-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ESLHnXjKHFzr2yNy2BnvNqnvdNJjkFGSBr7iqDxCbduH3Nyxf2ZQUDdT9tsQ7H9H lsGn+t+6OJ+4NeUqvWEqLQ== 0000950133-04-004403.txt : 20041119 0000950133-04-004403.hdr.sgml : 20041119 20041119172815 ACCESSION NUMBER: 0000950133-04-004403 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041116 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041119 DATE AS OF CHANGE: 20041119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUILFORD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000918066 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521841960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23736 FILM NUMBER: 041158832 BUSINESS ADDRESS: STREET 1: 6611 TRIBUTARY ST CITY: BALTIMORE STATE: MD ZIP: 21224 BUSINESS PHONE: 4106316300 8-K 1 w69039e8vk.htm FORM 8-K e8vk
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):   November 16, 2004

Guilford Pharmaceuticals Inc.

(Exact name of registrant as specified in its charter)
         
Delaware   000-23736   52-1841960
  		 
  		 
 
(State or other jurisdiction   (Commission   (I.R.S. Employer
of incorporation)   File Number)   Identification No.)
         
6611 Tributary Street, Baltimore, Maryland       21224
  		     
 
(Address of principal executive offices)       (Zip Code)

Registrant’s telephone number, including area code:   410-631-6300

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Item 1.01. Entry into a Material Definitive Agreement.
Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
Item 9.01. Financial Statements and Exhibits.
SIGNATURES
Exhibit Index
Exhibit 10.01
Exhibit 10.02

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Item 1.01. Entry into a Material Definitive Agreement.

On November 16, 2004, Guilford Pharmaceuticals Inc. (the “Company”) entered into a letter agreement with Mr. Dean J. Mitchell to serve as the Company’s President and Chief Executive Officer, effective December 1, 2004. The letter agreement provides that Mr. Mitchell will be paid an initial annual salary of $550,000, and that he is eligible to receive an annual target bonus of at least 50% of his base salary. Mr. Mitchell’s first year bonus in the amount of $275,000 is guaranteed. Pursuant to the letter agreement, Mr. Mitchell will also be paid a sign-on bonus of $100,000, financial planning assistance of $10,000 per year, and a one-time attorneys’ fees reimbursement of $10,000. Additionally, Mr. Mitchell will be granted, as of December 1, 2004: (a) options to purchase 1,000,000 shares of the Company’s common stock (“Common Stock”) with an exercise price equal to the closing price of the stock on November 30, 2004, 25% of which will vest on the first anniversary of the grant, and the remainder of which will vest in equal monthly installments over the next 36 months; and (b) 50,000 shares of Common Stock, fully vested as of the date of grant. Mr. Mitchell will also be granted, within 15 days of the commencement of his employment: (x) 250,000 restricted shares of Common Stock that will vest on the first anniversary of his employment with the Company or earlier upon an Acceleration Event (defined to mean death, disability, termination without Cause or termination by Mr. Mitchell for Good Reason); (y) 250,000 restricted shares of Common Stock, vesting seven years from the commencement of his employment or in 2007, 2008 and 2009 if certain performance milestones to be determined are met; and (z) a restricted stock unit grant that will vest on the earlier of February 12, 2011 or the date of a change of control of the Company, which represents the right to receive $1 million worth of Common Stock on that date (not to exceed 100,000 shares of Common Stock).

In the event Mr. Mitchell is terminated without Cause or he resigns for Good Reason, he will receive a severance benefit of two years of salary continuation and outplacement support. Mr. Mitchell’s vested stock options may be exercised for a period of one year after termination other than for Cause and for three years after such termination if he remains in the employ of the Company for three or more consecutive years.

In addition, Mr. Mitchell will enter into an Executive Change in Control and Severance Agreement under which he will be entitled to a severance benefit following a change in control of the Company of three times his base salary, acceleration of unvested options and restricted stock, and benefits continuation for up to three years.

For purposes of Mr. Mitchell’s agreements, “Cause” is defined as being convicted of a crime involving fraud or theft against the Company or of a felony involving moral turpitude, or having improperly disclosed material trade secrets or other proprietary information of the Company, other than in good faith performance of your duties, having willfully failed or refused to attempt in good faith to perform material legally assigned duties with regard to the Company (other than as a result of physical or mental incapacity), or having engaged in gross negligence or willful misconduct with regard to the Company that causes substantial and material harm to the business and operations of the Company. “Good Reason” includes the occurrence (unless such event is fully corrected within ten days following written notification by Mr. Mitchell to the Company that he intends to terminate his employment for one of the reasons set forth below, or Mr. Mitchell concurs in writing) of: (i) a diminution in Mr. Mitchell’s title, (ii) a material breach by the Company of any material provision of the employment agreement; (iii) the Company’s requiring Mr. Mitchell’s relocation anywhere other than within 50 miles of the Company’s current executive offices or in the executive offices; (iv) Mr. Mitchell not being nominated or renominated to the Board (other than by his choice or agreement not to stand for election or reelection, or in a circumstance under which his employment has been terminated for Cause); or (v) his ceasing to be Chief Executive Officer of a public company following a Change in Control.

Copies of the letter agreement and the Executive Change in Control and Severance Agreement, including all exhibits and attachments thereto, are included in Item 9.01 of this Current Report on Form 8-K as Exhibits 10.01 and 10.02, respectively.

 

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Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On November 16, 2004, the Company appointed Mr. Dean J. Mitchell as its President and Chief Executive Officer effective as of December 1, 2004. Mr. Mitchell, age 48, succeeds Dr. Craig R. Smith, who is retiring from those positions. Mr. Mitchell was also elected a member of the Company’s Board of Directors by the incumbent Board, to serve until the next annual meeting of stockholders. George L. Bunting, Jr., was also appointed to serve as Chairman of the Company’s Board of Directors, succeeding Dr. Smith in that role.

Mr. Mitchell was previously employed with the Bristol-Myers Squibb Company from 2001 to 2004 in a series of executive management roles, including, in the Worldwide Medicines division of that company, President, International Pharmaceuticals from 2001 to 2002, and President, U.S. Primary Care from 2002 to 2004; and most recently in 2004, Vice President, Strategy for the entire company. Prior to joining Bristol-Myers Squibb, Mr. Mitchell served with GlaxoSmithKline and its predecessor businesses from 1987 until 2001. During this period, Mr. Mitchell held a number of senior management positions, including most recently, Senior Vice President, Clinical Development and Product Strategy from 1999 to 2001. Mr. Mitchell is a member of the Board of Directors of Ista Pharmaceuticals, Inc. Mr. Mitchell received an MBA degree from City University Business School in London and a BSc degree with Honors in Applied Biology from Coventry University.

As discussed in more detail in Item 1.01 above, Mr. Mitchell will receive an initial annual salary of $550,000 and is eligible to receive an annual bonus with a target amount of 50% of his annual salary. Upon or shortly after the commencement of his employment, he will also receive a bonus of $100,000, 50,000 shares of the Company’s common stock, options to purchase 1,000,000 shares of the Company’s common stock, 500,000 restricted shares of the Company’s common stock, and up to 100,000 shares of the Company’s common stock in the form of Restricted Stock Units. Mr. Mitchell will not receive any additional remuneration as a director.

Item 9.01. Financial Statements and Exhibits.

10.01-Letter Agreement dated November 16, 2004.

10.02-Form of Executive Change in Control and Severance Agreement for Dean J. Mitchell.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  Guilford Pharmaceuticals Inc.
 		  
November 19, 2004  By:   Asher M. Rubin    
    Name:   Asher M. Rubin   
    Title:   Senior Vice President, General Counsel and Secretary   
 

 

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Exhibit Index

     
Exhibit No.
   Description
10.01
  Letter Agreement dated November 16, 2004
10.02
  Form of Executive Change in Control Severance Agreement for Dean J. Mitchell

 

