Agreement, bear interest at the Holder Overdue Rate, in each case from the date of nonpayment until paid (whether after or before judgment) and shall be paid upon demand. 4 8 SECTION 3.3 SCHEDULED RETURN OF HOLDER ADVANCES. The outstanding Holder Amount shall be due in full on the Expiration Date. On each such date and on the Expiration Date, subject to the terms of the Participation Agreement, the Owner Trustee shall pay to each Holder its portion of the aggregate Holder Amount then due, together with all accrued but unpaid Holder Yield and all other amounts due to such Holders from the Owner Trustee hereunder or under the Operative Agreements. SECTION 3.4 EARLY RETURN OF ADVANCES. (a) Subject to Sections 11.2(e), 11.3 and 11.4 of the Participation Agreement, the Owner Trustee may at any time and from time to time prepay the Certificates, in whole or in part, without premium or penalty, upon at least three (3) Business Days' irrevocable notice to the Agent, on behalf of the Holders, specifying the date and amount of prepayment and whether the prepayment is of ABR Holder Advances or Eurodollar Holder Advances or a combination thereof, and, if a combination thereof, the amount allocable to each. Upon receipt of such notice, the Agent shall promptly notify the Holders thereof. If such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Amounts prepaid shall not be readvanced, except as set forth in Section 5.2(d) of the Participation Agreement. (b) If on any date the Agent or the Owner Trustee shall receive any payment in respect of (i) any Casualty, Condemnation or Environmental Violation pursuant to Sections 15.1(a) or 15.1(g) or Article XVI of the Lease (excluding any payments in respect thereof which are payable to Lessee in accordance with the Lease), or (ii) the Termination Value of any Property in connection with the delivery of a Termination Notice pursuant to Article XVI of the Lease, or (iii) the Termination Value of any Property or such other applicable amount in connection with the exercise of a Purchase Option under Article XX of the Lease or the exercise of the option of the Owner Trustee to transfer the Properties to the Lessee pursuant to Section 20.3 of the Lease or (iv) any payment required to be made or elected to be made by the Construction Agent to the Owner Trustee pursuant to the Agency Agreement, then in each case, the Holders shall receive proceeds in accordance with Section 8.7(b) of the Participation Agreement. (c) Each prepayment of the Certificates pursuant to Section 3.4(a) shall be allocated to reduce the respective Holder Property Costs of all Properties pro rata according to the Holder Property Costs of such Properties immediately before giving effect to such prepayment. Each prepayment of the Certificates pursuant to Section 3.4(b) shall be allocated to reduce the Holder Property Cost of the Property or Properties subject to the respective Casualty, Condemnation, Environmental Violation, termination, purchase, transfer or other circumstance giving rise to such prepayment. Any amounts applied to reduce the Holder Property Cost of any Construction Period Property pursuant to this paragraph (c) shall also be applied to reduce the Construction Loan Property Cost of such Property until such Construction Loan Property Cost has been reduced to zero (0). 5 9 SECTION 3.5 PAYMENTS FROM TRUST ESTATE ONLY. All payments to be made by the Owner Trustee under this Trust Agreement (including without limitation any payments pursuant to Section 11.4 of the Participation Agreement) shall be made only from the income and proceeds from the Trust Estate and only to the extent that the Owner Trustee shall have received income or proceeds from the Trust Estate to make such payments in accordance with the terms hereof, except as specifically provided in Section 6.1. Each Holder agrees that it will look solely to the income and proceeds from the Trust Estate to the extent available for payment as herein provided and that, except as specially provided in any Operative Agreement, Trust Company shall not be liable to any Holder for any amounts payable under this Trust Agreement and shall not be subject to any liability under this Trust Agreement. SECTION 3.6 METHOD OF PAYMENT. All amounts payable to a Holder pursuant to this Trust Agreement shall be paid or caused to be paid by the Owner Trustee to, or for the account of, such Holder, or its nominee, by transferring such amount in immediately available funds to a bank institution or banking institutions with bank wire transfer facilities for the account of such Holder or as otherwise instructed in writing from time to time by such Holder. SECTION 3.7 COMPUTATION OF YIELD. (a) Whenever it is calculated on the basis of the Prime Lending Rate, Holder Yield shall be calculated on the basis of a year of three hundred sixty-five (365) days (or three hundred sixty-six (366) days, as the case may be) for the actual days elapsed; and, otherwise, Holder Yield shall be calculated on the basis of a year of three hundred sixty (360) days for the actual days elapsed. Any change in the Holder Yield resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. (b) Pursuant to Section 12.12 of the Participation Agreement, the calculation of Holder Yield under this Section 3.7 shall be made by the Agent. Each determination of an interest rate by the Agent shall be conclusive and binding on the Owner Trustee and the Holders in the absence of manifest error. (c) If the Eurodollar Rate cannot be determined by the Agent in the manner specified in the definition of the term "Eurodollar Rate", the Owner Trustee shall give or cause to be given telecopy or telephonic notice thereof to the Holders as soon as practicable after receipt of same from the Agent. Commencing on the Scheduled Interest Payment Date next occurring after the delivery of such notice and continuing until such time as the Eurodollar Rate can be determined by the Agent in the manner specified in the definition of such term, all outstanding Holder Advances shall bear a yield at the ABR. Until such time as the Eurodollar Rate can be determined by the Agent in the manner specified in the definition of such term, no further Eurodollar Holder Advances shall be 6 10 made or shall be continued as such at the end of the then current Interest Period nor shall the Owner Trustee have the right to convert ABR Holder Advances to Eurodollar Holder Advances. SECTION 3.8 CONVERSION AND CONTINUATION OPTIONS. (a) The Owner Trustee may elect from time to time to convert Eurodollar Holder Advances to ABR Holder Advances by giving the Agent (on behalf of the Holders) at least three (3) Business Days' prior irrevocable notice of such election, provided, that any such conversion of Eurodollar Holder Advances may only be made on the last day of an Interest Period with respect thereto, and provided, further, to the extent an Event of Default has occurred and is continuing on the last day of any such Interest Period, the applicable Eurodollar Holder Advance shall automatically be converted to an ABR Holder Advance. The Owner Trustee may elect from time to time to convert ABR Holder Advances to Eurodollar Holder Advances by giving the Agent (on behalf of the Holders) at least three (3) Business Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Holder Advances shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice, the Agent (on behalf of the Holders) shall promptly notify each Holder thereof. All or any part of outstanding Eurodollar Holder Advances or ABR Holder Advances may be converted as provided herein, provided, that (i) no ABR Holder Advance may be converted into a Eurodollar Holder Advance after the date that is one (1) month prior to the Maturity Date and (ii) such notice of conversion shall contain an election by the Owner Trustee of an Interest Period for such Eurodollar Holder Advance to be created by such conversion and such Interest Period shall be in accordance with the terms of the definition of the term "Interest Period" including without limitation subparagraphs (A) through (D) thereof. (b) Subject to the restrictions set forth in Section 3.1, any Eurodollar Holder Advance may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Owner Trustee giving irrevocable notice to the Agent (on behalf of the Holders) in accordance with the notice provisions for the conversion of ABR Holder Advances to Eurodollar Holder Advances set forth herein and the applicable provisions of the term "Interest Period" of the length of the next Interest Period to be applicable to such Eurodollar Holder Advances, provided, that no Eurodollar Holder Advance may be continued as such after the date that is one (1) month prior to the Maturity Date, provided, further, no Eurodollar Holder Advance may be continued as such if an Event of Default has occurred and is continuing as of the last day of the Interest Period for such Eurodollar Holder Advance, and provided, further, that if the Owner Trustee shall fail to give any required notice as described above or if such continuation is not permitted pursuant to the preceding proviso or otherwise, such Advances shall automatically be converted to ABR Advances on the last day of such then expiring Interest Period. 7 11 SECTION 3.9 NOTICE OF AMOUNTS PAYABLE. (a) In the event that any Holder becomes aware that any amounts are or will be owed to it pursuant to Sections 11.2(e), 11.3 or 11.4 of the Participation Agreement or that it is unable to make Holder Advances which bear a yield based on the Eurodollar Rate plus the Applicable Percentage for Eurodollar Holder Advances, then it shall promptly notify the Owner Trustee thereof and, as soon as possible thereafter, such Holder shall submit to the Owner Trustee a certificate indicating the amount owing to it and the calculation thereof. The amounts set forth in such certificate shall be prima facie evidence of the obligations of the Owner Trustee hereunder. (b) In the event that any Holder delivers to the Owner Trustee a certificate in accordance with Section 3.9(a), or any Holder is required to make Holder Advances with Holder Yields calculated at the ABR in accordance with Section 11.3(d) of the Participation Agreement, subject to Section 9.2 of the Participation Agreement, the Owner Trustee may, at the expense of Lessee and in the discretion of the Owner Trustee, (i) require such Holder to transfer or assign, in whole or (with such Holder's consent) in part, without recourse (in accordance with Section 11.8), all or (with such Holder's consent) part of its interests, rights (except for rights to be indemnified for actions taken while a party hereunder) and obligations under this Agreement to a replacement bank or institution if the Owner Trustee (subject to Section 9.2 of the Participation Agreement) and with the full cooperation of such Holder) can identify a Person who is ready, willing and able to be such replacement bank or institution with respect thereto and such replacement bank or institution (which may be another Holder) shall assume such assigned obligations, or (ii) during such time as no Default or Event of Default has occurred and is continuing, terminate the Holder Commitment of such Holder and prepay the outstanding Holder Advances of such Holder, provided, however, that (x) subject to Section 9.2 of the Participation Agreement, the Owner Trustee or such replacement bank or institution, as the case may be, shall have paid to such Holder in immediately available funds the amount of the Holder Advances and Holder Yield accrued to the date of such payment on the Holder Advances made by it hereunder (and, if such Holder is also a Lender, the principal and interest on all Loans accrued and unpaid thereon) and (y) such assignment or termination of the Holder Commitment of the Holder and prepayment of the Holder Advances do not conflict with any law, rule or regulation or order of any court or Governmental Authority. ARTICLE IV COLLECTIONS AND DISTRIBUTIONS SECTION 4.1 COLLECTIONS AND REMITTANCES BY THE OWNER TRUSTEE. The Owner Trustee agrees that, subject to the provisions of this Trust Agreement and the Operative Agreements, it will during the term of this Trust administer the Trust Estate and, at the 8 12 direction of the Holders, take steps to collect all Rent and other sums payable to the Owner Trustee by Lessee under the Lease. The Owner Trustee agrees to distribute, or cause to be distributed, all proceeds received from the Trust Estate in accordance with Article III and Sections 4.2 and 4.3. The Owner Trustee shall make, or cause to be made, such distribution promptly upon receipt of such proceeds (provided, such proceeds are available for distribution) by the Agent (on behalf of the Owner Trustee), it being understood and agreed that the Owner Trustee shall not be obligated to make, or to cause to be made, such distribution until the funds for such distribution have been received by the Agent (on behalf of the Owner Trustee) in cash or its equivalent reasonably acceptable to the Owner Trustee. SECTION 4.2 PRIORITY OF DISTRIBUTIONS. Subject to the terms and requirements of the Operative Agreements, all payments and amounts received by Trust Company as the Owner Trustee or on its behalf shall be distributed to the Agent for allocation by the Agent in accordance with the terms of Section 8.7 of the Participation Agreement or, if such payments or amounts are received by the Owner Trustee from the Agent, then they shall be distributed forthwith upon receipt in the following order of priority: first, in accordance with the Holder Yield protection provisions set forth in Section 11.3 of the Participation Agreement; and, second, the balance, if any, of such payment or amount remaining thereafter shall be distributed to the Holders pro rata (based on the ratio of the individual Holder's Holder Commitment to the aggregate of all the Holders' Holder Commitments). SECTION 4.3 EXCEPTED PAYMENTS. Anything in this Article IV or elsewhere in this Trust Agreement to the contrary notwithstanding, any Excepted Payment received at any time by the Owner Trustee shall be distributed promptly to the Person entitled to receive such Excepted Payment. SECTION 4.4 DISTRIBUTIONS AFTER DEFAULT. Subject to the terms of Section 5.1, the proceeds received by the Owner Trustee from the exercise of any remedy under the Lease shall be distributed pursuant to Section 4.2 above. This Trust shall cease and terminate in accordance with the terms set forth in Section 8.1 and upon the final disposition by the Owner Trustee of all of the Trust Estate pursuant to this Section 4.4. ARTICLE V DUTIES OF THE OWNER TRUSTEE SECTION 5.1 NOTICE OF CERTAIN EVENTS. In the event the Owner Trustee shall have knowledge of any Default or Event of Default, the Owner Trustee shall give written notice thereof within five (5) Business Days to each Holder, Lessee and the Agent unless such Default or Event of Default no longer exists before the giving 9 13 of such notice. Subject to the provisions of Section 5.3 of this Trust Agreement and Sections 8.5 and 9.2 of the Participation Agreement, the Owner Trustee shall take or refrain from taking such action as the Agent shall direct until such time as the Loans are paid in full (and as more specifically provided in Sections 8.2(h) and 8.6 of the Participation Agreement) and thereafter as the Majority Holders shall direct, in each case by written instructions to the Owner Trustee. If the Owner Trustee shall have given the Agent and the Holders (and respecting Sections 8.5 and 9.2 of the Participation Agreement, the Lessee) notice of any event and shall not have received written instructions as above provided within thirty (30) days after mailing notice of such event to the Agent and the Holders (and respecting Sections 8.5 and 9.2 of the Participation Agreement, the Lessee), the Owner Trustee may, but shall be under no duty to, and shall have no liability for its failure or refusal to, take or refrain from taking any action with respect thereto, not inconsistent with the provisions of the Operative Agreements, as the Owner Trustee shall deem advisable and in the best interests of the Lenders and the Holders. For all purposes of this Trust Agreement, in the absence of actual knowledge of a Responsible Officer in the Corporate Trust Department of Trust Company, the Owner Trustee shall be deemed not to have knowledge of any Default or Event of Default unless a Responsible Officer of the Corporate Trust Department of Trust Company receives notice thereof given by or on behalf of a Holder, Lessee or the Agent. SECTION 5.2 ACTION UPON INSTRUCTIONS. Subject to the provisions of Sections 5.1 and 5.3, upon the written instructions of the Agent or the Majority Holders (as applicable), the Owner Trustee will take or refrain from taking such action or actions as may be specified in such instructions. SECTION 5.3 INDEMNIFICATION. The Owner Trustee shall not be required to take or refrain from taking any action under this Trust Agreement or any other Operative Agreement (other than the actions specified in the first sentence of Section 5.1 and in the last sentence of Section 5.4) unless Trust Company shall have been indemnified by Lessee or, at their election, by the Holders and the Lenders against any liability, fee, cost or expense (including without limitation reasonable attorneys' fees and expenses) that may be incurred or charged in connection therewith, other than such as may result from the willful misconduct or gross negligence of the Owner Trustee. The Owner Trustee shall not be required to take any action under any Operative Agreement if the Owner Trustee shall reasonably determine, or shall have been advised by counsel, that such action is likely to result in personal liability for which the Owner Trustee has not been and will not be adequately indemnified or is contrary to the terms hereof or of any Operative Agreement to which the Owner Trustee is a party or is otherwise contrary to law. The Owner Trustee shall be under no liability with respect to any action taken or omitted to be taken by the Owner Trustee in accordance with instructions of the Agent or the Majority Holders pursuant to Section 5.2. 10 14 SECTION 5.4 NO DUTIES EXCEPT AS SPECIFIED IN TRUST AGREEMENT OR INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to manage, control, use, make any payment in respect of, register, record, insure, inspect, sell, dispose of or otherwise deal with any Property or any other part of the Trust Estate, or to otherwise take or refrain from taking any action under or in connection with any Operative Agreement to which the Owner Trustee is a party, except as expressly provided by the terms of this Trust Agreement or in written instructions from the Agent and/or the Majority Holders, as applicable, received pursuant to Sections 5.1, 5.2 or 8.4 of this Trust Agreement or Sections 8.2(h) or 8.6 of the Participation Agreement or from the Lessee pursuant to Sections 8.5 or 9.2 of the Participation Agreement; and no implied duties or obligations shall be read into this Trust Agreement against the Owner Trustee. The Owner Trustee shall have no duty or obligation to supervise or monitor the performance of the Construction Agent pursuant to the Agency Agreement which for all purposes shall be an independent contractor. The Owner Trustee nevertheless agrees that it will (in its individual capacity and at its own cost and expense), promptly take all action as may be necessary to discharge any Lessor Liens on any part of the Trust Estate. SECTION 5.5 NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR INSTRUCTIONS. The Owner Trustee agrees that it will not manage, control, use, sell, dispose of or otherwise deal with any Property or any other part of the Trust Estate except (a) as required by the terms of the Operative Agreements, (b) in accordance with the powers granted to, or the authority conferred upon, it pursuant to this Trust Agreement, (c) in accordance with the express terms hereof or with written instructions from the Agent and/or the Majority Holders, as applicable, pursuant to Sections 5.1, 5.2 or 8.4 or (d) from the Lessee pursuant to Sections 8.5 or 9.2 of the Participation Agreement. SECTION 5.6 ABSENCE OF DUTIES. (a) Except in accordance with written instructions furnished pursuant to Sections 5.1, 5.2 or 8.4, and without limitation of the generality of Section 5.4, the Owner Trustee shall not have any duty to (i) file, record or deposit any Operative Agreement or any other document, or to maintain any such filing, recording or deposit or to refile, rerecord or redeposit any such document; (ii) obtain insurance on any Property or effect or maintain any such insurance, other than to receive and forward to each Holder and the Agent any notices, policies, certificates or binders furnished to the Owner Trustee pursuant to the Lease; (iii) maintain any Property; (iv) pay or discharge any Tax or any Lien owing with respect to or assessed or levied against any part of the Trust Estate, except as provided in the last sentence of Section 5.4, other than to forward notice of such Tax or Lien received by the Owner Trustee to each Holder, the Lessee and the Agent; (v) confirm, verify, investigate or inquire into the failure to receive any reports or financial statements of Lessee or any other Person; (vi) inspect any Property any time or ascertain or inquire as to the performance or observance of any of the covenants of Lessee or any other Person under any Operative Agreement with respect to any Property; or (vii) 11 15 manage, control, use, sell, dispose of or otherwise deal with any Property or any part thereof or any other part of the Trust Estate, except as provided in Section 5.5. (b) The Owner Trustee, in the exercise or administration of the trusts and powers hereunder, including without limitation its obligations under Section 5.2, may, at the expense of Lessee, employ agents, attorneys, accountants, and auditors and enter into agreements with any of them and the Owner Trustee shall not be liable, either in its individual capacity or in its capacity as the Owner Trustee, for the default or misconduct of any such agents, attorneys, accountants or auditors if such agents, attorneys, accountants or auditors shall have been selected by it in good faith. ARTICLE VI THE OWNER TRUSTEE SECTION 6.1 ACCEPTANCE OF TRUST AND DUTIES. The Owner Trustee accepts the trust and duties hereby created and agrees to perform the same, but only upon the terms of this Trust Agreement. The Owner Trustee agrees to receive, manage and disburse all moneys constituting part of the Trust Estate actually received by it as the Owner Trustee in accordance with the terms of this Trust Agreement. The Owner Trustee shall not be answerable or accountable under any circumstances, except for (i) its own willful misconduct or gross negligence, (ii) the inaccuracy of any of its representations or warranties contained in Section 6.3 of this Trust Agreement or Section 6.1 of the Participation Agreement, (iii) its failure to perform obligations expressly undertaken by it in the last sentence of Section 5.4 of this Trust Agreement or in Section 8.2(a) of the Participation Agreement, (iv) Taxes based on or measured by any fees, commissions or compensation received by it for acting as the Owner Trustee in connection with any of the transactions contemplated by the Operative Agreements, or (v) its failure to use ordinary care to receive, manage and disburse moneys actually received by it in accordance with the terms of the Operative Agreements. SECTION 6.2 FURNISHING OF DOCUMENTS. The Owner Trustee will furnish to each Holder and to the Agent, promptly upon receipt thereof, duplicates or copies of all reports, notices, requests, demands, opinions, certificates, financial statements and any other instruments or writings furnished to the Owner Trustee hereunder or under the Operative Agreements, unless by the express terms of any Operative Agreement a copy of the same is required to be furnished by some other Person directly to the Holders and/or the Agent, or the Owner Trustee shall have determined that the same has already been furnished to the Holders and the Agent. 12 16 SECTION 6.3 NO REPRESENTATIONS OR WARRANTIES AS TO THE PROPERTIES OR OPERATIVE AGREEMENTS. THE OWNER TRUSTEE MAKES (i) NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE, USE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND THE OWNER TRUSTEE SHALL NOT BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT except that the Owner Trustee hereby represents, warrants and covenants to each Holder that it will comply with the last sentence of Section 5.4, and (ii) no representation or warranty as to the validity or enforceability of any Operative Agreement or as to the correctness of any statement made by a Person other than the Owner Trustee or the Owner Trustee contained in any thereof, except that the Owner Trustee represents, warrants and covenants to each Holder that this Trust Agreement has been and each of the other Operative Agreements which contemplates execution thereof by the Owner Trustee has been or will be executed and delivered by its officers who are, or will be, duly authorized to execute and deliver documents on its behalf. SECTION 6.4 NO SEGREGATION OF MONEYS; NO INTEREST. Except as otherwise provided herein or in any of the other Operative Agreements, moneys received by the Owner Trustee hereunder need not be segregated in any manner except to the extent required by law, and may be deposited under such general conditions as may be prescribed by law, and neither Trust Company nor the Owner Trustee shall be liable for any interest thereon, except as may be agreed to in writing by the Owner Trustee or the Trust Company. SECTION 6.5 RELIANCE; ADVICE OF COUNSEL. The Owner Trustee shall not incur any liability to any Person in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it in good faith to be signed by the proper party or parties. The Owner Trustee may accept and rely upon a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically prescribed herein, the Owner Trustee may for all purposes hereof rely on an Officer's Certificate of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. In the administration of the trusts hereunder, the Owner Trustee may execute any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and may consult with counsel, accountants and other skilled Persons to be selected and employed by it, and the Owner Trustee shall not be liable for anything done, 13 17 suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled Persons and not contrary to this Trust Agreement. SECTION 6.6 LIABILITY WITH RESPECT TO DOCUMENTS. The Owner Trustee, either in its trust or individual capacities, shall not incur any liability to any Person for or in respect of the recitals herein, the validity or sufficiency of this Trust Agreement or for the due execution hereof by each Holder or for the form, character, genuineness, sufficiency, value or validity of any Property or for or in respect of the validity or sufficiency of any of the Operative Agreements and the Owner Trustee, either in its trust or individual capacities, shall in no event assume or incur any liability, duty or obligation to any Person or to any Holder, other than as expressly provided for herein or in any of the other Operative Agreements. SECTION 6.7 NOT ACTING IN INDIVIDUAL CAPACITY. All Persons having any claim against the Owner Trustee by reason of the transactions contemplated by the Operative Agreements shall look only to the Trust Estate (or a part thereof, as the case may be) for payment or satisfaction thereof, except as specifically provided in this Article VI and except to the extent that the Owner Trustee shall otherwise expressly agree in any Operative Agreement to which it is a party, including without limitation Section 6.1 and Section 8.2(a) of the Participation Agreement and the last sentence of Section 5.4 hereof. SECTION 6.8 BOOKS AND RECORDS; TAX RETURNS. (a) The Owner Trustee shall be responsible for the keeping of all appropriate books and records relating to the receipt and disbursement of all moneys that it may receive hereunder, or under any other Operative Agreement. The Owner Trustee shall, at the expense of Lessee, file an application with the Internal Revenue Service for a taxpayer identification number with respect to the trust created hereby. The Owner Trustee shall, at the expense of Lessee, prepare or cause to be prepared and the Owner Trustee shall sign and/or file the federal fiduciary tax return with respect to Taxes due and payable by the trust created hereby in connection with the transactions contemplated hereby and by any other Operative Agreement. Each Holder shall furnish the Owner Trustee with all such information as may be reasonably required from such Holder (as such is requested in writing by the Owner Trustee) in connection with the preparation of such tax returns. The Owner Trustee shall keep copies of all returns delivered to or filed by it. (b) The Owner Trustee, either in its trust or individual capacities, shall be under no obligation to appear in, prosecute or defend any action, which in its opinion may require it to incur any out-of-pocket expense or any liability unless the Owner Trustee shall be furnished with such reasonable security and indemnity by Lessee (or, at the election of the Majority Secured Parties, by the Holders and the Lenders) against such expense or liability as it may require. The Owner Trustee may, but shall be under no duty to, undertake such action as it may deem necessary at any and all times, without any 14 18 further action by the Agent or any Holder to protect one (1) or more of the Properties and the rights and interests of the Holders pursuant to the terms of this Trust Agreement; provided, however, that the Owner Trustee may obtain reimbursement for the out-of-pocket expenses and costs of such actions, undertakings or proceedings from Lessee. ARTICLE VII INDEMNIFICATION OF THE OWNER TRUSTEE SECTION 7.1 INDEMNIFICATION GENERALLY. The Owner Trustee is indemnified for matters related to the transactions described herein by Lessee pursuant to Section 11 of the Participation Agreement. Except as may be specifically provided from time to time hereafter in writing by the Holders, the Owner Trustee shall not have any right of indemnification from any Holder with respect to the transactions described herein or in any of the other Operative Agreements. SECTION 7.2 COMPENSATION AND EXPENSES. Lessee has agreed to pay the fees and expenses of the Owner Trustee as provided in Section 7.3 of the Participation Agreement. ARTICLE VIII TERMINATION OF TRUST AGREEMENT SECTION 8.1 TERMINATION OF TRUST AGREEMENT. This Trust Agreement and the trusts created hereby shall terminate and the Trust Estate shall, subject to the provisions of the Participation Agreement, the other Operative Agreements and Article IV of this Trust Agreement, be distributed pro rata to the Holders, and this Trust Agreement shall be of no further force or effect, upon the earliest of (a) the joint written request of the Majority Holders following the sale or other final disposition by the Owner Trustee of all property constituting part of the Trust Estate and the final distribution by the Owner Trustee of all moneys or other property or proceeds constituting part of the Trust Estate in accordance with the terms hereof; provided, however, that (except as provided for in the Operative Agreements) the Trust Estate shall not be subject to sale or other final disposition by the Owner Trustee prior to the payment in full and discharge of the Loans and all other indebtedness secured by the Credit Documents and the release of the Credit Documents and the Liens granted thereby and the payment in full of the Holder Amount and Holder Yield thereon and all other amounts owing to the Holders under any of the Operative Agreements and (b) fifty (50) years after the date hereof. 15 19 SECTION 8.2 TERMINATION AT OPTION OF THE HOLDERS. Notwithstanding Section 8.1, this Trust Agreement and the trusts created hereby shall terminate and the Trust Estate shall be distributed pro rata to the Holders, and this Trust Agreement shall be of no further force and effect, upon the joint election of the Holders by notice to the Owner Trustee, if such notice shall be accompanied by the written agreement of each Holder assuming all the obligations of the Owner Trustee under or contemplated by the Operative Agreements and all other obligations of the Owner Trustee incurred by it as trustee hereunder; provided, however, that each Holder agrees for the express benefit of the Agent and the Lenders, that without the consent of the Majority Lenders, no such election shall be effective until the Liens and security interests of the Security Documents on the Collateral shall have been released and until full payment of the principal of, and interest on the Loans and all other sums due to the Lenders shall have been made. Such written agreement shall be reasonably satisfactory in form and substance to the Owner Trustee and shall release the Owner Trustee from all further obligations of the Owner Trustee hereunder and under the agreements and other instruments mentioned in the preceding sentence. SECTION 8.3 TERMINATION AT OPTION OF THE OWNER TRUSTEE. At any time that the Lease shall no longer be in full force and effect and the Agent shall have confirmed in writing to the Owner Trustee that the Lenders have received payment in full of the principal of and interest on the Loans and that all other sums due to the Agent and the Lenders under the Operative Agreements shall have been made, then the Holders hereby authorize the Owner Trustee to: (a) terminate this Trust Agreement and the trusts created hereby and (b) distribute and convey the Trust Estate pro rata to the Holders by executing the necessary transfer documents as contemplated by Section 8.4. The exercise of such option by the Owner Trustee shall cause this Trust Agreement to be of no further force and effect and shall release the Owner Trustee from all further obligations of the Owner Trustee hereunder and under the agreements and other instruments mentioned in the preceding sentence. SECTION 8.4 ACTIONS BY THE OWNER TRUSTEE UPON TERMINATION. Upon termination of this Trust Agreement and the trusts created hereby pursuant to Sections 8.1, 8.2 or 8.3, the Owner Trustee shall upon notice of such event take such action as may be necessary or as may be requested by the Majority Holders to transfer the Trust Estate pro rata to the Holders, including without limitation the execution of instruments of transfer or assignment with respect to any of the Operative Agreements to which the Owner Trustee is a party. 16 20 ARTICLE IX SUCCESSOR OWNER TRUSTEES, CO-OWNER TRUSTEES AND SEPARATE OWNER TRUSTEES SECTION 9.1 RESIGNATION OF THE OWNER TRUSTEE; APPOINTMENT OF SUCCESSOR. (a) The Owner Trustee may resign at any time without cause by giving at least thirty (30) days' prior written notice to each Holder, the Agent and Lessee; provided, however, that such resignation shall not be effective until the acceptance of appointment by a successor Owner Trustee under Section 9.1(b). The Owner Trustee may be removed with or without cause at any time by the Majority Holders upon consent to such removal by the Agent and with sixty (60) days' prior written notice to the Owner Trustee, a copy of which notice shall be concurrently delivered by the Majority Holders to the Agent and Lessee. Any such removal shall be effective upon the acceptance of appointment by a successor Owner Trustee under Section 9.1(b). In case of the resignation or removal of the Owner Trustee, the Holders may appoint a successor Owner Trustee by an instrument signed by the Majority Holders; provided, however, that such successor Owner Trustee must be approved by the Agent. In the event the Owner Trustee shall be an individual, his death or incapacity, or termination of employment (whether voluntary or involuntary) with First Security Bank, National Association (or a successor corporate Owner Trustee) shall be treated as a resignation hereunder and shall be effective immediately. If a successor Owner Trustee shall not have been appointed within thirty (30) days after the giving of written notice of such resignation or the delivery of the written instrument with respect to such removal, the Owner Trustee or any Holder may apply to any court of competent jurisdiction to appoint a successor Owner Trustee to act until such time, if any, as a successor shall have been appointed and shall have accepted its appointment as above provided. Any successor Owner Trustee so appointed by such court shall immediately and without further act be superseded by any successor Owner Trustee appointed as above provided within one (1) year from the date of the appointment by such court. (b) Any successor Owner Trustee, however appointed, shall execute and deliver to the predecessor Owner Trustee an instrument accepting such appointment, and thereupon such successor Owner Trustee, without further act shall become vested with all the estates, properties, rights, powers, duties and trusts of the predecessor Owner Trustee in the trusts hereunder with like effect as if originally named an Owner Trustee herein; but nevertheless, upon the written request of such successor Owner Trustee such predecessor Owner Trustee shall execute and deliver an instrument transferring to such successor Owner Trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, duties and trusts of such predecessor Owner Trustee, and such predecessor Owner Trustee shall duly assign, transfer, deliver and pay over to such successor Owner Trustee all moneys or other property then held by such predecessor Owner Trustee upon the trusts herein expressed. 17 21 (c) Any successor Owner Trustee, however appointed, shall be a bank or trust company incorporated and doing business within the United States of America and having a combined capital and surplus of at least $50,000,000, if there be such an institution willing, able and legally qualified to perform the duties of the Owner Trustee hereunder upon reasonable or customary terms. (d) Any corporation into which the Owner Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Owner Trustee shall be a party, or any corporation to which substantially all the corporate trust business of the Owner Trustee may be transferred, shall, subject to the terms of Section 9.1(c), be the Owner Trustee under this Trust Agreement without further act. SECTION 9.2 CO-TRUSTEES AND SEPARATE TRUSTEES. Whenever the Owner Trustee or the Majority Holders shall deem it necessary or prudent in order either (a) to conform to any law of any jurisdiction in which all or any part of the Trust Estate shall be situated or to which it may be subject or to make any claim or bring any suit with respect to the Trust Estate or any Operative Agreement, (b) shall be advised by counsel satisfactory to it that it is so necessary or prudent, or (c) the Owner Trustee shall have been directed to do so by the Majority Holders and the Agent, the Owner Trustee and the Holders shall execute and deliver an agreement supplemental hereto and all other instruments and agreements, and shall take all other action, necessary or proper to constitute one (1) or more Persons who need not meet the requirements of Section 9.1(c) (and the Owner Trustee may appoint one (1) or more of its officers) either as co-trustee or co-trustees (the "Co-Owner Trustee"), jointly with the Owner Trustee, of all or any part of the Trust Estate, or as separate trustee or separate trustees of all or any part of the Trust Estate, and to vest in such Persons, in such capacity, such title to the Trust Estate or any part thereof and such rights or duties as may be necessary or desirable, all for such period and under such terms and conditions as are satisfactory to the Owner Trustee and the Holders. In accordance with the foregoing: (i) The Owner Trustee shall appoint a Co-Owner Trustee hereunder in part so that if, under any present or future law of any state where any Property is located or of any jurisdiction in which it may be necessary to perform any act in carrying out the trusts herein created, the Owner Trustee or any of its successors may be incompetent or unqualified or incapacitated or unwilling to perform certain acts as such Owner Trustee, then upon the written request of the Owner Trustee of any of its successors received by any Co-Owner Trustee, all of such acts required to be performed in such jurisdiction in the execution of the trust hereby created, shall and will be performed by any Co-Owner Trustee, or any of his successors, in trust acting alone, as if he or such successor had been specifically authorized so to do or had been the sole Owner Trustee hereunder. Any Co-Owner Trustee shall continue to perform such acts until otherwise directed in writing by the Owner Trustee or any of its successors. Any request in writing by the Owner Trustee or any of its successors to the Co-Owner Trustee shall be sufficient warrant for him to take such action as may be so requested. 18 22 (ii) Except as it may be deemed necessary for any Co-Owner Trustee or any of his successors solely or jointly to execute the trusts herein created, the Owner Trustee or any of its successors shall solely have and exercise the powers, and shall be solely charged with the performance of the duties, hereinbefore declared on the part of the Owner Trustee to be had, exercised and performed; and any Co-Owner Trustee shall not be liable therefor. Any Co-Owner Trustee or any successor to him may delegate to the Owner Trustee or its successor hereunder the exercise of any power, discretion or otherwise, conferred by any provision of this Trust Agreement. (iii) Any act of the Owner Trustee herein required or authorized shall and will be jointly or separately performed by the Owner Trustee or its successors hereunder and by any Co-Owner Trustee or any of his successors appointed hereunder, if such joint performance or separate performance shall be necessary to the legality of such act and when so acting all references herein to "First Security Bank, National Association" shall be deemed to be references to such Co-Owner Trustee in its individual capacity and all references to "Owner Trustee" shall be deemed to be references to any Co-Owner Trustee, and such Co-Owner Trustee shall be entitled to all the protection, indemnification, immunity and compensation herein provided to the Owner Trustee acting singly in reference to such acts (subject to the limitations to such a protection, indemnification, immunity and compensation set forth herein). (iv) The Owner Trustee or its successor in trust shall have and is hereby given the power at any time by an instrument in writing duly executed by a Responsible Officer, to remove any Co-Owner Trustee or his successor, from his position as Co-Owner Trustee hereunder. In the case of death, resignation, removal, incapacity or inability to act hereunder of the Co-Owner Trustee, or his successor as Co-Owner Trustee, any adult citizen of the United States of America may be appointed Co-Owner Trustee hereunder by the person who shall at the time be a Responsible Officer of the corporation then acting as the Owner Trustee hereunder by an instrument in writing duly executed, and under its corporate seal, and, subject to its right to revoke such appointment or to appoint another person, the Owner Trustee shall appoint a successor Co-Owner Trustee, such appointment to be immediately effective in case of the death, resignation, removal or inability or incapacity to act hereunder of the Co-Owner Trustee. In the event a vacancy occurs in the office of the Co-Owner Trustee, either by reason of resignation, removal, incapacity or inability to act and no successor is appointed pursuant to the foregoing provisions within thirty (30) days after such vacancy occurs, the Holders and the Agent may jointly appoint a successor to the Co-Owner Trustee in the same manner as is provided for the appointment of a successor to the Co-Owner Trustee hereunder. (v) At any time or times, for the purposes of meeting the legal requirements of any jurisdiction in which any part of the Trust Estate hereunder may at the time be located, or to avoid any violation of law or imposition of taxes not otherwise imposed on the Owner Trustee, or if the Owner Trustee shall deem it desirable for its own protection, the Owner Trustee shall have power to appoint one (1) or more persons (who may be 19 23 officers of the Owner Trustee either to act as an additional co-trustee, jointly with the Owner Trustee) of all or any part of the Trust Estate hereunder, or of any property constituting part thereof, or to act as separate trustee of any part of the Trust Estate in either case with such powers as may be provided in the instrument of appointment and are consistent with the terms hereof, and to vest in such person or persons in the capacity as aforesaid, any property, title, right or power deemed necessary or desirable, subject to the remaining provisions of this Section 9.2. (vi) Notwithstanding any provision of this Trust Agreement to the contrary, any additional co-trustee shall act upon and be subject to the following terms and conditions: All rights, powers, duties and obligations conferred or imposed upon the Owner Trustee shall be conferred or imposed solely upon and solely exercised and performed by the Owner Trustee except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Owner Trustee or the Owner Trustee shall be incompetent or unqualified to perform such act or acts or to avoid any violation of law or imposition of taxes not otherwise imposed on the Owner Trustee, or if the Owner Trustee shall deem it desirable for its own protection, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or Co-Owner Trustee. (vii) No power granted by this Trust Agreement to, or which this Trust Agreement provides may be exercised by, the Owner Trustee in respect of the custody, control and management of moneys may be exercised by any Co-Owner Trustee or any subsequently appointed co-trustee except jointly with, or with the consent in writing of, the Owner Trustee for disbursement or application in accordance with the terms hereof. (viii) All moneys which may be received or collected by any Co-Owner Trustee or such subsequently appointed co-trustees shall be paid over to the Owner Trustee to be distributed in accordance with this Trust Agreement and the other Operative Agreements. (ix) Any Co-Owner Trustee, or any subsequently appointed co-trustee to the extent permitted by law, does hereby constitute the Owner Trustee or its successors hereunder his or her agent or attorney in fact, with full power and authority to do any and all acts and things and exercise any and all discretion authorized or permitted by the Co-Owner Trustee or such subsequently appointed co-trustee, in its behalf or in its name. (x) No trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder. SECTION 9.3 NOTICE. At all times that a successor Owner Trustee is appointed pursuant to Section 9.1, an Owner Trustee resigns pursuant to Section 9.1 or the Co-Owner Trustee, a co-trustee or separate 20 24 trustee, is appointed pursuant to Section 9.2, the Holders shall give joint notice of such fact within thirty (30) days of its occurrence to (x) Lessee, if the Lease is then in effect and (y) the Agent, if the Credit Agreement is in effect. ARTICLE X AMENDMENTS SECTION 10.1 AMENDMENTS. This Trust Agreement may be terminated, amended, supplemented, waived or modified in accordance with Section 12.4 of the Participation Agreement. SECTION 10.2 LIMITATION ON AMENDMENTS. Notwithstanding Section 10.1, the Owner Trustee shall not, without the consent of the Agent execute any amendment that might result in the trusts created hereunder being terminated prior to the satisfaction and discharge of the Lien and security interest of the Security Documents on the Collateral or prior to the payment in full of the principal of, and interest on the Loans and other than in accordance with the terms of the Credit Agreement. ARTICLE XI MISCELLANEOUS SECTION 11.1 NO LEGAL TITLE TO TRUST ESTATE IN THE HOLDERS. The Holders shall not have legal title to any part of the Trust Estate; provided, however, that each Holder has a pro rata beneficial interest in the Trust Estate. No transfer, by operation of law or otherwise, of any right, title or interest of a Holder in and to the Trust Estate or hereunder shall operate to terminate this Trust Agreement or the Trust or the trusts hereunder or entitle any successor or transferee to an accounting or to the transfer to it of legal title to any part of the Trust Estate. SECTION 11.2 SALE OF A PROPERTY BY THE OWNER TRUSTEE IS BINDING. Any sale, transfer, or other conveyance of any Property or any part thereof by the Owner Trustee made pursuant to the terms of this Trust Agreement or any other Operative Agreement shall bind the Holders and shall be effective to sell, transfer and convey all right, title and interest of the Owner Trustee and the Holders in and to such Property or any part thereof. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by the Owner Trustee. 21 25 SECTION 11.3 LIMITATIONS ON RIGHTS OF OTHERS. Nothing in this Trust Agreement whether express or implied, shall be construed to give to any Person, other than the Owner Trustee and each Holder, any legal or equitable right, remedy or claim under or in respect of this Trust Agreement, any covenants, conditions or provisions contained herein or in the Trust Estate; but this Trust Agreement shall be held for the sole and exclusive benefit of the Owner Trustee and the Holders. The Agent shall have the right to enforce the provisions of Sections 5.1, 5.2, 5.3, 5.4, 6.2, 6.8, 8.1, 8.2, 8.3, 9.1, 9.2, 9.3, 10.1 and 10.2 prior to the payment in full of the principal of and interest on the Loans and such other amounts due and payable to the Lenders or the Agent under the Operative Agreements. SECTION 11.4 NOTICES. Unless otherwise expressly specified or permitted by the terms hereof, all notices hereunder shall be given as provided in Section 12.2 of the Participation Agreement. SECTION 11.5 SEVERABILITY. Any provision of this Trust Agreement that may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 11.6 LIMITATION ON THE HOLDERS' LIABILITY. No Holder shall have any liability for the performance of this Trust Agreement except as expressly set forth herein. SECTION 11.7 SEPARATE COUNTERPARTS. This Trust Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one (1) and the same instrument. SECTION 11.8 SUCCESSORS AND ASSIGNS. (a) All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, Trust Company, the Owner Trustee and its successors and assigns and each Holder and its successors and assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by a Holder shall bind the successors and assigns of such Holder. 22 26 (b) Any Holder may transfer or assign all or any portion of its right, title and interest in the Trust Estate, this Trust Agreement and the Certificate of such Holder in accordance with the requirements of Section 10.1 of the Participation Agreement and pursuant to an assignment agreement in a form acceptable to the Owner Trustee, which assignment agreement shall provide, without limitation, that the assignee undertakes and assumes all obligations and covenants of a Holder under this Trust Agreement and the other Operative Agreements. The Holder proposing the transfer or assignment shall notify the Owner Trustee, the Agent and Lessee in writing of the effective date of the transfer or assignment, which effective date shall be at least three (3) Business Days after the date of such notification. The Owner Trustee shall maintain a register showing the Holders and their respective interests in the Trust Estate and, upon the occurrence of a permitted assignment pursuant to this Section 11.8(b), shall issue a Certificate to the assignee and, if the assigning Holder is maintaining an interest hereunder, a new Certificate to such assigning Holder representing its revised interest in the Trust Estate. The Owner Trustee shall not recognize any purported assignment or transfer by a Holder that does not comply with the terms of this Section 11.8 and any such attempted transfer or assignment by a Holder in violation of the terms of this Section 11.8 shall be null and void and of no effect. SECTION 11.9 HEADINGS. The headings of the various articles and sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 11.10 GOVERNING LAW. THIS TRUST AGREEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAW OF, THE STATE OF UTAH. SECTION 11.11 PERFORMANCE BY THE HOLDERS. Any obligation of the Owner Trustee hereunder or under any Operative Agreement or other document contemplated herein may be performed by the Holders (or by one (1) of them with the written consent of the other) and any such performance shall not be construed as a revocation of the trusts created hereby. SECTION 11.12 CONFLICT WITH OPERATIVE AGREEMENTS. If this Trust Agreement (or any instructions given by a Holder pursuant hereto) shall require that any action be taken with respect to any matter and any other Operative Agreement (or any instructions duly given in accordance with the terms thereof) shall require that a different action be taken with respect to such matter, and such actions shall be mutually exclusive, the provisions of such other Operative Agreement, in respect thereof, shall control. 23 27 SECTION 11.13 NO IMPLIED WAIVER. No term or provision of this Trust Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing entered into as provided in Section 10.1; and any such waiver of the term hereof shall be effective only in the specific instance and for the specific purpose given. SECTION 11.14 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION. THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS. SECTION 11.15 AMENDMENT AND RESTATEMENT OF PRIOR TRUST AGREEMENT. This Trust Agreement amends, supersedes and restates in its entirety and in all respects the Trust Agreement dated as of January 14, 1998 between the parties hereto. Such earlier Trust Agreement is of no further force or effect. [SIGNATURE PAGE FOLLOWS] 24 28 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed by their respective officers hereunto duly authorized, as of the date set forth above. HOLDER: FIRST UNION NATIONAL BANK By: /s/ Louis E. Flori ------------------------ Name: Louis E. Flori ---------------------- Title: Vice President --------------------- OWNER TRUSTEE: FIRST SECURITY BANK, NATIONAL ASSOCIATION By: /s/ Brett R. King ---------------------------- Name: Brett R. King --------------------------- Title: Assistant Vice President -------------------------- (Guilford Real Estate Trust 1998-1) 29 SCHEDULE I HOLDER COMMITMENTS
Holder Commitment ----------------- Name of Holder Amount/Percentage -------------- ----------------- First Union National Bank $600,000 100% c/o First Union Capital Markets Group 301 South College Street, DC-6 Charlotte, North Carolina 28288-0166 Attention: Ms. Jane O. Hurley, Capital Markets Services Telephone: (704) 383-3812 Telecopy: (704) 383-7989 TOTAL $600,000 100%
I-1 30 EXHIBIT A FORM OF HOLDER CERTIFICATE FIRST SECURITY BANK, NATIONAL ASSOCIATION TRUSTEE UNDER TRUST AGREEMENT DATED AS OF FEBRUARY 5, 1998 HOLDER CERTIFICATE GUILFORD REAL ESTATE TRUST 1998-1 $__________________ ___________, 199__ FIRST SECURITY BANK, NATIONAL ASSOCIATION, as trustee (herein in such capacity called the "Owner Trustee") under that certain Trust Agreement dated as of February 5, 1998 (herein called the "Trust Agreement", the defined terms therein not otherwise defined herein being used herein with the same meanings), among the several banks and other financial institutions from time to time parties to the Trust Agreement as the Holders and the Owner Trustee, hereby certifies for the benefit of ___________________ as follows: (i) this Holder Certificate is a Holder Certificate referred to in Section 3.1(d) of the Trust Agreement, which Holder Certificate has been issued by the Owner Trustee pursuant to the Trust Agreement and (ii) subject to the prior payment of Notes to the extent provided for in Section 8.7 of the Participation Agreement, and to the assignment, pledge or mortgage of the Trust Estate to secure the Notes as set forth in the applicable Operative Agreements, the holder of this Holder Certificate has an undivided beneficial interest in properties of the Owner Trustee constituting part of the Trust Estate and is entitled to receive as provided in the Trust Agreement, a portion of the Rent received or to be received by the Owner Trustee for the Properties, as well as a portion of certain other payments which may be received by the Trustee pursuant to the terms of the Operative Agreements as more particularly set forth therein. All amounts payable hereunder and under the Trust Agreement shall be paid only from the income and proceeds from the Trust Estate and only to the extent that the Owner Trustee (or the Agent on behalf of the Owner Trustee) shall have received sufficient income or proceeds from the Trust Estate to make such payments in accordance with the terms of the Trust Agreement, except as specifically provided in Section 6.1 of the Trust Agreement; and the holder hereof, by its acceptance of this Holder Certificate, agrees that it will look solely to the income and proceeds from the Trust Estate to the extent available for distribution to the holder hereof as provided in the Trust Agreement and that, except as specifically provided in the Trust A-1 31 Agreement, the Owner Trustee is not personally liable to the holder hereof for any amount payable under this Holder Certificate or the Trust Agreement. The amounts payable to the holder hereof pursuant to the Trust Agreement shall be paid or caused to be paid by the Owner Trustee to, or for the account of, such Holder, or its nominee, by transferring such amount in immediately available funds to a bank institution or banking institutions with bank wire transfer facilities for the account of such Holder or as otherwise instructed in writing from time to time by such Holder. This Holder Certificate shall mature, and all amounts payable to the holder hereof pursuant to the Trust Agreement shall be due and payable, on the Maturity Date. This Holder Certificate shall bear a yield on the unpaid amount hereof from time to time outstanding hereunder and under the Trust Agreement at the Holder Yield as provided in the Trust Agreement. The Holder Yield on this Holder Certificate shall be computed as provided in the Trust Agreement and shall be payable at the rates, at the times and from the dates specified in the Trust Agreement. From and after the execution of the Participation Agreement, the rights of the holder of this Holder Certificate under the Trust Agreement as well as the beneficial interest of the holder of this Holder Certificate in and to the properties of the Owner Trustee constituting part of the Trust Estate, are subject and subordinate to the rights of the holders of the Notes to the extent provided in the applicable Operative Agreements. The Trust Estate has been or will be assigned, pledged and mortgaged to the Agent, on behalf of the Lenders and the Holders, as security for the Notes and the Holder Certificates. Reference is hereby made to the Trust Agreement, the Participation Agreement, the Credit Agreement, the Security Agreement and the Notes for statements of the rights of the holder of this Holder Certificate and of the rights of the holders of, and the nature and extent of the security for, the Notes, as well as for a statement of the terms and conditions of the trusts created by the Trust Agreement, to all of which terms and conditions the holder hereof agrees by its acceptance of this Holder Certificate. The holder hereof, by its acceptance of this Holder Certificate, agrees not to transfer this Holder Certificate except in accordance with the terms of the Trust Agreement and the other Operative Agreements. THIS HOLDER CERTIFICATE SHALL BE INTERPRETED AND ENFORCED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF UTAH. WHENEVER POSSIBLE EACH PROVISION OF THIS HOLDER CERTIFICATE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS HOLDER CERTIFICATE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR A-2 32 INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS HOLDER CERTIFICATE. THIS HOLDER CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT OR LAWS. THIS HOLDER CERTIFICATE (OR ANY PORTION HEREOF) MAY ONLY BE TRANSFERRED TO A PERSON IN ACCORDANCE WITH THE PROVISIONS OF THE TRUST AGREEMENT REFERRED TO ABOVE AND THE PARTICIPATION AGREEMENT REFERRED TO IN SUCH TRUST AGREEMENT. [The remainder of this page has been intentionally left blank.] A-3 33 IN WITNESS WHEREOF, the undersigned authorized officer of the Owner Trustee has executed this Holder Certificate as of the date first set forth above. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly set forth herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: --------------------------------- Name: ------------------------------- Title: ------------------------------ EX-10.46 7 AGENCY AGREEMENT, DATED AS OF FEBRUARY 5, 1998 1 EXHIBIT 10.46 AGENCY AGREEMENT Dated as of February 5, 1998 between GUILFORD PHARMACEUTICALS INC., as the Construction Agent and FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 as the Lessor 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS; RULES OF USAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ----------- 1.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------------- ARTICLE II APPOINTMENT OF THE CONSTRUCTION AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ----------- 2.2 Acceptance and Undertaking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 -------------------------- 2.3 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ---- 2.4 Scope of Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ------------------ 2.5 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 -------------------- 2.6 Covenants of the Construction Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ----------------------------------- 2.7A. Supplemental Covenants of the Construction Agent. . . . . . . . . . . . . . . . . . . . . . . . 6 ------------------------------------------------ ARTICLE III THE PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.1 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------------ 3.2 Amendments; Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ------------------------- 3.3 Limited Obligation Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ------------------------ 3.4 Failure to Complete Construction Period Properties and Purchase --------------------------------------------------------------- Obligation - Environmental Violations and Abandonment.. . . . . . . . . . . . . . . . . . . . . . 10 ----------------------------------------------------- ARTICLE IV PAYMENT OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 Right to Receive Construction Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ---------------------------------- ARTICLE V EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ----------------- 5.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ------- 5.3 Remedies; Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ----------------------------- 5.4 Limitation on Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ---------------------- ARTICLE VI THE LESSOR'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.1 Exercise of the Lessor's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ------------------------------- 6.2 The Lessor's Right to Cure the Construction Agent's Defaults. . . . . . . . . . . . . . . . . . . 15 ------------------------------------------------------------ ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ------- 7.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ---------------------- 7.3 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ------------- 7.4 SUBMISSION TO JURISDICTION; VENUE; WAIVERS; ARBITRATION . . . . . . . . . . . . . . . . . . . . . 16 ------------------------------------------------------- 7.5 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ---------------------- 7.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ------------ 7.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ------------ 7.8 Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ------------------------------
i 3 7.9 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 --------------------
ii 4 AGENCY AGREEMENT THIS AGENCY AGREEMENT, dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Agreement"), between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association ("FSB"), not individually, but solely as Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Lessor") and GUILFORD PHARMACEUTICALS INC., a Delaware corporation (the "Construction Agent"). PRELIMINARY STATEMENT A. The Lessor and the Construction Agent are parties to that certain Lease Agreement dated as of even date herewith (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Lease"), pursuant to which the Construction Agent, as lessee (in such capacity, the "Lessee") has agreed to lease certain Land, Improvements and Equipment and/or to sublease a ground leasehold in certain Properties subject to one (1) or more Ground Leases from the Lessor. B. In connection with the execution and delivery of the Participation Agreement, the Lease and the other Operative Agreements, and subject to the terms and conditions hereof, (i) the Lessor desires to appoint the Construction Agent as its sole and exclusive agent in connection with the identification and acquisition or ground lease of the Properties (provided, title to the Properties shall be held in the name of the Lessor, except that the interest of the Lessor in certain of the Properties shall be a ground leasehold interest pursuant to one (1) or more Ground Leases, if requested by the Construction Agent) and the development, acquisition, installation, construction and testing of the Improvements and the Equipment in accordance with the Plans and Specifications and (ii) the Construction Agent desires, for the benefit of the Lessor, to identify and acquire or ground lease the Properties and to cause the development, acquisition, installation, construction and testing of the Improvements, the Equipment and the other components of the Properties in accordance with the Plans and Specifications and to undertake such other liabilities and obligations as are herein set forth. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 5 ARTICLE I DEFINITIONS; RULES OF USAGE 1.1 DEFINITIONS. For purposes of this Agreement, capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in Appendix A to that certain Participation Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among the Construction Agent, the Lessor, the various banks and lending institutions parties thereto from time to time, as Holders, the various banks and lending institutions parties thereto from time to time, as Lenders, and First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests. Unless otherwise indicated, references in this Agreement to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Agreement. 1.2 INTERPRETATION. The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Agreement. ARTICLE II APPOINTMENT OF THE CONSTRUCTION AGENT 2.1 APPOINTMENT. Subject to the terms and conditions hereof, the Lessor hereby irrevocably designates and appoints the Construction Agent as its exclusive agent, and the Construction Agent accepts such appointment, in connection with the identification and acquisition from time to time of the Properties (provided, title to the Properties shall be held in the name of the Lessor, except that the interest of the Lessor in certain Properties shall be a ground leasehold interest pursuant to one (1) or more Ground Leases if requested by the Construction Agent) and the development, acquisition, installation, construction and testing of the Improvements, the Equipment and the other components of the Properties in accordance with the Plans and Specifications on the Land, and pursuant to the terms of the Operative Agreements. Notwithstanding any provisions hereof or in any other Operative Agreement to the contrary, the Construction Agent acknowledges and agrees that the Lessor shall advance no more than the sum of the aggregate Commitment of the Lenders plus the aggregate amount of the Holder Commitments of the Holders in regard to the Properties (including without limitation for any and all Advances in the aggregate from the Lenders under the Credit Agreement and from the Holders under the Trust Agreement). 2 6 2.2 ACCEPTANCE AND UNDERTAKING. The Construction Agent hereby unconditionally accepts the agency appointment and undertakes, for the benefit of the Lessor, to identify and acquire certain Properties (provided, title to the Properties shall be held in the name of the Lessor, except that the interest of the Lessor in certain Properties shall be a ground leasehold interest pursuant to one (1) or more Ground Leases if requested by the Construction Agent) and the development, acquisition, installation, design, construction and testing of the Improvements, the Equipment and the other components of the Properties in accordance with the Plans and Specifications and the Operative Agreements. 2.3 TERM. This Agreement shall commence on the date hereof and shall terminate on the Construction Period Termination Date. 2.4 SCOPE OF AUTHORITY. (a) The Lessor hereby expressly authorizes the Construction Agent, or any agent or contractor of the Construction Agent, and the Construction Agent unconditionally agrees for the benefit of the Lessor, subject to Section 2.4(b), to take all action necessary or desirable for the performance and satisfaction of any and all of the Lessor's obligations under any construction agreement and to fulfill all of the obligations of the Construction Agent including without limitation: (i) the identification and assistance with the acquisition of Properties in accordance with the terms and conditions of the Participation Agreement; (ii) all design and supervisory functions relating to the development, acquisition, installation, construction and testing of the related Improvements, Equipment and other components of the applicable Property and performing all engineering work related thereto; (iii) (A) negotiating, entering into, performing and enforcing all contracts and arrangements to acquire or ground lease the Properties and to procure the equipment necessary to construct the Properties and (B) negotiating, executing, performing and enforcing all contracts and arrangements to develop, acquire, install, construct and test the Improvements, the Equipment and the other components of the Properties on such terms and conditions as are customary and reasonable in light of local and national standards and practices and the businesses in which the Lessee is engaged; (iv) obtaining all necessary permits, licenses, consents, approvals, entitlements and other authorizations, including without limitation all of the foregoing required for the Properties and the use and occupancy thereof and those 3 7 required under applicable Law (including without limitation Environmental Laws), from all Governmental Authorities in connection with the development, acquisition, installation, construction and testing of the Improvements, the Equipment and the other components of the Properties in accordance with the Plans and Specifications; (v) maintaining all books and records with respect to the Properties and the construction, operation and management thereof; and (vi) performing any other acts necessary in connection with the identification and acquisition or ground leasing of the Properties and the development, acquisition, installation, construction and testing of the related Improvements, Equipment and all other additional components of the Properties in accordance with the Plans and Specifications. (b) Neither the Construction Agent nor any of its Affiliates or agents shall enter into any contract or consent to any contract in the name of the Lessor without the Lessor's prior written consent, such consent to be given or withheld in the exercise of the Lessor's reasonable discretion; provided, however, that (i) no such contract will increase the obligations of the Lessor beyond the obligations of the Lessor as are expressly set forth in the Operative Agreements and (ii) each such contract shall be expressly non-recourse to the Lessor on terms and conditions that are reasonably acceptable to the Lessor. (c) Subject to the terms and conditions of this Agreement and the other Operative Agreements, the Construction Agent shall have sole management and control over the installation, construction and testing means, methods, sequences and procedures with respect to the Properties. 2.5 DELEGATION OF DUTIES The Construction Agent may execute any of its duties under this Agreement by or through agents, contractors, employees or attorneys-in-fact; provided, however, that no such delegation shall limit or reduce in any way the Construction Agent's duties and obligations under this Agreement. 2.6 COVENANTS OF THE CONSTRUCTION AGENT. The Construction Agent hereby covenants and agrees that it will: (a) following the Construction Commencement Date for each Property, cause the development, acquisition, installation, design, construction and testing of such Property to be prosecuted in a good and workmanlike manner, and respecting each Property in accordance with the applicable Plans and Specifications, the Construction Budget, the applicable contracts relating to the Improvements, the Equipment, other 4 8 components of such Property and procurement of construction materials, the applicable construction contracts, the applicable construction schedule, prevalent industry practices and otherwise in accordance with Section 3.1 hereof; (b) commence construction and cause the initial Construction Advance to be made with respect to the Improvements on dates that are each within six (6) months after the Initial Closing Date; (c) cause the Completion Date for any Improvements to occur on or before the earlier of (i) the date that is twenty-four (24) months after the initial Construction Advance made in connection with such Improvements or (ii) the Construction Period Termination Date, in each case free and clear (by removal or bonding) of Liens or claims for materials supplied or labor or services performed in connection with the development, acquisition, installation, construction or testing thereof; (d) cause the Improvements to be substantially completed within eighteen (18) months after the initial Construction Advance is made in connection with such Improvements; (e) at all times subsequent to the initial Advance respecting a Property (i) cause good and marketable title to the applicable Property to vest in the Owner Trustee (except that the interest of the Lessor in certain Properties shall be a ground leasehold interest pursuant to one (1) or more Ground Leases if requested by the Construction Agent), (ii) cause a valid, perfected, first priority Lien on the applicable Property to be in place in favor of the Agent (for the benefit of the Lenders and the Holders), (iii) file all necessary documents under the applicable real property law and Article 9 of the Uniform Commercial Code to perfect such title and Liens and (iv) not permit Liens (other than Permitted Liens and Lessor Liens) to be filed or maintained respecting the applicable Property; (f) no less than five (5) Business Days prior to the scheduled date for the initial Construction Advance to be made in connection with any Property, the Construction Agent shall deliver to the Agent (for the benefit of the Lessor) true, complete and correct copies of the Construction Budget therefor. Thereafter, the Construction Agent, on a monthly basis, shall deliver to the Lessor true, correct and complete copies of any material modifications of the Construction Budget and progress reports regarding the development, acquisition, installation, construction and testing of the Properties; (g) procure insurance for the Properties during the Construction Period in accordance with the provisions of Article XIV of the Lease; (h) on or before the Construction Period Termination Date, cause the Rent Commencement Date to occur with respect to all Properties or purchase any such Properties for an amount equal to (subject to the provisions of Section 3.3 hereof) the 5 9 sum referenced in Section 5.3(b) hereof and otherwise in compliance with the other terms and provisions of the Operative Agreements; and (i) except for the payment of real estate taxes or the equivalency charge as referenced in Sections 1:08 and 6:05(ii) of the Land Disposition Agreement prior to the Completion Date, the Construction Agent shall (i) satisfy, or cause to be satisfied, all obligations of the Developer (as such term is defined in the Land Disposition Agreement) pursuant to each of the Land Disposition Agreement and the City of Baltimore Commitment and (ii) be fully responsible for all liabilities of the Developer pursuant to each of the Land Disposition Agreement and the City of Baltimore Commitment. 2.6A. SUPPLEMENTAL COVENANTS OF THE CONSTRUCTION AGENT. To the extent any other provisions of the Operative Agreements conflict with the provisions of Section 2.6A, the provisions of this Section 2.6A shall govern. With respect to the Properties, the Construction Agent hereby covenants and agrees that: (a) The Construction Agent will cause the acquisition of the Land to be prosecuted with diligence and continuity and will complete, on or before the Completion Date, (i) the construction of Improvements in accordance with the Plans and Specifications, and (ii) the purchase and installation of all necessary components in or at the Properties, all of which shall be completed free and clear of Liens (except for Lessor Liens and Permitted Liens.) (b) All building and other governmental permits necessary for particular Work have been obtained with respect to the Properties or will be obtained prior to commencing the particular Work for which they are required. (c) The Plans and Specifications have been approved (or will be prior to commencing the particular Work for which approvals are required), to the extent required by applicable law or any restrictive covenant, respectively, by all local authorities and the beneficiary of any such covenant; the applicable portions of the Plans and Specifications to be approved have also been approved (or will be prior to commencing the particular Work for which approvals are required) by the Construction Agent, the Agent and the Agent's construction inspector; all construction, if any, heretofore performed on each Property has been performed within the perimeter of such Property in accordance with the Plans and Specifications and in accordance with any restrictive covenants applicable thereto; there are no material structural defects in the Improvements; and no material violation of any law exists with respect to any Property. The Construction Agent shall not permit any changes in the Plans and Specifications (after they have been delivered to the Agent) or any change orders in the construction contracts for any Property (after they have been delivered to the Agent) which would increase the unfunded cost thereof without the prior written consent of the Agent and any governmental authorities having jurisdiction if such consent is required. 6 10 (d) The Construction Agent will permit the Agent and its representatives (including but not limited to the Agent's construction inspector) to enter upon any of the Properties during normal working hours and upon reasonable advance notice to the Construction Agent, to inspect the Properties and all materials at the site, and will cooperate, and cause the contractors of the Construction Agent to cooperate, with the Agent and the Agent's construction inspector in connection with any such inspections. Upon any such entry, the entering party shall not disrupt the construction process in any material way and shall use reasonable care in conducting itself. (e) Unless such was previously attached to a Requisition and delivered to the Agent, the Construction Agent will deliver to the Agent, on demand in writing, copies of any contracts, bills of sale, statements, receipted vouchers or agreements, under which the Construction Agent claims title to any materials, fixtures or articles incorporated in any of the Properties or subject to the lien of the Security Documents. (f) The Construction Agent upon demand in writing by the Agent in its reasonable discretion, will commence and proceed promptly and diligently to correct any structural defect in the Properties or any departure from the Plans and Specifications not approved as herein provided. The Agent shall determine in its reasonable discretion whether the Construction Agent is acting promptly and diligently. No approval by the Financing Parties of any Advances will constitute a waiver of the Agent's right to require compliance with this covenant with respect to any such defects or departures from the Plans and Specifications. (g) At the Agent's written request, the Construction Agent will (i) deliver to the Agent the names of all Persons with whom it intends to contract for the acquisition of the Properties or for the furnishing of labor or materials therefor, and a copy of each contract, subcontract and agreement relating thereto, and (ii) obtain the approval of the Agent (which approval shall not be unreasonably withheld, delayed or conditioned) prior to executing any contract or any subcontract with respect to the acquisition and/or construction of the Properties. (h) During the acquisition and/or construction of the Properties, the Construction Agent will keep adequate records and books of account with respect to the Properties and will upon reasonable prior notice to the Construction Agent permit the Agent, by its agents, accountants and attorneys during normal working hours, to visit and inspect the Properties and examine such records and books of account and to discuss the affairs, finances and accounts pertaining thereto with representatives and agents of the Construction Agent at such reasonable times as may be reasonably requested by the Agent. (i) The Construction Agent will comply (in all material respects) with all applicable building restrictions, zoning ordinances, building codes, environmental protection requirements and other governmental requirements applicable to the Properties. 