-----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, UhM4TEAAOw4DCmN6NGmyCb9wjZjtYUfblqDUii2Y3hv07jBhadT2rH2LKIeTsHZU gLUy2XAF1yCZT2x/16grcw== 0000950133-96-001614.txt : 19960816 0000950133-96-001614.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950133-96-001614 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUILFORD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000918066 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521841960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23736 FILM NUMBER: 96613914 BUSINESS ADDRESS: STREET 1: 6611 TRIBUTARY ST CITY: BALTIMORE STATE: MD ZIP: 21221 BUSINESS PHONE: 4106316300 10-Q 1 FORM 10-Q FOR GUILFORD PHARMACEUTICALS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 ------------- COMMISSION FILE NUMBER 0-23736 ------- GUILFORD PHARMACEUTICALS INC. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- DELAWARE 52-1841960 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6611 TRIBUTARY STREET, BALTIMORE, MARYLAND 21224 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 410-631-6300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at August 13, 1996 Common Stock, $.01 par value 9,307,251 - ---------------------------- ------------------------------
2 GUILFORD PHARMACEUTICALS INC. (A DEVELOPMENT STAGE COMPANY) INDEX
Page (s) ---- PART I. FINANCIAL INFORMATION (UNAUDITED) Item 1. Financial Statements Consolidated Balance Sheets June 30, 1996 and December 31, 1995 3 Consolidated Statements of Operations Three months ended June 30, 1996 and 1995; Six months ended June 30, 1996 and 1995 and the period from July 14, 1993 (date of inception) to June 30, 1996 4 Consolidated Statement of Stockholders' Equity Six months ended June 30, 1996 5 Consolidated Statements of Cash Flows Three months ended June 30, 1996 and 1995; Six months ended June 30, 1996 and 1995 and the period from July 14, 1993 (date of inception) to June 30, 1996 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 PART II. OTHER INFORMATION 14-16 SIGNATURES 17
2 3 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1996 1995 ---- ---- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 10,898,687 $ 4,259,531 Short-term investments 51,499,407 11,552,038 Short-term investments - restricted 238,021 250,000 Licensing fee receivable - 555,500 Other current assets 159,418 291,580 ----------------- ----------------- Total current assets 62,795,533 16,908,649 Investments - restricted 5,143,023 3,392,284 Notes receivable from employees 59,658 85,476 Property and equipment, net 11,967,070 5,455,791 Other assets 198,937 206,202 ----------------- ----------------- $ 80,164,221 $ 26,048,402 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade $ 2,013,051 $ 1,149,743 Construction 724,248 489,960 Bond & Term Loan payable - current portion 967,567 293,469 Advance from Gell Pharmaceuticals Inc. 189,112 91,852 Accrued payroll and related costs 547,762 681,000 Accrued expenses and other current liabilities 442,422 873,056 ----------------- ----------------- Total current liabilities 4,884,162 3,579,080 Long-term liabilities: Bond payable, less current portion 6,989,620 4,695,508 Term Loan payable, less current portion 1,246,621 - ----------------- ----------------- Total long-term liabilities 8,236,241 4,695,508 Commitments Stockholders' equity: Convertible preferred stock, par value $.01 per share Authorized 4,700,000 shares, none issued - - Series A junior participating preferred stock, par value $.01 per share. Authorized 300,000 shares, none issued - - Common stock, par value $.01 per share. Authorized 20,000,000 shares; 9,301,621 and 6,793,065 issued and outstanding at June 30, 1996 and December 31, 1995, respectively 93,016 67,931 Additional paid-in capital 89,047,555 38,122,463 Notes receivable on common stock (139,500) (139,500) Deficit accumulated during development stage (21,691,433) (19,947,437) Deferred compensation (265,820) (329,643) ----------------- ----------------- Total stockholders' equity 67,043,818 17,773,814 ----------------- ----------------- $ 80,164,221 $ 26,048,402 ================= =================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1996 1995 1996 1995 --------------- --------------- ---------------- --------------- Revenues: Contract revenue $ 7,500,000 $ - $ 7,500,000 $ - License fee revenue - - 100,000 - Research and development revenue under collaborative agreements 9,052 12,970 18,701 12,970 --------------- --------------- ---------------- --------------- Total revenues 7,509,052 12,970 7,618,701 12,970 Operating expenses: Research and development 3,335,334 1,905,782 6,709,461 3,490,249 Research and development - Gell Pharmaceuticals Inc. 225,551 207,086 423,222 207,086 General and administrative 1,852,897 1,040,939 3,197,125 1,815,892 Compensation expense - warrants - - - - --------------- --------------- ---------------- --------------- Total operating expenses 5,413,782 3,153,807 10,329,808 5,513,227 --------------- --------------- ---------------- --------------- Income (Loss) from operations 2,095,270 (3,140,837) (2,711,107) (5,500,257) Other income (expense): Interest income 795,050 145,502 1,153,459 324,290 Other income 1,076 123,332 1,076 152,922 Interest expense (116,292) (32,688) (187,424) (70,653) --------------- --------------- ---------------- --------------- Net Income (loss) $ 2,775,104 $ (2,904,691) $ (1,743,996) $ (5,093,698) =============== =============== ================ =============== Net Income (loss) per share $0.27 $ (0.76) $ (0.22) ($1.34) =============== =============== ================ =============== Shares used in computation of net income (loss) per share 10,236,759 3,834,867 8,015,569 3,810,706 =============== =============== ================ ===============
JULY 14, 1993 (DATE OF INCEPTION) TO JUNE 30, 1996 ---------------------- Revenues: Contract revenue $ 7,500,000 License fee revenue 655,500 Research and development revenue under collaborative agreements 48,971 ------------------- Total revenues 8,204,471 Operating expenses: Research and development 19,794,108 Research and development - Gell Pharmaceuticals Inc. 955,849 General and administrative 10,300,415 Compensation expense - warrants 991,304 ------------------- Total operating expenses 32,041,676 ------------------- Income (Loss) from operations (23,837,205) Other income (expense): Interest income 2,326,731 Other income 200,395 Interest expense (381,354) ------------------- Net Income (loss) $ (21,691,433) =================== Net Income (loss) per share N/M Shares used in computation of net income (loss) per share
N/M = NOT MEANINGFUL SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 5 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
DEFICIT COMMON STOCK NOTES ACCUMULATED ------------------- ADDITIONAL RECEIVABLE DURING NUMBER PAID-IN ON COMMON DEVELOPMENT OF SHARES AMOUNT CAPITAL STOCK STAGE --------- ------ ------- ----- ----- BALANCE, DECEMBER 31, 1995 6,793,065 $ 67,931 38,122,463 (139,500) (19,947,437) Issuance of common stock in public offering at $20.00 per share, net of offering costs 2,300,000 23,000 42,871,741 Other issuances of common stock 208,556 2,085 7,560,963 Proceeds from Gell Pharmaceuticals relating to the put option 448,802 Amortization of deferred compensation 43,586 Net loss for the period (1,743,996) ---------- --------- ----------- ---------- ------------- BALANCE, JUNE 30, 1996 9,301,621 $ 93,016 89,047,555 (139,500) (21,691,433) ---------- --------- ----------- ---------- -------------
TOTAL DEFERRED STOCKHOLDERS' COMPENSATION EQUITY ------------ ------ BALANCE, DECEMBER 31, 1995 (329,643) $ 17,773,814 Issuance of common stock in public offering at $20.00 per share, net of offering costs 42,894,741 Other issuances of common stock 7,563,048 Proceeds from Gell Pharmaceuticals relating to the put option 448,802 Amortization of deferred compensation 63,823 107,409 Net loss for the period (1,743,996) ---------- ---------------- BALANCE, JUNE 30, 1996 (265,820) $ 67,043,818 ---------- ----------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 2,775,104 $ (2,904,691) $ (1,743,996) $ (5,093,698) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 258,727 126,710 489,612 186,052 Noncash compensation expense 75,497 31,672 107,409 48,736 Provision for loss related to advance to underwriter - - - - Preferred stock issued in exchange for technology acquired in the research and development stage - - Preferred stock issued in exchange for various expenses paid for by Scios Nova Inc. on behalf of the Company - - - - Changes in assets and liabilities: Licensing fee receivable 100,000 - 555,500 - Notes receivable 26,995 1,802 25,818 22,194 Other current assets 12,721 (64,560) 132,162 (63,008) Other assets 5,162 240 7,265 (23,119) Accounts payable (804,532) 237,056 1,097,596 (381,448) Advance from Gell Pharmaceuticals Inc. 189,112 163,750 97,260 163,750 Accrued expenses and other liabilities (351,608) 165,424 (563,872) 74,706 -------------- --------------- --------------- -------------- Net cash provided by (used in) operating activities 2,287,178 (2,242,597) 204,754 (5,065,835) -------------- --------------- --------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in purchases of property and equipment (3,965,254) (929,519) (7,000,891) (1,877,818) Maturities of short-term investments 13,812,796 3,163,231 20,497,621 9,448,734 Purchases of short-term investments (57,000,226) (1,097,622) (62,195,729) (6,686,801) Restricted cash - - 11,979 - -------------- --------------- --------------- -------------- Net cash provided by (used in) investing activities (47,152,684) 1,136,090 (48,687,020) 884,115 -------------- --------------- --------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of preferred stock - - - - Net proceeds from issuances of common stock 13,215,993 311,380 50,457,789 478,397 Proceeds from bond and term loan issuances 3,290,800 889,273 4,293,262 2,226,385 Proceeds from Gell Pharmaceuticals relating to the put option 217,236 - 448,802 - Principal payments on bond payable (78,431) - (78,431) - Proceeds received on subscriptions receivable - - Advances from Scios Nova Inc. - - - - -------------- --------------- --------------- -------------- Net cash provided by financing activities 16,645,598 1,200,653 55,121,422 2,704,782 -------------- --------------- --------------- -------------- Net increase (decrease) in cash and cash equivalents (28,219,908) 94,146 6,639,156 (1,476,938) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 39,118,595 2,468,772 4,259,531 4,039,856 -------------- --------------- --------------- -------------- CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 10,898,687 $ 2,562,918 $ 10,898,687 $ 2,562,918 ============== =============== =============== ============== Supplemental disclosures of cash flow information: Interest paid, net of amount capitalized $ 106,440 $ 28,242 $ 216,946 $ 50,164 Noncash Investing and Financing Activities: Collateral transferred from unrestricted to restricted investments $ 1,049,016 $ 622,491 $ 1,750,739 $ 1,558,470 Issued shares of common stock in lieu of cash bonus - - - 28,209 Issuances of common stock to executive officers - 51,200 - 236,850
JULY 14, 1993 (DATE OF INCEPTION) TO JUNE 30, 1996 ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (21,691,433) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,101,009 Noncash compensation expense 1,288,669 Provision for loss related to advance to underwriter 175,000 Preferred stock issued in exchange for technology acquired in the research and development stage 300,000 Preferred stock issued in exchange for various expenses paid for by Scios Nova Inc. on behalf of the Company 245,225 Changes in assets and liabilities: Licensing fee receivable - Notes receivable 115,342 Other current assets (334,418) Other assets (198,937) Accounts payable 2,737,299 Advance from Gell Pharmaceuticals Inc. 189,112 Accrued expenses and other liabilities 1,018,393 ---------------------- Net cash provided by (used in) operating activities (15,054,739) ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in purchases of property and equipment (13,068,079) Maturities of short-term investments 60,568,208 Purchases of short-term investments (117,210,638) Restricted cash (238,021) ---------------------- Net cash provided by (used in) investing activities (69,948,530) ---------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of preferred stock 2,964,775 Net proceeds from issuances of common stock 81,943,094 Proceeds from bond and term loan issuances 9,282,239 Proceeds from Gell Pharmaceuticals relating to the put option 1,175,279 Principal payments on bond payable (78,431) Proceeds received on subscriptions receivable 500,000 Advances from Scios Nova Inc. 115,000 ---------------------- Net cash provided by financing activities 95,901,956 ---------------------- Net increase (decrease) in cash and cash equivalents 10,898,687 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD - ---------------------- CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 10,898,687 ====================== Supplemental disclosures of cash flow information: Interest paid, net of amount capitalized $ 381,963 Noncash Investing and Financing Activities: Collateral transferred from unrestricted to restricted investments $ 5,143,023 Issued shares of common stock in lieu of cash bonus 28,209 Issuances of common stock to executive officers 509,850
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 7 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K/A2 for the year ended December 31, 1995. Except for the historical information contained in this Form 10-Q, the matters discussed in the quarterly report are forward-looking statements. These statements involve risks and uncertainties that could cause the actual results to differ from predicted results. Information concerning factors that could affect the Company's financial results are set forth in the Company's filings with the Securities and Exchange Commission including the Company's registration statement on Form S-3 declared effective on March 21, 1996. In the opinion of the Company's management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, necessary to present fairly its financial position, results of operations, changes in stockholders' equity and cash flows for the respective periods as set forth in the Index to Financial Information. Interim results are not necessarily indicative of results for the full fiscal year. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Guilford Pharmaceuticals Inc, and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated. 3. EARNINGS PER SHARE The computation of both primary and fully diluted earnings per share was based on the weighted average number of common shares outstanding during the period adjusted to include, when their effect is dilutive, common stock equivalents consisting of warrants, stock options and put rights. Both primary and fully diluted earnings per share are the same for the three months ended June 1996. 7 8 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30, 1996, the computation of both primary and fully diluted earnings per share exclude common stock equivalents since their effect on earnings per share is antidilutive. 4. EQUITY TRANSACTIONS On June 13, 1996, the Company entered into a Stock Purchase Agreement with Rhone-Poulenc Rorer Inc. ("RPR Inc."). Under the terms of the agreement, RPR Inc. purchased 187,687 shares of the Company's common stock, $.01 par value per share, providing net proceeds of $7.5 million to the Company. 5. CONSULTING AGREEMENTS Effective as of April 18, 1996, the Company entered into two consulting agreements, each providing for annual cash compensation in the amounts of $115,000, $125,000, $135,000 and $145,000 over a term of four years. In addition to such cash compensation, the Company has granted options to each consultant to purchase up to 150,000 shares of its common stock, valid for 10 years from issuance, with varying exercise prices and varying vesting periods based on either the passage of time or based upon the achievement of certain milestones. Certain milestones, if ever achieved, would result in accelerated vesting of up to 100,000 of the aforementioned options for each consultant based on the agreements. During the second quarter, the Company recognized $48,000 in cash compensation and $45,000 as deferred compensation relating to that portion of the consulting agreements recognizable at June 30, 1996. The Company expects that commencing in the third quarter of 1996 it will be required to take noncash charges related to the aforementioned options which under FAS 123 (Accounting for Stock Based Compensation) require compensation expense to be recognized using a fair value based method. As a result, the Company expects it will charge to operations, in varying amounts per quarter through 2001, between $2.1 million and $3.4 million. 6. MARKETING, SALES AND DISTRIBUTION RIGHTS AND RELATED AGREEMENTS WITH RPR On June 13, 1996, the Company entered into a Marketing, Sales and Distribution Rights Agreement and related agreements with RPR Inc. and Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR Pharm."; collectively with RPR Inc., "RPR") granting RPR Pharm. worldwide marketing rights (excluding Scandinavia) for GLIADEL(R) Wafer ("GLIADEL"). The Company received $15.0 8 9 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS million upon the signing of these agreements ($7.5 million as an equity investment (see note 4) and $7.5 million as a non-refundable rights payment). RPR Pharm. is obligated to make up to an additional $60.0 million in milestone payments including $7.5 million in the form of an additional equity investment only if the Company achieves certain key regulatory approvals. Moreover, RPR Pharm. may also fund up to $17 million for the development of a higher-dose GLIADEL product and to fund certain additional clinical studies related to GLIADEL. The Company will manufacture and supply GLIADEL to RPR Pharm. and will receive a transfer price and royalties based on product sales. RPR Pharm. also has a right of first offer to obtain exclusive rights to certain additional oncology products that may be developed in the future using the Company's proprietary biodegradable polymer implant polymer technologies. In consideration for these rights of first offer, RPR Pharm. has also agreed to make certain additional research and development payments. Under the terms of its loan agreement with RPR, the Company has the right to borrow up to an aggregate of $7.5 million, under certain conditions, to expand the Company's manufacturing and related facilities. Not earlier than January 2, 1997, the Company may borrow $4.0 million from RPR under this loan agreement and an additional $3.5 million no earlier than twelve nor later than eighteen months following funding of the initial $4.0 million. Any amounts borrowed under this loan agreement are due five years from the date borrowed and will carry an interest rate equal to the lowest interest rate paid by RPR from time to time on its most senior indebtedness. 