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o Preliminary Proxy Statement


	o	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))


	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:(*)


	(*)	Set forth the amount on which the filing fee is calculated and state how it was determined.


	o	Fee paid previously with preliminary materials.

	o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

You are invited to attend our annual meeting of stockholders, which we will hold on May 14, 2002, at 10:00 a.m. (Eastern Time) at the Company’s research and development facilities at 6411 Beckley Street, Baltimore, Maryland. We have enclosed a copy of our proxy statement and 2001 annual report for your review.

At the meeting, you and our other stockholders will vote on the following matters:


	•	the annual election of directors;

	•	approval of our 2002 Stock Award and Incentive Plan;

	•	approval of our 2002 Employee Stock Purchase Plan; and

	•	the ratification of KPMG LLP as our independent auditors for 2002.

In addition, I will review our 2001 performance, discuss our plans for 2002, and answer questions you and other stockholders may have about our company.

We’ve enclosed a proxy card that lists all matters that require your vote. PLEASE COMPLETE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE PRE-ADDRESSED, POSTAGE PAID ENVELOPE PROVIDED. This will allow your shares to be voted whether or not you plan to attend the meeting. If you plan to attend the meeting, please check the box on your proxy card.

The facility is handicapped accessible. In addition, if you need any other special accommodations, please indicate those on your proxy card.

We will hold our 2002 annual meeting of stockholders on TUESDAY, MAY 14, 2002 at 10:00 a.m. (Eastern Time) at the Company’s research and development facilities at 6411 Beckley Street, Baltimore, Maryland. The meeting is being held for the following purposes:


	1.	To elect directors to serve on our board for the next year and until their successors are elected and qualified;

	2.	To approve our 2002 Stock Award and Incentive Plan;

	3.	To approve our 2002 Employee Stock Purchase Plan;

	4.	To ratify the selection of KPMG LLP as our independent auditors for 2002; and

	5.	To transact such other business as may properly come before the annual meeting.

Common stockholders of record at the close of business on March 22, 2002 will be entitled to vote at the meeting. This notice, proxy statement and the enclosed annual report is first being mailed to stockholders on or about April 3, 2002.


	By order of the Board of Directors,


	Nancy J. Linck
	Senior Vice President, General Counsel & Secretary


	A:	Only common stockholders of record at the close of business on March 22, 2002 may vote at the meeting. Each share has one vote. There were 29,729,407 shares of common stock outstanding on that date.


	A:	All shareholders as of the record date, or their duly appointed proxies may attend the meeting, and each may be accompanied by one guest. Seating, however, is limited. Admission to the meeting will be on a first-come, first-served basis. Registration will begin at 8:00 a.m., and seating will begin at 9:00 a.m. If you attend, please note that you may be asked to present valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

		Please also note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.

4. Ratification of the selection of KPMG LLP as our independent auditors for 2002.


	A:	You must be present, or represented by proxy, at the annual meeting in order to vote your shares. Because many of our stockholders are unable to attend the meeting in person, we send proxy cards to all of our stockholders.


	A:	A proxy is a person you appoint to vote on your behalf. We are soliciting the designation of proxies so that all common shares may be voted at the annual meeting. In addition to the use of the mail, we may solicit proxies in person, by telephone, facsimile, wire or other electronic means.

		We have also retained D.F. King & Co., Inc. to assist with proxy solicitation. If we use their services, we will pay a fee that is not expected to exceed $3,500,


		plus out of pocket expenses. We will bear all costs and expenses of the solicitation. You must complete and return the enclosed proxy card to have your shares voted by a proxy.


	A:	You will be designating: Craig R. Smith, M.D. (Chairman of the Board and Chief Executive Officer), Andrew R. Jordan (Senior Vice President and Chief Financial Officer) and Nancy J. Linck (Senior Vice President, General Counsel and Secretary) and any one of them as your proxies.


	A:	Your proxy will vote according to the instructions you mark on your proxy card. If you complete and return your proxy card but do not indicate your vote on the specified matters, your proxy will vote “FOR” Items 1, 2, 3 and 4. Also, your proxy is authorized to vote, using his best judgment, on any other matters that properly come before the meeting.


	A:	You may revoke your proxy at any time before your shares are voted at the annual meeting by:


	•	notifying our Corporate Secretary, Nancy J. Linck, in writing at 6611 Tributary Street, Baltimore, Maryland 21224, that you are revoking your proxy indicating your name and the number of shares held;

	•	executing and delivering to our Corporate Secretary, at the above address, a later dated proxy card; or

	•	attending the annual meeting and voting in person by ballot.


	•	ITEM 1. THE ELECTION OF DIRECTORS. The names of all the directors to be elected are listed on your proxy card. You have three options:


	–	OPTION 1. To vote for all directors, you check the box marked “FOR.”

	–	OPTION 2. To vote for some of the directors and against the rest, you should write the names of the directors you do NOT want to vote for in the space provided on the proxy card. You should NOT check the box marked “FOR.”

	–	OPTION 3. To abstain from voting for all directors (that is, not vote for or against any of the directors), you check the box marked “WITHHOLD AUTHORITY.”


	•	ITEM 4. RATIFICATION OF OUR SELECTION OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR 2002.


	2.	Sign and date your proxy card. IF YOU DO NOT SIGN YOUR PROXY CARD, YOUR SHARES CANNOT BE VOTED.

	3.	Mail your proxy card in the pre-addressed, postage paid envelope.

REMEMBER TO CHECK THE BOX ON YOUR PROXY CARD IF YOU PLAN TO ATTEND THE ANNUAL MEETING.


	A:	A quorum is the presence at the annual meeting in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast. Because on March 22, 2002, there were 29,729,407 shares of common stock outstanding, 14,864,704 shares constitute a quorum.

		Broker non-votes, abstentions and withhold-authority votes COUNT for purposes of determining a quorum.

		Assuming that a quorum of stockholders is present at the meeting:


	•	those directors who receive a plurality of the votes cast at the meeting will be elected, meaning those individuals nominated for the eight directorships who receive the highest number of votes cast, even if they receive less than a majority of the votes cast;

	•	the majority of the votes cast are necessary to approve our 2002 Stock Award and Incentive Plan; and

	•	the majority of the votes cast are necessary to approve our 2002 Employee Stock Purchase Plan.

	•	the majority of the votes cast are necessary to ratify the selection of our independent auditors.


		Broker non-votes, abstentions and withhold-authority votes DO NOT COUNT as votes cast.


	A:	First, you may have various accounts with us that are registered differently, perhaps in different names or different social security or federal tax identification numbers. Second, you may own shares indirectly through one or more brokers. Each of your brokers will send you a proxy card for these shares. You should vote on EACH PROXY CARD you receive and mail it to the address shown on the proxy card.


	A:	Yes. If you vote by proxy, you do not need to fill out a ballot at the annual meeting, unless you want to change your vote.

Our entire board of directors is elected each year at the annual meeting. Each director serves for one year and until a successor director is elected and qualified. Each of the nominated directors agrees to serve if elected. However, if for some reason one or more of them is unable to accept nomination or election, we intend to vote proxies for the election of a nominee or nominees designated by the board of directors, unless the board reduces the total number of directors on the board or decides to fill the vacant position at a later time. Our Board of Directors currently consists of seven members and each of our seven current directors is standing for reelection. We have one new nominee for director, David P. Wright. Mr. Wright has been nominated to fill the vacancy created by the resignation of Richard Casey during August 2001. Biographical information for each of the nominees and other information about them is presented beginning on page 20.

The Board of Directors approved the 2002 Stock Award and Incentive Plan on February 20, 2002, subject to approval from our shareholders at this meeting. We are asking our shareholders to approve our 2002 Stock Award and Incentive Plan as we believe that approval of the plan is essential to our continued success. The purpose of the 2002 Stock Award and Incentive Plan is to attract and to encourage the continued employment and service of, and maximum efforts by, officers, key employees and other key individuals by offering those persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. The Board of Directors believes that grants under the 2002 Stock Award and Incentive Plan will be a valuable incentive and will serve to the ultimate benefit of shareholders by aligning more closely the interests of 2002 Stock Award and Incentive Plan participants with those of our shareholders.

The Board of Directors has reserved for issuance 1,150,000 shares of Common Stock under the 2002 Stock Award and Incentive Plan, subject to stockholder approval of the plan. The shares of Common Stock reserved for issuance includes 874,602 newly reserved shares and 275,398 shares that were initially reserved for issuance under either the 1993 Employee Share Option and Restricted Share Plan, as amended, the 1998 Employee Share Option and Restricted Share Plan, as amended, or the Directors’ Stock Option Plan, as amended. There are currently no participants in the 2002 Stock Award and Incentive Plan. Because participation and the types of awards under the 2002 Stock Award and Incentive Plan are subject to the discretion of the Compensation Committee, the benefits or amounts that will be received by any participant or groups of participants if the 2002 Stock Award and Incentive Plan is approved are not currently determinable.

The affirmative vote of a majority of the shares of common stock cast at the Annual Meeting is required to approve the 2002 Stock Award and Incentive Plan. Unless otherwise indicated, properly executed proxies will be voted in favor of Proposal 2 to approve the 2002 Stock Award and Incentive Plan.

A description of key provisions of the 2002 Stock Award and Incentive Plan is set forth below. This summary is qualified in its entirety by the detailed provisions of the 2002 Stock Award and Incentive Plan, a copy of which is attached as Appendix A to this proxy statement.

Administration. The 2002 Stock Award and Incentive Plan is administered by the Compensation Committee of the Board of Directors. Subject to the terms of the plan, the Compensation Committee may select participants to receive awards, determine the types of awards and terms and conditions of awards, and interpret provisions of the plan. The New Hire Option Committee is authorized to award grants of options to newly hired employees.

Common Stock Reserved for Issuance under the Plan. The Common Stock issued or to be issued under the 2002 Stock Award and Incentive Plan consists of authorized but unissued shares and treasury shares. If any shares covered by an award under the 2002 Stock Award and Incentive Plan, the 1993 Employee Share Option and Restricted Share Plan, the 1998 Employee Share Option and Restricted Share Plan or the Directors’ Stock Option Plan are not purchased or are forfeited, or if an award otherwise terminates without delivery of any Common Stock, then the shares underlying those forfeited or terminated awards will again be available for making awards under the 2002 Stock Award and Incentive Plan.

Eligibility. Awards may be made under the 2002 Stock Award and Incentive Plan to employees, officers or directors of or consultants to the Company or any of our affiliates, including any such employee who is an officer or director of us or of any affiliate, and to any other individual whose participation in the plan is determined to be in the best interests of the Company by the Board of Directors. On the record date, there were approximately 14 executive officers, 276 employees and six non-employee directors of the Company and its subsidiaries who would be eligible to participate in the 2002 Stock Award and Incentive Plan.

Amendment or Termination of the Plan. The Board of Directors may terminate or amend the plan at any time and for any reason. The 2002 Stock Award and Incentive Plan shall terminate in any event ten years after its effective date. Amendments will be submitted for shareholder approval to the extent required by the Internal Revenue Code or other applicable laws.

Options. The 2002 Stock Award and Incentive Plan permits the granting of options to purchase shares of Common Stock intended to qualify as incentive stock options under the Internal Revenue Code and stock options that do not qualify as incentive stock options.

The exercise price of each stock option may not be less than 100% of the fair market value of our Common Stock on the date of grant. The fair market value is generally determined as the closing price of the Common Stock on The NASDAQ^® National Market on the day before the determination date. In the case of certain 10% shareholders who receive incentive stock options, the exercise price may not be less than 110% of the fair market value of the Common Stock on the date of grant. An exception to these requirements is made for options that the Company grants in substitution for options held by employees of companies that the Company acquires. In that case the exercise price is adjusted to preserve the economic value of the employee’s stock option from his or her former employer.

The term of each stock option is fixed by the Compensation Committee and may not exceed 10 years from the date of grant. The Compensation Committee determines at what time or times each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options may be made exercisable in installments. The exercisability of options may be accelerated by the Compensation Committee.

In general, an optionee may pay the exercise price of an option by cash, certified check, by tendering shares of Common Stock (which if acquired from the Company have been held by the optionee for at least six months), or by means of a broker-assisted cashless exercise.

Stock options granted under the 2002 Stock Award and Incentive Plan may not be sold, transferred, pledged or assigned other than by will or under applicable laws of descent and distribution. However, the Company may permit limited transfers of non-qualified options for the benefit of immediate family members of grantees to help with estate planning concerns.


	•	restricted stock (shares of Common Stock subject to transferability, vesting or other restrictions).

	•	bonus stock (shares of Common Stock not subject to transferability, vesting or other restrictions).

	•	stock units (Common Stock units subject to transferability, vesting, performance or other restrictions).

	•	dividend equivalent rights, which are rights entitling the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of Common Stock.

	•	stock appreciation rights, which are a right to receive a number of shares or, in the discretion of the Compensation Committee, an amount in cash or a combination of shares and cash, based on the increase in the fair market value of the shares underlying the right during a stated period specified by the Compensation Committee.

	•	performance and annual incentive awards, ultimately payable in Common Stock or cash, as determined by the Compensation Committee. The Compensation Committee may grant multi-year and annual incentive awards subject to achievement of specified goals tied to business criteria (described below). The Compensation Committee may specify the amount of the incentive award as a percentage of these business criteria, a percentage in excess of a threshold amount or as another amount which need not bear a strictly mathematical relationship to these business criteria. The Compensation Committee may modify, amend or adjust the terms of each award and performance goal. Awards to individuals who are covered under Section 162(m) of the Internal Revenue Code, or who the Compensation Committee designates as likely to be covered in the future, will comply with the requirement that payments to such employees qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code to the extent that the Compensation Committee so designates. Such employees include the chief executive officer and the four highest compensated executive officers (other than


		the chief executive officer) determined at the end of each year (the “covered employees”).

Effect of Certain Corporate Transactions. Certain change of control transactions involving us, such as a sale of the Company, may cause awards granted under the 2002 Stock Award and Incentive Plan to vest, unless the awards are continued or substituted for in connection with the change of control transaction.

Adjustments for Stock Dividends and Similar Events. The Compensation Committee will make appropriate adjustments in outstanding awards and the number of shares available for issuance under the 2002 Stock Award and Incentive Plan, including the individual limitations on awards, to reflect Common Stock dividends, stock splits and other similar events.

Section 162(m) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code limits publicly held companies such as the Company to an annual deduction for federal income tax purposes of $1 million for compensation paid to their covered employees. However, performance-based compensation is excluded from this limitation. The 2002 Stock Award and Incentive Plan is designed to permit the Compensation Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m).


	(i) the compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals;

	(ii) the performance goal under which compensation is paid must be established by a compensation committee comprised solely of two or more directors who qualify as outside directors for purposes of the exception;

	(iii) the material terms under which the compensation is to be paid must be disclosed to and subsequently approved by shareholders of the corporation before payment is made in a separate vote; and

	(iv) the compensation committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied.

Under the Internal Revenue Code, a director is an “outside director” of the Company if he or she is not a current employee of the Company; is not a former employee who receives compensation for prior services (other than under a qualified retirement plan); has not been an officer of the Company; and does not receive, directly or indirectly (including amounts paid to an entity that employs the director or in which the director has at least a five percent ownership interest), remuneration from the Company in any capacity other than as a director.

In the case of compensation attributable to stock options, the performance goal requirement (summarized in (i) above) is deemed satisfied, and the certification requirement (summarized in (iv) above) is inapplicable, if the grant or award is made by the compensation committee; the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified period to an employee; and under the terms of the option, the amount of compensation is based solely on an increase in the value of the common stock after the date of grant.

Under the 2002 Stock Award and Incentive Plan, one or more of the following business criteria, on a consolidated basis, and/or with respect to specified subsidiaries or business units (except with respect to the total shareholder return and earnings per share criteria), will be used exclusively by the Compensation Committee in establishing performance goals:


	•	total shareholder return;

	•	such total shareholder return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard & Poor’s 500 Stock Index;

	•	net income;

	•	pretax earnings;

	•	earnings before interest expense, taxes, depreciation and amortization;

	•	pretax operating earnings after interest expense and before bonuses, service fees and extraordinary or special items;

	•	operating margin;

	•	earnings per share;

	•	return on equity;

	•	return on capital;

	•	return on investment;

	•	operating earnings;

	•	working capital;

	•	ratio of debt to shareholders’ equity;

	•	revenue;

	•	commencement of certain clinical trials;

	•	closing of corporate partnering transactions; and

	•	closing of financing transactions.