EX-10.01 2 w69039exv10w01.txt EXHIBIT 10.01 Exhibit 10.1 November 16, 2004 PERSONAL AND CONFIDENTIAL Mr. Dean J. Mitchell c/o Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, MD 21224 RE: OFFER OF EMPLOYMENT Dear Dean: On behalf of the Board of Directors of Guilford Pharmaceuticals Inc. (the "Company"), we are pleased to offer you employment with the Company, effective on December 1, 2004 or such earlier date as you and we otherwise agree, subject to an extension up until January 1, 2005 if necessary to obtain the necessary immigration documentation to permit you to commence employment with the Company, on the following terms and conditions: 1. Your title will be President and Chief Executive Officer. In this capacity, you will report directly to the Board of Directors (the "Board") and have the responsibilities, authority and duties commensurate with such positions in similarly situated companies and such other positions and duties with the Company and its affiliates as not inconsistent with your position may be assigned to you by the Board. Additionally, the Board has approved, subject to your commencement of employment with the Company as President and Chief Executive Officer, your appointment to the Company's Board. You will continue to serve on the Board until the next annual meeting of the Company's stockholders and until your successor is duly elected and qualified. Of course like all directors of the Company, you may be re-nominated to serve on the Board for additional one-year terms, as determined by the Board on an annual basis. 2. In consideration of your services, the Company will provide the following compensation: a. SALARY: Your salary will be at least $45,833 per month (an annual rate of $550,000), payable in semi-monthly increments (as increased from time to time, "Base Salary"). Your performance and compensation will be reviewed by the Board annually in accordance with the Company's performance management process at least annually for increase, but shall not be decreased at any time below $45,833 per month. b. ANNUAL CASH INCENTIVE PLAN: As an officer of the Company, you will be eligible to participate in any incentive plan the Board may adopt from time to time for executive officers of the Company. The Company's incentive plan is based on attainment of corporate objectives and is further influenced by individual performance. Specific goals will be mutually agreed upon between yourself and the Board. Your annual target cash incentive will be 50% of Base Salary. Notwithstanding the foregoing your cash incentive for 2005 will be $275,000 (the "Guaranteed Incentive"), and shall be paid to you after you have been continuously employed by the Company for a period of 12 consecutive months. c. STOCK OPTIONS: (i) SIGN-ON GRANT. Upon the commencement of your employment as an inducement grant, you will be awarded options to purchase 1,000,000 shares of the Company's common stock (the "Sign-On Grant"), subject to the terms and conditions of the stock option agreement attached hereto as Exhibit A. The price of the options will be the closing price of Guilford's stock on the trading date immediately preceding your first day of employment with the Company. These options will vest as follows: 25% of your options will vest on the first anniversary of the grant. The remaining options in the Sign-On Grant will vest in equal monthly installments over the next 36 months, provided that the options shall vest in full upon a Disability termination by the Company or a termination by reason of your death. (ii) INCENTIVE AWARDS. In accordance with the Company's long-term incentive program, you will be eligible to receive awards of options to purchase the Company's common stock, at a level commensurate with your position, as determined from time to time by the Compensation Committee of the Board. For each of the first two years of your employment, you will be entitled to receive this incentive award in the amount of options for 250,000 shares. For the avoidance of doubt, you will receive these awards during February 2006 and 2007 conditioned on your continued employment with the Company at the applicable time. Thereafter, participation in the long- term incentive program will be based on Company and personal performance as determined by the Board. The face value of your annual target award will then be equal to two times your annual salary at the date awards are authorized by the Compensation Committee. All incentive awards are made in accordance with the Company's standard award and vesting terms and conditions as in effect from time to time. For your information, incentive awards have been made during February of each year in the past. (iii) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. As a sign on inducement, upon the commencement of your employment, you will be granted under the Company's long-term incentive program 50,000 shares of the Company's Common Stock that will be fully vested upon grant. Within fifteen (15) days after the commencement of your employment as a sign on inducement, you will be granted (x) 250,000 restricted shares of the Company's Common Stock that will vest on the first anniversary of your employment with the Company or earlier upon an Acceleration Event (provided that, if an Acceleration Event occurs prior to such grant, you will be granted 250,000 fully vested shares at the time of the Acceleration Event) and (y) 250,000 restricted shares of the Company's Common Stock, vesting seven years from the commencement of your employment. Based on terms and conditions to be mutually determined between yourself and the Board within 90 days of the commencement of your employment and subject to the Company achieving certain performance milestones, vesting on these shares can accelerate to calendar years 2007, 2008 and 2009. Such grants shall be in the form of Exhibit B hereto. You shall also receive, as a sign on inducement within such fifteen (15) day period, a restricted stock unit grant in the form of Exhibit C that will vest on the earlier of February 12, 2011 or the date of a change of control (as defined in the attached Executive Change of Control and Severance Agreement) and so long as you remain employed as our Chief Executive Officer through that date you will receive shares of the Company's Common Stock (subject to any applicable adjustment necessary so that these units satisfy the requirements of Internal Revenue Code Section 409A) in an amount equal to the quotient of $1 million divided by the average closing price for each trading day in the month preceding the payout date, but in no event will the vested number of shares exceed 100,000 shares (adjusted for splits and recapitalization events. With respect to any of the restricted shares and restricted stock units provided to you pursuant to this subsection (iii), if your employment with the Company is terminated for Cause (as defined in numbered paragraph 5 below) or you voluntarily terminate your employment with the Company , the unvested portion of the restricted shares and restricted stock units will be forfeited and returned to the Company. (iv) Equity grants shall in no event be subject to any forfeiture or clawback provisions nor to any cutback to comply with a limit under Internal Revenue Code Section 280G. All restricted stock and restricted stock units shall be dividend paying. (v) Following the termination of your employment other than for Cause, you will be entitled to exercise your vested stock options for a period of (A) one year if you have been employed by the Company for less than three consecutive years, or (B) three years if you have been employed by the Company for three or more consecutive years, except in the case of a Change in Control of the Company (which will be governed by Exhibit A), or where the terms of an applicable stock option grant may provide you with a longer period of time to exercise that stock option grant. (vi) SECURITIES COMPLIANCE. All grants made hereunder shall be covered by an S-8, or a replacement therefor (including a resale prospectus) and such documents shall be kept active. The S-8 for the restricted stock and restricted stock units will be effective prior to their grant and the S-8 for the Options will be effective prior to their vesting. d. EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT: As the President and Chief Executive Officer of the Company, you will be entitled to certain benefits in the event of a change in control of the Company, as set forth in the attached Executive Change in Control Severance Agreement, in addition to the restricted stock unit payout described above. Under certain conditions related to the change in control of the Company, you may receive an amount equal to three times your Base Salary, accelerated vesting of outstanding options, and benefits continuation for up to two years. The benefits are described in numbered paragraph 3, below. e. JOINING BONUS: Upon the commencement of your employment with the Company, you will receive a cash payment in the amount of $100,000 (the "Joining Bonus"), as a bonus for your joining the Company. The Joining Bonus shall be refundable by you to the Company, ratably, if your employment with the Company terminates prior to one year after you have commenced employment with the Company for Cause or you voluntarily terminate your employment with the Company (other than in connection with an Acceleration Event). 3. ADDITIONAL BENEFITS. In addition to the compensation described above, you will be eligible for the following benefits: a. SUPPLEMENTAL DISABILITY INSURANCE: In addition to the group disability insurance offered by the Company, as President and Chief Executive Officer of the Company, you will be eligible to apply for a supplemental long-term disability policy paid for by the Company and underwritten by a life insurance company selected by the Company. This plan is subject to standard underwriting requirements. Please see the attached summary example of this important benefit. b. INSURANCE: The Company offers comprehensive medical, dental, vision, life, accidental death, short-term and long-term disability insurance as described in the Employee Benefits Overview. c. FINANCIAL PLANNING ASSISTANCE: You will be reimbursed up to $10,000 each calendar year for financial planning services provided by a qualified tax accountant, financial planner or other similar service. d. VACATION AND HOLIDAYS: You will be entitled to 20 vacation days during your first year of employment; thereafter, a vacation day will be added annually, up to a maximum of 25 vacation days. Also, the Company offers paid specified holidays (currently 11). e. 401(k) PLAN: You may elect to join Company's 401(k) Plan at the quarterly enrollment date following your date of hire. You will be eligible to receive the Company match subject to the terms and conditions of such plan as may be in effect from time to time. Guilford currently matches 50% of the first 6% of employee salary deferral in the form of newly issued Guilford stock. Subject to applicable laws, you may reallocate the Company match to other funds within the plan once the quarterly match has been made. The annual maximum contribution for 2005 is $14,000. An additional $4,000 may be contributed for those at age 50, subject to IRS limitations. f. EMPLOYEE STOCK PURCHASE PLAN: From time to time, the Company offers the opportunity to participate in an Employee Stock Purchase Plan. If you elect to participate, you may contribute from 1% to 15% of your regular salary to purchase shares under the Plan. However, you may not purchase more than $25,000 worth of the Company's stock during any calendar year. g. ATTORNEY COSTS: Since it is of benefit to the Company for you to be represented by counsel in this matter, the Company will pay the reasonable fees and expenses of your attorney to review this documentation on your behalf, up to a total cost of $10,000. It is understood that you and your attorney will independently evaluate the tax treatment to you of the compensation arrangements described herein and that you will independently determine what, if any, tax elections you may make with respect to those arrangements. 4. OTHER CONDITIONS OF EMPLOYMENT. This offer of employment at will is conditioned on: (i) your compliance with relevant requirements under the Immigration Reform Act of 1986, including presentation of documentation that proves your identity and legal right to work in the United States (the Company will assist you in, sponsor you as necessary in, and pay the costs of the process of obtaining or continuing your Green Card application and in obtaining any other work or residence visas you require or desire to obtain.) If you are nevertheless unable to commence full-time employment with the Company in the United States due to your immigration status prior to January 1, 2005, or if thereafter you cease to be legally employed in the United States, the Company will be entitled to terminate its obligations under this Agreement with the same effect, respectively as a termination for Cause or a termination without Cause (but with no amounts due under Section 6(b) and without such occurrence being deemed an Acceleration Event); (ii) your signing a Patent and Confidentiality Agreement in connection with your employment by the Company; (iii) successful completion of a background investigation; and (iv) your taking and successfully passing the included drug screen, which should be scheduled at your earliest convenience and our expense. 