7. SHARE OPTION PLANS In May 1996, the Company's stockholders approved amendments to the Company's 1993 Employee Share Option and Restricted Share Plan, as amended (the "Employee Plan"), and the Directors' Stock Option Plan (the "Directors' Plan"). The Employee Plan was amended to increase the number of shares of common stock available for issuance under the plan from 600,000 shares to 1,800,000 shares. The Directors' Plan was amended to permit a director who is an officer or employee or a stockholder of the Company that holds less than 20% of the Company's stock to receive options under the Directors' Plan. 9 10 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Guilford Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the "Company") is a development stage biopharmaceutical company engaged in the development of novel products in two principal areas: (i) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases and (ii) therapeutic and diagnostic products for neurological diseases and conditions. Since inception, the Company has received approximately $85.8 million in net cash proceeds from sales of equity securities, of which approximately $17.9 million and $42.9 million was received in August 1995 and March 1996, respectively, in follow-on public offerings of common stock. In addition to public equity offerings, the Company has raised $12.1 million since inception (including approximately $700,000 in cash proceeds from management and a founder/director) in private sales of equity securities. A substantial part of the Company's activities since inception has been devoted to raising capital, recruiting personnel, initiating product research programs and clinical trials, constructing and validating its GLIADEL manufacturing facility and preparing and filing an NDA for its lead product candidate, GLIADEL. The Company incurred net operating losses from its inception through the first quarter of 1996. The Company realized net income in the second quarter of 1996 due to a one-time non-refundable rights payment from RPR Pharm.The Company expects to experience quarter-to-quarter and year-to- year fluctuations in revenues, expenses, net income and net losses, some of which may be significant. The timing and extent of such fluctuations will depend, in part, on the timing and receipt, if ever, of regulatory approvals for GLIADEL and other product candidates and receipt of any future license fees, milestone payments, transfer prices and royalties related to product sales. The Company expects that expenses related to research and product development, preclinical testing, clinical trials, regulatory matters, operations, manufacturing and general and administrative expenses will continue to increase as the Company seeks to commercialize GLIADEL in conjunction with its partners and to develop its other potential products. The Company's ability to achieve consistent profitability will depend upon its ability, either alone or with others, to develop its product candidates successfully, conduct clinical trials, obtain required regulatory approvals, manufacture at reasonable cost and market its product candidates and enter into collaborative arrangements and license agreements on acceptable terms. 10 11 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company recognized $7.5 million in revenues for the three months ended June 30, 1996 compared to $13,000 for the same period ended in 1995. For the six months ended June 30, 1996 revenues totaled $7.6 million compared to $13,000 for the same period ended in 1995. The increase in revenues for the quarter is due to a one-time rights payment from RPR Pharm. as part of its agreements with the Company (see note 6 of notes to consolidated financial statements). For the six months ended June 30, 1996, $100,000 in licensing fee revenue was received pursuant to the Company's Licensing and Distribution Agreement with Orion Farmos related to the filing of Guilford's NDA for GLIADEL. Research and development expenses increased to $3.6 million for the three months ended June 30, 1996 compared to $2.1 million for the same period ended in 1995. For the six months ended June 30, 1996 expenses increased to $7.1 million compared to $3.6 million for the same period ended 1995. These increases are primarily due to the expansion of the Company's research and development programs, scale-up of its manufacturing capabilities and clinical research related to the Treatment IND for GLIADEL and Phase II(b) clinical trials for DOPASCAN(TM) injection which resulted in an increase in the number of employees, personnel related costs, laboratory supplies and consumables along with outside services including contract research and consulting. General and administrative expenses increased to $1.9 million for the three months ended June 30, 1996 compared to $1.0 million for the same period ended in 1995. For the six months ended June 30, 1996 expenses increased to $3.2 million compared to $1.8 million for the same period ended 1995. The increase is primarily the result of an increase in the number of employees and personnel related costs required to support the Company's ongoing research and development activities, royalty payments and outside services related to patent activities and public company costs. Interest income increased to $795,000 for the three months ended June 30, 1996 compared to $146,000 for the same period ended in 1995. For the six months ended June 30, 1996 interest income increased to $1.2 million compared to $324,000 for the same period ended in 1995. The increase is primarily due to an increase in the average invested capital resulting from equity offerings and cash received pursuant to the Company's agreements with RPR. Interest expense increased to $116,000 for the three months ended June 30, 1996 compared to $33,000 for the same period in 1995. For the six months ended June 30, 1996 interest expense increased to $187,000 compared to $71,000 for the 11 12 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS same period ended 1995. The increase is primarily related to borrowings under the December 1994 loan agreement with Signet Bank providing for the construction of manufacturing, administrative and research and development facilities and for the purchase of related equipment. The Company expects that commencing in the third quarter of 1996 it will be required to take noncash charges related to stock options granted to two consultants which under FAS 123 (Accounting for Stock Based Compensation) require compensation expense to be recognized using a fair value based method. As a result, the Company expects it will charge to operations in varying amounts per quarter through 2001, between $2.1 million and $3.4 million (see note 5 of notes to consolidated financial statements). LIQUIDITY AND CAPITAL RESOURCES The Company's cash and short-term investments were $67.8 million at June 30, 1996. Included in this amount is $5.1 million of restricted cash held as collateral with respect to the Company's indebtedness. The Company has incurred a significant accumulated deficit to date and may continue to incur periodic operating losses. However, the Company believes that its current working capital together with an additional $20 million milestone payment expected from RPR Pharm. upon any approval by the FDA of the Company's GLIADEL NDA will be adequate to fund operations over at least the next two years. To the extent necessary, the Company may be required to raise additional capital through a combination of public and private financings, collaborative or other research and development agreements, commercialization and marketing arrangements with corporate partners or other potential sources. The Company's ability to raise future capital on acceptable terms is dependent on onditions in the public or private equity markets and the performance of the Company as well as the overall performance of other companies in the biopharmaceutical and biotechnology sectors. There can be no assurance that required future financing arrangements will be available on acceptable terms, or at all. Capital expenditures of $7.0 million were incurred in the six months ended June 30, 1996 compared to $1.9 million for the same period ended June 30, 1995. These capital expenditures were related to the construction of research and development laboratories, expansion of the Company's GLIADEL manufacturing facility and administrative offices. Additionally, such expenditures included amounts to purchase capital equipment and computer software to support the Company's activities. The Company has utilized its available borrowings under the existing $8.0 million loan 12 13 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS agreement with Signet Bank and will continue to finance certain in-process tenant improvements related to the construction of research and development laboratories and other related areas under the additional $4.2 million term loan obtained from Signet Bank in February, 1996. At June 30, 1996, the Company had drawn down $1.3 million under this term loan and anticipates drawing down the remainder by the end of fiscal 1996. The Company expects additional capital will be required to provide for manufacturing plant capacity expansion and research and development laboratories. Such future capital funding is expected to come under the terms of its loan agreement with RPR Inc. (see note 6 of notes to consolidated financial statements). Under the Agreement, the Company has the right to borrow up to an aggregate of $7.5 million under certain conditions to expand the Company's manufacturing and related facilities. The Company has completed negotiations and expects to finalize in the third quarter a $5.0 million lease financing arrangement for the funding of capital equipment. Such financing is expected to provide for the Company's capital equipment needs at least through June 30, 1997. While the Company expects the aforementioned sources to be available as described, the Company may decide to use current cash resources for such purposes on an as needed basis. 13 14 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) PART II. - OTHER INFORMATION Item 1. Legal Proceedings: None Item 2. Changes in Securities: None Item 3. Defaults in Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: The Company's Annual Meeting of Stockholders was held on May 21, 1996. The following individuals were elected to the Company's Board of Directors to hold office for the ensuing year:
NOMINEE FOR AGAINST - ------- --- ------- Craig R. Smith, M.D. 6,723,276 3,800 Solomon H. Snyder, M.D. 6,722,489 4,587 W. Leigh Thompson, M.D., Ph.D. 6,723,276 3,800 Richard L. Casey 6,723,276 3,800 Elizabeth M. Greetham 6,723,276 3,800 George L. Bunting, Jr. 6,723,276 3,800
In addition the following proposals were approved as follows: Proposal to amend the Company's 1993 Employee Share Option and Restricted Share Plan:
In Favor Opposed Abstained Broker non-votes - -------- ------- --------- ---------------- 3,820,916 197,248 6,528 2,134,138
14 15 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) PART II. - OTHER INFORMATION Proposal to amend the Company's Directors' Stock Option Plan:
In Favor Opposed Abstained Broker non-votes - -------- ------- --------- ---------------- 4,455,820 35,711 10,807 2,134,138
Proposal to ratify the stock option grant to Solomon H. Snyder, M.D.:
In Favor Opposed Abstained Broker non-votes - -------- ------- --------- ---------------- 4,315,692 174,146 12,500 2,134,138
Proposal to ratify the stock option awards to Richard L. Casey and John H. Newman:
In Favor Opposed Abstained Broker non-votes - -------- ------- --------- ---------------- 4,292,190 197,248 12,900 2,134,138
Proposal to ratify the selection of KPMG Peat Marwick as the Company's independent auditors for the fiscal year ending December 31, 1996:
In Favor Opposed Abstained - -------- ------- --------- 6,717,184 3,700 6,192
Item 5. Other Information: None Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: Exhibit No. Description - ----------- ----------- 10.40 Marketing, Sales and Distribution Rights Agreement between RPR Pharm., the Company and GPI Holdings, Inc., dated June 13, 1996 15 16 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) PART II. - OTHER INFORMATION 10.41 Manufacturing and Supply Agreement between RPR Pharm. and the Company, dated June 13, 1996 10.42 Stock Purchase Agreement between the Company and RPR Inc., dated June 13, 1996 10.43 Loan Agreement between the Company and RPR Inc., dated June 13, 1996 10.44 Amendment to the Company's 1993 Employee Share Option and Restricted Share Plan, as amended 10.45 Amendment to the Company's Directors' Stock Option Plan 11.1 Statement Re: Computation of Per Share Earnings 27.2 Financial Data Schedule (b) Report on Form 8-K None 16 17 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) 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 thereunto duly authorized. Guilford Pharmaceuticals Inc. Date: August 14, 1996 /s/ Craig R. Smith, M.D. ------------------------------------------- Craig R. Smith, M.D. President and CEO Date: August 14, 1996 /s/ Andrew R. Jordan ------------------------------------------- Andrew R. Jordan Vice President and Chief Financial Officer (Principal Accounting Officer) 17 EX-10.40 2 MARKETING, SALES & DISTRIBUTION RIGHTS AGREEMENT 1 EXHIBIT 10.40 ----------------------------------- MARKETING, SALES AND DISTRIBUTION RIGHTS AGREEMENT BETWEEN RHONE-POULENC RORER PHARMACEUTICALS INC., GPI HOLDINGS, INC. AND GUILFORD PHARMACEUTICALS INC. ----------------------------------- 2 TABLE OF CONTENTS
SECTION PAGE - ------- ---- I. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. "Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 B. "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 C. "Bankruptcy Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 D. "Change in Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 E. "FDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 F. "FDA Standards" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 G. "Field" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 H. "GLIADEL Product" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 I. "GPI License Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 J. "High Dose GLIADEL Product" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 K. "Improvement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 L. "Know-How" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 M. "Licensed Trademark" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 N. "Loan Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 O. "M.I.T./Scios Nova License Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 P. "NDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Q. "Net Sales" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 R. "Other PCPP:SA/BCNU Products" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 S. "Patent(s)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 T. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 U. "Process Description" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 V. "Product" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 W. "Regulatory Approval" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 X. "Regulatory Filings" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Y. "Scios Nova/GPI License Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Z. "Stock Purchase Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 AA. "Supply Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 AB. "Territory" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 AC. "Valid Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 II. Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 III. Marketing and Distribution Rights; Regulatory Approvals; Milestone Payments; Further Consideration for Rights; Records and Audit Rights; Development; Operations and Governance Committees . . . . . . . . 8