7 11 (j) The Construction Agent will promptly pay or cause to be paid all of the contractors, subcontractors and materialmen performing Work in connection with the Properties the amounts justly due to them, and receive and apply the Advances solely for the purpose of paying the costs of the Completion of the Properties or as otherwise expressly permitted pursuant to the Operative Agreements. No person contracting with the Construction Agent with respect to the acquisition and/or construction of the Properties shall have the right to be reimbursed by the Financing Parties under any circumstances whatsoever. The participation of the Financing Parties in the transactions contemplated hereby, shall not in any way be construed as obligating the Financing Parties to any Person for the payment of any expense incurred with respect to the acquisition and/or construction of the Properties. (k) As soon as the footings and foundations (if any) of any new Improvements to be constructed as part of the Properties are in, if deemed necessary by the Agent, the Construction Agent shall cause to be delivered to the Agent a location survey prepared by a surveyor approved by the Agent showing the location of such new Improvements in relation to the boundary lines thereof and setback restrictions applicable thereto and stating that such location is in compliance with all setback and other applicable restrictions. As construction of such new Improvements progresses, and upon their completion, the Construction Agent will supply such further location surveys as the Agent may reasonably require from time to time to assure itself that such new Improvements do not extend beyond such boundary lines and setback and other restrictions. (l) The Construction Agent will take such action and institute such proceedings as shall be necessary to cause and require all contractors, subcontractors, and material suppliers to complete their contracts related to the Properties diligently in accordance with the terms of such contracts, including without limitation the correcting of any defective Work. ARTICLE III THE PROPERTIES 3.1 CONSTRUCTION. The Construction Agent shall cause the Improvements, the Equipment and all other components of the Properties to be developed, acquired, installed, constructed and tested in compliance with all Legal Requirements, all Insurance Requirements, all manufacturer's specifications and standards and the standards maintained by the Construction Agent for similar properties owned or operated by the Construction Agent, and all specifications and standards applicable to properties of the Lessee which are similar to the Permitted Facilities, unless non- 8 12 compliance, individually or in the aggregate, shall not have and could not be reasonably expected to have a Material Adverse Effect. 3.2 AMENDMENTS; MODIFICATIONS. (a) The Construction Agent may at any time revise, amend or modify (i) the Plans and Specifications without the consent of the Lessor; provided, that any such amendment to the Plans and Specifications does not (x) result in the Completion Date of the Improvements occurring on or after the Construction Period Termination Date or (y) result in the cost of all Improvements exceeding the amount specified in the Construction Budget, as amended from time to time, or an amount equal to the sum of the then Available Commitments plus the then Available Holder Commitments (reduced by the amount, if any, necessary to pay for the cost of construction and development of Improvements on other Properties which are currently under construction but have not yet been completed (such amount the "Unfunded Amount")), and (ii) the Construction Budget and enter into any related amendments, modifications or supplements without the consent of the Lessor; provided, that such revisions, amendments or modifications to the Plans and Specifications or related amendments, modifications or supplements to the Construction Budget do not result in any increase in total Property Costs greater than the amount specified in the Construction Budget, as amended from time to time, or the then Available Commitments and Available Holder Commitment (reduced by the Unfunded Amount). (b) The Construction Agent agrees that it will not implement any revision, amendment or modification to the Plans and Specifications for any Property if the aggregate effect of such revision, amendment or modification, when taken together with any previous or contemporaneous revision, amendment or modification to the Plans and Specifications for any Property, would cause a material reduction in value in excess of the cost reduction of such revision, amendment or modification of the Property when completed, unless such revision, amendment or modification is required by Legal Requirements. 3.3 LIMITED OBLIGATION EVENT. If at any time prior to the Completion Date with respect to any Construction Period Property there occurs a Limited Obligation Event, then the Construction Agent shall elect one of the options set forth in the following Sections 3.3(a) and 3.3(b): (a) the Construction Agent shall pay to the Lessor, on a date designated by the Lessor, an aggregate amount equal to (i) the Termination Value of such Construction Period Property plus (ii) any and all fees and expenses incurred by or on behalf of the Lessor or the Agent in connection with such Construction Period Property (including without limitation the transfer thereof) and on such date Lessor shall transfer and convey to the Construction Agent all right, title and interest of Lessor in and to such Construction Period Property or (b) the Construction Agent shall pay to the Lessor, on a date designated by the Lessor, an aggregate amount equal to the Maximum Residual Guarantee Amount (calculated for these purposes as an amount equal to the product of the aggregate 9 13 Property Cost for such Construction Period Property times eighty-nine percent (89%)) and thereafter the Construction Agent (within one hundred twenty days (120) of the occurrence of the Limited Obligation Event) shall cause such Construction Period Property to be transferred to a Person other than the Construction Agent or any Affiliate of the Construction Agent (or, to the extent the Limited Obligation Event is a Condemnation, then the Construction Agent shall coordinate, at the request of the Lessor, such proceedings with the applicable Governmental Authority). Any and all proceeds from such Construction Period Property after the occurrence of a Limited Obligation Event (including without limitation insurance proceeds and condemnation proceeds) shall be payable to the Lessor until such time as there shall have been paid in full the aggregate Termination Value for such Construction Period Property and any and all fees and expenses incurred by or on behalf of the Lessor or the Agent in connection with such Construction Period Property (including without limitation the transfer thereof). Excess proceeds shall be payable to the Construction Agent for its individual account. To the extent proceeds from such Construction Period Property are insufficient to pay fully the fees and expenses referenced in the prior sentence, the Construction Agent shall pay the shortfall; provided, the aggregate sum of such fees and expenses plus the Maximum Residual Guarantee Amount referenced above shall not exceed eighty-nine and nine tenths percent (89.9%) of the aggregate Property Cost for such Construction Period Property. In connection with any transfer referenced above of such Construction Period Property by the Lessor, the Lessor shall convey such Construction Period Property "AS-IS, WHERE-IS" and in its then present physical condition to the applicable Person free and clear of Lessor Liens. If a Casualty, Condemnation or Force Majeure Event occurs which does not constitute a Limited Obligation Event, the Construction Agent shall promptly and diligently complete the development, acquisition, refinancing, installation, construction and testing of such Construction Period Property in accordance with the Plans and Specifications and with the terms hereof and cause the Completion Date with respect to such Construction Period Property to occur on or prior to the Construction Period Termination Date. 3.4 FAILURE TO COMPLETE CONSTRUCTION PERIOD PROPERTIES AND PURCHASE OBLIGATION - ENVIRONMENTAL VIOLATIONS AND ABANDONMENT. If at any time prior to the Completion Date with respect to any Construction Period Property (a) there shall occur any Environmental Violation which the Lessor deems material in its reasonable discretion or (b) the Construction Agent shall abandon or permanently discontinue the construction and development of such Construction Period Property (which abandonment or permanent discontinuance shall be deemed to have occurred if no work at such Construction Period Property site is undertaken or completed during a continuous period of sixty (60) days or more for reasons other than a Limited Obligation Event, then the Construction Agent shall pay to Lessor, on a date designated by the Lessor, an aggregate amount equal to the liquidated damages amount referenced in Section 5.3(b) of this Agreement regarding such Construction Period Property and on such date Lessor shall transfer and convey to the Construction Agent all right, title and interest of Lessor in and to such Construction Period Property. At the cost and expense of the Construction Agent, the Lessor shall convey such Construction Period Property "AS-IS, WHERE-IS" and in its then present physical condition to the Construction Agent or its designee free and clear of Lessor Liens. If the Construction Agent is not required to pay such liquidated 10 14 damages, it shall promptly and diligently complete the development, acquisition, refinancing, installation, construction and testing of such Construction Period Property in accordance with the Plans and Specifications and with the terms hereof and cause the Completion Date with respect to such Construction Period Property to occur on or prior to the Construction Period Termination Date. Any determination that an Environmental Violation is immaterial for purposes of this Agreement shall not limit the obligations of Lessee respecting such Environmental Violation under the Lease. ARTICLE IV PAYMENT OF FUNDS 4.1 RIGHT TO RECEIVE CONSTRUCTION COST. (a) In connection with the development, acquisition, installation, construction and testing of any Property and during the course of the construction of the Improvements on any Property, the Construction Agent may request that the Lessor advance funds for the payment of Property Acquisition Costs or other Property Costs, and the Lessor will comply with such request to the extent provided for under the Participation Agreement. The Construction Agent and the Lessor acknowledge and agree that the Construction Agent's right to request such funds and the Lessor's obligation to advance such funds for the payment of Property Acquisition Costs or other Property Costs is subject in all respects to the terms and conditions of the Participation Agreement and each of the other Operative Agreements. Without limiting the generality of the foregoing it is specifically understood and agreed that in no event shall the aggregate amounts advanced by the Lenders and the Holders for Property Acquisition Costs or other Property Costs and any other amounts due and owing hereunder or under any of the other Operative Agreements exceed the sum of the aggregate Commitment of the Lenders plus the aggregate amount of the Holder Commitments, including without limitation such amounts owing for (i) development, acquisition, installation, design, construction and testing of the Properties, (ii) additional amounts which accrue or become due and owing under the Credit Agreement or Trust Agreement as obligations of the Lessor prior to any Completion Date or (iii) any other purpose specified in the Operative Agreements. (b) The proceeds of any funds made available to the Lessor to pay Property Acquisition Costs or other Property Costs shall be made available to the Construction Agent in accordance with the Requisition relating thereto and the terms of the Participation Agreement. The Construction Agent will use such proceeds only to pay the Property Acquisition Costs or other Property Costs set forth in the Requisition relating to such funds. 11 15 ARTICLE V EVENTS OF DEFAULT 5.1 EVENTS OF DEFAULT. If any one (1) or more of the following events (each an "Agency Agreement Event of Default") shall occur: (a) the Construction Agent fails to apply any funds paid by the Lessor to the Construction Agent in a manner consistent with the requirements of the Operative Agreements and as specified in the applicable Requisition for the development, acquisition, installation, construction and testing of the Properties and related Improvements and Equipment or otherwise respecting the Properties to the payment of Property Acquisition Costs or other Property Costs; (b) except as otherwise provided in Sections 3.3, 5.1(a), 5.1(c), 5.1(d), 5.1(e) or 5.1(f), the Completion Date with respect to any Property shall fail to occur for any reason on or prior to the Construction Period Termination Date; (c) except as otherwise provided in Sections 5.1(a), 5.1(b), 5.1(d), 5.1(e) or 5.1(f), the Construction Agent shall materially breach any of its representations or warranties under this Agreement or shall fail to observe or perform any term, covenant or condition of this Agreement other than as set forth in paragraphs (a), (b), (d), (e) or (f) of this Section 5.1 and such failure to observe or perform any such term, covenant or condition shall continue for more than fifteen (15) days after notice thereof to the Construction Agent; provided, if any such failure to observe or perform any such term, covenant or condition is not capable of remedy with such fifteen (15) day period but may be remedied with further diligence and if the Construction Agent has and continues to pursue such remedy, then the Construction Agent shall be granted additional time to pursue such remedy but in no event more than an additional thirty (30) days; (d) any Lease Event of Default; (e) the Construction Agent shall abandon or permanently discontinue the construction and development of any Construction Period Property, which abandonment or permanent discontinuance shall be deemed to have occurred if no Work at such Construction Period Property site is undertaken or completed during a continuous period of sixty (60) days or more for reasons other than a Limited Obligation Event and prior to such abandonment or permanent discontinuance, the Lenders and the Holders shall have consistently made the Advances requested from time to time to the Construction Agent; and (f) in connection with any Property, this Agreement and the obligations of the Construction Agent regarding such Property or pursuant to this Agreement, the 12 16 Construction Agent (through any act or omission) shall have been grossly negligent or engaged in any act or omission constituting willful misconduct or fraud. then, in any such event, the Lessor may, in addition to the other rights and remedies provided for in this Agreement, terminate this Agreement by giving the Construction Agent written notice of such termination and upon the expiration of the time fixed in such notice and the payment of all amounts owing by the Construction Agent hereunder (including without limitation any amounts specified under Section 5.3 hereof), this Agreement shall terminate. The Construction Agent shall pay all costs and expenses incurred by or on behalf of the Lessor, including without limitation reasonable fees and expenses of counsel, as a result of any Agency Agreement Event of Default hereunder. 5.2 DAMAGES. The termination of this Agreement pursuant to Section 5.1 shall in no event relieve the Construction Agent of its liability and obligations hereunder, all of which shall survive any such termination. 5.3 REMEDIES; REMEDIES CUMULATIVE. (a) (intentionally omitted) (b) Upon the occurrence of an Agency Agreement Event of Default, the Lessor shall have (in addition to its rights otherwise described in this Agreement or existing at law, equity or otherwise) the option (and shall be deemed automatically, and without any further action, to have exercised such option upon the occurrence of any Lease Event of Default arising under Sections 17.1(g), (h), (i) or (j) of the Lease) to transfer and convey to the Construction Agent upon a date designated by the Lessor all right, title and interest of the Lessor in and to any Property or Properties (including without limitation any Land and/or any Improvements, any interest in any Improvements, any Equipment and any Property then under construction) for which the Rent Commencement Date has not yet occurred (a "Construction Period Property"). On any transfer and conveyance date specified by the Lessor pursuant to this Section 5.3(b), (i) the Lessor shall transfer and convey (at the cost of the Construction Agent) all right, title and interest of the Lessor in and to any or all such Construction Period Properties free and clear of the Lien of the Lease and all Lessor Liens, (ii) the Construction Agent hereby covenants and agrees that it will accept such transfer and conveyance of right, title and interest in and to the respective Construction Period Property or Construction Period Properties and (iii) the Construction Agent hereby promises to pay to the Lessor, as liquidated damages (it being agreed that it would be impossible accurately to determine actual damages), an aggregate amount equal to the Termination Value of any or all such Construction Period Properties. The Construction Agent specifically acknowledges and agrees that its obligations under this Section 5.3(b), including without limitation its obligations to accept the transfer and conveyance of Construction Period Properties and its payment obligations described in subparagraph (iii) of this Section 5.3(b), shall be 13 17 absolute and unconditional under any and all circumstances and shall be performed and/or paid, as the case may be, without notice or demand and without any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment whatsoever. The foregoing provisions of this Section 5.3(b) are not intended to, and shall not, limit or impair the rights of the Lessee pursuant to Section 3.3. (c) The Construction Agent shall have the right to cure an Agency Agreement Event of Default hereunder with respect to any given Property by purchasing or causing the Lessee to purchase such Property from the Lessor (to the extent such Agency Agreement Event of Default is no longer continuing with respect to any other Property remaining subject to this Agreement after such purchase) for an amount equal to the liquidated damages amount set forth in Section 5.3(b) of this Agreement. Any such purchase shall be deemed a full cure of all Agency Agreement Events of Default; provided, the foregoing shall not affect the obligations of the Indemnity Provider (in its capacity as the Indemnity Provider) pursuant to the Operative Agreements or the rights or the ability of any Indemnified Person respecting the indemnification provisions of the Operative Agreements. (d) No failure to exercise and no delay in exercising, on the part of the Lessor, any right, remedy, power or privilege under this Agreement or under the other Operative Agreements shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided in this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 5.4 LIMITATION ON RECOURSE. Notwithstanding anything contained herein or in any other Operative Agreement to the contrary (except for and subject to the last sentence of this Section 5.4), upon the occurrence and during the continuance of an Agency Agreement Event of Default described in clause (b) or clause (c) of Section 5.1, so long as the Construction Agent relinquishes its interest in the Properties and conveys its right, title or interest therein and possession thereof to the Lessor or its designee free and clear of all Liens (other than Lessor Liens, Liens for Taxes that are not yet due and Liens in favor of municipalities to the extent agreed to by the Lessor), accompanied by an affidavit (in form and substance reasonably satisfactory to the Lessee and the Construction Agent) to the Lessor and the Lessor's title insurer to such effect and appropriate statements of termination and such other documents as the Lessor shall reasonably request (each in form and substance reasonably satisfactory to the Lessor and the Construction Agent), the Lessor's maximum recovery on a recourse basis against the Construction Agent shall be limited to 89.9% of the aggregate Property Cost for such Properties (including without limitation capitalized interest and yield thereon to the date of payment thereof). The Construction Agent nonetheless acknowledges and agrees that the Lessor shall be entitled to recover 100% of the amounts owed to the Lessor in accordance with the Operative Agreements from its interest in the Property so relinquished. Notwithstanding anything contained herein or in any other Operative Agreement to 14 18 the contrary, the Construction Agent and the Lessor hereby agree that the above-referenced limitations on the liability of the Construction Agent shall be limited to claims arising expressly under a breach of contract theory and that the Lessor has not waived, and hereby expressly reserves, its right to bring any cause of action, suit or claim in law or in equity to the extent such is raised under a theory other than breach of contract. ARTICLE VI THE LESSOR'S RIGHTS 6.1 EXERCISE OF THE LESSOR'S RIGHTS. Subject to the Excepted Payments, the Construction Agent and the Lessor hereby acknowledge and agree that, subject to and in accordance with the terms of the Security Agreement made by the Lessor in favor of the Agent, the rights and powers of the Lessor under this Agreement have been assigned to the Agent. 6.2 THE LESSOR'S RIGHT TO CURE THE CONSTRUCTION AGENT'S DEFAULTS. The Lessor, without waiving or releasing any obligation or Agency Agreement Event of Default, may (but shall be under no obligation to) remedy any Agency Agreement Event of Default for the account of and at the sole cost and expense of the Construction Agent. All out-of-pocket costs and expenses so incurred (including without limitation reasonable fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by the Lessor, shall be paid by the Construction Agent to the Lessor on demand. ARTICLE VII MISCELLANEOUS 7.1 NOTICES. All notices required or permitted to be given under this Agreement shall be in writing and delivered as provided in Section 12.2 of the Participation Agreement. 7.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Lessor, the Construction Agent and their respective successors and the assigns of the Lessor. The Construction Agent may not assign this Agreement or any of its rights or obligations hereunder or with respect to any Property in whole or in part to any Person without the prior written consent 15 19 of the Agent, the Lenders, the Holders and the Lessor (which consent shall not be unreasonably withheld, conditioned or delayed). 7.3 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF MARYLAND, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 7.4 SUBMISSION TO JURISDICTION; VENUE; WAIVERS; ARBITRATION THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS. 7.5 AMENDMENTS AND WAIVERS. This Agreement may not be terminated, amended, supplemented, waived or modified except in accordance with the provisions of Section 12.4 of the Participation Agreement. 7.6 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one (1) and the same instrument. 7.7 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7.8 HEADINGS AND TABLE OF CONTENTS. The headings and table of contents contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 7.9 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, THE LESSOR AND THE CONSTRUCTION AGENT IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY COUNTERCLAIM THEREUNDER. 16 20 [The remainder of this page has been left blank intentionally.] 17 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. GUILFORD PHARMACEUTICALS INC., as the Construction Agent By: /s/ Andrew R. Jordan --------------------------------------- Name: Andrew R. Jordan --------------------------------------------- Title: Senior Vice President & Chief Financial Officer ------------------------------------------------- FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as Owner Trustee under the Guilford Real Estate Trust 1998-1, as the Lessor By: /s/Brett R. King ----------------------------------------------- Name: Brett R. King --------------------------------------------- Title: Assistant Vice President ------------------------------------ EX-10.47 8 CREDIT AGREEMENT, DATED AS OF FEBRUARY 5, 1998 1 EXHIBIT 10.47 CREDIT AGREEMENT Dated as of February 5, 1998 among First Security Bank, National Association, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, as the Borrower, The Several Lenders from Time to Time Parties Hereto, and FIRST UNION NATIONAL BANK, as the Agent 2 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Procedure for Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 (intentionally omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Termination or Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Prepayments and Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.7 Conversion and Continuation Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.8 Interest Rates and Payment Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.9 Computation of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.10 Pro Rata Treatment and Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.11 Notice of Amounts Payable; Mandatory Assignment. . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.1 Conditions to Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.2 Conditions to Each Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.1 Other Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.2 Ownership of Properties, Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.3 Disposition of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.4 Compliance with Operative Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.5 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.7 Discharge of Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.8 Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 7. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.4 Reliance by the Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.6 Non-Reliance on the Agent and Other Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . 16
i 3 7.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.8 The Agent in Its Individual Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.9 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.10 Actions of the Agent on Behalf of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.11 The Agent's Duty of Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 8. MATTERS RELATING TO PAYMENT AND COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8.1 Collection and Allocation of Payments and Other Amounts. . . . . . . . . . . . . . . . . . . . 18 8.2 Certain Remedial Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8.3 Excepted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.4 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.5 Payment of Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.6 Successors and Assigns; Participations and Assignments. . . . . . . . . . . . . . . . . . . . 20 9.7 Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.8 Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 9.9 The Register; Disclosure; Pledges to Federal Reserve Banks. . . . . . . . . . . . . . . . . . 23 9.10 Adjustments; Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.13 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.14 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.15 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . 24 9.16 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.17 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.18 Nonrecourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.19 USURY SAVINGS PROVISION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SCHEDULES Schedule 1.1 Commitments and Addresses of Lenders EXHIBITS EXHIBIT A-1 Form of Tranche A Note EXHIBIT A-2 Form of Tranche B Note EXHIBIT B Form of Assignment and Acceptance ii 4 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Agreement") is among FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Owner Trustee" or the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (the "Lenders") and FIRST UNION NATIONAL BANK, a national banking association, as a Lender and as the agent for the Lenders (the "Agent"). The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINITIONS. For purposes of this Agreement, capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in Appendix A to that certain Participation Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among Guilford Pharmaceuticals Inc., the Borrower, the various banks and other lending institutions which are parties thereto from time to time, as the Holders, the various banks and other lending institutions which are parties thereto from time to time, as the Lenders, and First Union National Bank, as agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests. Unless otherwise indicated, references in this Agreement to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Agreement. 1.2 INTERPRETATION. The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Agreement. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 COMMITMENTS. (a) Subject to the terms and conditions hereof, each of the Lenders severally agrees to make the portion of the Tranche A Loans and the Tranche B Loans to the Borrower from time to time during the Commitment Period in an amount up to such Lender's Commitment as is set 5 forth adjacent to such Lender's name in Schedule 1.1 hereto for the purpose of enabling the Borrower to purchase the Properties and to pay Property Acquisition Costs, Property Costs and Transaction Expenses, provided, that the aggregate principal amount at any one (1) time outstanding with respect to each of the Tranche A Loans and the Tranche B Loans shall not exceed the amount of the Tranche A Commitments and the Tranche B Commitments respectively. Any prepayments of the Loans, whether mandatory or at the Borrower's election, shall not be subject to reborrowing except as set forth in Section 5.2(d) of the Participation Agreement. (b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans, or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with Sections 2.3 and 2.7. In the event the Borrower fails to provide notice pursuant to Section 2.3, the Loan shall be an ABR Loan. Further, any Loans by the Lenders on a given date in an aggregate amount less than $100,000 shall be ABR Loans, unless the remaining Available Commitment for the Lenders in the aggregate is less than $100,000, in which case, the Borrower may elect a Eurodollar Loan for such remaining amount. (c) The Commitment of each Lender to make Tranche A Loans and Tranche B Loans shall be pro rata. 2.2 NOTES. The Loans made by each Lender shall be evidenced by promissory notes of the Borrower, substantially in the form of EXHIBIT A-1 in the case of the Tranche A Loans (each, a "Tranche A Note") or EXHIBIT A-2 in the case of the Tranche B Loans (each, a "Tranche B Note," and with the Tranche A Notes, the "Notes"), with appropriate insertions as to payee, date and principal amount, payable to the order of such Lender and in a principal amount equal to the Tranche A Commitment or Tranche B Commitment, as the case may be, of such Lender. Each Lender is hereby authorized to record the date, Type and amount of each Loan made by such Lender, each continuation thereof, each conversion of all or a portion thereof to another Type, and the date and amount of each payment or prepayment of principal thereof on the schedule annexed to and constituting a part of its Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded, provided, that the failure to make any such recordation or any error in such recordation shall not affect the Borrower's obligations hereunder or under such Note. Each Note shall (i) be dated the Initial Closing Date, (ii) be stated to mature on the Maturity Date and (iii) provide for the payment of principal in accordance with Section 2.6(d) and the payment of interest in accordance with Section 2.8. 2.3 PROCEDURE FOR BORROWING. (a) The Borrower may borrow under the Commitments during the Commitment Period on any Business Day that an Advance may be requested pursuant to the terms of Section 5.2 of the Participation Agreement, provided, that the Borrower shall give the Agent irrevocable notice (which must be received by the Agent prior to 12:00 Noon, Charlotte, North Carolina time, at least five (5) Business Days prior to the requested Borrowing Date specifying (i) the 2 6 amount to be borrowed (which on any date shall not be in excess of the then Available Commitments), (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof, (iv) if the borrowing is to be a combination of Eurodollar Loans and ABR Loans, the respective amounts of each Type of Loan and (v) the Interest Period applicable to each Eurodollar Loan. Pursuant to the terms of the Participation Agreement, the Borrower shall be deemed to have delivered such notice upon the delivery of a notice by the Construction Agent or the Lessee containing such required information. Upon receipt of any such notice from the Borrower, the Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Agent for the account of the Borrower at the office of the Agent specified in Section 9.2 prior to 12:00 Noon, Charlotte, North Carolina time, on the Borrowing Date requested by the Borrower in funds immediately available to the Agent. Such borrowing will then be made available to the Borrower by the Agent crediting an account designated, subject to Section 9.1 of the Participation Agreement, by the Borrower on the books of such office with the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received by the Agent. No amount of any Loan which is repaid or prepaid by the Borrower may be reborrowed hereunder, except as set forth in Section 5.2(d) of the Participation Agreement. (b) Interest accruing on each Loan during the Construction Period with respect to any Property shall, subject to the limitations set forth in Section 5.1(b) of the Participation Agreement be added to the principal amount of such Loan on the relevant Scheduled Interest Payment Date. On each such Scheduled Interest Payment Date, the Loan Property Cost and Construction Loan Property Cost shall be increased by the amount of interest added to the Loans. 2.4 (INTENTIONALLY OMITTED) 2.5 TERMINATION OR REDUCTION OF COMMITMENTS. (a) The Borrower shall have the right, upon not less than three (3) Business Days' written notice to the Agent, to terminate the Commitments or, from time to time, to reduce the amount of the Commitments, provided, that (i) after giving effect to such reduction, the aggregate outstanding principal amount of the Loans shall not exceed the aggregate Commitments and (ii) such notice shall be accompanied by a certificate of the Construction Agent stating that the amount equal to ninety-seven percent (97%) of aggregate Budgeted Total Property Costs as of the date of such reduction does not exceed the aggregate amount of Available Commitments as of such date after giving effect to such reduction. Any such reduction (A) shall be in an amount equal to the lesser of (1) $1,000,000 (or an even multiple thereof) or (2) the remaining Available Commitments, (B) shall reduce permanently the Commitments then in effect and (C) shall be pro rata for the Commitments of all Lenders and pro rata between the Tranche A Loans and the Tranche B Loans. (b) The Commitments respecting any particular Property shall automatically be reduced to zero (0) sixty (60) days after the occurrence of the Rent Commencement Date respecting such Property. On any date on which the Commitments shall automatically be 3 7 reduced to zero (0) pursuant to Section 6, the Borrower shall prepay all outstanding Loans, together with accrued unpaid interest thereon and all other amounts owing thereunder. 2.6 PREPAYMENTS AND PAYMENTS. (a) Subject to Sections 11.2(e), 11.3 and 11.4 of the Participation Agreement, the Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty, upon at least three (3) Business Days' irrevocable notice to the Agent, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, if a combination thereof, the amount allocable to each. Upon receipt of any such notice the Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Amounts prepaid may not be reborrowed, and shall reduce the Commitments and the Available Commitments, except in each case as set forth in Section 5.2(d) of the Participation Agreement. (b) If on any date the Agent or the Lessor shall receive any payment in respect of (i) any Casualty, Condemnation or Environmental Violation pursuant to Sections 15.1(a) or 15.1(g) or Article XVI of the Lease (excluding any payments in respect thereof which are payable to the Lessee in accordance with the Lease), or (ii) the Termination Value of any Property in connection with the delivery of a Termination Notice pursuant to Article XVI of the Lease, or (iii) the Termination Value of any Property in connection with the exercise of the Purchase Option under Article XX of the Lease or the exercise of the option of the Lessor to transfer the Properties to the Lessee pursuant to Section 20.3 of the Lease, or (iv) any payment required to be made or elected to be made by the Construction Agent to the Lessor pursuant to the terms of the Agency Agreement, then in each case, the Borrower shall pay such amounts to the Agent and the Agent shall be required to apply and pay such amounts in accordance with the provisions of Section 8.7(b)(ii) of the Participation Agreement. (c) Each prepayment of the Loans pursuant to Section 2.6(a) shall be allocated to reduce the respective Loan Property Costs of all Properties pro rata according to the Loan Property Costs of such Properties immediately before giving effect to such prepayment. Each prepayment of the Loans pursuant to Section 2.6(b) shall be allocated to reduce the Loan Property Cost of the Property or Properties subject to the respective Casualty, Condemnation, Environmental Violation, termination, purchase, transfer or other circumstance giving rise to such prepayment. Any amounts applied to reduce the Loan Property Cost of any Construction Period Property pursuant to this paragraph (c) shall also be applied to reduce the Construction Loan Property Cost of such Property until such Construction Loan Property Cost has been reduced to zero (0). (d) On each date referenced in Schedule 1 to the Participation Agreement, the Borrower shall repay the outstanding principal balance of the Loans in part in such amounts referenced in such Schedule 1, and all amounts so repaid pursuant to this Section 2.6(d) shall be applied to reduce the outstanding principal balance of the Loans. 4 8 (e) The outstanding principal balance of the Loans and all other amounts then due and owing under this Agreement or otherwise with respect to the Loans shall be due and payable in full on the Maturity Date. 2.7 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Agent at least three (3) Business Days' prior irrevocable notice of such election, provided, that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto, and provided, further, to the extent a Credit Agreement Event of Default has occurred and is continuing on the last day of any such Interest Period, the applicable Eurodollar Loan shall automatically be converted to an ABR Loan. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Agent at least three (3) Business Days' prior irrevocable notice of such election. Upon receipt of any such notice, the Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans or ABR Loans may be converted as provided herein, provided, that (i) no ABR Loan may be converted into a Eurodollar Loan after the date that is one (1) month prior to the Maturity Date and (ii) such notice of conversion regarding any Eurodollar Loan shall contain an election by the Borrower of an Interest Period for such Eurodollar Loan to be created by such conversion and such Interest Period shall be in accordance with the terms of the definition of the term "Interest Period" including without limitation subparagraphs (A) through (D) thereof. (b) Subject to the restrictions set forth in Section 2.3 hereof, any Eurodollar Loan may be continued as such upon the expiration of the current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Agent, in accordance with the applicable notice provision for the conversion of ABR Loans to Eurodollar Loans set forth herein, of the length of the next Interest Period to be applicable to such Loans, provided, that no Eurodollar Loan may be continued as such after the date that is one (1) month prior to the Maturity Date, provided, further, no Eurodollar Loans may be continued as such if a Credit Agreement Event of Default has occurred and is continuing as of the last day of the Interest Period for such Eurodollar Loan, and provided, further, that if the Borrower shall fail to give any required notice as described above or otherwise herein, or if such continuation is not permitted pursuant to the proceeding proviso, such Loan shall automatically be converted to an ABR Loan on the last day of such then expiring Interest Period. 2.8 INTEREST RATES AND PAYMENT DATES. (a) The Loans outstanding hereunder from time to time shall bear interest at a rate per annum equal to either (i) with respect to a Eurodollar Loan, the Eurodollar Rate determined for the applicable Interest Period plus the Applicable Percentage or (ii) with respect to an ABR Loan, the ABR, as selected by the Borrower in accordance with the provisions hereof; provided, however, (A) upon delivery by the Agent of the notice described in Section 2.9(c), the Loans of each of the Lenders shall bear interest at the ABR applicable from time to time from and after the dates and during the periods specified in Section 2.9(c), (B) upon the delivery by a Lender of the 5 9 notice described in Section 11.3(f) of the Participation Agreement, the Loans of such Lender shall bear interest at the ABR applicable from time to time from and after the dates and during the periods specified in Section 11.3(f) of the Participation Agreement and (C) in such other circumstances as expressly provided herein, the Loans shall bear interest at the ABR. (b) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is the lesser of (x) the then current rate of interest respecting such payment plus two percent (2%) and (y) the highest interest rate permitted by applicable law, in each case from the date of such non-payment until such amount is paid in full (whether after or before judgment). (c) Interest shall be payable in arrears on the applicable Scheduled Interest Payment Date, provided, that (i) interest accruing pursuant to paragraph (b) of this Section 2.8 shall be payable from time to time on demand and (ii) each prepayment of the Loans shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. 2.9 COMPUTATION OF INTEREST. (a) Whenever it is calculated on the basis of the Prime Lending Rate, interest shall be calculated on the basis of a year of three hundred sixty-five (365) days (or three hundred sixty-six (366) days, as the case may be) for the actual days elapsed; and, otherwise, interest shall be calculated on the basis of a year of three hundred sixty (360) days for the actual days elapsed. The Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the day on which such change becomes effective. The Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. (c) If the Eurodollar Rate cannot be determined by the Agent in the manner specified in the definition of the term "Eurodollar Rate", the Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. Until such time as the Eurodollar Rate can be determined by the Agent in the manner specified in the definition of such term, no further Eurodollar Loans shall be made or shall be continued as such at the end of the then current Interest Period nor shall the Borrower have the right to convert ABR Loans to Eurodollar Loans. 6 10 2.10 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the Borrower from the Lenders hereunder and any reduction of the Commitments of the Lenders shall be made pro rata according to their respective Commitments. Subject to the provisions of Section 8.7 of the Participation Agreement and Section 2.11(b) hereof, each payment (including without limitation each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts on the Loans then held by the Lenders. All payments (including without limitation prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, Charlotte, North Carolina time, on the due date thereof to the Agent, for the account of the Lenders, at the Agent's office specified in Section 9.2, in Dollars and in immediately available funds. The Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day; provided, however, if such payment includes an amount of interest calculated with reference to the Eurodollar Rate and the result of such extension would be to extend such payment into another calendar month, then such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two (2) sentences, interest thereon shall be payable at the then applicable rate during such extension. (b) Unless the Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make its share of such borrowing available to the Agent, the Agent may assume that such Lender is making such amount available to the Agent, and the Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Agent. A certificate of the Agent submitted to any Lender with respect to any amounts owing under this Section 2.10(b) shall be conclusive in the absence of manifest error. With respect to any Lender other than First Union National Bank (if any), to the extent any such Lender's share of such borrowing is not made available to the Agent by such Lender within three (3) Business Days of such Borrowing Date, the Agent shall also be entitled to recover such amount with interest thereon at the rate as set forth above on demand from the Borrower. 2.11 NOTICE OF AMOUNTS PAYABLE; MANDATORY ASSIGNMENT. (a) In the event that any Lender becomes aware that any amounts are or will be owed to it pursuant to Sections 11.2(e), 11.3 or 11.4 of the Participation Agreement or that it is unable to make Eurodollar Loans, then it shall promptly notify the Borrower, the Lessee and the Agent thereof and, as soon as possible thereafter, such Lender shall submit to the Borrower (with a copy to the Agent) a certificate indicating the amount owing to it and the calculation thereof. The 7 11 amounts set forth in such certificate shall be, absent manifest error, prima facie evidence of the obligations of the Borrower hereunder. (b) In the event that any Lender delivers to the Borrower a certificate in accordance with Section 2.11(a) in connection with amounts payable pursuant to Sections 11.2(e), 11.3 or 11.4 of the Participation Agreement or such Lender is required to make Loans as ABR Loans in accordance with Section 11.3(d) of the Participation Agreement then, subject to Section 9.1 of the Participation Agreement, the Borrower may, at its own expense (provided, such amounts shall be reimbursed or paid entirely (as elected by the Borrower) by the Lessee, as Supplemental Rent) and in the discretion of the Borrower, (i) require such Lender to transfer or assign, in whole or (with such Lender's consent) in part, without recourse (in accordance with Section 9.8), all or (with such Lender's consent) part of its interests, rights (except for rights to be indemnified for actions taken while a party hereunder) and obligations under this Agreement to a replacement bank or institution if the Borrower (subject to Section 9.1 of the Participation Agreement), with the full cooperation of such Lender, can identify a Person who is ready, willing and able to be such replacement bank or institution with respect thereto and such replacement bank or institution (which may be another Lender) shall assume such assigned obligations, or (ii) during such time as no Credit Agreement Default or Credit Agreement Event of Default has occurred and is continuing, terminate the Commitment of such Lender and prepay all outstanding Loans of such Lender; provided, however, that (x) subject to Section 9.1 of the Participation Agreement, the Borrower or such replacement bank or institution, as the case may be, shall have paid to such Lender in immediately available funds the principal of and interest accrued to the date of such payment on the Loans made by it hereunder and all other amounts owed to it hereunder (and, if such Lender is also a Holder, all Holder Advances and Holder Yield accrued and unpaid thereon), (y) any termination of the Commitment of such Lender shall be pro rata for such Lender's Tranche A Commitment and such Lender's Tranche B Commitment and further subject to the terms of the first sentence of Section 2.5(a) and clause (B) of the second sentence of Section 2.5(a) and (z) such assignment or termination of the Commitment of such Lender and prepayment of Loans does not conflict with any law, rule or regulation or order of any court or Governmental Authority. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Agent and the Lenders to enter into this Agreement and to make the Loans, each of the Trust Company and the Owner Trustee hereby makes and affirms the representations and warranties set forth in Section 6.1 of the Participation Agreement to the same extent as if such representations and warranties were set forth in this Agreement in their entirety. 8 12 SECTION 4. CONDITIONS PRECEDENT 4.1 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Agreement is subject to the satisfaction of all conditions precedent set forth in Section 5.3 of the Participation Agreement required by said Section to be satisfied on or prior to the Initial Closing Date. 4.2 CONDITIONS TO EACH LOAN. The agreement of each Lender to make any Loan requested to be made by it on any date is subject to the satisfaction of all conditions precedent set forth in Section 5.3 and 5.4 of the Participation Agreement required by said Sections to be satisfied on or prior to the date of the applicable Loan. Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such Loan that, subject to any determination that must be made by the Agent, the Lenders or the Holders, the conditions contained in this Section 4.2 have been satisfied. SECTION 5. COVENANTS So long as any Loan or Note remains outstanding and unpaid or any other amount is owing to any Lender or the Agent hereunder: 5.1 OTHER ACTIVITIES. The Borrower shall not conduct, transact or otherwise engage in, or commit to transact, conduct or otherwise engage in, any business or operations other than the entry into, and exercise of rights and performance of obligations in respect of, the Operative Agreements and other activities incidental or related to the foregoing. 5.2 OWNERSHIP OF PROPERTIES, INDEBTEDNESS. The Borrower shall not own, lease, manage or otherwise operate any properties or assets other than in connection with the activities described in Section 5.1, or incur, create, assume or suffer to exist any Indebtedness or other consensual liabilities or financial obligations other than as may be incurred, created or assumed or as may exist in connection with the activities described in Section 5.1 (including without limitation the Loans and other obligations incurred by the Borrower hereunder). 9 13 5.3 DISPOSITION OF ASSETS. The Borrower shall not convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, except to the extent expressly contemplated by the Operative Agreements. 5.4 COMPLIANCE WITH OPERATIVE AGREEMENTS. The Borrower shall at all times (a) observe and perform all of the covenants, conditions and obligations required to be performed by it (whether in its capacity as the Lessor, the Owner Trustee or otherwise) under each Operative Agreement to which it is a party and (b) observe and perform, or cause to be observed and performed, all of the covenants, conditions and obligations of the Lessor under the Lease, even in the event that the Lease is terminated at stated expiration following a Lease Event of Default or otherwise. 5.5 FURTHER ASSURANCES. At any time and from time to time, upon the written request of the Agent, and at the expense of the Borrower (provided, such amounts shall be reimbursed or paid entirely (as elected by the Borrower) by the Lessee, as Supplemental Rent), the Borrower will promptly and duly execute and deliver such further instruments and documents and take such further action as the Agent or the Majority Lenders may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and the other Operative Agreements and of the rights and powers herein or therein granted. 5.6 NOTICES. If on any date, a Responsible Officer of the Borrower shall obtain actual knowledge of the occurrence of a Credit Agreement Default or Credit Agreement Event of Default, the Borrower will give written notice thereof to the Agent and the Lessee within five (5) Business Days after such date. 5.7 DISCHARGE OF LIENS. Neither the Borrower nor the Trust Company will create or permit to exist at any time, and will, at its own expense, promptly take such action as may be necessary duly to discharge, or cause to be discharged, all Lessor Liens attributable to it, provided, that the Borrower and the Trust Company shall not be required to discharge any Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any material danger of impairment of any of the Liens contemplated by the Security Documents or of the sale, forfeiture or loss of, and shall not materially interfere with the disposition of, any Property or title thereto or any interest therein or the payment of Rent. 10 14 5.8 TRUST AGREEMENT. Without prejudice to any right under the Trust Agreement of the Owner Trustee to resign, the Owner Trustee (a) agrees not to terminate or revoke the trust created by the Trust Agreement except as permitted by Article VIII of the Trust Agreement, (b) agrees not to amend, supplement, terminate, revoke or otherwise modify any provision of the Trust Agreement in any manner which could reasonably be expected to have an adverse effect on the rights or interests of the Agent or the Lenders hereunder or under the other Operative Agreements and (c) agrees to comply with all of the terms of the Trust Agreement. SECTION 6. EVENTS OF DEFAULT Upon the occurrence of any of the following specified events (each a "Credit Agreement Event of Default"): (a) Except as provided in Sections 6(c), the Borrower shall default in the payment when due of any principal on the Loans or default in the payment when due of any interest on the Loans, and in either such case, such default shall continue for three (3) or more consecutive Business Days; or (b) Except as provided in Sections 6(a) and 6(c), the Borrower shall default, and such default shall continue for seven (7) or more consecutive days, in the payment of any amount owing under any Credit Document; or (c) (i) The Borrower shall default in the payment of any amount due on the Maturity Date owing under any Credit Document or (ii) the Borrower shall default in the payment when due of any principal or interest on the Loans payable with regard to any obligation of Lessee to pay Termination Value when due or to pay Basic Rent or Supplemental Rent at such time as any Termination Value is due; or (d) The Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in any Credit Document to which it is a party (other than those referred to in paragraphs (a), (b) and (c) above), provided, that in the case of any such default under Sections 5.4, 5.5 or 5.8(c), such default shall have continued unremedied for a period of at least fifteen (15) consecutive days after notice to the Borrower and the Lessee by the Agent or the Majority Lenders, provided, further, if any such default under Sections 5.4, 5.5 or 5.8(c) is not capable of remedy within such fifteen (15) consecutive day period but may be remedied with further diligence and if the Borrower has and continues to pursue diligently such remedy, then the Borrower shall be granted additional time to pursue such remedy but in no event more than an additional thirty (30) consecutive days. (e) Any representation, warranty or statement made or deemed made by the Borrower herein or in any other Credit Document or by the Borrower or the Lessee in the Participation Agreement, or in any statement or certificate delivered or required to be delivered pursuant 11 15 hereto or thereto, shall prove to be untrue in any material respect on the date as of which made or deemed made and shall continue to be false or inaccurate in such way for fifteen (15) days after notice thereof to Borrower and Lessee; provided, if such default is not capable of remedy within such fifteen (15) day period but may be remedied with further diligence and if the Borrower or the Lessee has and continues to pursue such remedy, then the Borrower and the Lessee shall be granted additional time to pursue such remedy but in no event more than an additional thirty (30) days; or (f) (i) Any Lease Event of Default shall have occurred and be continuing, or (ii) the Owner Tustee shall default in the due performance or observance by it of any term, covenant or agreement contained in the Participation Agreement or in the Trust Agreement to or for the benefit of the Agent or a Lender, provided, that in the case of this clause (ii) such default shall have continued unremedied for a period of at least fifteen (15) consecutive days after notice to the Owner Trustee and Lessee by the Agent or the Majority Lenders, provided, further, that in the case of this clause (ii), such default is not capable of remedy within such fifteen (15) consecutive day period but may be remedied with further diligence and if the Borrower has and continues to pursue diligently such remedy, then the Borrower shall be granted additional time to pursue such remedy but in no event more than an additional thirty (30) consecutive days; or (g) The Borrower shall commence a voluntary case concerning itself under the Bankruptcy Code or an involuntary case is commenced against the Borrower and the petition is not contravened within ten (10) days after commencement of the case or an involuntary case is commenced against the Borrower and the petition is not dismissed within ninety (90) days after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower; or the Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower, or there is commenced against the Borrower any such proceeding which remains undismissed for a period of ninety (90) days; or the Borrower is adjudicated insolvent or bankrupt, or any order of relief or other order approving any such case or proceeding is entered; or the Borrower suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of ninety (90) days; or the Borrower makes a general assignment for the benefit of creditors; or any corporate or partnership action is taken by the Borrower for the purpose of effecting any of the foregoing; or (h) Any Security Document shall cease to be in full force and effect, or shall cease to give the Agent the Liens, rights, powers and privileges purported to be created thereby (including without limitation a first priority perfected security interest in, and Lien on, all of the Properties), in favor of the Agent on behalf of the Lenders and the Holders, superior to and prior to the rights of all third Persons and subject to no other Liens (except in each case to the extent expressly permitted herein or in any Operative Agreement) other than any Ground Lease; or (i) The Lease shall cease to be enforceable against the Lessee; or 12 16 (j) One (1) or more judgments or decrees shall be entered against the Borrower involving a liability of $100,000 or more in the aggregate for all such judgments and decrees for the Borrower and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within ninety (90) days from the entry thereof, then, and in any such event, (A) if such event is a Credit Agreement Event of Default specified in paragraph (g) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (B) if such event is any other Credit Agreement Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Agent may, or upon the request of the Majority Lenders, the Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Majority Lenders, the Agent may, or upon the request of the Majority Lenders, the Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable (any of the foregoing occurrences or actions referred to in clause (A) or (B) above, an "Acceleration"). Except as expressly provided above in this Section 6, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Upon the occurrence of any Credit Agreement Event of Default and at any time thereafter so long as any Credit Agreement Event of Default shall be continuing, the Agent shall, upon the written instructions of the Majority Secured Parties, exercise any or all of the rights and powers and pursue any and all of the remedies available to it hereunder and (subject to the terms thereof) under the other Credit Documents, the Lease and the other Operative Agreements and shall have any and all rights and remedies available under the Uniform Commercial Code or any provision of law. Upon the occurrence of any Credit Agreement Event of Default and at any time thereafter so long as any Credit Agreement Event of Default shall be continuing, the Agent may, and upon request of the Majority Secured Parties shall, proceed to protect and enforce this Agreement, the Notes, the other Credit Documents and the Lease by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement herein contained or in execution or aid of any power herein granted, or for foreclosure hereunder, or for the appointment of a receiver or receivers for the Property or for the recovery of judgment for the indebtedness secured thereby or for the enforcement of any other proper, legal or equitable remedy available under applicable laws. The Borrower shall be liable for any and all accrued and unpaid amounts due hereunder before, after or during the exercise of any of the foregoing remedies, including without limitation all reasonable legal fees and other reasonable costs and expenses incurred by the Agent or any Lender by reason of the occurrence of any Credit Agreement Event of Default or the exercise of remedies with respect thereto. 13 17 SECTION 7. THE AGENT 7.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints the Agent as the agent of such Lender under this Agreement and the other Operative Agreements, and each such Lender irrevocably authorizes the Agent, in such capacity, to execute the Operative Agreements as agent for and on behalf of such Lender, to take such action on behalf of such Lender under the provisions of this Agreement and the other Operative Agreements and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and other Operative Agreements, together with such other powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, each of the Lenders hereby specifically acknowledges the terms and provisions of the Participation Agreement and directs the Agent to exercise such powers, make such decisions and otherwise perform such duties as are delegated to the Agent thereunder without being required to obtain any specific consent with respect thereto from any Lender, unless the matter under consideration is a Unanimous Vote Matter or otherwise requires the consent of the Majority Lenders and/or the Majority Secured Parties. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Operative Agreement or otherwise exist against the Agent. 7.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this Agreement and the other Operative Agreements by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 7.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Operative Agreement (except for its or such Person's own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or the Lessee or any officer thereof contained in this Agreement or any other Operative Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Operative Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Operative Agreement or for any failure of the Borrower or the Lessee to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or 14 18 performance of any of the agreements contained in, or conditions of, this Agreement or any other Operative Agreement, or to inspect the properties, books or records of the Borrower or the Lessee. 7.4 RELIANCE BY THE AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including without limitation counsel to the Borrower or the Lessee), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Operative Agreement unless it shall first receive such advice or concurrence of the Majority Lenders, the Majority Secured Parties or all Secured Parties, as the case may be, as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Operative Agreements in accordance with a request of the Majority Lenders, the Majority Secured Parties or all Secured Parties, as the case may be, and such and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes (or all Secured Parties, as the case may be). 7.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Credit Agreement Default or Credit Agreement Event of Default hereunder unless the Agent has received written notice from a Lender or the Borrower referring to this Agreement, describing such Credit Agreement Default or Credit Agreement Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Credit Agreement Default or Credit Agreement Event of Default as shall be reasonably directed by the Majority Secured Parties; provided, that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Credit Agreement Default or Credit Agreement Event of Default as it shall deem advisable in the best interests of the Secured Parties; provided, further, the foregoing shall not limit (a) the rights of the Majority Secured Parties to elect remedies as set forth in Section 6 and/or (b) the rights of the Majority Secured Parties or all Secured Parties, as the case may be, as described in the Participation Agreement (including without limitation Sections 8.2(h) and 8.6 of the Participation Agreement). 15 19 7.6 NON-RELIANCE ON THE AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including without limitation any review of the affairs of the Borrower or the Lessee, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and the Lessee and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Operative Agreements, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and the Lessee. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower or the Lessee which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 7.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent, in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section 7.7 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against any of them in any way relating to or arising out of, the Commitments, this Agreement, any of the other Operative Agreements or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any of them under or in connection with any of the foregoing; provided, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent. The agreements in this Section 7.7 shall survive the payment of the Notes and all other amounts payable hereunder. 16 20 7.8 THE AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower or the Lessee as though the Agent were not the Agent hereunder and under the other Operative Agreements. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement and the other Operative Agreements as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. 7.9 SUCCESSOR AGENT. The Agent may resign at any time as the Agent upon thirty (30) days' notice to the Lenders, the Borrower and, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee. If the Agent shall resign as the Agent under this Agreement, the Majority Lenders shall appoint from among the Lenders a successor Agent which successor Agent shall be subject to the approval of the Borrower and, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee, such approval not to be unreasonably withheld or delayed. If no successor Agent is appointed prior to the effective date of the resignation of the resigning Agent, the Agent may appoint, after consulting with the Lenders and subject to the approval of the Borrower and, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee, such approval not to be unreasonably withheld or delayed, a successor Agent from among the Lenders. If no successor Agent has accepted appointment as the Agent by the date which is thirty (30) days following a retiring Agent's notice of resignation, the retiring Agent's notice of resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent until such time, if any, as the Majority Lenders appoint a successor Agent, as provided for above. Upon the effective date of such resignation, only such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's rights, powers and duties in such capacity shall be terminated. After any retiring Agent resigns hereunder as the Agent, the provisions of this Article VII and Section 9.5 shall inure to their respective benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. 7.10 ACTIONS OF THE AGENT ON BEHALF OF HOLDERS. The parties hereto specifically acknowledge and consent to the Agent's acting on behalf of the Holders as provided in the Participation Agreement, and, in any such case, the Lenders acknowledge that the Holders shall be entitled to vote as "Secured Parties" hereunder to the extent required or permitted by the Operative Agreements (including without limitation Sections 8.2(h) and 8.6 of the Participation Agreement). 7.11 THE AGENT'S DUTY OF CARE. Other than the exercise of reasonable care to assure the safe custody of the Collateral while being held by the Agent hereunder or under any other Operative Agreement, the Agent 17 21 shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Lessee shall be responsible for preservation of all rights in the Collateral, and the Agent shall be relieved of all responsibility for the Collateral upon surrendering it or tendering the surrender of it to the Lessee. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not have responsibility for taking any necessary steps to preserve rights against any parties with respect to any of the Collateral. SECTION 8. MATTERS RELATING TO PAYMENT AND COLLATERAL 8.1 COLLECTION AND ALLOCATION OF PAYMENTS AND OTHER AMOUNTS. The Lessee, the Construction Agent, the Agent, the Lenders, the Holders and the Borrower have agreed pursuant to the terms of Section 8.7 of the Participation Agreement to a procedure for the allocation and distribution of certain payments and distributions, including without limitation the proceeds of Collateral. 8.2 CERTAIN REMEDIAL MATTERS. Notwithstanding any other provision of this Agreement or any other Credit Document: (a) the Borrower shall at all times retain to the exclusion of all other parties, all rights to Excepted Payments payable to it and to demand, collect or commence an action at law to obtain such payments and to enforce any judgment with respect thereto; and (b) the Borrower and each Holder shall at all times retain the right, but not to the exclusion of the Agent, (i) to retain all rights with respect to insurance that Article XIV of the Lease specifically confers upon the "Lessor", (ii) to provide such insurance as the Lessee shall have failed to maintain or as the Borrower or any Holder may desire, and (iii) to enforce compliance by the Lessee with the provisions of Articles VIII, IX, X, XI, XIV and XVII of the Lease. 8.3 EXCEPTED PAYMENTS. Notwithstanding any other provision of this Agreement or the Security Documents, any Excepted Payment received at any time by the Agent shall be distributed promptly to the Person entitled to receive such Excepted Payment. 18 22 SECTION 9. MISCELLANEOUS 9.1 AMENDMENTS AND WAIVERS. None of the terms or provisions of this Agreement may be terminated, amended, supplemented, waived or modified except in accordance with the terms of Section 12.4 of the Participation Agreement. 9.2 NOTICES. All notices required or permitted to be given under this Agreement shall be given in accordance with Section 12.2 of the Participation Agreement. 9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by the Borrower under the Operative Agreements shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans hereunder. 9.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees to (with funds provided by the Lessee as Supplemental Rent): (a) pay all reasonable out-of-pocket costs and expenses of (i) the Agent whether or not the transactions herein contemplated are consummated, in connection with the negotiation, preparation, execution and delivery of the Operative Agreements and the documents and instruments referred to therein (including without limitation the reasonable fees and disbursements of Moore & Van Allen, PLLC) and any amendment, waiver or consent relating thereto (including without limitation the reasonable fees and disbursements of counsel to the Agent) and (ii) the Agent and each of the Lenders in connection with the enforcement of the Operative Agreements and the documents and instruments referred to therein (including without limitation the reasonable fees and disbursements of counsel for the Agent and for each of the Lenders) and (b) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes. 19 23 9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. 9.7 PARTICIPATIONS. Subject to and in accordance with Section 10.1 of the Participation Agreement, any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one (1) or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Operative Agreements; provided, that any such sale of a participating interest shall be in a principal amount of at least $2,000,000 or such lesser amount constituting such Lender's entire interest in this Agreement and the Notes. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement and the Notes, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the Notes. In no event shall any Participant have any right to approve any amendment or waiver of any provision of this Agreement or any other Operative Agreement, or any consent to any departure by the Borrower or any other Person therefrom, except to the extent that such amendment, waiver or consent would (a) reduce the principal of, or interest on, any Loan or Note, or postpone the date of the final maturity of any Loan or Note, in each case to the extent subject to such participation or (b) release all or substantially all of the Collateral. The Borrower agrees that, while a Credit Agreement Event of Default shall have occurred and be continuing, if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have become due and payable upon the occurrence of a Credit Agreement Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interests in amounts owing directly to it as a Lender under this Agreement or any Note, provided, that in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 9.10(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 11.2(e), 11.3 and 11.4 of the Participation Agreement with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided, that such Participant shall have complied with the requirements of said Sections and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. 20 24 9.8 ASSIGNMENTS. (a) Subject to and in accordance with Section 10.1 of the Participation Agreement, any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time and from time to time assign to any Lender or any Affiliate of any Lender or, with the consent, subject to Section 9.1 of the Participation Agreement, of the Borrower and the Agent (which in each case shall not be unreasonably withheld or delayed and which consent of the Borrower shall not be required during the continuation of any Credit Agreement Event of Default), to an additional bank, financial institution or other entity that is either organized under the laws of the United States or any state thereof or is a foreign bank that operates a branch office in the United States, (each, a "Purchasing Lender") all or any part of its rights and obligations under this Agreement and the other Operative Agreements pursuant to an Assignment and Acceptance, substantially in the form of EXHIBIT B, executed by such Purchasing Lender, such assigning Lender (and, in the case of a Purchasing Lender that is not a Lender or an Affiliate thereof, subject to Section 9.1 of the Participation Agreement, by the Borrower and the Agent) and delivered to the Agent for its acceptance and recording in the Register; provided, that no such assignment to a Purchasing Lender (other than any Lender or any Affiliate thereof) shall be in an aggregate principal amount less than $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement and the Notes). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding anything to the contrary in this Agreement, the consent of the Borrower shall not be required, and, unless requested by the relevant Purchasing Lender and/or assigning Lender, new Notes shall not be required to be executed and delivered by the Borrower, for any assignment which occurs at any time when any of the events described in Section 6(g) shall have occurred and be continuing. (b) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not a Lender or an Affiliate thereof, by the Borrower and the Agent) together with payment to the Agent of a registration and processing fee of $2,500 (which shall not be payable by the Borrower or the Lessee, except as otherwise provided in connection with an assignment requested in accordance with Section 2.11(b)), the Agent shall (i) promptly accept such Assignment and Acceptance and (ii) promptly after the effective date determined pursuant thereto, record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. On or prior to such effective date, the Borrower, at its own expense, shall execute and deliver to the Agent new Notes (in exchange for the Notes of the assigning Lender), each in an amount equal to the Commitment assumed or Loans purchased by the relevant Purchasing Lender pursuant to such Assignment and Acceptance, and, if the assigning Lender has retained a Commitment or any Loan hereunder, new Notes to the order of the 21 25 assigning Lender, each in an amount equal to the Commitment or Loans retained by it hereunder. Such new Notes shall be dated the effective date of the applicable Assignment and Acceptance and shall otherwise be in the form of the Notes replaced thereby. (c) Each Purchasing Lender (other than any Lender organized and existing under the laws of the U.S. or any political subdivision in or of the U.S.), by executing and delivering an Assignment and Acceptance, (i) agrees to execute and deliver to the Agent, as promptly as practicable, four (4) signed copies (two (2) for the Agent and two (2) for delivery by the Agent to the Borrower) of Form 1001 or Form 4224 (or any successor form or comparable form) (it being understood that if the applicable form is not so delivered, payments under or in respect of this Agreement may be subject to withholding and deduction); (ii) represents and warrants to the Borrower and the Agent that the form so delivered is true and accurate and that, as of the effective date of the applicable Assignment and Acceptance, each of such Purchasing Lender's lending offices is entitled to receive payments of principal and interest under or in respect of this Agreement without withholding or deduction for or on account of any taxes imposed by the U.S. Federal government; (iii) agrees to annually hereafter deliver to each of the Borrower and the Agent not later than December 31 of the year preceding the year to which it will apply, two (2) further properly completed signed copies of Form 1001 or Form 4224 (or any successor form or comparable form), as appropriate, unless an event has occurred which renders the relevant form inapplicable (it being understood that if the applicable form is not so delivered, payments under or in respect of this Agreement may be subject to withholding and deduction); (iv) agrees to promptly notify the Borrower and the Agent in writing if it ceases to be entitled to receive payments of principal and interest under or in respect of this Agreement without withholding or deduction for or on account of any taxes imposed by the U.S. or any political subdivision in or of the U.S. (it being understood that payments under or in respect of this Agreement may be subject to withholding and deduction in such event); (v) acknowledges that in the event it ceases to be exempt from withholding and/or deduction of such taxes, the Agent may withhold and/or deduct the applicable amount from any payments to which such assignee Lender would otherwise be entitled, without any liability to such assignee Lender therefor; and (vi) agrees to indemnify the Borrower and the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or expenses that result from such assignee Lender's breach of any such representation, warranty or agreement. (d) Any Lender party to this Agreement may, from time to time and without the consent of the Borrower or any other Person, pledge or assign for security purposes any portion 22 26 of its Loans or any other interests in this Agreement and the other Credit Documents to any Federal Reserve Bank. 9.9 THE REGISTER; DISCLOSURE; PLEDGES TO FEDERAL RESERVE BANKS. (a) The Agent shall maintain for the benefit of the Lenders at its address referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders, the Commitments of the Lenders, and the principal amount of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of clearly demonstrable error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable notice. (b) Nothing herein shall prohibit any Lender from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. 9.10 ADJUSTMENTS; SET-OFF. (a) Except as otherwise expressly provided in Section 8.1 hereof and Section 8.7 of the Participation Agreement where, and to the extent, one (1) Lender is entitled to payments prior to other Lenders, if any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 6(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the event of such recovery, but without interest. (b) In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of a Credit Agreement Event of Default, the Agent and each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by the Agent or such Lender (including without limitation by branches and agencies of the Agent or such Lender wherever located) to or for the credit or the account of the Borrower against and on account of the obligations and liabilities of the Borrower to the Agent or such Lender under this Agreement or under any of the other Operative Agreements, including without 23 27 limitation all interests in obligations of the Borrower purchased by any such Lender pursuant to Section 9.10(a), and all other claims of any nature or description arising out of or connected with this Agreement or any other Operative Agreement, irrespective or whether or not the Agent or such Lender shall have made any demand and although said obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 9.11 COUNTERPARTS. This Agreement may be executed by one (1) or more of the parties to this Agreement on any number of separate counterparts (including without limitation by telecopy), and all of said counterparts taken together shall be deemed to constitute one (1) and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Agent. 9.12 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.13 INTEGRATION. This Agreement and the other Credit Documents represent the agreement of the Borrower, the Agent, and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. 9.14 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF MARYLAND. 9.15 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION. THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS. 24 28 9.16 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that: (a) neither the Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Credit Documents, and the relationship between the Agent and the Lenders, on one (1) hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (b) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. 9.17 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 9.18 NONRECOURSE. In addition to and not in limitation of Section 12.9 of the Participation Agreement, anything to the contrary contained in this Agreement or in any other Operative Agreement notwithstanding, no Exculpated Person shall be personally liable in any respect for any liability or obligation hereunder or under any other Operative Agreement including without limitation the payment of the principal of, or interest on, the Notes, or for monetary damages for the breach of performance of any of the covenants contained in this Agreement, the Notes or any of the other Operative Agreements. The Agent and the Lenders agree that, in the event any of them pursues any remedies available to them under this Agreement, the Notes or any other Operative Agreement, neither the Agent nor the Lenders shall have any recourse against the Borrower, nor any other Exculpated Person, for any deficiency, loss or claim for monetary damages or otherwise resulting therefrom and recourse shall be had solely and exclusively against the Trust Estate and the Lessee; but nothing contained herein shall be taken to prevent recourse against or the enforcement of remedies against the Trust Estate in respect of any and all liabilities, obligations and undertakings contained in this Agreement, the Notes or any other Operative Agreement. The Agent and the Lenders further agree that the Borrower shall not be responsible for the payment of any amounts owing hereunder (excluding principal and interest (other than Overdue Interest) in respect of the Loans) (such non-excluded amounts, "Supplemental Amounts") except to the extent that payments of Supplemental Rent designated by the Lessee for application to such Supplemental Amounts shall have been paid by the Lessee pursuant to the Lease (it being understood that the failure by the Lessee for any reason to pay any Supplemental Rent in respect of such Supplemental Amounts shall nevertheless be deemed to constitute a 25 29 default by the Borrower for the purposes of Section 6). Notwithstanding the foregoing provisions of this Section 9.18, nothing in this Agreement or any other Operative Agreement shall (a) constitute a waiver, release or discharge of any obligation evidenced or secured by this Agreement or any other Credit Document, (b) limit the right of the Agent or any Lender to name the Borrower as a party defendant in any action or suit for judicial foreclosure and sale under any Security Document, or (c) affect in any way the validity or enforceability of any guaranty (whether of payment and/or performance) given to the Lessor, the Agent or the Lenders, or of any indemnity agreement given by the Borrower, in connection with the Loans made hereunder. 9.19 USURY SAVINGS PROVISION. IT IS THE INTENT OF THE PARTIES HERETO TO CONFORM TO AND CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN EFFECT AND THAT N.C. GEN. STAT. Section 24-9 SHALL APPLY WITH RESPECT TO THIS AGREEMENT. TO THE EXTENT N.C. GEN. STAT. Section 24-9 IS HEREAFTER DEEMED NOT TO APPLY BY A COURT OF COMPETENT JURISDICTION AND ANY PAYMENTS HEREUNDER ARE HEREINAFTER CHARACTERIZED BY ANY COURT OF COMPETENT JURISDICTION AS THE REPAYMENT OF PRINCIPAL AND INTEREST THEREON, THE FOLLOWING PROVISIONS OF THIS SECTION 9.19 SHALL APPLY. ANY SUCH PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO HEREIN AS "INTEREST." ALL AGREEMENTS AMONG THE PARTIES HERETO ARE HEREBY LIMITED BY THE PROVISIONS OF THIS PARAGRAPH WHICH SHALL OVERRIDE AND CONTROL ALL SUCH AGREEMENTS, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER WRITTEN OR ORAL. IN NO WAY, NOR IN ANY EVENT OR CONTINGENCY (INCLUDING WITHOUT LIMITATION PREPAYMENT OR ACCELERATION OF THE MATURITY OF ANY OBLIGATION), SHALL ANY INTEREST TAKEN, RESERVED, CONTRACTED FOR, CHARGED, OR RECEIVED UNDER THIS AGREEMENT OR OTHERWISE, EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM ANY POSSIBLE CONSTRUCTION OF ANY OF THE OPERATIVE AGREEMENTS OR ANY OTHER DOCUMENT OR AGREEMENT, INTEREST WOULD OTHERWISE BE PAYABLE IN EXCESS OF THE MAXIMUM NONUSURIOUS AMOUNT, ANY SUCH CONSTRUCTION SHALL BE SUBJECT TO THE PROVISIONS OF THIS PARAGRAPH AND SUCH AMOUNTS UNDER SUCH DOCUMENTS OR AGREEMENTS SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED UNDER APPLICABLE LAW, WITHOUT THE NECESSITY OF EXECUTION OF ANY AMENDMENT OR NEW DOCUMENT OR AGREEMENT. IF THE AGENT OR ANY LENDER SHALL EVER RECEIVE ANYTHING OF VALUE WHICH IS CHARACTERIZED AS INTEREST WITH RESPECT TO THE OBLIGATIONS OWED HEREUNDER OR UNDER APPLICABLE LAW AND WHICH WOULD, APART FROM THIS PROVISION, BE IN EXCESS OF THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL TO THE AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE INTEREST SHALL, WITHOUT PENALTY, BE APPLIED TO THE REDUCTION OF THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL AND NOT TO THE PAYMENT OF INTEREST, OR REFUNDED TO THE BORROWER OR ANY OTHER 26 30 PAYOR THEREOF, IF AND TO THE EXTENT SUCH AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE EXCEEDS THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL. THE RIGHT TO DEMAND PAYMENT OF ANY AMOUNTS EVIDENCED BY ANY OF THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND NEITHER THE AGENT NOR ANY LENDER INTENDS TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN THE EVENT OF SUCH DEMAND. ALL INTEREST PAID OR AGREED TO BE PAID TO THE AGENT OR ANY LENDER SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED, AND SPREAD THROUGHOUT THE FULL STATED TERM (INCLUDING WITHOUT LIMITATION ANY RENEWAL OR EXTENSION) OF THIS AGREEMENT SO THAT THE AMOUNT OF INTEREST ON ACCOUNT OF SUCH PAYMENTS DOES NOT EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED BY APPLICABLE LAW. 27 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By:/s/ Brett R. King ------------------------------------------------ Name: Brett R. King ---------------------------------------------- Title: Assistant Vice President ------------------------------------- FIRST UNION NATIONAL BANK, as the Agent and a Lender By:/s/ Louis E. Flori ------------------------------------------------ Name: Louis E. Flori ---------------------------------------------- Title: Vice President --------------------------------------------- 32 Schedule 1.1