5. TERMINATION. Your employment shall terminate upon the occurrence of the first of the following: a. your death; b. notice from the Company as a result of your Disability given while such Disability is continuing. Disability shall mean your failure to perform your material duties for the Company for six (6) consecutive months because of your physical or mental incapacity; c. Termination by the Company for Cause after written notice of the alleged Cause event has been given to you; d. Termination by the Company without Cause upon written notice; e. Termination by you for Good Reason upon written notice; or f. Termination by you voluntarily without Good Reason upon written notice. 6. EXECUTIVE SEVERANCE: a. In the event your employment terminates for any reason whatsoever, you shall receive: (i) all regular Base Salary due up to the date of termination; (ii) any accrued but unused vacation (if and to the extent consistent with the Company's policies), (iii) any incurred but unreimbursed business expenses, (iv) if it has not previously been paid to you, any incentive compensation due to you for any fiscal year ending prior to the effective date of such termination, (v) other than in the case of a Termination for Cause or a voluntary termination without Good Reason, a pro rata incentive compensation payment for the year of termination based on actual results for the year with respect to the Company, payable when bonuses to other senior executives are paid, (vi) any accrued rights under any benefit or equity plan, program or practice, and (vii) your rights to indemnification and directors and officers liability insurance. b. In addition, in the event your employment is terminated by the Company other than for Cause or by you for Good Reason (subject to the Change in Control Agreement), you shall also be entitled to severance payments in the form of a continuation of your highest Base Salary in the preceding 12 months for 24 months (the applicable period of salary continuance is referred to as the "Severance Period"). Such amounts shall be paid without any obligations to mitigate and no offset for other amounts earned by you. Such payments and any additional benefits are conditioned upon the execution of Separation Agreement and General Release, a copy of which is attached as Exhibit D. During the Severance Period, the Company would also reimburse you for the cost of continuation of any health and life insurance coverage available at the time of the termination of employment, provided that the Company reserves the right to provide substantially equivalent alternative coverage to the extent reasonably available upon conversion from full-time employment, which coverage shall provide no lesser benefit than the coverage provided by the Company. Such continuing coverage is conditioned upon your reasonable cooperation in complying with any necessary application procedures. Remaining benefits of employment, including your eligibility for any incentive program and the vesting of unvested options would cease at termination and not continue to accrue during the Severance Period, except as otherwise provided herein or in any grant or program. Also in the event your employment is terminated by the Company other than for Cause or by you for Good Reason (subject to the Change in Control Agreement), you shall also be entitled to outplacement support through Right Management Consultants' CEO level program, provided you initiate participation in the outplacement program within 60 days of the date of such termination of employment. c. For the purposes of this letter, the term "Cause" means (i) your being convicted of a crime involving fraud or theft against the Company or of a felony involving moral turpitude; or (ii) you have (x) improperly disclosed material trade secrets or other proprietary information of the Company, other than in good faith performance of your duties, (y) willfully failed or refused to attempt in good faith to perform your material legally assigned duties with regard to the Company (other than as a result of physical or mental incapacity), or (z) engaged in gross negligence or willful misconduct with regard to the Company that causes substantial and material harm to the business and operations of the Company. d. For the purposes of this letter, the term "Good Reason" means the occurrence of any of the following events, unless such event is fully corrected within ten (10) days following written notification by you to the Company that you intend to terminate your employment hereunder for one of the reasons set forth below, or you have concurred in writing with any of the events described below: (i) a diminution in your title, (ii) a material breach by the Company of any material provision of this Agreement; (iii) the Company's requiring you to be based anywhere other than within fifty (50) miles of the Company's current executive offices or other than in the executive offices; (iv) you are not nominated or renominated to the Board, other than (a) by your choice or agreement not to stand for election or reelection, or (b) in a circumstance under which your employment has been terminated for Cause; or (v) after a Change in Control, you are no longer Chief Executive Officer of a public company. e. For the purposes of this letter, the term "Acceleration Event" means a Disability termination, a termination by reason of your death, a termination without Cause and a termination for Good Reason. 7. RESOLUTION OF DISPUTES: Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration administered by the American Arbitration Association and conducted before one arbitrator in Baltimore, Maryland, all in accordance with its Commercial Arbitration rules then in effect. The decision of the arbitrator shall be final and binding and may be entered in any court of competent jurisdiction. In the event of any dispute in connection with this Agreement, if the arbitrator determines that you have prevailed in such dispute, you shall be awarded your reasonable legal fees, disbursements and costs. 8. INDEMNIFICATION: You shall be indemnified to the fullest extent permitted by law and you shall be covered by director and officer liability insurance, both during and after termination of your employment and directorship (with regard to your service period), in the maximum amount provided to any other officer or director of the Company. 9. BOILERPLATE: This is the entire agreement between the parties hereto with regard to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland, without regard to any conflicts of laws provisions thereof. It may not be amended orally, but only by a writing executed by the party to be charged. This Agreement shall be binding upon and inure to the benefit of the parties and their permitted assigns. You may not assign this Agreement, except that on your death any amounts due you shall be paid to your estate or designated beneficiary. The Company may assign this Agreement only to an acquirer of all or substantially all of its assets and only if such acquirer promptly delivers to you a written assumption of this Agreement. Please indicate your agreement to the terms and conditions set forth in this letter by counter signing this letter and returning it to the attention of George L. Bunting, Jr., c/o Asher M. Rubin, Secretary by facsimile, to (410)631-6899, on or before November 17, 2004, at 5:00 p.m., after which date and time this offer shall become null and void. Very truly yours, On behalf of the Board of Directors of GUILFORD PHARMACEUTICALS INC. By: ----------------------------------- George L. Bunting, Jr. Director Agreed to and accepted as of this day of November 2004: -- - ---------------------------------- Dean J. Mitchell EXHIBIT A GUILFORD PHARMACEUTICALS INC. EXECUTIVE STOCK OPTION AGREEMENT Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"), hereby grants an option to purchase shares of its common stock, $.01 par value, (the "Stock") to the Grantee named below, subject to the vesting conditions set forth in the attachment. Grant Date: - , 2004 ------- -- Name of Grantee: Dean J. Mitchell Grantee's Social Security Number: - - ----- ---- ----- Number of Shares of Stock Covered by Grant: 1,000,000 BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT. Grantee: -------------------------------------------------------------- (Signature) Company: -------------------------------------------------------------- (Signature) Title: ------------------------------------------------------ Attachment This is not a stock certificate or a negotiable instrument. GUILFORD PHARMACEUTICALS INC. EXECUTIVE STOCK OPTION AGREEMENT NONQUALIFIED STOCK OPTION This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly. EXERCISE AND VESTING This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth in this Agreement. Your right to purchase shares of Stock under this option vests, contingent on your continued Service, as to: o 250,000 shares shall be vested on the first anniversary of the Grant Date. o 1/48th of the total number of shares subject to this Option as set forth on the cover sheet shall vest in equal monthly installments on the first day of each month following the month in which the first anniversary of the Grant Date occurs. o 100% of the shares subject to this Agreement shall become vested, to the extent not already vested, upon: (a) your termination of Service because of your death or Disability (as defined in the Offer Letter), or (b) a Change in Control (as defined in the Executive Change in Control and Severance Agreement between you and the Company dated ____________ __, 2004). o The resulting aggregate number of vested shares will be rounded down to the nearest whole number (with cash paid for any fractional shares), and you cannot vest in more than the number of shares covered by this option. No additional shares of Stock will vest after your Service has terminated for any reason. For the purpose of this Agreement, "Service" means service as an employee, officer, director or other service provider of the Company or an affiliate of the Company. Your change in position or duties shall not result in interrupted or terminated Service, so long as such you continue to be an employee, officer, director or other service provider of the Company or its affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of this Agreement shall be determined by the Board of Directors of the Company (the "Board"), which determination shall be final, binding and conclusive. TERM Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier (but not later) if your Service terminates, as described below, and may be terminated prior to its expiration date in the event of a merger, liquidation or reorganization involving the Company. TERMINATION OF SERVICE If your Service terminates for any reason other than for Cause (as defined in the Offer Letter) or as a result of your retirement (as provided for in the section of this Agreement entitled "Retirement"), then your option will expire at the close of business at Company headquarters (a) one year after your termination of Service if you have been employed by the Company for less than three consecutive years at the time of your termination of Service or (b) three years after your termination if you have been employed by the Company for at least three years at the time of your termination of Service. Your option shall expire immediately upon your termination for Cause. DEATH If your Service terminates because of your death, then your estate or heirs may exercise your option prior to its expiration. In addition, if you die during the one or three year period described above in "Termination of Service," your estate or heirs may exercise the vested portion of your option prior to its expiration. RETIREMENT If your Service terminates because of your retirement after you have reached age 55, then o if you have at least five years of Service and your age plus the number of years of your Service equals at least 62, then your option shall expire five years after your termination of Service. o if you have at least ten years of Service and your age plus the number of years of Service equals at least 65, then your option shall expire at the end of its term. NOTICE OF EXERCISE When you wish to exercise this option, you must notify the Company by filing the proper "Notice of Exercise" form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (in your name only or in your and your spouse's names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company. If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so. FORM OF PAYMENT When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms: o Cash, your personal check, a cashier's check, a money order or another cash equivalent acceptable to the Company. o Shares of Stock which have already been owned by you for more than six months and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price. o By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes. WITHHOLDING TAXES You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company will have the right to: (i) require that you arrange such payments to the Company, or (ii) withhold such amounts from other payments due to you from the Company or any affiliate. In the alternative and only if the Company grants its approval, you may elect to satisfy the minimum required withholding requirements by forfeiting to the Company shares of Stock acquired pursuant to this Agreement in an amount equal to the withholding or other taxes due. TRANSFER OF OPTION Except as provided in this section, during your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option and you may not transfer or assign this option. You may transfer the option to (i) your spouse, children or grandchildren ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of your Immediate Family Members, or (iii) a partnership in which your Immediate Family Members are the only partners, provided that (x) there may be no consideration for any such transfer and (y) subsequent transfers of the option are prohibited except those in accordance with this section, or by will or the laws of descent and distribution. Following transfer, the option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this option the term "you" or "your" shall be deemed to refer to your transferee. The provisions relating to termination of Service set forth above shall continue to be applied with respect to you and your transferees, following which the option shall be exercisable by the transferee only to the extent, and for the periods, specified in this Agreement. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse's interest in your option in any other way. SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option's shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made). ADJUSTMENTS In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number) if determined to be appropriate by the Board. Subject to the next paragraph, if the Company shall be the surviving entity in any reorganization, merger or consolidation of the Company with one or more other entities, the Option shall pertain to and apply to the securities to which a holder of the number of Shares subject to the Option would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment of the Option Price per Share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the Shares remaining subject to the Option immediately prior to such reorganization, merger or consolidation. Upon the dissolution or liquidation of the Company, or upon a merger, consolidation or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, or upon a sale of substantially all of the assets of the Company to another entity, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving entity) approved by the Board which results in any person or entity (or persons or entities acting as a group or otherwise in concert) owning 80 percent or more of the combined voting power of all classes of securities of the Company, the Option hereunder shall terminate, except to the extent provision is made in connection with such transaction for the continuation and/or the assumption of the Option, or for the substitution for the Option of new options covering the stock of a successor employer entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and exercise prices, in which event the Option shall continue in the manner and under the terms so provided. In the event of any such termination of the Option, you will have the right, for 30 days immediately prior to the occurrence of such termination, to exercise the Option in whole or in part, whether or not you were otherwise entitled to exercise such Option at the time such termination occurs. Any exercise during such 30-day period shall be conditioned upon the consummation of the event and shall be effective only immediately before the consummation of the event. The Company shall send you written notice of an event that will result in such a termination to you not later than the time at which the Company gives notice thereof to its stockholders. RETENTION RIGHTS Neither your option nor this Agreement give you the right to be retained by the Company in any capacity. The Company reserves the right to terminate your Service at any time and for any reason. SECTION 16 During any time when the Company has a class of equity security registered under Section 12 of the Securities Exchange Act of 1934, as now in effect or as hereafter amended, it is the intent of the Company that this Agreement will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of this Agreement 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 option granted hereunder. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Agreement in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement. APPLICABLE LAW This Agreement will be interpreted and enforced under 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 Agreement to the substantive law of another jurisdiction. ADMINISTRATION The interpretation and construction by the Board of any provision of this Agreement shall be final, binding and conclusive. EXHIBIT B GUILFORD PHARMACEUTICALS INC. EXECUTIVE RESTRICTED STOCK AGREEMENT Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"), hereby grants shares of its common stock, $.01 par value, (the "Stock") to the Grantee named below, subject to the vesting conditions set forth in the attachment. Grant Date: - , 2004 ------- -- Name of Grantee: Dean J. Mitchell Grantee's Social Security Number: - - ----- ---- ----- Number of Shares of Stock Covered by Grant: 500,000 BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT. Grantee: -------------------------------------------------------------- (Signature) Company: -------------------------------------------------------------- (Signature) Title: ------------------------------------------------------ Attachment This is not a stock certificate or a negotiable instrument. GUILFORD PHARMACEUTICALS INC. EXECUTIVE RESTRICTED STOCK AGREEMENT RESTRICTED STOCK/ This grant is an award of Stock in the NONTRANSFERABILITY number of shares set forth on the cover sheet and subject to the vesting conditions described below ("Restricted Stock"). To the extent not yet vested, your Restricted Stock may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor may the Restricted Stock be made subject to execution, attachment or similar process. ISSUANCE AND VESTING The Company will issue your Restricted Stock in your name as of the Grant Date. This Restricted Stock grant shall become vested, contingent on your continued Service, according to the following schedule: o 250,000 shares shall become vested on the one year anniversary of the Grant Date; provided, that, the vesting of such shares shall be accelerated upon the occurrence of an "Acceleration Event" (as defined in the employment offer letter between you and the Company dated _______ __, 2004 "Offer Letter"). o 250,000 shares shall become vested on the seven year anniversary of the Grant Date; provided, that, vesting of such shares shall be accelerated based on the attainment of certain performance criteria to be mutually agreed upon by you and the Company in accordance with the Offer Letter within 90 days of the Grant Date. Such performance criteria shall be listed as Exhibit C of this Agreement. The vesting of such shares shall also be accelerated upon: (a) your termination of Service because of your death or Disability (as defined in the Offer Letter) or (b) a Change of Control (as defined in the Executive Change of Control and Severance Agreement between you and the Company dated ____________ __, 2004). o If any of the shares of Restricted Stock would otherwise become vested during a period in which you are (i) subject to a lock-up agreement restricting your ability to sell shares of Stock in the open market or (ii) restricted from selling shares of Stock in the open market because you are not then eligible to sell under the Company's insider trading or similar plan as 2 then in effect (whether because a trading window is not open or you are otherwise restricted from trading), vesting in such shares of Stock will be delayed until the earlier of (i) the first date on which you are no longer prohibited from selling shares of Stock due to a lock-up agreement or insider trading plan restriction (the "Vesting Date") or (ii) the occurrence of an Acceleration Event, and provided, further, that you have been continuously in Service from the Grant Date until the Vesting Date. For the purpose of this Agreement, "Service" means service as an employee, officer, director or other service provider of the Company or an affiliate of the Company. Your change in position or duties shall not result in interrupted or terminated Service, so long as such you continue to be an employee, officer, director or other service provider of the Company or its affiliate. FORFEITURE OF UNVESTED STOCK You shall forfeit any unvested Restricted Stock upon your termination of Service for any reason. ESCROW The certificates for the Restricted Stock shall be deposited in escrow with the Secretary of the Company to be held in accordance with the provisions of this paragraph. Each deposited certificate shall be accompanied by a duly executed Assignment Separate from Certificate in the form attached hereto as Exhibit A. The deposited certificates shall remain in escrow until such time or times as the certificates are to be released or otherwise surrendered for cancellation as discussed below. Upon delivery of the certificates to the Company, you shall be issued an instrument of deposit acknowledging the number of shares of Stock delivered in escrow to the Secretary of the Company. All regular cash dividends on the Stock (or other securities at the time held in escrow) shall be paid directly to you and shall not be held in escrow. However, in the event of any stock dividend, stock split, recapitalization or other change affecting the Company's outstanding common stock as a class effected without receipt of consideration or in the event of a stock split, a stock dividend or a similar change in the Company Stock, any new, substituted or additional securities or other property which is by reason of such 3 transaction distributed with respect to the Stock shall be immediately delivered to the Secretary of the Company to be held in escrow hereunder, but only to the extent the Stock is at the time subject to the escrow requirements hereof. The shares of Stock held in escrow hereunder shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Company for cancellation: o As your interest in the shares vests as described above, the certificates for such vested shares shall be released from escrow and delivered to you, at your request. Notwithstanding the foregoing, in lieu of the issuance of certificates under this Agreement and the use of an escrow arrangement, the Company may instead use the book-entry method of recording share issuance. WITHHOLDING TAXES You agree, as a condition of this grant, that you will make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the vesting of Stock acquired under this grant. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the vesting of shares arising from this grant, the Company will have the right to: (i) require that you arrange such payments to the Company, or (ii) withhold such amounts from other payments due to you from the Company. In the alternative and only if the Company grants its approval, you may elect to satisfy the minimum required withholding requirements by forfeiting to the Company shares of Stock acquired pursuant to this Agreement in an amount equal to the withholding or other taxes due. SECTION 83(b) Under Section 83 of the Internal Revenue ELECTION Code of 1986, as amended (the "Code"), the difference between the purchase price paid (if any) for the shares of Stock and their fair market value on the date any forfeiture restrictions applicable to such shares lapse will be reportable as ordinary income at that time. For this purpose, "forfeiture restrictions" include the Company's right to cancel unvested Restricted Stock described above. You may elect to be taxed at the time the shares are acquired rather than when such shares cease to be subject to such forfeiture restrictions by filing an election under Section 83(b) of the Code 4 with the Internal Revenue Service within thirty (30) days after the Grant Date. You will have to make a tax payment to the extent the purchase price is less than the fair market value of the shares on the Grant Date. No tax payment will have to be made to the extent the purchase price is at least equal to the fair market value of the shares on the Grant Date. The form for making this election is attached as Exhibit B hereto. Failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income by you (in the event the fair market value of the shares increases after the date of purchase) as the forfeiture restrictions lapse. YOU ACKNOWLEDGE THAT IT IS YOUR SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF YOU REQUEST THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON YOUR BEHALF. YOU ARE RELYING SOLELY ON YOUR OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE ANY 83(b) ELECTION. SHAREHOLDER RIGHTS You have the right to vote the Restricted Stock and to receive any dividends declared or paid on such stock. Any distributions you receive as a result of any stock split, stock dividend, combination of shares or other similar transaction shall be deemed to be a part of the Restricted Stock and subject to the same conditions and restrictions applicable thereto. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued. ADJUSTMENTS In the event of a stock split, a stock dividend or a similar change in the Company stock, the number of shares covered by this grant shall be adjusted (and rounded down to the nearest whole number). Your Restricted Stock shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity in the same manner as the common stock of the Company, but shall be subject to the vesting provisions hereof. Upon the occurrence of a Change of Control (as defined in the Executive Change of Control and Severance 5 Agreement between you and the Company dated ____________ __, 2004) the Board may elect, in its sole discretion, to cancel the Restricted Stock and pay or deliver, or cause to be paid or delivered, to you an amount in cash or securities having a value (as determined by the Board acting in good faith) equal to the formula or fixed price per share paid to holders of shares of Stock. LEGENDS All certificates representing the Stock issued in connection with this grant shall, where applicable, have endorsed thereon the following legends: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY BY THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE." APPLICABLE LAW This Agreement will be interpreted and enforced under 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 Agreement to the substantive law of another jurisdiction. SECTION 16 During any time when the Company has a class of equity security registered under Section 12 of the Securities Exchange Act of 1934, as now in effect or as hereafter amended, it is the intent of the Company that this Agreement will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of this Agreement 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 6 of the option granted hereunder. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Agreement in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement. ADMINISTRATION The interpretation and construction by the Board of Directors of the Company of any provision of this Agreement shall be final, binding and conclusive. 7 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, _____________hereby sells, assigns and transfers unto Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"), ____________(__________) shares of common stock of the Company represented by Certificate No. ___ herewith and does hereby irrevocable constitute and appoint ______________ Attorney to transfer the said stock on the books of the Company with full power of substitution in the premises. Dated: , 2004 ------------ ------------------------------------------ Print Name ------------------------------------------ Signature Spouse Consent (if applicable) ___________________ (Purchaser's spouse) indicates by the execution of this Assignment his or her consent to be bound by the terms herein as to his or her interests, whether as community property or otherwise, if any, in the shares of common stock of the Company. ------------------------------------------ Signature INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. THE PURPOSE OF THIS ASSIGNMENT IS TO ENABLE THE COMPANY TO CANCEL UNVESTED SHARES AS SET FORTH IN THE AGREEMENT WITHOUT REQUIRING ADDITIONAL SIGNATURES ON THE PART OF PURCHASER. EXHIBIT B ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder: 1. The name, address and social security number of the undersigned: Name: --------------------------------------------------------- Address: ------------------------------------------------------ Social Security No. : ----------------------------------------- 2. Description of property with respect to which the election is being made: __________________ shares of common stock, par value $.01 per share, Guilford Pharmaceuticals Inc., a Delaware corporation, (the "Company"). 3. The date on which the property was transferred is ____________ __, 2004. 4. The taxable year to which this election relates is calendar year 2004. 5. Nature of restrictions to which the property is subject: The shares of stock are subject to the provisions of a Restricted Stock Agreement between the undersigned and the Company. The shares of stock are subject to forfeiture under the terms of the Agreement. 6. The fair market value of the property at the time of transfer (determined without regard to any lapse restriction) was $__________ per share, for a total of $__________. 7. The amount paid by taxpayer for the property was $__________. 8. A copy of this statement has been furnished to the Company. 8 Dated: , 2004 ------------- ----------------------------------- Taxpayer's Signature ----------------------------------- Taxpayer's Printed Name PROCEDURES FOR MAKING ELECTION UNDER INTERNAL REVENUE CODE SECTION 83(b) The following procedures MUST be followed with respect to the attached form for making an election under Internal Revenue Code section 83(b) in order for the election to be effective: 1. You must file one copy of the completed election form with the IRS Service Center where you file your federal income tax returns within 30 days after the Grant Date of your Restricted Stock. 2. At the same time you file the election form with the IRS, you must also give a copy of the election form to the Secretary of the Company. 3. YOU MUST FILE ANOTHER COPY OF THE ELECTION FORM WITH YOUR FEDERAL INCOME TAX RETURN (GENERALLY, FORM 1040) FOR THE TAXABLE YEAR IN WHICH THE STOCK IS TRANSFERRED TO YOU. EXHIBIT C [TO BE PROVIDED WITHIN 90 DAYS OF THE GRANT DATE] EXHIBIT C GUILFORD PHARMACEUTICALS INC. EXECUTIVE RESTRICTED STOCK UNIT AGREEMENT Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"), hereby grants units relating to its common stock, $.01 par value, (the "Stock") to the Grantee named below, subject to the vesting conditions set forth in the attachment. Grant Date: - , 2004 ------- -- Name of Grantee: Dean J. Mitchell Grantee's Social Security Number: - - ----- ---- ----- Number of Restricted Stock Units Covered by Grant: A number of units representing a number of shares of Stock equal to: the quotient of $1 million divided by the average closing price of the Stock for each trading day in the 20 trading day period preceding the Payout Date (as defined in the attached Agreement), but in no event more than 100,000 shares of Stock (subject to adjustment for stock splits and similar corporate events as provided in the attached agreement). BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT. Grantee: -------------------------------------------------------------- (Signature) Company: -------------------------------------------------------------- (Signature) Title: ------------------------------------------------------ Attachment This is not a stock certificate or a negotiable instrument. GUILFORD PHARMACEUTICALS INC. EXECUTIVE RESTRICTED STOCK UNIT AGREEMENT NONTRANSFERABILITY This grant is an award of Restricted Stock Units in the number set forth on the cover sheet and subject to the vesting conditions described below ("Restricted Stock Units"). Your Restricted Stock Units may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor may the Restricted Stock Units be made subject to execution, attachment or similar process. ISSUANCE AND VESTING This Restricted Stock Unit grant shall become vested, contingent on your continued Service (as defined below), according to the following schedule: o 100% of the shares subject to this Agreement shall become vested upon the first to occur of: (a) February 12, 2011; or (b) a Change of Control (as defined in the Executive Change of Control and Severance Agreement between you and the Company dated ____________ __, 2004). It is intended that Change of Control have a meaning consistent with Section 409A of the Internal Revenue Code and the regulations thereunder. For the purpose of this Agreement, "Service" means service as an employee, officer, director or other service provider of the Company or an affiliate of the Company. Your change in position or duties shall not result in interrupted or terminated Service, so long as such you continue to be an employee, officer, director or other service provider of the Company or its affiliate. DELIVERY OF SHARES A certificate for the shares of Stock PURSUANT TO represented by the Restricted Stock RESTRICTED STOCK UNITS Units shall be delivered to you, or to your eligible beneficiary or your estate, at such time as the Restricted Stock Units become vested; provided, that, if required by Section 409A of the Internal Revenue Code and the regulations thereunder, delivery of the shares shall not be made earlier than six months after your separation from service within the meaning of Section 409A. The date that certificates are required to be delivered to you under this subsection is the "PAYOUT DATE." If the Payout Date provided for in the preceding paragraph would otherwise occur during a period in which you are: (a) subject to a lock-up agreement restricting your ability to sell shares of Stock in the open market or (b) restricted from selling shares of Stock in the open market because you are not then eligible to sell under the Company's insider trading or similar plan as then in effect (whether because a trading window is not open or you are otherwise restricted from trading), the Payout Date will be delayed until the first date on which you are no longer prohibited from selling shares of Stock due to a lock-up agreement or insider trading plan restriction. FORFEITURE OF UNVESTED You shall forfeit any unvested RESTRICTED STOCK UNITS Restricted Stock Units upon your termination of Service for any reason. WITHHOLDING TAXES You agree, as a condition of this grant, that you will make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the vesting of Stock acquired under this grant. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the vesting of shares arising from this grant, the Company shall have the right to: (i) require that you arrange for such payments to the Company, or (ii) withhold such amounts from other payments due to you from the Company. In the alternative and only if the Company grants its approval, you may elect to satisfy the minimum required withholding requirements by forfeiting to the Company shares of Stock acquired pursuant to this Agreement in an amount equal to the withholding or other taxes due. SHAREHOLDER RIGHTS You do not have any of the rights of a shareholder with respect to the Restricted Stock Units unless and until the Shares relating to the Restricted Stock Units has been delivered to you. ADJUSTMENTS In the event of a stock split, a stock dividend or a similar change in the Company stock, the maximum number of Restricted Stock Units covered by this grant shall be adjusted (and rounded down to the nearest whole number). Your Restricted Stock Units shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity in the same manner as common stock of the Company, but shall be subject to the vesting and distribution provisions hereof. APPLICABLE LAW This Agreement will be interpreted and enforced under the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. ADMINISTRATION The interpretation and construction by the Board of Directors of the Company of any provision of this Agreement shall be final, binding and conclusive. THIS IS A RELEASE. YOU SHOULD READ IT CAREFULLY BEFORE YOU SIGN IT. SEPARATION AGREEMENT AND GENERAL RELEASE THIS SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is made and entered into on the date this Agreement is fully executed (the "Agreement Date") by and between GUILFORD PHARMACEUTICALS INC. (the "Company") and xxxxx ("Employee"). WHEREAS, the parties desire to set forth in this Agreement the terms upon which they have mutually agreed to an orderly termination of Employee's employment with the Company; NOW THEREFORE, in consideration of the foregoing and of other considerations contained in this Agreement, the parties agree as follows: 1. Separation of Employment. Employee acknowledges that Employee's employment with the Company will cease upon the close of business on xxx, 2004 ("Effective Date") and agrees that Employee has no right to further employment by the Company after that date. Further, Employee acknowledges that Employee's last day of work is xxx, 2004 2. Severance and Other "Benefits". In consideration of the covenants and agreements made by Employee hereunder, the Company will, commencing upon the eighth day after this Agreement has been executed by Employee (provided that such execution has not been revoked by employee prior thereto): (a) Subject to the provisions of Section 3 below, pay Employee a total severance of $xx,xxxx.xx, which will be paid following Company's regular payroll process, in increments to resemble regular pay checks, less applicable taxes and withholdings; (b) Employee will continue on medical Benefits as an employee through xxx xx, xxxx and may enroll in COBRA benefits after xxx xx, xxxx. Information concerning COBRA rights and costs will be provided under separate cover, following usual Company process; (c) Employee will be eligible to participate in outplacement support through Right Management Consultants' CEO program, provided Employee initiates participation in the outplacement program within 60 days of the Effect Date; Employees Name Date, 2004 3. Other Benefits. Except as provided in Section 2 of this Agreement or any grant, plan or program, the Company shall not be obligated to make any other payments, or provide any other benefits to Employee, following the Effective Date. Without limiting the generality of the foregoing, all vesting of stock options, eligibility for matching grants and all other benefits shall terminate on the Effective Date, except as otherwise provided in your employment agreement or any grant. 