3 A. Right to Market, Distribute and Sell the Product . . . . . . . . . . . . . . . . . . . . . . . . 8 B. Research and Development; Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 10 C. Ex-U.S. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 D. Milestone Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 E. Net Sales Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 F. Records and Audit Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 G. Governance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 H. Operations Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 I. Joint Development Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 J. Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 K. Research and Development Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 IV. General Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 A. Confidentiality; Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 B. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 C. Indemnification; Product Liability Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 D. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 E. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 F. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 G. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 H. Inventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 I. Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 J. Certain Covenants of GPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 K. Certain Covenants of RPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 V. Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 A. HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 B. Assignment of GLIADEL Product NDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 VI. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 A. Independent Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 B. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 C. Binding Effect; Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 D. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 E. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 F. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 G. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 H. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 I. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 J. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 K. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 L. Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4 M. Interest on Overdue Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 N. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5 MARKETING, SALES AND DISTRIBUTION RIGHTS AGREEMENT MARKETING, SALES AND DISTRIBUTION RIGHTS AGREEMENT ("Agreement") dated as of June 13, 1996 ("Effective Date"), between RHONE-POULENC RORER PHARMACEUTICALS INC., a Delaware corporation with its principal office at 500 Arcola Road, Collegeville, Pennsylvania 19426 ("RPR"), on the one hand, and GPI HOLDINGS, INC., a Delaware corporation with its principal office at 222 Delaware Avenue, P.O. Box 2306, Wilmington, Delaware 19899 ("GPI Holdings") and GUILFORD PHARMACEUTICALS INC., a Delaware corporation with its principal office at 6611 Tributary Street, Baltimore, Maryland 21224 ("GPI"), on the other hand. WHEREAS, GPI Holdings and GPI (collectively, "Guilford"), on the one hand, and RPR, on the other hand, desire to enter into a strategic alliance pursuant to which, among other things: (i) GPI Holdings will grant to RPR the exclusive right throughout the Territory (defined below) to market, advertise, promote, sell and distribute the Product (defined below) for use in the Field (defined below); (ii) GPI will assign to RPR the New Drug Application for the GLIADEL Product if and when approved by the FDA (defined below); (iii) RPR will use commercially reasonable efforts to obtain Regulatory Approval (defined below) for the GLIADEL Product (defined below) throughout the Territory for use in the Field in accordance with the provisions of Article III of this Agreement, and if, as and when obtained, to market, advertise, promote, sell and distribute the GLIADEL Product throughout the Territory for use in the Field; (iv) GPI will manufacture and supply the Product to RPR; (v) Guilford and RPR will collaborate on the development of certain further PCPP:SA/BCNU products for use in the Field, including products with BCNU doses higher than 3.85%, all of which will be included within the grant of exclusive marketing, advertising, promotion, sale and distribution rights 6 in the Territory for use in the Field made by GPI Holdings to RPR under this Agreement; and (vi) GPI Holdings will grant to RPR a right of first offer covering all future drug-polymer cancer chemotherapeutic products which Guilford may develop during the term of this Agreement; all on the terms and conditions contained in this Agreement and the Supply Agreement (defined below); NOW THEREFORE, in consideration of the mutual covenants and consideration set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I I. DEFINITIONS. A. "ACT" shall mean the Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated under such Act. B. "AFFILIATE" shall mean, when used with respect to a Person, any other Person directly or indirectly controlling, controlled by, or under common control with the subject Person. For purposes of this Agreement, "control" means the direct or indirect ownership of over 50% of the outstanding voting securities of a Person, or the right to receive over 50% of the profits or earnings of a Person, or the right to control the policy decisions of a Person. C. "BANKRUPTCY EVENT" shall mean the Person in question becomes insolvent, or voluntary or involuntary proceedings by or against such Person are instituted in bankruptcy or under any insolvency law, or a receiver or custodian is appointed for such Person, or proceedings are instituted by or against such Person for corporate reorganization or the dissolution of such Person, which proceedings, if involuntary, shall not have been dismissed within sixty (60) days after the date of filing, or such Person makes an assignment for the benefit of its creditors, or substantially all of the assets of such Person are seized or attached and not released within sixty (60) days thereafter. 2 7 D. "CHANGE IN CONTROL" shall mean with respect to any Person: 1. The liquidation or dissolution of such Person or the sale or other transfer by such Person (excluding transfers to subsidiaries) of all or substantially all of its assets, if the same results in a change in the ultimate beneficial ownership of the business conducted by such Person; or 2. The occurrence of a tender offer, stock purchase, other stock acquisition, merger, consolidation, recapitalization, reverse split, sale or transfer of assets or other transaction, as a result of which any Person or group (as such terms are used in and under Section 13(d) of the Securities Exchange Act of 1934, as amended) (i) becomes the beneficial owner (as defined in Rule 13-d under such Act), directly or indirectly, of securities of such Person representing more than 30% of the common stock of such Person or representing more than 30% of the combined voting power with respect to the election of directors (or members of any other governing body) of such Person's then outstanding securities, (ii) obtains the ability to appoint a majority of the Board of Directors (or other governing body) of such Person, or (iii) obtains the ability to direct the operations or management of such Person or any successor to such Person's business. E. "FDA" shall mean the Food and Drug Administration of the United States Department of Health and Human Services, or any successor agency thereto. F. "FDA STANDARDS" shall mean the Act, the facility license requirements and the Current Good Manufacturing Practice regulations of the FDA applicable to the Product or any manufacturing facility of GPI, and all relevant guidelines of the FDA. G. "FIELD" shall mean the treatment of tumors of the central nervous system and treatment of cerebral edema. H. "GLIADEL PRODUCT" shall mean Guilford's GLIADEL(R) wafer, PCPP:SA with 3.85% BCNU, and any and all Improvements thereto. 3 8 I. "GPI LICENSE AGREEMENTS" shall mean the M.I.T./Scios Nova License Agreement and the Scios Nova/GPI License Agreement. J. "HIGH DOSE GLIADEL PRODUCT" shall mean any PCPP:SA product with a BCNU dose higher than 3.85% which is (i) reasonably expected to have a more advantageous efficacy profile than the GLIADEL Product and (ii) now or hereafter owned or controlled by Guilford, and all Improvements to any such product. As of the Effective Date, Guilford is contemplating the development of PCPP:SA with 20% BCNU for use in the Field. K. "IMPROVEMENT" to a product shall mean any and all inventions, discoveries, developments, modifications and improvements, whether or not patented or patentable, to such product. L. "KNOW-HOW" shall mean all scientific and technical data, instructions, processes, formulae, specifications, ingredient sources, manufacturing procedures, methods and other information relating to the design, composition, formulation, pre-clinical evaluation, clinical evaluation, manufacture, use, sale, packaging, formulation or administration of the Product, including, but not limited to NDAs, pharmacological, toxicological, analytical, stability and clinical data, specifications and drug master files and/or health registration dossiers and any other premarket application or registration, owned or controlled at any time during the term hereof by either party. M. "LICENSED TRADEMARK" shall mean GPI Holdings' GLIADEL(R) trademark, and any trademark(s) selected pursuant to the provisions of Section III(A)(3), and all goodwill associated with all such trademark(s). N. "LOAN AGREEMENT" shall mean the Loan Agreement, dated as of even date herewith, between GPI and Rhone-Poulenc Rorer Inc., a Pennsylvania corporation, the form of which is attached hereto and made a part hereof as Exhibit B, together with all promissory notes, the pledge agreement, the second mortgage and all other instruments referred to in or contemplated by such Loan Agreement. 4 9 O. "M.I.T./SCIOS NOVA LICENSE AGREEMENT" shall mean the License Agreement, dated as of July 15, 1988, between Massachusetts Institute of Technology ("M.I.T.") and the predecessor in interest to Scios Nova Inc., as amended, between M.I.T. and Scios Nova Inc. A true and complete copy of the M.I.T./Scios Nova License Agreement, with certain financial terms redacted, is attached hereto and made a part hereof as Exhibit E. P. "NDA" shall mean a "New Drug Application," as defined in the Act, and all supplements thereto. Q. "NET SALES" shall mean, with respect to the Product, the gross revenues derived from the sale or other transfer of the Product by RPR or its Affiliates or non-Affiliated distributors appointed by RPR and permitted under this Agreement to an un-Affiliated third party end-user at the end of the commercial distribution chain, (A) after subtracting all bona fide trade and cash discounts, volume discounts, rebates, to the extent actually paid, allowed or incurred on such sales or transfers, and (B) taking into account all bona fide claims, refunds, returns and recalls of the Product. R. "OTHER PCPP:SA/BCNU PRODUCTS" shall mean all PCPP:SA-based polymer products containing BCNU, other than the GLIADEL Product, that are now or hereafter during the term of this Agreement owned or controlled by Guilford, including, without limitation, High Dose GLIADEL Product, and all Improvements to any of the foregoing. S. "PATENT(S)" shall mean (i) all of the patents and applications for patents that are identified in Exhibit A, all patents which may be granted thereon, any U.S. or foreign counterparts thereof, as well as all continuations, continuations-in-part, divisions, reissues, renewals, reexaminations, extensions, patents of addition and patents of importation thereof; (ii) any patent application of Guilford or any of its Affiliates related to or based on any Know-How of Guilford or any of its Affiliates and related to the Product that is developed during the term of this Agreement, all patents which may be granted thereon, any foreign counterparts thereof, as well as all continuations, continuations-in-part, divisions, reissues, renewals, reexaminations, extensions, patents of addition and patents of importation thereof; and (iii) all such patent 5 10 applications and patents, directly or indirectly owned, licensed or controlled by Guilford or any of its Affiliates, which but for the rights granted herein, the manufacture, use or sale of the Product would infringe a Valid Claim. T. "PERSON" shall mean any corporation, partnership, joint venture, other entity or natural person. U. "PROCESS DESCRIPTION" shall mean, with respect to the Product, manufacturing and control procedures and specifications, as well as such other Know-How, technical specifications, instructions, processes and other intellectual property and information which Guilford possesses and owns or controls, and as shall be necessary in order to allow RPR to manufacture and/or have manufactured for it the Product. Such Process Descriptions shall be sufficiently clear and detailed that it can be readily followed and carried out by a skilled Person. V. "PRODUCT" shall mean the GLIADEL Product and all Other PCPP:SA/BCNU Products. W. "REGULATORY APPROVAL" shall mean, with respect to any country, (i) filing for and receipt of all governmental and regulatory registrations and approvals (including, but not limited to, approvals of all final Product labelling) required for the marketing and sale of the Product for the indication for which it is being marketed in such country, and (ii) the receipt of reimbursement approvals and a reimbursement price acceptable to the Operations Committee from the national security system or other appropriate governmental or regulatory authorities in such country, except in those countries where such reimbursement approvals and reimbursement price are not granted by a governmental or regulatory authority (such as the United States, as of the Effective Date). X. "REGULATORY FILINGS" shall mean all applications, filings, materials, studies, data and documents of any nature whatsoever filed with, prepared in connection with or necessary to support any Regulatory Approval process in any country or territory. Y. "SCIOS NOVA/GPI LICENSE AGREEMENT" shall mean the License Agreement, dated as of March 14, 1994, as amended, 6 11 between Scios Nova Inc. and GPI, as assigned to GPI Holdings. A true and complete copy of the Scios Nova/GPI License Agreement, with certain financial terms redacted, is attached hereto and made a part hereof as Exhibit F. Z. "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement, dated as of even date herewith, between GPI and RPR, the form of which is attached hereto and made a part hereof as Exhibit C. AA. "SUPPLY AGREEMENT" shall mean the Manufacturing and Supply Agreement, dated as of even date herewith, between GPI and RPR, the form of which is attached hereto and made a part hereof as Exhibit D. BB. "TERRITORY" shall mean the entire world, excluding Denmark, Finland, Norway and Sweden. CC. "VALID CLAIM" shall mean a claim in any issued and unexpired Patent which has not been withdrawn, canceled, abandoned or disclaimed or held invalid by a final decision by a court or other appropriate body of competent jurisdiction from which no appeal is available. ARTICLE II II. DISCLOSURES. Guilford expressly understands and acknowledges that RPR is currently and in the future will evaluate other business opportunities and products for the treatment of all types of cancer. RPR in its sole discretion may participate in these markets alone or in other business or research arrangements with third parties, both now and during the term of this Agreement, provided that during the term of this Agreement neither RPR nor any of its Affiliates will (a) negotiate with parties other than Guilford respecting any targeted and controlled cancer chemotherapeutic in the Field other than the Products, or (b) develop, market, sell or distribute any targeted and controlled cancer chemotherapeutic in the Field other than the Products. Notwithstanding the foregoing sentence, nothing in this Agreement shall prevent RPR from exploiting gene or cell therapy for cancers in the Field, as well as generally. Guilford 7 12 acknowledges that the consideration provided under this Agreement is complete and adequate consideration for Guilford entering this Agreement. ARTICLE III III. MARKETING AND DISTRIBUTION RIGHTS; REGULATORY APPROVALS; MILESTONE PAYMENTS; FURTHER CONSIDERATION FOR RIGHTS; RECORDS AND AUDIT RIGHTS; DEVELOPMENT; OPERATIONS AND GOVERNANCE COMMITTEES. A. RIGHT TO MARKET, DISTRIBUTE AND SELL THE PRODUCT. 1. Subject to the terms and conditions of this Agreement, GPI Holdings hereby grants to RPR, during the term of this Agreement, the exclusive right to use, market, advertise, promote, distribute and sell the Product throughout the Territory for use in the Field. Notwithstanding the foregoing, Guilford shall have the right to discuss and publish matters relating to the Product for investor relations, financial, scientific, medical and other legitimate business purposes, except that all such scientific and medical publications and/or presentations at scientific and medical conferences shall be coordinated in advance through the Operations Committee. All printed advertising and promotional materials relating to Product manufactured by GPI shall include a statement identifying GPI as the manufacturer of such Product. 2. In consideration for the amounts paid by RPR to Guilford under this Agreement, GPI Holdings hereby grants to RPR, and RPR hereby accepts, an exclusive right and license, with the right to grant sublicenses, to use the Licensed Trademark during the term of this Agreement solely in connection with the use, marketing, advertising, promotion, distribution and sale of the Product throughout the Territory. During the term of this Agreement, other than as permitted in the second sentence of Section III(A)(1), except to the extent necessary to perform under this Agreement and the Supply Agreement, and except for intragroup licenses between GPI Holdings and GPI for corporate administrative purposes, Guilford shall not itself use the Licensed Trademark or grant to any other Person any rights to use the Licensed Trademark in the Territory. During the term of this Agreement, RPR shall not use the Licensed Trademark or authorize 8 13 any of its sublicensees to use the Licensed Trademark for any purpose other than in connection with the use, marketing, advertising, promotion, distribution and sale of the Product throughout the Territory. GPI Holdings represents and warrants that it is the owner of the entire right, title and interest in, to and under the Licensed Trademark and the goodwill associated with the Licensed Trademark. RPR shall use the Licensed Trademark in marketing, advertising, promoting, distributing and selling the Product unless RPR is prohibited from doing so in any country or jurisdiction pursuant to any law, rule, order or regulation, in which case the Operations Committee shall select the trademark(s) to be used by RPR in marketing, advertising, promoting, distributing and selling the Product in such particular country or jurisdiction, which trademark(s) shall be owned by GPI Holdings, and RPR shall have an exclusive right and license, with the right to grant sublicenses, to use such trademark(s) during the term of this Agreement solely in connection with the use, marketing, advertising, promotion, distribution and sale of the Product throughout the Territory. During the term of this Agreement, other than as permitted in the second sentence of Section III(A)(1) and the second sentence of this Section III(A)(2) above, Guilford shall not itself use any such trademark(s) or grant to any other Person any rights to use any such trademark(s) in the Territory. During the term of this Agreement, RPR shall not use any such trademark(s) or authorize any of its sublicensees to use any such trademark(s) for any purpose other than in connection with the use, marketing, advertising, promotion, distribution and sale of the Product throughout the Territory. 