Tranche A Tranche B Commitment Commitment --------------------- --------------------- Name and Address of Lenders Amount/Percentage Amount/Percentage - --------------------------- ----------------- ----------------- First Union National Bank $16,600,000 100% $2,800,000 100% c/o First Union Capital Markets Group DC-6 301 South College Street Charlotte, North Carolina 28288-0166 Attention: Ms. Jane O. Hurley, Capital Markets Services Telephone: (704) 383-3812 Telecopy: (704) 383-7989 TOTAL $16,600,000 100% $2,800,000 100%
33 EXHIBIT A-1 TRANCHE A NOTE (Guilford Real Estate Trust 1998-1) $______________ ___________, 199__ FOR VALUE RECEIVED, the undersigned, FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Borrower"), hereby unconditionally promises to pay to the order of [LENDER] (the "Lender"), at the office of First Union National Bank, located at c/o First Union Capital Markets Group, DC-6, 301 South College Street, Charlotte, North Carolina 28288-0166 or at such other address as may be specified by First Union National Bank, in lawful money of the United States of America and in immediately available funds, on the Maturity Date, the principal amount of (a) ___________________________________________________ AND NO/100 DOLLARS ($_____________), or, if less, (b) the aggregate unpaid principal amount of all Tranche A Loans made by the Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement (as defined below). The Borrower agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.8 of such Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount of each Tranche A Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof and each conversion of all or a portion thereof to another Type. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in such endorsement shall not affect the obligations of the Borrower in respect of such Loan. This Note (a) is one (1) of the Notes referred to in the Credit Agreement dated as of February 5, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Lender, the other banks and financial institutions from time to time parties thereto and First Union National Bank, as the Agent, (b) is subject to the provisions of the Credit Agreement (including without limitation Section 9.18 thereof) and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. Reference is hereby made to the Credit Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. A1-1 34 Upon the occurrence of any one (1) or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF MARYLAND. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: ----------------------------------------------------- Name: --------------------------------------------------- Title: -------------------------------------------------- A1-2 35 EXHIBIT A-2 TRANCHE B NOTE (Guilford Real Estate Trust 1998-1) $______________ _________, 19__ FOR VALUE RECEIVED, the undersigned, FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Borrower"), hereby unconditionally promises to pay to the order of [LENDER] (the "Lender") at the office of First Union National Bank located at c/o First Union Capital Markets Group, DC-6, 301 South College Street, Charlotte, North Carolina 28288-0166 or at such other address as may be specified by First Union National Bank, in lawful money of the United States of America and in immediately available funds, on the Maturity Date, the principal amount of (a) ___________________________________________________ AND NO/100 DOLLARS ($_____________), or, if less, (b) the aggregate unpaid principal amount of all Tranche B Loans made by the Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement (as defined below). The Borrower agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.8 of such Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount of each Tranche B Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof and each conversion of all or a portion thereof to another Type. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in such endorsement shall not affect the obligations of the Borrower in respect of such Loan. This Note (a) is one (1) of the Notes referred to in the Credit Agreement dated as of February 5, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Lender, the other banks and financial institutions from time to time parties thereto and First Union National Bank, as the Agent, (b) is subject to the provisions of the Credit Agreement (including without limitation Section 9.18 thereof) and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. Reference is hereby made to the Credit Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. A2-1 36 Upon the occurrence of any one (1) or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF MARYLAND. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: --------------------------------------------------- Name: ------------------------------------------------- Title: ------------------------------------------------ A2-2 37 EXHIBIT B ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement, dated as of February 5, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Owner Trustee" or the "Borrower"), the Lenders named therein and FIRST UNION NATIONAL BANK, as the Agent. Unless otherwise defined herein, terms defined in the Credit Agreement (or pursuant to Section 1 of the Credit Agreement, defined in other agreements) and used herein shall have the meanings given to them in or pursuant to the Credit Agreement. ____________________ (the "Assignor") and _______________ (the "Assignee") agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), a ___% interest (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to the credit facility contained in the Credit Agreement as are set forth on Schedule 1 hereto (the "Assigned Facility"), in a principal amount for the Assigned Facility as set forth on Schedule 1. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other Operative Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Operative Agreement or any other instrument or document furnished pursuant thereto, other than that it has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, or any other obligor or the performance or observance by the Borrower, or any other obligor of any of their respective obligations under the Credit Agreement or any other Operative Agreement or any other instrument or document furnished pursuant hereto or thereto; and (c) attaches the Note held by it evidencing the Assigned Facility and requests that the Agent exchange such Note for a new Note payable to the Assignor and (if the Assignor has retained any interest in the Assigned Facility) a new Note payable to the Assignee in the respective amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received copies of the Operative B-1 38 Agreements, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, the other Operative Agreements or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Operative Agreements or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and the other Operative Agreements to which Assignee is a party and will perform in accordance herewith all the obligations which by the terms of the Credit Agreement and the other Operative Agreements to which Assignee is a party are required to be performed by it as a Lender including without limitation, if it is organized under the laws of a jurisdiction outside the U.S., its obligation pursuant to Section 11.2(e) of the Participation Agreement. 4. The effective date of this Assignment and Acceptance shall be ________, ____ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance by it and recording by the Agent pursuant to Section 9.9 of the Credit Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Agent, be earlier than five (5) Business Days after the date of such acceptance and recording by the Agent). 5. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including without limitation payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the other Operative Agreements and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and the other Operative Agreements. 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND. B-2 39 IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. [Name of Assignor] By: ----------------------------------------------------- Name: --------------------------------------------------- Title: -------------------------------------------------- [Name of Assignee] By: ----------------------------------------------------- Name: --------------------------------------------------- Title: -------------------------------------------------- Consented To: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: ----------------------------------------------------- Name: --------------------------------------------------- Title: -------------------------------------------------- FIRST UNION NATIONAL BANK, as the Agent By: ----------------------------------------------------- Name: --------------------------------------------------- Title: -------------------------------------------------- [consents required only to the extent expressly provided in Section 9.8 of the Credit Agreement] 40 SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE RELATING TO THE CREDIT AGREEMENT, DATED AS OF FEBRUARY 5, 1998, AMONG FIRST SECURITY BANK, NATIONAL ASSOCIATION NOT INDIVIDUALLY, BUT SOLELY AS THE OWNER TRUSTEE, THE LENDERS NAMED THEREIN AND FIRST UNION NATIONAL BANK, AS THE AGENT FOR THE LENDERS (IN SUCH CAPACITY, THE "AGENT") Name of Assignor: ------------------------------------------- Name of Assignee: ------------------------------------------- Effective Date of Assignment: ----------------------
Credit Principal Commitment Facility Assigned Amount Assigned Percentage Assigned ----------------- --------------- ------------------- $ % ---------------- ------------ ------------ [Name of Assignor] By: -------------------------------------------------------- Name: ------------------------------------------------------ Title: ----------------------------------------------------- [Name of Assignee] By: -------------------------------------------------------- Name: ------------------------------------------------------ Title: -----------------------------------------------------
EX-10.48 9 PARTICIPATION AGREEMENT, DATED AS OF FEB. 5, 1998 1 EXHIBIT 10.48 - ------------- - -------------------------------------------------------------------------------- PARTICIPATION AGREEMENT Dated as of February 5, 1998 among GUILFORD PHARMACEUTICALS INC., as the Construction Agent and as the Lessee, FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE PARTIES HERETO FROM TIME TO TIME, as the Holders, THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE PARTIES HERETO FROM TIME TO TIME, as the Lenders, and FIRST UNION NATIONAL BANK, as the Agent for the Lenders and respecting the Security Documents, as the Agent for the Lenders and the Holders, to the extent of their interests - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- SECTION 1A. INITIAL LENDER AND INITIAL HOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1. THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 2. HOLDER ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3. SUMMARY OF TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.1. Operative Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------------------- 3.2. Property Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ----------------- 3.3. Construction of Improvements; Commencement of Basic Rent. . . . . . . . . . . . . . . . . . . 3 -------------------------------------------------------- SECTION 4. THE CLOSINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.1. Initial Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 -------------------- 4.2. Initial Closing Date; Property Closing Dates; Acquisition Advances; Construction Advances. . 3 ----------------------------------------------------------------------------------------- SECTION 5. FUNDING OF ADVANCES; CONDITIONS PRECEDENT; REPORTING REQUIREMENTS ON COMPLETION DATE; THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ------- 5.2. Procedures for Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ---------------------- 5.3. Conditions Precedent for the Lessor, the Lessee, the Construction Agent, the Agent, ----------------------------------------------------------------------------------- the Lenders and the Holders Relating to the Initial Closing Date and the Advance of ----------------------------------------------------------------------------------- Funds for the Acquisition of a Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 --------------------------------------- 5.4. Conditions Precedent for the Lessor, the Agent, the Lenders and the Holders Relating ------------------------------------------------------------------------------------ to the Advance of Funds after the Acquisition Advance. . . . . . . . . . . . . . . . . . . . 11 ----------------------------------------------------- 5.4A. Application of Proceeds of the Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 --------------------------------------- 5.4B. Conditions Precedent to the Agent's Approval of Requisitions. . . . . . . . . . . . . . . . 14 -------------------------------------------------------------- 5.5. Additional Reporting and Delivery Requirements on Completion Date and ---------------------------------------------------------------------- on Construction Period Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 --------------------------------------- 5.6. The Construction Agent Delivery of Construction Budget Modifications. . . . . . . . . . . . . 19 -------------------------------------------------------------------- 5.7. Restrictions on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 --------------------- 5.8. Real Estate Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ----------------- 5.9. Cash Collateral Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ----------------------- SECTION 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.1. Representations and Warranties of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . 20 ---------------------------------------------- 6.2. Representations and Warranties of the Construction Agent and the Lessee. . . . . . . . . . . 23 ----------------------------------------------------------------------- SECTION 7. PAYMENT OF CERTAIN EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.1. Transaction Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 --------------------
3 7.2. Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ------------- 7.3. Certain Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ------------------------- 7.4. Structuring Fee and Administration Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 -------------------------------------- SECTION 8. OTHER COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.1. Cooperation with the Construction Agent or the Lessee. . . . . . . . . . . . . . . . . . . . 30 ----------------------------------------------------- 8.2. Covenants of the Owner Trustee and the Holders. . . . . . . . . . . . . . . . . . . . . . . . 30 ---------------------------------------------- 8.3. The Lessee Covenants, Consent and Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . 32 ------------------------------------------------ 8.3A. Additional Affirmative Covenants of the Lessee. . . . . . . . . . . . . . . . . . . . . . . 35 ---------------------------------------------- 8.3B. Additional Negative Covenants of the Lessee. . . . . . . . . . . . . . . . . . . . . . . . . 40 ------------------------------------------- 8.4. Sharing of Certain Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 --------------------------- 8.5. Grant of Easements, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ------------------------ 8.6. Appointment by the Agent, the Lenders, the Holders and the Owner Trustee. . . . . . . . . . . 44 ------------------------------------------------------------------------ 8.7. Collection and Allocation of Payments and Other Amounts. . . . . . . . . . . . . . . . . . . 45 ------------------------------------------------------- 8.8. Release of Properties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 --------------------------- 8.9. Lessee Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ---------------- SECTION 9. CREDIT AGREEMENT AND TRUST AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.1. The Construction Agent's and the Lessee's Credit Agreement Rights. . . . . . . . . . . . . . 49 ----------------------------------------------------------------- 9.2. The Construction Agent's and the Lessee's Trust Agreement Rights. . . . . . . . . . . . . . . 49 ---------------------------------------------------------------- SECTION 10. TRANSFER OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.1. Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ------------------------ 10.2. Effect of Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ------------------ SECTION 11. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 11.1. General Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ----------------- 11.2. General Tax Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 --------------------- 11.3. Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 --------------------------------- 11.4. Funding/Contribution Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 ------------------------------ 11.5. EXPRESS INDEMNIFICATION FOR ORDINARY NEGLIGENCE, STRICT -------------------------------------------------------- LIABILITY, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 --------------- 11.6. Termination of Earlier Indemnification Agreement. . . . . . . . . . . . . . . . . . . . . . 62 ------------------------------------------------ SECTION 12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 12.1. Survival of Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ---------------------- 12.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 ------- 12.3. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ------------ 12.4. Terminations, Amendments, Waivers, Etc.; Unanimous Vote Matters. . . . . . . . . . . . . . . 64 --------------------------------------------------------------- 12.5. Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 -------------- 12.6. Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 ------------------- 12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; VENUE; ARBITRATION. . . . . 66 ----------------------------------------------------------------------------------- 12.8. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ------------ 12.9. Liability Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ----------------- 12.10. Rights of the Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 --------------------
ii 4 12.11. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 ------------------ 12.12. Calculations under Operative Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 70 --------------------------------------- 12.13. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 --------------- 12.14. Financial Reporting/Tax Characterization. . . . . . . . . . . . . . . . . . . . . . . . . . 72 ---------------------------------------- 12.15. (intentionally omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SCHEDULE 1 - Repayment of Loans EXHIBITS A - Form of Requisition - Sections 4.2, 5.2, 5.3 and 5.4 B - Form of Outside Counsel Opinion for the Lessee - Section 5.3(j) C - Form of Secretary's Certificate - Section 5.3(z) D - Form of Officer's Certificate - Section 5.3(aa) E - Form of Officer's Certificate - Section 5.3(bb) F - Form of Officer's Certificate - Section 5.3(cc) G - Form of Outside Counsel Opinion for the Owner Trustee -Section 5.3(dd) H - Form of Outside Counsel Opinion for the Lessee - Section 5.3(ee) I - Form of Officer's Certificate - Section 5.5 J - Description of Material Litigation - Section 6.2(d) Appendix A - Rules of Usage and Definitions iii 5 PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, this "Agreement") is by and among GUILFORD PHARMACEUTICALS INC., a Delaware corporation (the "Lessee" or the "Construction Agent"); FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually (in its individual capacity, the "Trust Company"), except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Owner Trustee", the "Borrower" or the "Lessor"); the various banks and other lending institutions which are parties hereto from time to time as lenders (subject to the definition of Lenders in Appendix A hereto, individually, a "Lender" and collectively, the "Lenders"); FIRST UNION NATIONAL BANK, a national banking association, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (in such capacity, the "Agent"); the various banks and other lending institutions which are parties hereto from time to time as holders of certificates issued with respect to the Guilford Real Estate Trust 1998-1 (subject to the definition of Holders in Appendix A hereto, individually, a "Holder" and collectively, the "Holders"). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings set forth in Appendix A hereto. In consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1A. INITIAL LENDER AND INITIAL HOLDER. Notwithstanding the various references in the Operative Agreements to multiple Lenders and multiple Holders, First Union National Bank is the only Lender and the only Holder as of the date of this Agreement. Additional Lenders and additional Holders may become parties to the Operative Agreements subsequent to the date hereof pursuant to the assignment provisions set forth in the applicable Operative Agreements. SECTION 1. THE LOANS. Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, the Lenders have agreed to make Loans to the Lessor from time to time in an aggregate principal amount of up to the aggregate amount of the Commitments of the Lenders in order for the Lessor to acquire the Properties and certain Improvements, to develop and construct certain Improvements in accordance with the Agency Agreement and the terms and provisions hereof and for the other purposes described herein, and in consideration of the receipt of proceeds of the Loans, the Lessor will issue the Notes. The Loans shall be made and the Notes shall be issued pursuant to the Credit Agreement. Pursuant to Section 5 of this Agreement and Section 2 of the Credit Agreement, the Loans will be made to the Lessor from time to time at the request of the 6 Construction Agent in consideration for the Construction Agent agreeing for the benefit of the Lessor, pursuant to the Agency Agreement, so that the Lessor may acquire the Properties, acquire the Equipment and construct certain Improvements, and so that the Lessee may lease the Properties, each in accordance with the Agency Agreement and the other Operative Agreements. The Loans and the obligations of the Lessor under the Credit Agreement shall be secured by the Collateral. SECTION 2. HOLDER ADVANCES. Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, on each date Advances are requested to be made in accordance with Section 5 hereof, each Holder shall make a Holder Advance on a pro rata basis to the Lessor with respect to the Guilford Real Estate Trust 1998-1 based on its Holder Commitment in an amount in immediately available funds such that the aggregate of all Holder Advances on such date shall be three percent (3%) of the amount of the Requested Funds on such date; provided, that no Holder shall be obligated for any Holder Advance in excess of its pro rata share of the Available Holder Commitment. The aggregate amount of Holder Advances shall be up to the aggregate amount of the Holder Commitments. No prepayment or any other payment with respect to any Advance shall be permitted such that the Holder Advance with respect to such Advance is less than three percent (3%) of the outstanding amount of such Advance, except in connection with termination or expiration of the Term or in connection with the exercise of remedies relating to the occurrence of a Lease Event of Default. The representations, warranties, covenants and agreements of the Holders herein and in the other Operative Agreements are several, and not joint or joint and several. SECTION 3. SUMMARY OF TRANSACTIONS. 3.1. OPERATIVE AGREEMENTS. On the date hereof, each of the respective parties hereto and thereto shall execute and deliver this Agreement, the Lease, each applicable Ground Lease, the Agency Agreement, the Credit Agreement, the Notes, the Trust Agreement, the Certificates, the Security Agreement and such other documents, instruments, certificates and opinions of counsel as agreed to by the parties hereto. 3.2. PROPERTY PURCHASE. On each Property Closing Date and subject to the terms and conditions of this Agreement (a) the Holders will each make a Holder Advance in accordance with Sections 2 and 5 of this Agreement and the terms and provisions of the Trust Agreement, (b) the Lenders will each make Loans in accordance with Sections 1 and 5 of this Agreement and the terms and provisions of the Credit Agreement, (c) the Lessor will purchase and acquire good and marketable title to or ground lease pursuant to a Ground Lease, the applicable Property, each to be within an Approved State, identified by the Construction Agent, in each case pursuant to a Deed, Bill of Sale or 2 7 Ground Lease, as the case may be, and grant the Agent a lien on such Property by execution of the required Security Documents, (d) the Agent, the Lessee and the Lessor shall execute and deliver a Lease Supplement relating to such Property and (e) the Term shall commence with respect to such Property. 3.3. CONSTRUCTION OF IMPROVEMENTS; COMMENCEMENT OF BASIC RENT. Construction Advances will be made with respect to particular Improvements to be constructed and with respect to ongoing Work regarding the Equipment and construction of particular Improvements, in each case, pursuant to the terms and conditions of this Agreement and the Agency Agreement. The Construction Agent will act as a construction agent on behalf of the Lessor respecting the Work regarding the Equipment, the construction of such Improvements and the expenditures of the Construction Advances related to the foregoing. The Construction Agent shall promptly notify the Lessor upon Completion of the Improvements and the Lessee shall commence to pay Basic Rent as of the Rent Commencement Date. SECTION 4. THE CLOSINGS. 4.1. INITIAL CLOSING DATE. All documents and instruments required to be delivered on the Initial Closing Date shall be delivered at the offices of Moore & Van Allen, PLLC, Charlotte, North Carolina, or at such other location as may be determined by the Lessor, the Agent and the Lessee. 4.2. INITIAL CLOSING DATE; PROPERTY CLOSING DATES; ACQUISITION ADVANCES; CONSTRUCTION ADVANCES. The Construction Agent shall deliver to the Agent a requisition (a "Requisition"), in the form attached hereto as EXHIBIT A or in such other form as is satisfactory to the Agent, in its reasonable discretion, in connection with (a) the Transaction Expenses and other fees, expenses and disbursements payable, pursuant to Section 7.1, by the Lessor and (b) each Acquisition Advance pursuant to Section 5.3 and (c) each Construction Advance pursuant to Sections 5.4., 5.4A, 5.4B and 5.4C. SECTION 5. FUNDING OF ADVANCES; CONDITIONS PRECEDENT; REPORTING REQUIREMENTS ON COMPLETION DATE; THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS. 5.1. GENERAL. (a) To the extent funds have been advanced to the Lessor as Loans by the Lenders and to the Lessor as Holder Advances by the Holders, the Lessor will use such funds from time to time in accordance with the terms and conditions of this Agreement and the other Operative Agreements (i) at the direction of the Construction Agent to acquire the Properties in accordance with the terms of this Agreement, the Agency 3 8 Agreement and the other Operative Agreements, (ii) to make Advances to the Construction Agent to permit the acquisition, testing, engineering, installation, development, construction, modification, design, and renovation, as applicable, of the Properties (or components thereof) in accordance with the terms of the Agency Agreement and the other Operative Agreements, and (iii) to pay Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Sections 7.1(a) and 7.1(b). (b) In lieu of the payment of interest on the Loans and Holder Yield on the Holder Advances on any Scheduled Interest Payment Date with respect to any Property during the period prior to the Rent Commencement Date with respect to such Property, (i) each Lender's Loan shall automatically be increased by the amount of interest accrued and unpaid on such Loan for such period (except to the extent that at any time such increase would cause such Lender's Loan to exceed such Lender's Available Commitment, in which case the Lessee shall pay such excess amount to such Lender in immediately available funds on the date such Lender's Available Commitment is exceeded), and (ii) each Holder's Holder Advance shall automatically be increased by the amount of Holder Yield accrued and unpaid on such Holder Advance for such period (except to the extent that at any time such increase would cause the Holder Advance of such Holder to exceed such Holder's Available Holder Commitment, in which case the Lessee shall pay such excess amount to such Holder in immediately available funds on the date the Available Holder Commitment of such Holder was exceeded). Such increases in a Lender's Loan and a Holder's Holder Advance shall occur without any disbursement of funds by any Person. 5.2. PROCEDURES FOR FUNDING. (a) The Construction Agent shall designate the date for Advances hereunder in accordance with the terms and provisions hereof; provided, however, it is understood and agreed that no more than two (2) Advances (excluding any conversion and/or continuation of any Loans or Holder Advances) may be requested during any calendar month. Not less than (i) one (1) Business Day prior to the Initial Closing Date and (ii) five (5) Business Days prior to the date on which any Acquisition Advance or Construction Advance is to be made (unless such Acquisition Advance or Construction Advance is concurrent with the Initial Closing Date in which case the deliveries hereinafter referenced may be delivered one (1) Business Day prior to the date of the requested Advance), the Construction Agent shall deliver to the Agent, (A) with respect to the Initial Closing Date and each Acquisition Advance, a Requisition as described in Section 4.2 hereof (including without limitation a legal description of the Land, if any, a schedule of the Improvements, if any, and a schedule of the Equipment, if any, acquired or to be acquired on such date, and a schedule of the Work, if any, to be performed, each of the foregoing in a form reasonably acceptable to the Agent) and (B) with respect to each Construction Advance, a Requisition identifying (among other things) the Property to which such Construction Advance relates. 4 9 (b) Each Requisition shall: (i) be irrevocable, (ii) request funds in an amount that is not in excess of the total aggregate of the Available Commitments plus the Available Holder Commitments at such time, and (iii) request that the Holders make Holder Advances and that the Lenders make Loans to the Lessor for the payment of Transaction Expenses, Property Acquisition Costs (in the case of an Acquisition Advance) or other Property Costs (in the case of a Construction Advance) that have previously been incurred or are to be incurred on the date of such Advance to the extent such were not subject to a prior Requisition, in each case as specified in the Requisition. (c) Subject to the satisfaction of the conditions precedent set forth in Sections 5.3, 5.4, 5.4A, 5.4B or 5.4C, as applicable, on each Property Closing Date or the date on which the Construction Advance is to be made, as applicable, (i) the Lenders shall make Loans based on their respective Lender Commitments to the Lessor in an aggregate amount equal to ninety-seven percent (97%) of the Requested Funds specified in any Requisition (ratably between the Tranche A Lenders and the Tranche B Lenders with the Tranche A Lenders funding eighty-three percent (83%) of the Requested Funds and the Tranche B Lenders funding fourteen percent (14%) of the Requested Funds), up to an aggregate principal amount equal to the aggregate of the Available Commitments, (ii) each Holder shall make a Holder Advance based on its Holder Commitment in an amount such that the aggregate of all Holder Advances at such time shall be three percent (3%) of the balance of the Requested Funds specified in such Requisition, up to the aggregate advanced amount equal to the aggregate of the Available Holder Commitments; and (iii) the total amount of such Loans and Holder Advances made on such date shall (x) be used by the Lessor to pay Property Costs and/or Transaction Expenses within three (3) Business Days of the receipt by the Lessor of such Advance or (y) be advanced by the Lessor on the date of such Advance to the Construction Agent or the Lessee to pay Property Costs, as applicable. Notwithstanding that the Operative Agreements state that Advances shall be directed to the Lessor, each Advance shall in fact be directed to the Agent (for the benefit of the Lessor) and applied by the Agent (for the benefit of the Lessor) pursuant to the requirements imposed on the Lessor under the Operative Agreements. (d) With respect to an Advance obtained by the Lessor to pay for Property Costs and/or Transaction Expenses or other costs payable under Section 7.1 hereof and not expended by the Lessor for such purpose on the date of such Advance, such amounts shall be held by the Lessor (or the Agent on behalf of the Lessor) until the applicable closing date or, if such closing date does not occur within three (3) Business Days of the date of the Lessor's receipt of such Advance, shall be applied regarding the applicable Advance to repay the Lenders and the Holders and, subject to the terms hereof, and of the Credit Agreement and the Trust Agreement, shall remain available for future Advances. Any such amounts held by the Lessor (or the Agent on behalf of the Lessor) shall be subject to the lien of the Security Agreement. (e) All Operative Agreements which are to be delivered to the Lessor, the Agent, the Lenders or the Holders shall be delivered to the Agent, on behalf of the Lessor, 5 10 the Agent, the Lenders or the Holders, and such items (except for Notes, Certificates, Bills of Sale, the Ground Leases and chattel paper originals, with respect to which in each case there shall be only one original) shall be delivered with originals sufficient for the Lessor, the Agent, each Lender and each Holder. All other items which are to be delivered to the Lessor, the Agent, the Lenders or the Holders shall be delivered to the Agent, on behalf of the Lessor, the Agent, the Lenders or the Holders, and such other items shall be held by the Agent. To the extent any such other items are requested in writing from time to time by the Lessor, any Lender or any Holder, the Agent shall provide a copy of such item to the party requesting it. (f) Notwithstanding the completion of any closing under this Agreement pursuant to Sections 5.3, 5.4, 5.4A, 5.4B and 5.4C, each condition precedent in connection with any such closing may be subsequently enforced by the Agent (unless such has been expressly waived in writing by the Agent). 5.3. CONDITIONS PRECEDENT FOR THE LESSOR, THE LESSEE, THE CONSTRUCTION AGENT, THE AGENT, THE LENDERS AND THE HOLDERS RELATING TO THE INITIAL CLOSING DATE AND THE ADVANCE OF FUNDS FOR THE ACQUISITION OF A PROPERTY. The obligations (i) on the Initial Closing Date of the Lessor, the Lessee, the Construction Agent, the Agent, the Lenders and the Holders to enter into the transactions contemplated by this Agreement, including without limitation the obligation to execute and deliver the applicable Operative Agreements to which each is a party on the Initial Closing Date, (ii) on the Initial Closing Date of the Holders to make Holder Advances, and of the Lenders to make Loans in order to pay Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Section 7.1(a) of this Agreement and (iii) on a Property Closing Date for the purpose of providing funds to the Lessor necessary to pay the Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Section 7.1(b) of this Agreement and to acquire or ground lease a Property (an "Acquisition Advance"), in each case (with regard to the foregoing Sections 5.3(i), (ii) and (iii)) are subject to the satisfaction or waiver of the following conditions precedent on or prior to the Initial Closing Date or the applicable Property Closing Date, as the case may be (to the extent such conditions precedent require the delivery of any agreement, certificate, instrument, memorandum, legal or other opinion, appraisal, commitment, title insurance commitment, lien report or any other document of any kind or type, such shall be in form and substance satisfactory to the Agent, in its reasonable discretion; notwithstanding the foregoing, the obligations of each party shall not be subject to any conditions contained in this Section 5.3 which are required to be performed by such party): (a) the correctness of the representations and warranties of the parties to this Agreement contained herein, in each of the other Operative Agreements and each certificate delivered pursuant to any Operative Agreement on each such date; 6 11 (b) the performance by the parties to this Agreement of their respective agreements contained herein and in the other Operative Agreements to be performed by them on or prior to each such date; (c) the Agent shall have received a fully executed counterpart copy of the Requisition, appropriately completed, and to the extent requested by the Agent, the Construction Inspector shall have reviewed and approved the same; (d) title to each such Property shall conform to the representations and warranties set forth in Section 6.2(l) hereof; (e) the Construction Agent shall have delivered to the Agent a good standing certificate for the Construction Agent in the state where each such Property is located, the Deed with respect to the Land and existing Improvements (if any), a copy of the Ground Lease (if any), and a copy of the Bill of Sale with respect to the Equipment (if any), respecting such of the foregoing as are being acquired or ground leased on each such date with the proceeds of the Loans and Holder Advances or which have been previously acquired or ground leased with the proceeds of the Loans and Holder Advances and such Land, existing Improvements (if any) and Equipment (if any) shall be located in an Approved State; (f) there shall not have occurred and be continuing any Default or Event of Default under any of the Operative Agreements which has not been waived by the applicable Financing Parties, as the case may be, and no Default or Event of Default under any of the Operative Agreements will have occurred after giving effect to the Advance requested by each such Requisition; (g) the Construction Agent shall have delivered to the Agent title insurance commitments to issue policies respecting each such Property in favor of the Lessor and the Agent from a title insurance company acceptable to the Agent, with such title exceptions thereto as are acceptable to the Agent; (h) the Construction Agent shall have delivered to the Agent an environmental site assessment respecting each such Property prepared by an independent recognized professional acceptable to the Agent; (i) the Construction Agent shall have delivered to the Agent a survey (with a flood hazard certification) respecting each such Property prepared by an independent recognized professional acceptable to the Agent; (j) unless such an opinion has previously been delivered with respect to a particular state, the Construction Agent shall have caused to be delivered to the Agent a legal opinion in the form attached hereto as EXHIBIT B or in such other form as is acceptable to the Agent with respect to local law real property issues respecting the state 7 12 in which each such Property is located addressed to the Lessor, the Agent, the Lenders and the Holders, prepared by counsel acceptable to the Agent; (k) (intentionally omitted); (l) the Construction Agent shall have delivered to the Agent invoices for, or other reasonably satisfactory evidence of, the various Transaction Expenses and other fees, expenses and disbursements referenced in Sections 7.1(a) or 7.1(b) of this Agreement, as appropriate; (m) the Construction Agent shall have caused to be delivered to the Agent a Mortgage Instrument (in such form as is acceptable to the Agent, with revisions as necessary to conform to applicable state law), Lessor Financing Statements and Lender Financing Statements respecting each such Property, all fully executed and in recordable form; (n) the Lessee shall have delivered to the Agent with respect to each such Property a Lease Supplement and a memorandum (or short form lease) regarding the Lease and such Lease Supplement (such memorandum or short form lease to be in the form attached to the Lease as EXHIBIT B or in such other form as is acceptable to the Agent, with modifications as necessary to conform to applicable state law, and in form suitable for recording); (o) with respect to each Acquisition Advance, the sum of the Available Commitment plus the Available Holder Commitment (after deducting the Unfunded Amount, if any, and after giving effect to the Acquisition Advance) will be sufficient to pay all amounts payable therefrom; (p) if any such Property is subject to a Ground Lease, the Construction Agent shall have caused a lease memorandum (or short form lease) to be delivered to the Agent for such Ground Lease and, if requested by the Agent, a landlord waiver and a mortgagee waiver (in each case, in such form as is acceptable to the Agent); (q) counsel (acceptable to the Agent) for the ground lessor of each such Property subject to a Ground Lease shall have issued to the Lessor, the Agent, the Lenders and the Holders, its opinion; (r) the Construction Agent shall have delivered to the Agent a preliminary Construction Budget for each such Property, if applicable; (s) the Construction Agent shall have provided evidence to the Agent of insurance with respect to each such Property as provided in the Lease; 8 13 (t) subject to Section 5.5 of this Agreement, the Construction Agent shall have caused an Appraisal regarding each such Property to be provided to the Agent from an appraiser satisfactory to the Agent; (u) the Construction Agent shall cause (i) Uniform Commercial Code lien searches, tax lien searches and judgment lien searches regarding the Lessee to be conducted (and copies thereof to be delivered to the Agent) in such jurisdictions as determined by the Agent by a nationally recognized search company acceptable to the Agent and (ii) the liens referenced in such lien searches which are objectionable to the Agent to be either removed or otherwise handled in a manner satisfactory to the Agent; (v) all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Agreements and/or documents related thereto shall have been paid or provisions for such payment shall have been made to the satisfaction of the Agent; (w) (intentionally omitted); (x) each of the Operative Agreements to be entered into on such date shall have been duly authorized, executed and delivered by the parties thereto, and shall be in full force and effect, and the Agent shall have received a fully executed copy of each of the Operative Agreements; (y) since the date of the most recent audited Financial Statements (as such term is defined in the Lessee Credit Agreement) of the Lessee, there shall not have occurred any event, condition or state of facts which shall have or could reasonably be expected to have a Material Adverse Effect, other than as specifically contemplated by the Operative Agreements; (z) as of the Initial Closing Date only, the Agent shall have received an Officer's Certificate, dated as of the Initial Closing Date, of the Lessee in the form attached hereto as EXHIBIT C or in such other form as is acceptable to the Agent stating that (i) each and every representation and warranty of the Lessee contained in the Operative Agreements to which it is a party is true and correct on and as of the Initial Closing Date; (ii) no Default or Event of Default which has not been waived by the applicable Financing Parties, as the case may be, has occurred and is continuing under any Operative Agreement; (iii) each Operative Agreement to which the Lessee is a party is in full force and effect with respect to it; and (iv) the Lessee has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Agreement required to be performed or complied with by it on or prior to the Initial Closing Date; (aa) as of the Initial Closing Date only, the Agent shall have received (i) a certificate of the Secretary or an Assistant Secretary of the Lessee, dated as of the Initial Closing Date, in the form attached hereto as EXHIBIT D or in such other form as is 9 14 acceptable to the Agent attaching and certifying as to (1) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by the Lessee of each of the Operative Agreements to which it is or will be a party, (2) its articles of incorporation certified as of a recent date by the Secretary of State of its state of incorporation and its by-laws and (3) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Agreements to which it is or will be a party and (ii) a good standing certificate (or local equivalent) from the appropriate office of the respective states where the Lessee is incorporated and where the principal place of business of the Lessee is located as to its good standing in each such state; (bb) as of the Initial Closing Date only, the Agent shall have received an Officer's Certificate of the Lessor dated as of the Initial Closing Date in the form attached hereto as EXHIBIT E or in such other form as is acceptable to the Agent, stating that (i) each and every representation and warranty of the Lessor contained in the Operative Agreements to which it is a party is true and correct on and as of the Initial Closing Date, (ii) each Operative Agreement to which the Lessor is a party is in full force and effect with respect to it and (iii) the Lessor has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Agreement required to be performed or complied with by it on or prior to the Initial Closing Date; (cc) as of the Initial Closing Date only, the Agent shall have received (i) a certificate of the Secretary, an Assistant Secretary, Trust Officer or Vice President of the Trust Company in the form attached hereto as EXHIBIT F or in such other form as is acceptable to the Agent, attaching and certifying as to (A) the signing resolutions duly authorizing the execution, delivery and performance by the Lessor of each of the Operative Agreements to which it is or will be a party, (B) its articles of association or other equivalent charter documents and its by-laws, as the case may be, certified as of a recent date by an appropriate officer of the Trust Company and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Agreements to which it is a party and (ii) a good standing certificate from the Office of the Comptroller of the Currency; (dd) as of the Initial Closing Date only, counsel for the Lessor acceptable to the Agent shall have issued to the Lessee, the Holders, the Lenders and the Agent its opinion in the form attached hereto as EXHIBIT G or in such other form as is reasonably acceptable to the Agent; (ee) as of the Initial Closing Date only, the Construction Agent shall have caused to be delivered to the Agent a legal opinion in the form attached hereto as EXHIBIT H or in such other form as is acceptable to the Agent, addressed to the Lessor, the Agent, the Lenders and the Holders, from counsel acceptable to the Agent; and (ff) as of the Initial Closing Date only, the Construction Agent shall have forwarded, or caused to have been forwarded, to the Equal Opportunity Compliance Office of the City of Baltimore, a completed copy of the MBE and WBE Information and 10 15 Utilization Commitment Form as required pursuant to the City of Baltimore Commitment. 5.4. CONDITIONS PRECEDENT FOR THE LESSOR, THE AGENT, THE LENDERS AND THE HOLDERS RELATING TO THE ADVANCE OF FUNDS AFTER THE ACQUISITION ADVANCE. Subject to Sections 5.4A, 5.4B and 5.4C, the obligations of the Holders to make Holder Advances, and the Lenders to make Loans in connection with all requests for Advances subsequent to the acquisition of a Property (and to pay the Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Section 7.1 of this Agreement in connection therewith) are subject to the satisfaction or waiver of the following conditions precedent (To the extent such conditions precedent require the delivery of any agreement, certificate, instrument, memorandum, legal or other opinion, appraisal, commitment, title insurance commitment, lien report or any other document of any kind or type, such shall be in form and substance satisfactory to the Agent, in its reasonable discretion. Notwithstanding the foregoing, the obligations of each party shall not be subject to any conditions contained in this Section 5.4 which are required to be performed by such party.): (a) the correctness on such date of the representations and warranties of the parties to this Agreement contained herein, in each of the other Operative Agreements and in each certificate delivered pursuant to any Operative Agreement; (b) the performance by the parties to this Agreement of their respective agreements contained herein and in the other Operative Agreements to be performed by them on or prior to each such date; (c) the Agent shall have received a fully executed counterpart of the Requisition, appropriately completed, and to the extent requested by the Agent, the Construction Inspector shall have reviewed and approved the same; (d) based upon the most recent Construction Budget which shall satisfy the requirements of this Agreement, the Available Commitments and the Available Holder Commitment (after deducting the Unfunded Amount) will be sufficient to complete the Improvements; (e) there shall not have occurred and be continuing any Default or Event of Default under any of the Operative Agreements which has not been waived by the applicable Financing Parties, as the case may be, and no Default or Event of Default under any of the Operative Agreements will have occurred after giving effect to the Construction Advance requested by the applicable Requisition; (f) the title insurance policy delivered in connection with the requirements of Section 5.3(g) shall provide for (or shall be endorsed to provide for) insurance in an amount at least equal to the maximum total Property Cost indicated by the Construction 11 16 Budget referred to in subparagraph (d) above and there shall be no title change or exception objectionable to the Agent; (g) the Construction Agent shall have delivered to the Agent copies of the Plans and Specifications for the applicable Improvements; (h) the Construction Agent shall have delivered to the Agent invoices for, or other reasonably satisfactory evidence of, any Transaction Expenses and other fees, expenses and disbursements referenced in Section 7.1(b) that are to be paid with the Advance; (i) the Construction Agent shall have delivered, or caused to be delivered to the Agent, invoices, Bills of Sale or other documents acceptable to the Agent, in each case with regard to any Equipment or other components of such Property then being acquired with the proceeds of the Loans and Holder Advances and naming the Lessor as purchaser and transferee; (j) all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Agreements shall have been paid or provisions for such payment shall have been made to the satisfaction of the Agent; and (k) since the date of the most recent audited Financial Statements (as such term is defined in the Lessee Credit Agreement) of the Lessee, there shall not have occurred any event, condition or state of facts which shall have or could reasonably be expected to have a Material Adverse Effect, other than as specifically contemplated by the Operative Agreements. 5.4A. APPLICATION OF PROCEEDS OF THE ADVANCES. (a) To the extent any other provision of the Operative Agreements conflicts with the provisions of this Section 5.4A, the provisions of this Section 5.4A shall govern. Advances will be disbursed to the Construction Agent to pay for Property Costs or to reimburse the Construction Agent for the payment of Property Costs, included in the Construction Budget and the Plans and Specification which at such time have previously been approved by the Agent and the Agent's construction inspector or which are otherwise approved by the Agent, as the construction of the Properties progresses. Disbursements shall be made only against Requisitions approved by the Agent pursuant to the procedures set forth herein and in the other Operative Agreements. (b) All Requisitions shall be subject to the prior approval of the Agent. The Agent shall have a period of five (5) Business Days within which to approve any Requisition and shall not be required to approve Requisitions more than twice each month. All Advances will be made directly to the Construction Agent; provided, however, that notwithstanding any provision of any Operative Agreement, the Agent may, in its sole discretion, require that all Advances be made directly to the Construction Agent 12 17 or be jointly payable to the Construction Agent and to any contractor, or to subcontractors, laborers, materialmen or Persons furnishing labor, services, materials or equipment used or to be used on or in connection with the acquisition and/or construction of the Properties or to any combination thereof, or to pay any loan fees, taxes, inspection fees, recording charges, legal fees and any other outstanding amounts due relating to Properties and the full cost of its Completion. Any such disbursement or payment shall be deemed to have been made to the Construction Agent or for its account. Upon receipt of any funds requested by Requisition, the Construction Agent promptly shall apply such funds to payments of the costs of the acquisition and/or construction of the Properties for which such funds are requested by the Requisition. (c) Requisitions for Property Costs, other than the direct costs of construction and renovation, must (i) include an itemization of the costs for which payment is requested, (ii) have attached thereto invoices evidencing such costs, (iii) indicate that the delivery to the Property of any Equipment for which payment is requested has been completed, and (iv) have attached thereto any additional documents or information (including without limitation any financing statements or amendments to financing statements and all filing fees necessary for the filing thereof) reasonably required by the Agent in order to create or perfect, or continue the perfection of, the Agent's security interest in any Equipment or other property pursuant to the terms of the Operative Agreements. (d) Requisitions for direct costs of construction and renovation of the Properties must (i) include the AIA approved progress payment form, which must be signed by the Construction Agent and the Construction Agent's architect or construction manager and (ii) be approved by the Agent's construction inspector, not to be unreasonably delayed, conditioned or withheld. Disbursements for direct costs of construction and renovation of the Properties shall be subject to retention (the "Retainage") in an amount equal to ten percent (10%) of the value of the Work performed and materials in place with respect to such Work; provided that, (A) as each contractor, subcontractor or materialman completes its Work and delivers a waiver of liens to the Agent, the Retainage with respect to that contractor, subcontractor or materialman will be released, and (B) at such time as the Improvements shall have been fifty percent (50%) completed in accordance with the Plans and Specifications, the Retainage shall be reduced to an amount equal to five percent (5%) of the value of the Work performed. The Retainage with respect to the Properties may be released upon compliance with the conditions set forth in paragraph (e) of this Section 5.4A. (e) The final disbursement for direct costs of construction and renovation and the Retainage with respect to the Properties will be withheld until the Agent (unless waived at such time by the Agent) has been furnished with and approved copies of certificates of completion (each such certificate may be referred to as a "Completion Certificate") (i) (A) signed by the Construction Agent and the Construction Agent's architect stating that each Property has been designed pursuant to and in accordance with all applicable zoning and building laws, ordinances and regulations and (B) signed by the 13 18 Construction Agent and the Construction Agent's general contractor stating that each Property has been constructed and completed pursuant to and in accordance with the applicable Plans and Specifications (previously approved by the Agent and the Agent's construction inspector); (ii) final waivers of liens from all materialmen, contractors and subcontractors; (iii) a copy of the "as built" survey with respect to each Property; (iv) evidence of hazard insurance meeting the requirements of the Lease Agreement covering such Property; (v) a copy of the permanent use and occupancy certificate authorizing use and occupancy of the Properties in such form as those governmental agencies having jurisdiction customarily issue upon completion of improvements and readiness thereof for use in the City of Baltimore, Maryland; (vi) an updated title insurance policy, if required by the Agent; and (vii) to the extent requested by the Agent, an Appraisal for each Property as referenced in Section 5.5 of this Agreement. (f) The Agent will not approve Requisitions for materials which are not physically incorporated into the applicable Properties, other than for materials (i) actually delivered to the site or a bonded warehouse in the City of Baltimore, Maryland and stored in a place secured and insured against theft, vandalism and other damage, all in a manner reasonably satisfactory to the Agent or (ii) which cannot feasibly be purchased without advance payment (provided, prior to the funding of any such advance payments, the Agent may require additional due diligence to be undertaken and additional safeguard measures to be implemented, all as determined by the Agent in its reasonable discretion). (g) None of the Financing Parties makes any warranty, either express or implied, that the permitted aggregate amount of Advances will be sufficient to pay all of the Property Costs necessary for Completion. (h) No Advances shall in any way be construed as obligating any Financing Party to any Person for the payment of any expense incurred with respect to any Property, and no Person contracting with the Construction Agent in connection with the construction of the Properties shall be reimbursed by any Financing Party under any circumstances whatsoever. No Financing Party shall in any event be responsible or liable to any Person other than the Construction Agent for the disbursement of or failure to disburse proceeds of any Advance, or any part thereof, and neither any contractor, subcontractor nor material or equipment supplier shall have any right or claim against any Financing Party under any Operative Agreement or in connection with the administration thereof. 5.4B. CONDITIONS PRECEDENT TO THE AGENT'S APPROVAL OF REQUISITIONS. The Agent shall not be obligated to approve any Requisition until the Agent shall have received a Requisition meeting the requirements of the Operative Agreements, and until all of the following conditions precedent shall have been fully met and complied with in all respects: (a) No Event of Default shall have occurred and be continuing. 14 19 (b) There shall be sufficient time in the reasonable opinion of the Agent to complete the applicable Property not later than the Construction Period Termination Date. (c) The Construction Agent shall have delivered to the Agent copies of all permits required for the Work for which a Requisition has been submitted. (d) The Construction Agent shall have furnished to the Agent waivers of Liens and receipt of payment as to each contractor and each subcontractor for all Work performed to the date of the last previous Requisition and waivers of Liens as to each supplier for materials included in the last previous Requisition, within thirty (30) days from the date of funding of the last previous Requisition, or prior to the next Requisition, which shall first occur. (e) The Construction Agent shall have delivered to the Agent copies of any contracts, public works agreements and other agreements executed by the Construction Agent in connection with the construction or renovation of the applicable Property, all of which must have been approved by the Agent (such approval not to be unreasonably withheld, conditioned or delayed). (f) At the option of the Agent, the title insurance company insuring the title to the Property shall have issued a title continuation or endorsement showing that the fee simple title to the Property is clear of Liens (other than Lessor Liens and Permitted Liens) to the date of such disbursement and that no financing statements affecting the Property, or any part thereof, other than in favor of Agent, or in connection with Lessor Liens or Permitted Liens, have been filed. (g) The Construction Agent shall have delivered to the Agent three sets of Plans and Specifications (prior to commencing the particular Work to which such Plans and Specifications relates), signed and sealed by the Construction Agent's architect and approved by the Agent. The Construction Agent shall have certified to the Agent, and the Agent's construction inspector shall have confirmed, that all construction Work which has been completed on the Properties with respect to which the Requisition is being submitted is in conformity with the applicable Plans and Specifications. Upon the request of the Agent, the Construction Agent will specify the nature of any deviations from such Plans and Specifications. (h) The Agent shall have received, upon the Agent's request, evidence satisfactory to it that all prior disbursements have been properly applied to costs of the applicable Property. (i) With respect to any new construction, the Agent shall have received a current location survey conforming to the requirements of Section 2.6A(k) of the Agency Agreement. 15 20 (j) The sum of the funds being requisitioned, plus all prior Advances, plus the aggregate of all retentions and undisbursed funds shall be sufficient, in the reasonable judgment of the Agent, to complete the applicable Property in accordance with the applicable Plans and Specifications. (k) The Agent shall have received (i) evidence acceptable to the Agent in its sole discretion that construction Work performed and materials in place to the date of the Requisition are satisfactory both as to the quality and quantity, and that the subsoil is suitable for the continued construction of the applicable Property, and (ii) a certification from the Agent's construction inspector that the Work performed in is compliance with all applicable governmental requirements. (l) Notwithstanding any other provisions of this Agreement, prior to any Advance for costs of each item of personal property Equipment, the Agent must have received and approved reasonably satisfactory evidence of the following items: (i) a specific description of such item, including name of manufacturer, manufacturer's I.D. number or serial number and any other information reasonably requested by the Agent in order to sufficiently describe the item being financed so that the Agent's security interest in such item is adequately and may be or will be adequately perfected, upon delivery to the Construction Agent of such item of Equipment. (ii) an amendment to this Agreement, if necessary in the reasonable judgment of the Agent, pursuant to which the Construction Agent specifically grants to the Agent a security interest in such item (or Construction Agent's interest therein in respect of items on order but not yet received), and (iii) a financing statement or amendment to financing statement, if necessary in the reasonable judgment of the Agent, together with all filing fees therefor, to be filed among the appropriate financing statement records in order to perfect such security interest. (m) If the disbursement is the final disbursement for the costs of the Properties, in order to obtain the Agent's approval of such disbursement (including without limitation the Retainage), in addition to the satisfaction of all conditions set forth in this Section, the Construction Agent shall have provided (i) the Completion Certificates, appropriately completed, and the accompanying documents described therein, and (ii) if reasonably required to protect the interests of the Agent, the Lender and the Holders, evidence satisfactory to Lender than an affidavit of completion has been recorded in the appropriate governmental office in the City of Baltimore, Maryland. 16 21 (n) The Construction Agent shall cause each of the Construction Agent's general contractor, all major sub-contractors specified by the Agent and the Construction Agent's architect to execute an agreement to complete which will provide, among other things, that (i) upon request in writing by the Agent, they will continue to provide the services called for by their contracts with the Construction Agent and in accordance with the terms thereof following an Event of Default and (ii) they consent to the assignment of their contracts by the Construction Agent to the Agent. The Construction Agent shall cause such general contractor, major sub-contractors and architect to agree to give the Agent notice of a default under their respective contracts with the Construction Agent and under the agreement to complete and an opportunity to cure under their contracts with the Construction Agent and to acknowledge the existence of the Agent's interests in the Properties. To the extent requested by the Agent at any time, the Construction Agent (i) shall assign on a collateral basis the Construction Agent's contracts with its general contractor and its architect within ten (10) Business Days of such request on terms and conditions reasonably acceptable to the Agent and (ii) shall cause its general contractor to provide a bond in an amount up to $20,000,000 in favor of the Agent on behalf of all the Financing Parties and on terms and conditions which are acceptable to the Agent in its reasonable discretion. (o) The Construction Agent authorizes the Agent to place signs at each Property at any reasonable locations selected by the Agent (during the construction of the Properties) and agreed to by the Construction Agent, and to prepare and furnish news releases to the news media or any other publications selected by the Agent advertising the fact that financial assistance for the Properties has been obtained from the Holders and the Lenders, and the details of such financial assistance (but in no event any confidential information regarding the Construction Agent or its business). Any sign placed on any Property by the Construction Agent which identifies such Property shall identify the Holders and the Lenders as the parties providing financing for such Property. Any such news releases must be first approved by the Construction Agent, which will not unreasonably withhold its approval. (p) The Completion Date shall be established by the delivery to the Agent by the Construction Agent of the Completion Certificates (appropriately completed) executed by the Construction Agent, the Construction Agent's architect and the Construction Agent's general contractor, as the case may be, and approved in writing by the Agent. The Completion Certificates delivered to the Agent shall have attached thereto the items described in Section 5.4A(e) hereof. Notwithstanding the foregoing, the Completion Certificates shall state that they are given without prejudice to any rights against third parties which may exist at the date of such Completion Certificates or which may subsequently come into being. It shall be the duty of the Construction Agent to cause the Completion Certificates to be furnished as soon as the construction and renovation of the Properties shall have been completed. 17 22 5.4C. ADDITIONAL FUNDING LIMITATIONS. With respect to the Property located in or about the City of Baltimore, Maryland, the Construction Agent shall deliver to the Agent on or prior to (a) April 30, 1998 fully executed contracts for the general contractor and the architect and copies of the sufficiently completed (as determined in the reasonable judgment of the Agent and the Agent's construction inspector) Plans and Specifications and the Construction Budget and that such have been reviewed and approved by the Agent's construction inspector (such approval not to be unreasonably withheld or delayed) and (b) July 31, 1998 copies of the final Plans and Specifications and the final Construction Budget. The Construction Agent will also provide to the Agent any and all related construction documents reasonably requested from time to time by the Agent. Prior to April 30, 1998, the Holders and the Lenders agree to fund Advances (assuming all conditions precedent under the Operative Agreements are satisfied with respect to each applicable Advance) in an aggregate amount not to exceed $3,100,000. The general contractor's contract shall provide for the Completion of the Property located in the City of Baltimore, Maryland at a price not to exceed $18,500,000. Assuming such contracts for the general contractor and the architect are in form and substance reasonably satisfactory to the Agent, then the Holders and the Lenders shall make available the Available Holder Commitments and the Available Commitments, as the case may be, for additional Advances in accordance with the applicable provisions of the Operative Agreements. 5.5. ADDITIONAL REPORTING AND DELIVERY REQUIREMENTS ON COMPLETION DATE AND ON CONSTRUCTION PERIOD TERMINATION DATE. On or prior to the Completion Date for each Property, the Construction Agent shall deliver to the Agent an Officer's Certificate in the form attached hereto as EXHIBIT I or in such other form as is acceptable to the Agent specifying (a) the address for such Property, (b) the Completion Date for such Property, (c) the aggregate Property Cost for such Property, (d) detailed, itemized documentation supporting the asserted Property Cost figures and (e) that all representations and warranties of the Construction Agent and Lessee in each of the Operative Agreements and each certificate delivered pursuant thereto are true and correct as of the Completion Date (provided, that such certificate may update such representations and warranties to the extent necessary to reflect changed circumstances, so long as such changed circumstances do not adversely affect any Financing Party or otherwise result in a Material Adverse Effect). The Agent shall have the right to contest the information contained in such Officer's Certificate. Furthermore, on or prior to the Completion Date for each Property, the Construction Agent shall deliver or cause to be delivered to the Agent (unless previously delivered to the Agent) originals of the following, each of which shall be in form and substance acceptable to the Agent, in its reasonable discretion: (u) a title insurance endorsement regarding the title insurance policy delivered in connection with the requirements of Section 5.3(g), but only to the extent such endorsement is necessary to provide for insurance in an amount at least equal to the maximum total Property Cost and, if endorsed, the endorsement shall not include a title change or exception objectionable to the Agent; (v) an as-built survey for such Property, (w) insurance certificates respecting such Property as required hereunder and under the Lease Agreement, (x) a memorandum (or short form) of the Lease and such Lease Supplement (in form suitable for 18 23 recording), (y) if requested by the Agent, amendments to the Lessor Financing Statements executed by the appropriate parties and (z) if requested by the Agent, an Appraisal regarding such Property evidencing an appraised value of such Property of no less than thirty-four percent (34%) of the aggregate Property Cost of such Property. In addition, on the Completion Date for such Property the Construction Agent covenants and agrees that the recording fees, documentary stamp taxes or similar amounts required to be paid in connection with the related Mortgage Instrument shall be paid in an amount required by applicable law, subject, however, to the obligations of the Lenders and the Holders to fund such costs to the extent required pursuant to Section 7.1. 5.6. THE CONSTRUCTION AGENT DELIVERY OF CONSTRUCTION BUDGET MODIFICATIONS. The Construction Agent may modify the Construction Budget if, but only if, the aggregate amount of unfunded cost pursuant to such modified Construction Budget does not exceed the sum of the Available Commitment plus the Available Holder Commitment. The Construction Agent covenants and agrees to deliver to the Agent each month notification of any modification to any Construction Budget regarding any Property if such modification materially increases the cost to construct such Property; provided no Construction Budget may be increased unless (a) the title insurance policies referenced in Section 5.3(g) are also modified or endorsed, if necessary, to provide for insurance in an amount that satisfies the requirements of Section 5.4(f) of this Agreement and (b) after giving effect to any such amendment, the Construction Budget remains in compliance with the requirements of Section 5.4(d) of this Agreement. 5.7. RESTRICTIONS ON LIENS. On each Property Closing Date, the Construction Agent shall cause each Property acquired by the Lessor on such date to be free and clear of all Liens except those referenced in Sections 6.2(r)(i) and 6.2(r)(ii). On each date a Property is either sold to a third party in accordance with the terms of the Operative Agreements or, pursuant to Section 22.1(a) of the Lease Agreement, retained by the Lessor, the Lessee shall cause such Property to be free and clear of all Liens (other than Lessor Liens and such other Liens that are expressly set forth as title exceptions on the title commitment issued under Section 5.3(g) with respect to such Property, to the extent such title commitment has been approved by the Agent). 5.8. REAL ESTATE TAXES. An amount equal to one hundred fifty percent (150%) of the real estate taxes relating to each Property prior to the twenty-four (24) month anniversary of the Initial Closing Date (as such amount shall be determined by the Agent in its reasonable discretion) shall be funded by the Lenders and the Holders on or about the Initial Closing Date (at such time as determined by the Agent and into an account as determined by the Agent). Such amount shall constitute an Advance for all purposes of the Operative Agreements from and after the date the Lenders and the Holders fund the same. The Construction Agent shall deliver a notice to the Agent no later than thirty (30) days prior to the due date for payment of any such real estate taxes specifying the amount and address to which such payment should be forwarded. The Agent shall cause such 19 24 real estate taxes to be paid with the proceeds of the above-described account. Excess amounts remaining in such account after such twenty-four (24) month anniversary of the Initial Closing Date shall be returned on the next Payment Date ratably to the Lenders as a prepayment on the Loans (in accordance with Section 2.6 of the Credit Agreement) and an early return of the Holder Advances (in accordance with Section 3.4 of the Trust Agreement). Any amounts remaining in such account after the Construction Period Termination Date shall be promptly remitted at the end of the applicable Interest Period(s) to the Lenders and the Holders ratably in accordance with the then current outstanding Loans and Holder Advances as partial prepayments thereof. 5.9. CASH COLLATERAL ACCOUNT. The Lessee shall make cash deposits in U.S. Dollars into the Cash Collateral Account from time to time so that at all points in time prior to the Construction Period Termination Date the amount on deposit in the Cash Collateral Account equals or exceeds the then current aggregate Property Cost; provided, such amount on deposit in the Cash Collateral Account may, at the Lessee's election, be reduced dollar for dollar (up to $1,000,000) with regard to the amount of the MIDFA Guaranty (if any). Upon Completion of the Properties and to the extent no Default or Event of Default shall have occurred and be continuing at such time, the Lessee may withdraw from the Cash Collateral Account the amount by which the balance of the Cash Collateral Account exceeds an amount equal to (a) eighty-three percent (83%) of the then current aggregate Property Cost minus (b) $1,000,000 less (i) seventeen percent (17%) of (ii) the aggregate Property Cost for such Properties as of the date of Completion for such Properties in excess of $18,500,000; provided, such amount on deposit in the Cash Collateral Account may, at the Lessee's election, be reduced dollar for dollar (up to $1,000,000) with regard to the amount of the MIDFA Guaranty (if any). SECTION 6. REPRESENTATIONS AND WARRANTIES. 6.