4. Release. In consideration of the Benefit described in Section 2, Employee, on behalf of Employee, Employee's heirs, executors, administrators, successors and assigns, hereby releases, acquits and forever discharges the Company and any and all of its current or former subsidiaries and other affiliated entities and benefit plans, as well as its and/or their officers, directors, representatives, attorneys, agents, servants, employees, stockholders, successors, predecessors and affiliates in such capacities (for purposes of this Section 5, all incorporated in the definition of the "Company") from any and all claims, liabilities, demands, causes of action, costs, expenses, attorney's fees, damages, indemnities and obligations of every kind and nature, in law, in equity or otherwise, known or unknown, suspected or unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, acts or conduct at any time as of or prior to the Effective Date, including, but not limited to: all such claims or demands arising from Employee's employment or the termination of Employee's employment; all such claims and demands related to salary, bonuses, commissions, stock, stock options, (except that Employee shall have the right to exercise any vested and unexercised stock options previously granted to Employee in accordance with any agreement(s) applicable thereto), and stock option plan(s), fringe benefits, severance pay, expense reimbursements, or any form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the Federal Civil Rights Acts of 1964, as amended, The Americans with Disabilities Act, the Maryland Fair Employment Practices Act, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Employee Retirement Income Security Act of 1974, as amended, or any law or legal principle of similar effect in any other relevant jurisdiction; contract claims; tort claims; or claims of wrongful discharge, discrimination, fraud, defamation, and emotional distress. Employee further agrees not to sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against any persons or entities released herein in any federal, state or other court, administrative agency or other forum concerning Employees Name Date, 2004 any claims released herein. The foregoing release shall not cover the Employee's rights to indemnification or coverage under directors and officers liability insurance policies. 5. Return of Company Property. Employee will immediately return any of the Company's property in Employee's possession or control (including, but not limited to, any Company keys, identification cards, credit cards, business cards, documents, records, and computer hardware, software or tapes or diskettes) to a designated representative of the Company. The foregoing shall not cover the Employee's rolodex and similar address book, which he may retain and use. 6. Certain Covenants. Employee covenants and agrees that for a two (2) year period following the Agreement Date hereof, Employee will refrain from making with intent to damage the Company any public defamatory, derogatory or other unfavorable statements regarding the Company or its business, officers, directors, employees and agents; provided the foregoing shall not prevent compliance with legal process. The Company covenants and agrees that for a two (2) year period following the Agreement date hereof, the Company formally and its officers and directors, directly and indirectly, will refrain from making with intent to damage the Employee any public defamatory, derogatory or other unfavorable statements regarding the Employee, provided the foregoing shall not prevent compliance with legal process. 7. Confidentiality. Except for Employee's own attorney, tax advisor and immediate family, and potential future employers with regard to relevant provisions, Employee agrees that the terms of this Agreement shall be confidential, and that Employee, Employee's attorney, tax advisor and immediate family will not disclose any information concerning the terms of this Agreement to anyone, including but not limited to past, present or future employees of the Company. Employee acknowledges that Employee remains bound by the provisions of a Patent and Confidentiality Agreement as previously signed by Employee. This provision shall cease to apply to the extent this Agreement is publicly available. 8. Severability. Each provision of this Agreement shall be considered severable. If any provision contained herein is held to be void, illegal or unenforceable, such illegality or unenforceability shall not affect any of the other provisions herein, and the remaining provisions of this Agreement will continue to be given full force and effect. It is the intention of the Parties that, if any court construes any provision to be unenforceable or unreasonable because of the duration of such provision or the area or matter, if capable of being made enforceable by the court's reduction of such provision, this Agreement shall be reduced and enforceable in its modified form. 9. No Admission. Employee understands and agrees that nothing contained in this Agreement is to be considered an admission by the Company of any wrongdoing under any federal, state or local statute, regulation, public policy, tort law, contract law, or common law. Employees Name Date, 2004 10. Acknowledgment. Employee acknowledges that Employee has read and understands this Agreement and is executing it knowingly, voluntarily and without coercion, that Employee has been advised to consult with an attorney prior to executing this Agreement, and that Employee has been given a period of twenty-one (21) days within which to consider and execute this Agreement, unless Employee voluntarily chooses to execute this Agreement before the end of the 21-day period. Once executed, Employee understands that Employee has seven (7) days following the execution of this Agreement to revoke it, and that this Agreement is not effective or enforceable until after this seven (7) day period. Among other things, this means that the Benefits contemplated in Section 2 above will not be payable until this Agreement becomes effective and enforceable. Employee understands that a portion of the consideration offered by the Company in this Agreement relates specifically to Employee's release of claims under the Age Discrimination in Employment Act of 1967, as amended. Employee further understands that once this Agreement becomes effective, it cannot be altered, revoked or rescinded without the express written consent of the Company. 11. In Event of Breach or Dispute. Any dispute or controversy arising under or in connection with this Agreement, other than with regard to injunctive relief, shall be settled exclusively by arbitration administered by the American Arbitration Association and conducted before one arbitrator in Baltimore, Maryland, all in accordance with its Commercial Arbitration Rules then in effect. The decision of the arbitrators shall be final and binding and may be entered in any court of competent jurisdiction. In the event of any dispute in connection with this Agreement, if the arbitrator determines that you have prevailed in such dispute, you shall be awarded your reasonable legal fees, disbursements and costs. 12. Modifications. This Agreement may not be modified in any way except in a written agreement signed by both Employee and an officer or other authorized representative of the Company. 13. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland without giving effect to its conflict of law provisions. Subject to Section 12 above, the parties agree to submit to the exclusive jurisdiction of the state and federal courts situated in Baltimore, Maryland for all disputes arising under or relating to this Agreement. 14. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the Company and Employee relating to Employee's separation from the Company. Employee acknowledges and agrees that in executing this Agreement, Employee has not relied on any promises or representations other than those set forth in the Agreement. Employees Name Date, 2004 15. Expiration of Offer. The offer to Employee created by this Agreement shall expire and automatically become null and void and of no effect if Employee has not executed and delivered this Agreement by 5:00 p.m. E.D.T., xxxxx, 2004. GUILFORD PHARMACEUTICALS INC. xxxxxx (EMPLOYEE): By ----------------------------------- ------------------------------------- Signature -------------------- -------------------- Date Date (GUILFORD PHARMACEUTICALS LOGO) PATENT AND CONFIDENTIALITY AGREEMENT In consideration of my employment by Guilford Pharmaceuticals Inc. and/or its affiliates ("Guilford"), and its successors or assigns and the compensation paid and to be paid to me by Guilford, I hereby covenant, represent and agree that: 1. EXCLUSIVE PROPERTY OF GUILFORD. My entire interest in any and all inventions and improvements conceived or completed by me, either alone or with others after ____________________, 20__ ("Employment Date") until the termination of my employment with Guilford, shall be the exclusive property of Guilford. 2. DISCLOSURE OF INVENTIONS AND IMPROVEMENTS. All such inventions and improvements (whether patentable or not) will be disclosed by me promptly in writing to Guilford without any obligation of Guilford to pay royalty or other consideration other than my regular wages. I agree that my regular wages are full and complete compensation for: (a) all obligations assumed by me under this Agreement; and (b) all inventions, improvements, discoveries and patent rights assigned by me under this Agreement; and (c) in full satisfaction of any compensation and royalties to which I may be entitled by law or otherwise, including but not limited to, the law of any country in which I am a resident at any time during the term of this Agreement. In addition to the foregoing, I shall disclose promptly to Guilford all suggestions, ideas, information, observations and data obtained or conceived by me in the course of my employment with Guilford. I agree that I shall at no time subsequent to the Employment Date assert any rights under any invention as having been made or acquired by me prior to my employment by Guilford except as set forth in the attached Exhibit A, which contains a detailed description or copies of such inventions. If there are no exceptions listed, it is understood that there are none. 3. ASSIGNMENT OF INTERESTS. At the request and expense of Guilford, but without further compensation to me, I will do all lawful acts and execute all lawful papers, which Guilford may deem necessary from time to time to perfect and protect the exclusive rights of Guilford in such inventions and improvements. I shall promptly and fully assist, as requested by Guilford, in the preparation and filing of patent applications in all countries selected by Guilford for such inventions as belong to Guilford and shall ssign my entire right, title, and interest in and to such inventions and patent applications to Guilford for all countries and promptly sign any and all lawful papers, take all lawful oaths and do all lawful acts, including giving testimony as requested by Guilford without cost to me and at the expense of Guilford in connection with any patent application or patent. 4. RELEASE OF CERTAIN RIGHTS. As to inventions and improvements set forth in numbered Paragraph 1, but which are not, in my opinion, of interest to Guilford, I nevertheless agree promptly to disclose them as provided for in Paragraph 2, in return for which I shall have the right, by written request stating why each such invention or improvement is not of interest to Guilford, to request Guilford to release its right therein. 5. RECORDKEEPING. I shall keep and maintain adequate and current written records, in accordance with Guilford policies and practices, of all inventions and confidential information in the form of notes, sketches, drawings, reports, or other documents relating thereto, which shall be and shall remain the exclusive property of Guilford and shall be available to Guilford at all times. All writings, records, and other documents and things containing any inventions or confidential information of Guilford in my custody or possession shall be the exclusive property of Guilford shall not be copied and/or removed from the premises of Guilford except in pursuit of the business of Guilford, and shall be delivered to Guilford without retaining any copies, upon the termination of employment or at any time as requested by Guilford. 