The maximum number of shares of Common Stock subject to options or otherwise that can be awarded under the 2002 Stock Award and Incentive Plan to any person is 500,000 per year. The maximum number of shares of Common Stock that can be awarded under the 2002 Stock Award and Incentive Plan to any person, other than pursuant to an option, is 500,000 per year. The maximum dollar amount that may be earned as an annual incentive award or other cash award in any fiscal year by any one person is $2,000,000 and the maximum amount that may be earned as a performance award or other cash award in respect of a performance period by any one person is $2,000,000.

Incentive Stock Options. The grant of an option will not be a taxable event for the grantee or for the Company. A grantee will not recognize taxable income upon exercise of an incentive stock option (except that the alternative minimum tax may apply), and any gain realized upon a disposition of our Common Stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the grantee holds the

shares of Common Stock for at least two years after the date of grant and for one year after the date of exercise (the “holding period requirement”). We will not be entitled to any business expense deduction with respect to the exercise of an incentive stock option, except as discussed below.

For the exercise of an option to qualify for the foregoing tax treatment, the grantee generally must be our employee or an employee of our subsidiary from the date the option is granted through a date within three months before the date of exercise of the option.

If all of the foregoing requirements are met except the holding period requirement mentioned above, the grantee will recognize ordinary income upon the disposition of the Common Stock in an amount generally equal to the excess of the fair market value of the Common Stock at the time the option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. We will be allowed a business expense deduction to the extent the grantee recognizes ordinary income, subject to our compliance with Section 162(m) of the Internal Revenue Code and to certain reporting requirements.

Non-Qualified Options. The grant of an option will not be a taxable event for the grantee or the Company. Upon exercising a non-qualified option, a grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the Common Stock on the date of exercise. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a non-qualified option, the grantee will have taxable capital gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares of Common Stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised).

If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

A grantee who has transferred a non-qualified stock option to a family member by gift will realize taxable income at the time the non-qualified stock option is exercised by the family member. The grantee will be subject to withholding of income and employment taxes at that time. The family member’s tax basis in the shares of Common Stock will be the fair market value of the shares of Common Stock on the date the option is exercised. The transfer of vested non-qualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the grantee’s estate for estate tax purposes.

Restricted Stock. A grantee who is awarded restricted stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares of Common Stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, the grantee may elect under Section 83(b) of the Internal Revenue Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the Common Stock on the date of the award (less the purchase price, if any), determined without regard to the restrictions. If the grantee does not make such a Section 83(b) election, the fair market value of the Common Stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the grantee and

will be taxable in the year the restrictions lapse. If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

Bonus Stock. A grantee who is awarded bonus stock will recognize taxable income for federal income tax purposes in the year of the award in an amount equal to the fair market value of the Common Stock on the date of the award (less the purchase price, if any). If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

Stock Units. There are no immediate tax consequences of receiving an award of stock units under the 2002 Stock Award and Incentive Plan. A grantee who is awarded stock units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such grantee at the end of the restriction period or, if later, the payment date. If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

Dividend Equivalent Rights. Participants who receive dividend equivalent rights will be required to recognize ordinary income in an amount distributed to the grantee pursuant to the award. If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of stock appreciation rights under the 2002 Stock Award and Incentive Plan. Upon exercising a stock appreciation right, a grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the Common Stock on the date of exercise. If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

Performance and Annual Incentive Awards. The award of a performance or annual incentive award will have no federal income tax consequences for us or for the grantee. The payment of the award is taxable to a grantee as ordinary income. If we comply with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.

The Board of Directors approved the Company’s 2002 Employee Stock Purchase Plan on February 20, 2002, subject to approval of our shareholders at this meeting. We are

asking our shareholders to approve the 2002 Employee Stock Purchase Plan as we believe the plan will be a valuable tool in motivating our employees. We believe that the ESPP will increase our employees’ interest in our growth and success and encourage employees to remain in the employ of the Company or its participating affiliates. The 2002 Employee Stock Purchase Plan would enable eligible employees of the Company or any of its participating affiliates, through payroll deductions, to purchase shares of our Common Stock. There are currently no participants in the 2002 Employee Stock Purchase Plan. Because participation in the 2002 Employee Stock Purchase Plan is subject to the discretion of each eligible employee and the amounts received by participants under the plan are dependent on the fair market value of our Common Stock on future dates, the benefits or amounts that will be received by any participant or groups of participants if the 2002 Employee Stock Purchase Plan is approved are not currently determinable. On the Record Date, there were approximately 14 executive officers and 276 employees of the Company and its subsidiaries who were eligible to participate in the 2002 Employee Stock Purchase Plan.

The affirmative vote of a majority of the shares of Common Stock cast at the Annual Meeting is required to approve the 2002 Employee Stock Purchase Plan. Unless otherwise indicated, properly executed proxies will be voted in favor of Proposal 3 to approve the 2002 Employee Stock Purchase Plan.

A description of the 2002 Employee Stock Purchase Plan is set forth below. This summary is qualified in its entirety by the detailed provisions of the 2002 Employee Stock Purchase Plan, a copy of which is attached as Appendix B to this proxy statement.

On the Record Date, 300,000 shares of Common Stock are available for purchase by eligible employees of the Company or any of its participating affiliates. The shares of Common Stock issuable under the Employee Stock Purchase Plan may be authorized but unissued shares, treasury shares, or shares purchased on the open market.

The 2002 Employee Stock Purchase Plan permits eligible employees to elect to have a portion of their pay deducted by the Company to purchase shares of our Common Stock. In the event there is any increase or decrease in Common Stock without receipt of consideration by the Company (for instance, by a recapitalization or stock split), there may be a proportionate adjustment to the number and kinds of shares that may be purchased under the 2002 Employee Stock Purchase Plan. The Company will determine the length and duration of the periods during which payroll deductions will be accumulated to purchase shares of Common Stock. This period is known as the offering period. The first offering period is expected to begin June 15, 2002.

Administration. The 2002 Employee Stock Purchase Plan will be administered by the Compensation Committee. The Compensation Committee has the authority to interpret the 2002 Employee Stock Purchase Plan, to prescribe, amend and rescind rules relating to it, and to make all other determinations necessary or advisable in administering the 2002 Employee Stock Purchase Plan. All of the Compensation Committee’s determinations will be final and binding.

Eligibility. Any employee of the Company or its participating affiliates may participate in the 2002 Employee Stock Purchase Plan, except the following, who are ineligible to participate: (i) an employee whose customary employment is for less than five months in any calendar year; (ii) an employee whose customary employment is 20 hours

or less per week; and (iii) an employee who, after exercising his or her rights to purchase stock under the 2002 Employee Stock Purchase Plan, would own stock (including stock that may be acquired under any outstanding options) representing five percent or more of the total combined voting power of all classes of stock of the Company. An employee must be employed on the last day of the offering period in order to acquire stock under the 2002 Employee Stock Purchase Plan unless the employee has died or become disabled, been laid off or is on an approved leave of absence.

Participation Election. An eligible employee may become a participant in the 2002 Employee Stock Purchase Plan by completing an election to participate in the 2002 Employee Stock Purchase Plan on a form provided by the Company and submitting that form to the Company’s payroll department. The form will authorize the Company to have deductions made from pay on each payday following enrollment in the 2002 Employee Stock Purchase Plan. The deductions or contributions will be credited to the employee’s account under the 2002 Employee Stock Purchase Plan. An employee may not during any offering period increase his or her percentage of payroll deduction or contribution for that offering period, nor may an employee withdraw any contributed funds other than by terminating participation in the 2002 Employee Stock Purchase Plan (as described below). A participating employee may increase or decrease his or her payroll deduction or periodic cash payments, to take effect on the first day of the next offering period, by delivering to the Company a new form regarding election to participate in the 2002 Employee Stock Purchase Plan. A participating employee may terminate payroll deductions or contributions at any time.

Purchase Price. Rights to purchase shares of our Common Stock will be deemed granted to participating employees as of the first trading day of each offering period. The purchase price for each share (the “Purchase Price”) will be set by the Compensation Committee. The Purchase Price for an offering period may not be less than 85% of the fair market value of our Common Stock on the first trading day of the offering period or the day on which the shares are purchased (the “Purchase Date”), whichever is lower.

Purchase Limit. No employee may purchase Common Stock in any calendar year under the 2002 Employee Stock Purchase Plan and all other “employee stock purchase plans” of the Company and any parent or subsidiary having an aggregate fair market value in excess of $25,000, determined as of the first trading date of the offering period.

Purchase of Common Stock. On the Purchase Date, a participating employee will be credited with the number of whole shares of Common Stock purchased under the Employee Stock Purchase Plan for such period. Common Stock purchased under the 2002 Employee Stock Purchase Plan will be held in the custody of an agent designated by the Company. The agent may hold the Common Stock purchased under the 2002 Employee Stock Purchase Plan in stock certificates in nominee names and may commingle shares held in its custody in a single account or stock certificate, without identification as to individual employees. An employee may, at any time two years following his or her purchase of shares under the 2002 Employee Stock Purchase Plan, by written notice instruct the agent to have all or part of such shares reissued in the employee’s own name and have the stock certificate delivered to the employee. The Company may also elect to impose a holding period requirement of up to two years from the Purchase Date for shares of Common Stock purchased by participating employees under the 2002 Employee Stock Purchase Plan.

If in any purchase or offering period the number of unsold shares that may be made available for purchase under the 2002 Employee Stock Purchase Plan is insufficient to permit eligible employees to exercise their rights to purchase shares, a participation

Termination of Participation. A participating employee will be refunded all monies in his or her account, and his or her participation in the 2002 Employee Stock Purchase Plan will be terminated, if: (i) the employee ceases to be eligible to participate in the 2002 Employee Stock Purchase Plan, or (ii) the employee voluntarily leaves the employ of the Company or a participating affiliate prior to the Purchase Date. A participating employee’s participation in the 2002 Employee Stock Purchase Plan will also terminate in the event that the Board of Directors elects to terminate the plan; provided, that, termination of the plan will not impair the vested rights of the participant.

If a participating employee elects to terminate participation in the 2002 Employee Stock Purchase Plan, terminates participation because of his or her death, or terminates participation because of an involuntary termination of employment without cause, the employee (or his or her representative in the event of death) can choose to either: (i) purchase Common Stock on the Purchase Date with the amounts then accumulated in his or her account or (ii) have all monies in his or her account refunded.

Lay-off, Authorized Leave of Absence or Disability. Payroll deductions may be suspended for a participating employee during any period of absence of the employee from work due to lay-off, authorized leave of absence or disability or, if the employee so elects, periodic payments to the 2002 Employee Stock Purchase Plan by the employee may continue to be made in cash. If the participating employee returns to active service prior to the Purchase Date, the employee’s payroll deductions will be resumed. If the employee did not make periodic cash payments during the employee’s period of absence, the employee may elect to: (i) make up any deficiency in the employee’s account resulting from a suspension of payroll deductions by an immediate cash payment; (ii) not to make up the deficiency in his or her account, in which event the number of shares to be purchased by the employee will be reduced to the number of whole shares which may be purchased with the amount, if any, credited to the employee’s account on the Purchase Date; or (iii) withdraw the amount in the employee’s account and terminate the employee’s option to purchase. If a participating employee’s period of lay-off, authorized leave of absence or disability terminates on or before the Purchase Date, and the employee has not resumed active employment with the Company or a participating affiliate, the employee will receive a distribution of his or her account.

Transferability of Shares. No participating employee may assign his or her rights to purchase shares of Common Stock under the 2002 Employee Stock Purchase Plan, whether voluntarily, by operation of law or otherwise. Any payment of cash or issuance of shares of Common Stock under the 2002 Employee Stock Purchase Plan may be made only to the participating employee (or, in the event of the employee’s death, to the employee’s estate). Once a stock certificate has been issued to the employee or for his or her account, such certificate may be assigned the same as any other stock certificate.

Amendment of Plan. The Board of Directors may, at any time, amend the 2002 Employee Stock Purchase Plan in any respect; provided, however, that without approval of the shareholders of the Company, no amendment shall be made (i) increasing the number of shares that may be made available for purchase under the 2002 Employee Stock Purchase Plan, or (ii) changing the eligibility requirements for participating in the 2002 Employee Stock Purchase Plan. No amendment may be made to the 2002 Employee Stock Purchase Plan that impairs the vested rights of participating employees.

Termination of Plan. The Board of Directors may terminate the 2002 Employee Stock Purchase Plan at any time and for any reason or for no reason, provided that such termination shall not impair any rights of participants that have vested at the time of termination. In any event, the 2002 Employee Stock Purchase Plan shall, without further action of the Board of Directors, terminate at the earlier of (i) 10 years after adoption of the 2002 Employee Stock Purchase Plan by the Board of Directors and (ii) such time as all shares of Common Stock that may be made available for purchase under the 2002 Employee Stock Purchase Plan have been issued.

Reorganizations. Upon a reorganization in which the Company is not the surviving corporation or a sale of assets or stock, the 2002 Employee Stock Purchase Plan and all rights outstanding shall terminate, except to the extent provision is made in writing in connection with such transaction for the continuation or assumption of the 2002 Employee Stock Purchase Plan, or for the substitution of the rights under the 2002 Employee Stock Purchase Plan with rights covering the stock of the successor corporation.

No Employment Rights. Neither the 2002 Employee Stock Purchase Plan nor any right to purchase Common Stock under the 2002 Employee Stock Purchase Plan confers upon any employee any right to continued employment with the Company or a participating affiliate.

The 2002 Employee Stock Purchase Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. Amounts withheld from pay under the 2002 Employee Stock Purchase Plan are taxable income to participating employees in the year in which the amounts otherwise would have been received, but the participating employees will not be required to recognize additional income for federal income tax purposes either at the time the employee is deemed to have been granted a right to purchase Common Stock (on the first day of an offering period) or when the right to purchase Common Stock is exercised (on the last day of the offering period).

If the participating employee holds the Common Stock purchased under the 2002 Employee Stock Purchase Plan for at least two years after the first day of the offering period in which the Common Stock was acquired (the “Grant Date”) and for at least one year after the Common Stock is purchased, when the participating employee disposes of the Common Stock, he or she will recognize as ordinary income an amount equal to the lesser of:


	(i) the excess of the fair market value of the Common Stock on the date of disposition over the price paid for the Common Stock; or

	(ii) the fair market value of the Common Stock on the Grant Date multiplied by the discount percentage for stock purchases under the 2002 Employee Stock Purchase Plan. The discount percentage is generally 15%, although the Company may use a lesser discount percentage, including a zero discount percentage.

If the participating employee disposes of the Common Stock within two years after the Grant Date or within one year after the Common Stock is purchased, he or she will recognize ordinary income equal to the fair market value of the Common Stock on the last day of the offering period in which the Common Stock was acquired less the amount paid for the Common Stock. The ordinary income recognition pertains to any disposition of Common Stock acquired under the 2002 Employee Stock Purchase Plan (such as by sale, exchange or gift).

Upon disposition of the Common Stock acquired under the 2002 Employee Stock Purchase Plan, any gain realized in excess of the amount reported as ordinary income will be reportable by the participating employee as a capital gain, and any loss will be reportable as a capital loss. Amounts required to be reported as ordinary income on the disposition of the Common Stock may be added to the purchase price in determining any remaining capital gain or loss. Capital gain or loss will be long-term if the employee has satisfied the two-year holding period requirement described above or, in any event, if the employee has held the Common Stock for at least one year. Otherwise, the capital gain or loss will be short-term.

If the participating employee satisfies the two-year holding period for Common Stock purchased under the 2002 Employee Stock Purchase Plan, the Company will not receive any deduction for federal income tax purposes with respect to that Common Stock or the right under which it was purchased. If the employee does not satisfy the two-year holding period, the Company will be entitled to a deduction in any amount equal to the amount that is considered ordinary income. Otherwise, the 2002 Employee Stock Purchase Plan has no tax effect on the Company.

The foregoing tax discussion is a general description of certain expected federal income tax results under current law. No attempt has been made to address any state and local, foreign or estate and gift tax consequences that may arise in connection with participation in the 2002 Employee Stock Purchase Plan.