3. RPR shall use commercially reasonable efforts to market, sell and distribute the Product and maximize sales of the Product throughout the Territory for use in the Field in accordance with the provisions of this Article III. In so doing, RPR shall have the right to grant one or more exclusive or non-exclusive marketing, sales, sales agency and/or distribution rights, with respect to any rights conferred upon RPR under this Agreement, for one or more countries within the Territory, to (i) any Affiliate, without the need to obtain the prior written consent of GPI Holdings, or (ii) any non-Affiliated third party, after receiving the prior written consent of GPI Holdings, which consent shall not be unreasonably withheld or delayed. Any permitted grant by RPR of marketing, sales, sales agency and/or 9 14 distribution rights shall be pursuant to a written agreement, the terms and conditions of which shall be consistent with those of this Agreement, and a true and complete copy of which shall be immediately supplied to Guilford upon execution and delivery. To the extent RPR or any of its Affiliates receives cash and/or other consideration for the grant of such rights (not including (i) any amount payable based upon sales of Product generated by the grantee, and (ii) any consideration derived from the grantee performing research and development or obtaining Regulatory Approvals with respect to the Product) in a particular country over and above the amount RPR is obligated to pay to GPI Holdings under Section III(D)(6) of this Agreement with respect to such country, RPR shall immediately upon granting such rights pay or provide to GPI Holdings 50% of such excess cash and/or consideration. B. RESEARCH AND DEVELOPMENT; REGULATORY APPROVALS. 1. GPI shall, at its sole cost and expense, use commercially reasonable efforts to conduct those clinical trials and studies and undertake such other steps and actions as shall be reasonably necessary to obtain, as soon as is reasonably practicable, Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme (unqualified by any limitation to the recurrent form(s) of malignant glioma), in the United States. Upon mutual agreement, RPR may assist GPI in the performance of any such trials or studies, or RPR may itself perform any such trials or studies; and in either case the out-of-pocket expenses borne by RPR in assisting in or conducting such trials or studies shall be deductible by RPR from its milestone payment obligations to GPI Holdings set forth in Section III(D) or otherwise reimbursed by GPI. GPI will keep RPR informed of its progress toward obtaining such Regulatory Approval in the United States. If GPI ceases active pursuit of such Regulatory Approval in the United States, RPR shall be given notice of GPI's decision to cease active pursuit of such Regulatory Approval and RPR shall have the right to use all Regulatory Filings, submissions, approvals, information and data regarding the GLIADEL Product that is in the possession or control of GPI for all purposes consistent with the provisions of this Agreement. GPI acknowledges that RPR's right to pursue such Regulatory Approval in the United States in no way 10 15 relieves GPI of its obligations to pursue such Regulatory Approval. 2. If the U.S. Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme (unqualified by any limitation to the recurrent form(s) of malignant glioma), is a conditional approval, RPR shall use commercially reasonable efforts to conduct those clinical trials and studies and undertake such other steps and actions as may be required by FDA in connection with such conditional approval. RPR shall be responsible for paying the costs and expenses of such trials, studies, steps and actions provided, however, that RPR shall receive a credit in the amount of fifty percent (50%) of all costs and expenses incurred by RPR in performing such trials, studies, steps and actions, which credit may be applied against Net Sales Fees (defined in Section III(E)) and Research and Development Fees (defined in Section III(K)) payable by RPR under this Agreement until fully applied. 3. Following U.S. Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme (unqualified by any limitation to the recurrent form(s) of malignant glioma), RPR shall use commercially reasonable efforts to conduct any Post Marketing Safety Surveillance Studies as may be required by FDA. RPR shall be responsible for paying the costs and expenses of such studies. 4. During the term of this Agreement, each party shall have the right to review and comment (provided that such right is exercised in a prompt manner) on strategies and protocols of the clinical trials and studies and regulatory submissions made by the other party related to the GLIADEL Product for the indication of the treatment of form(s) of malignant glioma in the United States. C. EX-U.S. REGULATORY APPROVALS. 1. With respect to Japan, within the one year period commencing upon the Effective Date, RPR shall conduct an initial feasibility study of developing and obtaining Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, in Japan. Such 11 16 feasibility study shall include a consideration of the possibility of technology transfer to and of sourcing components and/or final product directly inside Japan. If based upon that study RPR concludes that development and Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, in Japan can be secured within a reasonable time frame and without the necessity of reproducing all of the preclinical studies as normally required by the Japanese Regulatory Authorities, RPR shall sponsor and fund the development and testing of the GLIADEL Product and seek to obtain Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, in Japan, either by itself or, subject to prior written consent of GPI Holdings, which shall not be unreasonably withheld or delayed, with a partner selected by RPR. Any such collaboration or other arrangement between RPR and such partner for the development of the GLIADEL Product in Japan shall be pursuant to a written agreement, the terms and conditions of which shall be consistent with those of this Agreement, and a true and complete copy of which shall be promptly provided to Guilford upon execution and delivery. The obligations of RPR to pay consideration to GPI Holdings contemplated by this Agreement with respect to the obtaining of Regulatory Approval in Japan and the marketing and distribution of the GLIADEL Product in Japan shall continue to apply. In addition, to the extent RPR or any of its Affiliates receives cash and/or other consideration for the grant of such rights (not including (i) any amount payable based upon sales of Product generated by the grantee, and (ii) any consideration derived from the grantee performing research and development or obtaining Regulatory Approvals with respect to the Product) to develop, market, sell and distribute the GLIADEL Product in Japan over and above the amount RPR is obligated to pay to GPI Holdings under Section III(D)(6)(a) of this Agreement, RPR shall immediately upon granting such rights pay or provide to GPI Holdings 50% of such excess cash and/or consideration. If RPR has not commenced to implement a plan for the development of a GLIADEL Product in Japan, which is approved by the Governance Committee, within twelve (12) months after the Effective Date, or if RPR thereafter does not use commercially reasonable efforts to implement and pursue any such development plan for Japan, the marketing, sales and distribution rights for Products in Japan shall revert back to GPI Holdings. With respect to RPR's rights under this Article 12 17 III in Japan, "GLIADEL Product" may include any anticancer product in the Field consisting of the PCPP:SA polymer in combination with any nitrosurea, such as ACNU and MCNU or any other anti-cancer agent approved by the Governance Committee. 2. RPR shall use commercially reasonable efforts at its expense to pursue Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, in each of France, Germany, Italy, Spain, Canada, United Kingdom, and Australia and file Regulatory Filings for the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, within eighteen (18) months after the first Regulatory Approval of the GLIADEL Product for the indication of recurrent or other form(s) of malignant glioma, including glioblastoma multiforme, in the United States, or within any other time frame if approved by the Governance Committee, provided that no further clinical trials are required in connection with such any filing, and if any such clinical trial is required, RPR shall file Regulatory Filings for the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, in the applicable country or countries within eighteen (18) months after the completion of all such trials, or within any other time frame if approved by the Governance Committee. In addition, RPR shall use commercially reasonable efforts at its expense to pursue Regulatory Approval of the GLIADEL Product for the indication of form(s) malignant glioma, including glioblastoma multiforme, in such countries in the Territory (other than the United States, Japan, France, Germany, Italy, Spain, Canada, United Kingdom, and Australia) where the Operations Committee determines that it is commercially reasonable to do so. The timing of RPR's efforts to obtain such Regulatory Approvals shall be guided by RPR's development and registration plans, and will be determined by the Operations Committee. RPR shall, within 90 days after the Effective Date, submit its development and registration plan to the Operations Committee. While dependent on the commercially reasonable judgment of the Operations Committee, it is the intention of the parties that each Regulatory Approval sought be as broad as practicable in order to maximize the commercial potential of the Products contemplated by this Agreement. In the event that Regulatory Filings for the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, are not filed with the relevant governmental agencies 13 18 in each of France, Germany, Italy, Spain, Canada, the United Kingdom and Australia within the aforementioned time periods (unless otherwise agreed by the Governance Committee), all rights granted under this Agreement with respect to each such country where such Regulatory Filing was not timely made shall immediately thereupon revert back to GPI Holdings, RPR shall provide to GPI Holdings all clinical and other data generated to support RPR's pursuit of Regulatory Approvals in each such reverted country, and GPI Holdings will thereafter be free to grant such rights to GPI or any other third party. Without limiting the generality of the foregoing, all clinical trials necessary for Regulatory Approval of the GLIADEL Product outside the United States shall be conducted by and shall be paid for by RPR. 3. In connection with RPR's pursuit of any Regulatory Approvals in the Territory, Guilford shall provide to RPR copies of all Regulatory Filings relating to the Product that are in Guilford's possession or control, as well as promptly provide to RPR such assistance, expertise and other information as shall be reasonably necessary for RPR to obtain such approvals including, but not limited to, the right to cross-reference Guilford's Regulatory Filings (it being understood that, to the extent necessary to protect Guilford's proprietary information, Guilford may provide directly to a regulatory authority such proprietary information so long as it does not adversely impact RPR's ability to obtain the Regulatory Approval from such regulatory authority). RPR will immediately furnish GPI with copies of all Regulatory Filings made and Regulatory Approvals obtained by it pursuant to this Agreement. D. MILESTONE PAYMENTS. In consideration of Guilford entering into this Agreement, and of the achievement of certain milestones relating to the GLIADEL Product, RPR shall pay to GPI or GPI Holdings, as specified below, the following amounts: 1. The sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) to GPI Holdings, due the date of execution and delivery of this Agreement by the parties. 2. The sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) to GPI, due the date of execution and delivery of this Agreement by the parties, in consideration of 14 19 which GPI shall issue to RPR the Initial Shares (as defined in the Stock Purchase Agreement), all as more particularly described in, and governed by the Stock Purchase Agreement. 3. The sum of Twenty Million Dollars ($20,000,000) to GPI Holdings, due the first business day after RPR's receipt of a copy of the written approval letter from the FDA for the Regulatory Approval of the GLIADEL Product for the indication of recurrent form(s) of malignant glioma, including glioblastoma multiforme, in the United States (which Regulatory Approval allows the release of the GLIADEL Product into commerce). 4. On the first business day after RPR's receipt of a copy of the written approval letter from the FDA for the Regulatory Approval of the GLIADEL Product for the indication of primary form(s) of malignant glioma, including glioblastoma multiforme, in the United States: (a) The sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) to GPI Holdings; and (b) The sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) to GPI, in consideration of which GPI shall issue to RPR the Additional Shares (as defined in the Stock Purchase Agreement), all as more particularly described in, and governed by the Stock Purchase Agreement. 5. RPR and Guilford agree that if the first Regulatory Approval of the GLIADEL Product issued by the FDA is a written approval letter from the FDA for the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme (unqualified by any limitation to the recurrent form(s) of malignant glioma), in the United States, the payments and issuance of stock described in the preceding Sections III(D)(3) and (4) shall be made together on the first business day after RPR's receipt of a copy of such Regulatory Approval by the FDA. 6. The respective sums set forth below opposite each of the following countries on the first business day after RPR's receipt of the Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme, in such country: 15 20 (a) Japan - $5,000,000; (b) France - $5,000,000; (c) Germany - $4,000,000; (d) Italy - $3,000,000; (e) Spain - $2,000,000; (f) Canada - $2,000,000; (g) U.K. - $2,000,000; and (h) Australia - $2,000,000. RPR shall not be obligated to make any milestone payment upon the issuance of any other Regulatory Approval. Notwithstanding the foregoing, RPR shall not be obligated to make any of the foregoing milestone payments if at the time of the issuance of any such Regulatory Approval in an applicable country and the grant of such a reimbursement price in such country, RPR's rights under this Agreement with respect to such country have reverted back to GPI Holdings or otherwise terminated. E. NET SALES FEES. 1. In further consideration of the rights granted to RPR under this Agreement, RPR shall pay to GPI Holdings Net Sales fees ("Net Sales Fees") on worldwide sales of Product as follows: a. in respect of Net Sales in a country where RPR or its Affiliates, directly or indirectly, markets, sells and distributes, or otherwise grants rights to market, sell and distribute, Product falling within the scope of one or more Valid Claims of one or more issued Patents in force in such country, a Net Sales Fee of ten percent (10%) of Net Sales of such Product in such country shall be paid by RPR to GPI Holdings; and b. in respect of Net Sales in a country where RPR or its Affiliates, directly or indirectly, markets, sells and distributes, or otherwise grants rights to market, sell and distribute, Product that does not fall within the scope of one or more Valid Claims of one or more issued Patents in force in such country, or where Product faces generic competition, a Net Sales Fee of five percent (5%) of Net Sales of such Product in such country shall be paid by RPR to GPI Holdings. "Generic competition" in a country for purposes of the foregoing shall mean competition from a PCPP:SA/BCNU polymer-drug product which 16 21 is sold pursuant to the equivalent of a U.S. ANDA, rather than a U.S. NDA, and which is introduced into commerce in that country. 