6. CONFIDENTIAL INFORMATION. In the course of my employment by Guilford, I will acquire knowledge and information pertaining to Guilford which is confidential or in which Guilford has proprietary rights, whether or not specifically designated by Guilford as confidential. I agree not to disclose or use (except as I in good faith deem reasonably necessary or desirable in the job or pursuant to legal process) any confidential information including trade secrets, know how and other proprietary information of Guilford or any information received in confidence by Guilford from others, either during or after my employment. It is understood that such confidential information of Guilford includes matters conceived or developed by me, as well as matters learned from other employees of Guilford. I shall not, except as an authorized representative of Guilford may otherwise consent or direct, in writing, reveal or disclose, sell, use, lecture upon, or publish any confidential information of Guilford, or authorize anyone else to do these things at any time either during or subsequent to my employment with Guilford, except as permitted in the prior sentence. This clause shall continue in full force and effect after termination of my employment except that the obligations with respect to any specific portion of confidential information shall cease whenever such specific portion of confidential information has become generally known to the public. 7. CONFLICTS OF INTEREST. During the period of my employment, I agree not to engage directly or indirectly in any activities that would represent a conflict of interest or compete with the research or business activities of Guilford, provided the foregoing shall not prevent me from owning more than two percent (2%) of any publicly owned company or having ownership through mutual funds, private equity or other similar investment groups so long as I am not actively involved in the investment or management decisions. Further, I agree to adhere to all the rules, regulations, and policies of Guilford that have been established or may hereafter be established with respect to the subject matter of this Agreement that has been disclosed in writing to me. 8. AT-WILL EMPLOYMENT. This Agreement is not an agreement of employment and does not create a contract of employment. I understand that my employment at Guilford is "at will" and not for a specified term and that such employment can be terminated at any time by either party, with or without cause and with or without notice. Following termination of employment, I shall continue to be obligated under the non-disclosure of confidential information provisions of this agreement not to use or disclose confidential information so long as it remains proprietary or protectible as confidential or a trade secret. The obligations under Paragraphs 1 through 6 inclusive of this Agreement shall not terminate upon the termination of my employment, but rather, shall continue in effect thereafter until such time as the rights to the improvements, discoveries and inventions have been protected in Guilford and the information referred to in Paragraph 6 hereof shall be in the public domain through no act of mine. I will not take with me or retain, unless authorized in writing by the Chief Executive Officer of Guilford any text, drawings, blueprints, specifications, data or any writings or documents whatsoever, or copies thereof, which reflect or deal with confidential or proprietary knowledge or information of Guilford or its business, and I will deliver to Guilford all of the foregoing which may be in my possession prior to leaving the employ of Guilford. Prior to departure, I will cooperate with Guilford in completing the employee exit procedures and, to the extent acceptable to me, signing any documents then in use by Guilford. 9. EQUITABLE RELIEF. I agree that the confidential and proprietary information of Guilford which may be acquired by me are unique and that any breach of this Agreement by me cannot be compensated adequately by monetary damages. I therefore agree, that Guilford shall be entitled, in addition to all other remedies available to it, to equitable relief by injunction or otherwise as to any breach of this Agreement. 10. ENTIRE AGREEMENT. Guilford and I agree that this Agreement supersedes any prior agreement relating generally to the subject matter hereof, and I agree that this Agreement can only be amended, altered or terminated and its provisions can only be waived by an agreement in writing signed by me and by the Chief Legal Officer of Guilford or his designee. 11. NO EXCLUSIONS. No inventions or improvements or confidential information otherwise included in this Agreement are excluded from its terms unless set out in writing and attached hereto as Exhibit A. 12. NO CONFLICTS. I represent that I have no agreements with or obligations to others in conflict with the foregoing. 13. MATERIALS OF PRIOR EMPLOYERS. I represent that I have not brought and will not bring to Guilford in the course of my employment by Guilford any materials or documents of a former employer that are not generally available to the public, unless I have obtained prior express written authorization from the former employer for their possession and use. I have specified in writing and attached hereto as Exhibit A all such authorized materials or documents. 14. PHOTOGRAPHS. I consent to my photograph being taken by Guilford and its representatives from time to time and agree that Guilford may use any such photograph at any time including after termination of my employment by Guilford so long as it is used only with regard to positive purposes and shows me in a favorable light without any obligation on the part of Guilford to pay me any consideration other than the regular wages due me for so long as I am employed at Guilford. 15. NON-SOLICITATION. For a period commencing on the Employment Date and continuing for one year following the date that my employment with Guilford terminates, I will not, directly or indirectly, solicit for employment any employee of Guilford for employment with any person, business or entity other than Guilford, nor, except in the good faith performance of my duties, will I encourage or incite any employee of Guilford to terminate his or her employment with Guilford. I may, however, serve as a reference for an employee so long as I am not being compensated by the company the reference is given to. The foregoing shall not limit general advertising or other general forms of soliciting not specifically targeted at Guilford employees. [signature follows] Executed at Baltimore, Maryland this ____ day of ____________________, 20__. ------------------------------------ Signature ------------------------------------ Printed Name - ------------------------------------ Witness (GUILFORD PHARMACEUTICALS LOGO) PATENT AND CONFIDENTIALITY AGREEMENT EXHIBIT A 1. The following is a complete list of all inventions, developments, improvements and discoveries which have been made, conceived of or reduced to practice by the undersigned, alone or jointly with others, prior to employment by Guilford: none ----- see below ----- - ------------------------------------ ------------------------------ Signature Date - ------------------------------------ Printed Name 2. The following is a complete list of all materials or documents of a former employer brought to Guilford by the undersigned: none ----- see below ----- - ------------------------------------ ------------------------------ Signature Date - ------------------------------------ Printed Name EX-10.02 3 w69039exv10w02.txt EXHIBIT 10.02 EXHIBIT 10.2 EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT This EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement") is dated and effective as of ___________________, 2004, between GUILFORD PHARMACEUTICALS INC., (the "Employer"), and DEAN J. MITCHELL (the "Executive"). WHEREAS, the Executive has been engaged to serve as President and Chief Executive Officer of the Employer by an Offer Letter dated November 16, 2004( the "Offer Letter"), and in that role is expected to be important in developing and expanding the business and operations of the Employer and possesses valuable knowledge and skills with respect to such business; and WHEREAS, the Board of Directors of the Employer (the "Board") believes that it is in the best interests of the Employer to encourage the Executive's continued employment with and dedication to the Employer, including in the face of potentially distracting circumstances arising from the possibility of a change in control of the Employer; and WHEREAS, the Board has adopted a policy which authorizes the Employer to enter into this Agreement with the Executive; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the payment of compensation to the Executive in the event of a termination of the Executive's employment during the term of this Agreement due to a Change in Control; NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements of the parties contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. The following capitalized terms are defined in the sections of this Agreement listed beside such terms:
TERM SECTION TERM SECTION - ------------------------- -------- -------------------------- ------- Agreement Preamble Current Annual Base Salary 6 Annual Base Salary 6 Date of Termination 4.1 Accounting Firm 5.2 Exchange Act 9 Board Preamble Excise Tax 5.1 Cause 7 Good Reason 8 Change in Control 9 Gross Up Payment 5.1 Change in Control Event 9 Payment 5.1 Change in Control Period 4 Underpayment 5.2
2. TERM. The term of this Agreement shall be for a period commencing as of the date set forth above and will remain in effect until the earlier of the date on which (a) all obligations of the parties hereto shall have been satisfied, (b) the agreement is terminated by the mutual written agreement of the parties, or (c) the agreement is terminated pursuant to terms contained elsewhere herein. 3. TERMINATION OF EMPLOYMENT OTHER THAN FOLLOWING A CHANGE IN CONTROL EVENT. If, prior to a Change in Control Event (as defined in SECTION 9), the Executive's employment is terminated by the Employer with or without Cause (as defined in SECTION 7) during the term of this Agreement or the Executive voluntarily terminates his employment with or without Good Reason (as defined in SECTION 8), this Agreement shall, subject to the provisions contained in SECTION 17 below, terminate. 4. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL EVENT. Subject to the terms of this Agreement, including without limitation SECTION 17 below, the Executive shall be entitled to receive severance payments from the Employer for services previously rendered to the Employer and its affiliates if a Change in Control Event occurs during the term of this Agreement and the Executive's employment is terminated by the Executive for Good Reason or by the Employer other than for Cause during the period commencing upon such Change in Control Event and ending two years after a Change in Control (as defined in SECTION 9)(the "Change in Control Period"). 4.1. GOOD REASON; OTHER THAN FOR CAUSE. If a Change in Control Event occurs during the term of this Agreement and the Employer terminates the Executive's employment other than for Cause or the Executive terminates employment for Good Reason during the Change in Control Period: (i) the Employer shall pay to, or provide, the Executive the following amounts and benefits: A. all payments and benefits due the Executive pursuant to the terms of paragraph 6(a) of the Offer Letter, together with outplacement support through Right Management Consultants' CEO level program, provided that Executive initiates participation in the program within 60 days of the date of such termination of employment; and B. the amount equal to three (3) times the Executive's Annual Base Salary, which amount shall be payable in full in a lump sum in cash no later than 10 days following the date of termination. (ii) for three (3) years after the date on which the Executive's employment with the Employer is terminated, by the Employer or by the Executive, for any reason (the "Date of Termination"), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Employer shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the welfare benefit plans, practices, policies and programs provided by the Employer and its affiliated companies (including, without limitation, medical, prescription, dental, disability, Executive life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executive-level Executives of the Employer and its affiliated companies, as if the Executive's employment had not been terminated; provided, that such benefits shall be provided to the Executive in a manner that does not cause him to be liable for federal income tax thereon in -2- an amount in excess of that which he would be liable for as an employee (or the Employer shall gross up such amounts to so that the Executive has no additional after tax cost; and further provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. 