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. Effective as of the Initial Closing Date and the date of each Advance, the Trust Company in its individual capacity and as the Borrower, as indicated, represents and warrants to each of the other parties hereto as follows, provided, that the representations in the following paragraphs (h), (j) and (k) are made solely in its capacity as the Borrower: (a) It is a national banking association and is duly organized and validly existing and in good standing under the laws of the United States of America and has the power and authority to enter into and perform its obligations under the Trust Agreement and (assuming due authorization, execution and delivery of the Trust Agreement by the Holders) has the corporate and trust power and authority to act as the Owner Trustee and to enter into and perform the obligations under each of the other Operative Agreements to which the Trust Company or the Owner Trustee, as the case may be, is or will be a party and each other agreement, instrument and document to be executed and delivered by it on 20 25 or before such Closing Date in connection with or as contemplated by each such Operative Agreement to which the Trust Company or the Owner Trustee, as the case may be, is or will be a party; (b) The execution, delivery and performance of each Operative Agreement to which it is or will be a party, either in its individual capacity or (assuming due authorization, execution and delivery of the Trust Agreement by the Holders) as the Owner Trustee, as the case may be, has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require any approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) does or will contravene any Legal Requirement relating to its banking or trust powers or (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, (A) its charter or by-laws, or (B) any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach, default or Lien under clause (B) would materially and adversely affect its ability, in its individual capacity or as the Owner Trustee, to perform its obligations under the Operative Agreements to which it is a party; (c) The Trust Agreement and, assuming the Trust Agreement is the legal, valid and binding obligation of the Holders, each other Operative Agreement to which the Trust Company or the Owner Trustee, as the case may be, is or will be a party have been, or on or before such Closing Date will be, duly executed and delivered by the Trust Company or the Owner Trustee, as the case may be, and the Trust Agreement and each such other Operative Agreement to which the Trust Company or the Owner Trustee, as the case may be, is a party constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against the Trust Company or the Owner Trustee, as the case may be, in accordance with the terms thereof; (d) There is no action or proceeding pending or, to its knowledge, threatened to which it is or will be a party, either in its individual capacity or as the Owner Trustee, before any Governmental Authority that, if adversely determined, would materially and adversely affect its ability, in its individual capacity or as the Owner Trustee, to perform its obligations under the Operative Agreements to which it is a party or would question the validity or enforceability of any of the Operative Agreements to which it is or will become a party; (e) It has not assigned or transferred any of its right, title or interest in or under the Lease, the Agency Agreement or its interest in any Property or any portion thereof, except in accordance with the Operative Agreements; (f) No Default of Event of Default under the Operative Agreements attributable to it has occurred and is continuing; 21 26 (g) Except as otherwise contemplated in the Operative Agreements, the proceeds of the Loans and Holder Advances shall not be applied by the Owner Trustee for any purpose other than the purchase and/or lease of the Properties, the acquisition, installation and testing of the Equipment, the design, construction and development of Improvements and the payment of Transaction Expenses and the fees, expenses and other disbursements referenced in Sections 7.1(a) and 7.1(b) of this Agreement, in each case which accrue prior to the Rent Commencement Date with respect to a particular Property; (h) Neither the Owner Trustee nor any Person authorized by the Owner Trustee to act on its behalf has offered or sold any interest in the Trust Estate or the Notes, or in any similar security relating to a Property, or in any security the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of the aforementioned securities to, or solicited any offer to acquire any of the same from, any Person other than, in the case of the Notes, the Agent, and neither the Owner Trustee nor any Person authorized by the Owner Trustee to act on its behalf will take any action which would subject, as a direct result of such action alone, the issuance or sale of any interest in the Trust Estate or the Notes to the provisions of Section 5 of the Securities Act or require the qualification of any Operative Agreement under the Trust Indenture Act of 1939, as amended; (i) The Owner Trustee's principal place of business, chief executive office and office where the documents, accounts and records relating to the transactions contemplated by this Agreement and each other Operative Agreement are kept are located at 79 South Main Street, Salt Lake City, Utah 84111; (j) The Owner Trustee is not engaged principally in, and does not have as one (1) of its important activities, the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States), and no part of the proceeds of the Loans or the Holder Advances will be used by it to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System of the United States; (k) The Owner Trustee is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act; (l) Each Property is free and clear of all Lessor Liens attributable to the Owner Trustee in its individual capacity; and (m) The Owner Trustee, in its trust capacity, is a party to no documents, instruments or agreements other than the Operative Agreements to which it is a party and 22 27 any other documents delivered by the Owner Trustee in connection with the Operative Agreements. 6.2. REPRESENTATIONS AND WARRANTIES OF THE CONSTRUCTION AGENT AND THE LESSEE. Effective as of the Initial Closing Date, the date of each Advance and the Rent Commencement Date, the Construction Agent and the Lessee represent and warrant to each of the other parties hereto that: (a) (intentionally omitted); (b) The execution and delivery by each of the Construction Agent and the Lessee of this Agreement and the other applicable Operative Agreements as of such date and the performance by each of the Construction Agent and the Lessee of its respective obligations under this Agreement and the other applicable Operative Agreements are within the corporate, partnership or limited liability company (as the case may be) powers of each of the Construction Agent and the Lessee, have been duly authorized by all necessary corporate, partnership or limited liability company (as the case may be) action on the part of each of the Construction Agent and the Lessee (including without limitation any necessary shareholder action), have been duly executed and delivered, have received all necessary governmental approval, and do not and will not (i) violate any Legal Requirement which is binding on the Construction Agent, the Lessee or any of their Subsidiaries, (ii) contravene or conflict with, or result in a breach of, any provision of the Articles of Incorporation, By-Laws or other organizational documents of any of the Construction Agent, the Lessee or any of their Subsidiaries or any material provision of any agreement, indenture, instrument or other document which is binding on any of the Construction Agent, the Lessee or any of their Subsidiaries or (iii) result in, or require, the creation or imposition of any Lien (other than pursuant to the terms of the Operative Agreements) on any asset of any of the Construction Agent, the Lessee or any of their Subsidiaries; (c) This Agreement and the other applicable Operative Agreements to which the Construction Agent or the Lessee are parties, executed prior to and as of such date, constitute the legal, valid and binding obligation of the Construction Agent or the Lessee, as applicable, enforceable against the Construction Agent or the Lessee, as applicable, in accordance with their terms, subject to bankruptcy, insolvency, liquidation, reorganization, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity. The Construction Agent and the Lessee have each executed the various Operative Agreements required to be executed as of such date; (d) Except as described in EXHIBIT J, there are no material actions, suits or proceedings pending or, to our knowledge, threatened against either the Construction Agent or the Lessee in any court or before any Governmental Authority that if adversely determined to the interests of the Construction Agent or the Lessee shall have or could reasonably be expected to have a Material Adverse Effect; 23 28 (e) No Governmental Action by any Governmental Authority or other authorization, registration, consent, approval, waiver, notice or other action by, to or of any other Person pursuant to any Legal Requirement, contract, indenture, instrument or agreement or for any other reason is required to authorize or is required in connection with (i) the execution, delivery or performance of any Operative Agreement by the Construction Agent or the Lessee, (ii) the legality, validity, binding effect or enforceability of any Operative Agreement as to the Construction Agent or the Lessee or (iii) the acquisition, ownership, construction, completion, occupancy, operation, leasing or subleasing of any Property by the Construction Agent or the Lessee in each case, except those which have been obtained and are in full force and effect and those which the Lessee expects to obtain in the ordinary course; (f) Upon the execution and delivery of each Lease Supplement to the Lease, (i) the Lessee will have unconditionally accepted the Property subject to the Lease Supplement and will have taken all required actions on its part so that it will have a valid and subsisting leasehold interest in such Property, subject only to the Permitted Liens, and (ii) no offset will exist with respect to any Rent or other sums payable under the Lease; (g) Except as otherwise contemplated by the Operative Agreements, the Construction Agent shall not use the proceeds of any Holder Advance or Loan for any purpose other than the purchase and/or lease of the Properties, the acquisition, installation and testing of the Equipment, the design and construction of Improvements and the payment of Transaction Expenses and the fees, expenses and other disbursements referenced in Sections 7.1(a) and 7.1(b) of this Agreement, in each case which accrue prior to the Rent Commencement Date with respect to a particular Property; (h) All information heretofore or contemporaneously herewith furnished by either the Construction Agent or the Lessee or any of their Subsidiaries to the Agent, the Owner Trustee, any Lender or any Holder for purposes of or in connection with this Agreement and the transactions contemplated hereby is, and all information hereafter furnished by or on behalf of the Construction Agent, the Lessee or any of their Subsidiaries to the Agent, the Owner Trustee, any Lender or any Holder pursuant hereto or in connection herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and such information, taken as a whole, does not and will not omit to state any material fact necessary to make such information, taken as a whole, not misleading; (i) The principal place of business, chief executive office and office of the Construction Agent and the Lessee where the documents, accounts and records (or copies thereof) relating to the transactions contemplated by this Agreement and each other Operative Agreement will be kept (from and after delivery of executed originals thereof) are located at 6611 Tributary Street, Baltimore, Maryland 21224; 24 29 (j) The representations and warranties of the Construction Agent and the Lessee set forth in any of the Operative Agreements are true and correct in all material respects on and as of each such date as if made on and as of such date. The Construction Agent and the Lessee are in all material respects in compliance with their respective obligations under the Operative Agreements and there exists no Default or Event of Default under any of the Operative Agreements which is continuing and which has not been cured within any cure period expressly granted under the terms of the applicable Operative Agreement or otherwise waived in accordance with the applicable Operative Agreement. No Default or Event of Default will occur under any of the Operative Agreements as a result of, or after giving effect to, the Advance requested by the Requisition on the date of each Advance; (k) As of each Property Closing Date, the date of each subsequent Advance and the Rent Commencement Date only, each Property then being financed consists of (i) unimproved Land or (ii) Land and existing Improvements thereon which Improvements are either suitable for occupancy at the time of acquisition or ground leasing or will be renovated and/or modified in accordance with the terms of this Agreement. Each Property then being financed is located at the location set forth on the applicable Requisition, each of which is in one (1) of the Approved States; (l) As of each Property Closing Date, the Lessor has good and marketable fee simple title to each Property, or, if any Property is the subject of a Ground Lease, the Lessor will have a valid ground leasehold interest enforceable against the ground lessor of such Property in accordance with the terms of such Ground Lease, subject only to (i) such Liens referenced in Sections 6.2(r)(i) and 6.2(r)(ii) on the applicable Property Closing Date and (ii) subject to Section 5.7, Permitted Liens after the applicable Property Closing Date; (m) As of each Property Closing Date, the date of each subsequent Advance and the Rent Commencement Date only, no portion of any Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, or if any such Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, then flood insurance has been obtained for such Property in accordance with Section 14.2(b) of the Lease and in accordance with the National Flood Insurance Act of 1968, as amended; (n) As of each Property Closing Date, the date of each subsequent Advance and the Rent Commencement Date only, each Property complies with all Insurance Requirements and all standards of Lessee with respect to similar properties owned or leased by Lessee, if any; (o) As of each Property Closing Date, the date of each subsequent Advance and the Rent Commencement Date only, each Property complies with all Legal Requirements as of such date (including without limitation all zoning and land use laws 25 30 and Environmental Laws), except to the extent that failure to comply therewith, individually or in the aggregate, shall not have and could not reasonably be expected to have a Material Adverse Effect; (p) As of each Property Closing Date, the date of each subsequent Advance and the Rent Commencement Date only, all utility services and facilities necessary for the construction and operation of the Improvements and the installation and operation of the Equipment regarding each Property (including without limitation gas, electrical, water and sewage services and facilities) are available at the applicable Land and will be constructed prior to the Completion Date for such Property or, to the extent any such utility services or facilities are not available at the applicable Land, all necessary access thereto (by easement or otherwise) has been obtained for the duration of the reasonably anticipated useful life of such Property and the cost to ensure such access has been included in the Construction Budget; (q) As of each Property Closing Date, the date of each subsequent Advance and the Rent Commencement Date only, acquisition, installation and testing of the Equipment (if any) and construction of the Improvements (if any) to such date shall have been performed in a good and workmanlike manner, substantially in accordance with the applicable Plans and Specifications; (r) (i) Assuming no act or omission by the Lessor (as opposed to those imputed to the Lessor due to acts or omissions of the Construction Agent or the Lessee) has impaired title to any Property, the Security Documents create, as security for the Obligations (as such term is defined in the Security Agreement), valid and enforceable security interests in, and Liens on, all of the Collateral, in favor of the Agent, for the ratable benefit of the Lenders and the Holders, as their respective interests appear in the Operative Agreements, and such security interests and Liens are subject to no other Liens other than Liens that are expressly set forth as title exceptions on the title commitment issued under Section 5.3(g) with respect to the applicable Property, to the extent such title commitment has been approved by the Agent. Assuming no act or omission by the Lessor (as opposed to those imputed to the Lessor due to acts or omissions of the Construction Agent or the Lessee) has impaired title to any Property, upon recordation of the Mortgage Instrument in the real estate recording office in the applicable Approved State identified by the Construction Agent or the Lessee, the Lien created by the Mortgage Instrument in the real property described therein shall be a perfected first priority mortgage Lien on such real property in favor of the Agent, for the ratable benefit of the Lenders and the Holders, as their respective interests appear in the Operative Agreements. To the extent that the security interests in the portion of the Collateral comprised of personal property can be perfected by filing in the filing offices in the applicable Approved States or elsewhere identified by the Construction Agent or the Lessee, upon filing of the Lender Financing Statements in such filing offices, the security interests created by the Security Agreement shall be perfected first priority security interests in such personal property in favor of the Agent, for the ratable benefit of the Lenders and the Holders, as their respective interests appear in the Operative Agreements; 26 31 (ii) The Lease Agreement creates, as security for the obligations of the Lessee under the Lease Agreement, valid and enforceable security interests in, and Liens on, each Property leased thereunder, in favor of the Lessor, and such security interests and Liens are subject to no other Liens other than Liens that are expressly set forth as title exceptions on the title commitment issued under Section 5.3(g) with respect to the applicable Property, to the extent such title commitment has been approved by the Agent. Upon recordation of the memorandum of the Lease Agreement and the memorandum of a Ground Lease, if any (or, in either case, a short form lease), in the real estate recording office in the applicable Approved State identified by the Construction Agent or the Lessee, the Lien created by the Lease Agreement in the real property described therein shall be a perfected first priority mortgage Lien on such real property in favor of the Agent, for the ratable benefit of the Lenders and the Holders, as their respective interests appear in the Operative Agreements. To the extent that the security interests in the portion of any Property comprised of personal property can be perfected by the filing in the filing offices in the applicable Approved State or elsewhere identified by the Construction Agent or the Lessee upon filing of the Lessor Financing Statements in such filing offices, a security interest created by the Lease Agreement shall be perfected first priority security interests in such personal property in favor of the Lessor, which rights pursuant to the Lessor Financing Statements are assigned to the Agent, for the ratable benefit of the Lenders and the Holders, as their respective interests appear in the Operative Agreements; (s) The Plans and Specifications for each Property will be prepared prior to the commencement of construction in accordance with all applicable Legal Requirements (including without limitation all applicable Environmental Laws and building, planning, zoning and fire codes), except to the extent the failure to comply therewith, individually or in the aggregate, shall not have and could not reasonably be expected to have a Material Adverse Effect. Upon completion of the Improvements for each Property in accordance with the applicable Plans and Specifications, such Improvements will be within any building restriction lines and will not encroach in any manner onto any adjoining land (except as permitted by express written easements, which have been approved by the Agent); (t) As of the Rent Commencement Date only, each Property shall be improved in accordance with the applicable Plans and Specifications in a good and workmanlike manner and shall be operational; and (u) As of each Property Closing Date only, each Property has been acquired or ground leased pursuant to a Ground Lease at a price that is not in excess of fair market value or fair market rental value, as the case may be. 27 32 SECTION 7. PAYMENT OF CERTAIN EXPENSES. 7.1. TRANSACTION EXPENSES. (a) The Lessor agrees on the Initial Closing Date, to pay, or cause to be paid, all Transaction Expenses arising from the Initial Closing Date, including without limitation all reasonable fees, expenses and disbursements of the various legal counsels for the Lessor and the Agent in connection with the transactions contemplated by the Operative Agreements and incurred in connection with such Initial Closing Date, the initial fees and expenses of the Owner Trustee due and payable on such Initial Closing Date, all fees, taxes and expenses for the recording, registration and filing of documents and all other reasonable fees, expenses and disbursements incurred in connection with such Initial Closing Date; provided, however, the Lessor shall pay such amounts described in this Section 7.1(a) only if (i) such amounts are properly described in a Requisition delivered on or before the Initial Closing Date, and (ii) funds are made available by the Lenders and the Holders in connection with such Requisition in an amount sufficient to allow such payment. On the Initial Closing Date after delivery and receipt of the Requisition referenced in Section 4.2(a) hereof and satisfaction of the other conditions precedent for such date, the Holders shall make Holder Advances and the Lenders shall make Loans to the Lessor to pay for the Transaction Expenses, fees, expenses and other disbursements referenced in this Section 7.1(a). The Lessee agrees to timely pay all amounts referred to in this Section 7.1(a) to the extent not paid by the Lessor. (b) Assuming no Default or Event of Default shall have occurred and be continuing and only for the period prior to the Rent Commencement Date, the Lessor agrees on each Property Closing Date, on the date of any Construction Advance and on the Completion Date to pay, or cause to be paid, all Transaction Expenses including without limitation all reasonable fees, expenses and disbursements of the various legal counsels for the Lessor and the Agent in connection with the transactions contemplated by the Operative Agreements and billed in connection with such Advance or such Completion Date, all amounts described in Section 7.1(a) of this Agreement which have not been previously paid, the annual fees and reasonable out-of-pocket expenses of the Owner Trustee, all fees, expenses and disbursements incurred with respect to the various items referenced in Sections 5.3, 5.4 and/or 5.5 (including without limitation any premiums for title insurance policies and charges for any updates to such policies) and all other reasonable fees, expenses and disbursements in connection with such Advance or such Completion Date including without limitation all expenses relating to and all fees, taxes and expenses for the recording, registration and filing of documents and during the Commitment Period, all fees, expenses and costs referenced in Sections 7.3(a), 7.3(b), 7.3(d) and 7.4; provided, however, the Lessor shall pay such amounts described in this Section 7.1(b) only if (i) such amounts are properly described in a Requisition delivered on the applicable date and (ii) funds are made available by the Lenders and the Holders in connection with such Requisition in an amount sufficient to allow such payment. On each Property Closing Date, on the date of any Construction Advance or any Completion 28 33 Date, after delivery of the applicable Requisition and satisfaction of the other conditions precedent for such date, the Holders shall make a Holder Advance and the Lenders shall make Loans to the Lessor to pay for the Transaction Expenses, fees, expenses and other disbursements referenced in this Section 7.1(b). The Lessee agrees to timely pay all amounts referred to in this Section 7.1(b) to the extent not paid by the Lessor. 7.2. BROKERS' FEES. The Lessee agrees to pay or cause to be paid any and all brokers' fees, if any, including without limitation any interest and penalties thereon, which are payable in connection with the transactions contemplated by this Agreement and the other Operative Agreements. 7.3. CERTAIN FEES AND EXPENSES. The Lessee agrees to pay or cause to be paid (a) the initial and annual Owner Trustee's fee and all reasonable expenses of the Owner Trustee and any co-trustees (including without limitation reasonable counsel fees and expenses) or any successor owner trustee and/or co-trustee, for acting as the owner trustee under the Trust Agreement, (b) all reasonable costs and expenses incurred by the Construction Agent, the Lessee, the Agent, the Lenders, the Holders or the Lessor in entering into any Lease Supplement and any future amendments, modifications, supplements, restatements and/or replacements with respect to any of the Operative Agreements, whether or not such Lease Supplement, amendments, modifications, supplements, restatements and/or replacements are ultimately entered into, or giving or withholding of waivers of consents hereto or thereto, which have been requested by the Construction Agent, the Lessee, the Agent, the Lenders, the Holders or the Lessor, (c) all reasonable costs and expenses incurred by the Construction Agent, the Lessee, the Agent, the Lenders, the Holders or the Lessor in connection with any exercise of remedies under any Operative Agreement or any purchase of any Property by the Construction Agent, the Lessee or any third party and (d) all reasonable costs and expenses incurred by the Construction Agent, the Lessee, the Agent, the Lenders, the Holders or the Lessor in connection with any transfer or conveyance of any Property, whether or not such transfer or conveyance is ultimately accomplished. 7.4. STRUCTURING FEE AND ADMINISTRATION FEE. The Lessee shall pay the structuring fees, administration fees and any other fees and expenses described in the engagement letter dated January 8, 1998 executed by First Union Capital Markets and accepted and agreed to by the Lessee. 7.5. FEES AND EXPENSES OF THE AGENT'S CONSTRUCTION INSPECTOR. The Lenders and the Holders shall pay (for their own account and without counting such amounts as Advances) the fees and expenses payable from time to time to the Agent's construction inspector with respect to the Properties. Such amounts shall be payable ratably based on the relative Commitments and Holder Commitments of such entities. 29 34 SECTION 8. OTHER COVENANTS AND AGREEMENTS. 8.1. COOPERATION WITH THE CONSTRUCTION AGENT OR THE LESSEE. The Holders, the Lenders, the Lessor (at the direction of the Majority Secured Parties) and the Agent shall, at the expense of and to the extent reasonably requested by the Construction Agent or the Lessee (but without assuming additional liabilities on account thereof and only to the extent such is acceptable to the Holders, the Lenders, the Lessor (at the direction of the Majority Secured Parties) and the Agent in their reasonable discretion), cooperate with the Construction Agent or the Lessee in connection with the Construction Agent or the Lessee satisfying its covenant obligations contained in the Operative Agreements including without limitation at any time and from time to time, promptly and duly executing and delivering any and all such further instruments, documents and financing statements (and continuation statements related thereto). 8.2. COVENANTS OF THE OWNER TRUSTEE AND THE HOLDERS. Each of the Owner Trustee and the Holders hereby agrees that so long as this Agreement is in effect: (a) Neither the Owner Trustee (in its trust capacity or in its individual capacity) nor any Holder will create, take any action to cause or permit to exist at any time, and each of them will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, any and all Lessor Liens on the Properties attributable to it; provided, however, that the Owner Trustee and the Holders shall not be required to so discharge any such Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not materially and adversely affect the rights of the Lessee under the Lease and the other Operative Agreements or involve any material danger of impairment of the Liens of the Security Documents or of the sale, forfeiture or loss of, and shall not interfere with the use or disposition of, any Property or title thereto or any interest therein or the payment of Rent; (b) Without prejudice to any right under the Trust Agreement of the Owner Trustee to resign (subject to the requirement set forth in the Trust Agreement that such resignation shall not be effective until a successor shall have agreed to accept such appointment), or the Holders' rights under the Trust Agreement to remove the institution acting as the Owner Trustee (after consent to such removal by the Agent as provided in the Trust Agreement), each of the Owner Trustee and the Holders hereby agrees with the Lessee and the Agent (i) not to terminate or revoke the trust created by the Trust Agreement except as permitted by Article VIII of the Trust Agreement, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement in such a manner as to adversely affect the rights of any such party without the prior written consent of such party and (iii) to comply with all of the terms of the Trust Agreement, the nonperformance of which would adversely affect such party; 30 35 (c) The Owner Trustee or any successor may resign or be removed by the Holders as the Owner Trustee, a successor Owner Trustee may be appointed and a corporation may become the Owner Trustee under the Trust Agreement, only in accordance with the provisions of Article IX of the Trust Agreement and, with respect to such appointment, with the consent of the Lessee, which consent shall not be unreasonably withheld or delayed; (d) The Owner Trustee, in its capacity as the Owner Trustee under the Trust Agreement, and not in its individual capacity, shall not contract for, create, incur or assume any Indebtedness, or enter into any business or other activity or enter into any contracts or agreements, other than pursuant to or under the Operative Agreements, and the Owner Trustee shall not take any action that prohibits it from performing under the Operative Agreements; (e) The Holders will not instruct the Owner Trustee to take any action in violation of the terms of any Operative Agreement; (f) Neither any Holder nor the Owner Trustee shall (i) commence any case, proceeding or other action with respect to the Owner Trustee under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (ii) seek appointment of a receiver, trustee, custodian or other similar official with respect to the Owner Trustee or for all or any substantial benefit of the creditors of the Owner Trustee; and neither any Holder nor the Owner Trustee shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this paragraph; (g) The Owner Trustee shall give prompt notice to the Lessee, the Holders and the Agent if the Owner Trustee's principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to any Property are kept, shall cease to be located at 79 South Main Street, Salt Lake City, Utah 84111, or if it shall change its name; (h) The Owner Trustee shall take or refrain from taking such actions and grant or refrain from granting such approvals with respect to the Operative Agreements and/or relating to any Property in each case as directed in writing by the Agent (until such time as the Loans are paid in full, and then by the Majority Holders) or, in connection with Sections 8.5 and 9.2 hereof, the Lessee; provided, however, that notwithstanding the foregoing provisions of this subparagraph (h) the Owner Trustee, the Agent, the Lenders and the Holders each acknowledge, covenant and agree that neither the Owner Trustee nor the Agent shall act or refrain from acting, regarding each Unanimous Vote Matter, until such party has received the approval of each Lender and each Holder affected by such matter; 31 36 (i) The Owner Trustee shall maintain the trust powers necessary to fully perform under the Operative Agreements; (j) The Owner Trustee shall not make any alterations or improvements to the Property or Improvements without the Lessee's consent, except to the extent required by reason of an emergency or subsequent to the occurrence of and during the continuance of an Event of Default. (k) Whenever the Owner Trustee receives a notice pursuant to any of the Operative Agreements from a party other than a Financing Party, the Lessee or the Construction Agent, the Owner Trustee shall promptly send a copy of such notice to the Lessee, unless (i) the Owner Trustee has actual knowledge that the Lessee has received a copy of such notice or (ii) under the applicable provisions of the Operative Agreements, the Agent, the Holders or the Lenders are required to send such a copy of such notice to the Lessee. 8.3. THE LESSEE COVENANTS, CONSENT AND ACKNOWLEDGMENT. (a) The Lessee acknowledges and agrees that the Owner Trustee, pursuant to the terms and conditions of the Security Agreement and the Mortgage Instruments, shall create Liens respecting the various personal property, fixtures and real property described therein in favor of the Agent. The Lessee hereby irrevocably consents to the creation, perfection and maintenance of such Liens. Each of the Construction Agent and the Lessee shall, to the extent reasonably requested by any of the other parties hereto, cooperate with the other parties in connection with their covenants herein or in the other Operative Agreements and shall from time to time duly execute and deliver any and all such future instruments, documents and financing statements (and continuation statements related thereto) as any other party hereto may reasonably request. (b) The Lessor hereby instructs the Lessee, and the Lessee hereby acknowledges and agrees, that until such time as the Loans and the Holder Advances are paid in full and the Liens evidenced by the Security Agreement and the Mortgage Instruments have been released (i) any and all Rent (excluding Excepted Payments which shall be payable to each Holder or other Person as appropriate) and any and all other amounts of any kind or type under any of the Operative Agreements due and owing or payable to any Person shall instead be paid directly to the Agent (excluding Excepted Payments which shall be payable to each Holder or other Person as appropriate) or as the Agent may direct from time to time for allocation and distribution in accordance with the procedures set forth in Section 8.7 hereof, (ii) all rights of the Lessor under the Lease shall be exercised by the Agent and (iii) the Lessee shall cause all notices, certificates, financial statements, communications and other information which are delivered, or are required to be delivered, to the Lessor, to also to be delivered at the same time to the Agent. 32 37 (c) The Lessee shall not consent to or permit any amendment, supplement or other modification of the terms or provisions of any Operative Agreement except in accordance with Section 12.4 of this Agreement. (d) The Lessee hereby covenants and agrees to cause an Appraisal or reappraisal (in form and substance satisfactory to the Agent and from an appraiser selected by the Agent) to be issued respecting any Property as requested by the Agent (i) at each and every time as such shall be required to satisfy any regulatory requirements imposed on the Agent, the Lessor, the Trust Company, any Lender and/or any Holder and (ii) after the occurrence of an Event of Default. (e) The Lessee hereby covenants and agrees that, except for amounts payable as Basic Rent, any and all payment obligations owing from time to time under the Operative Agreements by any Person (excluding Advances to be made in accordance with the applicable provisions of the Operative Agreements) to the Agent, any Lender, any Holder or any other Person shall (without further action) be deemed to be Supplemental Rent obligations payable by the Lessee. Without limitation, such obligations of the Lessee shall include without limitation arrangement fees, administrative fees, participation fees, commitment fees, unused fees, prepayment penalties, breakage costs, indemnities, trustee fees and transaction expenses incurred by the parties hereto in connection with the transactions contemplated by the Operative Agreements. (f) At any time the Lessor or the Agent is entitled under the Operative Agreements to possession of a Property or any component thereof, each of the Construction Agent and the Lessee hereby covenants and agrees, at its own cost and expense, to assemble and make the same available to the Agent (on behalf of the Lessor). (g) (intentionally omitted) (h) (intentionally omitted) (i) The Lessee hereby covenants and agrees that it shall give prompt notice to the Agent if the Lessee's principal place of business or chief executive office, or the office where the records (or copies thereof) concerning the accounts or contract rights relating to any Property are kept, shall cease to be located at 6611 Tributary Street, Baltimore, Maryland 21224 or if it shall change its name. (j) (intentionally omitted) (k) (intentionally omitted) (l) (intentionally omitted) (m) The Lessee shall promptly notify the Agent, or cause the Agent to be promptly notified, upon the Lessee gaining knowledge of the occurrence of any Default or 33 38 Event of Default which is continuing at such time. In any event, such notice shall be provided to the Agent within ten (10) Business Days after the date on which of when the Lessee gains such knowledge. (n) Until all of the obligations under the Operative Agreements have been finally and indefeasibly paid and satisfied in full and the Commitments and the Holder Commitments terminated unless consent has been obtained from the Majority Secured Parties, the Lessee will: (i) except as permitted by the express provisions of the Lessee Credit Agreement, preserve and maintain its separate legal existence and all rights, franchises, licenses and privileges necessary to the conduct of its business, and qualify and remain qualified as a foreign corporation (or partnership, limited liability company or other such similar entity, as the case may be) and authorized to do business in each jurisdiction in which the failure to do so qualify would have a Material Adverse Effect; (ii) pay and perform all obligations of the Lessee under the Operative Agreements and pay and perform (A) all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its property, and (B) all other indebtedness, obligations and liabilities in accordance with customary trade practices, which if not paid would have a Material Adverse Effect; provided that the Lessee may contest any item described in this Section 8.3(n)(ii) in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP; (iii) to the extent failure to do so would have a Material Adverse Effect, observe and remain in compliance with all applicable Laws and maintain in full force and effect all Governmental Actions, in each case applicable to the conduct of its business; keep in full force and effect all licenses, certifications or accreditations necessary for any Property to carry on its business; and not permit the termination of any insurance reimbursement program available to any Property; and (iv) provided that the Agent, the Lenders and the Holders use reasonable efforts to minimize disruption to the business of the Lessee, permit representatives of the Agent or any Lender or Holder, from time to time, to visit and inspect its properties; inspect, audit and make extracts from its financial and accounting books and records, including without limitation management letters prepared by independent accountants; and discuss with its principal officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects. (o) (intentionally omitted) 34 39 (p) Prior to the Construction Period Termination Date, the Lessee will permit the Agent and its authorized agents to enter upon the Property during normal working hours and upon reasonable advance notice to the Lessee, as often as the Agent desires, for the purpose of inspecting the construction of the Improvements. Upon any such entry, the entering party shall not disrupt the construction process in any material way and shall use reasonable care in conducting itself. Failure of the Financing Parties or their authorized agents to discover or to reject materials or workmanship shall not make them liable to the Lessee or to any other Person on account of such deficiency, nor shall any prior failure constitute a waiver of the Financing Parties' right to subsequently reject any such workmanship or materials. (q) The Lessee shall remove, at its cost, all Lessee Equipment from the Properties on or prior to the Expiration Date (unless the Lease is terminated earlier and in such case, on or prior to such date of termination). At its cost, the Lessee shall cause any damage to any Property caused by the removal of Lessee Equipment to be promptly repaired in a workmanlike manner or shall make arrangements (reasonably satisfactory to the Agent) for such repair work. To the extent such Lessee Equipment is not so removed on or prior to the Expiration Date (or such earlier date of termination), then such Lessee Equipment shall automatically and without further action be deemed to be the property of the Lessor. (r) Except as otherwise provided pursuant to the Pledge Agreement, the Lessee shall not, and shall cause each of its Subsidiaries not to, transfer any interest in the stock of any Credit Support Subsidiary. Except as otherwise provided pursuant to the Pledge Agreement and Section 8.3B(m)(iii) of this Agreement, the Lessee shall, and shall cause each of its Subsidiaries to, keep the stock of any Credit Support Subsidiary free and clear of any and all encumbrances. Except as otherwise provided pursuant to the Pledge Agreement and Section 8.3B(m)(iii) of this Agreement, the Lessee shall not, and shall cause each of its Subsidiaries not to, transfer any interest in the stock of any Credit Support Subsidiary. (s) On or prior to the date which is thirty (30) days after the fiscal year end of the Lessee, the Lessee shall submit to the Agent the annual budget (including without limitation a projected income statement and balance sheet) for the Lessee and its Subsidiaries for the next following fiscal year. 8.3A. ADDITIONAL AFFIRMATIVE COVENANTS OF THE LESSEE. Until the Expiration Date, the Lessee will, and will cause each Subsidiary (direct and indirect) of the Lessee, unless the prior written consent to do otherwise has been obtained from the Agent to: (a) Maintain, and cause each of its Subsidiaries (direct and indirect) to maintain, at all times, a system of accounting established and administered in accordance with sound business practices; and subject to the provisions of Section 12.13 of the Participation Agreement furnish to the Agent: 35 40 (i) as soon as available but in no event more than fifty (50) days after the close of each of the Lessee's fiscal quarters, a copy of the Form 10-Q for the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis for such fiscal quarter filed with the United States Securities and Exchange Commission ("SEC") accompanied by a certificate of the chief financial officer of the Lessee stating whether any event has occurred which constitutes a Lease Default or a Lease Event of Default, and, if so, stating the facts with respect thereto and demonstrating (in a manner reasonably satisfactory to the Agent) compliance with all financial covenants; and (ii) as soon as available but in no event more than one hundred twenty (120) days after the close of each of the Lessee's fiscal years, a copy of the Annual Report to Shareholders and/or Form 10-K filed with the SEC for the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis; and (iii) as soon as available but in no event more than one hundred twenty (120) days after the close of each of the Lessee's fiscal years, an audit report of the Independent Accountant, together with a certificate of such Independent Accountant stating directly to the Agent that in the course of such Independent Accountant's audit of the financial statements of the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis and review and examination of all other relevant information, the Independent Accountant has acquired no knowledge of any Lease Event of Default, or under any other indebtedness of the Lessee or its Subsidiaries, (direct or indirect) and has acquired no knowledge of any other event which would constitute such a Lease Event of Default or any other indebtedness of the Lessee or its Subsidiaries (direct or indirect) with the giving of notice or the lapse of time or both, and, if so, stating the facts with respect thereto unless such Independent Accountants, consistent with industry practice, do not give such certificates; and (iv) copies of all other reports made by the Independent Accountant and delivered to the Lessee or its Subsidiaries (direct or indirect) in connection with the annual audit described in (iii) of this subsection and such other and additional information, reports or statements as the Agent may from time to time reasonably request. (b) Pay and discharge, and cause each of its Subsidiaries (direct and indirect) to pay and discharge, all Taxes prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid might become a Lien upon any of its properties, subject to the right of the Lessee to contest the same in accordance with the same conditions imposed in Section 13.1 of the Lease with respect to Legal Requirements. If the Lessee or any of its Subsidiaries (direct or indirect) fails to pay any of such Taxes at the time or 36 41 in the manner provided in this Section, the Lessor may, at its option, pay such Taxes and the Lessee or any of its Subsidiaries (direct or indirect) shall pay to the Lessor the amount of any sum so paid, with interest thereon at the Overdue Rate. (c) In addition to the insurance required by Article XIV hereof, maintain insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses. The Lessee shall file with the Agent, upon request, a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of insurance, dates of the expiration thereof and the properties and risks covered thereby. Consistent with the first sentence of this Section 8.3A(c), within thirty (30) days after notice from the Agent, the Lessee shall obtain such additional insurance as the Agent may reasonably request. (d) Continue, and cause each of its Subsidiaries (direct and indirect) to continue, to engage in or support its business of the discovery, development and marketing of pharmaceuticals and medical devices and shall cause to be done all things necessary to obtain, preserve and to keep in full force and effect (i) the Lessee's existence in good standing as a Delaware corporation qualified to do business in all jurisdictions where the failure to so qualify would have a Material Adverse Effect and (ii) the existence of each Subsidiary of Lessee (direct and indirect) in good standing in its particular jurisdiction of its formation and in all jurisdictions where the failure to so qualify would have a material adverse effect on the business of such Subsidiary and (iii) its Licenses which are necessary for its business operations at each Permitted Facility, and (iv) observe the valid requirements of any Governmental Authority in all material respects. Notwithstanding the foregoing, the Lessee and each Subsidiary (direct and indirect) may, with prior notice to, but without consent of, the Agent, change its state of incorporation if such change would not otherwise result in the occurrence of a Lease Event of Default. (e) Keep, and cause each of its Subsidiaries (direct and indirect) to keep, and until the Expiration Date, use its best efforts to cause the General Contractor to keep, adequate records and books of account with respect to each Property, and the business of the Lessee and each of its Subsidiaries (direct and indirect) in accordance with GAAP; and subject to the provisions of Section 12.13 of the Participation Agreement hereof permit the Agent, by its agents, accountants and attorneys, to visit and inspect each Property and each Permitted Facility, to examine such records and books of account and to discuss the affairs, finances and accounts pertaining thereto with agents of the Lessee or any of its Subsidiaries (direct or indirect) at its offices during normal business hours and at such other reasonable times as may be requested by the Agent. (f) (intentionally omitted) (g) As soon as possible but in no event later than the 120th day after the close of each of the Lessee's fiscal years, furnish to the Agent a certificate of both the chief 37 42 financial officer and the chief executive officer of the Lessee certifying that to the best of their knowledge and belief the Lessee and its Subsidiaries (direct and indirect) have fulfilled all of the obligations of the Lessee and its Subsidiaries (direct and indirect) under the Operative Agreements throughout the fiscal year most recently ended and that no Lease Default or Lease Event of Default exists, or, if such Lease Default or Lease Event of Default does exist or has occurred over the prior year, setting forth the nature and circumstances of such Lease Default or Lease Event of Default, and the current status thereof. (h) Notify the Agent in writing within two (2) Business Days of the date on which the Lessee or any of its Subsidiaries (direct or indirect) obtains knowledge of the commencement of any litigation against or affecting the Lessee, any of its Subsidiaries (direct or indirect), any Permitted Facility or any Property and of all proceedings before any court or any governmental or regulatory agency affecting the Lessee, any of its Subsidiaries (direct or indirect), any Permitted Facility or any Property, which, if adversely determined, would materially adversely affect the conduct of the Lessee's or any of its Subsidiaries' (direct or indirect) business, the financial condition of the Lessee or any of its Subsidiaries (direct or indirect) or in any manner materially adversely affect the Lessee's use of any Property in the ordinary course of business. (i) (i) Take, and cause each of its Subsidiaries (direct and indirect) to take, any and all steps necessary to renew the Licenses in accordance with all applicable laws, rules and regulations and shall fully, promptly and faithfully comply with and perform its obligations and duties under the Licenses in accordance with the terms thereof, including, without limitation, (A) the payment of any and all issuance, renewal or other fees, charges, assessments and other expenses assessed by any issuing Governmental Authority in connection with any of the Licenses, (B) the filing of any and all reports, surveys, schedules, certificates, applications and other items required by any issuing Governmental Authority as a condition precedent to any renewal, issuance, or continuation of any of the Licenses and (C) the operation and maintenance of each Permitted Facility in compliance with all applicable laws, rules and regulations imposed by any Governmental Authority upon the Lessee's business conducted at such Permitted Facility. (ii) Use its best efforts, and cause its Subsidiaries (direct and indirect) to use best efforts, to obtain from the appropriate Governmental Authority such Licenses, approvals and permits as are necessary for the operation, growth and development of the Lessee's and its Subsidiaries' (direct and indirect) businesses in a commercially reasonable manner. (j) The Lessee shall keep and maintain each Property in compliance in all material respects with all applicable environmental laws of all Governmental Authorities, and further agrees to comply with any and all recommendations to the Lessee set forth in 38 43 the Environmental Report and furnish to the Agent written evidence of such compliance with thirty (30) days of the Initial Closing Date. The Lessee agrees to give notice to the Agent within two (2) Business Days of its acquiring knowledge of any Hazardous Substance upon any Property, with a full description of all known information regarding such Hazardous Substance and promptly comply with any laws requiring the removal, treatment or disposal of such Hazardous Substance and provide the Agent with satisfactory evidence within sixty (60) days after a demand by them, with a bond, letter of credit or similar financial assurance evidencing to the satisfaction of the Agent that the necessary funds are available to pay the cost of removing, treating and disposing of such Hazardous Substance and discharging any encumbrance which may be established on any Property as a result thereof; provided, however, that if the Lessee in the exercise of reasonable diligence is unable within sixty (60) days to ascertain the nature and extent of such Hazardous Substances and/or the cost of appropriate remediation, the Agent and the Lessee shall establish such additional time period as may be reasonably required of the Lessee to provide financial assurance for remediation which is satisfactory to the Agent. The Lessee further agrees to indemnify and hold harmless each Financing Party from any and all claims which may now or in the future be asserted as a result of the presence of any Hazardous Substance upon any Property. Other than such materials required in connection with the Lessee's business, the Lessee shall not place, manufacture or store, or permit to be placed, manufactured or stored, on any Property any Hazardous Substance. Further, in the event of a Release emanating from any Property, the Lessee shall (i) report the Release to the appropriate Governmental Authorities (to the extent required by law); (ii) in consultation with such Governmental Authorities, identify the appropriate remedial measures in response to the Release; and (iii) promptly implement in accordance with any plans, orders or approvals of any Governmental Authority such remedial measures as shall cause mitigation, removal and remediation of any and all effects upon the environment resulting from the Release. Notice of any and all Releases shall be reported to the Agent. In addition to the foregoing, the Lessee shall cause any of its Subsidiaries to provide notice to the Agent of any Hazardous Substances contamination or any release of Hazardous Substances upon any of its properties concerning which such Subsidiary is required by law to provide notice and information to any Governmental Authority. (k) The Lessee shall satisfy all of its obligations pursuant to Section 5.9 of the Participation Agreement. (l) The Lessee shall comply in all material respects with any and all of its obligations under the Prior Lease subject to all notice and cure periods contained therein. (m) (intentionally omitted) (n) Lessee and GPI Holdings, Inc. on a consolidated basis (i) shall at all times maintain cash, Cash Equivalents, short-term investments and investments in the aggregate in an amount equal to or greater than $40,000,000 (as shown on Lessee's then most recent balance sheet, prepared in accordance with GAAP), and such in all cases shall not be subject to any Lien or (ii) (A) as of the end of each fiscal quarter for the immediately preceding twelve (12) month 39 44 period, shall maintain a Cashflow Coverage Ratio greater than 1.25 to 1.00 and (B) shall at all times maintain a Tangible Net Worth of not less than $40,000,000. (o) Lessee shall notify the Agent in writing regarding the formation or acquisition of any Subsidiary within thirty (30) days of such formation or acquisition. 8.3B. ADDITIONAL NEGATIVE COVENANTS OF THE LESSEE. Until the Expiration Date, the Lessee will not, and will cause each Subsidiary (direct or indirect) of the Lessee not to, without the prior written consent of the Agent: (a) Create, incur, assume or suffer to exist any Lien of any kind upon any of its property or assets including the Security, whether now owned or hereafter acquired, except (i) the Permitted Liens; (ii) Liens securing purchase money indebtedness permitted by Section 8.3B(k)(iv) of this Agreement; provided, that such shall attach only to the property being financed; (iii) Liens on accounts, inventory and other current assets of the Lessee which are not part of the Security; (iv) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings; (v) Liens upon property (other than upon any Property or any component hereof) existing at the time such property is acquired by the Lessee or any Subsidiary (direct or indirect) of the Lessee; provided, in each case, that (A) such Liens were not created in contemplation of the acquisition by the Lessee or any Subsidiary (direct or indirect) of the Lessee of such property, and (B) such Liens do not attach or extend to any other property; (vi) attachment, judgment or other similar Liens arising in connection with court proceedings, provided, that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate legal proceedings; (vii) Liens permitted by the Agent; (viii) Liens for Taxes not delinquent or being contested in good faith and by appropriate proceedings, (ix) Liens in connection with worker's compensation, unemployment insurance and other security obligations; (x) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (xi) Liens contemplated in favor of the Agent pursuant to the Operative Agreements; (xii) Liens contemplated under that certain Loan Agreement dated June 13, 1996 (the "RPR Agreement") between Lessee and Rhone-Poulenc Rorer Inc. and (xiii) extensions, renewals and replacements of any Lien permitted hereunder or under the other Operative Agreements. (b) Enter into any merger or consolidation or acquire (except by gift or bequest) all or substantially all of the assets of any person, firm, joint venture or corporation; provided, however, that, so long as no Lease Event of Default shall have occurred and be continuing immediately prior to or after giving effect to the specified transaction (i) the Lessee may acquire (A) all or any part or interest of any person in intellectual property or other intangible assets and (B) all or substantially all of the assets 40 45 or stock of any other person to the extent the limitation on capital expenditures set forth in Section 8.3B(f) hereof would not be exceeded; and (ii) any Subsidiary (direct or indirect) of the Lessee may merge with or into or consolidate or combine with the Lessee or with another Subsidiary (direct or indirect) of the Lessee, provided, that if such merger involves the Lessee as a merging party the Lessee is the surviving corporation. Neither the Lessee nor any Subsidiary (direct or indirect) of the Lessee shall sell, lease or otherwise dispose of any of its assets except: (i) assets disposed of in the ordinary course of business; (ii) intellectual property assigned, licensed or sublicensed in the ordinary course of business; (iii) Equipment disposed of in accordance with the provisions of the Operative Agreements; (iv) assets (other than the Equipment) sold or otherwise disposed of which are obsolete or no longer useful in the business in arm's-length transactions; or (v) machinery, equipment and other tangible personal property (other than the Equipment) sold or otherwise disposed of in the ordinary course of business in arm's-length transactions; provided, that the proceeds of such transactions are used within three (3) months after the closing of such transactions to purchase comparable machinery, equipment and tangible personal property, as the case may be. Further, neither the Lessee nor any Subsidiary (direct or indirect) of the Lessee shall (except for Permitted Subsidiary Activity) sell, transfer, assign or encumber, in any manner, any License with respect to the business operations on any Property; or enter into any new ventures or businesses, other than the business of the discovery, development and marketing of pharmaceuticals and medical devices or activities in support thereof. Notwithstanding anything to the contrary contained in this Section 8.3B(b), neither the Lessee nor any Subsidiary (direct or indirect) of the Lessee shall be required to obtain the written consent of any Financing Party with respect to any sale, lease, transfer, assignment or other disposition of assets of any kind to the Lessee or to a Subsidiary (direct or indirect) of the Lessee; provided, however, that (x) prior to any sale, lease, transfer, assignment or other disposition of assets in any twelve (12) month period having an aggregate "net book value" (as defined in GAAP) in excess of two million five hundred thousand dollars ($2,500,000) to a Subsidiary (direct or indirect) of the Lessee (as opposed to the Lessee), the applicable recipient Subsidiary (direct or indirect) of the Lessee shall have delivered to the Agent a guarantee agreement substantially in form and substance reasonably satisfactory to the Agent or (y) with respect to any investment by the Lessee, the Lessee shall be in compliance with Section 8.3B(d) below. (c) Exclusive of Section 8.3B(d) of this Section, make loans or advances to any Person or permit loans or advances to any Person to remain outstanding except for: (i) loans and advances existing on the Initial Closing Date; (ii) advances made for normal and customary business purposes; (iii) loans to employees for the purchase of common stock of the Lessee; and (iv) additional loans which, in any event, shall not at any time exceed $6,000,000 for the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis in the aggregate outstanding at the end of any one fiscal quarter. (d) Exclusive of Section 8.3B(c) and excluding matters pertaining directly to loans, advances or investments in or with GPI Holdings, Inc., make any loans, advances or investments in or with any Subsidiary (direct or indirect) or Affiliate of the Lessee or 41 46 any new venture or Person in an amount which exceeds $6,000,000 for the Lessee and its Subsidiaries (direct or indirect) on a consolidated basis, in the aggregate outstanding at the end of any one fiscal year. (e) (intentionally omitted) (f) Make any capital expenditures for fixed assets exceeding, in the aggregate, during any one fiscal year, the total sum of $10,000,000 for the Lessee and its Subsidiaries (direct or indirect) on a consolidated basis. (g) Declare any dividends (other than dividends payable in capital stock of the Lessee) on any shares of any class of its capital stock (other than preferred stock). (h) Fail to notify the Agent of any changes in the chief executive officer or chief financial officer of the Lessee or any Subsidiary (direct or indirect) of the Lessee within thirty (30) days of such change, giving specific reasons for any such change. (i) Except as may be otherwise permitted under Section 8.3B(c), pay or lend, or permit any payment of or loan of, either directly or indirectly, any sum or sums of money to any stockholder of the Lessee or any of its Subsidiaries (direct or indirect) other than payments made in accordance with existing arrangements (including without limitation all extensions and renewals thereof) and payments made for normal and customary business purposes. (j) (i) Restate or amend or permit any Affiliate to restate or amend any Plan established and maintained by the Lessee or any Affiliate of the Lessee, in a manner designed to disqualify such Plan under the applicable requirements of the Code; (ii) permit any officers of the Lessee or any Affiliate of the Lessee to materially adversely affect the qualified tax-exempt status of any Plan of the Lessee or any Affiliate of the Lessee to engage in any Prohibited Transaction; (iv) incur or permit any Affiliate of the Lessee to incur any Accumulated Funding Deficiency, whether or not waived, in connection with any Plan; (v) take or permit any Affiliate of the Lessee to take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Lessee or any Affiliate of the Lessee pursuant to Section 4068 of ERISA; (vi) fail to notify the Agent that notice has been received of a termination of any Multiemployer Plan to which the Lessee or any Affiliate of the Lessee has an obligation to contribute; (vii) incur or permit any Affiliate of the Lessee to incur a complete or partial withdrawal from any Multiemployer Plan to which the Lessee or any Affiliate of the Lessee has an obligation to contribute that shall have or could reasonably be expected to have a Material Adverse Effect; or (viii) fail to notify the Agent that notice has been received from the administrator of any Multiemployer Plan to which the Lessee or any Affiliate of the Lessee has an obligation to contribute that any such plan will be placed in "reorganization". 42 47 (k) Create, incur, assume or suffer to exist any liability for borrowed money (as measured on a consolidated basis for the Lessee and its Subsidiaries (direct and indirect)) at any point in time except: (i) indebtedness in existence on the Initial Closing Date and of which the Lessee has informed the Agent in writing prior to the Initial Closing Date; (ii) indebtedness of the Lessee secured by encumbrances specifically permitted by Section 8.3B(a); (iii) short-term trade indebtedness incurred in the ordinary course of the Lessee's business operations; (iv) indebtedness incurred to finance the purchase price of tangible assets acquired to the extent the aggregate principal amount of such indebtedness incurred at any time of the Lessee does not exceed $10,000,000; (v) lease, royalty and other similar deferred payments required to be made in connection with the licensure or acquisition of intellectual property and other intangible assets; (vi) indebtedness subordinated to the obligations of the Lessee under the Operative Agreements on terms acceptable to the Agent; (vii) unsecured indebtedness incurred for working capital purposes in the form of a working capital loan in a maximum aggregate principal amount not to exceed $5,000,000 at any time outstanding; (viii) additional unsecured indebtedness in an amount not to exceed $5,000,000 at any time outstanding for the Lessee and all its Subsidiaries (direct and indirect); (ix) indebtedness incurred pursuant to the RPR Agreement and (x) indebtedness (not to exceed the principal amount of the indebtedness being refinanced) representing the refinancing of any indebtedness permitted under this Section 8.3B(k). (l) Notwithstanding anything to the contrary contained herein, the parties hereto acknowledge and agree that (i) the covenants set forth in Sections 8.3B(a) and 8.3B(k) above shall not be construed to prohibit the Lessee from entering into, and performing under, any operating lease, sale/leaseback or other similar arrangement the purposes of which is to permit the use by the Lessee of equipment, furniture and/or fixtures in the normal course of its business, including without limitation the Master Lease Agreement dated September 10, 1996 between the Lessee and General Electric Capital Corporation (and all agreements and instruments contemplated thereby), and (ii) all calculations with respect to covenants in this Agreement shall be made by ignoring any intercompany loans or advances between or among any of the Lessee and/or its Subsidiaries (direct or indirect). (m) Except for Permitted Subsidiary Activity, Lessee shall not permit any Credit Support Subsidiary to engage in any business or other activity and notwithstanding the foregoing, Lessee shall not permit any Credit Support Subsidiary without the prior written consent of the Agent (not to be unreasonably withheld, delayed or conditioned) to (i) incur or otherwise be obligated for any Indebtedness (except for intercompany Indebtedness directly with Lessee or a wholly-owned Subsidiary (direct or indirect) of Lessee) or (ii) cause or permit any of its assets to be subject to any Lien or (iii) merge with or into or otherwise consolidate with any Person except for Lessee (and in which case Lessee shall be the surviving entity). 43 48 8.4. SHARING OF CERTAIN PAYMENTS. Except for Excepted Payments, the parties hereto acknowledge and agree that all payments due and owing by the Lessee to the Lessor under the Lease or any of the other Operative Agreements shall be made by the Lessee directly to the Agent as more particularly provided in Section 8.3 hereof. The Lessor, the Holders, the Agent, the Lenders and the Lessee acknowledge the terms of Section 8.7 of this Agreement regarding the allocation of payments and other amounts made or received from time to time under the Operative Agreements and agree, that all such payments and amounts are to be allocated as provided in Section 8.7 of this Agreement. 8.5. GRANT OF EASEMENTS, ETC. The Agent, the Lenders and the Holders hereby agree that, so long as no Event of Default shall have occurred and be continuing, the Owner Trustee shall, and the Agent shall cause the trustee under any Mortgage Instrument to, from time to time at the request of the Lessee (and with the prior consent of the Agent), (i) grant easements and other rights in the nature of easements with respect to any Property, (ii) release existing easements or other rights in the nature of easements which are for the benefit of any Property, (iii) execute and deliver to any Person any instrument appropriate to confirm or effect such grants or releases, and (iv) execute and deliver to any Person such other documents or materials in connection with the acquisition, development, construction, testing or operation of any Property, including without limitation reciprocal easement agreements, construction contracts, operating agreements, development agreements, plats, replats or subdivision documents; provided, that each of the agreements referred to in this Section 8.5 shall be on commercially reasonable terms so as not to diminish the value of any Property in any material respect. 8.6. APPOINTMENT BY THE AGENT, THE LENDERS, THE HOLDERS AND THE OWNER TRUSTEE. The Holders hereby appoint the Agent to act as collateral agent for the Holders in connection with the Lien granted by the Security Documents to secure the Holder Amount. The Lenders and the Holders acknowledge and agree and direct that the rights and remedies of the beneficiaries of the Lien of the Security Documents shall be exercised by the Agent on behalf of the Lenders and the Holders as directed from time to time by the Majority Secured Parties or, pursuant to Sections 8.2(h) and 12.4, all of the Lenders and the Holders, as the case may be; provided, in all cases, the Agent shall allocate payments and other amounts received in accordance with Section 8.7. The Agent is further appointed to provide notices under the Operative Agreements on behalf of the Owner Trustee (as determined by the Agent, in its reasonable discretion), to receive notices under the Operative Agreements on behalf of the Owner Trustee and (subject to Sections 8.5 and 9.2) to take such other action under the Operative Agreements on behalf of the Owner Trustee as the Agent shall determine in its reasonable discretion from time to time. The Tranche A Lenders hereby further appoint the Agent to act on their behalf in connection with the Guaranty. The Agent hereby accepts such appointments. For purposes hereof, the provisions of Section 7 of the Credit Agreement, together with such other 44 49 terms and provisions of the Credit Agreement and the other Operative Agreements as required for the full interpretation and operation of Section 7 of the Credit Agreement are hereby incorporated by reference as if restated herein for the mutual benefit of the Agent and each Holder as if each Holder were a Lender thereunder. Outstanding Holder Advances and outstanding Loans shall each be taken into account for purposes of determining Majority Secured Parties. Further, the Agent shall be entitled to take such action on behalf of the Owner Trustee as is delegated to the Agent under any Operative Agreement (whether express or implied) as may be reasonably incidental thereto. The parties hereto hereby agree to the provisions contained in this Section 8.6. Any appointment of a successor agent under Section 7.9 of the Credit Agreement shall also be effective as an appointment of a successor agent for purposes of this Section 8.6. 8.7. COLLECTION AND ALLOCATION OF PAYMENTS AND OTHER AMOUNTS. (a) Notwithstanding any other provision in the Operative Agreements, amounts payable to the Holders shall in all cases be subordinate to amounts payable to the Lenders. The Lessee and the Construction Agent have agreed pursuant to the terms of this Agreement to pay to (i) the Agent any and all Rent (excluding Excepted Payments) and any and all other amounts of any kind or type under any of the Operative Agreements due and owing or payable to any Person and (ii) each Person as appropriate the Excepted Payments. Promptly after receipt, the Agent shall apply and allocate, in accordance with the terms of this Section 8.7, such amounts received from the Lessee or the Construction Agent and all other payments, receipts and other consideration of any kind whatsoever received by the Agent pursuant to the Security Agreement or otherwise received by the Agent, the Holders or any of the Lenders in connection with the Collateral, the Security Documents or any of the other Operative Agreements. Ratable distributions among the Lenders and the Holders under this Section 8.7 shall be made based on (in the case of the Lenders) the ratio of the outstanding Loans to the aggregate Property Cost and (in the case of the Holders) the ratio of the outstanding Holder Advances to the aggregate Property Cost. Ratable distributions among the Tranche A Lenders under this Section 8.7 shall be made based on the ratio of the individual Tranche A Lender's Commitment for Tranche A Loans to the aggregate of all the Tranche A Lenders' Commitments for Tranche A Loans. Ratable distributions among the Tranche B Lenders under this Section 8.7 shall be made based on the ratio of the individual Tranche B Lender's Commitment for Tranche B Loans to the aggregate of all the Tranche B Lenders' Commitments for Tranche B Loans. Ratable distributions among the Lenders (in situations where the Tranche A Lenders are not differentiated from the Tranche B Lenders) shall be made based on the ratio of the individual Lender's Commitment to the aggregate of all the Lenders' Commitments. Ratable distributions among the Holders under this Section 8.7 shall be based on the ratio of the individual Holder's Holder Commitment to the aggregate of all the Holders' Holder Commitments. (b) Payments and other amounts received by the Agent from time to time in accordance with the terms of subparagraph (a) shall be applied and allocated as follows: 45 50 (i) Any such payment or amount identified as or deemed to be Basic Rent shall be applied and allocated by the Agent first, to the Lenders for application and allocation to the payment of interest on the Loans which is due and payable on such date and thereafter the principal of the Loans which is due and payable on such date and second, to the Holders for application and allocation to the payment of accrued Holder Yield which is due and payable on such date with respect to the Holder Advances and thereafter the portion of the Holder Advances which is due and payable on such date; and thereafter, if no Default or Event of Default is in effect, any excess shall be paid to such Person or Persons as the Lessee may designate; provided, that if a Default or Event of Default is in effect, such excess (if any) shall instead be held by the Agent until the earlier of (I) the first date thereafter on which no Default or Event of Default shall be in effect (in which case such payments or returns shall then be made to such other Person or Persons as the Lessee may designate) and (II) the Maturity Date or the Expiration Date, as the case may be (or, if earlier, the date of any Acceleration), in which case such amounts shall be applied and allocated in the manner contemplated by Section 8.7(b)(iv). (ii) If on any date the Agent or the Lessor shall receive any amount in respect of (A) any Casualty or Condemnation pursuant to Sections 15.1(a) or 15.1(g) of the Lease (excluding any payments in respect thereof which are payable to the Lessee in accordance with the Lease), or (B) the Termination Value in connection with the delivery of a Termination Notice pursuant to Article XVI of the Lease, or (C) the Termination Value in connection with the exercise of the Purchase Option under Section 20.1 of the Lease or the exercise of the option of the Lessor to transfer the Properties to the Lessee pursuant to Section 20.3 of the Lease, or (D) any payment required to be made or elected to be made by the Construction Agent to the Lessor pursuant to the terms of the Agency Agreement, then in each case, the Lessor shall be required to pay such amount received (1) if no Acceleration has occurred, first, to prepay the principal balance of the Loans, and accrued interest thereon, on a pro rata basis, and second, to prepay the Holder Advances and accrued Holder Yield thereon, on a pro rata basis, or (2) if an Acceleration has occurred, to apply and allocate the proceeds respecting Sections 8.7(b)(ii)(A) through 8.7(b)(ii)(D) in accordance with Section 8.7(b)(iii) hereof. (iii) Subject to Section 8.7(c), an amount equal to any payment identified as proceeds of the sale or other disposition (or lease upon the exercise of remedies) of the Properties or any portion thereof, whether pursuant to Article XXII of the Lease or the exercise of remedies under the Security Documents or otherwise, the execution of remedies set forth in the Lease and any payment in respect of excess wear and tear pursuant to Section 22.3 of the Lease (whether such payment relates to a period before or after the Construction Period Termination Date) shall be applied and allocated by the Agent first, ratably to the payment of the principal and interest of the Tranche B Loans then outstanding, second, to the extent such amount exceeds the maximum amount to be returned 46 51 pursuant to the foregoing provisions of this paragraph (iii), ratably to the payment of the principal and interest of the Tranche A Loans then outstanding, third, to any and all other amounts owing under the Operative Agreements to the Lenders under the Tranche B Loans, fourth, to any and all other amounts owing under the Operative Agreements to the Lenders under the Tranche A Loans, fifth, ratably to the payment to the Holders of the outstanding principal balance of all Holder Advances plus all outstanding Holder Yield with respect to such outstanding Holder Advances, sixth, to any and all other amounts owing under the Operative Agreements to the Holders, and seventh, to the extent moneys remain after application and allocation pursuant to clauses first through sixth above, to the Owner Trustee for application and allocation to any and all other amounts owing to the Holders or the Owner Trustee and as the Holders shall determine; provided, where no Event of Default shall exist and be continuing and a prepayment is made for any reason with respect to less than the full amount of the outstanding principal amount of the Loans and the outstanding Holder Advances, the proceeds shall be applied and allocated ratably to the Lenders and to the Holders. (iv) Subject to Section 8.7(c), an amount equal to (A) any such payment identified as a payment pursuant to Section 22.1(b) of the Lease (or otherwise) of the Maximum Residual Guarantee Amount (and any such lesser amount as may be required by Section 22.1(b) of the Lease), any such payment pursuant to the Pledge Agreement, any such payment pursuant to the Guaranty and any such payment which derives from the Cash Collateral Account and (B) any other amount payable upon any exercise of remedies after the occurrence of an Event of Default not covered by Sections 8.7(b)(i) or 8.7(b)(iii) above (including without limitation any amount received in connection with an Acceleration which does not represent proceeds from the sale or liquidation of the Properties), shall be applied and allocated by the Agent first, ratably, to the payment of the principal and interest balance of Tranche A Loans then outstanding, second, ratably to the payment of the principal and interest balance of the Tranche B Loans then outstanding, third, to the payment of any other amounts owing to the Lenders hereunder or under any of the other Operative Agreement, fourth, ratably to the payment of the principal balance of all Holder Advances plus all outstanding Holder Yield with respect to such outstanding Holder Advances, and fifth, to the extent moneys remain after application and allocation pursuant to clauses first through fourth above, to the Owner Trustee for application and allocation to Holder Advances and Holder Yield and any other amounts owing to the Holders or the Owner Trustee as the Holders shall determine. (v) An amount equal to any such payment identified as Supplemental Rent shall be applied and allocated by the Agent to the payment of any amounts then owing to the Agent, the Lenders, the Holders and the other parties to the Operative Agreements (or any of them) (other than any such amounts payable pursuant to the preceding provisions of this Section 8.7(b)) as shall be determined by the Agent in its reasonable discretion; provided, however, that Supplemental 47 52 Rent received upon the exercise of remedies after the occurrence and continuance of an Event of Default in lieu of or in substitution of the Maximum Residual Guarantee Amount or as a partial payment thereon shall be applied and allocated as set forth in Section 8.7(b)(iv). (vi) The Agent in its reasonable judgment shall identify the nature of each payment or amount received by the Agent and apply and allocate each such amount in the manner specified above. (c) Upon the termination of the Commitments and the payment in full of the Loans and all other amounts owing by the Owner Trustee hereunder or under any Credit Document and the payment in full of all amounts owing to the Holders and the Owner Trustee under the Trust Agreement, any moneys remaining with the Agent shall be returned to the Owner Trustee or such other Person or Persons as the Holders may designate for application and allocation to any and all other amounts owing to the Holders or the Owner Trustee and as the Holders shall determine. In the event of an Acceleration it is agreed that, prior to the application and allocation of amounts received by the Agent in the order described in Section 8.7(b) above, any such amounts shall first be applied and allocated to the payment of (i) any and all sums advanced by the Agent in order to preserve the Collateral or to preserve its Lien thereon, (ii) the expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Agent of its rights under the Security Documents, together with reasonable attorneys' fees and expenses and court costs and (iii) any and all other amounts reasonably owed to the Agent under or in connection with the transactions contemplated by the Operative Agreements (including without limitation any accrued and unpaid administration fees). 