KPMG LLP, certified public accountants, has been our independent auditor since our inception in 1993. A member of the firm will be at the annual meeting and will be available to answer appropriate questions, or make a statement if he desires to do so.

KPMG audited our 2001 consolidated financial statements. As part of their audit function, they also reviewed our 2001 annual report to stockholders and various filings with the Securities and Exchange Commission.

Additionally, information about KPMG and the services they provide is included on page 33, under the caption “Independent Public Accountants.”

If you do not ratify the appointment of KPMG as independent auditors for 2002, we will consider this adverse vote as a direction to our Board of Directors to consider the selection of other auditors for 2003. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, we contemplate that their appointment for 2002 will be permitted to stand unless our Board finds other good reason for making a change.

The board of directors is not aware of any other matters to be presented for action at the annual meeting. However, if any other matters come before the meeting, your proxy holders intend to vote or act in accordance with their best judgment.

Below we set out brief biographical descriptions for each of our eight nominees for directors:


		Trustees of Johns Hopkins University, Johns Hopkins Health System, and Johns Hopkins Hospital from 1994 until 1998 and for Johns Hopkins Medicine from 1996 until 1998. Mr. Bunting continues to serve as a trustee for these institutions.

Elizabeth M. Greetham Age 52		Director and member of the Compensation Committee.

		Ms. Greetham has been a Guilford director since November 1995. From 1992 to 1999, Ms. Greetham was portfolio manager of WPG Life Sciences Fund, L.P. and WPG Institutional Life Sciences Fund, L.P., and since 1990 she has been involved in health care investments for institutional, growth and individual high net worth accounts at Weiss, Peck & Greer, L.L.C. From June 1999 until August 2000, Ms. Greetham was chief financial officer of Drug Abuse Sciences, Inc. In August 2000, Ms. Greetham was named chief executive officer of Drug Abuse Sciences. She is a member of the board of directors of Drug Abuse Sciences, Inc.

Joseph (“Skip”) Klein, III Age 41		Director and member of the Audit Committee and the Science Committee.

		Mr. Klein has been a Guilford director since August 1998. Mr. Klein is currently a Venture Partner of MPM Capital and a Managing Director of Gauss Capital Advisors, LLC. Previously, from June 1999 through September 2000, Mr. Klein had been Vice President of Strategy for Medical Manager Corporation and an investment analyst with The Kaufmann Fund (an emerging growth mutual fund). From April 1998, through June 1998, Mr. Klein was a managing director of Millenium HEW, LLC. Mr. Klein was employed at T. Rowe Price Associates (an investment management firm) from December 1988 until March 1998, for a time as a portfolio manager and chairman of the investment advisory committee of T. Rowe Price Associates and also as a vice president and health care investment analyst. He holds an M.B.A. from the Stanford Graduate School of Business and a B.A. in economics from Yale University. Mr. Klein is a director of NPS Pharmaceuticals, Inc.

Ronald M. Nordmann Age 60		Director, Chairman of the Audit Committee and Chairman of the Nominating Committee.

		Mr. Nordmann became a Guilford director in May 2000. Mr. Nordmann is currently president of Global Health Associates, LLC (a consulting firm to life sciences companies). From 1994 until January 2000, Mr. Nordmann was a partner at Deerfield Management, a health care investment management firm where he served as a portfolio manager of a $1.2 billion health care


		sector fund. Prior to joining Deerfield Management, Mr. Nordmann was the Managing Director and Senior Health Care Analyst at PaineWebber Incorporated (a broker dealer) for approximately nine years. Mr. Nordmann has over 25 years experience in investment management specializing in the pharmaceutical industry. He received his B.A. in Business and Industrial Management from The Johns Hopkins University in 1963 and his MBA in Finance and Marketing from Fairleigh Dickinson University in 1966. Mr. Nordmann serves on the board of directors of Shire Pharmaceuticals Group plc, and Boron, LePore & Associates, Inc. and Pharmaceutical Resources, Inc.

Solomon H. Snyder, M.D. Age 63		Director, Chairman of the Science Committee, member of the Nominating Committee and consultant to Guilford.

		Dr. Snyder has been a Guilford director since Guilford’s inception in July 1993 and a consultant of ours since August 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.

W. Leigh Thompson, M.D. Age 63		Director and member of the Compensation Committee and Science Committee.

		Dr. Thompson has been a Guilford director since April 1995. Dr. Thompson joined Eli Lilly in 1982 and was appointed executive vice president for research in 1991 and chief scientific officer in 1993. Dr. Thompson retired from Eli Lilly in December 1994 and is president and chief executive officer of Profound Quality Resources, Ltd. (an independent consulting firm advising clients in the pharmaceutical industry). Dr. Thompson is a director of DepoMed, Inc., Inspire Pharmaceuticals, Inc., La Jolla Pharmaceutical Co., Medarex, Inc., Orphan Medical, Inc., Tanabe Research Laboratories Inc. and Bioanalytical Systems, Inc. and Conjuchem, Inc.

The board recommends a vote “FOR” each of the nominees for director listed above.

Our board has five standing committees: a compensation committee, an audit committee, a science committee, a nominating committee and a new hire option committee.

Compensation Committee. The Compensation Committee has three members and serves the functions set forth in the following table.

Audit Committee. The audit committee has three members and serves the functions set forth in the following table. The board has adopted a written charter for the audit committee. This charter was included as an appendix to our proxy statement for our 2001 annual meeting of stockholders. All of the members of the audit committee are independent (as independence is defined in Rule 4200(a)(15) of the National Association of Securities Dealers’ (“NASD”) listing standards). A report of the audit committee is included in this proxy statement.

Science Committee. The Science Committee has four members and serves the functions set forth in the following table.

Nominating Committee. Our Nominating Committee was formed by the Board of Directors in February 2002 and is comprised of Mr. Nordmann, who serves as chairman, Drs. Snyder and Smith. The Nominating Committee reviews and recommends to the Board of Directors candidates to fill Board vacancies. The Nominating Committee will consider nominations of people for election as directors that are submitted by stockholders in writing, in accordance with the requirements set forth in our bylaws.

New Hire Option Committee. The function of the New Hire Option Committee is to authorize grants of options to purchase our common stock to newly hired employees and employees receiving certain promotions, so that the exercise price for these employee options per share is equal to the closing price per share of our common stock on the day before the employee begins employment with us. The New Hire Option Committee is not authorized to grant options to purchase in excess of 50,000 shares of our common stock to any one newly-hired employee without the concurrence of the Chairman of the Compensation Committee, nor is it authorized to grant options to existing employees except in the limited case of options granted to certain employees in connection with their promotion from non-exempt to exempt status. The New Hire Option Committee does not have meetings, but instead acts by written consent. In 2001, the New Hire Option Committee acted 11 times by written consent. The New Hire Option Committee has one member, Dr. Smith.

During 2001, our board held six meetings. All of our directors attended at least 75% of these meetings as well as meetings of the committees on which they serve.

We do not pay directors who are also employees of Guilford (currently, Dr. Smith is the only employee of Guilford who is also a director and, if elected, Mr. Wright will also be an employee-director of Guilford) for serving on the board or any committee. We paid all non-employee directors an annual retainer of $12,500 and $1,500 for each board meeting attended in 2001. The board also established compensation for members of the Audit Committee and Compensation Committee at $500 for each meeting attended. Members of the Science Committee receive $5,000 for each meeting attended. In addition, Dr. Snyder has a consulting agreement with Guilford (see the Section entitled “Certain Relationships and Related Party Transactions” beginning on page 32), and, except as described below, does not receive any compensation for his service on the board or any committee.

We reimburse each director, whether an employee or not, for expenses of attending board and committee meetings.

In 1994, we adopted the Directors’ Stock Option Plan (the “1994 Plan”) to attract individuals to serve as outside directors. Under the 1994 Plan, each eligible director receives an option to purchase 30,000 shares of our common stock at the time he or she initially begins serving on the board. Thereafter, each eligible director receives additional options to purchase 7,500 shares of our common stock, immediately following each of the next four annual elections of directors so long as he or she has served on the board for at least one full year and continues to serve as a director on the grant date. Directors may exercise these options for up to one-half of the shares covered on the first anniversary of the date of the grant. The remaining 50% vest on the second anniversary date. Once vested, directors may exercise these options for up to 10 years from the initial option grant date. Dr. Snyder did not participate in the 1994 Plan.

After reaching the applicable limits under the 1994 Plan, each non-employee director (including Dr. Snyder) will, so long as he or she remains a director of the Company, receive annual grants of stock options to purchase 7,500 shares of our common stock under the terms of our 1998 Employee Share Option and Restricted Share Plan (the “1998 Plan”) immediately following re-election to the board at the annual meeting of stockholders of Guilford. These grants will be made under the 2002 Stock Award and Incentive Plan, if it is approved by the shareholders. Directors may exercise these options for up to one-half of the shares covered on the first anniversary of the date of the grant. The remaining 50% vest on the second anniversary date. Once vested, directors may exercise these options for up to 10 years from the initial option grant date.

Dr. Smith, as an employee-director, does not receive stock option grants for serving as a director of Guilford, although he is eligible to receive stock options as an employee of Guilford.

Options we issue under the 1994 Plan and 1998 Plan are considered “non-qualified” stock options for tax purposes, meaning that directors may be subject to certain federal and state taxes at the time they exercise these options. The exercise price of options we grant under the 1994 Plan and 1998 Plan is equal to the closing price of our stock (as reported on the Nasdaq Stock Market) on the day immediately prior to the date we grant the options.

A director may also transfer these options to his or her spouse, children or grandchildren (and certain trusts for the benefit of these family members or partnerships in which such family members are the only partners) so long as he or she receives no payment for that transfer. In addition, these immediate family members (or their trusts or partnerships) may transfer options among themselves so long as no amounts are paid for these transfers. A director may also transfer these options following his or her death by will or the laws of descent and distribution.

For 2001, we believe that our officers and directors filed all the reports required by Section 16 of the Securities Exchange Act of 1934 on a timely basis, except that Dr. Nancy J. Linck, our Senior Vice President, General Counsel and Secretary reported the acquisition of 1,000 shares of our Common Stock during August 2001, on her Form 4 filed on October 10, 2001.

The following table shows the beneficial ownership of our common stock as of March 22, 2002 of each nominee for director, the five executive officers shown in the Summary Compensation Table on page 28, and all of our directors and executive officers as a group. The table also lists those stockholders that beneficially hold 5% or more of our common stock as of March 22, 2002.


•	has sole voting and investment power,

•	has shared voting and investment power with a spouse or minor child, and/or

•	holds in a 401(k) Retirement Savings Plan account or other qualified retirement account, unless otherwise stated in these footnotes.

•	has the right to acquire within 60 days of April 1, 2002, upon the exercise of stock options.


(2)	The address of this stockholder is 100 E. Pratt Street, Baltimore, Maryland 21202. The information concerning this stockholder is based solely on a Schedule 13G, dated February 14, 2002, filed with the SEC.

	These securities are owned by various individual and institutional investors which T. Rowe Price Associates, Inc. (Price Associates) serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.

(3)	The address of this stockholder is 75 State Street, Boston, Massachusetts 02109. The information concerning this stockholder is based solely on a Schedule 13G, dated February 12, 2002, filed with the SEC.

(4)	Includes 650,000 shares held by The Abell Foundation, Inc., for which Mr. Bunting disclaims a beneficial interest. Mr. Bunting serves as a trustee and a member of the finance committee of The Abell Foundation. Does not include 3,500 shares held by a limited liability company for which Mr. Bunting disclaims beneficial interest except as to his 1% pecuniary interest in the limited liability company.

The following table summarizes the compensation of our Chief Executive Officer and our four most highly compensated executive officers as of December 31, 2001:


(1)	Represents the value of shares as of December 31st of the year issued (i.e., 1999, 2000 and 2001) to the 401(k) Plan account of each executive listed above as part of Guilford’s program of matching employee contributions to 401(k) Plan accounts. For 2001, the value of these shares is based on a closing price of $12.00 per share on December 31, 2001. The value of the company match in 2001 was as follows: Dr. Smith — $3,934; Mr. Wright — $4,134; Mr. Brennan — $3,236; Mr. Jordan — $3,814; and Mr. Seoh — $3,934. These contributions vest in each executive’s 401(k) Plan account over a four-year period based on each executive’s term of service with Guilford. In addition, the amounts for 1999, 2000 and 2001 include the dollar value of insurance premiums paid by Guilford with respect to split-dollar life insurance policies. At such time as these policies terminate, Guilford will be reimbursed for up to the entire amount of the premiums previously paid, depending on the cash surrender value of the policy at the time of policy termination.

(2)	Mr. Wright began employment with Guilford in November 2000. Mr. Wright’s salary on an annualized basis for 2000 was $320,000. Included in his salary for 2000, is a $30,000 signing bonus paid to Mr. Wright upon commencement of his employment with the Company.

The following table sets forth certain information concerning the grant of stock options to our executives in 2001:

Employees and other individuals exercised options to acquire an aggregate of 146,723 shares in 2001. The following table sets forth information with respect to certain of our executives concerning the exercise of options during 2001 and unexercised options held as of the end of that year:


(1)	Includes options granted in February 2002 relating to performance in 2001.

(2)	Total value of unexercised in-the-money options is based on the closing price of the common stock of $12.00 per share on December 31, 2001 minus the exercise price of the options.

Each of the executives listed in the above tables entered into an employment agreement with Guilford upon starting his employment. These employment agreements contain severance provisions that entitle the executive to continuation of his then-current base salary for up to 12 months if we terminate his employment other than for cause. In the case of Dr. Smith, our chief executive officer, the severance payments continue for up to 36 months. If the executive secures full-time employment during this 12- or 36-month period, we are no longer obligated to continue to make these severance payments. During the severance period, we also continue to provide health, life and disability insurance coverage to the executive.

In 1998, we entered into additional severance agreements with our executives that apply if we are subject to a “change in control” and the executive’s employment is terminated other than for cause or the executive voluntarily resigns for “good reason”. Under these agreements, the executive is entitled to a lump-sum payment equal to two times the executive’s then-current annual base salary. In the case of Dr. Smith, our chief executive officer, the severance amount is three times his then-current base salary. We have also agreed to pay for certain “golden parachute” excise taxes the executive may be liable for under section 4999 of the Internal Revenue Code of 1986, as amended. In addition, we are obligated to continue to provide health, life and disability insurance coverage to the executive for two years or until the executive secures full-time employment elsewhere, whichever happens first.

For purposes of these agreements, a “change in control” is deemed to have occurred if:


	•	a third party or group of third parties becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of 50% or more of our outstanding voting stock;

	•	a third party or group of third parties acquires 30% or more of our voting stock but less than 50%, unless prior to the acquisition of these shares, the full board by at least a two-thirds (2/3) vote specifically approves the acquisition and determines that the acquisition shall not trigger the severance payments; or

	•	during any two-year period those individuals who at the beginning of this period make up the board (“Original Directors”) along with any new directors elected or appointed during this period whose election or appointment resulted from a vacancy on the board because of the retirement, death, or disability of a director and whose election or appointment was approved by a vote of at least two-thirds (2/3) of the Original Directors then still on the board, cease for any reason to make up a majority of the Board.


	•	there is any proposed reduction in the executive’s base salary;

	•	there is any reduction in the executive’s responsibilities or areas of supervision; or

	•	the executive’s office is relocated outside the metropolitan area in which his or her office was located immediately prior to the change in control.

We adopted a 401(k) Plan effective January 1, 1994. We intend that this plan satisfy the tax qualification requirements of sections 401(a), 401(k) and 401(m) of the Internal Revenue Code of 1986, as amended. All employees, including the executives listed in the above tables, who are at least 21 years old are eligible to participate in the plan as of the first day of the calendar quarter following completion of three months of service. The 401(k) Plan permits participants to contribute up to a fixed dollar amount of their compensation, excluding fringe benefits, subject to certain limits set by section 402(g)(1) of the Internal Revenue Code, as amended. This limit was $10,500 in 2001. All amounts a participant defers under the 401(k) Plan vest immediately in the participant’s account. Any contributions we make to participant accounts vest over a four-year period based on the participant’s term of service with our Company. Starting January 1, 1997, we began making “matching contributions” in newly issued shares of our stock equal in value to fifty percent (50%) of the first six percent (6%) of an employee’s salary contributed to the employee’s 401(k) Plan account.