4.2. CAUSE; OTHER THAN FOR GOOD REASON. IF THE EXECUTIVE'S EMPLOYMENT IS TERMINATED FOR CAUSE DURING THE CHANGE IN CONTROL PERIOD, THIS AGREEMENT SHALL TERMINATE WITHOUT FURTHER OBLIGATIONS TO THE EXECUTIVE HEREUNDER. FURTHERMORE, IF THE EXECUTIVE VOLUNTARILY TERMINATES EMPLOYMENT DURING THE CHANGE IN CONTROL PERIOD OTHER THAN FOR GOOD REASON, THIS AGREEMENT SHALL TERMINATE WITHOUT FURTHER OBLIGATIONS TO THE EXECUTIVE HEREUNDER. 5. CERTAIN ADDITIONAL PAYMENTS BY EMPLOYER. 5.1. GENERAL Notwithstanding anything in this Agreement to the contrary and except as set forth in this SECTION 5, in the event it shall be determined that any payment or distribution by the Employer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this SECTION 5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes, including, without limitation, any income and payroll taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax (including any interest or penalties imposed with respect to such taxes) imposed upon the Payments. 5.2. PROCEDURES Subject to the provisions of SECTION 5.3, all determinations required to be made under this SECTION 5, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG LLP or such other certified public accounting firm as may be designated by the Executive and reasonably acceptable to the Employer (the "Accounting Firm") which shall provide detailed supporting calculations both to the Employer and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized accounting firm and reasonably acceptable to the Employer to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this SECTION 5, shall be paid by the -3- Employer to the Executive within five business days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Employer and the Executive, subject to any determination otherwise by the Internal Revenue Service. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to SECTION 5.3 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. In addition, in certain instances an election may be made to recalculate the Excise Tax under applicable law. The Employer may exercise such election and cause a recalculation to be made by the Accounting Firm, subject to the other provisions hereof. 5.3. NOTIFICATION OF CLAIMS The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of the Gross-Up Payment. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Employer any information reasonably requested by the Employer relating to such claim, (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by attorneys reasonably selected by the Employer, (iii) cooperate with the Employer in good faith in order effectively to contest such claim, and (iv) permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this SECTION 5.3, the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the -4- Employer shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 5.4. REFUNDS If, after the receipt by the Executive of an amount advanced by the Employer pursuant to SECTION 5.3, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of SECTION 5.3) promptly pay to the Employer the amount of such refund (together with any interest actually paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to SECTION 5.3, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 5.5 SARBANES-OXLEY ACT No provision of this Section 5 is intended to be in violation of the loan prohibitions of the Sarbanes-Oxley Act and to the extent any payment would be in violation thereof, such amounts shall be deemed a payment to the Executive with no obligation to refund or otherwise repay. 6. DEFINITION OF ANNUAL BASE SALARY. Annual base salary ("Annual Base Salary") means the greater of (a) the annual base salary payable to the Executive by the Employer and its affiliates as of the Date of Termination of employment (the "Current Annual Base Salary") or (b) the amount equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Employer and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Date of Termination occurs. 7. DEFINITION OF CAUSE. "CAUSE" shall have the meaning such term is given in the offer letter. 8. DEFINITION OF GOOD REASON. "Good Reason" shall have the meaning such term is given in the Offer Letter. 9. DEFINITION OF CHANGE IN CONTROL AND CHANGE IN CONTROL EVENT. A "Change in Control" shall be deemed to have occurred if: -5- (a) any "person" (including, without limitation, any individual, sole proprietorship, partnership, trust, corporation, association, joint venture, pool, syndicate, or other entity, whether or not incorporated), or any two or more persons acting as a syndicate or group or otherwise acting in concert with regard to the ownership of securities of the Employer and thereby deemed collectively to be a "person") as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes, after the date hereof, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing thirty percent (30%) or more of the combined voting power of the Employer's then outstanding securities, unless, in transaction in which a "person" becomes, after the date hereof, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing less than fifty percent (50%) of the combined voting power of the Employer's then outstanding securities, prior to the acquisition by such person of securities of the Employer which causes such person to have such beneficial ownership, the full Board shall by at least a two-thirds vote have specifically approved such acquisition and determined that such acquisition shall not constitute a Change in Control for purposes of this Agreement despite such beneficial ownership; (b) during any two (2) year period, individuals who at the beginning of such period constitute the Board, together with any new directors elected or appointed during the period whose election or appointment resulted from a vacancy on the Board caused by retirement, death , or disability of a director and whose election or appointment was approved by a vote of at least two-thirds (2/3rds) of the directors then still in office who were directors at the beginning of the period, cease for any reason to constitute a majority thereof; or (c) the Employer consolidates with, or merges with or into another entity or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any entity consolidates with, or merges with or into, the Employer (a "Transaction"), in any such event pursuant to a Transaction in which the owners of outstanding voting stock of the Employer immediately prior to such Transaction do not represent at least a majority of the voting power in the surviving entity after the Transaction in approximately in the same proportions; or (d) the shareholders of the Employer approve a plan of liquidation or dissolution. A "Change in Control Event" shall mean the earlier of (i) a Change in Control or (ii) the execution and delivery by the Employer of an agreement providing for a Change in Control. 10. EXPENSES. The Employer shall pay any and all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce, by bringing an action against the Employer, any right or benefit provided in this Agreement if the Executive is successful in whole or in part in such action. 11. WITHHOLDING. Notwithstanding anything in this Agreement to the contrary, all payments required to be made by the Employer hereunder to the Executive or his estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Employer reasonably may determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, -6- in whole or in part, the Employer may, in its sole discretion, accept other provisions for the payment of taxes and any withholdings as required by law, provided that the Employer is satisfied that all requirements of law affecting its responsibilities to withhold compensation have been satisfied. 12. NO DUTY TO MITIGATE. The Executive's payments received hereunder shall be considered severance pay in consideration of past service, and pay in consideration of continued service from the date hereof and entitlement thereto shall not be governed by any duty to mitigate damages by seeking further employment or otherwise and Employer shall not be entitled to any offset for any amounts Executive earns while receiving payments hereunder. 13. AMENDMENTS OR ADDITIONS; ACTION BY THE BOARD OF DIRECTORS. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties hereto. The prior approval of the Board shall be required in order for the Employer to authorize any amendments or additions to this Agreement, unless this requirement is specifically waived in writing by the Executive in any document affecting any such amendment. 14. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by the laws of United States to the extent applicable and otherwise by the laws of the State of Maryland, excluding any choice of law rules. In the event that an unresolved dispute arises over the enforcement, interpretation, construction or breach of this Agreement, the parties agree that it shall be litigated in the U.S. District Court for the District of Maryland or in the circuit courts of Baltimore City, Maryland, and the parties hereby irrevocably submit to the exclusive jurisdiction of such courts for all purposes with respect to any legal action or proceeding in connection with this Agreement. 15. ASSIGNMENT. The rights and obligations of the Employer under this Agreement shall be binding upon its successors and assigns and may only be assigned by the Employer to the successor in interest of the Employer provided that such successor executes a written assumption agreement, which is promptly delivered to the Executive. The rights and obligations of the Executive under this Agreement shall be binding upon his heirs, legatees, personal representatives, executors or administrators. This Agreement may not be assigned by the Executive, but any amount owed to the Executive upon his death shall inure to the benefit of his heirs, legatees, personal representatives, executors, or administrators. 16. NOTICE. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered, sent by overnight courier, or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by telegram, telecopy, or telex (against receipt of answerback confirming delivery), addressed as follows: If to the Employer: -7- Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attn: General Counsel Fax: 410/631-6899 If to the Executive, at the address maintained by the Executive as set forth in the Employer's records or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. In the case of notices sent by telegram or telecopy, which notice shall be deemed duly given if made pursuant to the provisions of this SECTION 16 above, the notifying party shall also send a confirmation copy of any such notice to the other party by first class-mail. 17. OTHER AGREEMENTS. This Agreement may not constitute the entire agreement between the parties hereto providing for severance payments in connection with a termination of employment following a Change in Control Event; provided, however, that if the Executive is entitled to severance payments pursuant to this Agreement and pursuant to any other oral or written agreements, commitments or understandings calling for severance payments in connection with a termination of employment following a Change in Control Event, the severance payments paid to the Executive by the Employer in connection with such termination of employment shall be limited to the greater of (i) severance payments provided pursuant to this Agreement and any share option agreements and restricted share agreements between the Employer and the Executive or (ii) severance payments provided by the Employer pursuant to such other oral or written agreements, commitments or understandings. If the Executive is entitled to severance payments pursuant to this Agreement and any share option agreements and restricted share agreements between the Employer and the Executive, on the one hand, and pursuant to any other oral or written agreements, commitments or understandings calling for severance payments in connection with a termination of employment following a Change in Control Event, on the other hand, the Executive shall determine, in the Executive's sole discretion, by notice given in writing to the Employer, which payments are greater. For the avoidance of doubt, the parties agree the terms of this Agreement shall in no way be deemed to diminish or otherwise modify any terms set forth in any other oral or written agreements, commitments or understandings related to the payment of severance amounts to the Executive in connection with a termination of employment that are not conditioned on a Change in Control Event, including without limitation the letter agreement between the Employer and the Executive, dated November 16, 2004 (a copy of the form of which agreement is attached hereto for reference purposes). 18. SEVERABILITY. If any part of any provision of this Agreement shall be invalid or unenforceable under applicable law, such part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provision or the remaining provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement, or have caused this Agreement to be executed and delivered, to be effective as of the date first written above. -8- GUILFORD PHARMACEUTICALS INC. By: --------------------------------------------- Name: Asher M. Rubin Title: Senior Vice President, General Counsel and Secretary EXECUTIVE --------------------------------------------- Dean J. Mitchell -9- -----END PRIVACY-ENHANCED MESSAGE-----