8.8. RELEASE OF PROPERTIES, ETC. If the Lessee shall at any time purchase any Property pursuant to the Lease, or the Construction Agent shall purchase any Property pursuant to the Agency Agreement, or if any Property shall be sold in accordance with Article XXII of the Lease, then, upon satisfaction by the Owner Trustee of its obligation to prepay the Loans, Holder Advances and all other amounts owing to the Lenders and the Holders under the Operative Agreements, the Agent is hereby authorized and directed to release such Properties from the Liens created by the Security Documents to the extent of its interest therein. In addition, upon the termination of the Commitments and the Holder Commitments and the payment in full of the Loans, the Holder Advances and all other amounts owing by the Owner Trustee hereunder or under any other Operative Agreement the Agent is hereby authorized and directed to release all of the Properties from the Liens created by the Security Documents to the extent of its interest therein. Upon request of the Owner Trustee following any such release, the Agent shall, at the sole cost and expense of the Lessee, execute and deliver to the Owner Trustee and the Lessee such deeds of release, termination statements, similar instruments and other documents as the Owner Trustee or the Lessee shall reasonably request to evidence such release. 48 53 8.9. LESSEE EQUIPMENT. Upon Lessee's reasonable request, the Agent shall execute and deliver instruments confirming that any Lessee Equipment or proposed Lessee Equipment is not subject to any lien or other encumbrance in favor of the Financing Parties. SECTION 9. CREDIT AGREEMENT AND TRUST AGREEMENT. 9.1. THE CONSTRUCTION AGENT'S AND THE LESSEE'S CREDIT AGREEMENT RIGHTS. Notwithstanding anything to the contrary contained in the Credit Agreement, the Agent, the Lenders, the Holders, the Construction Agent, the Lessee and the Owner Trustee hereby agree that, prior to the occurrence and continuation of any Default or Event of Default, the Construction Agent or the Lessee, as the case may be, shall exclusively have the following rights: (a) the right to designate an account to which amounts funded under the Operative Agreements shall be credited pursuant to Section 2.3(a) of the Credit Agreement; (b) the right to terminate or reduce the Commitments pursuant to Section 2.5(a) of the Credit Agreement; (c) the right to exercise the prepayment option pursuant to Section 2.6 of the Credit Agreement; (d) the right to exercise the conversion and continuation options pursuant to Section 2.7 of the Credit Agreement; (e) the right to receive any notice and any certificate, in each case issued pursuant to Section 2.11(a) of the Credit Agreement; (f) the right to replace any Lender pursuant to Section 2.11(b) of the Credit Agreement; (g) the right to approve any successor agent pursuant to Section 7.9 of the Credit Agreement; and (h) the right to consent to any assignment by a Lender to which the Lessor has the right to consent pursuant to Section 9.8 of the Credit Agreement. 9.2. THE CONSTRUCTION AGENT'S AND THE LESSEE'S TRUST AGREEMENT RIGHTS. Notwithstanding anything to the contrary contained in the Trust Agreement, the Construction Agent, the Lessee, the Owner Trustee and the Holders hereby agree that, prior to 49 54 the occurrence and continuation of any Default or Event of Default, the Construction Agent or the Lessee, as the case may be, shall exclusively have the following rights: (a) the right to exercise the early return of Advances option pursuant to Section 3.4 of the Trust Agreement; (b) the right to exercise the conversion and continuation options pursuant to Section 3.8 of the Trust Agreement; (c) the right to receive any notice and any certificate, in each case issued pursuant to Section 3.9(a) of the Trust Agreement; (d) the right to replace any Holder pursuant to Section 3.9(b) of the Trust Agreement; (e) the right to exercise the removal options contained in Section 3.9 of the Trust Agreement; and (f) no removal of the Owner Trustee and appointment of a successor Owner Trustee pursuant to Section 9.1 of the Trust Agreement shall be made without the prior written consent (not to be unreasonably withheld or delayed) of the Lessee. SECTION 10. TRANSFER OF INTEREST. 10.1. RESTRICTIONS ON TRANSFER. Each Lender may participate, assign or transfer all or a portion of its interest hereunder and under the other Operative Agreements only in accordance with Sections 9.7 and 9.8 of the Credit Agreement; provided, each participant, assignee or transferee must obtain the same ratable interest in Tranche A Loans and Tranche B Loans. The Holders may, directly or indirectly, assign, convey or otherwise transfer any of their right, title or interest in or to the Trust Estate or the Trust Agreement only with the prior written consent of the Agent and the Lessee (which consent shall not be unreasonably withheld or delayed), in accordance with the terms of Section 11.8(b) of the Trust Agreement and also in accordance with the terms of the following paragraphs of this Section 10.1. Prior to any such assignment, conveyance or other transfer to any Person, such Person shall execute and deliver to the Owner Trustee, the Agent and the Lessee an investor's letter (in form and substance reasonably satisfactory to the Agent and the Lessee). Each Certificate delivered to any Holder acquiring its interest after the Initial Closing Date shall be issued without registration of such Certificate under the Securities Act, or under any state securities or "blue sky" law, and without qualification of this Trust Agreement under the Trust Indenture Act of 1939, as amended. All Certificates issued hereunder shall bear a legend that shall read substantially as follows: 50 55 THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT OR LAWS. In connection with any sale, transference or assignment by any Holder of any participation interest in all or a portion of the interests represented by such Holder's Certificate (a "Certificate Participation") or any right to payment thereunder to any Person (a "Certificate Participant"), the selling Holder shall obtain from such Certificate Participant a certificate containing the following representations and warranties from such Certificate Participant. (a) The Certificate Participant is a sophisticated institutional investor with sufficient knowledge and experience in financial and business matters to enable it to evaluate the merits and risk of acquiring the Certificate Participation. It is acquiring the Certificate Participation for its own account for investment and not with a view to any distribution (as such term is used in Section 2(11) of the Securities Act) thereof and if in the future it should decide to dispose of its interest in the Certificate Participation, it understands that it may do so only in compliance with the Securities Act and the rules and the regulations of the SEC thereunder and any applicable state securities laws, if applicable. It is aware that the Certificate Participation has not been registered under the Securities Act or qualified or registered under any state or other jurisdiction's securities laws. (b) The Certificate Participant understands and agrees that any documentation providing for the Participation will contain a paragraph that shall read substantially as follows: THIS CERTIFICATE PARTICIPATION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT OR LAWS. The Owner Trustee may, subject to the rights of the Lessee under the Lease and the other Operative Agreements and to the Lien of the applicable Security Documents but only with the prior written consent of the Agent (which consent may be withheld by the Agent in its sole discretion) and (provided, no Default or Event of Default has occurred and is continuing) with the consent of the Lessee, directly or indirectly, assign, convey, appoint an agent with respect to enforcement of, or otherwise transfer any of its right, title or interest in or to any Property, the Lease, the Trust Agreement and the other Operative Agreements (including without limitation any right to indemnification thereunder), or any other document relating to a Property or any interest in a Property as provided in the Trust Agreement and the Lease. The provisions of the immediately preceding sentence shall not apply to the obligations of the Owner Trustee to 51 56 transfer Property to the Lessee or a third party purchaser pursuant to Article XXII of the Lease upon payment for such Property in accordance with the terms and conditions of the Lease. Neither the Lessee nor the Construction Agent may assign any of the Operative Agreements or any of their respective rights or obligations thereunder or with respect to any Property in whole or in part to any Person without the prior written consent of the Agent, the Lenders, the Holders and the Lessor. 10.2. EFFECT OF TRANSFER. From and after any transfer effected in accordance with this Section 10, the transferor shall be released, to the extent of such transfer, from its liability hereunder and under the other documents to which it is a party in respect of obligations to be performed on or after the date of such transfer; provided, however, that any transferor shall remain liable hereunder and under such other documents to the extent that the transferee shall not have assumed the obligations of the transferor thereunder. Upon any transfer by the Owner Trustee, a Holder or a Lender as above provided, any such transferee shall assume the obligations of the Owner Trustee, the Holder or the Lender, as the case may be, and shall be deemed an "Owner Trustee", "Holder", or "Lender", as the case may be, for all purposes of such documents and each reference herein to the transferor shall thereafter be deemed a reference to such transferee for all purposes, except as provided in the preceding sentence. Notwithstanding any transfer of all or a portion of the transferor's interest as provided in this Section 10, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer including without limitation rights to indemnification under any such document. Promptly upon any such transfer, the Owner Trustee, the Holders or the Lenders (as the case may be) shall provide copies of all documents evidencing such transfer to the Lessee. SECTION 11. INDEMNIFICATION. 11.1. GENERAL INDEMNITY. Whether or not any of the transactions contemplated hereby shall be consummated, the Indemnity Provider hereby assumes liability for and agrees to defend, indemnify and hold harmless each Indemnified Person on an After Tax Basis from and against any Claims, which may be imposed on, incurred by or asserted against an Indemnified Person by any third party, including without limitation Claims arising from the negligence of an Indemnified Person (but not to the extent such Claims arise from the gross negligence or willful misconduct of such Indemnified Person itself, as determined by a court of competent jurisdiction, as opposed to gross negligence or willful misconduct imputed to such Indemnified Person) in any way relating to or arising or alleged to arise out of the execution, delivery, performance or enforcement of this Agreement, the Lease or any other Operative Agreement or on or with respect to any Property or any component thereof, including without limitation Claims in any way relating to or arising or alleged to arise out of (a) the financing, refinancing, purchase, acceptance, rejection, ownership, design, construction, refurbishment, development, delivery, acceptance, nondelivery, leasing, subleasing, possession, use, occupancy, operation, maintenance repair, modification, transportation, condition, sale, return, repossession (whether by summary proceedings or 52 57 otherwise), or any other disposition of any Property or any part thereof, including without limitation the acquisition, holding or disposition of any interest in the Property, lease or agreement comprising a portion of any thereof; (b) any latent or other defects in any Property or any portion thereof whether or not discoverable by an Indemnified Person or the Indemnity Provider; (c) a violation of Environmental Laws, Environmental Claims or other loss of or damage to any property or the environment relating to the Property, the Lease, the Agency Agreement or the Indemnity Provider; (d) the Operative Agreements, or any transaction contemplated thereby; (e) any breach by the Indemnity Provider of any of its representations or warranties under the Operative Agreements to which the Indemnity Provider is a party or failure by the Indemnity Provider to perform or observe any covenant or agreement to be performed by it under any of the Operative Agreements; (f) the transactions contemplated hereby or by any other Operative Agreement, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA; and (g) personal injury, death or property damage, including without limitation Claims based on strict or absolute liability in tort. If a written Claim is made against any Indemnified Person or if any proceeding shall be commenced against such Indemnified Person (including without limitation a written notice of such proceeding), for any Claim, such Indemnified Person shall promptly notify the Indemnity Provider in writing and shall not take action with respect to such Claim without the consent of the Indemnity Provider for thirty (30) days after the receipt of such notice by the Indemnity Provider; provided, however, that in the case of any such Claim, if action shall be required by law or regulation to be taken prior to the end of such period of thirty (30) days, such Indemnified Person shall endeavor to, in such notice to the Indemnity Provider, inform the Indemnity Provider of such shorter period, and no action shall be taken with respect to such Claim without the consent of the Indemnity Provider before seven (7) days before the end of such shorter period; provided, further, that the failure of such Indemnified Person to give the notices referred to in this sentence shall not diminish the Indemnity Provider's obligation hereunder except to the extent such failure materially precludes the Indemnity Provider from contesting such Claim (and then the Indemnity Provider's obligation hereunder shall only be diminished to the extent of such material preclusion). If, within thirty (30) days of receipt of such notice from the Indemnified Person (or such shorter period as the Indemnified Person has notified the Indemnity Provider is required by law or regulation for the Indemnified Person to respond to such Claim), the Indemnity Provider shall request in writing that such Indemnified Person respond to such Claim, the Indemnified Person shall, at the expense of the Indemnity Provider, in good faith conduct and control such action (including without limitation by pursuit of appeals) (provided, however, that (A) if such Claim, in the Indemnity Provider's reasonable discretion, can be pursued by the Indemnity Provider on behalf of or in the name of such Indemnified Person, the Indemnified Person, at the Indemnity Provider's request, shall allow the Indemnity Provider to conduct and control the response to such Claim and (B) in the case of any Claim (and notwithstanding the provisions of the foregoing subsection (A)), the Indemnified Person may request the Indemnity Provider to conduct and control the response to such Claim (with counsel to be selected by the Indemnity Provider and consented to by such Indemnified Person, such consent not to be unreasonably withheld; provided, however, that any Indemnified Person may retain separate counsel at the expense of the 53 58 Indemnity Provider in the event of a conflict of interest between such Indemnified Person and the Indemnity Provider and, provided, further, that in no event shall the Indemnity Provider be responsible for the costs of more than one separate counsel for all Indemnified Persons unless a conflict of interest exists between Indemnified Persons in which case the Indemnified Persons which have the conflict of interest may retain separate counsel at the expense of the Indemnity Provider)) by, in the sole discretion of the Person conducting and controlling the response to such Claim (1) resisting payment thereof, (2) not paying the same except under protest, if protest is necessary and proper, (3) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings, or (4) taking such other action as is reasonably requested by the Indemnity Provider from time to time. The party controlling the response to any Claim shall consult in good faith with the non-controlling party and shall keep the non-controlling party reasonably informed as to the conduct of the response to such Claim; provided, that all decisions ultimately shall be made in the discretion of the controlling party. Notwithstanding the foregoing, no settlement shall be entered into with respect to any Claim without the Indemnity Provider's consent (which consent shall not be unreasonably withheld, conditioned or delayed). The parties agree that an Indemnified Person may at any time decline to take further action with respect to the response to such Claim and may settle such Claim if such Indemnified Person shall waive its rights to any indemnity from the Indemnity Provider that otherwise would be payable in respect of such Claim (and any future Claim, the pursuit of which is precluded by reason of such resolution of such Claim) and shall pay to the Indemnity Provider any amount previously paid or advanced by the Indemnity Provider pursuant to this Section 11.1 by way of indemnification or advance for the payment of an amount regarding such Claim. Notwithstanding the foregoing provisions of this Section 11.1, an Indemnified Person shall not be required to take any action and no Indemnity Provider shall be permitted to respond to any Claim in its own name or that of the Indemnified Person unless (A) the Indemnity Provider shall have agreed to pay and shall pay to such Indemnified Person on demand and on an After Tax Basis all reasonable costs, losses and expenses that such Indemnified Person actually incurs in connection with such Claim, including without limitation all reasonable legal, accounting and investigatory fees and disbursements and, if the Indemnified Person has informed the Indemnity Provider that it intends to contest such Claim (whether or not the control of the contest is then assumed by the Indemnity Provider), the Indemnity Provider shall have agreed that the Claim is an indemnifiable Claim hereunder, (B) in the case of a Claim that must be pursued in the name of an Indemnified Person (or an Affiliate thereof), the amount of the potential indemnity (taking into account all similar or logically related Claims that have been or could be raised for which the Indemnity Provider may be liable to pay an indemnity under this Section 11.1) exceeds $25,000 (or such lesser amount as may be subsequently agreed between the Indemnity Provider and the Indemnified Person), (C) the Indemnified Person and the Indemnity Provider shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of the Property, or any part thereof or interest therein, will not interfere with the payment of Rent, and will not result in risk of criminal liability, (D) if such Claim shall involve the payment of any amount prior to the resolution of such Claim, the Indemnity Provider shall provide to the Indemnified Person an interest-free 54 59 advance in an amount equal to the amount that the Indemnified Person is required to pay (with no additional net after-tax cost to such Indemnified Person) prior to the date such payment is due, (E) in the case of a Claim that must be pursued in the name of an Indemnified Person (or an Affiliate thereof), the Indemnity Provider shall have provided to such Indemnified Person an opinion of independent counsel selected by the Indemnity Provider and reasonably satisfactory to the Indemnified Person stating that a reasonable basis exists to contest such Claim (or, in the case of an appeal of an adverse determination, an opinion of such counsel to the effect that the position asserted in such appeal will more likely than not prevail) and (F) no Event of Default shall have occurred and be continuing. In no event shall an Indemnified Person be required to appeal an adverse judicial determination to the United States Supreme Court. In addition, an Indemnified Person shall not be required to contest any Claim in its name (or that of an Affiliate) if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely by a court of competent jurisdiction pursuant to the contest provisions of this Section 11.1, unless there shall have been a change in law (or interpretation thereof) and the Indemnified Person shall have received, at the Indemnity Provider's expense, an opinion of independent counsel selected by the Indemnity Provider and reasonably acceptable to the Indemnified Person stating that as a result of such change in law (or interpretation thereof), it is more likely than not that the Indemnified Person will prevail in such contest. In no event shall the Indemnity Provider be permitted to adjust or settle any Claim without the consent of the Indemnified Person (which consent shall not be unreasonably withheld, conditioned or delayed) to the extent any such adjustment or settlement involves, or is reasonably likely to involve, any performance by or adverse admission by or with respect to the Indemnified Person. 11.2. GENERAL TAX INDEMNITY. (a) The Indemnity Provider shall pay and assume liability for, and does hereby agree to indemnify, protect and defend each Property and all Indemnified Persons, and hold them harmless against, all Impositions on an After Tax Basis, and all payments pursuant to the Operative Agreements shall be made free and clear of and without deduction for any and all present and future Impositions. (b) Notwithstanding anything to the contrary in Section 11.2(a) hereof, the following shall be excluded from the indemnity required by Section 11.2(a): (i) Taxes (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed on a Indemnified Person (other than the Lessor, the Owner Trustee and the Trust, excluding, however, any Taxes for fees or services) by any foreign government (other than as a result of the status of the Lessee) or the United States federal government that are based on or measured by the gross income or net income (including without limitation taxes based on capital gains and minimum taxes) of such Person; provided, that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; 55 60 (ii) Taxes (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed on any Indemnified Person (other than the Lessor, the Owner Trustee and the Trust, excluding, however, any Taxes for fees or services) by any state or local jurisdiction or taxing authority within any state or local jurisdiction and that are based upon or measured by the gross income or net income (including without limitation taxes based on capital gains and minimum taxes) of such Person or are franchise taxes or taxes imposed on capital or capital surplus; provided that this clause (ii) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (iii) any Tax to the extent it relates to any act, event or omission that occurs after the termination of the Lease and redelivery or sale of the Property in accordance with the terms of the Lease (but not any Tax that relates to such termination, redelivery or sale and/or to any period prior to such termination, redelivery or sale); and (iv) any Taxes which are imposed on an Indemnified Person as a result of the gross negligence or willful misconduct of such Indemnified Person itself, as determined by a court of competent jurisdiction (as opposed to gross negligence or willful misconduct imputed to such Indemnified Person), but not Taxes imposed as a result of ordinary negligence of such Indemnified Person; (c) (i) Subject to the terms of Section 11.2(f), the Indemnity Provider shall pay or cause to be paid all Impositions directly to the taxing authorities where feasible and otherwise to the Indemnified Person, as appropriate, and the Indemnity Provider shall at its own expense, upon such Indemnified Person's reasonable request, furnish to such Indemnified Person copies of official receipts or other satisfactory proof evidencing such payment. (ii) In the case of Impositions for which no contest is conducted pursuant to Section 11.2(f) and which the Indemnity Provider pays directly to the taxing authorities, the Indemnity Provider shall pay such Impositions prior to the latest time permitted by the relevant taxing authority for timely payment. In the case of Impositions for which the Indemnity Provider reimburses an Indemnified Person, the Indemnity Provider shall do so within thirty (30) days after receipt by the Indemnity Provider of demand by such Indemnified Person describing in reasonable detail the nature of the Imposition and the basis for the demand (including without limitation the computation of the amount payable), accompanied by receipts or other reasonable evidence of such demand. In the case of Impositions for which a contest is conducted pursuant to Section 11.2(f), the Indemnity Provider shall pay such Impositions or reimburse such Indemnified Person for such Impositions, to the extent not previously paid or reimbursed pursuant to subsection (a), prior to the latest time permitted by the relevant taxing authority for timely payment after conclusion of all contests under Section 11.2(f). 56 61 (iii) At the Indemnity Provider's request, the amount of any indemnification payment by the Indemnity Provider pursuant to subsection (a) shall be verified and certified by an independent public accounting firm mutually acceptable to the Indemnity Provider and the Indemnified Person. The fees and expenses of such independent public accounting firm shall be paid by the Indemnity Provider unless such verification shall result in an adjustment in the Indemnity Provider's favor of ten percent (10%) or more of the payment as computed by the Indemnified Person, in which case such fee shall be paid by the Indemnified Person. (d) The Indemnity Provider shall be responsible for preparing and filing any real and personal property or ad valorem tax returns in respect of each Property and any other tax returns required for the Owner Trustee to the extent such returns relate solely to one or more transactions described in the Operative Agreements. In case any other report or tax return shall be required to be made with respect to any obligations of the Indemnity Provider under or arising out of subsection (a) and of which the Indemnity Provider has knowledge or should have knowledge, the Indemnity Provider, at its sole cost and expense, shall notify the relevant Indemnified Person of such requirement and (except if such Indemnified Person notifies the Indemnity Provider that such Indemnified Person intends to prepare and file such report or return) (A) to the extent required or permitted by and consistent with Legal Requirements, make and file in the Indemnity Provider's name such return, statement or report; and (B) in the case of any other such return, statement or report required to be made in the name of such Indemnified Person, advise such Indemnified Person of such fact and prepare such return, statement or report for filing by such Indemnified Person or, where such return, statement or report shall be required to reflect items in addition to any obligations of the Indemnity Provider under or arising out of subsection (a), provide such Indemnified Person at the Indemnity Provider's expense with information sufficient to permit such return, statement or report to be properly made with respect to any obligations of the Indemnity Provider under or arising out of subsection (a). Such Indemnified Person shall, upon the Indemnity Provider's request and at the Indemnity Provider's expense, provide any data maintained by such Indemnified Person (and not otherwise available to or within the control of the Indemnity Provider) with respect to each Property or such Indemnified Person which the Indemnity Provider may reasonably require to prepare any required tax returns or reports. (e) As between the Indemnity Provider on one hand, and each Financing Party on the other hand, the Indemnity Provider shall be responsible for, and the Indemnity Provider shall indemnify and hold harmless each Financing Party (without duplication of any indemnification required by subsection (a)) on an After Tax Basis against, any obligation for United States or foreign withholding taxes or similar levies, imposts, charges, fees, deductions or withholdings (collectively, "Withholdings") imposed in respect of the interest payable on the Notes, Holder Yield payable on the Certificates or with respect to any other payments under the Operative Agreement (all such payments being referred to herein as "Exempt Payments" to be made without deduction, 57 62 withholding or set off) (and, if any Financing Party receives a demand for such payment from any taxing authority or a Withholding is otherwise required with respect to any Exempt Payment, the Indemnity Provider shall discharge such demand on behalf of such Financing Party); provided, however, that the obligation of the Indemnity Provider under this Section 11.2(e) shall not apply to: (i) Withholdings on any Exempt Payment to any Financing Party which is a non-U.S. Person unless such Financing Party is, on the date hereof (or on the date it becomes a Financing Party hereunder) and on the date of any change in the principal place of business or the lending office of such Financing Party, entitled to submit and does submit a properly completed Form 1001 (relating to such Financing Party and entitling it to a complete exemption from Withholding on such Exempt Payment) or Form 4224 (relating to such Financing Party and entitling it to a complete exemption from withholding on such Exempt Payments) or is otherwise subject to complete exemption from Withholding with respect to such Exempt Payment (except where the failure of the exemption results from a change in the principal place of business of the Lessee; provided if a failure of exemption for any Financing Party results from a change in the principal place of business or lending office of any other Financing Party, then such other Financing Party shall be liable for any Withholding or indemnity with respect thereto), or (ii) Any U.S. Taxes imposed solely by reason of the failure by a non-U.S. Person to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such non-U.S. Person if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes. For the purposes of this Section 11.2(e), (A) "U.S. Person" shall mean such term as defined in Section 7701(a)(30) of the Code, (B) "U.S. Taxes" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof or therein, (C) "Form 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States of America and (D) "Form 4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of Treasury of the United States of America (or in relation to either such Form such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates). Each of the Forms referred to in the foregoing clauses (C) and (D) shall include such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates. If a Financing Party or an Affiliate with whom such Financing Party files a consolidated tax return (or equivalent) subsequently receives the benefit in any country of 58 63 a tax credit or an allowance resulting from U.S. Taxes with respect to which it has received a payment of an additional amount under this Section 11.2(e), such Financing Party will pay to the Indemnity Provider such part of that benefit as in the opinion of such Financing Party will leave it (after such payment) in a position no more and no less favorable than it would have been in if no additional payment had been required to be paid, provided always that (i) such Financing Party will be the sole judge of the amount of any such benefit and of the date on which it is received, (ii) such Financing Party will have the absolute discretion as to the order and manner in which it employs or claims tax credits and allowances available to it and (iii) such Financing Party will not be obliged to disclose to the Borrower any information regarding its tax affairs or tax computations. Each non-U.S. Person that shall become a Financing Party after the date hereof shall, upon the effectiveness of the related transfer or otherwise upon becoming a Financing Party hereunder, be required to provide all of the forms and statements referenced above or other evidences of exemption from Withholdings. (f) If a written Claim is made against any Indemnified Person or if any proceeding shall be commenced against such Indemnified Person (including without limitation a written notice of such proceeding), for any Impositions, the provisions in Section 11.1 relating to notification and rights to contest shall apply; provided, however, that the Indemnity Provider shall have the right to conduct and control such contest only if such contest involves a Tax other than a Tax on net income of the Indemnified Person and can be pursued independently from any other proceeding involving a Tax liability of such Indemnified Person. 11.3. INCREASED COSTS, ILLEGALITY, ETC. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request hereafter adopted, promulgated or made by any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Financing Party of agreeing to make or making, funding or maintaining Advances, then the Lessee shall from time to time, upon demand by such Financing Party (with a copy of such demand to the Agent but subject to the terms of Section 2.11 of the Credit Agreement and 3.9 of the Trust Agreement, as the case may be), pay to the Agent for the account of such Financing Party additional amounts sufficient to compensate such Financing Party for such increased cost. A certificate as to the amount of such increased cost, submitted to the Lessee and the Agent by such Financing Party, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Financing Party determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law, but in each case promulgated or made after the date hereof) affects or would affect the amount of capital required or expected to be maintained by such Financing Party or any corporation controlling such Financing 59 64 Party and that the amount of such capital is increased by or based upon the existence of such Financing Party's commitment to make Advances and other commitments of this type or upon the Advances, then, upon demand by such Financing Party (with a copy of such demand to the Agent but subject to the terms of Section 2.11 of the Credit Agreement and 3.9 of the Trust Agreement), the Lessee shall pay to the Agent for the account of such Financing Party, from time to time as specified by such Financing Party, additional amounts sufficient to compensate such Financing Party or such corporation in the light of such circumstances, to the extent that such Financing Party reasonably determines such increase in capital to be allocable to the existence of such Financing Party's commitment to make such Advances. A certificate as to such amounts submitted to the Lessee and the Agent by such Financing Party shall be conclusive and binding for all purposes, absent manifest error. (c) Without limiting the effect of the foregoing, the Lessee shall pay to each Financing Party on the last day of the Interest Period therefor so long as such Financing Party is maintaining reserves against "Eurocurrency liabilities" under Regulation D an additional amount (determined by such Financing Party and notified to the Lessee through the Agent) equal to the product of the following for each Eurodollar Loan or Eurodollar Holder Advance, as the case may be, for each day during such Interest Period: (i) the principal amount of such Eurodollar Loan or Eurodollar Holder Advance, as the case may be, outstanding on such day; and (ii) the remainder of (x) a fraction the numerator of which is the rate (expressed as a decimal) at which interest accrues on such Eurodollar Loan or Eurodollar Holder Advance, as the case may be, for such Interest Period as provided in the Credit Agreement or the Trust Agreement, as the case may be (less the Applicable Percentage), and the denominator of which is one (1) minus the effective rate (expressed as a decimal) at which such reserve requirements are imposed on such Financing Party on such day minus (y) such numerator; and (iii) 1/360. (d) Without affecting its rights under Sections 11.3(a), 11.3(b) or 11.3(c) or any other provision of any Operative Agreement, each Financing Party agrees that if there is any increase in any cost to or reduction in any amount receivable by such Financing Party with respect to which the Lessee would be obligated to compensate such Financing Party pursuant to Sections 11.3(a) or 11.3(b), such Financing Party shall use reasonable efforts to select an alternative office for Advances which would not result in any such increase in any cost to or reduction in any amount receivable by such Financing Party; provided, however, that no Financing Party shall be obligated to select an alternative office for Advances if such Financing Party determines that (i) as a result of such selection such Financing Party would be in violation of any applicable law, regulation, treaty, or guideline, or would incur additional costs or expenses or (ii) such selection 60 65 would be inadvisable for regulatory reasons or materially inconsistent with the interests of such Financing Party. (e) With reference to the obligations of the Lessee set forth in Sections 11.3(a) through 11.3(d), the Lessee shall not have any obligation to pay to any Financing Party amounts owing under such Sections for any period which is more than one (1) year prior to the date upon which the request for payment therefor is delivered to the Lessee. (f) Notwithstanding any other provision of this Agreement, if any Financing Party shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Financing Party to perform its obligations hereunder to make or maintain Eurodollar Loans or Eurodollar Holder Advances, as the case may be, then (i) each Eurodollar Loan or Eurodollar Holder Advance, as the case may be, will automatically, at the earlier of the end of the Interest Period for such Eurodollar Loan or Eurodollar Holder Advance, as the case may be, or the date required by law, convert into an ABR Loan or an ABR Holder Advance, as the case may be, and (iii) the obligation of the Financing Parties to make, convert or continue Eurodollar Loans or Eurodollar Holder Advances, as the case may be, shall be suspended until the Agent shall notify the Lessee that such Financing Party has determined that the circumstances causing such suspension no longer exist. 11.4. FUNDING/CONTRIBUTION INDEMNITY. Subject to the provisions of Section 2.11(a) of the Credit Agreement and 3.9(a) of the Trust Agreement, as the case may be, the Lessee agrees to indemnify each Financing Party and to hold each Financing Party harmless from any loss or reasonable expense which such Financing Party may sustain or incur as a consequence of (a) any default in connection with the drawing of funds for any Advance, (b) any default in making any prepayment after a notice thereof has been given in accordance with the provisions of the Operative Agreements or (c) the making of a voluntary or involuntary prepayment of Eurodollar Loans or Eurodollar Holder Advances, as the case may be, on a day which is not the last day of an Interest Period with respect thereto. Such indemnification shall be in an amount equal to the excess, if any, of (x) the amount of interest or Holder Yield, as the case may be, which would have accrued on the amount so prepaid, or not so borrowed, accepted, converted or continued for the period from the date of such prepayment or of such failure to borrow, accept, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, accept, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable Eurodollar Rate plus the Applicable Percentage for such Loan or Holder Advance, as the case may be, for such Interest Period over (y) the amount of interest (as determined by such Financing Party in its reasonable discretion) which would have accrued to such Financing Party on such amount by (i) (in the case of the Lenders) reemploying such funds in loans of the same type and amount during the period from the date of prepayment or failure to borrow to the last day of the then applicable Interest Period (or, in the case of a failure to borrow, the Interest Period that would have commenced on the date of such failure) and (ii) (in the case of the Holders) placing such amount on deposit for a 61 66 comparable period with leading banks in the relevant interest rate market. This covenant shall survive the termination of the Operative Agreements and the payment of all other amounts payable hereunder for a period of ninety (90) days after such termination of the Operative Agreements. 11.5. EXPRESS INDEMNIFICATION FOR ORDINARY NEGLIGENCE, STRICT LIABILITY, ETC. WITHOUT LIMITING THE GENERALITY OF THE INDEMNIFICATION PROVISIONS OF ANY AND ALL OF THE OPERATIVE AGREEMENTS, EACH PERSON PROVIDING INDEMNIFICATION OF ANOTHER PERSON UNDER ANY OPERATIVE AGREEMENT HEREBY FURTHER EXPRESSLY RELEASES EACH BENEFICIARY OF ANY SUCH INDEMNIFICATION FROM ALL CLAIMS FOR LOSS OR DAMAGE, DESCRIBED IN ANY OPERATIVE AGREEMENT, CAUSED BY ANY ACT OR OMISSION ON THE PART OF ANY SUCH BENEFICIARY ATTRIBUTABLE TO THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OR STRICT LIABILITY OF ANY SUCH BENEFICIARY, AND INDEMNIFIES, EXONERATES AND HOLDS EACH SUCH BENEFICIARY FREE AND HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, CLAIMS, LOSSES, COSTS, LIABILITIES, DAMAGES AND EXPENSES (INCLUDING WITHOUT LIMITATION ATTORNEY'S FEES AND EXPENSES), DESCRIBED ABOVE, INCURRED BY ANY SUCH BENEFICIARY (IRRESPECTIVE OF WHETHER ANY SUCH BENEFICIARY IS A PARTY TO THE ACTION FOR WHICH INDEMNIFICATION UNDER THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT IS SOUGHT) ATTRIBUTABLE TO THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OR STRICT LIABILITY OF ANY SUCH BENEFICIARY. 11.6. TERMINATION OF EARLIER INDEMNIFICATION AGREEMENT. As of the Initial Closing Date, the Owner Trustee and First Union National Bank hereby agree that each of the indemnification agreements executed prior to the Initial Closing Date by the Lessee (in favor of the Owner Trustee, with respect to, among other things, the liabilities arising with regard to a Property or pursuant to the Land Disposition Agreement) and by the Owner Trustee (in favor of First Union National Bank, with respect to, amount other things, the liabilities arising with regard to a Property pursuant to the Land Disposition Agreement) are without further action, terminated and are of no further force or effect. SECTION 12. MISCELLANEOUS. 12.1. SURVIVAL OF AGREEMENTS. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Agreements, and the parties' obligations under any and all thereof, shall survive the execution and delivery of this Agreement, the transfer of any Property to the 62 67 Owner Trustee, the acquisition of any Property (or any of its components), the construction of any Improvements, the Completion of any Property, any disposition of any interest of the Owner Trustee in any Property or any interest of the Holders in the Trust Estate, the payment of the Notes and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party and the fact that any party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Agreements. Except as otherwise expressly set forth herein or in other Operative Agreements, the indemnities of the parties provided for in the Operative Agreements shall survive the expiration or termination of any thereof. 12.2. NOTICES. All notices required or permitted to be given under any Operative Agreement shall be in writing. Notices may be served by certified or registered mail, postage paid with return receipt requested; by private courier, prepaid; by telex, facsimile, or other telecommunication device capable of transmitting or creating a written record; or personally. Mailed notices shall be deemed delivered when delivered as addressed, or if the addressee refuses delivery, when presented for delivery notwithstanding such refusal. Telex or telecommunicated notices shall be deemed delivered when receipt is either confirmed by confirming transmission equipment or acknowledged by the addressee or its office. Personal delivery shall be effective when accomplished. Unless a party changes its address by giving notice to the other party as provided herein, notices shall be delivered to the parties at the following addresses: If to the Construction Agent or the Lessee, to such entity at the following address: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attention: Mr. Andrew R. Jordan, Senior Vice President and Chief Financial Officer Telephone: (410) 631-6325 Telecopy: (410) 631-6899 If to the Owner Trustee, to it at the following address: First Security Bank, National Association 79 South Main Street Salt Lake City, Utah 84111 Attention: Mr. Val T. Orton, Vice President Telephone: (801) 246-5300 Telecopy: (801) 246-5053 63 68 If to the Holders, to each such Holder at the address set forth for such Holder on Schedule I of the Trust Agreement. If to the Agent, to it at the following address: First Union National Bank c/o First Union Capital Markets Group DC-6 301 South College Street Charlotte, North Carolina 28288-0166 Attention: Ms. Jane O. Hurley, Capital Markets Services Telephone: (704) 383-3812 Telecopy: (704) 383-7989 If to any Lender, to it at the address set forth for such Lender in Schedule 1.1 of the Credit Agreement. From time to time any party may designate additional parties and/or another address for notice purposes by notice to each of the other parties hereto. Each notice hereunder shall be effective upon receipt or refusal thereof. 12.3. COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one (1) and the same instrument. 12.4. TERMINATIONS, AMENDMENTS, WAIVERS, ETC.; UNANIMOUS VOTE MATTERS. Each Operative Agreement may be terminated, amended, supplemented, waived or modified only by an instrument in writing signed by, subject to Article VIII of the Trust Agreement regarding termination of the Trust Agreement, the Majority Secured Parties and the Lessee and/or the Construction Agent (to the extent the Lessee and/or the Construction Agent is a party to such Operative Agreement); provided, to the extent no Default or Event of Default shall have occurred and be continuing, the Majority Secured Parties shall not amend, supplement, waive or modify any provision of any Operative Agreement in such a manner as to adversely affect the rights of the Lessee and/or the Construction Agent without the prior written consent (not to be unreasonably withheld or delayed) of the Lessee and/or the Construction Agent. In addition, (a) the Unanimous Vote Matters shall require the consent of each Lender and each Holder affected by such matter and (b) any provision of any Operative Agreement incorporated by reference or otherwise referenced in a second Operative Agreement shall remain, respecting such second Operative Agreement, in its original form without regard to any such termination, amendment, supplement, waiver or modification in the first Operative Agreement except if such has been agreed to by an instrument in writing signed by, subject to Article VIII of the Trust 64 69 Agreement regarding termination of the Trust Agreement, the Majority Secured Parties and the Lessee and/or the Construction Agent (to the extent the Lessee and/or the Construction Agent is a party to such Operative Agreement). Notwithstanding the foregoing, no such termination, amendment, supplement, waiver or modification shall, without the consent of the Agent and, to the extent affected thereby, each Lender and each Holder (collectively, the "Unanimous Vote Matters") (i) reduce the amount of any Note or any Certificate, extend the scheduled date of maturity of any Note, extend the scheduled Expiration Date, extend any payment date of any Note or Certificate, reduce the stated rate of interest payable on any Note, reduce the stated Holder Yield payable on any Certificate (other than as a result of waiving the applicability of any post-default increase in interest rates or Holder Yields), modify the priority of any Lien in favor of the Agent under any Security Document, subordinate any obligation owed to any Lender or Holder or increase the amount or extend the expiration date of any Lender's Commitment or the Holder Commitment of any Holder, or (ii) terminate, amend, supplement, waive or modify any provision of this Section 12.4 or reduce the percentages specified in the definitions of Majority Lenders, Majority Holders or Majority Secured Parties, or consent to the assignment or transfer by the Owner Trustee of any of its rights and obligations under any Credit Document or release a material portion of the Collateral (except in accordance with Section 8.8) or release the Lessee from its obligations under any Operative Agreement or otherwise alter any payment obligations of the Lessee to the Lessor or any Financing Party under the Operative Agreements, or (iii) terminate, amend, supplement, waive or modify any provision of Section 7 of the Credit Agreement, or (iv) permit Advances for Work in excess of the Construction Budget, or (v) eliminate the automatic option under Section 5.3(b) of the Agency Agreement requiring that the Construction Agent pay certain liquidated damages in exchange for the conveyance of a Property to the Construction Agent. Any such termination, amendment, supplement, waiver or modification shall apply equally to each of the Lenders and the Holders and shall be binding upon all the parties to this Agreement. In the case of any waiver, each party to this Agreement shall be restored to its former position and rights under the Operative Agreements, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. If at a time when the conditions precedent set forth in the Operative Agreements to any Loan are, in the opinion of the Majority Lenders, satisfied, any Lender shall fail to fulfill its obligations to make such Loan (any such Lender, a "Defaulting Lender") then, for so long as such failure shall continue, the Defaulting Lender shall (unless the Lessee and the Majority Lenders, determined as if the Defaulting Lender were not a "Lender", shall otherwise consent in writing) be deemed for all purposes relating to terminations, amendments, supplements, waivers or modifications under the Operative Agreements to have no Loans, shall not be treated as a "Lender" when performing the computation of Majority Lenders or Majority Secured Parties, and shall have no rights under this Section 12.4; provided that any action taken pursuant to the second paragraph of this Section 12.4 shall not be effective as against the Defaulting Lender. If at a time when the conditions precedent set forth in the Operative Agreements to any Holder Advance are, in the opinion of the Majority Holders, satisfied, any Holder shall fail to 65 70 fulfill its obligations to make such Holder Advance (any such Holder, a "Defaulting Holder") then, for so long as such failure shall continue, the Defaulting Holder shall (unless the Lessee and the Majority Holders, determined as if the Defaulting Holder were not a "Holder", shall otherwise consent in writing) be deemed for all purposes relating to terminations, amendments, supplements, waivers or modifications under the Operative Agreements to have no Holder Advances, shall not be treated as a "Holder" when performing the computation of Majority Holders or Majority Secured Parties, and shall have no rights under this Section 12.4; provided that any action taken pursuant to the second paragraph of this Section 12.4 shall not be effective as against the Defaulting Holder. 12.5. HEADINGS, ETC. The Table of Contents and headings of the various Articles and Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. 12.6. PARTIES IN INTEREST. Except as expressly provided herein, none of the provisions of this Agreement are intended for the benefit of any Person except the parties hereto. 12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; VENUE; ARBITRATION. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND. Any legal action or proceeding with respect to this Agreement or any other Operative Agreement may be brought in the courts of the State of North Carolina in Mecklenburg County or of the United States for the Western District of North Carolina, and, by execution and delivery of this Agreement, each of the parties to this Agreement hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the parties to this Agreement further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 12.2, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of any party to serve process in any other manner permitted by Law or to commence legal proceedings or to otherwise proceed against any party in any other jurisdiction. (b) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING 66 71 RELATING TO THIS AGREEMENT, ANY OTHER OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. (c) Each of the parties to this Agreement hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Operative Agreement brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (d) Notwithstanding the provisions of Section 12.7(a) or of any other Operative Agreement to the contrary, upon demand of any party to this Agreement and/or any other Operative Agreement, whether made before or within three (3) months after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Agreement and/or any other Operative Agreement between or among parties to this Agreement and/or any other Operative Agreement ("Disputes") shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include without limitation tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, claims arising from agreements executed in the future, or claims arising out of or connected with the transaction reflected by this Agreement and/or any other Operative Agreement. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and Title 9 of the United States Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. A hearing shall begin within ninety (90) days of demand for arbitration and all hearings shall be concluded within one hundred twenty (120) days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then no more than a total extension of sixty (60) days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys selected from the Commercial Financial Disputes Arbitration Panel of the AAA. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted or if such person is not available to serve, the single arbitrator may be a licensed attorney. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. Notwithstanding the immediately preceding binding arbitration provisions, the parties to this Agreement and/or any other Operative Agreement agree to preserve, without diminution, certain remedies that the Agent on behalf of the Lenders and the 67 72 Holders may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought. The Agent on behalf of the Lenders and the Holders shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted under any Operative Agreement or under applicable Law or by judicial foreclosure and sale, including without limitation a proceeding to confirm the sale; (ii) all rights of self-help including without limitation peaceful occupation of real property and collection of rents, set-off and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including without limitation injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. The parties to this Agreement and/or any other Operative Agreement agree that they shall not have a remedy of special, punitive or exemplary damages against any other party in any Dispute and hereby waive any right or claim to special, punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. By execution and delivery of this Agreement and/or any other Operative Agreement, each of the parties hereto and/or thereto accepts, for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction relating to any arbitration proceedings conducted under the Arbitration Rules in Charlotte, North Carolina and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement and/or any other Operative Agreement from which no appeal has been taken or is available. 12.8. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12.9. LIABILITY LIMITED. (a) The Lenders, the Agent, the Lessee, the Owner Trustee and the Holders each acknowledge and agree that the Owner Trustee is (except as otherwise expressly provided herein or therein) entering into this Agreement and the other Operative Agreements to which it is a party (other than the Trust Agreement and to the extent otherwise provided in Section 6.1 of this Agreement), solely in its capacity as trustee under the Trust Agreement and not in its individual capacity and that the Trust Company 68 73 shall not be liable or accountable under any circumstances whatsoever in its individual capacity for or on account of any statements, representations, warranties, covenants or obligations stated to be those of the Owner Trustee, except for its own gross negligence or willful misconduct and as otherwise expressly provided herein or in the other Operative Agreements. (b) Anything to the contrary contained in this Agreement, the Credit Agreement, the Notes or in any other Operative Agreement notwithstanding, no Exculpated Person shall be personally liable in any respect for any liability or obligation arising hereunder or in any other Operative Agreement including without limitation the payment of the principal of, or interest on, the Notes, or for monetary damages for the breach of performance of any of the covenants contained in the Credit Agreement, the Notes, this Agreement, the Security Agreement or any of the other Operative Agreements. The Lenders, the Holders and the Agent agree that, in the event any remedies under any Operative Agreement are pursued, neither the Lenders, the Holders nor the Agent shall have any recourse against any Exculpated Person, for any deficiency, loss or Claim for monetary damages or otherwise resulting therefrom and recourse shall be had solely and exclusively against the Trust Estate (excluding Excepted Payments) and the Lessee (with respect to the Lessee's obligations under the Operative Agreements); but nothing contained herein shall be taken to prevent recourse against or the enforcement of remedies against the Trust Estate (excluding Excepted Payments) in respect of any and all liabilities, obligations and undertakings contained herein and/or in any other Operative Agreement. Notwithstanding the provisions of this Section, nothing in any Operative Agreement shall: (i) constitute a waiver, release or discharge of any indebtedness or obligation evidenced by the Notes and/or the Certificates arising under any Operative Agreement or secured by any Operative Agreement, but the same shall continue until paid or discharged; (ii) relieve any Exculpated Person from liability and responsibility for (but only to the extent of the damages arising by reason of): active waste knowingly committed by any Exculpated Person with respect to any Property, any fraud, gross negligence or willful misconduct on the part of any Exculpated Person; (iii) relieve any Exculpated Person from liability and responsibility for (but only to the extent of the moneys misappropriated, misapplied or not turned over) (A) except for Excepted Payments, misappropriation or misapplication by the Lessor (i.e., application in a manner contrary to any of the Operative Agreements) of any insurance proceeds or condemnation award paid or delivered to the Lessor by any Person other than the Agent, (B) except for Excepted Payments, any deposits or any escrows or amounts owed by the Construction Agent under the Agency Agreement held by the Lessor or (C) except for Excepted Payments, any rent or other income received by the Lessor from the Lessee that is not turned over to the Agent; or (iv) affect or in any way limit the Agent's rights and remedies under any Operative Agreement with respect to the Rents and rights and powers of the Agent under the Operative Agreements or to obtain a judgment against the Lessee's interest in the Properties or the Agent's rights and powers to obtain a judgment against the Lessor (provided, that no deficiency judgment or other money judgment shall be enforced against any Exculpated Person except to the extent of the Lessor's interest in the 69 74 Trust Estate (excluding Excepted Payments) or to the extent the Lessor may be liable as otherwise contemplated in clauses (ii) and (iii) of this Section 12.9(b)). 12.10. RIGHTS OF THE LESSEE. If at any time all obligations (i) of the Owner Trustee under the Credit Agreement, the Security Documents and the other Operative Agreements and (ii) of the Lessee under the Operative Agreements have in each case been satisfied or discharged in full, then the Lessee shall be entitled to (a) terminate the Lease and (b) receive all amounts then held under the Operative Agreements and all proceeds with respect to any of the Properties. Upon the termination of the Lease pursuant to the foregoing clause (a), the Lessor shall transfer to the Lessee or its designee all of its right, title and interest free and clear of the Lien of the Lease, the Lien of the Security Documents and all Lessor Liens in and to any Properties then subject to the Lease and any amounts or proceeds referred to in the foregoing clause (b) shall be paid over to the Lessee. 12.11. FURTHER ASSURANCES. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and effectuate the intent and purposes of this Participation Agreement, the other Operative Agreements and the transactions contemplated hereby and thereby (including without limitation the preparation, execution and filing of any and all Uniform Commercial Code financing statements, filings of Mortgage Instruments and other filings or registrations which the parties hereto may from time to time request to be filed or effected). The Lessee, at its own expense and without need of any prior request from any other party, shall take such action as may be necessary (including without limitation any action specified in the preceding sentence), or (if the Owner Trustee shall so request) as so requested, in order to maintain and protect all security interests provided for hereunder or under any other Operative Agreement. 12.12. CALCULATIONS UNDER OPERATIVE AGREEMENTS. The parties hereto agree that all calculations and numerical determinations to be made under the Operative Agreements by the Owner Trustee shall be made by the Agent and that such calculations and determinations shall be conclusive and binding on the parties hereto in the absence of manifest error. 12.13. CONFIDENTIALITY. Each Financing Party severally shall keep confidential all non-public information pertaining to the Lessee or any of its Subsidiaries which is provided to it by the Lessee or any of its Subsidiaries and which an officer of the Lessee or any of its Subsidiaries has requested in writing be kept confidential, and shall not disclose such information to any Person except: 70 75 (a) to the extent such information is public when received by such Person or becomes public thereafter due to the act or omission of any party other than such Person; (b) to the extent such information is independently obtained from a source other than the Lessee or any of its Subsidiaries and such information from such source is not, to such Person's knowledge after reasonable investigation, subject to an obligation of confidentiality or, if such information is subject to an obligation of confidentiality, that disclosure of such information is permitted; (c) to counsel, auditors or accountants retained by any such Person or any Affiliates of any such Person (if such Affiliates are permitted to receive such information pursuant to clause (f) or (g) below), provided they agree to keep such information confidential as if such Person or Affiliate were party to this Agreement and to financial institution regulators, including examiners of any Financing Party or any Affiliate thereof in the course of examinations of such Persons; (d) in connection with any litigation or the enforcement or preservation of the rights of any Financing Party under the Operative Agreements; (e) to the extent required by any applicable statute, rule or regulation or court order (including without limitation, by way of subpoena) or pursuant to the request of any regulatory or Governmental Authority having jurisdiction over any such Person; provided, however, that such Person shall endeavor (if not otherwise prohibited by Law) to promptly notify the Lessee prior to any disclosure made pursuant to this clause (e), except that no such Person shall be subject to any liability whatsoever for any failure to so notify the Lessee; (f) any Financing Party may disclose such information to another Financing Party or to any Affiliate of a Financing Party that is a direct or indirect owner of any Financing Party; (g) any Financing Party may disclose such information to an Affiliate of any Financing Party to the extent required in connection with the transactions contemplated hereby or to the extent such Affiliate is involved in, or provides advice or assistance to such Person with respect to, such transactions (provided, in each case that such Affiliate has agreed in writing to maintain confidentiality as if it were such Financing Party (as the case may be)); or (h) to the extent disclosure to any other financial institution or other Person is appropriate in connection with any proposed or actual (i) assignment or grant of a participation by any of the Lenders of interests in the Credit Agreement or any Note to such other financial institution (who will in turn be required by the Agent to agree in writing to maintain confidentiality as if it were a Lender originally party to this Agreement) or (ii) assignment by any Holder of interests in the Trust Agreement to 71 76 another Person (who will in turn be required by the transferring Holder to agree in writing to maintain confidentiality as if it were a Holder originally party to this Agreement). Subject to the terms of Sections 12.13(a), (b), (d) and (e) under the terms of any one or more of which circumstances disclosure shall be permitted, each Financing Party severally agrees to keep confidential all non-public information pertaining to the financing structure described in the unrecorded Operative Agreements. 12.14. FINANCIAL REPORTING/TAX CHARACTERIZATION. Lessee agrees to obtain advice from its own accountants and tax counsel regarding the financial reporting treatment and the tax characterization of the transactions described in the Operative Agreements. Lessee further agrees that Lessee shall not rely upon any statement of any Financing Party or any of their respective Affiliates and/or Subsidiaries regarding any such financial reporting treatment and/or tax characterization. 12.15. (intentionally omitted) [The remainder of this page has been left blank intentionally.] 72 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. GUILFORD PHARMACEUTICALS INC., as the Construction Agent and as the Lessee By: /s/ Andrew R. Jordan ---------------------------------------- Name: Andrew R. Jordan -------------------------------------- Title: Senior Vice President & Chief Financial ----------------------------------------- Officer ------- FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: /s/ Brett R. King ---------------------------------------- Name: Brett R. King -------------------------------------- Title: Assistant Vice President -------------------------------------- FIRST UNION NATIONAL BANK, as a Holder, as a Lender and as the Agent By: /s/ Louis E. Flori ---------------------------------------- Name: Louis E. Flori -------------------------------------- Title: Vice President -------------------------------------- 78 SCHEDULE 1 Repayment of Loans From the Rent Commencement Date and thereafter until and including the Expiration Date, the Owner Trustee shall pay (or cause to be paid) to the Agent for the benefit of the Lenders on the first Business Day of each calendar month an amount equal to $17,113.40 payable for the benefit of the Tranche A Lenders and an amount equal to $2,886.60 payable for the benefit of the Tranche B Lenders. All such amounts referenced in this Schedule 1 shall be applied to the outstanding principal balance of the Tranche A Loans and the Tranche B Loans, respectively. 79 EXHIBIT A REQUISITION FORM (Pursuant to Sections 4.2, 5.2, 5.3 and 5.4 of the Participation Agreement) GUILFORD PHARMACEUTICALS INC., a Delaware corporation (the "Company") hereby certifies as true and correct and delivers the following Requisition to FIRST UNION NATIONAL BANK, as the agent for the Lenders (hereinafter defined) and respecting the Security Documents, as the agent for the Lenders and the Holders (hereinafter defined), to the extent of their interests (the "Agent"): Reference is made herein to that certain Participation Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Participation Agreement") among the Company, in its capacity as the Lessee and as the Construction Agent, First Security Bank, National Association, as the Owner Trustee, the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders"), and the Agent. Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth therefor in the Participation Agreement. Check one: INITIAL CLOSING DATE: ---- ----------------- (one (1) Business Days prior notice required for Advance) PROPERTY CLOSING DATE: ---- ----------------- (unless such Property Closing Date is concurrent with the Initial Closing Date, five (5) Business Days prior notice required for Advance) CONSTRUCTION ADVANCE DATE: ---- ------------- (unless such Property Closing Date is concurrent with the Initial Closing Date, five (5) Business Days prior notice required for Advance) 1. Transaction Expenses and other fees, expenses and disbursements under Sections 7.1(a) or 7.1(b) of the Participation Agreement and any and all other amounts contemplated to be financed under the Participation Agreement including without limitation any Work, broker's fees, taxes, recording fees and the like (with supporting invoices or closing statement attached): A-1 80 Party to Whom Amount Owed Amount is Owed (in U.S. Dollars) -------------- ----------------- -------------- ----------------- -------------- ----------------- -------------- ----------------- -------------- -----------------
2. Description of Land (which shall be a legal description of the Land in connection with an Advance to pay Property Acquisition Costs): See attached Schedule 1 3. Description of Improvements: See attached Schedule 2 4. Description of Equipment: See attached Schedule 3 5. Description of Work: See attached Schedule 4 6. Aggregate Loans and Holder Advances requested since the Initial Closing Date with respect to each Property for which Advances are requested under this Requisition (listed on a Property by Property basis), including without limitation all amounts requested under this Requisition: [IDENTIFY ON A PROPERTY BY PROPERTY BASIS] $ [Property] -------------- In connection with this Requisition, the Company hereby requests that the Lenders make Loans to the Lessor in the amount of $______________ and that the Holders make Holder Advances to the Lessor in the amount of $________________. The Company hereby certifies (i) that the foregoing amounts requested do not exceed the total aggregate of the Available Commitments plus the Available Holder Commitments and (ii) each of the provisions of the Participation Agreement applicable to the Loans and Holder Advances requested hereunder have been complied with as of the date of this Requisition. The Company has caused this Requisition to the executed by its duly authorized officer as of this _____ day of __________, ______. GUILFORD PHARMACEUTICALS INC. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- A-2 81 Schedule 1 Description of Land (Legal Description and Street Address) A-3 82 Schedule 2 Description of Improvements A-4 83 Schedule 3 Description of Equipment ================================================================================ General Description Make Model Serial Number ------------------- ---- ----- ------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ A-5 84 Schedule 4 Work Work Performed for which the Advance is requested: - ---------------------------------------------------------------- - ---------------------------------------------------------------- A-6 85 EXHIBIT B [Outside Counsel Opinion for the Lessee] (Pursuant to Section 5.3(j) of the Participation Agreement) ____________, ______ TO THOSE ON THE ATTACHED DISTRIBUTION LIST Re: Synthetic Lease Financing Provided in favor of _______________ Dear Sirs: We have acted as special counsel to Guilford Pharmaceuticals Inc., a Delaware (the "Lessee") in connection with certain transactions contemplated by the Participation Agreement dated as of February 5, 1998 (the "Participation Agreement"), among the Lessee, First Security Bank, National Association, as the Owner Trustee (the "Owner Trustee"), the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders") and First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (the "Agent"). This opinion is delivered pursuant to Section 5.3(j) of the Participation Agreement. All capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned thereto in Appendix A to the Participation Agreement. In connection with the foregoing, we have examined originals, or copies certified to our satisfaction, of [IDENTIFY THE APPLICABLE OPERATIVE AGREEMENTS, INCLUDING EACH MORTGAGE INSTRUMENT, RELATED UCC FIXTURE FILINGS, ADDITIONAL UCCS (HEREINAFTER DEFINED), DEEDS AND MEMORANDA OF LEASE] and such other corporate documents and records of the Lessee, certificates of public officials and representatives of the Lessee as to certain factual matters, and such other instruments and documents which we have deemed necessary or advisable to examine for the purpose of this opinion. With respect to such examination, we have assumed (i) the statements of fact made in all such certificates, documents and instruments are true, accurate and complete; (ii) the due authorization, execution and delivery of the Operative Agreements by the parties thereto; (iii) the genuineness of all signatures, the authenticity and completeness of all documents, certificates, instruments, records and corporate records submitted to us as originals and the conformity to the original instruments of all documents submitted to us as copies, and the authenticity and completeness of the originals of such copies; (iv) that all parties have all requisite corporate power and authority to execute, deliver and perform the Operative Agreements; and (v) except as to the Lessee, the enforceability of the Mortgage Instrument, the Memorandum of Lease and the UCC financing statements against all parties thereto. B-1 86 Based on the foregoing, and having due regard for such legal considerations as we deem relevant, and subject to the limitations and assumptions set forth herein, including without limitation the matters set forth in the last two (2) paragraphs hereof, we are of the opinion that: (a) The Mortgage Instrument and Memorandum of Lease are enforceable in accordance with their respective terms, except as limited by laws generally affecting the enforcement of creditors' rights, which laws will not materially prevent the realization of the benefits intended by such documents. (b) Each form of Mortgage Instrument and UCC fixture filing relating thereto, attached hereto as Schedules 1 and 2, respectively, is in proper form for filing and recording with the offices of [IDENTIFY THE RECORDING OFFICES OF THE RESPECTIVE COUNTY CLERKS WHERE THE PROPERTIES ARE TO BE LOCATED]. Upon filing of each Mortgage Instrument and UCC fixture filing in [IDENTIFY THE RECORDING OFFICES OF THE RESPECTIVE COUNTY CLERKS WHERE THE PROPERTIES ARE TO BE LOCATED], the Agent will have a valid, perfected lien and security interest in that portion of the Collateral described in such Mortgage Instrument or UCC fixture filing to the extent such Collateral is comprised of real property and/or fixtures. (c) The forms of UCC financing statements relating to the Security Documents, attached hereto as Schedule 3 (the "Additional UCCs"), are in proper form for filing and recording with the offices of [IDENTIFY (i) THE RECORDING OFFICES OF THE RESPECTIVE COUNTY CLERKS WHERE THE PROPERTIES ARE TO BE LOCATED AND (ii) THE SECRETARY OF STATE WHERE THE PROPERTIES ARE TO BE LOCATED]. Upon filing of the Additional UCCs in [IDENTIFY (i) THE RECORDING OFFICES OF THE RESPECTIVE COUNTY CLERKS WHERE THE PROPERTIES ARE TO BE LOCATED AND (ii) THE SECRETARY OF STATE WHERE THE PROPERTIES ARE TO BE LOCATED], the Agent will have a valid, perfected lien and security interest in that portion of the Collateral which can be perfected by filing UCC-1 financing statements under Article 9 of the UCC. (d) Each form of Deed and Memorandum of Lease is in appropriate form for filing and recording with the [IDENTIFY THE RECORDING OFFICES OF THE RESPECTIVE COUNTY CLERKS FOR THE COUNTIES WHERE THE PROPERTIES ARE TO BE LOCATED]. (e) Each Memorandum of Lease, when filed and recorded with the [IDENTIFY THE RECORDING OFFICES OF THE RESPECTIVE COUNTY CLERKS FOR THE COUNTIES WHERE THE PROPERTIES ARE TO BE LOCATED], will have been filed and recorded in all public offices in the State of __________ in which filing or recording is necessary to provide constructive notice of the Lease to third Persons and to establish of record the interest of the Lessor thereunder as to the Properties described in each such Memorandum of Lease. (f) Title to the Properties located in the State of ___________ may be held in the name of the Owner Trustee as follows: First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1. B-2 87 (g) The execution and delivery by First Security Bank, National Association, individually or as the Owner Trustee, as the case may be, of the Operative Agreements to which it is a party and compliance by First Security Bank, National Association, individually or as the Owner Trustee, with all of the provisions thereof do not and will not contravene any law, rule or regulation of [IDENTIFY THE STATE]. (h) By reason of their participation in the transaction contemplated under the Operative Agreements, none of the Agent, the Lenders, the Holders or the Owner Trustee has to (a) qualify as a foreign corporation in [IDENTIFY THE STATE], (b) file any application or any designation for service of process in [IDENTIFY THE STATE] or (c) pay any franchise, income, sales, excise, stamp or other taxes of any kind to [IDENTIFY THE STATE]. (i) The provisions in the Operative Agreements concerning Rent, interest, fees, prepayment premiums and other similar charges do not violate the usury laws or other similar laws regulating the use or forbearance of money of [IDENTIFY THE STATE]. (j) If the transactions contemplated by the Operative Agreements are characterized as a lease transaction by a court of competent jurisdiction, the Lease and the applicable Lease Supplement shall demise to the Lessee a valid leasehold interest in the Properties described in such Lease Supplement. (k) If the transactions contemplated by the Operative Agreements are characterized as a loan transaction by a court of competent jurisdiction, the combination of the Mortgage Instruments, the Deeds, the Lease and the applicable Lease Supplements (and the other Operative Agreements incorporated therein by reference) are sufficient to create a valid, perfected lien or security interest in the Properties therein described, enforceable as a mortgage in [IDENTIFY THE STATE]. This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters stated herein. This opinion is based on and is limited to the laws of the State of ___________ and the federal laws of the United States of America. Insofar as the foregoing opinion relates to matters of law other than the foregoing, no opinion is hereby given. This opinion is for the sole benefit of the Lessee, the Construction Agent, the Owner Trustee, the Holders, the Lenders, the Agent and their respective successors and assigns and may not be relied upon by any other person other than such parties and their respective successors and assigns without the express written consent of the undersigned. The opinions expressed herein are as of the date hereof and we make no undertaking to amend or supplement such opinions if facts come to our attention or changes in the current law of the jurisdictions mentioned herein occur which could affect such opinions. Very truly yours, [LESSEE'S OUTSIDE COUNSEL] B-3 88 Distribution List First Union National Bank, as the Agent, a Holder and a Lender The various banks and other lending institutions which are parties to the Participation Agreement from time to time, as additional Holders The various banks and other lending institutions which are parties to the Participation Agreement from time to time, as additional Lenders Guilford Pharmaceuticals Inc., as the Construction Agent and the Lessee First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 B-4 89 Schedule 1 Form of Mortgage Instrument 90 Schedule 2 Forms of UCC Fixture Filings 91 Schedule 3 Forms of UCC Financing Statements 92 EXHIBIT C GUILFORD PHARMACEUTICALS INC. OFFICER'S CERTIFICATE (Pursuant to Section 5.3(z) of the Participation Agreement) GUILFORD PHARMACEUTICALS INC., a Delaware corporation (the "Company"), DOES HEREBY CERTIFY as follows: 1. Each and every representation and warranty of the Company contained in the Operative Agreements to which it is a party is true and correct on and as of the date hereof. 2. No Default or Event of Default has occurred and is continuing under any Operative Agreement. 3. Each Operative Agreement to which the Company is a party is in full force and effect with respect to it. 4. The Company has duly performed and complied with all covenants, agreements and conditions contained in the Participation Agreement (hereinafter defined) or in any Operative Agreement required to be performed or complied with by it on or prior to the date hereof. Capitalized terms used in this Officer's Certificate and not otherwise defined herein have the respective meanings ascribed thereto in the Participation Agreement dated as of February 5, 1998 among the Company, as the Lessee and as the Construction Agent, First Security Bank, National Association, as the Owner Trustee, the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders") and First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (the "Agent"). IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be duly executed and delivered as of this _____ day of __________, ______. GUILFORD PHARMACEUTICALS INC. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ C-1 93 EXHIBIT D GUILFORD PHARMACEUTICALS INC. SECRETARY'S CERTIFICATE (Pursuant to Section 5.3(aa) of the Participation Agreement) GUILFORD PHARMACEUTICALS INC., a Delaware corporation (the "Company") DOES HEREBY CERTIFY as follows: 1. Attached hereto as Schedule 1 is a true, correct and complete copy of the resolutions of the Board of Directors of the Company duly adopted by the Board of Directors of the Company on __________. Such resolutions have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof. 2. Attached hereto as Schedule 2 is a true, correct and complete copy of the Articles of Incorporation of the Company on file in the Office of the Secretary of State of __________. Such Articles of Incorporation have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof. 3. Attached hereto as Schedule 3 is a true, correct and complete copy of the Bylaws of the Company. Such Bylaws have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof. 4. The persons named below now hold the offices set forth opposite their names, and the signatures opposite their names and titles are their true and correct signatures.