We have adopted share option and restricted share plans for the benefit of our employees and certain other individuals who provide value to our Company. All of our full-time employees, including our executive officers, and certain other individuals, such as consultants, whose participation the board of directors determines is in our best interests as a corporation, are eligible to receive options or restricted shares of our stock under our employee share option and restricted share plans. All unvested options and

We own and are the beneficiaries of term life insurance policies each in the amount of $1,000,000 covering Dr. Smith and Messrs. Jordan and Brennan.

Currently, Mr. Bunting, Ms. Greetham and Dr. Thompson serve on the compensation committee of our board of directors. These individuals served on the compensation committee during all of 2001 as well. None of these individuals is currently, or was during 2001, one of our officers or employees. In addition, none of theses individuals serves as a member of the board of directors or on the compensation committee of any company that has an executive officer serving on our board of directors or its compensation committee.

We have a three-year consulting agreement with Dr. Snyder that expires in August 2003. Under this agreement, Dr. Snyder provides certain consulting services to us. These services include, among others, assisting us to recruit scientific staff, advising us as to the purchase of laboratory equipment and acquisition of new technologies, and participating in business meetings as our Chief Executive Officer may reasonably request from time to time. For each of the one-year periods ending on December 31, 1999, 2000 and 2001, we paid Dr. Snyder $172,500, $213,333, and $223,333 respectively. We paid these amounts in equal monthly installments. As mentioned in the section entitled “Directors’ Compensation,” Dr. Snyder also received options to purchase our common stock as a result of his service as a director.

In January 2002, the Company entered into a severance agreement with Dr. Peter Suzdak, the Company’s former Senior Vice President of Research & Development, pursuant to which Dr. Suzdak has been paid an amount equal to his annual base salary at the time that he resigned from the Company.

In connection with the sale of 34,129 shares of the our Common Stock in February 1994, to John P. Brennan, our Senior Vice President of Technical Operations, Mr. Brennan delivered to us a full-recourse note bearing interest of 5.34% annually in the amount of $60,000. That note, as amended, was due and payable during February 2002, at which time we extended the payment date of the note to February 2004. At the time that the payment date was extended, principal and interest on the note equaled approximately $85,000.

KPMG LLP has been our independent auditor since our inception in 1993, and the Audit Committee has selected KPMG to continue to serve as our independent auditor in 2002.

KPMG billed us $73,000 for professional services provided in connection with the audit of our annual financial statements for the year 2001 and the review procedures of the financial statements included in our Forms 10-Q for the year 2001.

KPMG did not perform any financial information systems design or implementation services for us during the year 2001.

KPMG billed us $250,000 for all other professional services rendered for the year 2001. This amount consists of $107,000 for audit related fees (e.g., issuances of letters to placement agents, review of registration statements and issuance of consents), and $143,000 for tax compliance and tax advisory services.

The audit committee of the board of directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s independence.

The Compensation Committee of the board is currently comprised of Mr. Bunting, Ms. Greetham and Dr. Thompson, all of who are outside directors. The Committee is responsible for overseeing Guilford’s compensation programs for all employees, including executive officers. For executive officers, the Committee evaluates performance and determine compensation policies and review specific levels of compensation.


	•	align employee compensation with Guilford’s business objectives and performance, and

	•	enable Guilford to attract and retain executive officers and other employees who contribute to Guilford’s long-term success and to motivate them to enhance long-term stockholder value.


	•	compares Guilford’s salary practices with those of other biopharmaceutical companies with which Guilford competes for talent to ensure that employee salaries are competitive and adjust employee salaries from time to time as market conditions warrant;

	•	establishes annual incentive opportunities to motivate Guilford employees to achieve specific short-term operating goals; and

	•	grants significant equity-based incentives to executives and other employees to ensure that they are motivated over the long-term to respond to Guilford’s business challenges and opportunities, as owners and not simply as employees.

In general, we seek to set the components of compensation and total compensation (that is, base salary, annual incentives and long-term equity-based incentives) to be competitive with other biopharmaceutical companies that:


	•	we deem comparable to Guilford in terms of size, stage of development, potential, target peer group and/or other factors, or

	•	compete in the job market for individuals with skills desired by Guilford.

Base Salary. The committee compares the base salary of each executive officer annually, including those of the executives listed in the “Summary Compensation Table” on page , against the base salaries paid for similar positions by companies within a comparison group. The Committee considers a range of salary levels for comparable positions. Within this range, the Committee considers individual factors it deems appropriate, including:


	•	individual performance,

	•	level of responsibility,

	•	prior experience,

	•	breadth of knowledge,

	•	competitive pay practices,


	•	the extent to which Guilford has achieved its annual corporate objectives, and

	•	Guilford’s other significant accomplishments during the period under review.

From year to year, the relative weighting of the individual components and the corporate performance component may differ from executive to executive, and can be expected to change over time as Guilford develops as a business and the industry evolves.

Based on the Committee’s review of the foregoing factors, Guilford was authorized to allocate $136,634 for base salary increases for all of Guilford’s executives other than its chief executive officer, whose compensation we discuss below. This amount represents a 4.8% increase over 2001 base salary levels. Management was also authorized to allocate $814,437 for base salary increases for all Guilford employees as a group, again excluding its chief executive officer. This amount represents a 4.6% increase over 2001 base salary levels.

Annual Incentive. In addition to base salary, Guilford offers discretionary cash bonuses to employees, including executives, as annual incentives to achieve short-term operating objectives. The actual incentive award earned by any employee depends on the extent to which corporate and individual performance objectives were achieved during the year. Guilford’s objectives consist of operating, strategic, and financial goals that are critical to Guilford’s fundamental long-term goal of building stockholder value.

After the end of the year, we evaluate the degree to which Guilford has met its goals and, in our sole discretion, we establish a pool of funds available for annual incentive awards. Individual awards are determined based on Guilford’s overall performance and by evaluating each participant’s performance against personal and corporate objectives. A portion of the award pool is then allocated based on the participant’s contributions during the year. Guilford pays awards in cash and distributes these bonuses in the first quarter following the performance year.

For 2001, we determined that Guilford met a number of the corporate goals set for the year, as well as important additional accomplishments, among them:


	•	Established a complete commercial operations function consisting of 45 professionals, including 22 field sales representatives,

	•	Achieved GLIADEL^® Wafer net sales of $20.4 million,

	•	Initiated Phase I study of LIDOMER™ Microspheres,

	•	Completed studies of GPI 1485 in animal models of cognition, hair growth and erectile dysfunction,

	•	Completed Phase I studies of GPI 5693,

	•	Completed Phase I studies with AQUAVAN™ Injection, and

	•	Raised $98.8 million in the capital markets.

Based on this performance, we authorized Guilford management to allocate $673,836 for annual incentive bonuses for all of Guilford’s executives other than its chief executive officer. This amount equals 23.9% of the total base salaries of these executives in 2001. We also authorized Guilford management to allocate $2,870,062 for annual incentive bonuses for all Guilford employees as a group, again excluding its chief executive officer. This amount equals 11.3% of the total base salaries of these employees in 2001.

Long-Term Incentives. Guilford implements its long-term incentive program through its stock option and restricted share plans. The program uses vesting periods (generally four years) to encourage executives and other full-time, salaried employees to continue in the employ of Guilford. Through option grants and restricted share awards, executives receive significant equity incentives to build long-term stockholder value. Grants are made at fair market value equal to the closing price of Guilford’s common stock on the trading date immediately preceding the grant date. Recipients realize value from these grants only if Guilford’s stock appreciates over the term of the option. The Committee looks at the following factors to determine how many options to grant:


	•	the option grant practices of the companies in a comparison group,

	•	Guilford’s philosophy of significantly linking executive and employee compensation with stockholder interests,

	•	Guilford’s performance relative to its objectives, and

	•	Guilford’s other accomplishments during the year.

Based on these factors, in respect of performance in 2001, the Committee decided to grant options for a total for 1,283,576 shares of Guilford stock for all eligible employees, excluding the chief executive officer. Of this amount, the Committee granted options to purchase 435,000 shares of stock to Guilford’s executives, again excluding the chief executive officer.

In July 1993, Dr. Smith was recruited as Guilford’s first employee and given the mandate to organize its operations, secure additional financing and recruit its initial staff. The Compensation Committee’s general philosophy in establishing Dr. Smith’s salary is the same as the compensation philosophy used for establishing the compensation of all other executive officers. In addition, the Compensation Committee’s approach is to have a large percentage of Dr. Smith’s target compensation based on certain performance criteria and the achievement of corporate goals. Based on Dr. Smith’s leadership of the company, the Compensation Committee has voted to increase Dr. Smith’s base annual salary each year since inception. In light of his performance in 2001, the Compensation Committee increased his base annual salary, awarded him a cash bonus and granted him stock options as follows:


	•	Base Salary Increase: $40,000 (to an annual base salary of $540,000, effective March 1, 2002),

	•	Cash Bonus: $210,000,

	•	Stock Option Grant: 150,000 shares at an exercise price of $8.81 (the closing price of the stock on the trading day preceding the grant), vesting 25% on the first anniversary of the grant date, and in 36 equal monthly installments thereafter.

Section 162(m) of the Internal Revenue Code limits tax deductions Guilford can take for annual executive compensation over $1.0 million. There are several exceptions to this limitation, including one for qualified performance-based compensation. To be qualified, performance-based compensation must meet various requirements, including shareholder approval. Under Guilford’s current compensation practices, the limitations of Section 162(m) have no or minimal applicability currently and will not in the near future. We

intend to maximize the extent of tax deductibility of executive compensation under the provisions of Section 162(m) as long as doing so is compatible with our determination as to the most appropriate methods and approaches for the design and delivery of compensation to executive officers of Guilford.

In summary, we believe that through the arrangements we describe above a significant portion of Guilford’s compensation program as well as Dr. Smith’s compensation is contingent on Guilford’s performance and that the level of benefits is closely linked to increases in long-term stockholder value. Guilford remains committed to this philosophy of “pay for performance,” recognizing that the competitive market for talented executives and other employees and the volatility of Guilford’s business may result in highly variable compensation for a particular time period. We will continue to monitor closely the effectiveness and appropriateness of each of the components of compensation to reflect changes in Guilford’s business environment.

This report is being provided to Guilford stockholders solely for informational purposes. You should not consider this report and the stock price performance graph that follows to be “soliciting materials” or to be “filed” with the SEC. It also is not subject to the SEC’s proxy rules or to the liabilities of Section 18 of the U.S. Securities Exchange Act of 1934. In addition, the report and the performance graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by Guilford under the federal securities laws.


	COMPENSATION COMMITTEE George L. Bunting, Jr. (Chair) Elizabeth M. Greetham W. Leigh Thompson, M.D., Ph.D.

The Audit Committee of the Guilford Pharmaceuticals Inc. Board of Directors is composed of three independent directors and operates under a written charter adopted by the Board of Directors. The members of the Committee are Ronald M. Nordmann (Chair), Joseph Klein III and George L. Bunting, Jr. The Committee recommends to the Board of Directors the selection of the Company’s independent accountants.

The management of the Company is responsible for the Company’s internal controls and financial reporting process. KPMG, LLP, the Company’s independent accounting firm, is responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and to provide a report thereon. The Committee’s responsibility is to monitor and oversee these processes.

In connection with this responsibility, the Committee has met and held discussions with management and the independent accountants. Management represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee has reviewed and discussed the consolidated financial statements with management and KPMG. The Committee has also discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees).

The Committee has received from KPMG the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with KPMG its independence.

Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements for the year 2001 be included in the Company’s annual report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission.


	AUDIT COMMITTEE Ronald M. Nordmann (Chair) Joseph Klein, III George L. Bunting, Jr.

The following graph assumes $100 was invested on June 17, 1994 (the date on which our stock began to trade publicly) in each of (1) shares of our common stock, (2) the NASDAQ Stock Market Composite Index, and (3) the BioCentury 100 Index and shows the comparative returns on these hypothetical investments through December 31, 2001. We compute total return assuming reinvestment of any dividends. You should not rely on historical price performance to indicate future stock performance.

In order for stockholder proposals to be considered for inclusion in our proxy statement for our 2003 annual meeting, our bylaws provide that written notice of the stockholder proposal must be received by our Corporate Secretary, Nancy J. Linck, at 6611 Tributary Street, Baltimore, Maryland 21224, at least 45 days before the date on which we mailed notice of the annual meeting of stockholders and proxy materials for the previous year’s annual meeting of stockholders. Assuming that next year’s Annual Meeting is to be held within 30 days of May 14, 2003, in order for a stockholder proposal to be properly brought before the 2003 Annual Meeting, we need to have received notice of the proposal no later than February 17, 2003. The deadline for stockholder proposals to be considered for inclusion in our proxy statement for our 2003 Annual Meeting is December 4, 2002. Proposals by facsimile will not be accepted.

If our 2003 Annual Meeting is not held within 30 days of May 14, 2003, however, in order for a stockholder proposal to be properly brought before the 2003 Annual Meeting, our bylaws provide that we must receive the stockholder’s notice of the proposal no later than the close of business on the 10th day following the day on which we mail or make public disclosure of the date of the 2003 Annual Meeting.

Guilford Pharmaceuticals Inc., a Delaware corporation (the “Company”), sets forth herein the terms of its 2002 Stock Award and Incentive Plan (the “Plan”), as follows:

The Plan is intended to enhance the Company’s and its Affiliates’ (as defined herein) ability to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate such officers, directors, key employees, and other persons to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such officers, directors, key employees and other persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units and dividend equivalent rights. Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.

For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:

2.1 “Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

2.2 “Annual Incentive Award” means an Award made subject to attainment of performance goals (as described in Section 14) over a performance period of up to one year (the fiscal year, unless otherwise specified by the Committee).

2.3 “Award” means a grant of an Option, Stock Appreciation Right, Restricted Stock, Stock granted as a bonus or in lieu of another award, Stock Unit or Dividend Equivalent Rights, other Stock-based Award, Performance Award or Annual Incentive Award, together with any related right or interest under the Plan.

2.4 “Award Agreement” means the written agreement between the Company and a Grantee that evidences and sets out the terms and conditions of an Award.

2.5 “Benefit Arrangement” shall have the meaning set forth in Section 15 hereof.

2.7 “Cause” means, as determined by the Board and unless otherwise provided in an applicable agreement with the Company or an Affiliate, (i) gross negligence or willful misconduct in connection with the performance of duties; (ii) conviction of a criminal offense (other than minor traffic offenses); or (iii) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the Service Provider and the Company or an Affiliate.

2.8 “Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended.

2.9 “Committee” means a committee of, and designated from time to time by resolution of, the Board, which shall be constituted as provided in Section 3.2.

2.11 “Corporate Transaction” means (i) the dissolution or liquidation of the Company or a merger, consolidation, or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the Company to another person or entity, or (iii) any transaction (including without limitation a merger or reorganization in which the Company is the surviving entity) which results in any person or entity (other than persons who are shareholders or Affiliates immediately prior to the transaction) owning 50% or more of the combined voting power of all classes of stock of the Company.

2.12 “Covered Employee” means a Grantee who is a Covered Employee within the meaning of Section 162(m)(3) of the Code.

2.13 “Disability” means the Grantee is unable to perform each of the essential duties of such Grantee’s position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months; provided, however, that, with respect to rules regarding expiration of an Incentive Stock Option following termination of the Grantee’s Service, Disability shall mean the Grantee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

2.14 “Dividend Equivalent” means a right, granted to a Grantee under Section 13 hereof, to receive cash, Stock, other Awards or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments.

2.15 Effective Date” means February 20, 2002, the date the Plan was approved by the Board.

2.16 “Exchange Act” means the Securities Exchange Act of 1934, as now in effect or as hereafter amended.

2.17 “Fair Market Value” means the value of a share of Stock, determined as follows: if on the Grant Date or other determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The Nasdaq Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Board shall determine the appropriate exchange or market) on the Grant Date or such other determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the Board in good faith.

2.18 “Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law,

father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

2.19 “Grant Date” means, as determined by the Board or authorized Committee, the latest to occur of (i) the date as of which the Board approves an Award, (ii) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 6 hereof, or (iii) such other date as may be specified by the Board.