2. Net Sales Fees payable in respect of sales outside the United States will be payable by RPR to GPI Holdings at its offices in Wilmington, Delaware in United States Dollars calculated in accordance with the exchange rate policies and procedures of RPR. Under its policies and procedures, each month RPR translates Net Sales made in each country outside the United States into United States Dollars at the average rate of exchange for the applicable currency for such month, based upon daily exchange rate information reported to RPR by the International Treasury Consulting Corporation, New York, New York. 3. With respect to Net Sales Fees owed with respect to sales in the United States, RPR shall deliver to GPI Holdings within thirty (30) days after the close of each calendar quarter a written report of RPR's best good faith estimates of Net Sales during such calendar quarter and corresponding Net Sales Fees owed, which report shall be accompanied by the Net Sales Fees due for such calendar quarter. With respect to Net Sales Fees owed with respect to sales outside of the United States, RPR shall deliver to GPI Holdings within sixty (60) days after the close of each calendar quarter a written report of RPR's best good faith estimates of Net Sales during such calendar quarter, the relevant currency conversion rates and corresponding Net Sales Fees owed with respect to each country in the Territory, which report shall be accompanied by the Net Sales Fees due for such calendar quarter. Each report with respect to a particular calendar quarter shall also contain a reconciliation of the report for the preceding calendar quarter with the final figures for Net Sales as reported on the formal books of RPR, and any adjustments indicated thereby will be added or subtracted, as the case may be, to or from the current calendar quarter's payment. F. RECORDS AND AUDIT RIGHTS. 1. RPR shall maintain, and cause to be maintained in its Affiliates and other parties to which RPR or its Affiliates may grant marketing, sales and distribution rights under this Agreement, complete and accurate books and records with respect to Net Sales, Net Sales Price of the Product (as defined in the Supply Agreement), Purchase Price for the Product (as defined in 17 22 the Supply Agreement), Net Sales Fees and Research and Development Fees in or with respect to each country in the Territory payable by RPR under this Agreement and the Supply Agreement, along with such other reconciliation and other information as may be necessary to calculate all consideration paid or payable by RPR under this Agreement and the Supply Agreement. 2. RPR shall maintain such books and records in accordance with generally accepted accounting principles and for a period of three (3) years after the submission of each report required to be submitted by RPR to GPI Holdings and/or GPI under this Agreement; provided, however, that if there is a good faith dispute between the parties continuing at the end of any such three (3) year period with respect to such books or records, then the time period for RPR to maintain such books and records under dispute shall be extended until such time as the dispute is finally resolved. 3. GPI Holdings and/or GPI shall have the right to nominate an independent accountant acceptable to and approved by RPR (which approval shall not be unreasonably withheld or delayed) who shall have access to the relevant RPR records during reasonable business hours for the purpose of verifying, at the expense of GPI Holdings and/or GPI, as the case may be, the Net Sales by country, the Purchase Price (as defined in the Supply Agreement), the Net Sales Price (as defined in the Supply Agreement), the Net Sales Fees and the Research and Development Fees provided for in this Agreement for any of the preceding three (3) years, but this right may not be exercised more than once in any year. GPI Holdings and/or GPI, as the case may be, shall solicit or receive only information relating to the accuracy of the information and the payments made. RPR shall be entitled to withhold approval of an accountant which GPI Holdings and/or GPI, as the case may be, nominates unless the accountant agrees to sign a confidentiality agreement with RPR which shall obligate such accountant to hold the information he receives from RPR in confidence, except for information necessary for disclosure to GPI Holdings and/or GPI, as the case may be, necessary to establish the accuracy of the reports and amounts paid to GPI Holdings and/or GPI, as the case may be. Such audit rights shall survive for three (3) years after the expiration or termination of this Agreement. 18 23 4. Any underpayment shall be paid within thirty (30) days of the delivery of a detailed written accountants report to the parties hereto. Any overpayment shall be credited to the next payment due from RPR. If no further payments from RPR will be due then a refund of any such overpayment will be made within sixty (60) days of the audit. Notwithstanding Section III(F)(3) above, if any audit as contemplated above shows an underpayment by RPR of an amount greater than ten percent (10%) of the amount paid, the fees and costs of such audit shall be for the account of RPR. 5. The provisions of this Section III(F) shall survive the expiration or sooner termination of the term of this Agreement. G. GOVERNANCE COMMITTEE. 1. RPR and GPI shall establish a "Governance Committee" to be comprised of an equal number of representatives from RPR, on the one hand, and GPI, on the other hand (not to exceed four representatives from each of RPR and GPI). Each of RPR and GPI shall have one vote on the Governance Committee. Upon unanimous vote, all decisions of the Governance Committee shall be binding on RPR and GPI, and can only be modified by a unanimous vote of RPR and GPI. 2. The Governance Committee shall hold its first official meeting within thirty (30) days after the Effective Date unless otherwise agreed by RPR and GPI. After such first meeting, the Governance Committee shall meet upon such timing (but in any event at least once each quarter), in such fashion (for example, in person, by telephone conference or by video conference) and in such places as the Governance Committee shall agree. 3. The Governance Committee shall address strategic aspects of and provide global direction to the collaboration between RPR and Guilford, and shall discuss, review, monitor, and approve technical, preclinical, clinical, regulatory and product supply plans relating to the development, and improvement of the Product and any other project commenced pursuant to the exercise by RPR of the right of first offer set forth in Section III(J) below, including, without limitation, those matters described in 19 24 Section III(G)(4) below and budgets and allocation of resources from each of RPR and GPI relating to such activities and contingency plans in the case of a loss or interruption in manufacturing capability, but excluding all matters that are within the jurisdiction of the Operations Committee pursuant to Section III(H). The Governance Committee shall have the right to request the Operations Committee to assist it in connection with the performance of its duties and obligations through the performance of, among other things, market research and analysis. 4. Without limiting the generality of the foregoing, the Governance Committee shall discuss, review, monitor and approve the following (including, without limitation, the most efficient use of the respective resources of Guilford and RPR in connection therewith): (i) exploratory clinical development studies for the treatment of metastatic and pediatric brain tumors and/or for any additional uses of the GLIADEL Product; (ii) clinical development program for High Dose GLIADEL Product for indications in the Field; and (iii) a feasibility study to assess the applicability of Guilford's polymer technology to the local delivery of RPR's Taxotere(R) product, and, based upon the results of that study, a determination of the clinical indications, if any, which should be developed for any such product, and the terms and conditions for such development. 5. In the event of any deadlock or dispute between the representatives of RPR on the Governance Committee, on the one hand, and the representatives of Guilford on the Governance Committee, on the other hand, the matter shall be resolved in accordance with the provisions of Section VI(L) below. H. OPERATIONS COMMITTEE. RPR and GPI shall establish a "Operations Committee" which shall review, monitor and discuss development, regulatory filing, operational, marketing and sales plans and other issues relating to the commercialization of the GLIADEL Product and High Dose GLIADEL Product. The Operations Committee shall be comprised of such number of representatives from each of RPR, on the one hand, and GPI, on the other hand, as 20 25 RPR and GPI mutually determine provided, however, that RPR shall at all times have the right to appoint a majority of the members of the Operations Committee. The Operations Committee shall hold its first official meeting at RPR's offices as soon as possible after the Effective Date and in any event within thirty (30) days after the Effective Date, unless otherwise agreed by RPR and GPI, and thereafter shall meet as necessary and at least on a quarterly basis. Marketing and sales plans shall be approved by the Operations Committee as necessary and at least on a quarterly basis. RPR shall use reasonable efforts to implement the plans adopted by the Operations Committee with the understanding that RPR shall have the flexibility necessary to optimize its marketing efforts. I. JOINT DEVELOPMENT ACTIVITIES. Based upon the most efficient use of the respective resources of RPR and Guilford in connection with the following, as determined by the Governance Committee: 1. RPR will sponsor and fund all of the costs of exploratory clinical development studies of the GLIADEL Product for the treatment of metastatic and pediatric brain tumors and/or such other uses as the parties may agree, currently estimated by Guilford to amount to approximately Two Million Dollars ($2,000,000) over two years; 2. RPR will sponsor and fund the clinical development program for indications in the Field of High Dose GLIADEL Product through Regulatory Approval in the Territory, currently estimated by GPI to amount to approximately Fifteen Million Dollars ($15,000,000) over four (4) years; and 3. RPR and GPI shall conduct a feasibility study to assess the applicability of GPI Holding's polymer technology to the local delivery of RPR's Taxotere(R) product. J. RIGHT OF FIRST OFFER. 1. During the term of this Agreement, RPR shall have the exclusive right of first offer with respect to any application (not limited to the Field) of any of the polymer technology, polymer systems or polymer products of Guilford to oncology products, whether such technology, systems or products 21 26 are developed, owned or controlled prior to or after the Effective Date, in accordance with the provisions of this Section III(J). 2. Upon a determination by Guilford, supported by the data referred to below, that any of the polymer technology, polymer systems or polymer products of Guilford can be applied to the local delivery of a cancer chemotherapeutic agent or of any other oncology product, and completion of the animal studies referred to below (any such polymer technology which meets the foregoing criteria is referred to herein as an "Offered Technology"), GPI shall give written notice thereof to RPR, together with (i) all data available to Guilford on physical product characteristics as well as all data on safety and efficacy of the Offered Technology available from preliminary animal studies of the Offered Technology conducted by Guilford, and (ii) all of Guilford's available records and data relating to the Offered Technology (the "Offer Notice"). 3. During the six month period commencing on the date that RPR receives the Offer Notice (the "Offer Period"), RPR shall have the exclusive right to evaluate the Offered Technology. Such evaluation shall include, without limitation, a determination by RPR of what, if any, clinical indications should be developed for the Offered Technology. During the Offer Period, Guilford shall not (a) engage in any discussions with any potential licensees, distributors, joint venturers or partners relating to the Offered Technology or provide any information or data relating to the Offered Technology to any third party, (b) permit any third party to inspect or evaluate the Offered Technology, or (c) enter into any agreement with any third party relating to the Offered Technology. 4. If RPR desires to enter into an exclusive marketing, sales and distribution rights, license, or other transaction or relationship with Guilford relating to the Offered Technology, RPR shall give written notice thereof to Guilford prior to the expiration of the Offer Period. Immediately upon Guilford's receipt of such a written notice from RPR, Guilford and RPR shall commence good faith and commercially reasonable best efforts to enter into a definitive agreement relating to RPR's desired transaction or relationship as soon as is 22 27 reasonably practicable and in any event on or before the end of the Offer Period. 5. If despite Guilford's and RPR's making such efforts, Guilford and RPR do not enter into a definitive agreement for the Offered Technology on or before the end of the Offer Period, Guilford shall thereafter be free to offer the Offered Technology to third parties. While expressly not constituting a binding right of first refusal in favor of RPR, Guilford declares its good faith intention to be open to re-offering Offered Technology to RPR if Guilford is in discussions with a third party for Offered Technology on terms less favorable to Guilford than those last discussed with RPR. 6. Notwithstanding anything to the contrary in this Article III.J, nothing in this Agreement shall be deemed to require Guilford to offer Offered Technology to RPR in conflict with any prior encumbrance: (i) on Improvements as defined and provided in Article XIII of the License and Distribution Agreement, dated as of October 10, 1995, between GPI and Orion Corporation Farmos, with respect to rights in Denmark, Finland, Norway and Sweden; or (ii) on technology acquired by Guilford (whether by license, assignment, via an acquisition or merger or otherwise) from a third party subject to a prior encumbrance (e.g., a prior right in favor of such third party or another party with whom such third party is already engaged in a research and development collaboration). Guilford is not currently contemplating acquiring technology in the polymer delivery of cancer chemotherapeutic compounds or of other oncological products which may be encumbered as contemplated in (ii) above. K. RESEARCH AND DEVELOPMENT FEE. 1. In consideration for the rights granted by Guilford to RPR under Section III(J), RPR shall pay to GPI Holdings "Research and Development Fees," as follows: (a) five percent (5%) of annual Net Sales of Product sold throughout the Territory in each calendar year until such time that such aggregate Net Sales equal $50,000,000; (b) seven and one-half percent (7 1/2%) of annual Net Sales of Product sold throughout the Territory in each 23 28 calendar year from and after the time that such aggregate Net Sales exceed $50,000,000 until such time that such aggregate Net Sales equal $100,000,000; and (c) ten percent (10%) of annual Net Sales of Product sold throughout the Territory in each calendar year from and after the time that such aggregate Net Sales exceed $100,000,000. 2. Research and Development Fees payable in respect of sales outside the United States will be payable by RPR to GPI Holdings at its offices in Wilmington, Delaware in United States Dollars calculated in accordance with the exchange rate policies and procedures of RPR. Under its policies and procedures, each month RPR translates Net Sales made in each country outside the United States into United States Dollars at the average rate of exchange for the applicable currency for such month, based upon daily exchange rate information reported to RPR by the International Treasury Consulting Corporation, New York, New York. 3. With respect to Research and Development Fees owed with respect to sales in the United States, RPR shall deliver to GPI Holdings within thirty (30) days after the close of each calendar quarter a written report of RPR's best good faith estimates of Net Sales during such calendar quarter and corresponding Research and Development Fees owed, which report shall be accompanied by the Research and Development Fees due for such calendar quarter. With respect to Research and Development Fees owed with respect to sales outside of the United States, RPR shall deliver to GPI Holdings within sixty (60) days after the close of each calendar quarter a written report of RPR's best good faith estimates of Net Sales during such calendar quarter, the relevant currency conversion rates and corresponding Research and Development Fees owed with respect to each country in the Territory, which report shall be accompanied by the Research and Development Fees due for such calendar quarter. Each report with respect to a particular calendar quarter shall also contain a reconciliation of the report for the preceding calendar quarter with the final figures for Net Sales as reported on the formal books of RPR, and any adjustments indicated thereby will be added or subtracted, as the case may be, to or from the current calendar quarter's payment. 24 29 ARTICLE IV IV. GENERAL TERMS AND CONDITIONS. A. CONFIDENTIALITY; PRESS RELEASES. 