Name Office Signature ---- ------ --------- ------------------- ----------------------- ---------------------- ------------------- ----------------------- ----------------------
IN WITNESS WHEREOF, the Company has caused this Secretary's Certificate to be duly executed and delivered as of this _____ day of ___________, ______. GUILFORD PHARMACEUTICALS INC. By: ----------------------------------------- Name: --------------------------------------- Title: --------------------------------------- D-1 94 Schedule 1 BOARD RESOLUTIONS D-2 95 Schedule 2 ARTICLES OF INCORPORATION D-3 96 Schedule 3 BYLAWS D-4 97 EXHIBIT E FIRST SECURITY BANK, NATIONAL ASSOCIATION OFFICER'S CERTIFICATE (Pursuant to Section 5.3(bb) of the Participation Agreement) FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually (except with respect to paragraph 1 below, to the extent any such representations and warranties are made in its individual capacity) but solely as the owner trustee under the Guilford Real Estate Trust 1998-1 (the "Owner Trustee"), DOES HEREBY CERTIFY as follows: 1. Each and every representation and warranty of the Owner Trustee contained in the Operative Agreements to which it is a party is true and correct on and as of the date hereof. 2. Each Operative Agreement to which the Owner Trustee is a party is in full force and effect with respect to it. 3. The Owner Trustee has duly performed and complied with all covenants, agreements and conditions contained in the Participation Agreement (hereinafter defined) or in any Operative Agreement required to be performed or complied with by it on or prior to the date hereof. Capitalized terms used in this Officer's Certificate and not otherwise defined herein have the respective meanings ascribed thereto in the Participation Agreement dated as of February 5, 1998 among Guilford Pharmaceuticals Inc., as the Lessee and as the Construction Agent, the Owner Trustee, the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders") and First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (the "Agent"). E-1 98 IN WITNESS WHEREOF, the Owner Trustee has caused this Officer's Certificate to be duly executed and delivered as of this _____ day of __________, ______. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- E-2 99 EXHIBIT F FIRST SECURITY BANK, NATIONAL ASSOCIATION OFFICER'S CERTIFICATE (Pursuant to Section 5.3(cc) of the Participation Agreement) CERTIFICATE OF ASSISTANT SECRETARY I, ______________________, duly elected and qualified Assistant Secretary of the Board of Directors of First Security Bank, National Association (the "Association"), hereby certify as follows: 1. The Association is a National Banking Association duly organized, validly existing and in good standing under the laws of the United States. With respect thereto the following is noted: A. Pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., the Comptroller of the Currency charters and exercises regulatory and supervisory authority over all National Banking Associations; B. On December 9, 1881, the First National Bank of Ogden, Utah was chartered as a National Banking Association under the laws of the United States and under Charter No. 2597; C. On October 2, 1922, in connection with a consolidation of The First National Bank of Ogden, Ogden, Utah, and The Utah National Bank of Ogden, Ogden, Utah, the title was changed to "The First & Utah National Bank of Ogden"; on January 18, 1923, The First & Utah National Bank of Ogden changed its title to "First Utah National Bank of Ogden"; on January 19, 1926, the title was changed to "First National Bank of Ogden"; on February 24, 1934, the title was changed to "First Security Bank of Utah, National Association"; on June 21, 1996, the title was changed to "First Security Bank, National Association"; and D. First Security Bank, National Association, Ogden, Utah, continues to hold a valid certificate to do business as a National Banking Association. 2. The Association's Articles of Association, as amended, are in full force and effect, and a true, correct and complete copy is attached hereto as Schedule A and incorporated herein by reference. Said Articles were last amended October 20, 1975, as required by law on notice at a duly called special meeting of the shareholders of the Association. F-1 100 3. The Association's By-Laws, as amended, are in full force and effect; and a true, correct and complete copy is attached hereto as Schedule B and incorporated herein by reference. Said By-Laws, still in full force and effect, were adopted September 17, 1942, by resolution, after proper notice of consideration and adoption of By-Laws was given to each and every shareholder, at a regularly called meeting of the Board of Directors with a quorum present. 4. Pursuant to the authority vested in it by an Act of Congress approved December 23, 1913 and known as the Federal Reserve Act, as amended, the Federal Reserve Board (now the Board of Governors of the Federal Reserve System) has granted to the Association now known as "First Security Bank, National Association" of Ogden, Utah, the right to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with National Banks are permitted to act under the laws of the State of Utah; and under the provisions of applicable law, the authority so granted remains in full force and effect. 5. Pursuant to authority vested by Act of Congress (12 U.S.C. 92a and 12 U.S.C. 481, as amended) the Comptroller of the Currency has issued Regulation 9, as amended, dealing, in part, with the Fiduciary Powers of National Banks, said regulation providing in subparagraph 9.7 (a) (1-2): (1) The board of directors is responsible for the proper exercise of fiduciary powers by the Bank. All matters pertinent thereto, including the determination of policies, the investment and disposition of property held in fiduciary capacity, and the direction and review of the actions of all officers, employees, and committees utilized by the Bank in the exercise of its fiduciary powers, are the responsibility of the board. In discharging this responsibility, the board of directors may assign, by action duly entered in the minutes, the administration of such of the Bank's fiduciary powers as it may consider proper to assign to such director(s), officer(s), employee(s) or committee(s) as it may designate. (2) No fiduciary account shall be accepted without the prior approval of the board, or of the director(s), officer(s), or committee(s) to whom the board may have designated the performance of that responsibility. . . . 6. A Resolution relating to Exercise of Fiduciary Powers was adopted by the Board of Directors at a meeting held July 26, 1994 at which time there was a quorum present; said resolution is still in full force and effect and has not been rescinded. Said resolution is attached hereto as Schedule C and incorporated herein by reference. F-2 101 7. A Resolution relating to the Designation of Officers and Employees to Exercise Fiduciary Powers was adopted by the Trust Policy Committee at a meeting held February 7, 1996 at which time a quorum was present; said resolution is still in full force and effect and has not been rescinded. Said resolution is attached hereto as Schedule D and is incorporated herein by reference. 8. Attached hereto as Schedule E and incorporated herein by reference, is a listing of facsimile signatures of persons authorized (herein "Authorized Signatory or Signatories") on behalf of the Association and its Trust Group to act in exercise of its fiduciary powers subject to the resolutions in Paragraphs 6 and 7, above. 9. The principal office of the First Security Bank, National Association, Trust Group and of its departments, except for the St. George, Utah, Ogden, Utah, and Provo, Utah, branch offices, is located at 79 South Main Street, Salt Lake City, Utah 84111 and all records relating to fiduciary accounts are located at such principal office of the Trust Group or in storage facilities within Salt Lake County, Utah, except for those of the Ogden, Utah, St. George, Utah, and Provo, Utah, branch offices, which are located at said office. 10. Each Authorized Signatory (i) is a duly elected or appointed, duly qualified officer or employee of the Association; (ii) holds the office or job title set forth below his or her name on the date hereof; (iii) and the facsimile signature appearing opposite the name of each such officer or employee is a true replica of his or her signature. F-3 102 IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Association this __________ day of _________________, 1998. (SEAL) -------------------------------------- R. James Steenblik Senior Vice President Assistant Secretary F-4 103 Schedule A ARTICLES OF ASSOCIATION F-5 104 Schedule B BY-LAWS F-6 105 Schedule C RESOLUTION RELATING TO EXERCISE OF FIDUCIARY POWERS F-7 106 Schedule D RESOLUTION RELATING TO THE DESIGNATION OF OFFICERS AND EMPLOYEES TO EXERCISE FIDUCIARY POWERS F-8 107 Schedule E AUTHORIZED SIGNATORY OR SIGNATORIES F-9 108 EXHIBIT G [Outside Counsel Opinion for the Owner Trustee] (Pursuant to Section 5.3(dd) of the Participation Agreement) ___________, ______ TO THOSE ON THE ATTACHED DISTRIBUTION LIST Re: Trust Agreement dated as of February 5, 1998 Dear Sirs: We have acted as special counsel for First Security Bank, National Association, a national banking association, in its individual capacity ("FSB") and in its capacity as trustee (the "Owner Trustee") under the Trust Agreement dated as of February 5, 1998 (the "Trust Agreement") by and among it and the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), in connection with the execution and delivery by the Owner Trustee of the Operative Agreements to which it is a party. Except as otherwise defined herein, the terms used herein shall have the meanings set forth in Appendix A to the Participation Agreement dated as of February 5, 1998 (the "Participation Agreement") by and among Guilford Pharmaceuticals Inc. (the "Lessee"), First Security Bank, National Association, as the Owner Trustee, the Holders, the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders") and First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (the "Agent"). We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion. Based upon the foregoing, we are of the opinion that: 1. FSB is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America and each of FSB and the Owner Trustee has under the laws of the State of Utah and federal banking law the power and authority to enter into and perform its obligations under the Trust Agreement and each other Operative Agreement to which it is a party. 2. The Owner Trustee is the duly appointed trustee under the Trust Agreement. G-1 109 3. The Trust Agreement has been duly authorized, executed and delivered by one (1) of the officers of FSB and, assuming due authorization, execution and delivery by the Holders, is a legal, valid and binding obligation of the Owner Trustee (and to the extent set forth therein, against FSB), enforceable against the Owner Trustee (and to the extent set forth therein, against FSB) in accordance with its terms, and the Trust Agreement creates under the laws of the State of Utah for the Holders the beneficial interest in the Trust Estate it purports to create and is a valid trust under the laws of the State of Utah. 4. The Operative Agreements to which it is party have been duly authorized, executed and delivered by FSB, and, assuming due authorization, execution and delivery by the other parties thereto, are legal, valid and binding obligations of FSB, enforceable against FSB in accordance with their respective terms. 5. The Operative Agreements to which it is party have been duly authorized, executed and delivered by the Owner Trustee, and, assuming due authorization, execution and delivery by the other parties thereto, are legal, valid and binding obligations of the Owner Trustee, enforceable against the Owner Trustee in accordance with their respective terms. The Notes and Certificates have been duly issued, executed and delivered by the Owner Trustee, pursuant to authorization contained in the Trust Agreement, and the Certificates are entitled to the benefits and security afforded by the Trust Agreement in accordance with its terms and the terms of the Trust Agreement. 6. The execution and delivery by each of FSB and the Owner Trustee of the Trust Agreement and the Operative Agreements to which it is a party, and compliance by FSB or the Owner Trustee, as the case may be, with all of the provisions thereof do not and will not contravene any Laws applicable to or binding on FSB, or as the Owner Trustee, or contravene the provisions of, or constitute a default under, its charter documents or by-laws or, to our knowledge after due inquiry, any indenture, mortgage contract or other agreement or instrument to which FSB or Owner Trustee is a party or by which it or any of its property may be bound or affected. 7. The execution and delivery of the Operative Agreements by each of FSB and the Owner Trustee and the performance by each of FSB and the Owner Trustee of their respective obligations thereunder does not require on or prior to the date hereof the consent or approval of, the giving of notice to, the registration or filing with, or the taking of any action in respect of any Governmental Authority or any court. 8. Assuming that the trust created by the Trust Agreement is treated as a grantor trust for federal income tax purposes within the contemplation of Section 671 through 678 of the Internal Revenue Code of 1986, there are no fees, taxes, or other charges (except taxes imposed on fees payable to the Owner Trustee) payable to the State of Utah or any political subdivision thereof in connection with the execution, delivery or performance by the Owner Trustee, the Agent, the Lenders, the Lessee or the Holders, as the case may be, of the Operative Agreements or in connection with the acquisition of any Property by the Owner Trustee or in connection with the making by any Holder of its investment in the Trust or its acquisition of the beneficial interest G-2 110 in the Trust Estate or in connection with the issuance and acquisition of the Certificates, or the Notes, and neither the Owner Trustee, the Trust Estate nor the trust created by the Trust Agreement will be subject to any fee, tax or other governmental charge (except taxes on fees payable to the Owner Trustee) under the laws of the State of Utah or any political subdivision thereof on, based on or measured by, directly or indirectly, the gross receipts, net income or value of the Trust Estate by reason of the creation or continued existence of the trust under the terms of the Trust Agreement pursuant to the laws of the State of Utah or the Owner Trustee's performance of its duties under the Trust Agreement. 9. There is no fee, tax or other governmental charge under the laws of the State of Utah or any political subdivision thereof in existence on the date hereof on, based on or measured by any payments under the Certificates, Notes or the beneficial interest in the Trust Estate, by reason of the creation of the trust under the Trust Agreement pursuant to the laws of the State of Utah or the Owner Trustee's performance of its duties under the Trust Agreement within the State of Utah. 10. Upon the filing of the financing statement on form UCC-1 in the form attached hereto as Schedule 1 with the Utah Division of Corporation and Commercial Code, the Agent's security interest in the Trust Estate, for the benefit of the Lenders and the Holders, will be perfected, to the extent that such perfection is governed by Article 9 of the Uniform Commercial Code as in effect in the State of Utah (the "Utah UCC"). Your attention is directed to the Utah UCC, which provides, in part, that a filed financing statement which does not state a maturity date or which states a maturity date of more than five (5) years is effective only for a period of five (5) years from the date of filing, unless within six (6) months prior to the expiration of said period a continuation statement is filed in the same office or offices in which the original statement was filed. The continuation statement must be signed by the secured party, identify the original statement by file number and state that the original statement is still effective. Upon the timely filing of a continuation statement, the effectiveness of the original financing statement is continued for five (5) years after the last date to which the original statement was effective. Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the original statement. The foregoing opinions are subject to the following assumptions, exceptions and qualifications: A. We are attorneys admitted to practice in the State of Utah and in rendering the foregoing opinions we have not passed upon, or purported to pass upon, the laws of any jurisdictions other than the State of Utah and the federal banking law governing the banking and trust powers of FSB. In addition, without limiting the foregoing we express no opinion with respect to (i) federal securities laws, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Trust Indenture Act of 1939, as amended, (ii) the Federal Aviation Act of 1958, as amended, (iii) the Federal Communications Act of 1934, as amended, or (iv) state securities or blue sky laws. Insofar as the foregoing opinions relate to the legality, validity, binding effect and enforceability of the documents involved in these transactions, which by their terms are governed by the laws of a state other than Utah, we have G-3 111 assumed that the laws of such state (as to which we express no opinion), are in all material aspects identical to the laws of the State of Utah. B. The opinions set forth in paragraphs 3, 4, and 5 above are subject to the qualification that enforceability of the Trust Agreement and the other Operative Agreements to which FSB and the Owner Trustee are parties, in accordance with their respective terms, may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, receivership or similar laws affecting enforcement of creditors' rights generally, and (ii) general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. C. As to the documents involved in these transactions, we have assumed that each is a legal, valid and binding obligation of each party thereto, other than FSB or the Owner Trustee, and is enforceable against each such party in accordance with their respective terms. D. We have assumed that all signatures, other than those of the Owner Trustee or FSB, on documents and instruments involved in these transactions are genuine, that all documents and instruments submitted to us as originals are authentic, and that all documents and instruments submitted to us as copies conform with the originals, which facts we have not independently verified. E. We do not purport to be experts in respect of, or express any opinion concerning laws, rules or regulations applicable to the particular nature of the equipment or property involved in these transactions. F. We have made no investigation of, and we express no opinion concerning, the nature of the title to any part of the equipment or property involved in these transactions or the priority of any mortgage or security interest. G. We have assumed that the Participation Agreement and the transactions contemplated thereby are not within the prohibitions of Section 406 of the Employee Retirement Income Security Act of 1974. H. In addition to any other limitation by operation of law upon the scope, meaning, or purpose of this opinion, the opinions expressed herein speak only as of the date hereof. We have no obligation to advise the recipients of this opinion (or any third party) and make no undertaking to amend or supplement such opinions if facts come to our attention or changes in the current law of the jurisdictions mentioned herein occur which could affect such opinions the legal analysis, a legal conclusion or any information confirmation herein. I. This opinion is for the sole benefit of the Lessee, the Construction Agent, the Owner Trustee, the Holders, the Lenders, the Agent and their respective successors and assigns in matters directly related to the Participation Agreement or the transaction contemplated thereunder and may not be relied upon by any other person other than such parties and their respective successors and assigns without the express written consent of the undersigned. The G-4 112 opinions expressed in this letter are limited to the matter set forth in this letter, and no other opinions should be inferred beyond the matters expressly stated. Very truly yours, RAY, QUINNEY & NEBEKER M. John Ashton G-5 113 Distribution List First Union National Bank, as the Agent, a Holder and a Lender The various banks and other lending institutions which are parties to the Participation Agreement from time to time, as additional Holders The various banks and other lending institutions which are parties to the Participation Agreement from time to time, as additional Lenders Guilford Pharmaceuticals Inc., as the Construction Agent and the Lessee First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 G-6 114 EXHIBIT H [Outside Counsel Opinion for the Lessee] (Pursuant to Section 5.3(ee) of the Participation Agreement) [ARNOLD & PORTER TO MODIFY TO REFLECT ULTIMATE INCLUSION OF SUBSIDIARIES] ____________, ______ TO THOSE ON THE ATTACHED DISTRIBUTION LIST Re: Synthetic Lease Financing Provided in favor of Guilford Pharmaceuticals Inc. Dear Sirs: We have acted as special counsel to Guilford Pharmaceuticals Inc., a Delaware corporation (the "Lessee") in connection with certain transactions contemplated by the Participation Agreement dated as of February 5, 1998 (the "Participation Agreement"), among the Lessee, First Security Bank, National Association, as the Owner Trustee (the "Owner Trustee"), the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders") and First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (the "Agent"). This opinion is delivered pursuant to Section 5.3(ee) of the Participation Agreement. All capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned thereto in Appendix A to the Participation Agreement. In connection with the foregoing, we have examined originals, or copies certified to our satisfaction, of the Operative Agreements, and such other corporate documents and records of the Lessee, certificates of public officials and representatives of the Lessee as to certain factual matters, and such other instruments and documents which we have deemed necessary or advisable to examine for the purpose of this opinion. With respect to such examination, we have assumed (i) the statements of fact made in all such certificates, documents and instruments are true, accurate and complete; (ii) the due authorization, execution and delivery of the Operative Agreements by the parties thereto other than the Lessee; (iii) the genuineness of all signatures (other than the signatures of persons signing on behalf of the Lessee), the authenticity and completeness of all documents, certificates, instruments, records and corporate records submitted to us as originals and the conformity to the original instruments of all documents submitted to us as copies, and the authenticity and completeness of the originals of such copies; (iv) that all parties other than the Lessee have all requisite corporate power and authority to execute, deliver and perform the Operative Agreements; and (v) the enforceability of the Operative Agreements H-1 115 against all parties thereto other than the Lessee and respecting the opinion set forth below in section (i), First Security Bank, National Association, individually or as the Owner Trustee, as the case may be. We have further assumed that the laws of the States of [STATE OF LAWYER'S ADMISSION] and North Carolina are substantively identical. Based on the foregoing, and having due regard for such legal considerations as we deem relevant, and subject to the limitations and assumptions set forth herein, including without limitation the matters set forth in the last two (2) paragraphs hereof, we are of the opinion that: (a) The Lessee is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has the power and authority to conduct its business as presently conducted and to execute, deliver and perform its obligations under the Operative Agreements to which it is a party. The Lessee is duly qualified to do business in all jurisdictions in which its failure to so qualify would materially impair its ability to perform its obligations under the Operative Agreements to which it is a party or its financial position or its business as now and now proposed to be conducted. (b) The execution, delivery and performance by the Lessee of the Operative Agreements to which it is a party have been duly authorized by all necessary corporate action on the part of the Lessee and the Operative Agreements to which the Lessee is a party have been duly executed and delivered by the Lessee. (c) The Operative Agreements to which the Lessee is a party constitute valid and binding obligations of the Lessee enforceable against the Lessee in accordance with the terms thereof, subject to bankruptcy, insolvency, liquidation, reorganization, fraudulent conveyance, and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (d) The execution and delivery by the Lessee of the Operative Agreements to which it is a party and compliance by the Lessee with all of the provisions thereof do not and will not (i) contravene the provisions of, or result in any breach of or constitute any default under, or result in the creation of any Lien (other than Permitted Liens and Lessor Liens) upon any of its property under, its Articles of Incorporation and By-Laws or any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which the Lessee is a party or by which it or any of its property may be bound or affected, or (ii) contravene any Laws or any order of any Governmental Authority applicable to or binding on the Lessee. (e) No Governmental Action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery or performance by the Lessee of any of the Operative Agreements to which it is a party or for the acquisition, ownership, construction and completion of the Properties, except for those which have been obtained. (f) Except as set forth on Schedule 1 hereto, there are no actions, suits or proceedings pending or to our knowledge, threatened against the Lessee in any court or before any H-2 116 Governmental Authority, that concern the Properties or the Lessee's interest therein or that question the validity or enforceability of any Operative Agreement to which the Lessee is a party or the overall transaction described in the Operative Agreements to which the Lessee is a party. (g) Neither the nature of the Properties, nor any relationship between the Lessee and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Operative Agreements to which the Lessee is a party is such as to require any approval of stockholders of, or approval or consent of any trustee or holders of indebtedness of, the Lessee, except for such approvals and consents which have been duly obtained and are in full force and effect. (h) The Security Documents which have been executed and delivered as of the date of this opinion create, for the benefit of the Agent, the security interests in the Collateral described therein which by their terms such Security Documents purport to create. Upon filing of the UCC-1 financing statements (attached hereto as Schedule 2) relating to the Security Documents in the recording offices of (A) the respective county clerk where the principal place of business of the Lessee is located and (B) the Secretary of State where the principal place of business of the Lessee is located, the Agent will have a valid, perfected lien and security interest in that portion of the Collateral which can be perfected by the filing of UCC-1 financing statements under Article 9 of the UCC in [IDENTIFY THE STATE]. (i) The Operative Agreements to which First Security Bank, National Association, individually or as the Owner Trustee, is a party constitute valid and binding obligations of such party and are enforceable against First Security Bank, National Association, individually or as the Owner Trustee, as the case may be, in accordance with the terms thereof, subject to bankruptcy, insolvency, liquidation, reorganization, fraudulent conveyance, and similar laws affecting creditors, rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (j) The issuance, sale and delivery of the Notes and the issuance and delivery of the Certificates under the circumstances contemplated by the Participation Agreement do not, under existing law, require registration of the Notes or the Certificates being issued on the date hereof under the Securities Act of 1933, as amended, or the qualification of the Loan Agreement under the Trust Indenture Act of 1939, as amended. This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters stated herein. This opinion is based on and is limited to the laws of the States of __________, and the federal laws of the United States of America. Insofar as the foregoing opinion relates to matters of law other than the foregoing, no opinion is hereby given. This opinion is for the sole benefit of the Lessee, the Construction Agent, the Owner Trustee, the Holders, the Lenders, the Agent and their respective successors and assigns and may not be relied upon by any other person other than such parties and their respective successors and assigns without the express written consent of the undersigned. The opinions expressed herein are as of the date hereof and we make no undertaking to amend or supplement such opinions if facts come H-3 117 to our attention or changes in the current law of the jurisdictions mentioned herein occur which could affect such opinions. Very truly yours, [LESSEE'S OUTSIDE COUNSEL] H-4 118 Distribution List First Union National Bank, as the Agent, a Holder and a Lender Guilford Pharmaceuticals Inc., as the Construction Agent and the Lessee The various banks and other lending institutions which are parties to the Participation Agreement from time to time, as additional Holders The various banks and other lending institutions which are parties to the Participation Agreement from time to time, as additional Lenders First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 H-5 119 Schedule 1 (Litigation) H-6 120 Schedule 2 (UCC-1 Financing Statements) H-7 121 EXHIBIT I GUILFORD PHARMACEUTICALS INC. OFFICER'S CERTIFICATE (Pursuant to Section 5.5 of the Participation Agreement) GUILFORD PHARMACEUTICALS INC., a Delaware corporation (the "Company") DOES HEREBY CERTIFY as follows: 1. The address for the subject Property is ______________________________ ________________________________. 2. The Completion Date for the construction of Improvements at the Property occurred on ______________. 3. The aggregate Property Cost for the Property was $___________. 4. Attached hereto as Schedule 1 is the detailed, itemized documentation supporting the asserted Property Cost figures. 5. All representations and warranties of the Company in each Operative Agreement and in each certificate delivered pursuant thereto (including without limitation the Incorporated Representations and Warranties) are true and correct as of the Completion Date. Capitalized terms used in this Officer's Certificate and not otherwise defined have the respective meanings ascribed thereto in the Participation Agreement dated as of February 5, 1998 among the Company, as the Lessee and as the Construction Agent, First Security Bank, National Association, as the Owner Trustee, the various banks and other lending institutions which are parties thereto from time to time, as holders (the "Holders"), the various banks and other lending institutions which are parties thereto from time to time, as lenders (the "Lenders"), First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests. [The remainder of this page has been intentionally left blank.] I-1 122 IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be duly executed and delivered as of this ____ day of ______________, ______. GUILFORD PHARMACEUTICALS INC. By: ----------------------------------- Name: --------------------------------- Title: --------------------------------- I-2 123 Schedule I (Itemized Documentation in Support of Asserted Property Cost) I-3 124 EXHIBIT J [Description of Material Litigation] (Pursuant to Section 6.2(d) of the Participation Agreement) None J-1 125 ------------------------------------------------------------------------------ Appendix A Rules of Usage and Definitions ------------------------------------------------------------------------------ I. Rules of Usage The following rules of usage shall apply to this Appendix A and the Operative Agreements (and each appendix, schedule, exhibit and annex to the foregoing) unless otherwise required by the context or unless otherwise defined therein: (a) Except as otherwise expressly provided, any definitions set forth herein or in any other document shall be equally applicable to the singular and plural forms of the terms defined. (b) Except as otherwise expressly provided, references in any document to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits are references to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits in or to such document. (c) The headings, subheadings and table of contents used in any document are solely for convenience of reference and shall not constitute a part of any such document nor shall they affect the meaning, construction or effect of any provision thereof. (d) References to any Person shall include such Person, its successors, permitted assigns and permitted transferees. (e) Except as otherwise expressly provided, reference to any agreement means such agreement as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof. (f) Except as otherwise expressly provided, references to any law includes any amendment or modification to such law and any rules or regulations issued thereunder or any law enacted in substitution or replacement therefor. (g) When used in any document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. (h) References to "including" means including without limiting the generality of any description preceding such term and for purposes hereof the rule of ejusdem generis shall not be 126 applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned. (i) References herein to "attorney's fees", "legal fees", "costs of counsel" or other such references shall be deemed to include the allocated cost of in-house counsel. (j) Each of the parties to the Operative Agreements and their counsel have reviewed and revised, or requested revisions to, the Operative Agreements, and the usual rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of the Operative Agreements and any amendments or exhibits thereto. (k) Capitalized terms used in any Operative Agreements which are not defined in this Appendix A but are defined in another Operative Agreement shall have the meaning so ascribed to such term in the applicable Operative Agreement. II. Definitions "AAA" shall have the meaning given to such term in Section 12.7(d) of the Participation Agreement. "ABR" shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Lending Rate in effect on such day, and (b) the Federal Funds Effective Rate in effect on such day plus one-half of one percent (0.5%). For purposes hereof: "Prime Lending Rate" shall mean the rate announced by the Agent from time to time as its prime lending rate as in effect from time to time. The Prime Lending Rate is a reference rate and is one of several interest rate bases used by the Agent and does not necessarily represent the lowest or most favorable rate offered by the Agent actually charged to any customer. Any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. The Prime Lending Rate shall change automatically and without notice from time to time as and when the prime lending rate of the Agent changes. "Federal Funds Effective Rate" shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members or the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three (3) Federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Lending Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Lending Rate or the Federal Funds Effective Rate, respectively. "ABR Holder Advance" shall mean a Holder Advance bearing a Holder Yield based on the ABR. Appendix A-2 127 "ABR Loans" shall mean Loans the rate of interest applicable to which is based upon the ABR. "Acceleration" shall have the meaning given to such term in Section 6 of the Credit Agreement. "Accounts" shall have the meaning given to such term in Section 1 of the Security Agreement. "Accumulated Funding Deficiency" shall mean an "accumulated funding deficiency" as defined in Section 302 of ERISA or Section 412(a) of the Code. "Acquisition Advance" shall have the meaning given to such term in Section 5.3 of the Participation Agreement. "Acquisition Loan" shall mean any Loan made in connection with an Acquisition Advance. "Additional Incorporated Terms" shall have the meaning given to such term in Section 28.1 of the Lease. "Advance" shall mean a Construction Advance or an Acquisition Advance. "Affiliate" shall mean, with respect to any Person, any Person or group acting in concert in respect of the Person in question that, directly or indirectly, controls or is controlled by or is under common control with such Person. "After Tax Basis" shall mean, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient calculated at the then maximum marginal rates generally applicable to Persons of the same type as the recipients with respect to the receipt by the recipient of such amounts (less any tax savings realized as a result of the payment of the indemnified amount), such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agency Agreement" shall mean the Agency Agreement, dated on or about the Initial Closing Date between the Construction Agent and the Lessor. "Agency Agreement Event of Default" shall mean any event or condition defined as an "Agency Agreement Event of Default" as defined in Section 5.1 of the Agency Agreement. "Agent" shall mean First Union National Bank, as agent for the Lenders pursuant to the Credit Agreement, or any successor agent appointed in accordance with the terms of the Credit Agreement and respecting the Security Documents, for the Lenders and the Holders, to the extent of their interests. Appendix A-3 128 "Applicable Percentage" shall mean for Eurodollar Loans and Eurodollar Holder Advances, the appropriate applicable percentages as shown below:
===================================================================== APPLICABLE APPLICABLE PERCENTAGE PERCENTAGE APPLICABLE FOR FOR PERCENTAGE FOR EURODOLLAR LOANS EURODOLLAR LOANS EURODOLLAR (TRANCHE A LOANS) (TRANCHE B LOANS) HOLDER ADVANCES - --------------------------------------------------------------------- PRIOR TO THE DATE OF PRIOR TO THE DATE OF PRIOR TO THE DATE OF COMPLETION FOR THE COMPLETION FOR THE COMPLETION FOR THE PROPERTIES: .750% PROPERTIES: .750% PROPERTIES : .750% - --------------------------------------------------------------------- AFTER THE DATE OF AFTER THE DATE OF AFTER THE DATE OF COMPLETION FOR THE COMPLETION FOR THE COMPLETION FOR THE PROPERTIES: .625% PROPERTIES: .625% PROPERTIES : .625% =====================================================================
"Appraisal" shall mean, with respect to any Property, an appraisal to be delivered in connection with the Participation Agreement or in accordance with the terms of the Lease, in each case prepared by a reputable appraiser reasonably acceptable to the Agent, which in the judgment of counsel to the Agent, complies with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Legal Requirements. "Appraisal Procedure" shall have the meaning given such term in Section 22.4 of the Lease. "Approved State" shall mean Maryland. "Appurtenant Rights" shall mean (a) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Land underlying the Improvements or the Improvements, including without limitation the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Land and (b) all permits, licenses and rights, whether or not of record, appurtenant to such Land or the Improvements. "Arbitration Rules" shall have the meaning given to such term in Section 12.7(d) of the Participation Agreement. "Assignment and Acceptance" shall mean the Assignment and Acceptance in the form attached to the Credit Agreement as EXHIBIT B. "Available Commitment" shall mean, as to any Lender at any time, an amount equal to the excess, if any, of (a) the amount of such Lender's Commitment over (b) the aggregate principal amount of all Loans made by such Lender as of such date after giving effect to Section 5.2(d) of the Participation Agreement (but without giving effect to any other repayments or prepayments of any Loans hereunder). Appendix A-4 129 "Available Holder Commitments" shall mean an amount equal to the excess, if any, of (a) the aggregate amount of the Holder Commitments over (b) the aggregate amount of the Holder Advances made since the Initial Closing Date after giving effect to Section 5.2(d) of the Participation Agreement (but without giving effect to any other repayments or prepayments of any Holder Advances). "Bankruptcy Code" shall mean Title 11 of the U. S. Code entitled "Bankruptcy," as now or hereafter in effect or any successor thereto. "Basic Rent" shall mean, the sum of (a) the Loan Basic Rent and (b) the Lessor Basic Rent, calculated as of the applicable date on which Basic Rent is due. "Benefitted Lender" shall have the meaning specified in Section 9.10(a) of the Credit Agreement. "Bill of Sale" shall mean a Bill of Sale regarding Equipment in form and substance satisfactory to the Agent. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrower" shall mean the Owner Trustee, not in its individual capacity but as Borrower under the Credit Agreement. "Borrowing Date" shall mean any Business Day specified in a notice delivered pursuant to Section 2.3 of the Credit Agreement as a date on which the Lessor requests the Lenders to make Loans hereunder. "Budgeted Total Property Cost" shall mean, at any date of determination with respect to any Construction Period Property, an amount equal to the aggregate amount which the Construction Agent in good faith expects to be expended in order to achieve Completion with respect to such Property. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in North Carolina or any other states from which the Agent, any Lender or any Holder funds or engages in administrative activities with respect to the transactions under the Operative Agreements are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease" shall mean, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. Appendix A-5 130 "Capitalized Lease" shall mean, as applied to any Person, any lease of property (whether real, personal, tangible, intangible or mixed of such Person) by such Person as the lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Capital Stock" shall mean any nonredeemable capital stock of the Lessee or any of its Subsidiaries, whether common or preferred. "Cash Collateral" shall mean such cash and cash equivalents constituting part of the Collateral pledged by the Lessee and maintained with the Agent in trust account, all as referenced in the Cash Collateral Agreement. "Cash Collateral Account" shall mean the cash collateral account which is the subject of the Cash Collateral Agreement. "Cash Collateral Agreement" shall mean the Assignment of Cash Collateral Account dated on or about the Initial Closing Date executed by Guilford in favor of the Agent. "Cash Collateral Agreement Event of Default" shall have the meaning specified in Section 3.1 of the Cash Collateral Agreement. "Cash Equivalents" shall mean (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time and demand deposits and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank having capital and surplus in excess of $500,000,000 or (iii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within six months of the date of acquisition and (d) repurchase agreements with a bank or trust company (including any of the Lenders) or securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which the Agent shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations. "Cashflow Coverage Ratio" shall mean, with respect to the Lessee and its Subsidiaries (direct and indirect), on a consolidated basis, as of the end of each fiscal quarter of the Lessee for the four fiscal quarter period ending on such date, the ratio of (a) EBITDAR for the applicable period to (b) the sum of (i) Interest Expense for the applicable period plus (ii) current maturities of Funded Debt Payments for the applicable period plus (iii) Rental Expense for the applicable period Appendix A-6 131 plus (iv) income taxes (determined in accordance with GAAP) payable by the Lessee and/or its Subsidiaries (direct or indirect) on a consolidated basis for the applicable period. "Casualty" shall mean any damage or destruction of all or any portion of the Property as a result of a fire or other casualty. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. "Certificate" shall mean a Certificate in favor of each Holder regarding the Holder Commitment of such Holder issued pursuant to the terms and conditions of the Trust Agreement in favor of each Holder. "Certificate Participant" shall have the meaning specified in Section 10.1 of the Participation Agreement. "Certificate Participation" shall have the meaning specified in Section 10.1 of the Participation Agreement. "Chattel Paper" shall have the meaning given to such term in Section 1 of the Security Agreement. "City of Baltimore Commitment" shall mean the Commitment to Comply with Ordinance 610 - Minority & Women's Business Enterprise Program of the City of Baltimore dated on or about January 26, 1998 executed by the Lessor. "Claims" shall mean any and all obligations, liabilities, losses, actions, suits, penalties, claims, demands, costs and expenses (including without limitation reasonable attorney's fees and expenses) of any nature whatsoever. "Closing Date" shall mean the Initial Closing Date and each Property Closing Date. "Code" shall mean the Internal Revenue Code of 1986 together with rules and regulations promulgated thereunder, as amended from time to time, or any successor statute thereto. "Collateral" shall mean all assets of the Lessor, the Construction Agent and the Lessee, now owned or hereafter acquired, upon which a Lien is purported to be created by one or more of the Security Documents. "Commencement Date" shall have the meaning specified in Section 2.2 of the Lease. "Commitment" shall mean, as to any Lender, the obligation of such Lender to make the portion of the Loans to the Lessor in an aggregate principal amount at any time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 1.1 of the Credit Appendix A-7 132 Agreement, as such amount may be increased or reduced from time to time in accordance with the provisions of the Operative Agreements. "Commitment Percentage" shall mean, as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of all of the Loans then outstanding), and such Commitment Percentage shall take into account both the Lender's Tranche A Commitment and the Lender's Tranche B Commitment. "Commitment Period" shall mean the period from and including the Initial Closing Date to and including sixty (60) days after the Rent Commencement Date or such earlier date as the Commitments shall terminate as provided in the Credit Agreement or the Holder Commitment shall terminate as provided in the Trust Agreement. "Commonly Controlled Entity" shall mean any Subsidiary of the Lessee or any other trade or business (whether or not incorporated) which is under "common control" (as defined in the Code) and of which the Lessee or any of its Subsidiaries is a part. "Completion" shall mean, with respect to a Property, such time as the acquisition, installation, testing and final completion (including without limitation, all punch list items) of the Improvements on such Property has been achieved in accordance with the Plans and Specifications, the Agency Agreement and/or the Lease, and in compliance with all Legal Requirements and Insurance Requirements and a certificate of occupancy has been issued with respect to such Property by the appropriate governmental entity (except if non-compliance, individually or in the aggregate, shall not have and could not reasonably be expected to have a Material Adverse Effect). If the Lessor purchases a Property that includes existing Improvements that are to be immediately occupied by the Lessee, the date of Completion for such Property shall be the Property Closing Date. "Completion Certificate" shall have the meaning specified in Section 5.4B(e) of the Participation Agreement. "Completion Date" shall mean, with respect to a Property, the earlier of (a) the date on which Completion for such Property has occurred or (b) the Construction Period Termination Date. "Condemnation" shall mean any taking or sale of the use, access, occupancy, easement rights or title to any Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including without limitation an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, any Property or alter the pedestrian or vehicular traffic flow to any Property so as to result in a change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. Appendix A-8 133 "Consolidated Subsidiary" shall mean, as to any Person, any Subsidiary of such Person which under the rules of GAAP consistently applied should have its financial results consolidated with those of such Person for purposes of financial accounting statements. "Construction Advance" shall mean an advance of funds to pay Property Costs pursuant to Section 5.4 of the Participation Agreement. "Construction Agent" shall mean Guilford Pharmaceuticals Inc., a Delaware corporation, as the construction agent under the Agency Agreement. "Construction Budget" shall mean the cost of acquisition, installation, testing, constructing and developing any Property as determined by the Construction Agent in its reasonable, good faith judgment. "Construction Commencement Date" shall mean, with respect to Improvements, the date on which construction of such Improvements commences pursuant to the Agency Agreement. "Construction Inspector" shall mean an architectural or engineering firm of the Agent's choice, to be engaged by the Agent at the Lessee's expense, to perform various services on behalf of the Financing Parties including without limitation examination of the Plans and Specifications and changes thereto, examination of cost breakdowns and estimates, periodic inspections on the behalf of the Financing Parties and advising and rendering periodic reports to the Agent concerning the same. "Construction Contract" shall mean any contract entered into between the Construction Agent or the Lessee with a Contractor for the construction of Improvements or any portion thereof on the Property. "Construction Loan" shall mean any Loan made in connection with a Construction Advance. "Construction Loan Property Cost" shall mean with respect to each Construction Period Property at the date of determination, an amount equal to (a) the aggregate principal amount of Construction Loans made on or prior to such date with respect to the Property minus (b) the aggregate principal amount of prepayments or repayments of the Loans allocated to reduce the Construction Loan Property Cost of such Property pursuant to Section 2.6(c) of the Credit Agreement. "Construction Period" shall mean, with respect to a Property, the period commencing on the Construction Commencement Date for such Property and ending on the Completion Date for such Property. "Construction Period Property" means, at any date of determination, any Property as to which the Rent Commencement Date has not occurred on or prior to such date. Appendix A-9 134 "Construction Period Termination Date" shall mean (a) the earlier of (i) the date that the Commitments have been terminated in their entirety in accordance with the terms of Section 2.5(a) of the Credit Agreement, or (ii) the twenty-four (24) month anniversary of the Initial Closing Date or (b) such later date as shall be agreed to by the Majority Secured Parties. "Contractor" shall mean each entity with whom the Construction Agent or the Lessee contracts to construct any Improvements or any portion thereof on the Property. "Controlled Group" shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee, are treated as a single employer under Section 414 of the Code. "Co-Owner Trustee" shall have the meaning specified in Section 9.2 of the Trust Agreement. "Credit Agreement" shall mean the Credit Agreement, dated on or about the Initial Closing Date, among the Lessor, the Agent and the Lenders, as specified therein. "Credit Agreement Default" shall mean any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Credit Agreement Event of Default. "Credit Agreement Event of Default" shall mean any event or condition defined as a "Credit Agreement Event of Default" in Section 6 of the Credit Agreement. "Credit Support Subsidiaries" shall mean GPI Holdings, Inc., GPI Polymer Holdings, Inc. and GPI NIL Holdings, Inc., each a Delaware holding company. "Credit Documents" shall mean the Participation Agreement, the Credit Agreement, the Notes and the Security Documents. "Deed" shall mean a warranty deed regarding the Land and/or Improvements in form and substance satisfactory to the Agent. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Holder" shall have the meaning given to such term in Section 12.4 of the Participation Agreement. "Defaulting Lender" shall have the meaning given to such term in Section 12.4 of the Participation Agreement. "Deficiency Balance" shall have the meaning given in Section 22.1(b) of the Lease Agreement. Appendix A-10 135 "Disputes" shall have the meaning given to such term in Section 12.7(d) of the Participation Agreement. "Documents" shall have the meaning given to such term in Section 1 of the Security Agreement. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "EBITDA" shall mean for any period with respect to the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis, the sum of (a) net income for such period plus (b) depreciation, amortization, income taxes and other non-cash charges for such period, in each case determined in accordance with GAAP applied on a consistent basis. Except as expressly provided otherwise, the applicable period shall be for the four consecutive quarters ending as of the date of determination. "EBITDAR" shall mean, for any period with respect to the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis, the sum of (a) EBITDA for such period plus (b) to the extent deducted in determining EBITDA for such period, Rental Expense for such period. "Election Date" shall have the meaning given to such term in Section 20.1 of the Lease. "Election Notice" shall have the meaning given to such term in Section 20.1 of the Lease. "Employee Benefit Plan" or "Plan" shall mean an employee benefit plan (within the meaning of Section 3(3) of ERISA, including without limitation any Multiemployer Plan), or any "plan" as defined in Section 4975(e)(1) of the Code and as interpreted by the Internal Revenue Service and the Department of Labor in rules, regulations, releases or bulletins in effect on any Closing Date. "Environmental Claims" shall mean any investigation, notice, violation, demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding, or claim (whether administrative, judicial, or private in nature) arising (a) pursuant to, or in connection with, an actual or alleged violation of, any Environmental Law, (b) in connection with any Hazardous Substance, (c) from any abatement, removal, remedial, corrective, or other response action in connection with a Hazardous Substance, Environmental Law, or other order of a Tribunal or (d) from any actual or alleged damage, injury, threat, or harm to health, safety, natural resources, or the environment. "Environmental Laws" shall mean any Law, permit, consent, approval, license, award, or other authorization or requirement of any Tribunal relating to emissions, discharges, releases, threatened releases of any Hazardous Substance into ambient air, surface water, ground water, publicly owned treatment works, septic system, or land, or otherwise relating to the handling, storage, treatment, generation, use, or disposal of Hazardous Substances, pollution or to the Appendix A-11 136 protection of health or the environment, including without limitation CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., and state statutes analogous thereto. "Environmental Report" shall mean each Phase I environmental appraisal and all other reports, letters or recommendations concerning any Property in form and substance reasonably satisfactory to the Agent by any environmental consultant in relation to any Property and any and all supplements thereto. "Environmental Violation" shall mean any activity, occurrence or condition that violates or threatens (if the threat requires remediation under any Environmental Law and is not remediated during any grace period allowed under such Environmental Law) to violate or results in or threatens (if the threat requires remediation under any Environmental Law and is not remediated during any grace period allowed under such Environmental Law) to result in noncompliance with any Environmental Law. "Equipment" shall mean only equipment, apparatus, furnishings, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired using the proceeds of the Loans or the Holder Advances by the Construction Agent, the Lessee or the Lessor and all improvements and modifications thereto and replacements thereof, whether or not now owned or hereafter acquired or now or subsequently attached to, contained in or used or usable in any way in connection with any operation of any Improvements or other improvements to real property, including but without limiting the generality of the foregoing, all equipment described in the Appraisal including without limitation all heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, loading and unloading equipment and systems, cleaning systems (including without limitation window cleaning apparatus), telephones, communication systems (including without limitation satellite dishes and antennae), televisions, computers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description. "Equipment Schedule" shall mean (a) each Equipment Schedule attached to the applicable Requisition and (b) each Equipment Schedule attached to the applicable Lease Supplement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" shall mean each entity required to be aggregated with the Lessee pursuant to the requirements of Section 414(b) or (c) of the Code. "Eurocurrency Reserve Requirements" shall mean for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal) of reserve requirements in effect on such day (including without limitation basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed Appendix A-12 137 on eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D) maintained by a member bank of the Federal Reserve System. "Eurodollar Holder Advance" shall mean a Holder Advance bearing a Holder Yield based on the Eurodollar Rate. "Eurodollar Loans" shall mean Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate" shall mean for the Interest Period for each Eurodollar Loan or Eurodollar Holder Advance comprising part of the same borrowing or advance (including without limitation conversions, extensions and renewals), a per annum interest rate equal to the per annum rate determined by the Agent on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), reported on Telerate page 3750 as of 11:00 a.m. (London time) two (2) Business Days before the first day of such Interest Period. In the event no such offered rates appear on Telerate page 3750, "Eurodollar Rate" shall mean for the Interest Period for each Eurodollar Loan or Eurodollar Holder Advance comprising part of the same borrowing or advance (including without limitation conversions, extensions and renewals), a per annum interest rate equal to the per annum rate determined by the Agent on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), which appear on the Reuters Screen LIBO Page as of 11:00 a.m. (London time) two (2) Business Days before the first day of such Interest Period (provided that if at least two (2) such offered rates appear on the Reuters Screen LIBO Page, the rate in respect of such Interest Period will be the arithmetic mean of such offered rates). As used herein, "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks) ("RMMRS"). In the event the RMMRS is not then quoting such offered rates, "Eurodollar Rate" shall mean for the Interest Period for each Eurodollar Loan or Eurodollar Holder Advance comprising part of the same borrowing or advance (including without limitation conversions, extensions and renewals), the average (rounded upward to the nearest one-sixteenth (1/16) of one percent (1%)) per annum rate of interest determined by the office of the Agent (each such determination to be conclusive and binding) as of two (2) Business Days prior to the first day of such Interest Period, as the effective rate at which deposits in immediately available funds in U.S. dollars are being, have been, or would be offered or quoted by the Agent to major banks in the applicable interbank market for Eurodollar deposits at any time during the Business Day which is the second Business Day immediately preceding the first day of such Interest Period, for a term comparable to such Interest Period and in the amount of the requested Eurodollar Loan and/or Eurodollar Holder Advance. If no such offers or quotes are generally available for such amount, then the Agent shall be entitled to determine the Eurodollar Rate from another recognized service or interbank quotation, or by estimating in its reasonable judgment the per annum rate (as described above) that would be applicable if such quote or offers were generally available. Appendix A-13 138 "Event of Default" shall mean a Lease Event of Default, an Agency Agreement Event of Default, a Pledge Agreement Event of Default, a Cash Collateral Agreement Event of Default or a Credit Agreement Event of Default. "Excepted Payments" shall mean: (a) all indemnity payments (including without limitation indemnity payments made pursuant to Section 11 of the Participation Agreement), whether made by adjustment to Basic Rent or otherwise, to which the Owner Trustee, any Holder or any of their respective Affiliates, agents, officers, directors or employees is entitled; (b) any amounts (other than Basic Rent or Termination Value) payable under any Operative Agreement to reimburse the Owner Trustee, any Holder or any of their respective Affiliates (including without limitation the reasonable expenses of the Owner Trustee, the Trust Company and the Holders incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Agreement; (c) any amount payable to a Holder by any transferee of such interest of a Holder as the purchase price of such Holder's interest in the Trust Estate (or a portion thereof); (d) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies other than such proceeds or payments payable to the Agent or any Lender; (e) any insurance proceeds under policies maintained by the Owner Trustee or any Holder; (f) Transaction Expenses or other amounts, fees, disbursements or expenses paid or payable to or for the benefit of the Owner Trustee or any Holder; (g) all right, title and interest of any Holder or the Owner Trustee to any Property or any portion thereof or any other property to the extent any of the foregoing has been released from the Liens of the Security Documents and the Lease pursuant to the terms thereof; (h) upon termination of the Credit Agreement pursuant to the terms thereof, all remaining property covered by the Lease or Security Documents; (i) all payments in respect of the Holder Yield; (j) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (i) above; and (k) any rights of either the Owner Trustee or the Trust Company to demand, collect, sue for or otherwise receive and enforce payment of any of the foregoing amounts, provided that such rights shall not include the right to terminate the Lease. Appendix A-14 139 "Excess Proceeds" shall mean the excess, if any, of the aggregate of all awards, compensation or insurance proceeds payable in connection with a Casualty or Condemnation over the Termination Value paid by the Lessee pursuant to the Lease with respect to such Casualty or Condemnation. "Exculpated Persons" shall mean the Borrower, the Holders, the Lessor, their officers, directors, shareholders and partners. "Exempt Payments" shall have the meaning specified in Section 11.2(e) of the Participation Agreement. "Expiration Date" shall mean the last day of the Term; provided, in no event shall the Expiration Date be later than the seventh annual anniversary of the Initial Closing Date, unless such later date has been expressly agreed to in writing by each of the Lessor, the Lessee, the Agent, the Lenders and the Holders. "Fair Market Sales Value" shall mean, with respect to any Property, the amount, which in any event, shall not be less than zero (0), that would be paid in cash in an arms-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, such Property. Fair Market Sales Value of any Property shall be determined based on the assumption that, except for purposes of Section 17 of the Lease, such Property is in the condition and state of repair required under Section 10.1 of the Lease and the Lessee is in compliance with the other requirements of the Operative Agreements. "Federal Funds Effective Rate" shall have the meaning given to such term in the definition of ABR. "Financing Party" shall mean the Lessor, the Owner Trustee, in its trust capacity, the Agent, the Holders, the Lenders. "Fixtures" shall mean all fixtures relating to the Improvements, including without limitation all components thereof, located in or on the Improvements, together with all replacements, modifications, alterations and additions thereto. "Force Majeure Event" shall mean any event beyond the control of the Construction Agent, other than a Casualty or Condemnation, including without limitation strikes, lockouts, adverse soil conditions, acts of God, adverse weather conditions, inability to obtain labor or materials, governmental activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's financial condition. "Form 1001" shall have the meaning specified in Section 11.2(e) of the Participation Agreement. Appendix A-15 140 "Form 4224" shall have the meaning specified in Section 11.2(e) of the Participation Agreement. "Funded Debt" shall mean, with respect to any Person, without duplication, all long term Indebtedness of such Person as stated on the balance sheet of such Person, determined in accordance with GAAP. "Funded Debt Payments" shall mean, as of the end of each fiscal quarter of the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis, the sum of all scheduled current maturities of Funded Debt. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the accounting principles board of the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination. "General Contractor" shall mean Riparius Construction, Inc., its successors and permitted assigns or any other general contractor approved by the Agent and with whom the Construction Agent contracts for the renovations of and improvements to any Permitted Facility. "Governmental Action" shall mean all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Legal Requirement, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operating of the Property. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Ground Lease" shall mean a ground lease (in form and substance satisfactory to the Agent) respecting any Property owned by the Lessee (or a parent corporation or any Subsidiary of the Lessee) and leased to the Lessor where such lease (a) has at least a ninety-nine (99) year term and payments set at no more than $1.00 per year, or (b) is subject to such other terms and conditions as are satisfactory to the Agent. "Guaranty" shall mean the Guaranty Agreement dated on or about the Initial Closing Date executed by the Lessee in favor of the Financing Parties. "Guilford" shall mean Guilford Pharmaceuticals Inc., a Delaware corporation, and its successors and permitted assigns. "Guilford Real Estate Trust 1998-1" shall mean the grantor trust created pursuant to the terms and conditions of the Trust Agreement. Appendix A-16 141 "Hard Costs" shall mean all costs and expenses payable for supplies, materials, labor and profit with respect to the Improvements under any Construction Contract. "Hazardous Substance" shall mean any of the following: (a) any petroleum or petroleum product, explosives, radioactive materials, asbestos, formaldehyde, polychlorinated biphenyls, lead and radon gas; (b) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste, or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous to the environment or human health or safety as determined in accordance with any Environmental Law; or (c) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. "Holder Advance" shall mean any advance made by any Holder to the Owner Trustee pursuant to the terms of the Trust Agreement or the Participation Agreement. "Holder Amount" shall mean as of any date, the aggregate amount of Holder Advances made by each Holder to the Trust Estate pursuant to Section 2 of the Participation Agreement and Section 3.1 of the Trust Agreement less any payments of any Holder Advances received by the Holders pursuant to Section 3.4 of the Trust Agreement. "Holder Commitments" shall mean $600,000, as such amount may be increased or reduced from time to time in accordance with the provisions of the Operative Agreements; provided, if there shall be more than one (1) Holder, the Holder Commitment of each Holder shall be as set forth in Schedule I to the Trust Agreement as such Schedule I may be amended and replaced from time to time. "Holder Construction Property Cost" shall mean, with respect to each Construction Period Property, at any date of determination, an amount equal to the outstanding Holder Advances made with respect thereto under the Trust Agreement. "Holder Overdue Rate" shall mean the lesser of (a) the then current rate of Holder Yield respecting the particular amount in question plus two percent (2%) and (b) the highest rate permitted by applicable law. "Holder Property Cost" shall mean with respect to a Property an amount equal to the outstanding Holder Advances with respect thereto. "Holder Yield" shall mean with respect to Holder Advances from time to time either the Eurodollar Rate plus the Applicable Percentage or the ABR as elected by the Owner Trustee from time to time with respect to such Holder Advances in accordance with the terms of the Trust Agreement; provided, however, (a) upon delivery of the notice described in Section 3.7(c) of the Trust Agreement, the outstanding Holder Advances of each Holder shall bear a yield at the Appendix A-17 142 ABR applicable from time to time from and after the dates and during the periods specified in Section 3.7(c) of the Trust Agreement, and (b) upon the delivery by a Holder of the notice described in Section 11.3(f) of the Participation Agreement, the Holder Advances of such Holder shall bear a yield at the ABR applicable from time to time after the dates and during the periods specified in Section 11.3(f) of the Participation Agreement. "Holders" shall mean First Union National Bank and shall include the other banks and financial institutions which may be from time to time holders of Certificates in connection with the Guilford Real Estate Trust 1998-1. "Impositions" shall mean, except to the extent described in the following sentence, any and all liabilities, losses, expenses, costs, charges and Liens of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings ("Taxes") including but not limited to (i) real and personal property taxes, including without limitation personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) excise taxes; (iv) real estate transfer taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, privilege and doing business taxes, license and registration fees; (vi) assessments on any Property, including without limitation all assessments for public Improvements or benefits, whether or not such improvements are commenced or completed within the Term; and (vii) taxes, Liens, assessments or charges asserted, imposed or assessed by the PBGC or any governmental authority succeeding to or performing functions similar to, the PBGC; and in each case all interest, additions to tax and penalties thereon, which at any time prior to, during or with respect to the Term or in respect of any period for which the Lessee shall be obligated to pay Supplemental Rent, may be levied, assessed or imposed by any Governmental Authority upon or with respect to (a) any Property or any part thereof or interest therein; (b) the leasing, financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, activity conducted on, delivery, insuring, use, operation, improvement, sale, transfer of title, return or other disposition of such Property or any part thereof or interest therein; (c) the Notes, other indebtedness with respect to any Property, or the Certificates, or any part thereof or interest therein; (d) the rentals, receipts or earnings arising from any Property or any part thereof or interest therein; (e) the Operative Agreements, the performance thereof, or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to any Property or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract (including the Agency Agreement) relating to the construction, acquisition or delivery of the Improvements or any part thereof or interest therein; (h) the issuance of the Notes or the Certificates; (i) the Owner Trustee, the Trust or the Trust Estate; or (j) otherwise in connection with the transactions contemplated by the Operative Agreements. "Improvements" shall mean, with respect to the construction, renovations and/or Modifications on any Land, all buildings, structures, Fixtures, and other improvements of every kind existing at any time and from time to time on or under the Land purchased, leased or Appendix A-18 143 otherwise acquired using the proceeds of the Loans or the Holder Advances, together with any and all appurtenances to such buildings, structures or improvements, including without limitation sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including without limitation all Modifications and other additions to or changes in the Improvements at any time, including without limitation (a) any Improvements existing as of the Property Closing Date as such Improvements may be referenced on the applicable Requisition and (b) any Improvements made subsequent to such Property Closing Date. "Indebtedness" of a Person shall mean, without duplication, such Person's: (a) obligations for borrowed money; (b) obligations representing the deferred purchase price of Property (whether real, personal, tangible, intangible or mixed) or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade); (c) obligations, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person; (d) obligations which are evidenced by notes, acceptances or other similar instruments; (e) Capitalized Lease obligations; (f) net liabilities under interest rate swap, exchange or cap agreements; and (g) contingent obligations. "Indemnified Person" shall mean the Lessor, the Owner Trustee, in its individual and its trust capacity, the Trust, the Trust Company, the Agent, the Holders, the Lenders and their respective successors, assigns, directors, shareholders, partners, officers, employees, agents and Affiliates. "Indemnity Provider" shall mean, respecting each Property, the Lessee. "Independent Accountant" shall mean an Independent Person registered and qualified to practice the profession of accounting under the laws of the State of Maryland. "Independent Person" shall mean a person designated by the Lessee, approved by the Agent and not an employee of the Lessee or any Subsidiary of the Lessee. "Initial Closing Date" shall mean February 20, 1998. Appendix A-19 144 "Initial Construction Advance" shall mean any initial Advance to pay for: (a) Property Costs for construction of any Improvements; and (b) the Property Costs of restoring or repairing any Property which is required to be restored or repaired in accordance with Section 15.1(e) of the Lease. "Instruments" shall have the meaning given to such term in Section 1 of the Security Agreement. "Insurance Requirements" shall mean all terms and conditions of any insurance policy either required by the Lease to be maintained by the Lessee or required by the Agency Agreement to be maintained by the Construction Agent, and all requirements of the issuer of any such policy and, regarding self insurance, any other requirements of the Lessee. "Interest Expense" shall mean for any period with respect to the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis all interest expense, including the amortization of debt discount and premium and the interest component under Capital Leases, in each case determined in accordance with GAAP applied on a consistent basis. Except as expressly provided otherwise, the applicable period shall be for the four consecutive quarters ending as of the date of determination. "Interest Period" shall mean (a) during the Commitment Period and thereafter as to any Eurodollar Loan or Eurodollar Holder Advance (i) with respect to the initial Interest Period, the period beginning on the date of the first Eurodollar Loan and Eurodollar Holder Advance and ending one (1) month, two (2) months or three (3) months thereafter, as selected by the Lessor (in the case of a Eurodollar Loan) or the Owner Trustee (in the case of a Eurodollar Holder Advance) in its applicable notice given with respect thereto and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan or Eurodollar Holder Advance and ending one (1) month, two (2) months or three (3) months thereafter, as selected by the Lessor by irrevocable notice to the Agent (in the case of a Eurodollar Loan) or by the Owner Trustee (in the case of a Eurodollar Holder Advance) in each case not less than three (3) Business Days prior to the last day of the then current Interest Period with respect thereto; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (B) no Interest Period shall extend beyond the Maturity Date or the Expiration Date, as the case may be, (C) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month, (D) there shall not be more than four (4) Interest Periods outstanding at any one (1) time. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended, together with the rules and regulations promulgated thereunder. Appendix A-20 145 "Land" shall mean a parcel of real property described on (a) the Requisition issued by the Construction Agent on the Property Closing Date relating to such parcel and (b) the schedules to each applicable Lease Supplement executed and delivered in accordance with the requirements of Section 2.4 of the Lease. "Land Disposition Agreement" shall mean the Disposition Agreement dated on or about January 28, 1998 between the Mayor and City Council of Baltimore and the Lessor. "Law" shall mean any statute, law, ordinance, regulation, rule, directive, order, writ, injunction or decree of any Tribunal. "Lease" or "Lease Agreement" shall mean the Lease Agreement dated on or about the Initial Closing Date, between the Lessor and the Lessee, together with any Lease Supplements thereto. "Lease Default" shall mean any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. "Lease Event of Default" shall have the meaning specified in Section 17.1 of the Lease. "Lease Supplement" shall mean each Lease Supplement substantially in the form of EXHIBIT A to the Lease, together with all attachments and schedules thereto. "Legal Requirements" shall mean all foreign, federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Owner Trustee, any Holder, the Lessor, the Lessee, the Agent, any Lender or any Property, Land, Improvement, Equipment or the taxation, demolition, construction, use or alteration of such Improvements, whether now or hereafter enacted and in force, including without limitation any that require repairs, modifications or alterations in or to any Property or in any way limit the use and enjoyment thereof (including without limitation all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 et. seq., and any other similar federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including without limitation all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting any Property or the Appurtenant Rights. "Lender Commitments" shall mean $19,400,000, as such amount may be increased or reduced from time to time in accordance with the provisions of the Operative Agreements; provided, if there shall be more than one (1) Lender, the Lender Commitment of each Lender shall be as set forth in Schedule 1.1 to the Credit Agreement as such Schedule 1.1 may be amended and replaced from time to time. Appendix A-21 146 "Lender Financing Statements" shall mean UCC financing statements and fixture filings appropriately completed and executed for filing in the applicable jurisdiction in order to procure a security interest in favor of the Agent in the Collateral subject to the Security Documents. "Lenders" shall mean First Union National Bank and shall include the other banks and financial institutions which may be from time to time party to the Participation Agreement and the Credit Agreement. "Lessee" shall have the meaning set forth in the Lease. "Lessee Credit Agreement" shall mean that certain Loan and Financing Agreement dated as of December 5, 1994 by and among the Maryland Economic Development Corporation, the Lessee and Signet Bank/Maryland (a predecessor in interest to First Union National Bank), as such may hereafter be amended, modified, supplemented, restated and/or replaced from time to time. "Lessee Credit Agreement Event of Default" shall mean an Event of Default as defined in Section 10.1 of the Lessee Credit Agreement. "Lessee Equipment" shall mean equipment which (a) is personal property or a fixture (but does not otherwise constitute an interest in real property), (b) to the extent such constitutes an interest in real property (other than as a fixture), it shall not be subject to any Lien, (c) is not financed with any Advance, (d) is not a replacement for any Equipment, (e) is not a Modification required by any Legal Requirement or any Insurance Requirement, (f) is not integral to the operation of any Improvements with respect to any Property and (g) may be removed from any Property without causing material damage to such Property which cannot be expeditiously repaired. "Lessor" shall mean the Owner Trustee, not in its individual capacity, but as the Lessor under the Lease. "Lessor Basic Rent" shall mean the scheduled Holder Yield due on the Holder Advances on any Scheduled Interest Payment Date pursuant to the Trust Agreement (but not including interest on (a) any such scheduled Holder Yield due on the Holder Advances prior to the Rent Commencement Date with respect to the Property to which such Holder Advances relate or (b) overdue amounts under the Trust Agreement or otherwise). "Lessor Financing Statements" shall mean UCC financing statements and fixture filings appropriately completed and executed for filing in the applicable jurisdictions in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement or a mortgage. "Lessor Lien" shall mean any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against the Lessor or the Trust Company, in its individual capacity, not resulting from the transactions contemplated by the Operative Agreements, (b) any act or Appendix A-22 147 omission of the Lessor or the Trust Company, in its individual capacity, which is not required by the Operative Agreements or is in violation of any of the terms of the Operative Agreements, (c) any claim against the Lessor or the Trust Company, in its individual capacity, with respect to Taxes or Transaction Expenses against which the Lessee is not required to indemnify the Lessor or the Trust Company, in its individual capacity, pursuant to Section 11 of the Participation Agreement or (d) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in the Properties, the Trust Estate or the Operative Agreements other than the transfer of title to or possession of any Properties by the Lessor pursuant to and in accordance with the Lease, the Credit Agreement, the Security Agreement or the Participation Agreement or pursuant to the exercise of the remedies set forth in Article XVII of the Lease. "Licenses" shall mean any and all licenses, certificates of authority, operating permits, franchises and other licenses, authorizations, certificates, permits or approvals, including without limitation construction permits, now existing or at any time hereafter issued by, or on behalf of, any Governmental Authority with respect to each Permitted Facility, the acquisition and construction of the Permitted Facility or any renovation, expansion, leasing, ownership and/or operation of the Permitted Facility and any and all operating licenses issued by any Governmental Authority, as the same may from time to time be amended, renewed, restated, reissued, restricted, supplemented or otherwise modified. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien, option or charge of any kind. "Limited Obligation Event" shall mean any Casualty, Condemnation or Force Majeure Event occurring prior to the Construction Period Termination Date to the extent (but only to the extent) (a) no such Casualty, Condemnation or Force Majeure Event is caused by any act or omission of the Construction Agent, the Lessee and/or any of their respective Affiliates, (b)(i) with respect to any such Casualty or Condemnation, the proceeds therefrom exceed or are reasonably expected to exceed twenty-five percent (25%) of the aggregate Construction Budget for such Construction Period Property and/or (ii) the Lessor, in its reasonable discretion, shall have determined that any such Casualty or Condemnation is reasonably likely to prevent such Construction Period Property from being completed by the Construction Period Termination Date and (c)(i) any such Force Majeure Event shall have occurred and be continuing for ninety (90) consecutive days or more and/or (ii) the Lessor, in its reasonable discretion, shall have determined that any such Force Majeure Event is reasonably like to prevent such Construction Period Property from being completed by the Construction Period Termination Date. "Limited Recourse Amount" shall mean with respect to all the Properties on an aggregate basis, an amount equal to the sum of the Termination Values with respect to all the Properties on an aggregate basis on each Payment Date, less the Maximum Residual Guarantee Amount as of such date with respect to all the Properties on an aggregate basis. "Loan Basic Rent" shall mean the scheduled repayment of Loan amounts on each date and in the manner as specified in Schedule 1 to the Participation Agreement and interest due on Appendix A-23 148 the Loans on any Scheduled Interest Payment Date pursuant to the Credit Agreement (but not including interest on (a) any such Loan due prior to the Rent Commencement Date with respect to the Property to which such Loan relates or (b) any overdue amounts under Section 2.8(c) of the Credit Agreement or otherwise). "Loan Property Cost" shall mean, with respect to each Property at any date of determination, an amount equal to (a) the aggregate principal amount all Loans (including without limitation all Acquisition Loans and Construction Loans) made on or prior to such date with respect to such Property minus (b) the aggregate amount of prepayments or repayments as the case may be of the Loans allocated to reduce the Loan Property Cost of such Property pursuant to Section 2.6(c) of the Credit Agreement. "Loans" shall mean the loans extended pursuant to the Credit Agreement and shall include both the Tranche A Loans and the Tranche B Loans. "Majority Holders" shall mean at any time, Holders whose Holder Advances outstanding represent at least sixty-six and two thirds percent (66 2/3%) of the aggregate Holder Advances outstanding. "Majority Lenders" shall mean at any time, Lenders whose Loans outstanding represent at least sixty-six and two thirds percent (66 2/3%) of the aggregate Loans outstanding. "Majority Secured Parties" shall mean at any time, Lenders and Holders whose Loans and Holder Advances outstanding represent at least sixty-six and two thirds percent (66 2/3%) of the aggregate Advances outstanding. "Marketing Period" shall mean, if the Lessee has given a Sale Notice in accordance with Section 20.1 of the Lease, the period commencing on the date such Sale Notice is given and ending on the Expiration Date. "Material Adverse Effect" shall, mean a material adverse effect on (a) the business, condition (financial or otherwise), assets, liabilities or operations of the Lessee, (b) the ability of the Lessee to perform its respective obligations under any Operative Agreement to which it is a party, (c) the validity or enforceability of any Operative Agreement or the rights and remedies of the Agent, the Lenders, the Holders, or the Lessor thereunder, (d) the validity, priority or enforceability of any Lien on any Property created by any of the Operative Agreements, or (e) the value, utility or useful life of any Property or the use, or ability of the Lessee to use, any Property for the purpose for which it was intended. "Maturity Date" shall mean the Expiration Date. "Maximum Residual Guarantee Amount" shall mean an amount equal to the product of (a) the aggregate Property Cost for all of Properties times (b)(i) from (and including) the Initial Closing Date to (and including) the date of Completion for the Properties, eighty-nine percent Appendix A-24 149 (89%) and (ii) from (but not including) the date of Completion for the Properties and thereafter, eighty-three percent (83%). "MIDFA Guaranty" shall mean the insurance agreement or any similar document (in each case in form and substance satisfactory to the Agent) securing the obligations of the Construction Agent and the Lessee and/or the Lessor, the Borrower or the Owner Trustee under the Operative Agreements. "Modifications" shall have the meaning specified in Section 11.1(a) of the Lease. "Moody's" shall mean Moody's Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities. "Mortgage Instrument" shall mean any mortgage, deed of trust or any other instrument executed by the Owner Trustee and the Lessee (or regarding any Property subject to a Ground Lease, the applicable Affiliate of the Lessee) in favor of the Agent (for the benefit of the Lenders and the Holders) and evidencing a Lien on the Property, in form and substance reasonably acceptable to the Agent. "Multiemployer Plan" shall mean any plan described in Section 4001(a)(3) of ERISA to which contributions are or have been made or required by the Lessee or any of its Subsidiaries or ERISA Affiliates. "Multiple Employer Plan" shall mean a plan to which the Lessee or any ERISA Affiliate and at least one (1) other employer other than an ERISA Affiliate is making or accruing an obligation to make, or has made or accrued an obligation to make, contributions. "New Facility" shall have the meaning given to such term in Section 28.1 of the Lease. "Notes" shall mean those notes issued to the Lenders pursuant to the Credit Agreement and shall include both the Tranche A Notes and the Tranche B Notes. "Obligations" shall have the meaning given to such term in Section 1 of the Security Agreement. "Officer's Certificate" with respect to any person shall mean a certificate executed on behalf of such person by a Responsible Officer who has made or caused to be made such examination or investigation as is necessary to enable such Responsible Officer to express an informed opinion with respect to the subject matter of such Officer's Certificate. "Operative Agreements" shall mean the following: the Participation Agreement, the Agency Agreement, the Guaranty, the Trust Agreement, the Certificates, the Credit Agreement, the Notes, the Lease, the Lease Supplements (and memoranda of the Lease and each Lease Supplement in a form reasonably acceptable to the Agent), the Security Agreement, the Cash Collateral Agreement, the Pledge Agreement, the MIDFA Guaranty (if any), the other Security Appendix A-25 150 Documents, the Mortgage Instruments, the Ground Leases, the Deeds, the Bills of Sale, the Land Disposition Agreement, the City of Baltimore Commitment and any and all other agreements, documents and instruments executed in connection with any of the foregoing. "Original Executed Counterpart" shall have the meaning given to such term in Section 5 of EXHIBIT A to the Lease. "Overdue Interest" shall mean any interest payable pursuant to Section 2.8(c) of the Credit Agreement. "Overdue Rate" shall mean (a) with respect to the Loan Basic Rent, and any other amount owed under or with respect to the Credit Agreement or the Security Documents, the rate specified in Section 2.8(b) of the Credit Agreement, (b) with respect to the Lessor Basic Rent, the Holder Yield and any other amount owed under or with respect to the Trust Agreement, the Holder Overdue Rate, and (c) with respect to any other amount, the amount referred to in clause (y) of Section 2.8(b) of the Credit Agreement. "Owner Trustee," "Borrower" or "Lessor" shall mean First Security Bank, National Association, not individually, except as expressly stated in the various Operative Agreements, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, and any successor or replacement Owner Trustee expressly permitted under the Operative Agreements. "Participant" shall have the meaning given to such term in Section 9.7 of the Credit Agreement. "Participation Agreement" shall mean the Participation Agreement dated on or about the Initial Closing Date, among the Lessee, the Owner Trustee, not in its individual capacity except as expressly stated therein, the Holders, the Lenders and the Agent. "Payment Date" shall mean any date on which the amounts set forth in Schedule 1 to the Participation Agreement are scheduled to be paid, any Scheduled Interest Payment Date and any date on which interest or Holder Yield in connection with a prepayment of principal on the Loans or of the Holder Advances is due under the Credit Agreement or the Trust Agreement. "PBGC" shall mean the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA or any successor thereto. "Pension Plan" shall mean a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than a Multiemployer Plan), and to which the Lessee or any ERISA Affiliate may have any liability, including without limitation any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five (5) years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. Appendix A-26 151 "Permitted Facility" shall mean a laboratory and any ancillary office and/or manufacturing facility of the type and size customarily used and operated by the Lessee in its ordinary course of business as of the Initial Closing Date. "Permitted Liens" shall mean: (a) the respective rights and interests of the parties to the Operative Agreements as provided in the Operative Agreements; (b) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease for no longer than the duration of the Lease; (c) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 13.1 of the Lease; (d) Liens arising by operation of law, materialmen's, mechanics', workmen's, repairmen's, employees', carriers', warehousemen's and other like Liens relating to the construction of the Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than thirty (30) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 13.1 of the Lease; (e) Liens of any of the types referred to in clause (d) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor and the Agent have been made), which bonding (or arrangements) shall comply with applicable Legal Requirements, and shall have effectively stayed any execution or enforcement of such Liens; (f) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 13.1 of the Lease; and (g) Liens in favor of municipalities to the extent agreed to by the Lessor. "Permitted Subsidiary Activity" shall mean (a) with respect to GPI Holdings, Inc., (i) owning and maintaining intangible assets, including but not limited to, stocks, bonds, and other financial instruments and securities and collecting and disbursing income from such investments; (ii) engaging financial advisors and hiring employees to oversee investment activities; (iii) engaging service providers, including attorneys and accountants; (iv) performing all obligations under existing agreements to which it is a party as of the Initial Closing Date; and (v) any other act or activity incidental to and in support of the foregoing, including transfer of funds or other Appendix A-27 152 assets through dividends to Lessee or by way of intercompany loans or advances to Lessee or its Subsidiaries (direct or indirect), and (b) with respect to GPI Polymer Holdings, Inc. and GPI NIL Holdings, Inc., (i) owning and maintaining intangible assets, including but not limited to, stocks, bonds, and other financial instruments and securities and collecting and disbursing income from such investments; (ii) engaging financial advisors and hiring employees to oversee investment activities; (iii) engaging service providers, including attorneys and accountants; (iv) acquiring, owning (through fee simple ownership as well as licenses and assignments), and maintaining intellectual property, including patents, tradenames, trademarks, technology, trade secrets, and know-how (collectively, "IP"); (v) engaging third parties (including Guilford Pharmaceuticals Inc.) to perform research and development of IP; (vi) licensing and sublicensing IP; (vii) developing (including manufacturing of) products through contracts with third parties (including Guilford Pharmaceuticals Inc.) utilizing the IP and commercializing such products; (viii) acquiring additional IP; (ix) engaging advisors and hiring employees to oversee IP activities; (x) performing all obligations under existing agreements to which it is a party as of the Initial Closing Date; (xi) registering IP on a worldwide basis; and (xii) any other act or activity incidental to and in support of the foregoing, including transfer of funds or other assets through dividends to GPI Holdings, Inc. or by way of intercompany loans or advances to Lessee or its Subsidiaries (direct or indirect). "Person" shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, governmental authority or any other entity. "Plan" shall mean any pension, profit sharing, savings, stock bonus or other deferred compensation plan which is subject to the requirements of ERISA, together with any related trusts. "Plans and Specifications" shall mean, with respect to Improvements, the plans and specifications for such Improvements to be constructed or already existing, as such Plans and Specifications may be amended, modified or supplemented from time to time in accordance with the terms of the Operative Agreements. "Pledge Agreement" shall mean (a) the Pledge Agreement dated on or about the Initial Closing Date between the Lessee and the Agent and (b) the stock powers requested by the Agent to be executed in connection therewith. "Pledge Agreement Event of Default" shall mean any event or condition defined in Section 8 of the Pledge Agreement as a "Pledge Agreement Event of Default". "Prime Lending Rate" shall have the meaning given to such term in the definition of ABR. "Prior Deed of Trust" shall mean the Leasehold Deed of Trust dated as of December 5, 1994 between the Lessee, the trustees referenced therein, conveying to Signet Bank of Maryland (a predecessor in interest to First Union National Bank) and the Maryland Economic Appendix A-28 153 Development Corporation, collectively as the beneficiary, as such is recorded in the City of Baltimore, Maryland Registry. "Prior Land" shall mean the 7.487 acre (approximately) tract of land located at 6611 Tributary Street in Baltimore City, Maryland, as more particularly described in Exhibit A attached to the Prior Deed of Trust and made a part thereof, and by this reference a part hereof, together with any and all improvements thereon. "Prior Lease" shall mean the Lease Agreement dated August 30, 1994 between the Lessee as lessee and the Prior Owner as lessor, creating the Lessee's leasehold estate in the Prior Land and the improvements, together with all supplements thereto. "Prior Owner" shall mean Crown Royal Limited Partnership, a Maryland limited partnership, the fee owner of the Prior Land and the improvements, and lessor pursuant to the Prior Lease. "Proceeds" or "proceeds" shall mean, when used with respect to any of the Security, all proceeds within the meaning of the Maryland Uniform Commercial Code and shall include the proceeds of any and all insurance policies. "Prohibited Transaction" shall mean a "prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of the Code. "Property" shall mean, with respect to each Permitted Facility that is (or is to be) acquired, constructed and/or renovated pursuant to the terms of the Operative Agreements, the Land and each item of Equipment and the various Improvements, in each case located on such Land, including without limitation each Construction Period Property, each Property subject to a Ground Lease and each Property for which the Term has commenced. "Property Acquisition Cost" shall mean the cost to the Lessor to purchase a Property on a Property Closing Date. "Property Closing Date" shall mean the date on which the Lessor purchases a Property or, with respect to the first Advance, the date on which the Lessor seeks reimbursement for Property previously purchased by the Lessor. "Property Cost" shall mean with respect to a Property the aggregate amount (and/or the various items and occurrences giving rise to such amounts) of the Loan Property Cost plus the Holder Property Cost for such Property (as such amounts shall be increased equally among all Properties respecting the Holder Advances and the Loans extended from time to time to pay for the Transaction Expenses, fees, expenses and other disbursements referenced in Sections 7.1(a) and 7.1(b) of the Participation Agreement). "Purchase Option" shall have the meaning given to such term in Section 20.1 of the Lease. Appendix A-29 154 "Purchasing Lender" shall have the meaning given to such term in Section 9.8(a) of the Credit Agreement. "Register" shall have the meaning given to such term in Section 9.9(a) of the Credit Agreement. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Release" shall mean any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance. "Rent" shall mean, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Lease. "Rent Commencement Date" shall mean, regarding each Property, the earlier to occur of the Construction Period Termination Date and the Completion Date. "Rental Expense" shall mean, for any period, the total rental expense under all leases (other than Capital Leases) of the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis, as determined in accordance with GAAP. "Reportable Event" shall mean a "reportable event" as defined by Title IV of ERISA. "Reportable Event" shall have the meaning specified in ERISA. "Requested Funds" shall mean any funds requested by the Lessee or the Construction Agent, as applicable, in accordance with Section 5 of the Participation Agreement. "Requisition" shall have the meaning specified in Section 4.2 of the Participation Agreement. "Responsible Officer" shall mean the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer, except that when used with respect to the Trust Company or the Owner Trustee, "Responsible Officer" shall also include the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Trust Company or the Owner Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust Appendix A-30 155 matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Retainage" shall have the meaning specified in Section 5.4A(d) of the Participation Agreement. "RPR Agreement" shall have the meaning specified in Section 8.3B(a) of the Participation Agreement. "S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Sale Date" shall have the meaning given to such term in Section 20.3(a) of the Lease. "Sale Notice" shall mean a notice given to the Lessor in connection with the election by the Lessee of its Sale Option. "Sale Option" shall have the meaning given to such term in Section 20.1 of the Lease. "Sale Proceeds Shortfall" shall mean the amount by which the proceeds of a sale described in Section 22.1 of the Lease are less than the Limited Recourse Amount with respect to the Properties if it has been determined that the Fair Market Sales Value of the Properties at the expiration of the term of the Lease has been impaired by greater than expected wear and tear during the Term of the Lease. "Scheduled Interest Payment Date" shall mean (a) as to any Eurodollar Loan or Eurodollar Holder Advance, the last day of the Interest Period applicable to such Eurodollar Loan or Eurodollar Holder Advance, (b) as to any ABR Loan or any ABR Holder Advance, the fifteenth day of each month and (c) as to all Loans and Holder Advances, the date of any voluntary or involuntary payment, prepayment, return or redemption, and the Maturity Date or the Expiration Date, as the case may be. "SEC" shall have the meaning specified for such term in Section 8.3A(a)(i) of the Lease. "Secured Parties" shall have the meaning given to such term in the Security Agreement. "Securities Act" shall mean the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "Security" shall mean all of the security for the Lessee's and/or the Owner Trustee's obligations under the Operative Agreements, in the Operative Agreements, together with all proceeds thereof and additions thereto. "Security Agreement" shall mean the Security Agreement dated on or about the Initial Closing Date between the Lessor and the Agent, for the benefit of the Secured Parties. Appendix A-31 156 "Security Documents" shall mean the collective reference to the Security Agreement, the Cash Collateral Agreement, the Pledge Agreement, the MIDFA Guaranty (if any), the Guaranty, the Mortgage Instruments, (to the extent the Lease is construed as a security instrument) the Lease and all other security documents hereafter delivered to the Agent granting a lien on any asset or assets of any Person to secure the obligations and liabilities of the Lessor under the Credit Agreement and/or under any of the other Credit Documents or to secure any guarantee of any such obligations and liabilities. "Soft Costs" shall mean all costs which are ordinarily and reasonably incurred in relation to the acquisition, development, installation, design, construction, improvement and testing of the Properties other than Hard Costs, including without limitation structuring fees, administrative fees, legal fees, upfront fees, fees and expenses related to appraisals, title examinations, title insurance, document recordation, surveys, environmental site assessments, geotechnical soil investigations and similar costs and professional fees customarily associated with a real estate closing, the Lender Unused Fee, the Holder Unused Fee, fees and expenses of the Owner Trustee payable or reimbursable under the Operative Agreements and costs and expenses incurred pursuant to Sections 7.3(a) and 7.3(b) of the Participation Agreement. "Subsidiary" shall mean, as to any Person, any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person, or by one (1) or more Subsidiaries, or by such Person and one (1) or more Subsidiaries. "Supplemental Amounts" shall have the meaning given to such term in Section 9.18 of the Credit Agreement. "Supplemental Rent" shall mean all amounts, liabilities and obligations (other than Basic Rent) which the Lessee assumes or agrees to pay to the Lessor, the Trust Company, the Holders, the Agent, the Lenders or any other Person under the Lease or under any of the other Operative Agreements including without limitation payments of the Termination Value and the Maximum Residual Guarantee Amount and all indemnification amounts, liabilities and obligations. "Tangible Net Worth" shall mean the total assets of the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis exclusive of goodwill, trademarks, licenses and such other assets as are classified as intangible assets (including without limitation any and all loans (whether or not permitted) referenced in Section 8.3B(c)(iv) and any and all loans, advances or investments (whether or not permitted) referenced in Section 8.3B(d) in accordance with GAAP less total liabilities of the Lessee and its Subsidiaries (direct and indirect) on a consolidated basis. "Taxes" shall have the meaning specified in the definition of "Impositions". "Term" shall have the meaning specified in Section 2.2 of the Lease. Appendix A-32 157 "Termination Date" shall have the meaning specified in Section 16.2(a) of the Lease. "Termination Event" shall mean (a) with respect to any Pension Plan, the occurrence of a Reportable Event or an event described in Section 4062(e) of ERISA, (b) the withdrawal of the Lessee or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan, (c) the distribution of a notice of intent to terminate a Plan or Multiemployer Plan pursuant to Section 4041(a)(2) or 4041A of ERISA, (d) the institution of proceedings to terminate a Plan or Multiemployer Plan by the PBGC under Section 4042 of ERISA, (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan, or (f) the complete or partial withdrawal of the Lessee or any ERISA Affiliate from a Multiemployer Plan. "Termination Notice" shall have the meaning specified in Section 16.1 of the Lease. "Termination Value" shall mean the sum of (a) either (i) with respect to all Properties, an amount equal to the aggregate outstanding Property Cost for all the Properties, in each case as of the last occurring Payment Date, or (ii) with respect to a particular Property, an amount equal to the product of the Termination Value of all the Properties times a fraction, the numerator of which is the Property Cost allocable to the particular Property in question and the denominator of which is the aggregate Property Cost for all the Properties, in each case as of the last occurring Payment Date, plus (b) respecting the amounts described in each of the foregoing subclause (i) or (ii), as applicable, any and all accrued but unpaid interest on the Loans and any and all Holder Yield on the Holder Advances related to the applicable Property Cost, plus (c) to the extent the same is not duplicative of the amounts payable under clause (b) above, all other Rent and other amounts then due and payable or accrued under the Agency Agreement, Lease and/or under any other Operative Agreement (including without limitation amounts under Sections 11.1 and 11.2 of the Participation Agreement and all costs and expenses referred to in clause FIRST of Section 22.2 of the Lease). "Tranche A Commitments" shall mean the obligation of the Tranche A Lenders to make the Tranche A Loans to the Lessor in an aggregate principal amount at any one (1) time outstanding not to exceed the aggregate of the amounts set forth opposite each Tranche A Lender's name on Schedule 1.1 to the Credit Agreement, as such amount may be reduced from time to time in accordance with the provisions of the Operative Agreements; provided, no Tranche A Lender shall be obligated to make Tranche A Loans in excess of such Tranche A Lender's share of the Tranche A Commitments as set forth adjacent to such Tranche A Lender's name on Schedule 1.1 to Credit Agreement. "Tranche A Lenders" shall mean First Union National Bank and shall include the several banks and other financial institutions from time to time party to the Credit Agreement that commit to make the Tranche A Loans. Appendix A-33 158 "Tranche A Loans" shall mean the Loans made pursuant to the Tranche A Commitment. "Tranche A Note" shall have the meaning given to it in Section 2.2 of the Credit Agreement. "Tranche B Commitments" shall mean the obligation of the Tranche B Lenders to make the Tranche B Loans to the Lessor in an aggregate principal amount at any one (1) time outstanding not to exceed the aggregate of the amounts set forth opposite each Tranche B Lender's name on Schedule 1.1 to the Credit Agreement, as such amount may be reduced from time to time in accordance with the provisions of the Operative Agreements; provided, no Tranche B Lender shall be obligated to make Tranche B Loans in excess of such Tranche B Lender's share of the Tranche B Commitments as set forth adjacent to such Tranche B Lender's name on Schedule 1.1 to Credit Agreement. "Tranche B Lenders" shall mean First Union National Bank and shall include the several banks and other financial institutions from time to time party to the Credit Agreement that commit to make the Tranche B Loans. "Tranche B Loan" shall mean the Loans made pursuant to the Tranche B Commitment. "Tranche B Note" shall have the meaning given to it in Section 2.2 of the Credit Agreement. "Transaction Expenses" shall mean all Soft Costs and all other costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Agreements and the transactions contemplated by the Operative Agreements including without limitation all costs and expenses described in Section 7.1 of the Participation Agreement and the following: (a) the reasonable fees, out-of-pocket expenses and disbursements of counsel in negotiating the terms of the Operative Agreements and the other transaction documents, preparing for the closings under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Agreements; (b) the reasonable fees, out-of-pocket expenses and disbursements of accountants for the Lessee or the Construction Agent in connection with the transaction contemplated by the Operative Agreements; (c) any and all other reasonable fees, charges or other amounts payable to the Lenders, the Agent, the Holders, the Owner Trustee or any broker which arises under any of the Operative Agreements; (d) any other reasonable fee, out-of-pocket expenses, disbursement or cost of any party to the Operative Agreements or any of the other transaction documents; Appendix A-34 159 (e) any and all Taxes and fees incurred in recording or filing any Operative Agreement or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Agreement; and (f) the reasonable fees, out-of-pocket expenses and disbursements of the Construction Inspector in connection with the transactions contemplated by the Operative Agreements. "Tribunal" shall mean any state, commonwealth, federal, foreign, territorial, or other court or government body, subdivision agency, department, commission, board, bureau or instrumentality of a governmental body. "Trust" shall mean the Guilford Real Estate Trust 1998-1. "Trust Agreement" shall mean the Amended and Restated Trust Agreement dated on or about the Initial Closing Date between the Holders and the Owner Trustee. "Trust Company" shall mean First Security Bank, National Association, in its individual capacity, and any successor owner trustee under the Trust Agreement in its individual capacity. "Trust Estate" shall have the meaning specified in Section 2.2 of the Trust Agreement. "Trust Property" shall have the meaning specified in Section 2 of the Security Agreement. "Type" shall mean, as to any Loan, whether it is an ABR Loan or a Eurodollar Loan. "UCC Financing Statements" shall mean collectively the Lender Financing Statements and the Lessor Financing Statements. "Unanimous Vote Matters" shall have the meaning given it in Section 12.4 of the Participation Agreement. "Unfunded Amount" shall have the meaning specified in Section 3.2 of the Agency Agreement. "Unfunded Liability" shall mean, with respect to any Plan, at any time, the amount (if any) by which (a) the present value of all benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Company or any member of the Controlled Group to the PBGC or such Plan under Title IV of ERISA. Appendix A-35 160 "Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial Code as in effect in any applicable jurisdiction. "United States Bankruptcy Code" shall mean Title 11 of the United States Code. "U.S. Person" shall have the meaning specified in Section 11.2(e) of the Participation Agreement. "U.S. Taxes" shall have the meaning specified in Section 11.2(e) of the Participation Agreement. "Withholdings" shall have the meaning specified in Section 11.2(e) of the Participation Agreement. "Work" shall mean the furnishing of labor, materials, components, furniture, furnishings, fixtures, appliances, machinery, equipment, tools, power, water, fuel, lubricants, supplies, goods and/or services with respect to any Property. Appendix A-36 EX-10.49 10 LEASE AGREEMENT, DATED AS OF FEBRUARY 5, 1998 1 EXHIBIT 10.49 LEASE AGREEMENT Dated as of February 5, 1998 between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, as Lessor and GUILFORD PHARMACEUTICALS INC., as Lessee - ------------------------------------------------------------------------------ This Lease Agreement is subject to a security interest in favor of First Union National Bank, as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (the "Agent") under a Security Agreement dated as of February 5, 1998, between First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 and the Agent, as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof. This Lease Agreement has been executed in several counterparts. To the extent, if any, that this Lease Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in this Lease Agreement may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by the Agent on the signature page hereof. 2 TABLE OF CONTENTS ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Lease Supplements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.1 Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Payment of Basic Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Supplemental Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Performance on a Non-Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.5 Rent Payment Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1 Taxes; Utility Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.1 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.1 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.2 No Termination or Abatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.1 Ownership of the Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8.1 Condition of the Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8.2 Possession and Use of the Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8.3 Integrated Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9.1 Compliance With Legal Requirements, Insurance Requirements and Manufacturer's Specifications and Standards . . . . . . . . . . . . . . 10 ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.1 Maintenance and Repair; Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.2 Environmental Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 11.1 Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 12.1 Warranty of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 13.1 Permitted Contests Other Than in Respect of Indemnities. . . . . . . . . . . . . . . . . . . 14 13.2 Impositions, Utility Charges, Other Matters; Compliance with Legal . . . . . . . . . . . . . 14 Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14.1 Public Liability and Workers' Compensation Insurance. . . . . . . . . . . . . . . . . . . . . 15
i 3 14.2 Permanent Hazard and Other Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14.3 Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15.1 Casualty and Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15.2 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 15.3 Notice of Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 16.1 Termination Upon Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 16.2 Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 17.1 Lease Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 17.2 Surrender of Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 17.3 Reletting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 17.4 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 17.5 Power of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.6 Final Liquidated Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.7 Environmental Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.8 Waiver of Certain Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.9 Assignment of Rights Under Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.10 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE XVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 18.1 Lessor's Right to Cure Lessee's Lease Defaults. . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 19.1 Provisions Relating to Lessee's Exercise of its Purchase Option. . . . . . . . . . . . . . . 27 19.2 No Purchase or Termination With Respect to Less than All of a Property. . . . . . . . . . . . 27 ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 20.1 Purchase Option or Sale Option-General Provisions. . . . . . . . . . . . . . . . . . . . . . 28 20.2 Lessee Purchase Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 20.3 Third Party Sale Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 21.1 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 22.1 Sale Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 22.2 Application of Proceeds of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 22.3 Indemnity for Excessive Wear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 22.4 Appraisal Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 22.5 Certain Obligations Continue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE XXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 23.1 Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 24.1 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 25.1 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 25.2 Subleases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ii 4 26.1 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE XXVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 27.1 Acceptance of Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 27.2 No Merger of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 28.1 (intentionally omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 29.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.2 Amendments and Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.4 Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 30.7 Calculation of Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 30.8 Memoranda of Lease and Lease Supplements. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 30.9 Allocations between the Lenders and the Holders. . . . . . . . . . . . . . . . . . . . . . . 38 30.10 Limitations on Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 30.11 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 30.12 Exercise of Lessor Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 30.13 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . 39 30.14 USURY SAVINGS PROVISION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
EXHIBITS EXHIBIT A - Lease Supplement No. ____ EXHIBIT B - Memorandum of Lease and Lease Supplement No. ____ iii 5 LEASE AGREEMENT THIS LEASE AGREEMENT dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, this "Lease") is between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, having its principal office at 79 South Main Street, Salt Lake City, Utah 84111, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, as lessor (the "Lessor"), and GUILFORD PHARMACEUTICALS INC., a Delaware corporation, having its principal place of business at 6611 Tributary Street, Baltimore, Maryland 21224, as lessee (the "Lessee"). W I T N E S S E T H: A. WHEREAS, subject to the terms and conditions of the Participation Agreement and the Agency Agreement, Lessor will (i) purchase or ground lease various parcels of real property, some of which will (or may) have existing Improvements thereon, from one (1) or more third parties designated by Lessee and (ii) fund the acquisition, installation, testing, use, development, construction, operation, maintenance, repair, refurbishment and restoration of the Properties by the Construction Agent; and B. WHEREAS, the Term shall commence with respect to each Property upon the Property Closing Date with respect thereto; provided, Basic Rent with respect thereto shall not be payable until the applicable Rent Commencement Date; and C. WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor, each Property; NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I 1.1 DEFINITIONS. For purposes of this Lease, capitalized terms used in this Lease and not otherwise defined herein shall have the meanings assigned to them in Appendix A to that certain Participation Agreement dated as of February 5, 1998 (as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among Lessee, Lessor, the various banks and other lending institutions which are parties thereto from time to time, as the Holders, the various banks and other lending institutions which are parties thereto from time to time, as the Lenders, and First Union National Bank, as agent for the Lenders and respecting the Security Documents, 1 6 as the agent for the Lenders and the Holders, to the extent of their interests. Unless otherwise indicated, references in this Lease to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Lease. 1.2 INTERPRETATION. The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Lease. ARTICLE II 2.1 PROPERTY. Subject to the terms and conditions hereinafter set forth and contained in the respective Lease Supplement relating to each Property, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor, each Property. 2.2 LEASE TERM. The term of this Lease with respect to each Property (the "Term") shall begin upon the Property Closing Date for such Property (in each case the "Commencement Date") and shall end on the seventh annual anniversary of the Initial Closing Date, unless the Term is earlier terminated. Notwithstanding the foregoing, Lessee shall not be obligated to pay Basic Rent until the Rent Commencement Date with respect to such Property. 2.3 TITLE. Each Property is leased to Lessee without any representation or warranty, express or implied, by Lessor and subject to the rights of parties in possession (if any), the existing state of title (including without limitation the Permitted Liens) and all applicable Legal Requirements. Lessee shall in no event have any recourse against Lessor for any defect in Lessor's title to any Property or any interest of Lessee therein other than for Lessor Liens. 2.4 LEASE SUPPLEMENTS. On or prior to each Commencement Date, Lessee and Lessor shall each execute and deliver a Lease Supplement for the Property to be leased effective as of such Commencement Date in substantially the form of EXHIBIT A hereto. 2 7 ARTICLE III 3.1 RENT. (a) Lessee shall pay Basic Rent in arrears on each Payment Date, and on any date on which this Lease shall terminate with respect to any or all Properties during the Term; provided, however, with respect to each individual Property Lessee shall have no obligation to pay Basic Rent with respect to such Property until the Rent Commencement Date with respect to such Property (notwithstanding that Basic Rent for such Property shall accrue from and including the Scheduled Interest Payment Date immediately preceding such Rent Commencement Date). (b) Basic Rent shall be due and payable in lawful money of the United States and shall be paid by wire transfer of immediately available funds on the due date therefor (or within the applicable grace period) to such account or accounts at such bank or banks as Lessor shall from time to time direct. (c) Lessee's inability or failure to take possession of all or any portion of any Property when delivered by Lessor, whether or not attributable to any act or omission of Lessor, the Construction Agent, Lessee or any other Person or for any other reason whatsoever, shall not delay or otherwise affect Lessee's obligation to pay Rent for such Property in accordance with the terms of this Lease. (d) Lessee shall make all payments of Rent prior to 12:00 Noon, Charlotte, North Carolina time, on the applicable date for payment of such amount. 3.2 PAYMENT OF BASIC RENT. Basic Rent shall be paid absolutely net to Lessor or its designee, so that this Lease shall yield to Lessor the full amount thereof, without setoff, deduction or reduction. 3.3 SUPPLEMENTAL RENT. Lessee shall pay to the Person entitled thereto any and all Supplemental Rent when and as the same shall become due and payable, and if Lessee fails to pay any Supplemental Rent within three (3) days after the same is due, Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Basic Rent. The Lessee shall have the option without penalty to pay additional Supplemental Rent to prepay the Notes in whole or in part (consistent with Section 9.1(c) of the Participation Agreement and Section 2.6 of the Credit Agreement) and to prepay the Holder Advances in whole or in part (consistent with Section 9.2(a) of the Participation Agreement and Section 3.4 of the Trust Agreement). All such payments of Supplemental Rent shall be in the full amount thereof, without setoff, deduction or reduction. Lessee shall pay to the appropriate Person, as Supplemental Rent due and owing to such Person, among other things, on demand, to the extent permitted by applicable Legal Requirements, (a) any and all payment obligations (except for 3 8 amounts payable as Basic Rent) owing from time to time under the Operative Agreements by any Person to the Agent, any Lender, any Holder or any other Person and (b) interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due (subject to the applicable grace period) for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the appropriate Person (subject to any applicable grace period) for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. It shall be an additional Supplemental Rent obligation of Lessee to pay to the appropriate Person all rent and other amounts when such become due and owing from time to time under each Ground Lease and without the necessity of any notice from Lessor with regard thereto. The expiration or other termination of Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the obligations of Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Lease, in the event of any failure on the part of Lessee to pay and discharge any Supplemental Rent as and when due, Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. 3.4 PERFORMANCE ON A NON-BUSINESS DAY. If any Basic Rent is required hereunder on a day that is not a Business Day, then such Basic Rent shall be due on the corresponding Scheduled Interest Payment Date. If any Supplemental Rent is required hereunder on a day that is not a Business Day, then such Supplemental Rent shall be due on the next succeeding Business Day. 3.5 RENT PAYMENT PROVISIONS. Lessee shall make payment of all Basic Rent and Supplemental Rent when due (subject to the applicable grace periods) regardless of whether any of the provisions of the Operative Agreements pursuant to which same is calculated and is owing shall have been rejected, avoided or disavowed in any bankruptcy or insolvency proceeding involving any of the parties to any of the Operative Agreements. Such provisions of such Operative Agreements and their related definitions are incorporated herein by reference and shall survive any termination, amendment or rejection of any such Operative Agreements. ARTICLE IV 4.1 TAXES; UTILITY CHARGES. Lessee shall pay or cause to be paid all Impositions with respect to the Properties and/or the use, occupancy, operation, repair, access, maintenance or operation thereof and all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents, utilities and operating expenses of any kind or type used in or on any Property and related real property during the Term. Upon Lessor's request, Lessee shall provide from time to time Lessor with evidence of all such payments referenced in the foregoing sentence. Lessee shall be 4 9 entitled to receive any credit or refund with respect to any Imposition or utility charge paid by Lessee. Unless an Event of Default shall have occurred and be continuing, the amount of any credit or refund received by Lessor on account of any Imposition or utility charge paid by Lessee, net of the costs and expenses incurred by Lessor in obtaining such credit or refund, shall be promptly paid over to Lessee. All charges for Impositions or utilities imposed with respect to any Property for a period during which this Lease expires or terminates shall be adjusted and prorated on a daily basis between Lessor and Lessee, and each party shall pay or reimburse the other for such party's pro rata share thereof.. Notwithstanding the foregoing provisions of this Section 4.1, Lessee shall not be responsible for Impositions to the extent such Impositions are expressly excluded from the general tax indemnity pursuant to the provisions of Section 11.2(b) of the Participation Agreement. ARTICLE V 5.1 QUIET ENJOYMENT. Subject to the rights of Lessor contained in Sections 17.2, 17.3 and 20.3 and the other terms of this Lease and the other Operative Agreements and so long as no Event of Default shall have occurred and be continuing, Lessee shall peaceably and quietly have, hold and enjoy each Property for the applicable Term, free of any claim or other action by Lessor or anyone rightfully claiming by, through or under Lessor (other than Lessee) with respect to any matters arising from and after the applicable Commencement Date. ARTICLE VI 6.1 NET LEASE. This Lease shall constitute a net lease, and the obligations of Lessee hereunder are absolute and unconditional. Lessee shall pay all operating expenses arising out of the use, operation and/or occupancy of each Property. Any present or future law to the contrary notwithstanding, this Lease shall not terminate, nor shall Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of Lessee hereunder be affected (except as expressly herein permitted and by performance of the obligations in connection therewith) for any reason whatsoever, including without limitation by reason of: (a) any damage to or destruction of any Property or any part thereof; (b) any taking of any Property or any part thereof or interest therein by Condemnation or otherwise; (c) any prohibition, limitation, restriction or prevention of Lessee's use, occupancy or enjoyment of any Property or any part thereof, or any interference with such use, occupancy or enjoyment by any Person or for any other reason; (d) any title defect, Lien or any matter affecting title to any Property; (e) any eviction by paramount title or otherwise; (f) any default by Lessor hereunder; (g) any action for bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding relating to or affecting the Agent, any Lender, Lessor, Lessee, any Holder or any Governmental Authority; (h) the impossibility or illegality of performance by Lessor, Lessee 5 10 or both; (i) any action of any Governmental Authority or any other Person; (j) Lessee's acquisition of ownership of all or part of any Property; (k) breach of any warranty or representation with respect to any Property or any Operative Agreement; (l) any defect in the condition, quality or fitness for use of any Property or any part thereof; or (m) any other cause or circumstance whether similar or dissimilar to the foregoing and whether or not Lessee shall have notice or knowledge of any of the foregoing. The parties intend that the obligations of Lessee hereunder shall be covenants, agreements and obligations that are separate and independent from any obligations of Lessor hereunder and shall continue unaffected unless such covenants, agreements and obligations shall have been modified or terminated in accordance with an express provision of this Lease. Lessor and Lessee acknowledge and agree that the provisions of this Section 6.1 have been specifically reviewed and subject to negotiation. Notwithstanding the provisions of this Section 6.1, Lessee expressly reserves and retains the right to sue Lessor in a court of law for damages relating to any breach of Lessor's contractual obligations, tortious misconduct or otherwise. 6.2 NO TERMINATION OR ABATEMENT. Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting any Person or any Governmental Authority, or any action with respect to this Lease or any Operative Agreement which may be taken by any trustee, receiver or liquidator of any Person or any Governmental Authority or by any court with respect to any Person, or any Governmental Authority. Lessee hereby waives all right (a) to terminate or surrender this Lease (except as permitted under the terms of the Operative Agreements) or (b) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. Lessee shall remain obligated under this Lease in accordance with its terms and Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, Lessee shall be bound by all of the terms and conditions contained in this Lease. ARTICLE VII 7.1 OWNERSHIP OF THE PROPERTIES. (a) Lessor and Lessee intend that (i) for financial accounting purposes with respect to Lessee (A) this Lease will be treated as an "operating lease" pursuant to Statement of Financial Accounting Standards No. 13, as amended, (B) Lessor will be treated as the owner and lessor of each Property and (C) Lessee will be treated as the lessee of each Property, but (ii) for federal and all state and local income tax purposes and bankruptcy purposes (A) this Lease will be treated as a financing arrangement and (B) Lessee will be treated as the owner of the Properties and will be entitled to all tax benefits ordinarily available to owners of property similar to the Properties for such tax purposes. Notwithstanding the foregoing, neither party hereto has made, or shall be deemed to have 6 11 made, any representation or warranty as to the availability of any of the foregoing treatments under applicable accounting rules, tax, bankruptcy, regulatory, commercial or real estate law or under any other set of rules. Lessee shall claim the cost recovery tax deductions associated with each Property, and Lessor shall not, to the extent not prohibited by Law, take on its tax return a position inconsistent with Lessee's claim of such deductions. (b) For all purposes other than as set forth in Section 7.1(a)(i), Lessor and Lessee intend this Lease to constitute a finance lease and not a true lease. In order to secure the obligations of Lessee now existing or hereafter arising under any and all Operative Agreements, Lessee hereby conveys, grants, assigns, transfers, hypothecates, mortgages and sets over to Lessor, for the benefit of all Financing Parties, a first priority security interest (but subject to the security interest in the assets granted by Lessee in favor of the Agent in accordance with the Security Agreement) in and lien on all right, title and interest of Lessee (now owned or hereafter acquired) in and to all Properties, to the extent such is personal property and irrevocably grants and conveys a lien, deed of trust and mortgage on all right, title and interest of Lessee (now owned or hereafter acquired) in and to all Properties to the extent such is real property. Lessor and Lessee further intend and agree that, for the purpose of securing the obligations of Lessee and/or the Construction Agent now existing or hereafter arising under the Operative Agreements, (i) this Lease shall be a security agreement within the meaning of Article 9 of the Uniform Commercial Code respecting each of the Properties and all proceeds (including without limitation insurance proceeds thereof) to the extent such is personal property and an irrevocable grant and conveyance of a lien, deed of trust and mortgage on each of the Properties and all proceeds (including without limitation insurance proceeds thereof) to the extent such is real property; (ii) the acquisition of title (or to the extent applicable, a leasehold interest pursuant to a Ground Lease) in each Property referenced in Article II constitutes a grant by Lessee to Lessor of a security interest, lien, deed of trust and mortgage in all of Lessee's right, title and interest in and to each Property and all proceeds (including without limitation insurance proceeds thereof) of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property, and an assignment of all rents, profits and income produced by each Property; and (iii) notifications to Persons holding such property, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of Lessee shall be deemed to have been given for the purpose of perfecting such lien, security interest, mortgage lien and deed of trust under applicable law. Lessee shall promptly take such actions as Lessor may reasonably request (including without limitation the filing of Uniform Commercial Code Financing Statements, Uniform Commercial Code Fixture Filings and memoranda (or short forms) of this Lease and the various Lease Supplements) to ensure that the lien, security interest, lien, mortgage lien and deed of trust in each Property and the other items referenced above will be deemed to be a perfected lien, security interest, mortgage lien and deed of trust of first priority under applicable law and will be maintained as such throughout the Term. 7 12 ARTICLE VIII 8.1 CONDITION OF THE PROPERTIES. LESSEE ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH PROPERTY "AS-IS WHERE-IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY LESSOR (EXCEPT THAT LESSOR SHALL KEEP EACH PROPERTY FREE AND CLEAR OF LESSOR LIENS) AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF (IF ANY), (C) ANY STATE OF FACTS REGARDING ITS PHYSICAL CONDITION OR WHICH AN ACCURATE SURVEY MIGHT SHOW, (D) ALL APPLICABLE LEGAL REQUIREMENTS AND (E) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF AND/OR THE DATE OF THE APPLICABLE LEASE SUPPLEMENT. NEITHER LESSOR NOR THE AGENT NOR ANY LENDER NOR ANY HOLDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) (EXCEPT THAT LESSOR SHALL KEEP EACH PROPERTY FREE AND CLEAR OF LESSOR LIENS) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF), AND NEITHER LESSOR NOR THE AGENT NOR ANY LENDER NOR ANY HOLDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREON OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT. LESSEE HAS OR PRIOR TO THE COMMENCEMENT DATE WILL HAVE BEEN AFFORDED FULL OPPORTUNITY TO INSPECT EACH PROPERTY AND THE IMPROVEMENTS THEREON (IF ANY), IS OR WILL BE (INSOFAR AS LESSOR, THE AGENT, EACH LENDER AND EACH HOLDER ARE CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS ENTERING INTO THIS LEASE SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN INSPECTIONS, AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING SENTENCE, AS BETWEEN LESSOR, THE AGENT, THE LENDERS AND THE HOLDERS, ON THE ONE (1) HAND, AND LESSEE, ON THE OTHER HAND, ARE TO BE BORNE BY LESSEE. 8.2 POSSESSION AND USE OF THE PROPERTIES. (a) At all times during the Term with respect to each Property, such Property shall be a Permitted Facility and shall be used by Lessee in the ordinary course of its business. Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Properties as contemplated by this Lease. Lessee shall not commit or permit any waste of the Properties or any part thereof, normal wear and tear excepted. 8 13 (b) The address stated in Section 12.2 of the Participation Agreement is the principal place of business and chief executive office of Lessee (as such terms are used in Section 9-103(3) of the Uniform Commercial Code of any applicable jurisdiction), and Lessee will provide Lessor with prior written notice of any change of location of its principal place of business or chief executive office. Regarding a particular Property, each Lease Supplement correctly identifies the initial location of the related Equipment (if any) and Improvements (if any) and contains an accurate legal description for the related parcel of Land or a copy of the Ground Lease (if any). The Equipment and Improvements respecting each particular Property will be located only at the location identified in the applicable Lease Supplement. (c) Lessee will not attach or incorporate any item of Equipment to or in any other item of equipment or personal property or to or in any real property in a manner that could give rise to the assertion of any Lien on such item of Equipment by reason of such attachment or the assertion of a claim that such item of Equipment has become a fixture and is subject to a Lien in favor of a third party that is prior to the Liens thereon created by the Operative Agreements. (d) On the Commencement Date for each Property, Lessor and Lessee shall execute a Lease Supplement in regard to such Property which shall contain an Equipment Schedule that has a complete description of each item of Equipment which is then a part of the Property, an Improvement Schedule that has a complete description of each Improvement which is then a part of the Property and a legal description of the Land to be leased hereunder (or in the case of any Property subject to a Ground Lease to be subleased hereunder) as of such date. Each Property subject to a Ground Lease shall be deemed to be ground subleased from Lessor to Lessee as of the Commencement Date, and such ground sublease shall be in effect until this Lease is terminated or expires, in each case in accordance with the terms and provisions hereof. Lessee shall satisfy and perform all obligations imposed on Lessor under each Ground Lease. Simultaneously with the execution and delivery of each Lease Supplement, such Equipment, Improvements, Land, ground subleasehold interest, all additional Equipment and Improvements which are financed under the Operative Agreements after the Commencement Date and the remainder of such Property shall be deemed to have been accepted by Lessee for all purposes of this Lease and to be subject to this Lease. (e) At all times during the Term with respect to each Property, Lessee will comply with all obligations under and (to the extent no Event of Default exists and no Material Adverse Effect shall result) shall be permitted to exercise all rights and remedies under, all operation and easement agreements and related or similar agreements applicable to such Property. 9 14 8.3 INTEGRATED PROPERTIES. On the Rent Commencement Date for each Property, such Property and the applicable property subject to a Ground Lease shall constitute (and for the duration of the Term shall continue to constitute) all of the equipment, facilities, rights, other personal property and other real property necessary or appropriate to operate, utilize, maintain and control a Permitted Facility in a commercially reasonable manner. ARTICLE IX 9.1 COMPLIANCE WITH LEGAL REQUIREMENTS, INSURANCE REQUIREMENTS AND MANUFACTURER'S SPECIFICATIONS AND STANDARDS. Subject to the terms of Article XIII relating to permitted contests, Lessee, at its sole cost and expense, shall (a) comply with all applicable Legal Requirements (including without limitation all Environmental Laws) and all Insurance Requirements relating to the Properties, (b) procure, maintain and comply with all licenses, permits, orders, approvals, consents and other authorizations required for the acquisition, installation, testing, use, development, construction, operation, maintenance, repair, refurbishment and restoration of the Properties, and (c) comply with all manufacturer's specifications and standards, including without limitation the acquisition, installation, testing, use, development, construction, operation, maintenance, repair, refurbishment and restoration of the Properties, whether or not compliance therewith shall require structural or extraordinary changes in any Property or interfere with the use and enjoyment of any Property unless the failure to procure, maintain and comply with such items identified in subparagraphs (b) and (c), individually or in the aggregate, shall not and could not reasonably be expected to have a Material Adverse Effect. Lessor agrees to take such actions as may be reasonably requested by Lessee in connection with the compliance by Lessee of its obligations under this Section 9.1. ARTICLE X 10.1 MAINTENANCE AND REPAIR; RETURN. (a) Lessee, at its sole cost and expense, shall maintain each Property in good condition, repair and working order (ordinary wear and tear excepted) and in the repair and condition as when originally delivered to Lessor and make all necessary repairs thereto and replacements thereof, of every kind and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by Section 9.1 and on a basis consistent with the operation and maintenance of properties or equipment comparable in type and function to the applicable Property, such that such Property is capable of being immediately utilized by a third party and in compliance with standard industry practice subject, however, to the provisions of Article XV with respect to Casualty and Condemnation. 10 15 (b) Lessee shall not use or locate any component of any Property outside of any Approved State. Lessee shall not move or relocate any component of any Property beyond the boundaries of the Land (comprising part of such Property) described in the applicable Lease Supplement, except for the temporary removal of Equipment and other personal property for repair or replacement. (c) If any component of any Property becomes worn out, lost, destroyed, damaged beyond repair or otherwise permanently rendered unfit for use, Lessee, at its own expense, will within a reasonable time replace such component with a replacement component which is free and clear of all Liens (other than Permitted Liens and Lessor Liens) and has a value, utility and useful life at least equal to the component replaced (assuming the component replaced had been maintained and repaired in accordance with the requirements of this Lease). All such replacement components which are added to any Property shall immediately become the property of (and title thereto shall vest in) Lessor and shall be deemed incorporated in such Property and subject to the terms of this Lease as if originally leased hereunder. (d) Upon reasonable advance written notice, Lessor and its agents shall have the right to inspect each Property and all maintenance records with respect thereto at any reasonable time during normal business hours but shall not, in the absence of an Event of Default, materially disrupt the business of Lessee. (e) Lessee shall cause to be delivered to Lessor (at Lessee's sole expense) one (1) or more additional Appraisals (or reappraisals of Property) as Lessor may request if any one (1) of Lessor, the Agent, the Trust Company, any Lender or any Holder is required pursuant to any applicable Legal Requirement to obtain such Appraisals (or reappraisals) and upon the occurrence of any Event of Default. (f) Lessor shall under no circumstances be required (or permitted, unless (x) an emergency exists and then only after Lessee has failed to cure such emergency after receiving reasonable prior notice from Lessor or (y) an Event of Default shall have occurred and be continuing) to build any improvements or install any equipment on any Property, make any repairs, replacements, alterations or renewals of any nature or description to any Property, make any expenditure whatsoever in connection with this Lease or maintain any Property in any way. Lessor shall not be required to maintain, repair or rebuild all or any part of any Property, and Lessee waives the right to (i) require Lessor to maintain, repair, or rebuild all or any part of any Property, or (ii) make repairs at the expense of Lessor pursuant to any Legal Requirement, Insurance Requirement, contract, agreement, covenant, condition or restriction at any time in effect. (g) Lessee shall, upon the expiration or earlier termination of this Lease with respect to a Property, if Lessee shall not have exercised its Purchase Option with respect to such Property and purchased such Property, surrender such Property (i) to Lessor pursuant to the exercise of the applicable remedies upon the occurrence of a Lease Event 11 16 of Default or (ii) pursuant to the second paragraph of Section 22.1(a) hereof, to Lessor or the third party purchaser, as the case may be, subject to Lessee's obligations under this Lease (including without limitation the obligations of Lessee at the time of such surrender under Sections 9.1, 10.1(a) through (f), 10.2, 11.1, 12.1, 22.1 and 23.1). 10.2 ENVIRONMENTAL INSPECTION. If Lessee has not given notice of exercise of its Purchase Option on the Expiration Date pursuant to Section 20.1 or for whatever reason Lessee does not purchase a Property in accordance with the terms of this Lease, then not more than one hundred twenty (120) days nor less than sixty (60) days prior to the Expiration Date, Lessee at its expense shall cause to be delivered to Lessor a Phase I environmental site assessment recently prepared (no more than thirty (30) days prior to the date of delivery) by an independent recognized professional reasonably acceptable to Lessor, and in form, scope and content reasonably satisfactory to Lessor. ARTICLE XI 11.1 MODIFICATIONS. (a) Lessee at its sole cost and expense, at any time and from time to time without the consent of Lessor may make modifications, alterations, renovations, improvements and additions to any Property or any part thereof and substitutions and replacements therefor (collectively, "Modifications"), and Lessee shall make any and all Modifications required to be made pursuant to all Legal Requirements, Insurance Requirements and manufacturer's specifications and standards; provided, that: (i) no Modification shall materially impair the value, utility or useful life of any Property from that which existed immediately prior to such Modification; (ii) each Modification shall be done expeditiously and in a good and workmanlike manner; (iii) no Modification shall adversely affect the structural integrity of any Property; (iv) to the extent required by Section 14.2(a), Lessee shall maintain builders' risk insurance at all times when a Modification is in progress; (v) subject to the terms of Article XIII relating to permitted contests, Lessee shall pay all costs and expenses and discharge any Liens other than Permitted Liens arising with respect to any Modification; (vi) each Modification shall comply with the requirements of this Lease (including without limitation Sections 8.2 and 10.1); and (vii) no Improvement shall be demolished or otherwise rendered unfit for use unless Lessee shall finance the proposed replacement Modification outside of this lease facility; provided, further, Lessee shall not make any Modification (unless required by any Legal Requirement) to the extent any such Modification, individually or in the aggregate, shall or could reasonably be expected to have a Material Adverse Effect. All Modifications (which in all cases shall exclude the Lessee Equipment) shall immediately and without further action upon their incorporation into the applicable Property (1) become property of Lessor, (2) be subject to this Lease and (3) be titled in the name of Lessor. Lessee shall not remove or attempt to remove any Modification from any Property; provided, the foregoing restriction shall not restrict the rights of the Lessee 12 17 regarding Lessee Equipment. Each Ground Lease for a Property shall expressly provide for the provisions of the foregoing sentence. Lessee, at its own cost and expense, will pay for the repairs of any damage to any Property caused by the removal or attempted removal of any Modification. (b) The construction process provided for in the Agency Agreement is acknowledged by Lessor to be consistent with and in compliance with the terms and provisions of this Article XI. ARTICLE XII 12.1 WARRANTY OF TITLE. (a) Lessee hereby acknowledges and shall cause title in each Property (including without limitation all Equipment, all Improvements, all replacement components to each Property and all Modifications (excluding Lessee Equipment)) immediately and without further action to vest in and become the property of Lessor and to be subject to the terms of this Lease (provided, respecting each Property subject to a Ground Lease, Lessor's interest therein is acknowledged to be a leasehold interest pursuant to such Ground Lease) from and after the date hereof or such date of incorporation into any Property. Lessee agrees that, subject to the terms of Article XIII relating to permitted contests, Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien, defect, attachment, levy, title retention agreement or claim upon any Property, any component thereof or any Modifications (excluding Lessee Equipment) or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amounts held by Lessor, the Agent or any Holder pursuant to any Operative Agreement, other than Permitted Liens and Lessor Liens. Lessee shall promptly notify Lessor in the event it receives actual knowledge that a Lien other than a Permitted Lien or Lessor Lien has occurred with respect to a Property, the Rent or any other such amounts, and Lessee represents and warrants to, and covenants with, Lessor that the Liens in favor of Lessor created by the Operative Agreements are (and until the Financing Parties under the Operative Agreements have been paid in full shall remain) first priority perfected Liens subject only to Permitted Liens and Lessor Liens. At all times subsequent to the Commencement Date respecting a Property, Lessee shall (i) cause a valid, perfected, first priority Lien on each applicable Property to be in place in favor of the Agent (for the benefit of the Lenders and the Holders) and (ii) file, or cause to be filed, all necessary documents under the applicable real property law and Article 9 of the Uniform Commercial Code to perfect such title and Liens. (b) Nothing contained in this Lease shall be construed as constituting the consent or request of Lessor, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or 13 18 demolition of or to any Property or any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING A PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY PROPERTY EXCEPT FOR PERMITTED LIENS. ARTICLE XIII 13.1 PERMITTED CONTESTS OTHER THAN IN RESPECT OF INDEMNITIES. Except to the extent otherwise provided for in Section 11 of the Participation Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost and expense, may contest, by appropriate administrative or judicial proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any Legal Requirement, Imposition or utility charge payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or encroachment, and Lessor agrees not to pay, settle or otherwise compromise any such item, provided, that (a) the commencement and continuation of such proceedings shall suspend the collection of any such contested amount from, and suspend the enforcement thereof against, the applicable Properties, Lessor, each Holder, the Agent and each Lender; (b) there shall not be imposed a Lien (other than Permitted Liens and Lessor Liens) on any Property and no part of any Property nor any Rent would be in any material risk of being sold, forfeited, lost or deferred; (c) at no time during the permitted contest shall there be a risk of the imposition of criminal liability or material civil liability on Lessor, any Holder, the Agent or any Lender for failure to comply therewith; and (d) in the event that, at any time, there shall be a material risk of extending the application of such item beyond the end of the Term, then Lessee shall deliver to Lessor an Officer's Certificate certifying as to the matters set forth in clauses (a), (b) and (c) of this Section 13.1. Lessor, at Lessee's sole cost and expense, shall execute and deliver to Lessee such authorizations and other documents as may reasonably be required in connection with any such contest and, if reasonably requested by Lessee, shall join as a party therein at Lessee's sole cost and expense. 13.2 IMPOSITIONS, UTILITY CHARGES, OTHER MATTERS; COMPLIANCE WITH LEGAL REQUIREMENTS. Except with respect to Impositions, Legal Requirements, utility charges and such other matters referenced in Section 13.1 which are the subject of ongoing proceedings contesting the same in a manner consistent with the requirements of Section 13.1, Lessee shall cause (a) all Impositions, utility charges and such other matters to be timely paid, settled or compromised, as appropriate, with respect to each Property and (b) each Property to comply with all applicable Legal Requirements. 14 19 ARTICLE XIV 14.1 PUBLIC LIABILITY AND WORKERS' COMPENSATION INSURANCE. During the Term for each Property, Lessee shall procure and carry, at Lessee's sole cost and expense, commercial general liability and umbrella liability insurance for claims for injuries or death sustained by persons or damage to property while on such Property or respecting the Equipment and such other public liability coverages as are then customarily carried by similarly situated companies conducting business similar to that conducted by Lessee. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by Lessee with respect to similar properties and equipment that it owns and are then carried by similarly situated companies conducting business similar to that conducted by Lessee, and in no event shall have a minimum (a) combined single limit per occurrence coverage (i) for commercial general liability of less than $1,000,000 and (ii) for umbrella liability of less than $1,000,000 and (b) aggregate limit for commercial general liability of less than $2,000,000. The policies shall name Lessee as the insured and shall be endorsed to name Lessor, the Holders, the Agent and the Lenders as additional 1insureds. The policies shall also specifically provide that such policies shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which Lessor, any Holder, the Agent or any Lender may have in force. In the operation of the Properties, Lessee shall comply with applicable workers' compensation laws and protect Lessor, each Holder, the Agent and each Lender against any liability under such laws. 14.2 PERMANENT HAZARD AND OTHER INSURANCE. (a) During the Term for each Property, Lessee shall keep such Property insured against all risk of physical loss or damage by fire and other risks and shall maintain builders' risk insurance during construction of any Improvements or Modifications in each case in amounts no less than the Termination Value from time to time and on terms that (i) are no less favorable than insurance covering other similar properties owned by Lessee and (ii) are then carried by similarly situated companies conducting business similar to that conducted by Lessee. The policies shall name Lessee as the insured and shall be endorsed to name Lessor, the Holders and the Agent (on behalf of the Lenders and the Holders) as a named additional insured and loss payee, to the extent of their respective interests; provided, so long as no Event of Default exists, any loss payable under the insurance policies required by this Section for losses up to and including $1,000,000 will be paid to Lessee. (b) If, during the Term with respect to a Property the area in which such Property is located is designated a "flood-prone" area pursuant to the Flood Disaster Protection Act of 1973, or any amendments or supplements thereto or is in a zone designated A or V, then Lessee shall comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973. In addition, Lessee will fully comply with the requirements of the National Flood Insurance Act of 1968 and the Flood 15 20 Disaster Protection Act of 1973, as each may be amended from time to time, and with any other Legal Requirement, concerning flood insurance to the extent that it applies to any such Property. During the Term, Lessee shall, in the operation and use of each Property, maintain workers' compensation insurance consistent with that carried by similarly situated companies conducting business similar to that conducted by Lessee and containing minimum liability limits of no less than $100,000. In the operation of each Property, Lessee shall comply with workers' compensation laws applicable to Lessee, and protect Lessor, each Holder, the Agent and each Lender against any liability under such laws. 14.3 COVERAGE. (a) As of the date of this Lease and annually thereafter during the Term, Lessee shall furnish the Agent (on behalf of Lessor and the other beneficiaries of such insurance coverage) with certificates prepared by the insurers or insurance broker of Lessee showing the insurance required under Sections 14.1 and 14.2 to be in effect, naming (to the extent of their respective interests) Lessor, the Holders, the Agent and the Lenders as additional insureds and loss payees and evidencing the other requirements of this Article XIV. All such insurance shall be at the cost and expense of Lessee and provided by nationally recognized, financially sound insurance companies having an A+ or better rating by A.M. Best's Key Rating Guide. Lessee shall cause such certificates to include a provision for thirty (30) days' advance written notice by the insurer to the Agent (on behalf of Lessor and the other beneficiaries of such insurance coverage) in the event of cancellation or material alteration of such insurance. If an Event of Default has occurred and is continuing and the Agent (on behalf of Lessor and the other beneficiaries of such insurance coverage) so requests, Lessee shall deliver to the Agent (on behalf of Lessor and the other beneficiaries of such insurance coverage) copies of all insurance policies required by Sections 14.1 and 14.2. (b) Lessee agrees that the insurance policy or policies required by Sections 14.1, 14.2(a) and 14.2(b) shall include an appropriate clause pursuant to which any such policy shall provide that it will not be invalidated should Lessee or any Contractor, as the case may be, waive, at any time, any or all rights of recovery against any party for losses covered by such policy or due to any breach of warranty, fraud, action, inaction or misrepresentation by Lessee or any Person acting on behalf of Lessee. Lessee hereby waives any and all such rights against Lessor, the Holders, the Agent and the Lenders to the extent of payments made to any such Person under any such policy. (c) Neither Lessor nor Lessee shall carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Article XIV, except that Lessor may carry separate liability insurance at Lessor's sole cost so long as (i) Lessee's insurance is designated as primary and in no event excess or contributory to any insurance Lessor may have in force which would apply to a loss covered under Lessee's policy and (ii) each such insurance policy will not cause Lessee's 16 21 insurance required under this Article XIV to be subject to a coinsurance exception of any kind. (d) Lessee shall pay as they become due all premiums for the insurance required by Section 14.1 and Section 14.2, shall renew or replace each policy prior to the expiration date thereof or otherwise maintain the coverage required by such Sections without any lapse in coverage. ARTICLE XV 15.1 CASUALTY AND CONDEMNATION. (a) Subject to the provisions of the Agency Agreement and this Article XV and Article XVI (in the event Lessee delivers, or is obligated to deliver or is deemed to have delivered, a Termination Notice), and prior to the occurrence and continuation of a Default or an Event of Default, Lessee shall be entitled to receive (and Lessor hereby irrevocably assigns to Lessee all of Lessor's right, title and interest in) any condemnation proceeds, award, compensation or insurance proceeds under Sections 14.2(a) or 14.2(b) hereof to which Lessee or Lessor may become entitled by reason of their respective interests in a Property (i) if all or a portion of such Property is damaged or destroyed in whole or in part by a Casualty or (ii) if the use, access, occupancy, easement rights or title to such Property or any part thereof is the subject of a Condemnation; provided, however, if a Default or an Event of Default shall have occurred and be continuing or if such award, compensation or insurance proceeds shall exceed $1,000,000, then such award, compensation or insurance proceeds shall be paid directly to Lessor or, if received by Lessee, shall be held in trust for Lessor, and shall be paid over by Lessee to Lessor and held in accordance with the terms of this paragraph (a). All amounts held by Lessor hereunder on account of any award, compensation or insurance proceeds either paid directly to Lessor or turned over to Lessor shall be held as security for the performance of Lessee's obligations hereunder and under the other Operative Agreements. Upon Lessee's performance of all its obligations pursuant hereto and pursuant to the other Operative Agreements (and provided no Lease Event of Default shall have occurred and be continuing) Lessor shall return to Lessee any such award, compensation or insurance proceeds. (b) Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof. At Lessee's reasonable request, and at Lessee's sole cost and expense, Lessor and the Agent shall participate in any such proceeding, action, negotiation, prosecution or adjustment. Lessor and Lessee agree that this Lease shall control the rights of Lessor and Lessee in and to any such award, compensation or insurance payment. (c) (intentionally omitted) 17 22 (d) In the event of a Casualty or a Condemnation, this Lease shall terminate with respect to the applicable Property in accordance with Section 16.1 if Lessee, within thirty (30) days after such occurrence, delivers to Lessor a notice to such effect. (e) If pursuant to this Section 15.1 this Lease shall continue in full force and effect following a Casualty or Condemnation with respect to the affected Property, Lessee shall, at its sole cost and expense and using, if available, the proceeds of any award, compensation or insurance with respect to such Casualty or Condemnation (including without limitation any such award, compensation or insurance which has been received by Lessor or the Agent and which should be turned over to Lessee pursuant to the terms of the Operative Agreements, and if not available or sufficient, using its own funds), promptly and diligently repair any damage to the applicable Property caused by such Casualty or Condemnation in conformity with the requirements of Sections 10.1 and 11.1, using the as-built Plans and Specifications or manufacturer's specifications for the applicable Improvements, Equipment or other components of the applicable Property (as modified to give effect to any subsequent Modifications, any Condemnation affecting the applicable Property and all applicable Legal Requirements), so as to restore the applicable Property to the same or a greater remaining economic value, useful life, utility, condition, operation and function as existed immediately prior to such Casualty or Condemnation (assuming all maintenance and repair standards have been satisfied). In such event, title to the applicable Property shall remain with Lessor. (f) In no event shall a Casualty or Condemnation affect Lessee's obligations to pay Rent pursuant to Article III. (g) Notwithstanding anything to the contrary set forth in Section 15.1(a) or Section 15.1(e), if during the Term with respect to a Property a Casualty occurs with respect to such Property or Lessee receives notice of a Condemnation with respect to such Property, and following such Casualty or Condemnation, the applicable Property cannot reasonably be restored, repaired or replaced on or before the day one hundred eighty (180) days prior to the Expiration Date or the date nine (9) months after the occurrence of such Casualty or Condemnation (if such Casualty or Condemnation occurs during the Term) to the same or a greater remaining economic value, useful life, utility, condition, operation and function as existed immediately prior to such Casualty or Condemnation (assuming all maintenance and repair standards have been satisfied) or on or before such day such Property is not in fact so restored, repaired or replaced, then Lessee shall be required to exercise its Purchase Option for such Property on the next Payment Date (notwithstanding the limits on such exercise contained in Section 20.2) and pay Lessor the Termination Value for such Property; provided, if any Default or Event of Default has occurred and is 18 23 continuing, Lessee shall also promptly (and in any event within three (3) Business Days) pay Lessor any award, compensation or insurance proceeds received on account of any Casualty or Condemnation with respect to any Property; provided, further, that if no Default or Event of Default has occurred and is continuing, any Excess Proceeds shall be paid to Lessee. If a Default or an Event of Default has occurred and is continuing and any Loans, Holder Advances or other amounts are owing with respect thereto, then any Excess Proceeds (to the extent of any such Loans, Holder Advances or other amounts owing with respect thereto) shall be paid to Lessor, held as security for the performance of Lessee's obligations hereunder and under the other Operative Agreements and applied to such obligations upon the exercise of remedies in connection with the occurrence of an Event of Default, with the remainder of such Excess Proceeds in excess of such Loans, Holder Advances and other amounts owing with respect thereto being distributed to the Lessee. 15.2 Environmental Matters. Promptly upon Lessee's actual knowledge of the presence of Hazardous Substances (other than Hazardous Substances, if any, used in the ordinary course of Lessee's business in accordance with Law) in any portion of any Property or Properties in concentrations and conditions that constitute an Environmental Violation and which, in the reasonable opinion of Lessee, the cost to undertake any legally required response, clean up, remedial or other action will or might result in a cost to Lessee of more than $15,000, Lessee shall notify Lessor in writing of such condition. Lessor acknowledges that Lessee has given notice and Lessee hereby gives notice of any conditions described in the environmental reports previously provided by Lessee to the Agent; provided notwithstanding such notice, Lessee shall with respect to any Environmental Violation referenced in such environmental reports take all other actions required under the Operative Agreements subsequent to notification thereof (including without limitation the delivery of a Termination Notice with respect to any affected Property or any necessary removal, cleanup or remediation of such Environmental Violation as elected by Lessee). In the event of any Environmental Violation (regardless of whether notice thereof must be given), Lessee shall, not later than thirty (30) days after Lessee has actual knowledge of such Environmental Violation, either deliver to Lessor a Termination Notice with respect to the applicable Property or Properties pursuant to Section 16.1, if applicable, or, at Lessee's sole cost and expense, promptly and diligently undertake and diligently complete any response, clean up, remedial or other action (including without limitation the pursuit by Lessee of appropriate action against any off-site or third party source for contamination) necessary to remove, cleanup or remediate the Environmental Violation in accordance with all Environmental Laws. Any such undertaking shall be timely completed in accordance with prudent industry standards. If Lessee does not deliver a Termination Notice with respect to such Property pursuant to Section 16.1, Lessee shall, upon completion of remedial action by Lessee, cause to be prepared by a reputable environmental consultant acceptable to Lessor a report describing the Environmental Violation and the actions taken by Lessee (or its agents) in response to such Environmental Violation, and a statement by the consultant that the Environmental Violation has been remedied in full compliance with applicable Environmental Law. Not less than sixty (60) days prior to any time that Lessee elects to cease operations with respect to any Property or to remarket any Property pursuant to Section 20.1 hereof or any other provision of any Operative Agreement, Lessee at its expense shall cause to be delivered to Lessor a Phase I environmental site assessment respecting such Property recently prepared (no more than thirty (30) days prior to the date of delivery) by an independent recognized professional acceptable to Lessor in its reasonable discretion and in form, scope and content satisfactory to Lessor in its reasonable discretion. Notwithstanding any 19 24 other provision of any Operative Agreement, if Lessee fails to comply with the foregoing obligation regarding the Phase I environmental site assessment, Lessee shall be obligated to purchase such Property for its Termination Value and shall not be permitted to exercise (and Lessor shall have no obligation to honor any such exercise) any rights under any Operative Agreement regarding a sale of such Property to a Person other than Lessee or any Affiliate of Lessee. 15.3 NOTICE OF ENVIRONMENTAL MATTERS. Promptly, but in any event within five (5) Business Days from the date Lessee has actual knowledge thereof, Lessee shall provide to Lessor written notice of any pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with any Property or Properties. All such notices shall describe in reasonable detail the nature of the claim, action or proceeding and Lessee's proposed response thereto. In addition, Lessee shall provide to Lessor, within five (5) Business Days of receipt, copies of all material written communications with any Governmental Authority relating to any Environmental Law in connection with any Property. Lessee shall also promptly provide such detailed reports of any such material environmental claims as may reasonably be requested by Lessor. ARTICLE XVI 16.1 TERMINATION UPON CERTAIN EVENTS. If Lessee has delivered, or is deemed to have delivered, written notice of a termination of this Lease with respect to the applicable Property to Lessor in the form described in Section 16.2(a) (a "Termination Notice") pursuant to the provisions of this Lease, then following the applicable Casualty, Condemnation or Environmental Violation, this Lease shall terminate with respect to the affected Property on the applicable Termination Date. 16.2 PROCEDURES. (a) A Termination Notice shall contain: (i) notice of termination of this Lease with respect to the affected Property on a Payment Date not more than sixty (60) days after Lessor's receipt of such Termination Notice (the "Termination Date"); and (ii) a binding and irrevocable agreement of Lessee to pay the Termination Value for the applicable Property and purchase such Property on such Termination Date. (b) On each Termination Date, Lessee shall pay to Lessor the Termination Value for the applicable Property, and Lessor shall convey such Property or the remaining portion thereof, if any, to Lessee (or Lessee's designee), all in accordance with Section 20.2. 20 25 ARTICLE XVII 17.1 LEASE EVENTS OF DEFAULT. If any one (1) or more of the following events (each a "Lease Event of Default") shall occur: (a) Lessee shall fail to make payment of (i) any Basic Rent (except as set forth in clause (ii)) within three (3) consecutive Business Days after the same has become due and payable or (ii) any Termination Value, on the date any such payment is due and payable, or any payment of Basic Rent or Supplemental Rent due on the due date of any such payment of Termination Value, or any amount due on the Expiration Date; (b) Lessee shall fail to make payment of any Supplemental Rent (other than Supplemental Rent referred to in Section 17.1(a)(ii)) which has become due and payable within seven (7) or more consecutive days after receipt of written notice that such payment is due; (c) Lessee shall fail to maintain insurance as required by Article XIV of this Lease or to deliver any requisite annual certificate with respect thereto within ten (10) Business Days of the date such certificate is due under the terms hereof; (d) (i) Lessee shall fail to observe or perform any term, covenant, obligation or condition of Lessee under this Lease or any other Operative Agreement (excluding the Agency Agreement) to which Lessee is a party other than those set forth in Sections 17.1(a), (b) or (c) hereof, and such failure shall (except for the covenants set forth in Sections 8.3A(n), 8.3B(f), 8.3B(k) and 8.3B(m) of the Participation Agreement for which there shall be no grace periods) continue for fifteen (15) days after notice thereof to the Lessee; provided, if any such failure is not capable of remedy with such fifteen (15) day period but may be remedied with further diligence and if Lessee has and continues to pursue such remedy, then Lessee shall be granted additional time to pursue such remedy but in no event more than an additional thirty (30) days, or (ii) any representation or warranty made by Lessee set forth in this Lease or in any other Operative Agreement or in any document entered into in connection herewith or therewith or in any document, certificate or financial or other statement delivered in connection herewith or therewith shall be false or inaccurate in any material way when made and shall continue to be false or inaccurate in such way for fifteen (15) days after notice thereof to Lessee; provided, if such default is not capable of remedy within such fifteen (15) day period but may be remedied with further diligence and if Lessee has and continues to pursue such remedy, then Lessee shall be granted additional time to pursue such remedy but in no event more than an additional thirty (30) days; (e) (intentionally omitted) 21 26 (f) Lessee or any of its Subsidiaries shall default (beyond applicable periods of grace and/or notice and cure) in the payment when due of any principal of or interest on any Indebtedness having an outstanding principal amount of at least $1,000,000; or any other event or condition shall occur which results in a default of any such Indebtedness or enables the holder of any such Indebtedness or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) The liquidation or dissolution of Lessee, or the suspension of the business of Lessee, or the filing by Lessee of a voluntary petition or an answer seeking reorganization, arrangement, readjustment of its debts or for any other relief under the United States Bankruptcy Code, as amended, or under any other insolvency act or law, state or federal, now or hereafter existing, or any other action of Lessee indicating its consent to, approval of or acquiescence in, any such petition or proceeding; the application by Lessee for, or the appointment by consent or acquiescence of Lessee of a receiver, a trustee or a custodian of Lessee for all or a substantial part of its property; the making by Lessee of any assignment for the benefit of creditors; the admission by Lessee in writing of its inability to pay its debts as they mature or Lessee is generally not paying its debts and other financial obligations as they become due and payable; or Lessee taking any corporate action to authorize any of the foregoing; (h) (i) The filing of an involuntary petition against Lessee in bankruptcy or seeking reorganization, arrangement, readjustment of its debts or for any other relief under the United States Bankruptcy Code, as amended, or under any other insolvency act or law, state or federal, now or hereafter existing; or the involuntary appointment of a receiver, a trustee or a custodian of Lessee for all or a substantial part of its property; or the issuance of a warrant of attachment, execution or similar process against any substantial part of the property of Lessee; and (ii) the continuance of any of the events in clause (i) for ninety consecutive (90) days undismissed or undischarged; (i) The adjudication of Lessee as bankrupt or insolvent; (j) The entering of any order in any proceedings against Lessee or any Subsidiary decreeing the dissolution, divestiture or split-up of Lessee or any Subsidiary, if such order remains in effect for more than sixty (60) consecutive days; (k) Any report, certificate, financial statement or other instrument delivered to Lessor by or on behalf of Lessee pursuant to the terms of this Lease or any other Operative Agreement is false or misleading in any material respect when made or delivered; (l) Any Lessee Credit Agreement Event of Default regarding the failure to make a payment shall have occurred and be continuing and shall not have been waived; (m) A final judgment or judgments for the payment of money shall be rendered by a court or courts against Lessee or any of its Subsidiaries or any of their assets in 22 27 excess of $1,000,000 in the aggregate, and (i) the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within ninety (90) days from the date of entry thereof, or (ii) Lessee or such Subsidiary shall not, within said period of ninety (90) days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal, or (iii) such judgment or judgments shall not be discharged (or provisions shall not be made for such discharge) within ninety (90) days after a decision has been reached with respect to such appeal and the related stay has been lifted; (n) Lessee or any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $2,000,000 which it shall have become liable to pay to the PBGC or to a Pension Plan under Title IV of ERISA; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Pension Plan or Pension Plans; or a condition shall exist under Sections 4042(a)(1) or 4042(a)(2) of ERISA by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Pension Plan or Pension Plans must be terminated; (o) (intentionally omitted); or (p) Any Operative Agreement (excluding the Agency Agreement and also excluding any other Operative Agreement to which Lessee is not a party) shall cease to be in full force and effect; then, in any such event, Lessor may, in addition to the other rights and remedies provided for in this Article XVII and in Section 18.1, terminate this Lease by giving Lessee five (5) Business Days notice of such termination (provided, notwithstanding the foregoing, this Lease shall be deemed to be automatically terminated without the giving of notice upon the occurrence of a Lease Event of Default under Sections 17.1(g), (h) or (i)), and this Lease shall terminate, and all rights of Lessee under this Lease shall cease. Lessee shall, to the fullest extent permitted by law, pay as Supplemental Rent all costs and expenses incurred by or on behalf of Lessor or any other Financing Party, including without limitation reasonable fees and expenses of counsel, as a result of any Lease Event of Default hereunder. A POWER OF SALE HAS BEEN GRANTED IN THIS LEASE. A POWER OF SALE MAY ALLOW LESSOR TO TAKE THE PROPERTIES AND SELL THE PROPERTIES WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON THE OCCURRENCE OF A LEASE EVENT OF DEFAULT. 17.2 SURRENDER OF POSSESSION. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days written notice, surrender to Lessor possession of the Properties. Lessor may enter upon and 23 28 repossess the Properties by such means as are available at law or in equity, and may remove Lessee and all other Persons and any and all personal property and Lessee's equipment and personalty and severable Modifications from the Properties. Lessor shall have no liability by reason of any such entry, repossession or removal performed in accordance with applicable law. Upon the written demand of Lessor, Lessee shall return the Properties promptly to Lessor, in the manner and condition required by, and otherwise in accordance with the provisions of, Section 22.1(c) hereof. 17.3 RELETTING. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessor may, but shall be under no obligation to, relet any or all of the Properties, for the account of Lessee or otherwise, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such conditions (which may include concessions or free rent) and for such purposes as Lessor may determine, and Lessor may collect, receive and retain the rents resulting from such reletting. Lessor shall not be liable to Lessee for any failure to relet any Property or for any failure to collect any rent due upon such reletting. 17.4 DAMAGES. Neither (a) the termination of this Lease as to all or any of the Properties pursuant to Section 17.1; (b) the repossession of all or any of the Properties; nor (c) the failure of Lessor to relet all or any of the Properties, the reletting of all or any portion thereof, nor the failure of Lessor to collect or receive any rentals due upon any such reletting, shall relieve Lessee of its liabilities and obligations hereunder, all of which shall survive any such termination, repossession or reletting. If any Lease Event of Default shall have occurred and be continuing and notwithstanding any termination of this Lease pursuant to Section 17.1, Lessee shall forthwith pay to Lessor all Rent and other sums due and payable hereunder to and including without limitation the date of such termination. Thereafter, on the days on which the Basic Rent or Supplemental Rent, as applicable, are payable under this Lease or would have been payable under this Lease if the same had not been terminated pursuant to Section 17.1 and until the end of the Term hereof or what would have been the Term in the absence of such termination, Lessee shall pay Lessor, as current liquidated damages (it being agreed that it would be impossible accurately to determine actual damages) an amount equal to the Basic Rent and Supplemental Rent that are payable under this Lease or would have been payable by Lessee hereunder if this Lease had not been terminated pursuant to Section 17.1, less the net proceeds, if any, which are actually received by Lessor with respect to the period in question of any reletting of any Property or any portion thereof; provided, that Lessee's obligation to make payments of Basic Rent and Supplemental Rent under this Section 17.4 shall continue only so long as Lessor shall not have received the amounts specified in Section 17.6. In calculating the amount of such net proceeds from reletting, there shall be deducted all of Lessor's, any Holder's, the Agent's and any Lender's reasonable expenses in connection therewith, including without limitation repossession costs, brokerage or sales commissions, fees and expenses for counsel and any necessary repair or alteration costs and expenses incurred in preparation for such reletting. Lessor shall promptly 24 29 remit any net proceeds remaining, if any (after deducting therefrom all such Basic Rent, Supplemental Rent and expenses payable to any of the Financing Parties), to Lessee. To the extent Lessor receives any damages pursuant to this Section 17.4, such amounts shall be regarded as amounts paid on account of Rent. Lessee specifically acknowledges and agrees that its obligations under this Section 17.4 shall be absolute and unconditional under any and all circumstances and shall be paid and/or performed, as the case may be, without notice or demand and without any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment whatsoever. 17.5 POWER OF SALE. Without limiting any other remedies set forth in this Lease, in the event that a court of competent jurisdiction rules that this Lease constitutes a mortgage, deed of trust or other secured financing, then Lessor and Lessee agree that Lessee has granted, pursuant to Section 7.1(b) hereof and each Lease Supplement, a Lien against the Properties WITH POWER OF SALE, and that, upon the occurrence and during the continuance of any Lease Event of Default, Lessor shall have the power and authority, to the extent provided by law, after prior notice and lapse of such time as may be required by law, to foreclose its interest (or cause such interest to be foreclosed) in all or any part of the Properties. 17.6 FINAL LIQUIDATED DAMAGES. If a Lease Event of Default shall have occurred and be continuing, whether or not this Lease shall have been terminated pursuant to Section 17.1 and whether or not Lessor shall have collected any current liquidated damages pursuant to Section 17.4, Lessor shall have the right to recover, by demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor, as and for final liquidated damages, but exclusive of the indemnities payable under Section 11 of the Participation Agreement (which, if requested, shall be paid concurrently), and in lieu of all current liquidated damages beyond the date of such demand (it being agreed that it would be impossible accurately to determine actual damages) the Termination Value. Upon payment of the amount specified pursuant to the first sentence of this Section 17.6, Lessee shall be entitled to receive from Lessor, either at Lessee's request or upon Lessor's election, in either case at Lessee's cost, an assignment of Lessor's entire right, title and interest in and to the Properties, Improvements, Fixtures, Modifications, Equipment and all components thereof, in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of this Lease (including without limitation the release of any memoranda of Lease and/or the Lease Supplement recorded in connection therewith) and any Lessor Liens. The Properties shall be conveyed to Lessee "AS-IS, WHERE-IS" and in their then present physical condition. If any statute or rule of law shall limit the amount of such final liquidated damages to less than the amount agreed upon, Lessor shall be entitled to the maximum amount allowable under such statute or rule of law; provided, however, Lessee shall not be entitled to receive an assignment of Lessor's interest in the Properties, the Improvements, Fixtures, Modifications, Equipment or the components thereof unless Lessee shall have paid in full the Termination Value. Lessee specifically acknowledges and agrees that its obligations under this Section 17.6 shall be absolute and unconditional under any and all circumstances and shall be paid and/or performed, as the 25 30 case may be, without notice or demand and without any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment whatsoever. 17.7 ENVIRONMENTAL COSTS. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessee shall pay directly to any third party (or at Lessor's election, reimburse Lessor) for the cost of any environmental testing and/or remediation work undertaken respecting any Property, as such testing or work is deemed necessary in the reasonable judgment of Lessor. Lessee shall pay all amounts referenced in the immediately preceding sentence within ten (10) Business Days of any request by Lessor for such payment. The provisions of this Section 17.7 shall not limit the obligations of Lessee under any Operative Agreement regarding indemnification obligations, environmental testing, remediation and/or work. 17.8 WAIVER OF CERTAIN RIGHTS. If this Lease shall be terminated pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by Law, (a) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (b) any right of redemption, re-entry or possession; (c) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt; and (d) any other rights which might otherwise limit or modify any of Lessor's rights or remedies under this Article XVII. 17.9 ASSIGNMENT OF RIGHTS UNDER CONTRACTS. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessee shall upon Lessor's demand promptly assign, transfer and set over to Lessor all of Lessee's right, title and interest in and to each agreement executed by Lessee in connection with the acquisition, installation, testing, use, development, construction, operation, maintenance, repair, refurbishment and restoration of the Properties (including without limitation all right, title and interest of Lessee with respect to all warranty, performance, service and indemnity provisions), as and to the extent that the same relate to the acquisition, installation, testing, use, development, construction, operation, maintenance, repair, refurbishment and restoration of the Properties or any of them. 17.10 REMEDIES CUMULATIVE. The remedies herein provided shall be cumulative and in addition to (and not in limitation of) any other remedies available at law, equity or otherwise, including without limitation any mortgage foreclosure remedies. 26 31 ARTICLE XVIII 18.1 LESSOR'S RIGHT TO CURE LESSEE'S LEASE DEFAULTS. Lessor, without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) remedy any Lease Event of Default for the account and at the sole cost and expense of Lessee, including without limitation the failure by Lessee to maintain the insurance required by Article XIV, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of Lessee, enter upon any Property, and take all such action thereon as may be necessary therefor; provided, however, any such entry shall minimize disruption of Lessee's business and shall follow such reasonable procedures as Lessee prescribes. No such entry shall be deemed an eviction of any lessee. All out-of-pocket costs and expenses so incurred (including without limitation fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by Lessor, shall be paid by Lessee to Lessor on demand. ARTICLE XIX 19.1 PROVISIONS RELATING TO LESSEE'S EXERCISE OF ITS PURCHASE OPTION. Subject to Section 19.2, in connection with any termination of this Lease with respect to any Property pursuant to the terms of Section 16.2, or in connection with Lessee's exercise of its Purchase Option, upon the date on which this Lease is to terminate with respect to any Property, and upon tender by Lessee of the amounts set forth in Sections 16.2(b) or 20.2, as applicable, Lessor shall execute and deliver to Lessee (or to Lessee's designee) at Lessee's cost and expense an assignment (by deed or other appropriate instrument) of Lessor's entire interest in such Property, in each case in recordable form and otherwise in conformity with local custom and free and clear of any Lessor Liens attributable to Lessor but without any other warranties (of title or otherwise) from Lessor. Such Property shall be conveyed to Lessee "AS-IS, "WHERE-IS" and in then present physical condition. 19.2 NO PURCHASE OR TERMINATION WITH RESPECT TO LESS THAN ALL OF A PROPERTY. Lessee shall not be entitled to exercise its Purchase Option or the Sale Option separately with respect to a portion of any Property consisting of Land, Equipment, Improvements and/or any interest pursuant to a Ground Lease but shall be required to exercise its Purchase Option or the Sale Option with respect to an entire Property. 27 32 ARTICLE XX 20.1 PURCHASE OPTION OR SALE OPTION-GENERAL PROVISIONS. Not less than one hundred twenty (120) days and no more than one hundred eighty (180) days prior to either the third, fourth, fifth or sixth annual anniversary of the date of this Lease, the Expiration Date or, respecting the Purchase Option only, any Payment Date (such third, fourth, fifth or sixth annual anniversary date, such Expiration Date or, respecting the Purchase Option only, any such Payment Date being hereinafter referred to as the "Election Date"), Lessee may give Lessor irrevocable written notice (the "Election Notice") that Lessee is electing to exercise either (a) the option to purchase all, but not less than all, the Properties on the applicable Election Date (the "Purchase Option") or (b) with respect to an Election Notice given in connection with the third or fourth annual anniversary of the date of this Lease or the Expiration Date only, the option to remarket all, but not less than all, the Properties to a Person other than Lessee or any Affiliate of Lessee and cause a sale of such Properties to occur on the applicable Election Date pursuant to the terms of Section 22.1 (the "Sale Option"). If Lessee does not give an Election Notice indicating the Purchase Option or the Sale Option at least one hundred twenty (120) days and not more than one hundred eighty (180) days prior to the Expiration Date, then Lessee shall be deemed to have elected for the Purchase Option to apply on the Expiration Date. If Lessee shall either (i) elect (or be deemed to have elected) to exercise the Purchase Option or (ii) elect the Sale Option and fail to cause all, but not less than all, the Properties to be sold in accordance with the terms of Section 22.1 on the applicable Election Date, then in either case Lessee shall pay to Lessor on the date on which such purchase or sale is scheduled to occur an amount equal to the Termination Value for all, but not less than all, the Properties (which the parties do not intend to be a "bargain" purchase), and in connection therewith, Lessee shall comply with the terms and provisions of Section 22.1(c) to the same extent as if Lessor had exercised its option to retain one (1) or more Properties pursuant to Section 22.1(a) and, upon receipt of such amounts and satisfaction of such obligations, Lessor shall transfer to Lessee all of Lessor's right, title and interest in and to all, but not less than all, the Properties in accordance with Section 20.2. 20.2 LESSEE PURCHASE OPTION. Provided, no Default or Event of Default shall have occurred and be continuing (other than those that will be cured by the payment of the Termination Value for all the Properties) and provided, that the Election Notice has been appropriately given specifying the Purchase Option, Lessee shall purchase all the Properties on the applicable Election Date at a price equal to the Termination Value for such Properties (which the parties do not intend to be a "bargain" purchase price). Subject to Section 19.2, in connection with any termination of this Lease with respect to any Property pursuant to the terms of Section 16.2, or in connection with Lessee's exercise of its Purchase Option, upon the date on which this Lease is to terminate with respect to a Property or all of the Properties, and upon tender by Lessee of the amounts set forth in Section 16.2(b) or this Section 20.2, as applicable, Lessor shall execute, acknowledge (where 28 33 required) and deliver to Lessee, at Lessee's cost and expense, each of the following: (a) a termination or assignment (as requested by the Lessee) of each applicable Ground Lease and special warranty Deeds conveying each Property (to the extent it is real property not subject to a Ground Lease) to Lessee free and clear of the Lien of this Lease, the Lien of the Credit Documents and any Lessor Liens; (b) a Bill of Sale conveying each Property (to the extent it is personal property) to Lessee free and clear of the Lien of this Lease, the Lien of the Credit Documents and any Lessor Liens; (c) any real estate tax affidavit or other document required by law to be executed and filed in order to record the applicable Deed and/or the applicable Ground Lease termination; (d) FIRPTA affidavits and (e) such other documents as are customarily provided in similar transactions. All of the foregoing documentation must be in form and substance reasonably satisfactory to Lessor and Lessee. The applicable Property shall be conveyed to Lessee "AS-IS, WHERE-IS" and in then present physical condition. If any Property is the subject of remediation efforts respecting Hazardous Substances at the applicable Election Date which could materially and adversely impact the Fair Market Sales Value of such Property (with materiality determined in Lessor's reasonable discretion), then Lessee shall be obligated to repurchase each such Property pursuant to Section 20.2. On the applicable Election Date on which Lessee has elected to exercise its Purchase Option, Lessee shall pay (or cause to be paid) to Lessor, the Agent and all other parties, as appropriate, the sum of all reasonable costs and expenses incurred by any such party (unless such are expressly prohibited by the Operative Agreements) in connection with the election by Lessee to exercise its Purchase Option and all Rent and all other amounts then due and payable or accrued under this Lease and/or any other Operative Agreement. 20.3 THIRD PARTY SALE OPTION. (a) Provided, that (i) no Default or Event of Default shall have occurred and be continuing and (ii) the Election Notice has been appropriately given specifying the Sale Option, Lessee shall undertake to cause a sale of the Properties on the applicable Election Date (all as specified in the Election Notice), in accordance with the provisions of Section 22.1 hereof. Such Election Date on which a sale is required may be hereafter referred to as the "Sale Date". (b) In the event Lessee exercises the Sale Option then, as soon as practicable and in all events not less than sixty (60) days prior to the Sale Date, Lessee at its expense shall cause to be delivered to Lessor a Phase I environmental site assessment for each of the Properties recently prepared (no more than ninety (90) days old prior to the Sale Date) by an independent recognized professional reasonably acceptable to Lessor and in form, scope and content reasonably satisfactory to Lessor. In the event that Lessor shall not have received such environmental site assessment by the date sixty (60) days prior to the Sale Date or in the event that such environmental assessment shall reveal the existence of any material violation of Environmental Laws, other material Environmental Violation or potential material Environmental Violation (with materiality determined in each case by 29 34 Lessor in its reasonable discretion), then Lessee on the Sale Date shall pay to Lessor an amount equal to the Termination Value for all the Properties and any and all other amounts due and owing hereunder. Upon receipt of such payment and all other amounts due under the Operative Agreements, Lessor shall transfer to Lessee all of Lessor's right, title and interest in and to all the Properties in accordance with Section 19.1. ARTICLE XXI 21.1 [INTENTIONALLY OMITTED]. ARTICLE XXII 22.1 SALE PROCEDURE. (a) During the Marketing Period, Lessee, on behalf of Lessor, shall obtain bids for the cash purchase of all the Properties in connection with a sale to one (1) or more third party purchasers to be consummated on the Sale Date for the highest price reasonably available, shall notify Lessor promptly of the name and address of each prospective purchaser and the cash price which each prospective purchaser shall have offered to pay for each such Property and shall provide Lessor with such additional information about the bids and the bid solicitation procedure as Lessor may reasonably request from time to time. All such prospective purchasers must be Persons other than Lessee or any Affiliate of Lessee. On the Sale Date, Lessee shall pay (or cause to be paid) to Lessor and all other parties, as appropriate, the sum of all reasonable costs and expenses (unless such are expressly prohibited by the Operative Agreements) incurred by Lessor and/or the Agent (as the case may be) in connection with such sale of one or more Properties, all Rent and all other amounts then due and payable or accrued under this Lease and/or any other Operative Agreement. Lessor may reject any and all bids and may solicit and obtain bids by giving Lessee written notice to that effect; provided, however, that notwithstanding the foregoing, Lessor may not reject the bids submitted by Lessee if such bids, in the aggregate, are greater than or equal to the sum of the Limited Recourse Amount for all the Properties, and represent bona fide offers from one (1) or more third party purchasers. If the highest price which a prospective purchaser or the prospective purchasers shall have offered to pay for all the Properties on the Sale Date is less than the sum of the Limited Recourse Amount for all the Properties or if such bids do not represent bona fide offers from one (1) or more third parties or if there are no bids, Lessor may elect to retain one or more of the Properties by giving Lessee prior written notice of Lessor's election to retain the same, and promptly upon receipt of such notice, Lessee shall surrender, or cause to be surrendered, each of the Properties specified in such notice in accordance with the terms and conditions of Section 10.1. Upon acceptance of any bid, Lessor agrees, at Lessee's request and expense, to execute a contract of sale with respect to such sale, so long as the 30 35 same is consistent with the terms of this Article 22 and provides by its terms that it is nonrecourse to Lessor. Unless Lessor shall have elected to retain one or more of the Properties pursuant to the provisions of the preceding paragraph, Lessee shall arrange for Lessor to sell all the Properties free and clear of the Lien of this Lease and any Lessor Liens (all of which Lessor shall release), without recourse or warranty (of title or otherwise), for cash on the Sale Date to the purchaser or purchasers offering the highest cash sales price, as identified by Lessee or Lessor, as the case may be. To effect such transfer and assignment, Lessor shall execute, acknowledge (where required) and deliver to the appropriate purchaser each of the following: (a) special warranty Deeds conveying each such Property (to the extent it is real property titled to Lessor) and an assignment of the Ground Lease conveying the leasehold interest of Lessor in each such Property (to the extent it is real property and subject to a Ground Lease) to the appropriate purchaser free and clear of the Lien of this Lease, the Lien of the Credit Documents and any Lessor Liens; (b) a Bill of Sale conveying each such Property (to the extent it is personal property) titled to Lessor to the appropriate purchaser free and clear of the Lien of this Lease, the Lien of the Credit Documents and any Lessor Liens; (c) any real estate tax affidavit or other document required by law to be executed and filed in order to record each Deed and/or each Ground Lease assignment; (d) FIRPTA affidavits, as appropriate and (e) such other documents as are customarily provided in similar transactions. All of the foregoing documentation must be in form and substance reasonably satisfactory to Lessor and Lessee. Lessee shall surrender the Properties so sold or subject to such documents to each purchaser in the condition specified in Section 10.1, or in such other condition as may be agreed between Lessee and such purchaser. Lessee shall not take or fail to take any action which would have the effect of unreasonably discouraging bona fide third party bids for any Property. If each of the Properties is not either (i) sold on the Sale Date in accordance with the terms of this Section 22.1, or (ii) retained by Lessor pursuant to an affirmative election made by Lessor pursuant to the second sentence of the second paragraph of this Section 22.1(a), then (x) Lessee shall be obligated to pay Lessor on the Sale Date an amount equal to the Maximum Residual Guarantee Amount for all the Properties and (y) if a sale of the Properties is consummated after the Sale Date by Lessor, Lessor shall remit to Lessee, promptly after consummation of such sale, an amount equal to the excess of (A) the aggregate purchase price paid for the Properties in such sale over (B) the excess of (I) the aggregate Property Cost for the Properties, plus an amount equal to the sum of any and all reasonable out-of-pocket fees, expenses and other amounts incurred by Lessee in connection with any of the Properties or the sale thereof, plus any and all Basic Rent and Supplemental Rent then due and owing or accrued over (II) any amount paid by Lessee to Lessor pursuant to clause (x) above. (b) If the Properties are sold on a Sale Date to one (1) or more third party purchasers in accordance with the terms of Section 22.1(a) and the aggregate purchase price paid for all the Properties is less than the sum of the aggregate Property Cost for all the Properties (hereinafter such difference shall be referred to as the "Deficiency Balance"), then Lessee hereby unconditionally promises to pay to Lessor on the Sale Date 31 36 the lesser of (i) the Deficiency Balance, or (ii) the Maximum Residual Guarantee Amount for all the Properties. On a Sale Date if (x) Lessor receives the aggregate Termination Value for all the Properties from one (1) or more third party purchasers, (y) Lessor and such other parties receive all other amounts specified in the last sentence of the first paragraph of Section 22.1(a) and (z) the aggregate purchase price paid for all the Properties on such date exceeds the sum of the aggregate Property Cost for all the Properties, then Lessee may retain such excess. If one or more of the Properties are retained by Lessor pursuant to an affirmative election made by Lessor pursuant to the provisions of Section 22.1(a), then Lessee hereby unconditionally promises to pay to Lessor on the Sale Date an amount equal to the Maximum Residual Guarantee Amount for the Properties so retained. Any payment of the foregoing amounts described in this Section 22.1(b) shall be made together with a payment of all other amounts referenced in the last sentence of the first paragraph of Section 22.1(a). (c) In the event that all the Properties are either sold to one (1) or more third party purchasers on the Sale Date or retained by Lessor in connection with an affirmative election made by Lessor pursuant to the provisions of Section 22.1(a), then in either case on the applicable Sale Date; Lessee shall provide Lessor or such third party purchaser (unless otherwise agreed by such third party purchaser) with the following (except to the extent such constitutes intellectual property of Lessee or licensing or other such rights of Lessee to manufacture its products, engage in research, development and commercialization activities and otherwise conduct its business (but excluding the general operation of the Property)) (i) all permits, certificates of occupancy, governmental licenses and authorizations necessary to use, operate, repair, access and maintain each such Property, and (ii) such manuals, permits, easements, licenses, rights-of-way and other rights and privileges in the nature of an easement as are reasonably necessary or desirable in connection with the use, operation, repair, access to or maintenance of each such Property for its intended purpose or otherwise as Lessor or such third party purchaser(s) shall reasonably request (and a royalty-free license or similar agreement to effectuate the foregoing on terms reasonably agreeable to Lessor or such third party purchaser(s), as applicable). All assignments, licenses, easements, agreements and other deliveries required by clauses (i) and (ii) of this paragraph (c) shall be in form reasonably satisfactory to Lessor or such third party purchaser(s), as applicable, and shall be fully assignable (including without limitation both primary assignments and assignments given in the nature of security) without payment of any fee, cost or other charge. Notwithstanding the foregoing, to the extent any item listed in clauses (i) or (ii) of this paragraph (c) is not assignable under its terms or under applicable law, Lessee shall not have any obligations under this paragraph (c) with respect to the assignment of such item. Lessee shall also execute any documentation reasonably requested by Lessor or such third party purchaser(s), as applicable, evidencing the continuation or assignment of each Ground Lease. 32 37 22.2 APPLICATION OF PROCEEDS OF SALE. Lessor shall apply the proceeds of sale of any Property in the following order of priority: (a) FIRST, to pay or to reimburse Lessor (and/or the Agent, as the case may be) for the payment of all reasonable costs and expenses incurred by Lessor (and/or the Agent, as the case may be) in connection with the sale (to the extent Lessee has not satisfied its obligation to pay such costs and expenses); (b) SECOND, so long as the Credit Agreement is in effect and any Loans or Holder Advances or any amount is owing to the Financing Parties under any Operative Agreement, to the Agent to be applied pursuant to intercreditor provisions among Lessor, the Lenders and the Holders contained in the Operative Agreements; and (c) THIRD, to Lessee. 22.3 INDEMNITY FOR EXCESSIVE WEAR. If the proceeds of the sale described in Section 22.1 with respect to the Properties shall be less than the Limited Recourse Amount with respect to the Properties, and at the time of such sale it shall have been reasonably determined (pursuant to the Appraisal Procedure) that the Fair Market Sales Value of the Properties shall have been impaired by greater than expected ordinary wear and tear during the term of the Lease, Lessee shall pay to Lessor within ten (10) Business Days after receipt of Lessor's written statement (i) the amount of such excess wear and tear determined by the Appraisal Procedure or (ii) the amount of the Sale Proceeds Shortfall, whichever amount is less. 22.4 APPRAISAL PROCEDURE. For determining the Fair Market Sales Value of the Properties or any other amount which may, pursuant to any provision of any Operative Agreement, be determined by an appraisal procedure, Lessor and Lessee shall use the following procedure (the "Appraisal Procedure"). Lessor and Lessee shall endeavor to reach a mutual agreement as to such amount for a period of ten (10) Business Days from commencement of the Appraisal Procedure under the applicable section of the Lease, and if they cannot agree within ten (10) Business Days, then two (2) qualified appraisers, one (1) chosen by Lessee and one (1) chosen by Lessor, shall mutually agree thereupon, but if either party shall fail to choose an appraiser within twenty (20) days after notice from the other party of the selection of its appraiser, then the appraisal by such appointed appraiser shall be binding on Lessee and Lessor. If the two (2) appraisers cannot agree within twenty (20) days after both shall have been appointed, then a third appraiser shall be selected by the two (2) appraisers or, failing agreement as to such third appraiser within thirty (30) days after both shall have been appointed, by the American Arbitration Association. The decisions of the three (3) appraisers shall be given within twenty (20) days of the appointment of the third appraiser and the decision of the appraiser most different from the average of the other two (2) 33 38 shall be discarded and such average shall be binding on Lessor and Lessee; provided, that if the highest appraisal and the lowest appraisal are equidistant from the third appraisal, the third appraisal shall be binding on Lessor and Lessee. The fees and expenses of the appraiser appointed by Lessee shall be paid by Lessee; the fees and expenses of the appraiser appointed by Lessor shall be paid by Lessor (such fees and expenses not being indemnified pursuant to Section 13 of the Participation Agreement); and the fees and expenses of the third appraiser shall be divided equally between Lessee and Lessor. 22.5 CERTAIN OBLIGATIONS CONTINUE. During the Marketing Period, the obligation of Lessee to pay Rent with respect to the Properties (including without limitation the installment of Basic Rent due on the Sale Date) shall continue undiminished until payment in full to Lessor of all amounts due to Lessor or any other Person with respect to all Properties or any Operative Agreement. Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise to take action in connection with any such sale, other than as expressly provided in this Article XXII. ARTICLE XXIII 23.1 HOLDING OVER. If Lessee shall for any reason remain in possession of a Property after the expiration or earlier termination of this Lease as to such Property (unless such Property is conveyed to Lessee), such possession shall be as a tenancy at sufferance during which time Lessee shall continue to pay Supplemental Rent that would be payable by Lessee hereunder were the Lease then in full force and effect with respect to such Property and Lessee shall continue to pay Basic Rent at the lesser of the highest lawful rate and one hundred ten percent (110%) of the last payment of Basic Rent due with respect to such Property prior to such expiration or earlier termination of this Lease. Such Basic Rent shall be payable from time to time upon demand by Lessor and such additional amount of Basic Rent shall be applied by Lessor ratably to the Lenders and the Holders based on their relative amounts of the then outstanding aggregate Property Cost for all Properties. During any period of tenancy at sufferance, Lessee shall, subject to the second preceding sentence, be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenants at sufferance, to continue their occupancy and use of such Property. Nothing contained in this Article XXIII shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease as to any Property (unless such Property is conveyed to Lessee) and nothing contained herein shall be read or construed as preventing Lessor from maintaining a suit for possession of such Property or exercising any other remedy available to Lessor at law or in equity. 34 39 ARTICLE XXIV 24.1 RISK OF LOSS. During the Term, unless Lessee shall not be in actual possession of any Property in question solely by reason of Lessor's exercise of its remedies of dispossession under Article XVII, the risk of loss or decrease in the enjoyment and beneficial use of such Property as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and Lessor shall in no event be answerable or accountable therefor. ARTICLE XXV 25.1 ASSIGNMENT. (a) Lessee may not assign this Lease or any of its rights or obligations hereunder or with respect to any Property in whole or in part to any Person without the prior written consent of the Agent, the Lenders, the Holders and Lessor (which consent shall not be unreasonably withheld, conditioned or delayed). (b) No assignment by Lessee (referenced in this Section 25.1 or otherwise) or other relinquishment of possession to any Property shall in any way discharge or diminish any of the obligations of Lessee to Lessor hereunder and Lessee shall remain directly and primarily liable under the Operative Agreements as to any rights or obligations assigned by Lessee or regarding any Property in which rights or obligations have been assigned or otherwise transferred. 25.2 SUBLEASES. (a) Promptly, but in any event within five (5) Business Days, following the execution and delivery of any sublease permitted by this Article XXV, Lessee shall notify Lessor of the execution of such sublease. As of the date of each Lease Supplement, Lessee shall lease the respective Properties described in such Lease Supplement from Lessor, and any existing tenant respecting such Property shall automatically be deemed to be a subtenant of Lessee and not a tenant of Lessor. (b) Without the prior written consent of the Agent, any Lender, any Holder or Lessor and subject to the other provisions of this Section 25.2, Lessee may sublet any Property or portion thereof to any wholly-owned Subsidiary of Lessee. Except as referenced in the immediately preceding sentence, no other subleases shall be permitted unless consented to in writing by Lessor (such consent not to be unreasonably withheld, conditioned or delayed). All subleasing shall be done on market terms and shall in no way diminish the fair market value or useful life of any applicable Property. 35 40 (c) No sublease (referenced in this Section 25.2 or otherwise) or other relinquishment of possession to any Property shall in any way discharge or diminish any of Lessee's obligations to Lessor hereunder and Lessee shall remain directly and primarily liable under this Lease as to such Property, or portion thereof, so sublet. The term of any such sublease shall not extend beyond the Term. Each sublease shall be expressly subject and subordinate to this Lease. ARTICLE XXVI 26.1 NO WAIVER. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then existing or subsequent default. ARTICLE XXVII 27.1 ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease or of all or any portion of any Property or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or the Agent or any representative or agent of Lessor or the Agent, other than a written acceptance, shall constitute an acceptance of any such surrender. 27.2 NO MERGER OF TITLE. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, (b) any right, title or interest in any Property, (c) any Notes, or (d) a beneficial interest in Lessor. ARTICLE XXVIII 28.1 (INTENTIONALLY OMITTED) 36 41 ARTICLE XXIX 29.1 NOTICES. All notices required or permitted to be given under this Lease shall be in writing and delivered as provided in the Participation Agreement. ARTICLE XXX 30.1 MISCELLANEOUS. Anything contained in this Lease to the contrary notwithstanding, all claims against and liabilities of Lessee or Lessor arising from events commencing prior to the expiration or earlier termination of this Lease shall survive such expiration or earlier termination. If any provision of this Lease shall be held to be unenforceable in any jurisdiction, such unenforceability shall not affect the enforceability of any other provision of this Lease in such jurisdiction or of such provision or of any other provision hereof in any other jurisdiction. 30.2 AMENDMENTS AND MODIFICATIONS. Neither this Lease nor any Lease Supplement may be amended, waived, discharged or terminated except in accordance with the provisions of Section 12.4 of the Participation Agreement. 30.3 SUCCESSORS AND ASSIGNS. All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 30.4 HEADINGS AND TABLE OF CONTENTS. The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 30.5 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one (1) and the same instrument. 30.6 GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND. 37 42 30.7 CALCULATION OF RENT. All calculation of Rent payable hereunder shall be computed based on the actual number of days elapsed over a year of three hundred sixty (360) days or, to the extent such Rent is based on the Prime Lending Rate, three hundred sixty-five (365) (or three hundred sixty-six (366), as applicable) days. 30.8 MEMORANDA OF LEASE AND LEASE SUPPLEMENTS. This Lease shall not be recorded; provided, Lessor and Lessee shall promptly record (a) a memorandum of this Lease and the applicable Lease Supplement (in substantially the form of EXHIBIT B attached hereto) or a short form lease (in form and substance reasonably satisfactory to Lessor) regarding each Property promptly after the acquisition thereof in the local filing office with respect thereto, in all cases at Lessee's cost and expense, and as required under applicable law to sufficiently evidence this Lease and any such Lease Supplement in the applicable real estate filing records. 30.9 ALLOCATIONS BETWEEN THE LENDERS AND THE HOLDERS. Notwithstanding any other term or provision of this Lease to the contrary, the allocations of the proceeds of the Properties and any and all other Rent and other amounts received hereunder shall be subject to the inter-creditor provisions between the Lenders and the Holders contained in the Operative Agreements (or as otherwise agreed among the Lenders and the Holders from time to time). 30.10 LIMITATIONS ON RECOURSE. Notwithstanding anything contained in this Lease to the contrary, Lessee agrees to look solely to Lessor's estate and interest in the Properties (and in no circumstance to the Agent, the Lenders, the Holders or otherwise to Lessor) for the collection of any judgment requiring the payment of money by Lessor in the event of liability by Lessor, and no other property or assets of Lessor or any shareholder, owner or partner (direct or indirect) in or of Lessor, or any director, officer, employee, beneficiary, Affiliate of any of the foregoing shall be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Lessee under or with respect to this Lease, the relationship of Lessor and Lessee hereunder or Lessee's use of the Properties or any other liability of Lessor to Lessee. Nothing in this Section shall be interpreted so as to limit the terms of Sections 6.1 or 6.2 or the provisions of Section 12.9 of the Participation Agreement. 30.11 WAIVERS OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, 38 43 WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS LEASE AND FOR ANY COUNTERCLAIM THEREIN. 30.12 EXERCISE OF LESSOR RIGHTS. Lessee hereby acknowledges and agrees that the rights and powers of Lessor under this Lease have been assigned to the Agent pursuant to the terms of the Security Agreement and the other Operative Agreements. Lessor and Lessee hereby acknowledge and agree that (a) the Agent shall, in its discretion, direct and/or act on behalf of Lessor pursuant to the provisions of Sections 8.2(h) and 8.6 of the Participation Agreement, (b) all notices to be given to Lessor shall be given to the Agent and (c) all notices to be given by Lessor may be given by the Agent, at its election. 30.13 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION. THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS. 30.14 USURY SAVINGS PROVISION. IT IS THE INTENT OF THE PARTIES HERETO TO CONFORM TO AND CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN EFFECT. TO THE EXTENT ANY RENT OR PAYMENTS HEREUNDER ARE HEREINAFTER CHARACTERIZED BY ANY COURT OF COMPETENT JURISDICTION AS THE REPAYMENT OF PRINCIPAL AND INTEREST THEREON, THIS SECTION 30.14 SHALL APPLY. ANY SUCH RENT OR PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO HEREIN AS "INTEREST." ALL AGREEMENTS AMONG THE PARTIES HERETO ARE HEREBY LIMITED BY THE PROVISIONS OF THIS PARAGRAPH WHICH SHALL OVERRIDE AND CONTROL ALL SUCH AGREEMENTS, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER WRITTEN OR ORAL. IN NO WAY, NOR IN ANY EVENT OR CONTINGENCY (INCLUDING WITHOUT LIMITATION PREPAYMENT OR ACCELERATION OF THE MATURITY OF ANY OBLIGATION), SHALL ANY INTEREST TAKEN, RESERVED, CONTRACTED FOR, CHARGED, OR RECEIVED UNDER THIS LEASE OR OTHERWISE, EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM ANY POSSIBLE CONSTRUCTION OF ANY OF THE OPERATIVE AGREEMENTS OR ANY OTHER DOCUMENT OR AGREEMENT, INTEREST WOULD OTHERWISE BE PAYABLE IN EXCESS OF THE MAXIMUM NONUSURIOUS AMOUNT, ANY SUCH CONSTRUCTION SHALL BE SUBJECT TO THE PROVISIONS OF THIS PARAGRAPH AND SUCH AMOUNTS UNDER SUCH DOCUMENTS OR AGREEMENTS SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED UNDER APPLICABLE LAW, 39 44 WITHOUT THE NECESSITY OF EXECUTION OF ANY AMENDMENT OR NEW DOCUMENT OR AGREEMENT. IF LESSOR SHALL EVER RECEIVE ANYTHING OF VALUE WHICH IS CHARACTERIZED AS INTEREST WITH RESPECT TO THE OBLIGATIONS OWED HEREUNDER OR UNDER APPLICABLE LAW AND WHICH WOULD, APART FROM THIS PROVISION, BE IN EXCESS OF THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL TO THE AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE INTEREST SHALL, WITHOUT PENALTY, BE APPLIED TO THE REDUCTION OF THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL AND NOT TO THE PAYMENT OF INTEREST, OR REFUNDED TO LESSEE OR ANY OTHER PAYOR THEREOF, IF AND TO THE EXTENT SUCH AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE EXCEEDS THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL. THE RIGHT TO DEMAND PAYMENT OF ANY AMOUNTS EVIDENCED BY ANY OF THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND LESSOR DOES NOT INTEND TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN THE EVENT OF SUCH DEMAND. ALL INTEREST PAID OR AGREED TO BE PAID TO LESSOR SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED, AND SPREAD THROUGHOUT THE FULL STATED TERM (INCLUDING WITHOUT LIMITATION ANY RENEWAL OR EXTENSION) OF THIS LEASE SO THAT THE AMOUNT OF INTEREST ON ACCOUNT OF SUCH PAYMENTS DOES NOT EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED BY APPLICABLE LAW. [Signature pages follow] 40 45 IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed and delivered as of the date first above written. GUILFORD PHARMACEUTICALS INC. By: /s/ Andrew R. Jordan ---------------------------------------- Name: Andrew R. Jordan -------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer -------------------------------------- FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, as Lessor By: /s/ Brett R. King ---------------------------------------- Name: Brett R. King -------------------------------------- Title: Assistant Vice President -------------------------------------- Receipt of this original counterpart of the foregoing Lease is hereby acknowledged as the date hereof FIRST UNION NATIONAL BANK, as the Agent By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- 46 EXHIBIT A TO THE LEASE LEASE SUPPLEMENT NO. ___ THIS LEASE SUPPLEMENT NO. ___ (this "Lease Supplement") dated as of [________________] between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, as lessor (the "Lessor"), and GUILFORD PHARMACEUTICALS INC., a Delaware corporation, as lessee (the "Lessee"). WHEREAS, Lessor is the owner or will be the owner of the Property described on Schedule 1 hereto (the "Leased Property") and wishes to lease the same to Lessee; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS; RULES OF USAGE. For purposes of this Lease Supplement, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in Appendix A to the Participation Agreement, dated as of February 5, 1998, among Lessee, Lessor, not individually, except as expressly stated therein, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, the various banks and other lending institutions which are parties thereto from time to time, as the Holders, the various banks and other lending institutions which are parties thereto from time to time, as the Lenders, and First Union National Bank, as the Agent for the Lenders and respecting the Security Documents, as the Agent for the Lenders and Holders, to the extent of their interests, as such may be amended, modified, extended, supplemented, restated and/or replaced from time to time. SECTION 2. THE PROPERTIES. Attached hereto as Schedule 1 is the description of the Leased Property, with an Equipment Schedule attached hereto as Schedule 1-A, an Improvement Schedule attached hereto as Schedule 1-B and [A LEGAL DESCRIPTION OF THE LAND / A COPY OF THE GROUND LEASE] attached hereto as Schedule 1-C. Effective upon the execution and delivery of this Lease Supplement by Lessor and Lessee, the Leased Property shall be subject to the terms and provisions of the Lease. Without further action, any and all additional Equipment funded under the Operative Agreements and any and all additional Improvements made to the Land shall be deemed to be titled to the Lessor and subject to the terms and conditions of the Lease and this Lease Supplement. SECTION 3. USE OF PROPERTY. At all times during the Term with respect to each Property, Lessee will comply with all obligations under and (to the extent no Event of Default exists and provided, that such exercise will not result in a Material Adverse Effect) shall be permitted to exercise all rights and remedies under, all operation and easement agreements and related or similar agreements applicable to such Property. A-1 47 SECTION 4. RATIFICATION; INCORPORATION BY REFERENCE. Except as specifically modified hereby, the terms and provisions of the Lease and the Operative Agreements are hereby ratified and confirmed and remain in full force and effect. The Lease is hereby incorporated herein by reference as though restated herein in its entirety. SECTION 5. ORIGINAL LEASE SUPPLEMENT. The single executed original of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt of the Agent therefor on or following the signature page thereof shall be the original executed counterpart of this Lease Supplement (the "Original Executed Counterpart"). To the extent that this Lease Supplement constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease Supplement may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart. SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED TO AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF MARYLAND. SECTION 7. MORTGAGE; POWER OF SALE. Without limiting any other remedies set forth in the Lease, in the event that a court of competent jurisdiction rules that the Lease constitutes a mortgage, deed of trust or other secured financing, then Lessor and Lessee agree that Lessee hereby grants a Lien against the Leased Property WITH POWER OF SALE, and that, upon the occurrence of any Lease Event of Default, Lessor shall have the power and authority, to the extent provided by law, after prior notice and lapse of such time as may be required by law, to foreclose its interest (or cause such interest to be foreclosed) in all or any part of the Leased Property. SECTION 8. COUNTERPART EXECUTION. This Lease Supplement may be executed in any number of counterparts and by each of the parties hereto in separate counterparts, all such counterparts together constituting but one (1) and the same instrument. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] A-2 48 IN WITNESS WHEREOF, each of the parties hereto has caused this Lease Supplement to be duly executed by an officer thereunto duly authorized as of the date and year first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, as Lessor By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- GUILFORD PHARMACEUTICALS INC., as Lessee By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Receipt of this original counterpart of the foregoing Lease Supplement is hereby acknowledged as the date hereof. FIRST UNION NATIONAL BANK, as the Agent By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- A-3 49 [CONFORM TO STATE LAW REQUIREMENTS] STATE OF _______________ ) ) ss: COUNTY OF ______________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of _________________ this _____ day of ______________, by ________________, as __________________ of FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, on behalf of the Owner Trustee. [Notarial Seal] ----------------------------- Notary Public My commission expires:____________ STATE OF _______________ ) ) ss: COUNTY OF ______________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of _________________ this _____ day of ______________, by ________________, as __________________ of GUILFORD PHARMACEUTICALS INC., a Delaware corporation, on behalf of the corporation. [Notarial Seal] ----------------------------- Notary Public My commission expires:____________ STATE OF _______________ ) ) ss: COUNTY OF ______________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of ________________ this ____ day of ___________, by _____________, as __________________ of FIRST UNION NATIONAL BANK, a national banking association, as the Agent. [Notarial Seal] ----------------------------- Notary Public My commission expires:____________ A-4 50 SCHEDULE 1 TO LEASE SUPPLEMENT NO. ____ (Description of the Leased Property) A-5 51 SCHEDULE 1-A TO LEASE SUPPLEMENT NO. ____ (Equipment) A-6 52 SCHEDULE 1-B TO LEASE SUPPLEMENT NO. ____ (Improvements) A-7 53 SCHEDULE 1-C TO LEASE SUPPLEMENT NO. ____ [(LAND)/ (GROUND LEASE)] A-8 54 EXHIBIT B TO THE LEASE [MODIFY OR SUBSTITUTE SHORT FORM LEASE AS NECESSARY FOR LOCAL LAW REQUIREMENTS] Recordation requested by: Moore & Van Allen, PLLC After recordation return to: Moore & Van Allen, PLLC (WMA) 100 North Tryon Street, Floor 47 Charlotte, NC 28202-4003 Space above this line for Recorder's use - ------------------------------------------------------------------------------ MEMORANDUM OF LEASE AGREEMENT AND LEASE SUPPLEMENT NO. _____________ THIS MEMORANDUM OF LEASE AGREEMENT AND LEASE SUPPLEMENT NO. ____________ ("Memorandum"), dated as of _____________, 199___, is by and between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, with an office at 79 South Main Street, Salt Lake City, Utah 84111 (hereinafter referred to as "Lessor") and GUILFORD PHARMACEUTICALS INC., a Delaware corporation, with an office at 6611 Tributary Street, Baltimore, Maryland 21224 (hereinafter referred to as "Lessee"). WITNESSETH: That for value received, Lessor and Lessee do hereby covenant, promise and agree as follows: 1. DEMISED PREMISES AND DATE OF LEASE. Lessor has leased to Lessee, and Lessee has leased from Lessor, for the Term (as hereinafter defined), certain real property and other property located in ________________, which is described in the attached Schedule 1 (the "Property"), pursuant to the terms of a Lease Agreement between Lessor and Lessee dated as of February 5, 1998__ (as such may be amended, modified, extended, supplemented, restated and/or replaced from time to time, "Lease") and a Lease Supplement No. _____ between Lessor and Lessee dated as of ______________ (the "Lease Supplement"). B-1 55 2. TERM, RENEWAL, EXTENSION AND PURCHASE OPTION. The term of the Lease for the Property ("Term") commenced as of __________, 19__ and shall end as of _________, __, unless the Term is extended or earlier terminated in accordance with the provisions of the Lease. The tenant has a purchase option under the Lease. 3. TAX PAYER NUMBERS. Lessor's tax payer number: __________________. Lessee's tax payer number: ____________________. 4. MORTGAGE; POWER OF SALE. Without limiting any other remedies set forth in the Lease, in the event that a court of competent jurisdiction rules that the Lease constitutes a mortgage, deed of trust or other secured financing, then Lessor and Lessee agree that Lessee has granted, pursuant to the terms of the Lease and the Lease Supplement, a Lien against the Property WITH POWER OF SALE, and that, upon the occurrence and during the continuance of any Lease Event of Default, Lessor shall have the power and authority, to the extent provided by law, after prior notice and lapse of such time as may be required by law, to foreclose its interest (or cause such interest to be foreclosed) in all or any part of the Property. 5. EFFECT OF MEMORANDUM. The purpose of this instrument is to give notice of the Lease and the Lease Supplement and their respective terms, covenants and conditions to the same extent as if the Lease and the Lease Supplement were fully set forth herein. This Memorandum shall not modify in any manner the terms, conditions or intent of the Lease or the Lease Supplement and the parties agree that this Memorandum is not intended nor shall it be used to interpret the Lease or the Lease Supplement or determine the intent of the parties under the Lease or the Lease Supplement. [The remainder of this page has been intentionally left blank.] B-2 56 IN WITNESS WHEREOF, the parties hereto have duly executed this instrument as of the day and year first written. LESSOR: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- LESSEE: GUILFORD PHARMACEUTICALS INC., By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- B-3 57 SCHEDULE 1 (Description of Property) B-4 58 [CONFORM TO STATE LAW REQUIREMENTS] STATE OF _______________ ) ) ss: COUNTY OF ______________ ) The foregoing Memorandum of Lease Agreement and Lease Supplement No. _____ was acknowledged before me, the undersigned Notary Public, in the County of _________________ this _____ day of ______________, by ________________, as __________________ of FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1, on behalf of the Owner Trustee. [Notarial Seal] ---------------------------- Notary Public My commission expires:____________ STATE OF _______________ ) ) ss: COUNTY OF ______________ ) The foregoing Memorandum of Lease Agreement and Lease Supplement No. _____ was acknowledged before me, the undersigned Notary Public, in the County of _________________ this _____ day of ______________, by ________________, as __________________ of GUILFORD PHARMACEUTICALS INC., a Delaware corporation, on behalf of the corporation. [Notarial Seal] ---------------------------- Notary Public My commission expires:____________ B-5 EX-21.01 11 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.01 SUBSIDIARIES OF GUILFORD PHARMACEUTICALS INC. Below is a list of direct and indirect subsidiaries of the Corporation. All subsidiaries are wholly-owned. 1. GPI Holdings, Inc., a Delaware corporation 2. Gell Pharmaceuticals, Inc., a Delaware corporation 3. Holabird Holdings N.V., a Netherlands corporation 4. GPI Polymer Holdings, Inc., a Delaware corporation 5. GPI NIL Holdings, Inc., a Delaware corporation EX-23.01 12 CONSENT OF KMPG PEAT MARWICK LLP 1 EXHIBIT 23.01 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders of Guilford Pharmaceuticals Inc.: We consent to incorporation by reference in the registration statements (No. 33-90828 and No. 333-17833) on Form S-8 and registration statement No. 333-35415 on Form S-3 of Guilford Pharmaceuticals Inc. of our report dated February 13, 1998, relating to the consolidated balance sheets of Guilford Pharmaceuticals Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Guilford Pharmaceuticals Inc. KPMG Peat Marwick LLP Baltimore, Maryland March 25, 1998 EX-27.01 13 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 24,980 0 606 0 1,342 57,796 21,601 4,448 180,081 10,861 10,926 0 0 194 158,100 180,081 7,369 23,828 2,585 41,954 0 0 837 (11,437) 0 (11,437) 0 0 0 (11,437) (.65) (.65) EPS has been restated for the years ending December 31, 1995 and 1996 due to the implementation of SAB 98 and SFAS 128.
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