2.20 “Grantee” means a person who receives or holds an Award under the Plan.

2.21 “Incentive Stock Option” means an “incentive stock option” within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.

2.22 “Non-qualified Stock Option” means an Option that is not an Incentive Stock Option.

2.23 “Option” means an option to purchase one or more shares of Stock pursuant to the Plan.

2.24 “Option Price” means the purchase price for each share of Stock subject to an Option.

2.25 “Other Agreement” shall have the meaning set forth in Section 15 hereof.

2.26 “Outside Director” means a member of the Board who is not an officer or employee of the Company.

2.27 “Performance Award” means an Award made subject to the attainment of performance goals (as described in Section 14) over a performance period of up to ten (10) years.

2.28 “Plan” means this Guilford Pharmaceuticals Inc. 2002 Stock Award and Incentive Plan.

2.29 “Preexisting Plans” means the following Company Plans: the 1998 Employee Share Option and Restricted Share Plan, as amended, the 1993 Employee Share Option and Restricted Share, as amended and the Directors’ Stock Option Plan, as amended.

2.30 “Purchase Price” means the purchase price for each share of Stock pursuant to a grant of Restricted Stock.

2.31 “Reporting Person” means a person who is required to file reports under Section 16(a) of the Exchange Act.

2.32 “Restricted Stock” means shares of Stock, awarded to a Grantee pursuant to Section 11 hereof.

2.33 “SAR Exercise Price” means the per share exercise price of an SAR granted to a Grantee under Section 10 hereof.

2.34 “Securities Act” means the Securities Act of 1933, as now in effect or as hereafter amended.

2.35 “Service” means service as an employee, officer, director or other Service Provider of the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Grantee’s change in position or duties shall not result in interrupted or terminated Service, so long as such Grantee continues to be an employee, officer, director or other Service Provider of the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of the Plan shall be determined by the Board, which determination shall be final, binding and conclusive.

2.36 “Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate.

2.37 “Stock” means the common stock, par value $.01 per share, of the Company.

2.38 “Stock Appreciation Right” or “SAR” means a right granted to a Grantee under Section 10 hereof.

2.39 “Stock Unit” means a bookkeeping entry representing the equivalent of shares of Stock, awarded to a Grantee pursuant to Section 11 hereof.

2.40 “Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

2.41 “Termination Date” means the date upon which an Option shall terminate or expire, as set forth in Section 8.3 hereof.

2.42 “Ten Percent Stockholder” means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.

The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s certificate of incorporation and by-laws and applicable law. The Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting or by unanimous consent of the Board executed in writing in accordance with the Company’s certificate of incorporation and by-laws and applicable law. The interpretation and construction by the Board of any provision of the Plan, any Award or any Award Agreement shall be final and conclusive.

The Board from time to time may delegate to the Committee such powers and authorities related to the administration and implementation of the Plan, as set forth in


	(i) Except as provided in Subsection (ii) and except as the Board may otherwise determine, the Committee, if any, appointed by the Board to administer the Plan shall consist of two or more Outside Directors of the Company who: (a) qualify as “outside directors” within the meaning of Section 162(m) of the Code and who (b) meet such other requirements as may be established from time to time by the Securities and Exchange Commission for plans intended to qualify for exemption under Rule 16b–3 (or its successor) under the Exchange Act.

	(ii) The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not be Outside Directors, who may administer the Plan with respect to employees or other Service Providers who are not officers or directors of the Company, may grant Awards under the Plan to such employees or other Service Providers, and may determine all terms of such Awards.

In the event that the Plan, any Award or any Award Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final, binding and conclusive. To the extent permitted by law, the Committee may delegate its authority under the Plan to a member of the Board.

Subject to the other terms and conditions of the Plan, the Board shall have full and final authority to:


	(i) designate Grantees,

	(ii) determine the type or types of Awards to be made to a Grantee,

	(iii) determine the number of shares of Stock to be subject to an Award,

	(iv) establish the terms and conditions of each Award (including, but not limited to, the exercise price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options),

	(v) prescribe the form of each Award Agreement evidencing an Award, and

	(vi) amend, modify, or supplement the terms of any outstanding Award. Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify Awards to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom.

As a condition to any subsequent Award, the Board shall have the right, at its discretion, to require Grantees to return to the Company Awards previously made under the Plan. Subject to the terms and conditions of the Plan, any such new Award shall be upon such terms and conditions as are specified by the Board at the time the new Award

is made. The Board shall have the right, in its discretion, to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in conflict with any non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is an employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable. The grant of any Award shall be contingent upon the Grantee executing the appropriate Award Agreement.

The Board may permit or require the deferral of any Award into a deferred compensation arrangement, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock equivalents and restricting deferrals to comply with hardship distribution rules affecting 401(k) plans.

No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement.

Subject to adjustment as provided in Section 17 hereof, the number of shares of Stock available for issuance under the Plan shall be Eight Hundred Seventy Four Thousand Six Hundred and Two (874,602), plus 4.9% of the number of shares issued or delivered by the Company during the term of the Plan other than issuances or deliveries under the Plan or other incentive compensation plans of the Company; provided, however, that the total number of shares with respect to which ISOs may be granted shall not exceed Five Hundred Thousand (500,000); and provided further, that the total number of shares which may be issued and delivered in connection with Awards other than Options and SARs shall not exceed Five Hundred Thousand (500,000). Stock issued or to be issued under the Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been reacquired by the Company and are held as treasury shares.

Shares subject to an Award or an award under the Pre-existing Plans that is cancelled, expired, forfeited, settled in cash or otherwise terminated without a delivery of shares to the Grantee will again be available for Awards, and shares withheld in payment of the exercise price or taxes relating to an Award or Preexisting Plan award shall be deemed to constitute shares not delivered to the Grantee and shall be deemed to again be available for Awards under the Plan. In addition, any Award granted in assumption of or in substitution for an award of a company or business acquired by the Company shall not

The Plan shall be effective as of the Effective Date, subject to approval of the Plan by the Company’s stockholders within one year of the Effective Date. Upon approval of the Plan by the stockholders of the Company as set forth above, all Awards made under the Plan on or after the Effective Date shall be fully effective as if the stockholders of the Company had approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one year after the Effective Date, any Awards made hereunder shall be null and void and of no effect.

The Plan shall terminate automatically ten (10) years after its adoption by the Board and may be terminated on any earlier date as provided in Section 5.3.

The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Awards have not been made. An amendment shall be contingent on approval of the Company’s stockholders to the extent stated by the Board or required by applicable law. No Awards shall be made after termination of the Plan. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, impair rights or obligations under any Award theretofore awarded under the Plan.

Subject to this Section 6, Awards may be made under the Plan to: (i) any employee of, or other Service Provider to, the Company or of any Affiliate, including any such employee or other Service Provider who is an officer or director of the Company, or of any Affiliate, as the Board shall determine and designate from time to time, (ii) any Outside Director, and (iii) any other individual whose participation in the Plan is determined to be in the best interests of the Company by the Board.

An eligible person may receive more than one Award, subject to such restrictions as are provided herein.

During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, but only after such time as the reliance period described in Treas. Reg. Section 1.162-27(f)(2) has expired:


	(i) the maximum number of shares of Stock subject to Options that can be awarded under the Plan to any person eligible for an Award under Section 6 hereof is Five Hundred Thousand (500,000) per year;

	(ii) the maximum number of shares that can be awarded under the Plan, other than pursuant to an Option to any person eligible for an Award under Section 6 hereof is Five Hundred Thousand (500,000) per year; and

	(iii) the maximum amount that may be earned as an Annual Incentive Award or other cash Award in any fiscal year by any one Grantee shall be Two Million Dollars ($2,000,000) and the maximum amount that may be earned as a Performance Award or other cash Award in respect of a performance period by any one Grantee shall be Two Million Dollars ($2,000,000).

The preceding limitations in this Section 6.3 are subject to adjustment as provided in Section 17 hereof.

An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.

Awards granted under the Plan may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall require the surrender of such other Award in consideration for the grant of the new Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Stock subject to the Award is equivalent in value to the cash compensation (for example, Stock Units or Restricted Stock), or in which the Option Price, grant price or purchase price of the Award in the nature of a right that may be exercised is equal to the Fair Market Value of the underlying Stock minus the value of the cash compensation surrendered (for example, Options granted with an Option Price “discounted” by the amount of the cash compensation surrendered).

Each Award granted pursuant to the Plan shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Award Agreements granted from time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock Options.

The Option Price of each Option shall be fixed by the Board and stated in the Award Agreement evidencing such Option. The Option Price of each Option shall be at least the Fair Market Value on the Grant Date of a share of Stock; provided, however, that in the event that a Grantee is a Ten Percent Stockholder, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110 percent of the Fair Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.

Subject to Sections 8.3 and 17.3 hereof, each Option granted under the Plan shall become exercisable at such times and under such conditions as shall be determined by the Board and stated in the Award Agreement. For purposes of this Section 8.2, fractional numbers of shares of Stock subject to an Option shall be rounded down to the next nearest whole number. The Board may provide, for example, in the Award Agreement for (i) accelerated exercisability of the Option in the event the Grantee’s Service terminates on account of death, Disability or another event, (ii) expiration of the Option prior to its term in the event of the termination of the Grantee’s Service, (iii) immediate forfeiture of the Option in the event the Grantee’s Service is terminated for Cause or (iv) unvested Options to be exercised subject to the Company’s right of repurchase with respect to unvested shares of Stock. No Option shall be exercisable in whole or in part prior to the date the Plan is approved by the Stockholders of the Company as provided in Section 5.1 hereof.

Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten years from the date such Option is granted, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such Option (the “Termination Date”); provided, however, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option shall not be exercisable after the expiration of five years from its Grant Date.

Each Award Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Option following termination of the Grantee’s Service. Such provisions shall be determined in the sole discretion of the Board, need not be uniform among all

Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Company as provided herein, or after ten years following the Grant Date, or after the occurrence of an event referred to in Section 17 hereof which results in termination of the Option.

An Option that is exercisable may be exercised by the Grantee’s delivery to the Company of written notice of exercise on any business day, at the Company’s principal office, on the form specified by the Company. Such notice shall specify the number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Award Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise.

Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock ) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 17 hereof, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance.

Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option.

At the discretion of the Board and subject to such restrictions, terms and conditions as the Board may establish, Options granted under the Plan may include a “reload” feature pursuant to which a Grantee exercising an Option by the delivery of a number of shares of Stock in accordance with Section 8.6 hereof would automatically be granted an additional Option (with an Option Price equal to the Fair Market Value of the Stock on the date the additional Option is granted and with such other terms as the Board may provide) to purchase that number of shares of Stock equal to the number delivered to exercise the original Option with an Option term equal to the remainder of the original Option term unless the Board otherwise determines in the Option Award Agreement for the original grant.

Except as provided in Section 9.2, during the lifetime of a Grantee, only the Grantee (or, in the event of legal incapacity or incompetency, the Grantee’s guardian or legal representative) may exercise an Option. Except as provided in Section 9.2, no Option shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution.

If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Option which is not an Incentive Stock Option to any Family Member. For the purpose of this Section 9.2, a “not for value” transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic relations order in settlement of marital property rights; or (iii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. Following a transfer under this Section 9.2, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of transferred Options are prohibited except to Family Members of the original Grantee in accordance with this Section 9.2 or by will or the laws of descent and distribution. The events of termination of Service of Section 8.4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods specified, in Section 8.4.

The Board is authorized to grant Stock Appreciation Rights (“SARs”) to Grantees on the following terms and conditions:

A SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Board. The Award Agreement for an SAR shall specify the grant price of the SAR, which may be fixed at the Fair Market Value of a share of Stock on the date of grant or may vary in accordance with a predetermined formula while the SAR is outstanding.

The Board shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Grantees, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR.

The Board may from time to time grant stock as a bonus, or to grant Stock or other Awards in lieu of obligations of the Company to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Board.

The Board may from time to time grant Restricted Stock or Stock Units to persons eligible to receive Awards under Section 6 hereof, subject to such restrictions, conditions and other terms, if any, as the Board may determine. Awards of Restricted Stock may be made for no consideration (other than par value of the shares which is deemed paid by Services already rendered).

At the time a grant of Restricted Stock or Stock Units is made, the Board may, in its sole discretion, establish a period of time (a “restricted period”) applicable to such Restricted Stock or Stock Units. Each Award of Restricted Stock or Stock Units may be subject to a different restricted period. The Board may, in its sole discretion, at the time a grant of Restricted Stock or Stock Units is made, prescribe restrictions in addition to or other than the expiration of the restricted period, including the satisfaction of corporate or individual performance objectives, which may be applicable to all or any portion of the Restricted Stock or Stock Units in accordance with Section 14.1 and 14.2. Neither Restricted Stock nor Stock Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to the satisfaction of any other restrictions prescribed by the Board with respect to such Restricted Stock or Stock Units.

The Company shall issue, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the Secretary of the Company shall hold such certificates for the Grantee’s benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee, provided, however, that such certificates shall bear a legend or legends that comply with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under the Plan and the Award Agreement.

Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any dividends declared or paid with respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee with respect to Restricted Stock as a result

Unless the Board otherwise provides in an Award Agreement, holders of Stock Units shall have no rights as stockholders of the Company. The Board may provide in an Award Agreement evidencing a grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the Company’s payment of a cash dividend on its outstanding Stock, a cash payment for each Stock Unit held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Stock Units at a price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend is paid.

A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.

Unless the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon the termination of a Grantee’s Service, any Restricted Stock or Stock Units held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of Restricted Stock or Stock Units, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to vote Restricted Stock or any right to receive dividends with respect to shares of Restricted Stock or Stock Units.

The Grantee shall be required, to the extent required by applicable law, to purchase the Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the aggregate par value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if any, specified in the Award Agreement relating to such Restricted Stock. The Purchase Price shall be payable in a form described in Section 12 or, in the discretion of the Board, in consideration for past Services rendered to the Company or an Affiliate.

Upon the expiration or termination of any restricted period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be.

Payment of the Option Price for the shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents acceptable to the Company.

To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be made all or in part through the tender to the Company of shares of Stock, which shares, if acquired from the Company, shall have been held for at least six months at the time of tender and which shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price has been paid thereby, at their Fair Market Value on the date of exercise.

With respect to an Option only (and not with respect to Restricted Stock), to the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option may be made all or in part by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in Section 19.3.

To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be made all or in part with a full recourse promissory note executed by the Grantee. The interest rate and other terms and conditions of such note shall be determined by the Board. The Board may require that the Grantee pledge the Stock subject to the Award for the purpose of securing payment of the note. Unless the Board determines otherwise, the stock certificate(s) representing the Stock shall not be released to the Grantee until such note is paid in full.

To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to exercise of an Option or the Purchase Price for Restricted Stock may be made in any other form that is consistent with applicable laws, regulations and rules.

A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash distributions that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the recipient. A Dividend Equivalent Right may be granted hereunder to any Grantee as a component of another Award or as a freestanding award.

The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend Equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment. Dividend Equivalent Rights may be settled in cash or Stock or a combination thereof, in a single installment or installments, all determined in the sole discretion of the Board. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.

Except as may otherwise be provided by the Board either in the Award Agreement or in writing after the Award Agreement is issued, a Grantee’s rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the Grantee’s termination of Service for any reason.

The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Board. The Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under Sections 14.2 hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m). If and to the extent required under Code Section 162(m), any power or authority relating to a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m), shall be exercised by the Committee and not the Board.

If and to the extent that the Committee determines that a Performance or Annual Incentive Award to be granted to a Grantee who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance or Annual Incentive Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 14.2.

The performance goals for such Performance or Annual Incentive Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 14.2. Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the

achievement of performance goals being “substantially uncertain.” The Committee may determine that such Performance or Annual Incentive Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance or Annual Incentive Awards. Performance goals may differ for Performance or Annual Incentive Awards granted to any one Grantee or to different Grantees.

One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance or Annual Incentive Awards: (1) total stockholder return; (2) such total stockholder return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard & Poor’s 500 Stock Index; (3) net income; (4) pretax earnings; (5) earnings before interest expense, taxes, depreciation and amortization; (6) pretax operating earnings after interest expense and before bonuses, service fees, and extraordinary or special items; (7) operating margin; (8) earnings per share; (9) return on equity; (10) return on capital; (11) return on investment; (12) operating earnings; (13) working capital; (14) ratio of debt to stockholders’ equity; (15) revenue; (16) commencement of certain clinical trial; (17) closing of corporate partnering transactions; and (18) closing of financing transactions.

Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance or Annual Incentive Awards, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m).

The Committee may establish a Performance or Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring Company performance in connection with Performance or Annual Incentive Awards.

Settlement of such Performance or Annual Incentive Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance or Annual Incentive Awards. The Committee shall specify the circumstances in which such Performance or Annual Incentive Awards shall be paid or forfeited in the event of termination of Service by the Grantee prior to the end of a performance period or settlement of Performance Awards.

All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards

and as to the achievement of performance goals relating to Performance Awards, and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). To the extent required to comply with Code Section 162(m), the Committee may delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.

It is the intent of the Company that Performance Awards and Annual Incentive Awards under Section 14.2 hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute “qualified performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Section 14.2, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards or Annual Incentive Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

Notwithstanding any other provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by a Grantee with the Company or any Affiliate, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this paragraph (an “Other Agreement”), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Grantee (including groups or classes of Grantees or beneficiaries of which the Grantee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Grantee (a “Benefit Arrangement”), if the Grantee is a “disqualified individual,” as defined in Section 280G(c) of the Code, any Option, Restricted Stock or Stock Unit held by that Grantee and any right to receive any payment or other benefit under this Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Grantee under this Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Grantee under this Plan to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Grantee from the Company under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by the Grantee without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other

rights, payments, or benefits to or for the Grantee under any Other Agreement or any Benefit Arrangement would cause the Grantee to be considered to have received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount received by the Grantee as described in clause (ii) of the preceding sentence, then the Grantee shall have the right, in the Grantee’s sole discretion, to designate those rights, payments, or benefits under this Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Grantee under this Plan be deemed to be a Parachute Payment.

The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.

During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary

If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which grants of Options and other Awards may be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which Awards are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options or SARs shall not change the aggregate Option Price or SAR Exercise Price payable with respect to shares that are subject to the unexercised portion of an outstanding Option or SAR, as applicable, but shall include a corresponding proportionate adjustment in the Option Price or SAR Exercise Price per share. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of any distribution to the Company’s stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Company may, in such manner as the Company deems appropriate, adjust (i) the number and kind of shares subject to outstanding Awards and/or (ii) the exercise price of outstanding Options and Stock Appreciation Rights to reflect such distribution.

Subject to Section 17.3 hereof, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities which does not constitute a Corporate Transaction, any Option or SAR theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option or SAR would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price or SAR Exercise Price per share so that the aggregate Option Price or SAR Exercise Price thereafter shall be the same as the aggregate Option Price or SAR Exercise Price of the shares remaining subject to the Option or SAR immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement evidencing an Award, any restrictions applicable to such Award shall apply as well to any replacement shares received by the Grantee as a result of the reorganization, merger or consolidation.

Subject to the exceptions set forth in the last sentence of this Section 17.3 and the last sentence of Section 17.4:


	(i) upon the occurrence of a Corporate Transaction, all outstanding shares of Restricted Stock shall be deemed to have vested, and all restrictions and conditions applicable to such shares of Restricted Stock shall be deemed to have lapsed, immediately prior to the occurrence of such Corporate Transaction, and

	(ii) either of the following two actions shall be taken:


	(A) fifteen days prior to the scheduled consummation of a Corporate Transaction, all Options and SARs outstanding hereunder shall become immediately exercisable and shall remain exercisable for a period of fifteen days, or

	(B) the Board may elect, in its sole discretion, to cancel any outstanding Awards of Options, Restricted Stock, and/or SARs and pay or deliver, or cause to be paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Board acting in good faith), in the case of Restricted Stock, equal to the formula or fixed price per share paid to holders of shares of Stock and, in the case of Options or SARs, equal to the product of the number of shares of Stock subject to the Option or SAR (the “Award Shares”) multiplied by the amount, if any, by which (I) the formula or fixed price per share paid to holders of shares of Stock pursuant to such transaction exceeds (II) the Option Price or SAR Exercise Price applicable to such Award Shares.

With respect to the Company’s establishment of an exercise window, (i) any exercise of an Option or SAR during such fifteen-day period shall be conditioned upon the consummation of the event and shall be effective only immediately before the consummation of the event, and (ii) upon consummation of any Corporate Transaction the Plan, and all outstanding but unexercised Options and SARs shall terminate. The Board shall send written notice of an event that will result in such a termination to all individuals who hold Options and SARs not later than the time at which the Company gives notice thereof to its stockholders. This Section 17.3 shall not apply to any Corporate Transaction to the extent that provision is made in writing in connection with such Corporate Transaction for the assumption or continuation of the Options, SARs and Restricted Stock theretofore granted, or for the substitution for such Options, SARs and Restricted Stock for new common stock options and stock appreciation rights and new common stock restricted stock relating to the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and option and stock appreciation right exercise prices, in which event the Plan, Options, SARs and Restricted Stock theretofore granted shall continue in the manner and under the terms so provided.

Adjustments under this Section 17 related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The Board shall determine the effect of a Corporate Transaction upon Awards other than Options, SARs, and Restricted Stock, and such effect shall be set forth in the appropriate Award

Agreement. The Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those described in Sections 17.1, 17.2 and 17.3.

The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.

Unless otherwise determined by the Board, each Award granted hereunder, other than Awards granted to non-employee directors, shall be subject to the following additional forfeiture conditions, to which the Grantee, by accepting an Award hereunder, agrees. If any of the events specified in Section 18.2 (i), (ii), or (iii) occurs (a “Forfeiture Event”), all of the following forfeitures will result:


	(i) The unexercised portion of the Option, whether or not vested, and any other Award not then settled (except for an Award that has not been settled solely due to an elective deferral by the Grantee and otherwise is not forfeitable in the event of any termination of service of the Grantee) will be immediately forfeited and canceled upon the occurrence of the Forfeiture Event; and

	(ii) The Grantee will be obligated to repay to the Company, in cash, within five (5) business days after demand is made therefor by the Company, the total amount of Award Gain (as defined herein) realized by the Grantee upon each exercise of an Option or settlement of an Award (regardless of any elective deferral) that occurred on or after (A) the date that is six (6) months prior to the occurrence of the Forfeiture Event, if the Forfeiture Event occurred while the Grantee was employed by the Company or a subsidiary or affiliate, or (B) the date that is six months prior to the date the Grantee’s employment by the Company or a subsidiary or affiliate terminated, if the Forfeiture Event occurred after the Grantee ceased to be so employed. For purposes of this Section, the term “Award Gain” shall mean (i), in respect of a given Option exercise, the product of (X) the Fair Market Value per share of Stock at the date of such exercise (without regard to any subsequent change in the market price of shares) minus the exercise price times (Y) the number of shares as to which the Option was exercised at that date, and (ii), in respect of any other settlement of an Award granted to the Grantee, the Fair Market Value of the cash or Stock paid or payable to Grantee (regardless of any elective deferral) less any cash or the Fair Market Value of any Stock or property (other than an Award or award which would have itself then been forfeitable hereunder and excluding any payment of tax withholding) paid by the Grantee to the Company as a condition of or in connection such settlement.

The forfeitures specified in Section 18.1 will be triggered upon the occurrence of any one of the following Forfeiture Events at any time during the Grantee’s employment by the Company or a subsidiary or affiliate and resulting in his or her termination of


	(i) The Grantee, acting alone or with others, directly or indirectly, prior to a Change in Control, (A) engages, either as employee, employer, consultant, advisor, or director, or as an owner, investor, partner, or stockholder unless the Grantee’s interest is insubstantial, in any business in an area or region in which the Company conducts business at the date the event occurs, which is directly in competition with a business then conducted by the Company or a subsidiary or affiliate; (B) induces any customer or supplier of the Company or a subsidiary or affiliate with which the Company or a subsidiary or affiliate has a business relationship, to curtail, cancel, not renew, or not continue his or her or its business with the Company or any subsidiary or affiliate; or (C) induces, or attempts to influence, any employee of or service provider to the Company or a subsidiary or affiliate to terminate such employment or service. The Board shall, in its discretion, determine which lines of business the Company conducts on any particular date and which third parties may reasonably be deemed to be in competition with the Company. For purposes of this Section 18.2 (i), a Grantee’s interest as a stockholder is insubstantial if it represents beneficial ownership of less than two (2) percent of the outstanding class of stock, and a Grantee’s interest as an owner, investor, or partner is insubstantial if it represents ownership, as determined by the Board in its discretion, of less than two (2) percent of the outstanding equity of the entity;

	(ii) The Grantee discloses, uses, sells, or otherwise transfers, except in the course of employment with or other service to the Company or any subsidiary or affiliate, any confidential or proprietary information of the Company or any subsidiary or affiliate, including but not limited to information regarding the Company’s current and potential customers, organization, employees, finances, and methods of operations and investments, so long as such information has not otherwise been disclosed to the public or is not otherwise in the public domain, except as required by law or pursuant to legal process, or the Grantee makes statements or representations, or otherwise communicates, directly or indirectly, in writing, orally, or otherwise, or takes any other action which may, directly or indirectly, disparage or be damaging to the Company or any of its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations, except as required by law or pursuant to legal process; or

	(iii) The Grantee fails to cooperate with the Company or any subsidiary or affiliate in any way, including, without limitation, by making himself or herself available to testify on behalf of the Company or such subsidiary or affiliate in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, or otherwise fails to assist the Company or any subsidiary or affiliate in any way, including, without limitation, in connection with any such action, suit, or proceeding by providing information and meeting and consulting with members of management of, other representatives of, or counsel to, the Company or such subsidiary or affiliate, as reasonably requested.

Although the conditions set forth in this Article 18 shall be deemed to be incorporated into an Award, a Grantee is not thereby prohibited from engaging in any activity, including but not limited to competition with the Company and its subsidiaries

and affiliates. Rather, the non-occurrence of the Forfeiture Events set forth in Section 18.2 is a condition to the Grantee’s right to realize and retain value from his or her compensatory Options and Awards, and the consequence under the Plan if the Grantee engages in an activity giving rise to any such Forfeiture Event are the forfeitures specified herein. The Company and the Grantee shall not be precluded by this provision or otherwise from entering into other agreements concerning the subject matter of Sections 18.1 and 18.2.

The Board may, in its discretion, waive in whole or in part the Company’s right to forfeiture under this Article 18, but no such waiver shall be effective unless evidenced by a writing signed by a duly authorized officer of the Company. In addition, the Board may impose additional conditions on Awards, by inclusion of appropriate provisions in the document evidencing or governing any such Award.

No provision in the Plan or in any Award or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a director, officer, consultant or employee of the Company or an Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan.

Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan.

The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any Federal, state, or local taxes of any kind required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an Award or upon the issuance of any shares of Stock upon the exercise of an Option or pursuant to an Award. At the time of such vesting, lapse, or

exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold shares of Stock otherwise issuable to the Grantee or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this Section 19.3 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.

The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement.

Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion.

With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires.

If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.

The validity and construction of this Plan and the instruments evidencing the Award hereunder shall be governed by the laws of the State of Maryland, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan and the instruments evidencing the Awards granted hereunder to the substantive laws of any other jurisdiction.

To record adoption of the Plan by the Board as of , 2002, and approval of the Plan by the stockholders on , 2002, the Company has caused its authorized officer to execute the Plan.

The Board of Directors of the Company has adopted this 2002 Employee Stock Purchase Plan to enable eligible employees of and service providers to the Company and its Participating Affiliates, through payroll deductions or other cash contributions, to purchase shares of the Company’s Common Stock. The Plan is for the benefit of the employees and service providers of the Company and any Participating Affiliates. The Plan is intended to benefit the Company by increasing the participants’ interest in the Company’s growth and success and encouraging participants to continue to provide services the Company or its Participating Affiliates. The provisions of the Plan are set forth below:

1.3. “Committee” means a committee of, and designated from time to time by resolution of, the Board.

1.4. “Common Stock” means the Company’s common stock, par value $0.01 per share.

1.7. “Fair Market Value” means the value of each share of Common Stock subject to the Plan on a given date determined as follows: if on such date the shares of Common Stock are listed on an established national or regional stock exchange, are admitted to quotation on The Nasdaq Stock Market, or are publicly traded on an established securities market, the fair market value of the shares of Common Stock shall be the closing price of the shares of Common Stock on such exchange or in such market (the exchange or market selected by the Board if there is more than one such exchange or market) on such date or, if there is no such reported closing price, the fair market value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such day or, if no sale of the shares of Common Stock is reported for such day, on the next preceding day on which any sale shall have been reported. If the shares of Common Stock are not listed on such an exchange, quoted on such System or traded on such a market, fair market value shall be determined by the Board in good faith.

1.8. “Offering Period” means the period determined by the Committee pursuant to Section 8 during which payroll deductions or other cash payments are accumulated for the purpose of purchasing Common Stock under the Plan.

1.9. “Participating Affiliate” means any company or other trade or business that is a subsidiary of the Company (determined in accordance with the principles of Sections 424(e) and (f) of the Code and the regulations thereunder).

1.10. “Plan” means the Guilford Pharmaceuticals Inc. 2002 Employee Stock Purchase Plan.

1.11. “Purchase Period” means the period designated by the Committee on the last trading day of which purchases of Common Stock are made under the Plan.

1.12. “Purchase Price” means the purchase price of each share of Common Stock purchased under the Plan.

Subject to adjustment as provided in Section 26 below, the aggregate number of shares of Common Stock that may be made available for purchase by participants under the Plan is 300,000. The shares issuable under the Plan may, in the discretion of the Board, be authorized but unissued shares, treasury shares, or shares purchased on the open market.

The Plan shall be administered under the direction of the Committee. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan.

The Committee shall have authority to interpret the Plan, to prescribe, amend and rescind rules relating to it, and to make all other determinations necessary or advisable in administering the Plan, all of which determinations will be final and binding upon all persons.

Any employee of or service provider to the Company or any of its Participating Affiliates (“eligible participant”) may participate in the Plan, except with respect to employees the following, who are ineligible to participate: (a) an employee who has been employed by the Company or any of its Participating Affiliates for less than three months as of the beginning of an Offering Period; (b) an employee whose customary employment is for less than five months in any calendar year; (c) an employee whose customary employment is 20 hours or less per week; and (d) an employee who, after exercising his or her rights to purchase shares under the Plan, would own shares of Common Stock (including shares that may be acquired under any outstanding options) representing five percent or more of the total combined voting power of all classes of stock of the Company. Notwithstanding the foregoing, the Board may at any time in its sole discretion determine that certain employees or service providers are not eligible to participate in the Plan.

An eligible participant may become a participant in the Plan by completing an election to participate in the Plan on a form provided by the Company and submitting that form to the Payroll Department of the Company. The form will authorize: (i) payment of the Purchase Price by payroll deductions, and if authorized by the Committee, payment of the Purchase Price by means of periodic cash payments from participants, and (ii) the purchase of shares of Common Stock for the participant’s account in accordance with the terms of the Plan. Enrollment will become effective upon the first day of an Offering Period.

At the time an eligible participant submits his or her election to participate in the Plan (as provided in Section 6 above), the participant shall elect to have deductions made

from his or her pay on each pay day following his or her enrollment in the Plan, and for as long as he or she shall participate in the Plan. The deductions will be credited to the participant’s account under the Plan. No interest shall accrue on the payroll deductions of a participant. Pursuant to Section 6 above, the Committee shall also have the authority to authorize in the election form the payment for shares of Common Stock through cash payments from participants. A participant may not during any Offering Period change his or her percentage of payroll deduction for that Offering Period, nor may a participant withdraw any contributed funds, other than in accordance with Sections 16 through 20 below.

The Offering Periods and Purchase Periods shall be determined by the Committee. The first Offering Period under the Plan shall commence on the date determined by the Committee. Each Offering Period shall consist of one or more Purchase Periods, as determined by the Committee.

Rights to purchase shares of Common Stock will be deemed granted to participants as of the first trading day of each Offering Period. The Purchase Price of each share of Common Stock shall be determined by the Committee; provided, however, that the Purchase Price shall not be less than the lesser of 85 percent of the Fair Market Value of the Common Stock (i) on the first trading day of the Offering Period or (ii) on the last trading day of the Purchase Period; provided, further, that in no event shall the Purchase Price be less than the par value of the Common Stock.