1. Pursuant to the Confidentiality Agreement dated as of February 29, 1996 between GPI and RPR, and from time to time during the term of this Agreement, each of RPR and Guilford (in such capacity, the "Disclosing Party") have disclosed and will be disclosing to the other party (in such capacity, the "Receiving Party") certain proprietary information, technical data, trade secrets and know-how of the Disclosing Party including, without limitation, Know-How, Product research and plans, designs, methods, formulations, ingredients, samples, processes, machines, processing and control information, Product performance data, manuals, INDs, NDAs, Regulatory Filings, the content of any unpublished patent applications, drawings, formulae, devices, structures, models, prototypes, data, test results, photographs, film, techniques, apparatus, tapes, disks, unpublished trademarks, trade names and copyrights, customer lists, supplier lists, markets, operating methods and procedures, marketing, distribution and sales methods and systems, sales figures, projections, finances and other business information. The Receiving Party shall, during the term of this Agreement, and for seven (7) years after the expiration or sooner termination of the term of this Agreement, make no use of such confidential information except to advance the purposes of this Agreement in accordance with its provisions, and shall use the same efforts to keep secret and prevent the disclosure of such confidential information to third parties, as it would use with respect to its own confidential information. Information disclosed by the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject to the rights granted in this Agreement and the transactions contemplated herein. The above restrictions on the use and disclosure of information shall not apply to any information which: (a) is already known to the Receiving Party at the time of disclosure, as demonstrated by competent proof; (b) is or becomes generally available to the public other than through any act or omission of the Receiving Party in breach of this Agreement; (c) is acquired by the Receiving Party from a third party who is not, directly or indirectly, under an obligation of confidentiality to the 25 30 Disclosing Party with respect to same; (d) is required to be disclosed pursuant to applicable law, rule or regulation; (e) is required to be disclosed to government regulatory authorities to obtain Regulatory Approval for the Product or to respond to a regulatory or governmental inquiry concerning the Product; or (f) is developed independently by the Receiving Party without use, direct or indirect, of information that is required to be held confidential hereunder. In the event that Confidential Information is required to be disclosed pursuant to subsections (d) or (e) of this Section IV(A)(1), the Receiving Party shall promptly inform the Disclosing Party of the circumstances requiring disclosure of the information prior to disclosure to afford the Disclosing Party an opportunity to seek an appropriate protective order or other means of seeking confidential treatment for such information. 2. Notwithstanding the foregoing Section IV(A)(1), RPR shall be permitted to disclose to its wholesalers and other direct customers such confidential information relating to the Product as RPR shall reasonably determine to be necessary in order to effectively market and distribute the Product, provided that such entities undertake the same confidentiality obligation as RPR has with respect to Guilford's confidential information. 3. Except as may be required by applicable laws, rules or regulations, neither party will originate any publicity, press or news release, or other public announcement, written or oral, whether to the public press or otherwise, relating to this Agreement, the transactions contemplated hereby, or to the existence of an arrangement between the parties, without the prior written approval of the other party. In the event disclosure of this Agreement, any of the agreements referred to herein, any of the terms and conditions of this Agreement or such agreements, or any of the transactions contemplated by this Agreement or such agreements, is required by applicable law, rules or regulations (and RPR acknowledges that the execution and delivery of this Agreement is material to the business and finances of GPI and that GPI has an obligation to disclose the execution and delivery of this Agreement, this Agreement and the material terms and conditions of this Agreement), then the party required to so disclose such information shall, to the extent possible, provide to the other party for its prior approval (such approval not to be unreasonably withheld or delayed) a written 26 31 copy of such public announcement. When possible, the disclosing party will provide such copy to the other party at least three (3) business days prior to disclosure. 4. Neither party shall use the name of the other for marketing, advertising or promotional claims without the prior written consent of the other party. 5. The provisions of this Section IV(A) shall survive the expiration or sooner termination of the term of this Agreement. B. REPRESENTATIONS AND WARRANTIES. 1. Each of GPI Holdings and GPI, jointly and severally, represents and warrants to RPR that: a. Guilford has provided to the FDA all data that is in the possession or control of Guilford and which relates to the safety and efficacy of the GLIADEL Product; b. As of the Effective Date, to Guilford's knowledge, the Product neither violates nor infringes any patents, patent rights, patent applications, inventions, trademarks, service marks, trade names, copyrights, confidential information, trade secrets, proprietary rights or processes of any other Person; c. As of the Effective Date, to Guilford's knowledge, each of the issued Patents is valid and enforceable; d. As of the Effective Date, there are no pending or, to Guilford's knowledge, any threatened suits, claims, or actions of any type whatsoever with respect to any of Guilford's products or the Patents or Guilford's Know-How relating to the Product; e. As of the Effective Date, (i) each of the GPI License Agreements is valid and enforceable 27 32 in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); (ii) Guilford is not, and to Guilford's knowledge no other party thereto is, in default in the performance, observance or fulfillment of any material obligation, covenant or condition contained in any of the GPI License Agreements, (iii) no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default under any of the GPI License Agreements; (iv) in Guilford's reasonable opinion, none of the GPI License Agreements contains any contractual requirement with which there is a reasonable likelihood Guilford or any other party thereto will be unable to comply; f. As of the Effective Date, all Patents presently owned or licensed by Guilford relates to the manufacture, use or sale of the Product are owned or licensed by Guilford free and clear of any encumbrances, liens or security interests, except as contemplated herein, the GPI License Agreements and the License and Distribution Agreement, dated as of October 13, 1995, between GPI and Orion Corporation Farmos (the parties acknowledge and agree that this representation and warranty does not relate to the validity or enforceability of such Patents or whether such Patents may infringe any other patents); g. This Agreement, when executed and delivered by Guilford, will be the legal, valid and binding obligation of Guilford, enforceable against Guilford in accordance with its 28 33 terms, except as such enforceability may be limited by bankruptcy laws and other similar laws affecting creditors' rights generally and by general principles of equity; h. Upon compliance by the parties with applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if any, the execution, delivery and performance of this Agreement by Guilford do not and will not (i) conflict with, or constitute a breach or default under, or require the consent of any third party under, Guilford's charter documents or any material license, loan or other agreement, contract, commitment or instrument to which Guilford is a party or any of its assets are bound, (ii) violate any provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body, or (iii) require the consent, approval or authorization of, or notice, declaration, filing or registration with, any third party or any governmental or regulatory authority; i. There is no action or proceeding pending or, in so far as Guilford knows, threatened against Guilford or any of its Affiliates before any court, administrative agency or other tribunal which could impact upon Guilford's right, power and authority to enter into this Agreement, to grant the rights granted by Guilford to RPR hereunder, or to otherwise carry out its obligations hereunder, or which might have a material adverse effect on Guilford's business or condition, financial or otherwise, or Guilford's operation of any business, except to the extent that Regulatory Approvals (for which there can be no assurance of grant by 29 34 applicable governmental authorities) will be needed in order to market any Products; and j. The GLIADEL Product has been granted Orphan Drug Status by the FDA. 2. RPR represents and warrants to each of GPI Holdings and GPI that: a. This Agreement, when executed and delivered by RPR, will be the legal, valid and binding obligation of RPR, enforceable against RPR in accordance with its terms, except as such enforceability may be limited by bankruptcy laws and other similar laws affecting creditors' rights generally and by general principles of equity; b. Upon compliance by the parties with any applicable requirements of the HSR Act, if any, the execution, delivery and performance of this Agreement by RPR do not and will not (i) conflict with, or constitute a breach or default under, its charter documents or any material agreement, contract, commitment or instrument to which it is a party, (ii) violate any provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body, or (iii) require the consent, approval or authorization of, or notice, declaration, filing or registration with, any third party or any governmental or regulatory authority; and c. There is no action or proceeding pending or, in so far as RPR knows, threatened against RPR or any of its Affiliates before any court, administrative agency or other tribunal which could impact upon RPR's right, power and authority to enter into this Agreement, to carry out its obligations 30 35 hereunder, or which might have a material adverse effect on RPR's business or condition, financial or otherwise, or RPR's operation of any business. 3. Where a representation or warranty contained in this Section IV(B) is stated to be to a party's knowledge, this shall mean to the actual knowledge of all of the officers and appropriate key personnel of such party, after reasonable inquiry. 4. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER GPI HOLDINGS, GPI NOR RPR MAKES ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. 5. The provisions of this Section IV(B) shall survive the expiration or sooner termination of the term of this Agreement. C. INDEMNIFICATION; PRODUCT LIABILITY CLAIMS. 1. In order to distribute among themselves the responsibility for claims arising out of this Agreement, and except as otherwise specifically provided for herein, the parties agree as follows: a. Each of GPI and GPI Holdings, jointly and severally, shall defend, indemnify and hold RPR, its Affiliates, and their respective officers, directors, agents, employees and shareholders (collectively, "RPR Indemnitees") harmless, from and against, any and all losses, obligations, liabilities, penalties, and damages (including but not limited to compensatory and punitive damages), costs and expenses (including reasonable attorneys' fees), which the RPR Indemnitees may incur or suffer, and all deficiencies, actions (including without limitation, any proceedings to establish insurance coverage), claims, suits, legal, administrative, arbitration, governmental or other proceedings or investigations, and judgments, reasonable costs and expenses (including reasonable legal fees) with which any of them may 31 36 be faced arising out of (1) any breach by GPI or GPI Holdings of any representation or warranty made by GPI or GPI Holdings in this Agreement or any breach by GPI or GPI Holdings in the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by GPI or GPI Holdings; (2) any pre-clinical or clinical use or any other use of the GLIADEL Product under GPI's Treatment IND until assignment of the NDA by GPI to RPR pursuant to Section V(C); (3) any negligent or otherwise tortious act or omission by GPI or GPI Holdings in connection with the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by GPI or GPI Holdings (including, without limitation, the conduct of any clinical trials conducted by it in the performance of this Agreement); and (4) the enforcement by the RPR Indemnitees of their rights under this Section IV(C)(1)(a). b. RPR shall defend, indemnify and hold each of GPI and GPI Holdings, its Affiliates, and their respective officers, directors, agents, employees and shareholders (collectively, "GPI Indemnitees") harmless, from and against, any and all losses, obligations, liabilities, penalties, and damages (including but not limited to compensatory and punitive damages), costs and expenses (including reasonable attorneys' fees), which the GPI Indemnitees may incur or suffer, and all deficiencies, actions (including without limitation, any proceedings to establish insurance coverage), claims, suits, legal, administrative, arbitration, governmental or other proceedings or investigations, and judgments, reasonable costs and expenses (including reasonable legal fees) with which any of them may be faced arising out of (1) any breach by RPR of any representation or warranty made by RPR in this Agreement or any breach by RPR in the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by RPR; (2) any negligent or otherwise tortious act or omission by RPR in connection with the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by RPR (including, without limitation, the conduct of any clinical trials 32 37 conducted by it in the performance of this Agreement); and (3) the enforcement by the GPI Indemnitees of their rights under this Section IV(C)(1)(b). c. If any action, claim, suit, proceeding or investigation arises as to which a right of indemnification provided in this Section IV(C)(1) applies, the GPI Indemnitee or RPR Indemnitee, as the case may be (the "indemnified party"), shall promptly notify the party obligated under this Section IV(C)(1) to indemnify the indemnified party (the "indemnifying party") thereof in writing, and allow the indemnifying party and its insurers the opportunity to assume direction and control of the defense against such action, claim, suit, proceeding or investigation, at its sole expense, including without limitation, the settlement thereof at the sole option of the indemnifying party or its insurers to the extent that the indemnified party's liability is not thereby invoked. The indemnified party shall cooperate with the indemnifying party and its insurer in the disposition of any such matter and the indemnified party will have the right and option to participate in the defense of any action, claim, suit, proceeding or investigation as to which this Section IV(C)(1) applies, with separate counsel at its election and cost. If the indemnifying party fails or declines to assume the defense of any such action, claim, suit, proceeding or investigation within thirty (30) days after notice thereof, the indemnified party may assume the defense thereof for the account and at the risk of the indemnifying party. The indemnifying party shall pay promptly to the indemnified party any losses, obligations, liabilities, penalties, damages, judgments, reasonable costs and expenses (including reasonable legal fees) to which the indemnity under this Section IV(C)(1) relates, as incurred. 2. The parties desire to separately allocate between themselves the risks and costs of any product liability claims from third parties with respect to the Product (whether related to the safety or efficacy of the Product or arising out of alleged defects in materials, design or workmanship of the Product or the use, marketing, advertising, promotion, or distribution of the Product, but excluding those claims (1) for which GPI and GPI Holdings are obligated to defend, indemnify and 33 38 hold the RPR Indemnities harmless under Section IV(C)(1)(a), and (2) for which RPR is obligated to defend, indemnify and hold the GPI Indemnities harmless under Section IV(C)(1)(b)) (hereafter, a "Product Liability Claim"). Any losses, obligations, liabilities, penalties, and damages (including but not limited to compensatory and punitive damages), costs and expenses (including reasonable attorneys' fees), arising out of a Product Liability Claim shall be shared equally by RPR and Guilford. If either party becomes aware of a Product Liability Claim, it shall promptly notify the other party of such matter, and provide copies of any notices, claims, letters or other information which such party received or possesses in connection with such Product Liability Claim. Each party shall reasonably cooperate with the other party with respect to the defense and resolution of any such Product Liability Claim. 3. The provisions of this Section IV(C) shall survive the expiration or sooner termination of the term of this Agreement. D. TERM. 1. The term of this Agreement shall commence on the Effective Date and shall continue on a country-by-country basis, subject to the respective termination rights of RPR and Guilford expressly set forth in this Agreement, until the later of (a) the expiration of the last to expire of the Patents applicable to a particular country, or (b) the last commercial sale of the Product in such country. 2. In the event of a Change in Control of GPI or GPI Holdings, RPR shall have the right to terminate the term of this Agreement, exercisable by giving Guilford thirty (30) days prior written notice thereof. 3. If on or before the first anniversary of the Effective Date, RPR has not received a copy of (a) the written approval letter from the FDA for the Regulatory Approval of the GLIADEL Product for the indication of recurrent form(s) of malignant glioma, including glioblastoma multiforme, in the United States (which Regulatory Approval allows the release of the GLIADEL Product into commerce), or (b) the written approval letter from the FDA for the Regulatory Approval of the GLIADEL 34 39 Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme (unqualified by any limitation to the recurrent form(s) of malignant glioma), in the United States, RPR shall have the right to terminate the term of this Agreement, exercisable by giving Guilford thirty (30) days prior written notice thereof. 