Unless a participant has given prior written notice terminating participation in the Plan, or participation in the Plan has otherwise been terminated as provided in Sections 16 through 20 below, such participant will be deemed to have exercised automatically his or her right to purchase Common Stock on the last trading day of the Purchase Period (except as provided in Section 16 below) for the number of shares of Common Stock which the accumulated funds in the participant’s account at that time will purchase at the Purchase Price, subject to the participation adjustment provided for in Section 15 below and subject to adjustment under Section 26 below. Notwithstanding the foregoing, no shares shall be sold pursuant to the Plan unless the Plan is approved by the Company’s stockholders in accordance with Section 25 below.

Notwithstanding any other provision of the Plan, no participant may purchase in any one calendar year under the Plan shares of Common Stock having an aggregate Fair Market Value in excess of $25,000, determined as of the first trading date of the Offering Period as to shares purchased during such period. Effective upon the last trading day of the Purchase Period, a participant will become a stockholder with respect to the shares purchased during such period, and will thereupon have all dividend, voting and other ownership rights incident thereto. In addition, the Committee or the Board may impose a limit on the number of shares or the value of shares that a participant may purchase in each Offering or Purchase Period; provided, that, such limitations shall be imposed prior to the start of the relevant Offering or Purchase Period.

On the last trading day of the Purchase Period, a participant will be credited with the number of shares of Common Stock purchased for his or her account under the Plan during such Purchase Period. Shares purchased under the Plan will be held in the custody of an agent (the “Agent”) appointed by the Board of Directors. The Agent may hold the shares purchased under the Plan in stock certificates in nominee names and may commingle shares held in its custody in a single account or stock certificate without identification as to individual participants. The Committee shall have the right to require any or all of the following with respect to shares of Common Stock purchased under the Plan:


	(i) that a participant may not request that all or part of the shares of Common Stock be reissued in the participant’s own name and the stock certificates delivered to the participant until two years (or such shorter period of time as the Committee may designate) have elapsed since the first day of the Offering Period in which the shares were purchased and one year has elapsed since the day the shares were purchased (the “Holding Period”);

	(ii) that all sales of shares during the Holding Period applicable to such shares be performed through a licensed broker acceptable to the Company; and

	(iii) that participants abstain from selling or otherwise transferring shares of Common Stock purchased pursuant to the Plan for a period lasting up to two years from the date the shares were purchased pursuant to the Plan.

To the extent that a participant realizes ordinary income in connection with a sale or other transfer of any shares of Common Stock purchased under the Plan, the Company may withhold amounts needed to cover such taxes from any payments otherwise due and owing to the participant or from shares that would otherwise be issued to the participant hereunder. Any participant who sells or otherwise transfers shares purchased under the Plan within two years after the beginning of the Offering Period in which the shares were purchased must within 30 days of such transfer notify the Payroll Department of the Company in writing of such transfer.

The Company will cause the Agent to deliver to each participant a statement for each Purchase Period during which the participant purchases Common Stock under the Plan, reflecting the amount of payroll deductions during the Purchase Period, the number of shares purchased for the participant’s account, the price per share of the shares purchased for the participant’s account and the number of shares held for the participant’s account at the end of the Purchase Period.

If in any Purchase Period the number of unsold shares that may be made available for purchase under the Plan pursuant to Section 1 above is insufficient to permit exercise of all rights deemed exercised by all participants pursuant to Section 10 above, a participation adjustment will be made, and the number of shares purchasable by all participants will be reduced proportionately. Any funds then remaining in a participant’s account after such exercise will be refunded to the participant.

A participant may, at any time prior to the last trading day of the Purchase Period, by written notice to the Company, direct the Company to cease payroll deductions (or, if the payment for shares is being made through periodic cash payments, notify the Company that such payments will be terminated), in accordance with the following alternatives:


	(i) The participant’s option to purchase shall be reduced to the number of shares which may be purchased, as of the last day of the Purchase Period, with the amount then credited to the participant’s account; or

	(ii) Withdraw the amount in such participant’s account and terminate such participant’s option to purchase.

A participant may decrease his or her rate of contribution once during a Purchase Period (but not below one percent (1%) of regular earnings) by delivering to the Company a new form regarding election to participate in the Plan under Section 6 above.

Any participant may increase or decrease his or her payroll deduction or periodic cash payments, to take effect on the first day of the next Offering Period, by delivering to the Company a new form regarding election to participate in the Plan under Section 6 above.

In the event a participant ceases providing services to the Company or a Participating Affiliate for any reason prior to the last day of the Purchase Period except under circumstances described in Section 18 below, the amount in the participant’s account will be distributed to the participant (or to the participant’s beneficiary (or estate in the case a beneficiary is not named) in the case of the participant’s death) and the participant’s option to purchase will terminate.

Payroll deductions for shares for which a participant has an option to purchase may be suspended during any period of absence of the participant from work due to lay-off, authorized leave of absence or disability or, if the participant so elects, periodic payments for such shares may continue to be made in cash.

If such participant returns to active service prior to the last day of the Purchase Period, the participant’s payroll deductions will be resumed and if said participant did not make periodic cash payments during the participant’s period of absence, the participant shall, by written notice to the Company’s Payroll Department within 10 days after the participant’s return to active service, but not later than the last day of the Purchase Period, elect:


	(a) To make up any deficiency in the participant’s account resulting from a suspension of payroll deductions by an immediate cash payment;


	(b) Not to make up such deficiency, in which event the number of shares to be purchased by the participant shall be reduced to the number of whole shares which may be purchased with the amount, if any, then credited to the participant’s account plus the aggregate amount, if any, of all payroll deductions to be made thereafter; or

	(c) Withdraw the amount in the participant’s account and terminate the participant’s option to purchase.

A participant on lay-off, authorized leave of absence or disability on the last day of the Purchase Period shall deliver written notice to the Company on or before the last day of the Purchase Period, electing one of the alternatives provided in the foregoing clauses (a), (b) and (c) of this Section 18. If any participant fails to deliver such written notice within 10 days after the participant’s return to active service or by the last day of the Purchase Period, whichever is earlier, the participant shall be deemed to have elected subsection 18(c) above.

If the period of a participant’s lay-off, authorized leave of absence or disability shall terminate on or before the last day of the Purchase Period, and the participant shall not resume providing services to the Company or a Participating Affiliate, the participant shall receive a distribution in accordance with the provisions of Section 17 of this Plan.

Under any of the circumstances contemplated by this Plan, where the purchase of shares is to be made through periodic cash payments in lieu of payroll deductions, the failure to make any such payments shall reduce, to the extent of the deficiency in such payments, the number of shares purchasable under this Plan by the participant.

A participant will be refunded all moneys in his or her account, and his or her participation in the Plan will be terminated if either (a) the Board elects to terminate the Plan as provided in Section 25 below, or (b) the participant ceases to be eligible to participate in the Plan under Section 5 above. As soon as practicable following termination of participation in the Plan, the Company will deliver to the participant a check representing the amount in the participant’s account and a stock certificate representing the number of whole shares held in the participant’s account. Once terminated, participation may not be reinstated for the then current Offering Period, but, if otherwise eligible, the participant may elect to participate in any subsequent Offering Period.

No participant may assign his or her rights to purchase shares of Common Stock under the Plan, whether voluntarily, by operation of law or otherwise. Any payment of cash or issuance of shares of Common Stock under the Plan may be made only to the participant (or, in the event of the participant’s death, to the participant’s beneficiary (or estate in the case a beneficiary is not named)). Once a stock certificate has been issued to the participant or for his or her account, such certificate may be assigned the same as any other stock certificate.

All funds received or held by the Company under the Plan may be used for any corporate purpose until applied to the purchase of Common Stock and/or refunded to participants. Participants’ accounts will not be segregated.

Neither the Plan nor any right to purchase Common Stock under the Plan confers upon any participant any right to continued employment with the Company or any of its Participating Affiliates, nor will participation in the Plan restrict or interfere in any way with the right of the Company or any of its Participating Affiliates to terminate the participant’s employment or provision of services at any time.

The Board may, at any time, amend the Plan in any respect (including an increase in the percentage specified in Section 9 above used in calculating the Purchase Price). No amendment may be made that impairs the vested rights of participants.

The Plan shall be effective as of the date of adoption by the Board, which date is set forth below, subject to approval of the Plan by a majority of the votes present and entitled to vote at a duly held meeting of the shareholders of the Company at which a quorum representing a majority of all outstanding voting stock is present, either in person or by proxy; provided, however, that upon approval of the Plan by the shareholders of the Company as set forth above, all rights to purchase shares granted under the Plan on or after the effective date shall be fully effective as if the shareholders of the Company had approved the Plan on the effective date. If the shareholders fail to approve the Plan on or before one year after the effective date, the Plan shall terminate, any rights to purchase shares granted hereunder shall be null and void and of no effect, and all contributed funds shall be refunded to participating employees. The Board may terminate the Plan at any time and for any reason or for no reason, provided that such termination shall not impair any rights of participating employees that have vested at the time of termination. In any event, the Plan shall, without further action of the Board, terminate ten (10) years after the date of adoption of the Plan by the Board or, if earlier, at such time as all shares of Common Stock that may be made available for purchase under the Plan pursuant to Section 1 above have been issued.

If the number of outstanding shares of Common Stock is increased or decreased or the shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend, or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares that may be purchased under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which rights are outstanding shall be similarly adjusted so that the proportionate interest of a participant immediately following such event shall, to the extent

practicable, be the same as immediately prior to such event. Any such adjustment in outstanding rights shall not change the aggregate Purchase Price payable by a participant with respect to shares subject to such rights, but shall include a corresponding proportionate adjustment in the Purchase Price per share. Notwithstanding the foregoing, in the event of a spin-off that results in no change in the number of outstanding shares of the Common Stock of the Company, the Company may, in such manner as the Company deems appropriate, adjust (i) the number and kind of shares for which rights are outstanding under the Plan, and (ii) the Purchase Price per share.

Subject to Section c, if the Company shall be the surviving corporation in any reorganization, merger or consolidation of the Company with one or more other corporations, all outstanding rights under the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to such rights would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment of the Purchase Price per share so that the aggregate Purchase Price thereafter shall be the same as the aggregate Purchase Price of the shares subject to such rights immediately prior to such reorganization, merger or consolidation.

Upon any dissolution or liquidation of the Company, or upon a merger, consolidation or reorganization of the Company with one or more other corporations in which the Company is not the surviving corporation, or upon a sale of all or substantially all of the assets of the Company to another corporation, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board that results in any person or entity owning more than 80 percent of the combined voting power of all classes of stock of the Company, the Plan and all rights outstanding hereunder shall terminate, except to the extent provision is made in writing in connection with such transaction for the continuation of the Plan and/or the assumption of the rights theretofore granted, or for the substitution for such rights of new rights covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and exercise prices, in which event the Plan and rights theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Plan, the Offering Period and the Purchase Period shall be deemed to have ended on the last trading day prior to such termination, and in accordance with Section 12 above the rights of each participant then outstanding shall be deemed to be automatically exercised on such last trading day. The Board shall send written notice of an event that will result in such a termination to all participants at least ten (10) days prior to the date upon which the Plan will be terminated.

Adjustments under this Section 26 related to stock or securities of the Company shall be made by the Committee, whose determination in that respect shall be final, binding, and conclusive.

The grant of a right pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets.

The Company’s obligation to issue, sell and deliver shares of Common Stock pursuant to the Plan is subject to such approval of any governmental authority and any national securities exchange or other market quotation system as may be required in connection with the authorization, issuance or sale of such shares.

Dividends paid with respect to shares credited to each participant’s account will be themselves credited to such account. The Company will deliver to each participant who purchases shares of Common Stock under the Plan, as promptly as practicable by mail or otherwise, all notices of meetings, proxy statements, proxies and other materials distributed by the Company to its stockholders. Any shares of Common Stock held by the Agent for an participant’s account will be voted in accordance with the participant’s duly delivered and signed proxy instructions. There will be no charge to participants in connection with such notices, proxies and other materials.

Transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or any successor provision under the Securities Exchange Act of 1934, as amended. If any provision of the Plan or action by the Board fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Board. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated herein, such provision (other than one relating to eligibility requirements, or the price and amount of awards) shall be deemed automatically to be incorporated by reference into the Plan.

The undersigned stockholder of GUILFORD PHARMACEUTICALS INC. (the “Corporation”) hereby appoints Craig R. Smith, M.D., Andrew R. Jordan and Nancy J. Linck, or any of them, as attorneys and proxies of the undersigned, with full power of substitution and with authority in each of them, to act in the absence of the other and to vote and act for the undersigned at the Annual Meeting of Stockholders of the Corporation to be held on Tuesday, May 14, 2002 at 10:00 a.m. (Eastern time) at the Corporation’s research and development facilities located at 6411 Beckley Street, Baltimore, Maryland, and at any adjournments or postponements thereof, in respect of all shares of the Common Stock of the Corporation which the undersigned may be entitled to vote, on the following matters:

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. HOWEVER, IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE NOMINEES IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4.

The undersigned hereby acknowledges prior receipt of a copy of the Notice of Annual Meeting of Stockholders and Proxy Statement dated April 3, 2002 and the 2001 Annual Report to Stockholders, and hereby revokes any proxy or proxies heretofore given. This Proxy may be revoked at any time before it is voted by delivering to the Secretary of the Corporation either a written revocation of proxy or a duly executed proxy bearing a later date, or by appearing at the Annual Meeting and voting in person.

____________________________________________________________ DATED:___________ ____________________________________ DATED: ____________
SIGNATURE OF STOCKHOLDER OR AUTHORIZED REPRESENTATIVE SIGNATURE IF HELD JOINTLY

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Craig R. Smith, M.D. Age 56		Chairman of the Board of Directors and Chief Executive Officer, member of the Nominating Committee, member of the Science Committee and sole member of the New Hire Option Committee.

		Dr. Smith joined Guilford as a director at Guilford’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. Dr. Smith stepped down as President of Guilford in February 2002, when he appointed David Wright to that position in connection with an organizational restructuring of the Company. Prior to joining Guilford, Dr. Smith was senior vice president for business and market development at Centocor, Inc. (a biotechnology company). 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. Dr. Smith is a member of the board of directors of CellGate, Inc., a privately held biopharmaceutical company of which Richard L. Casey, a former director of the Company, is the chief executive officer and chairman of the board of directors. Dr. Smith also serves on the board of directors of Molecular Neuroimaging Inc.

George L. Bunting, Jr. Age 61		Director, Chairman of the Compensation Committee and member of the Audit Committee.