4. The following shall survive the expiration or sooner termination of the term of this Agreement: any payment obligations of the parties hereunder accruing prior to the date of expiration or termination; and any other provision herein expressly surviving expiration or termination or necessary to interpret the rights and obligations of the parties in connection with the expiration or termination of the term of this Agreement. 5. Upon termination of this Agreement for any reason, all marketing, sales and distribution rights in the Territory granted under this Agreement, and all Regulatory Approvals and Regulatory Filings, all preclinical and clinical research and development data relating to the Product, if any, that is in the possession or control of RPR, and all Licensed Trademarks and all other trademarks under which RPR may be marketing, selling or distributing Product in the Territory shall immediately be assigned or returned to GPI Holdings or GPI as Guilford may direct, notwithstanding (but without prejudice to) any claims any party may have against another under this Agreement and the transactions contemplated herein, provided that RPR shall be allowed the benefits of Section IV(F)(4) for the period set forth therein. E. EVENTS OF DEFAULT. 1. The occurrence of any one or more of the following acts, events or occurrences shall constitute an "Event of Default" under this Agreement: i. either party becomes the subject of a Bankruptcy Event; or ii. either party breaches any material provision of this Agreement, the Supply Agreement, the Stock Purchase Agreement or the Loan 35 40 Agreement, or defaults in the performance or observance of any material provision of this Agreement, the Supply Agreement, the Stock Purchase Agreement or the Loan Agreement, and fails to remedy such breach or default within sixty (60) days after receipt of notice thereof. 2. Notwithstanding the foregoing Section IV(E)(1)(ii), in the event of a breach or default which cannot be remedied within such sixty (60) day period (other than a failure to make payment as required herein), so long as the breaching/defaulting party is using commercially reasonable efforts to remedy such breach or default, an Event of Default shall not have occurred until four (4) months after notice of such breach or default and only if such breach or default is not cured during such period. F. REMEDIES. 1. Immediately upon the occurrence of any Event of Default by Guilford pursuant to Section IV(E)(1) or (E)(2), then RPR shall have the right to terminate this Agreement, exercisable by delivering written notice thereof to Guilford, and to pursue any and all remedies available to it at law or in equity including, without limitation, the right to seek to recover from Guilford any and all damages and losses of any nature whatsoever (including, without limitation, consequential damages, lost profits, and direct damages). 2. Immediately upon the occurrence of any Event of Default by RPR pursuant to Section IV(E)(1) or (E)(2), Guilford shall have the right to terminate this Agreement, exercisable by delivering written notice thereof to RPR. If Guilford so terminates this Agreement, then in addition to the rights specified in Section IV(D)(5) above, Guilford shall also have the right to pursue any and all remedies available to Guilford at law or in equity including, without limitation, the right to seek to recover from RPR any and all damages and losses of any nature whatsoever (including, without limitation, consequential damages, lost profits, and direct damages). 36 41 3. The parties expressly acknowledge that the remedy provisions contained in this Section are reasonable, considering the intended nature and scope of this Agreement, and considering the investments and undertakings required on the part of the parties in connection herewith. 4. Upon termination of this Agreement by Guilford, RPR shall have one hundred eighty (180) days in which to sell out its stock of any Product it possesses or has committed to purchase under this Agreement (it being understood that RPR's payment obligations to Guilford under this Agreement shall continue to apply to any such sales). 5. If either party terminates this Agreement in accordance with the terms herein, the terminating party shall owe no penalty or indemnity to the terminated party on account of such termination. G. FORCE MAJEURE. The obligations of Guilford and RPR hereunder shall be subject to any delays or non-performance caused by: acts of God, earthquakes, fires, floods, explosion, sabotage, riot, accidents; regulatory, governmental, or military action or inaction; strikes, lockouts or labor trouble; perils of the sea; or failure or delay in performance by third parties, including suppliers and service providers; or any other cause beyond the reasonable control of either party. The party which is not performing its obligations under this Agreement as a result of any such event of force majeure shall use commercially reasonable efforts to resume compliance with this Agreement as soon as possible. H. INVENTIONS. 1. Title to any inventions or discoveries made by Guilford employees or agents without inventive contribution of RPR employees or agents, based on any of Guilford's Know-How related in any way to the Product or developed during Guilford's performance under this Agreement ("GPI Inventions") shall belong to GPI Holdings. GPI Holdings may file applications for U.S. Patents at its own expense for such GPI Inventions and shall keep RPR fully and promptly informed as to such GPI Inventions and the filing, prosecution and maintenance of such patent application(s) and patent(s) and corresponding foreign patent applications 37 42 except to the extent such obligations conflict with Guilford's contractual obligations with third parties. If GPI Holdings does not elect to file, prosecute or maintain any such patent application(s) or patent(s) on such GPI Inventions after being reduced to practice, Guilford shall so notify RPR and RPR shall, in its sole discretion, have the right to require that Guilford file, prosecute or maintain at RPR expense on a country by country basis such patent application(s) or patent(s) on such GPI Inventions; provided, however, that in the event any such GPI Inventions can be kept a trade secret, then RPR shall only have the right to request that Guilford file such patent applications. In that event, RPR shall pay the costs and expenses of and manage the prosecution of such patent application(s) or patent(s). Guilford will cooperate in a timely manner with RPR to prepare, review and execute all such patent applications and further papers as may be necessary to enable the parties to protect such GPI Inventions by patent. 2. Title to any inventions and discoveries made by RPR employees or agents without inventive contribution by Guilford employees or agents and not based on any of Guilford's Know-How and conceived or first reduced to practice under this Agreement (hereinafter, "RPR Inventions") shall belong to RPR. RPR may file patent application(s) for RPR Inventions in its own discretion and at its own expense. 3. Title to any inventions or discoveries (i) made jointly by employees or agents of Guilford and RPR or (ii) made by RPR employees or agents without inventive contribution by Guilford employees or agents and based upon Guilford's Know-How (other than any such Know-How which is in the public domain through no fault of RPR) and, in either case, conceived or first reduced to practice under this Agreement (hereinafter, "Joint Inventions") shall belong to GPI Holdings and RPR jointly, i.e. each shall own an undivided one-half interest therein. GPI Holdings and RPR shall keep each other fully and promptly informed as to such Joint Inventions. After Joint Inventions are reduced to practice GPI Holdings shall have primary responsibility for filing, prosecuting and maintaining any U.S. patent application(s) or patent(s) and foreign counterpart thereof for Joint Inventions, but shall consult with RPR. The expenses for Joint Inventions shall be borne equally by RPR and GPI Holdings, but either may, by giving timely notice to the 38 43 other, withdraw from further participation in the filing, prosecution and/or maintenance of any such patent application(s) or patent(s) and shall not be liable for any expenses incurred after written notice is given. If either party does not elect to file, prosecute or maintain any such patent application(s) or patent(s) in a country or countries, or after electing to participate in the filing, prosecution and/or maintenance on such Joint Inventions in a country or countries, does not pay its share of the expenses within one hundred twenty (120) days of written notification of expenses being due, the other party, in its sole discretion, shall have the right to file, prosecute or maintain at its expense on a country by country basis each such patent application(s) and patent(s). In that event, the party paying all the costs and expenses shall cease to have any further obligation to pay a royalty to the other party on such patent(s) in such country. 4. Each party shall require its employees or agents responsible for conducting research in performance of this Agreement to keep contemporaneous records of their results and findings in sufficient detail to document any inventions or discoveries made by such employees and agents under this Agreement in bound notebooks (that shall be reviewed and signed by a witness on a regular basis). 5. GPI Holdings and RPR will cooperate in a timely manner to prepare, review and execute patent applications and all such further papers as may be necessary to enable the parties to protect Joint Inventions by patent in any and all countries and to vest title to said patent application(s) and patent(s) and assist in Patent Office proceedings. 6. If either party wishes to practice a patented Joint Invention outside the grants provided to RPR under this Agreement, the party practicing the patented Joint Invention will pay an agreed upon reasonable royalty percentage of the net selling price (which shall mean Net Sales with respect to any other product) of any other product unless said Joint Invention is used solely by a party in fulfilling its obligations under this Agreement; provided, however, that if a party seeks to practice a patented Joint Invention for which it did not pay its share of the cost and expenses, such party shall have to reimburse the party that paid the costs and expenses one-half of 39 44 the documented costs and expenses incurred in the country or countries in which the party seeking to practice the Joint Invention will make, have made, use, lease or sell the other product prior to practicing the patented Joint Invention. 7. In the event that a party owes royalty, such party shall deliver to the party owed the royalty written reports of Net Sales during the preceding calendar quarter, on or before the thirtieth (30th) day following the end of each calendar quarter. In the event that a party owes royalty for sales made by its Affiliate or its sublicensee, such party shall deliver to the party owed the royalty written reports of Net Sales of its Affiliates and its sublicensee during the preceding calendar quarter, on or before the ninetieth (90th) day following the end of each calendar quarter. Such reports shall include a calculation of the earned royalty due and shall be accompanied by the monies due. 8. The respective party owed royalty and paying royalty under this Section IV(H), shall have the same rights to access records and obligations as provided under Section III(F) with respect to the Net Sales Fees payable by RPR under this Agreement. 9. The provisions of this Section IV(H) shall survive the expiration or sooner termination of the term of this Agreement. I. INFRINGEMENT. 1. If, as a result of the manufacture, use or sale of the Product, Guilford or RPR or any of its Affiliates is sued for patent infringement or threatened with such a lawsuit or other action by a third party, Guilford and RPR shall meet to analyze the infringement claim and avoidance of same. Subject to the sharing of any royalties in accordance with the provisions set forth below in this Section IV(I), Guilford shall defend, indemnify and hold the RPR Indemnities harmless from and against any and all such claims, suits, 40 45 threatened suits and actions, and all related losses, obligations, liabilities, penalties, damages (including but not limited to compensatory and punitive damages), judgments, and reasonable costs and expenses (including reasonable legal fees), arising out of such claims, suits, threatened suits and actions. The RPR Indemnitees shall give Guilford prompt written notice of any such claim, suit, threatened suit or action, and reasonable assistance to Guilford in connection with Guilford's defense and settlement thereof. Guilford shall not settle any such claim, suit, threatened suit or action without the prior written consent of RPR, which shall not be unreasonably withheld or delayed. If it is necessary to obtain a license from such third party, Guilford and RPR shall attempt in good faith to obtain a commercially reasonable license from such third party as soon as is reasonably practicable. In negotiating such a license, Guilford and RPR shall make every effort to minimize the fees, royalties, costs and expenses payable to such third party in connection with obtaining and maintaining such license. If RPR shall be obligated to pay royalties based upon sales by RPR or its Affiliates or non-Affiliated distributors to obtain or maintain any such license, then Guilford and RPR shall each be responsible for paying one-half (1/2) of such royalties up to 5% (i.e., 2.5% RPR share) of sales by RPR or its Affiliates or non-Affiliated distributors, and Guilford shall be responsible for paying all royalties in excess of 5% of sales by RPR or its Affiliates or non-Affiliated distributors and all other fees, costs and expenses payable to the licensor in connection with obtaining and maintaining such license. If Guilford fails to pay any of the foregoing, RPR shall have the right, but not the obligation, to pay same on behalf of Guilford, and if RPR does so, RPR shall have the right to offset all such amounts against any of the amounts owing by RPR to Guilford under this Agreement. If despite their good faith efforts, Guilford and RPR are unable to secure a license from such third party containing commercially reasonable terms and conditions within one hundred and eighty (180) days after the commencement of negotiations with such third party, RPR shall have the right to immediately terminate this Agreement, exercisable by delivering written notice thereof to Guilford. 2. In the event that there is infringement of a Patent involving the Product by a third party, Guilford and RPR (or its Affiliate or sublicensee) shall notify each other in writing to that effect, including with said written notice evidence establishing a case of infringement by such third party. Guilford shall bear all the expenses of any suit brought by it and shall retain all damages or other monies awarded or received in settlement of such suit. RPR and/or its Affiliates will 41 46 cooperate with Guilford in any such suit or shall have the right to consult with Guilford and be represented by its own counsel at its own expense. If after the expiration of one hundred eighty (180) days from the date of receipt of said notice, Guilford has not overcome the case of infringement, obtained a discontinuance of such infringement, or brought suit against the third party infringer, then, subject to the provisions of the GPI License Agreements, RPR shall have the right, in its sole discretion, but not the obligation to bring such suit, in its own name, if possible and in Guilford's name, if required. RPR shall be responsible for paying the costs and expenses of any suit brought by it provided, however, that RPR shall receive a credit in the amount of fifty percent (50%) of all such costs and expenses, which credit may be applied against Net Sales Fees payable by RPR under this Agreement and any damages or other monies awarded or received in settlement of such suit until such credit is fully applied. If any damages or other monies are awarded or received in settlement of such suit, such amounts shall first be applied to pay any unpaid credit in favor of RPR of the type described in the preceding sentence, and the balance of such amounts shall be divided equally between RPR and Guilford. Guilford will cooperate with RPR in any such suit and shall have the right to consult with RPR and be represented by its counsel at its own expense. 