		Mr. Bunting has been a Guilford director since May 1996. Mr. Bunting is president and chief executive officer of Bunting Management Group, a position he has held since July 1991. He formerly served as chairman of the board and chief executive officer of the Noxell Corporation (a Procter & Gamble Company as of November 1989). Mr. Bunting joined Noxell Corporation in 1966 as a product manager. In 1968, he was elected to the board of directors of Noxell. In March 1970, he was elected to the position of executive vice president and served as president and chief executive officer from November 1973 until April 1986, when he became chairman and chief executive officer. Mr. Bunting is a director of Mercantile Bankshares Corporation, Baltimore Equitable Insurance Company and Mercantile Safe Deposit and Trust Company. He served as chairman of the Board of


		No. of
Name of		Meetings
Compensation Committee Members	Compensation Committee Functions	in 2001
George L. Bunting, Jr. (Chair) Elizabeth M. Greetham W. Leigh Thompson, M.D., Ph.D.	• establishes compensation of the chief executive officer • reviews and approves compensation of other executive officers • prepares annual report to stockholders on executive compensation practices • administers employee stock option and restricted share plans and such other plans as we may adopt from time to time • approves and establishes policies with regard to company salary, incentive, equity and other compensation programs		1


		No. of
Name of		Meetings
Audit Committee Members	Audit Committee Functions	in 2001
Ronald M. Nordmann (Chair) George L. Bunting, Jr. Joseph Klein, III	• recommends action to the board on the appointment or discharge of the independent auditing firm • reviews the proposed scope of the annual audit and estimated fees • reviews any major new accounting policies or changes to existing ones • reviews with the independent auditors their annual audit report and our quarterly and annual financial statements • consults with auditors and our internal accounting staff on their appraisals of the strengths and limitations of our accounting personnel, internal accounting controls and systems, and other factors pertinent to the integrity of our published financial reports • reviews the annual letter from the independent auditors on internal accounting controls • prepares annual report of the Audit Committee to stockholders • reviews other services and fees of independent auditors		4


		No. of
Name of		Meetings
Science Committee Members	Science Committee Functions	in 2001
Solomon H. Snyder, M.D. (Chair) Craig R. Smith, M.D. W. Leigh Thompson, M.D., Ph.D. Joseph Klein, III	• engages consultants to advise the committee in its review of the Company’s research and development programs • conducts peer review of the Company’s research and development projects • advises the president and chief executive officer of the Company regarding future research and development efforts		2


	Number of		Percent of
	Shares		Outstanding
Name	Owned (1)		Shares

T. Rowe Price Associates, Inc. (2)		2,126,900		7.15	%




Wellington Management Co. LLP (3)		1,974,700		6.68	%




Craig R. Smith, M.D.		699,958		2.35	%




David P. Wright		61,133		*




John P. Brennan		255,281		*




Andrew R. Jordan		291,885		*




Thomas C. Seoh		180,824		*




George L. Bunting, Jr. (4)		722,150		2.43	%




Elizabeth M. Greetham		63,750		*




Joseph Klein III		53,150		*




Solomon H. Snyder, M.D.		570,943		1.92	%




W. Leigh Thompson, M.D., Ph.D.		94,936		*




Ronald M. Nordmann		71,250		*




All officers and directors as a group		3,460,094		11.64	%


	(1)	Title of each class of securities to which transaction applies:


	(2)	Aggregate number of securities to which transaction applies:






Frequently Asked Questions		3





Matters to Be Voted On		7





Board of Directors		20





	Nominees for the Board of Directors	20





	Board Committees	24





	Attendance at Board and Committee Meetings	25





	Directors’ Compensation	25





	Section 16(a) Beneficial Ownership Reporting Compliance	26





Beneficial Ownership of Common Stock		27





Executive Compensation		28





	Summary Compensation Table	28





	Option Grants	29





	Options Exercises and Holdings	30





	Employment Agreements	30





	401(k) Retirement Savings Plan	31





	Employee Share Option and Restricted Share Plans	31





	Key Person Life Insurance	32





	Compensation Committee Interlocks and Insider Participation	32





Certain Relationships and Related Party Transactions		32





Independent Public Accountants		33





	Audit Fees	33





	Financial Information Systems Design and Implementation Fees	33





	All Other Fees	33





Compensation Committee Report on Executive Compensation		34





Audit Committee Report		38





	Charter of the Audit Committee of the Board of Directors





Stock Performance Chart		39


Q:	WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING AND HOW MANY VOTES DO THEY HAVE?


Q:	BY COMPLETING AND RETURNING THE PROXY CARD, WHO AM I DESIGNATING AS MY PROXY?


	•	ITEM 2. APPROVAL OF OUR 2002 STOCK AWARD AND INCENTIVE PLAN.


	•	ITEM 3. APPROVAL OF OUR 2002 EMPLOYEE STOCK PURCHASE PLAN.


Q:	WHAT IS A QUORUM OF STOCKHOLDERS, AND HOW MANY VOTES DOES IT TAKE TO PASS EACH MATTER?


Q:	CAN I VOTE BY PROXY EVEN IF I PLAN TO ATTEND THE ANNUAL MEETING?


ITEM 3.	PROPOSAL TO APPROVE OUR 2002 EMPLOYEE STOCK PURCHASE PLAN.


	x	No fee required.


	(1)	Amount Previously Paid:


	(3)	Filing Party:


	Sincerely,


ITEM 4.	RATIFICATION OF OUR SELECTION OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR 2002.


David P. Wright Age 54		Nominee for Director, President and Chief Business Officer

		Mr. Wright joined the Company in November 2000, as Executive Vice President, Commercial Operations. In February 2002, he was appointed President and Chief Business Officer of Guilford in connection with an organizational restructuring of the Company. From 1990 through 1999, Mr. Wright was employed by MedImmune, Inc., most recently as Executive Vice President Sales and Marketing. Prior to joining MedImmune, Mr. Wright was Vice President, Gastrointestinal Business Group, for Smith, Kline and French Laboratories, and held various marketing and sales posts with G.D. Searle, Glaxo, Hoffmann-LaRoche and Pfizer. Mr. Wright received a Master of Arts in Speech Pathology and Audiology from the University of South Florida in 1969.


*	Represents less than 1% of the shares outstanding.

(1)	Includes shares for which the named person:


								Long-Term
								Compensation
		Annual Compensation						Awards

								Securities		All Other
								Underlying		Compensation
Name and Principal Position		Year		Salary($)		Bonus($)		Options(#)		($)(1)

Craig R. Smith, M.D.			2001	$	483,333	$	210,000		150,500	$	95,504
	Chairman and Chief		2000		395,000		250,000		125,000		94,374
	Executive Officer		1999		366,667		200,000		100,000		92,984




David P. Wright			2001		320,000		90,000		80,500		4,134
	President and Chief		2000		71,231		—		175,000		—
	Business Officer (2)




John P. Brennan			2001		257,816		63,000		40,500		41,834
	Senior Vice President,		2000		240,542		120,000		50,000		39,444
	Technical Operations		1999		226,476		57,500		40,000		40,036




Andrew R. Jordan			2001		254,371		64,000		50,500		26,358
	Senior Vice President,		2000		238,625		96,000		40,000		30,760
	Chief Financial Officer and Treasurer		1999		226,444		46,000		30,000		29,086




Thomas C. Seoh			2001		254,000		74,000		50,500		15,934
	Senior Vice President,		2000		237,916		96,000		40,000		17,672
	Corporate and Commercial Development and Strategic Planning		1999		217,792		60,000		50,000		18,158



	Individual Grants
										Potential Realizable
			Percentage							Value at Assumed
	Number of		of Total							Annual Rates of
	Securities		Options							Stock Price
	Underlying		Granted to							Appreciation for
	Options		Employees in			Exercise or				Option Term (3)
	Granted(#)		Fiscal Year			Base Price		Expiration
Name and Position	(1)		(%)			($)(2)		Date		5%($)		10%($)

Craig R. Smith, M.D.		150,500		6.6	%		8.81		2/20/12	$	833,860	$	2,113,165




David P. Wright		80,500		3.5			8.81		2/20/12	$	446,018	$	1,130,298




John P. Brennan		40,500		1.8			8.81		2/20/12	$	224,394	$	568,659




Andrew R. Jordan		50,500		2.2			8.81		2/20/12	$	279,800	$	709,069




Thomas C. Seoh		50,500		2.2			8.81		2/20/12	$	279,800	$	709,069


(1)	Consists of options granted to certain executives in February 2002 relating to performance in 2001. These options vest 25% on the first anniversary of the grant date of the option and thereafter the remaining options vest in 36 equal monthly installments.

(2)	The exercise prices are equal to the fair market value of the common stock on the date of grant.

(3)	Amounts represent hypothetical gains that could be achieved for the respective options at the end of the ten-year option term. The assumed 5% and 10% rates of stock appreciation are mandated by the rules of the Securities and Exchange Commission and may not accurately reflect the appreciation of the price of our common stock from the date of grant until the end of the option term. These assumptions are not intended to forecast future price appreciation of our common stock.



					Number of Securities
					Underlying Unexercised				Value of Unexercised
					Options Held at				In-The-Money Options
					Fiscal Year-End (#)(1)				at Fiscal Year End ($)(2)
	Shares Acquired		Value
Name	on Exercise (#)		Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable

Craig R. Smith, M.D.		22,919	$	298,502		287,461		347,586		—	$	480,035




David P. Wright		—		—		50,000		205,500		—		256,755




John P. Brennan		—		—		151,215		119,252	$	28,974		129,155




Andrew R. Jordan		30,000		388,899		154,580		117,170		—		161,055




Thomas C. Seoh		—		—		131,456		126,544		—		161,055


	Guilford Pharmaceuticals				NASDAQ Stock Market
	Inc.		Biocentury 100 Index		Composite Index

6/17/94		100.00		100.00		100.00
12/31/94		65.63		90.46		103.10
12/31/95		198.44		163.06		144.26
12/31/96		435.96		176.78		177.01
12/31/97		377.37		167.37		207.22
12/31/98		267.20		183.57		296.57
12/31/99		318.77		363.52		557.94
12/31/00		337.52		504.18		338.73
12/31/01		225.01		358.72		272.47


		Page

1.	PURPOSE		1




2.	DEFINITIONS		1




3.	ADMINISTRATION OF THE PLAN		4




	3.1. Board		4




	3.2. Committee		4




	3.3. Terms of Awards		5




	3.4. Deferral Arrangement		6




	3.5. No Liability		6




4.	STOCK SUBJECT TO THE PLAN		6




	4.1. Overall Number of Shares Available for Delivery		6




	4.2. Shares Available for Future Grants		6




5.	EFFECTIVE DATE, DURATION AND AMENDMENTS		7




	5.1. Effective Date		7




	5.2. Term		7




	5.3. Amendment and Termination of the Plan		7




6.	AWARD ELIGIBILITY AND LIMITATIONS		7




	6.1. Company or Subsidiary Employees; Service Providers; Other Persons		7




	6.2. Successive Awards		7




	6.3. Limitation on Shares of Stock Subject to Awards and Cash Awards		8




	6.4. Limitations on Incentive Stock Options		8




	6.5. Stand-Alone, Additional, Tandem, and Substitute Awards		8




7.	AWARD AGREEMENT		9




8.	TERMS AND CONDITIONS OF OPTIONS		9




	8.1. Option Price		9




	8.2. Vesting		9




	8.3. Term		9




	8.4. Termination of Service		9




	8.5. Limitations on Exercise of Option		10




	8.6. Method of Exercise		10




	8.7. Rights of Holders of Options		10




	8.8. Delivery of Stock Certificates		10




	8.9. Reload Options		10




9.	TRANSFERABILITY OF OPTIONS		11




	9.1. Transferability of Options		11




	9.2. Family Transfers		11




10.	STOCK APPRECIATION RIGHTS		11




	10.1. Right to Payment		11




	10.2. Other Terms		11


			Page

11.	BONUS STOCK, RESTRICTED STOCK AND STOCK UNITS			12




	11.1.	Bonus Stock and Awards in Lieu of Obligations		12




	11.2. Grant of Restricted Stock or Stock Units			12




	11.3. Restrictions			12




	11.4. Restricted Stock Certificates			12




	11.5. Rights of Holders of Restricted Stock			12




	11.6. Rights of Holders of Stock Units			13




		11.6.1. Voting and Dividend Rights		13




		11.6.2. Creditor’s Rights		13




	11.7. Termination of Service			13




	11.8. Purchase of Restricted Stock			13




	11.9. Delivery of Stock			13




12.	FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK			14




	12.1. General Rule			14




	12.2. Surrender of Stock			14




	12.3. Cashless Exercise			14




	12.4. Promissory Note			14




	12.5. Other Forms of Payment			14




13.	DIVIDEND EQUIVALENT RIGHTS			14




	13.1. Dividend Equivalent Rights			14




	13.2. Termination of Service			15




14.	PERFORMANCE AND ANNUAL INCENTIVE AWARDS			15




	14.1. Performance Conditions			15




	14.2.	Performance or Annual Incentive Awards Granted to Designated Covered Employees		15




		14.2.1. Performance Goals Generally		15




		14.2.2. Business Criteria		16




		14.2.3. Timing For Establishing Performance Goals		16




		14.2.4. Performance or Annual Incentive Award Pool		16




		14.2.5. Settlement of Performance or Annual Incentive Awards; Other Terms		16




	14.3. Written Determinations			16




	14.4. Status of Section 14.2 Awards Under Code Section 162(m)			17




15.	PARACHUTE LIMITATIONS			17




16.	REQUIREMENTS OF LAW			18




	16.1. General			18




	16.2. Rule 16b-3.			18




17.	EFFECT OF CHANGES IN CAPITALIZATION			19




	17.1. Changes in Stock			19




	17.2.	Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a Corporate Transaction		19




	17.3. Corporate Transaction			20




	17.4. Adjustments			20




	17.5. No Limitations on Company			21


		Page

18.	ADDITIONAL AWARD FORFEITURE PROVISIONS




	18.1 Forfeiture of Options and Other Awards and Gains Realized Upon Prior Option Exercises or Award Settlements		21




	18.2 Events Triggering Forfeiture		21




	18.3 Agreement Does Not Prohibit Competition or Other Grantee Activities		22




	18.4 Board Discretion		23




19.	GENERAL PROVISIONS		23




	19.1. Disclaimer of Rights		23




	19.2. Nonexclusivity of the Plan		23




	19.3. Withholding Taxes		23




	19.4. Captions		24




	19.5. Other Provisions		24




	19.6. Number And Gender		24




	19.7. Severability		24




	19.8. Governing Law		24


6.1.	Company or Subsidiary Employees; Service Providers; Other Persons


14.2.	Performance or Annual Incentive Awards Granted to Designated Covered Employees


14.2.5.	Settlement of Performance or Annual Incentive Awards; Other Terms.


17.2.	Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a Corporate Transaction.


18.1.	Forfeiture of Options and Other Awards and Gains Realized Upon Prior Option Exercises or Award Settlements.


18.3.	Agreement Does Not Prohibit Competition or Other Grantee Activities.


		Page

1.	DEFINITIONS		1




2.	SHARES SUBJECT TO THE PLAN		2




3.	ADMINISTRATION		2




4.	INTERPRETATION		2




5.	ELIGIBLE PARTICIPANT		2




6.	PARTICIPATION IN THE PLAN		2




7.	OFFERINGS		2




8.	OFFERING PERIODS AND PURCHASE PERIODS		3




9.	RIGHTS TO PURCHASE COMMON STOCK; PURCHASE PRICE		3




10.	TIMING OF PURCHASE		3




11.	PURCHASE LIMITATION		3




12.	ISSUANCE OF STOCK CERTIFICATES AND SALE OF PLAN SHARES		4




13.	WITHHOLDING OF TAXES		4




14.	ACCOUNT STATEMENTS		4




15.	PARTICIPATION ADJUSTMENT		4




16.	CHANGES IN ELECTIONS TO PURCHASE		5




	a. Ceasing Payroll Deductions or Periodic Payments		5




	b. Decreasing Payroll Deductions During a Purchase Period		5




	c. Modifying Payroll Deductions or Periodic Payments at the Start of an Offering Period		5




17.	TERMINATION OF SERVICES		5




18.	LAY-OFF, AUTHORIZED LEAVE OF ABSENCE OR DISABILITY		5




19.	FAILURE TO MAKE PERIODIC CASH PAYMENTS		6




20.	TERMINATION OF PARTICIPATION		6




21.	ASSIGNMENT		6




22.	APPLICATION OF FUNDS		7




23.	NO RIGHT TO CONTINUED EMPLOYMENT OR PROVISION OF SERVICES		7




24.	AMENDMENT OF PLAN		7




25.	TERM AND TERMINATION OF THE PLAN		7




26.	EFFECT OF CHANGES IN CAPITALIZATION		7




	a. Changes in Stock		7




	b. Reorganization in Which the Company Is the Surviving Corporation		8




	c. Reorganization in Which the Company Is Not the Surviving Corporation, Sale of Assets or Stock, and other Corporate Transactions		8




	d. Adjustments		8




	e. No Limitations on Company		9




27.	GOVERNMENTAL REGULATION		9




28.	STOCKHOLDER RIGHTS		9




29.	RULE 16B-3		9




30.	PAYMENT OF PLAN EXPENSES		9


c.	Modifying Payroll Deductions or Periodic Payments at the Start of an Offering Period


		FOR all	WITHHOLD AUTHORITY
		nominees	to vote for the
		listed at right	following nominee(s):
1.	To elect directors			Nominees:




	to serve on our			Craig R. Smith, M.D.




	board for the			George L. Bunting, Jr.




	next year and			Elizabeth M. Greetham




	until their successors are elected and qualified.			Joseph Klein, III




For, except vote withheld from the following nominee(s):				Ronald M. Nordmann




				Solomon H. Snyder, M.D.




				W. Leigh Thompson, M.D., Ph.D.




				David P. Wright