3. The provisions of this Section IV(I) shall survive the expiration or sooner termination of the term of this Agreement. J. CERTAIN COVENANTS OF GPI. During the term of this Agreement, Guilford and its Affiliates shall: i. Inform RPR of all material written customer complaints, adverse reaction information or notifications, correspondence, etc., with respect to the use of the Product; ii. Immediately notify RPR should it become aware of the Product infringing any patents, patent rights, patent applications, inventions, trademarks, service marks, trade names, copyrights, confidential information, trade secrets, or any other proprietary rights or processes of any other Person; 42 47 iii. Adhere in all material respects to all laws, rules and regulations applicable to the manufacture, storage, packaging and sale to RPR of the Product under this Agreement including, without limitation, all FDA Standards and all applicable portions of the NDA for the Product; iv. Not appoint any other distributor in the Territory during the term of this Agreement except to the extent that any particular country within the Territory has reverted back to Guilford pursuant to Section III(C) hereof; v. Refer promptly to RPR any leads concerning prospective customers in the Territory which come to the attention of GPI during the term of this Agreement; vi. Keep RPR informed in reasonable detail of new developments and Improvements in or to the Product during the term of this Agreement; vii. Procure and maintain in full force and effect during the term of this Agreement valid and collectible insurance policies in connection with GPI's activities as contemplated hereby which policies shall provide for the type of insurance and amount of coverage as is determined from time to time by the Governance Committee to be appropriate, and upon RPR's request, provide to RPR a certificate of coverage or other written evidence reasonably satisfactory to RPR of such insurance coverage; viii. Comply with, perform, observe and enforce in all material respects the provisions of the GPI License Agreements; ix. Not exercise its right to terminate (1) the M.I.T./Scios Nova License Agreement under Section 15.4 of the M.I.T./Scios Nova License Agreement, or (2) the Scios Nova/GPI License Agreement under Section 5.3 of the Scios Nova/GPI License Agreement; x. Use commercially reasonable efforts to enforce the provisions of the License and Distribution 43 48 Agreement, dated as of October 13, 1995, between GPI and Orion Corporation Farmos including, without limitation, the provisions of Sections 7.4 and 7.5 thereof; xi. Take all commercially reasonable actions necessary to continue the Orphan Drug status of the GLIADEL Product for as long as possible; xii. Give RPR reasonable prior written notice of and the right to attend with GPI any meeting between GPI and the FDA relating to the Product or the manufacture of the Product; and xiii. Provide RPR with a true and complete copy of each communication between GPI and the FDA which relates to the Product or the manufacture of the Product, and the right to review and participate in any response to any such communication. K. CERTAIN COVENANTS OF RPR. During the term of this Agreement, RPR and its Affiliates shall: i. Inform GPI of all material written customer complaints, adverse reaction information or notifications, correspondence, etc., with respect to the use of the Product; ii. Immediately notify GPI should it become aware of the Product infringing any patents, patent rights, patent applications, inventions, trademarks, service marks or tradenames, copyrights, confidential information, trade secrets, or any other proprietary rights or processes of any other Person; iii. Adhere to all laws, rules and regulations applicable to the marketing, distribution, promotion, advertising, sale, storage and packaging of the Product under this Agreement including, without limitation, all FDA Standards and all applicable portions of the NDA for the Product; iv. Keep Guilford informed in reasonable detail of new developments and Improvements in or 44 49 to the Product during the term of this Agreement, including, without limitation clinical and pre-clinical data; v. Give GPI reasonable prior written notice of and the right to attend with RPR any meeting between RPR and the FDA relating to the Product or the manufacture of the Product; and vi. Provide Guilford with a true and complete copy of each communication between RPR and the FDA which relates to the Product or the manufacture of the Product, and the right to review and participate in any response to any such communication. ARTICLE V V. OTHER COVENANTS. A. HSR FILINGS. GPI and RPR shall cooperate with one another in (i) determining whether any filing of Notification and Report Forms under the HSR Act is required in connection with the consummation of the transactions contemplated by this Agreement, the Supply Agreement, the Stock Purchase Agreement and the Loan Agreement, and (ii) preparing and making any such filing and furnishing information required in connection therewith. If such a filing is required, each party shall be responsible for preparing and making its own filing and each party shall be responsible for paying its own filing and other fees, costs and expenses associated with making the filing. B. ASSIGNMENT OF GLIADEL PRODUCT NDA. 1. Upon receipt by Guilford of the milestone payments described in Sections III(D)(3) and (4), GPI shall immediately take all necessary and appropriate actions to assign the NDA for the GLIADEL Product in its entirety to RPR. 2. Upon the expiration or sooner termination of the term of this Agreement, RPR shall immediately take all necessary and appropriate actions to assign the NDA for the GLIADEL Product in its entirety back to GPI. 45 50 3. RPR shall perform all obligations required under applicable law for maintaining the NDA and the other Regulatory Filings that RPR makes in Territory under this Agreement. 4. RPR shall provide Guilford with a true and complete copy of all Regulatory Filings made by RPR and all communications with the FDA, and corresponding regulatory agencies in the Territory. 5. RPR shall not make changes to the NDA for the GLIADEL Product which would materially change the NDA, including, without limitation, any changes in indication, packaging, labelling, without consulting with and obtaining approval of GPI, except as required under 21 C.F.R. Section 314.70(c). 6. RPR shall cooperate with GPI to make Regulatory Filings on behalf of GPI in connection with or relating to the manufacture of the Product or FDA Standards applicable to the manufacture of the Product or GPI's manufacturing facility. 7. If Guilford presents other polymer products which RPR is not obligated to develop under this Agreement, and RPR turns down the opportunity to develop same, and Guilford develops same into an IND, ANDA, NDA or other Regulatory Filing in the United States and elsewhere in the Territory, RPR agrees, as the assignee of the NDA for the GLIADEL Product and the holder of and other Regulatory Filings and Regulatory Approvals relating to the Product, (a) to allow Guilford to reference the NDA for the GLIADEL Product and (b) to otherwise cooperate with Guilford's development of same. ARTICLE VI VI. MISCELLANEOUS. A. INDEPENDENT CONTRACTOR. In making and performing this Agreement, the parties are acting and shall act as independent contractors. Nothing in this Agreement shall be deemed to create an agency, joint venture or partnership relationship between the parties hereto. Neither party shall have the authority to obligate the other party in any respect, and neither party shall hold itself out as having any such authority. All personnel of GPI Holdings shall be solely employees of GPI Holdings and shall 46 51 not represent themselves as employees of GPI or RPR. All personnel of GPI shall be solely employees of GPI and shall not represent themselves as employees of GPI Holdings or RPR. All personnel of RPR shall be solely employees of RPR and shall not represent themselves as employees of GPI Holdings or GPI. B. ASSIGNMENT. Neither GPI Holdings, GPI nor RPR may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the other party. C. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted successors and assigns. Nothing contained herein shall give to any other Person any benefit or any legal or equitable right, remedy or claim. D. AMENDMENTS. This Agreement may only be modified, amended or supplemented by an instrument in writing executed by GPI Holdings, GPI and RPR. E. WAIVERS. No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted. No consent by either party to, or waiver of, a breach by either party, whether express or implied, will constitute a consent to, waiver of, or excuse of any other, different, or subsequent breach by either party. F. NOTICES. All notices, claims, certificates, requests, demands an other communications hereunder shall be in writing and shall be delivered personally or sent by facsimile transmission, air courier, or registered or certified mail, return receipt requested, addressed as follows: if to GPI or to GUILFORD to: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attention: President and CEO Fax: (410) 631-6338 47 52 if to GPI HOLDINGS to: GPI Holdings, Inc. 222 Delaware Avenue P.O. Box 2306 Wilmington, Delaware 19899 Attention: Daniel P. McCollom Vice President and Secretary Fax: (302) 571-1750 if to RPR to: Rhone-Poulenc Rorer Pharmaceuticals Inc. 500 Arcola Road P.O. Box 1200 Collegeville, Pennsylvania 19428-0107 Attention: General Counsel Fax: (610) 454-3807 or to such other address as the party to whom notice is to be given may have furnished to the other parties in writing in accordance herewith. Any such communication shall be deemed to have been delivered (i) when delivered, if delivered personally, (ii) when sent (with confirmation received), if sent by facsimile transmission on a business day, (iii) on the first business day after dispatch (with confirmation received), if sent by facsimile transmission on a day other than a business day, (iv) on the second business day after dispatch, if sent by air courier, and (v) on the fifth business day after mailing, if sent by mail. G. COUNTERPARTS. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument. H. HEADINGS. The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 48 53 I. GOVERNING LAW. This Agreement, and any claims, disputes or causes of action relating to or arising out of this Agreement, shall be construed in accordance with and governed by the laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. J. SEVERABILITY. Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof or affecting the validity or enforceability of any of the provisions of this Agreement in any other jurisdiction. K. EXHIBITS. The following Exhibits are attached to this Agreement and made a part of this Agreement: Exhibit Description of Exhibit ------- ---------------------- A Patents B Loan Agreement C Stock Purchase Agreement D Supply Agreement E M.I.T./Scios Nova License Agreement F Scios Nova/GPI License Agreement L. DISPUTES. 1. Notwithstanding anything contained in this Agreement or the Supply Agreement to the contrary, if any dispute arises between the parties relating to or arising out of this Agreement, appropriate representatives of the parties shall first use commercially reasonable efforts to negotiate in good faith a resolution of the dispute as expeditiously as is reasonably practicable. 2. If such representatives of the parties are unable to resolve the dispute within 15 business days after each party has been apprised of the dispute, either party shall have the right, exercisable by delivering written notice thereof to the other party, to refer the dispute to the Chief Executive Officer of GPI and the President of Pharmaceutical Operations of RPR. If either party exercises such right, such officers shall use 49 54 commercially reasonable efforts to negotiate in good faith a resolution of the dispute as expeditiously as is reasonably practicable. 3. If the dispute is not resolved within 20 business days after the date that a party referred the matter to the Chief Executive Officer of GPI and the President of the Pharmaceutical Operations of RPR (or such other period of time as the parties may mutually agree), each party shall have the right to initiate and pursue any remedy available to it at law or in equity provided, however, that all claims, disputes or causes of action relating to or arising out of this Agreement shall be brought, heard and resolved solely and exclusively by and in a federal or state court situated in Wilmington, New Castle County, Delaware. Each of the parties hereto agrees to submit to the jurisdiction of such courts and that such courts are a proper venue for resolving all claims, disputes or causes of action relating to or arising out of this Agreement. M. INTEREST ON OVERDUE PAYMENTS. Each party agrees to pay to the other party interest at the Overdue Interest Rate (defined below) on all payment obligations owed to such other party that are not paid within 15 days after the due date for such payment, such interest to accrue from the 16th day after the due date to the date of payment. As used herein, the term "Overdue Interest Rate" means the "Cost of Funds" (as defined in the Loan Agreement), expressed as a per annum interest rate, plus three percent (3%) per annum. N. ENTIRE AGREEMENT. This Agreement, including all Exhibits hereto, the Supply Agreement, the Stock Purchase Agreement and the Loan Agreement, constitute the entire agreement between the parties relating to subject matter of this Agreement and supersede all prior or simultaneous representations, discussions, negotiations, and agreements relating to such subject matter, whether written or oral, including without limitation, the Confidentiality Agreement dated as of February 29, 1996 between GPI and RPR. 50 55 IN WITNESS WHEREOF, duly authorized representatives of the parties hereto have duly executed this Agreement as of the Effective Date. RHONE-POULENC RORER PHARMACEUTICALS INC. By: /s/ Timothy G. Rothwell -------------------------- Name: Timothy G. Rothwell Title: President GUILFORD PHARMACEUTICALS INC. By: /s/ Craig R. Smith, M.D. -------------------------- Name: Craig R. Smith, M.D. Title: President and Chief Executive Officer GPI HOLDINGS, INC. By: /s/ Daniel P. McCollom -------------------------- Name: Daniel P. McCollom Title: Vice President and Secretary 51 EX-10.41 3 MANUFACTURING & SUPPLY AGREEMENT 1 EXHIBIT 10.41 MANUFACTURING AND SUPPLY AGREEMENT MANUFACTURING AND SUPPLY AGREEMENT ("Agreement") dated as of June 13, 1996 ("Effective Date"), between RHONE-POULENC RORER PHARMACEUTICALS INC., a company with its principal office at 500 Arcola Road, Collegeville, Pennsylvania 19426 ("RPR"), and GUILFORD PHARMACEUTICALS INC., a company with its principal office at 6611 Tributary Street, Baltimore, Maryland 21224 ("GPI"). WHEREAS, GPI, its wholly-owned subsidiary GPI Holdings, Inc. ("Holdings," and together with GPI, "Guilford"), and RPR have entered into a Marketing, Sales and Distribution Rights Agreement dated as of June 13, 1996 (the "Marketing Rights Agreement") granting to RPR exclusive rights to market, advertise, promote, sell and distribute the Product in the Field throughout the Territory (as each such term is defined below); and WHEREAS, GPI and RPR desire to enter into this Agreement under which GPI will supply all of RPR's requirements of the Product to RPR, and RPR will purchase all of its supply of the Product from GPI and Holdings wishes to join in this Agreement for the limited purpose of acknowledging its consent to, and agreement to be bound by the provisions of Article II, Article III.C. and Article III.H. hereof. NOW THEREFORE, in consideration of the mutual covenants and consideration set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I I. DEFINITION A. "ACT" shall mean the Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated under such Act. B. "AFFILIATE" shall mean, when used with respect to a Person, any other Person directly or indirectly controlling, controlled by, or under common control with the subject Person. For purposes of this Agreement, "control" means the direct or indirect ownership of over 50% of the outstanding voting securities of a person, or the right to receive over 50% of the profits or earnings of a person, or the right to control the policy decisions of a Person. C. "BANKRUPTCY EVENT" shall mean the Person in question becomes insolvent, or a receiver or custodian is appointed for such Person, or voluntary or involuntary proceedings by or against such Person are instituted in bankruptcy or under any insolvency law, or proceedings are instituted by or against such Person for corporate reorganization or the dissolution of such Person, which proceedings, if involuntary, shall 2 not have been dismissed within sixty (60) days after the date of filing, or such Person makes an assignment for the benefit of its creditors, or substantially all of the assets of such Person are seized or attached and not released within sixty (60) days thereafter. D. "CHANGE IN CONTROL" shall mean with respect to any Person: 1. The liquidation or dissolution of such Person or the sale or other transfer by such Person (excluding transfers to subsidiaries) of all or substantially all of its assets, if the same results in a change in the ultimate beneficial ownership of the business conducted by such Person; or 2. The occurrence of a tender offer, stock purchase, other stock acquisition, merger, consolidation, recapitalization, reverse split, sale or transfer of assets or other transaction, as a result of which any Person or group (as such terms are used in and under Section 13(d) of the Securities Exchange Act of 1934, as amended) (i) becomes the beneficial owner (as defined in Rule 13-d under such Act), directly or indirectly, of securities of such Person representing more than 30% of the common stock of such Person or representing more than 30% of the combined voting power with respect to the election of directors (or members of any other governing body) of such Person's then outstanding securities, (ii) obtains the ability to appoint a majority of the Board of Directors (or other governing body) of such Person, or (iii) obtains the ability to direct the operations or management of such Person. E. "FDA" shall mean the Food and Drug Administration of the United States Department of Health and Human Services, or any successor agency thereto. F. "FDA STANDARDS" shall mean the Act, the facility license requirements and the Current Good Manufacturing Practice regulations of the FDA applicable to the Product or any manufacturing facility of GPI, and all relevant guidelines of the FDA. G. "FIELD" shall mean the treatment of tumors of the central nervous system and treatment of cerebral edema. H. "GLIADEL PRODUCT" shall mean Guilford's GLIADEL(R) wafer, PCPP:SA with 3.85% BCNU, and any and all Improvements thereto. I. "GPI LICENSE AGREEMENTS" shall mean the M.I.T./Scios Nova License Agreement and the Scios Nova/GPI License Agreement. J. "HIGH DOSE GLIADEL PRODUCT" shall mean any PCPP:SA product with a BCNU dose higher than 3.85% which is (i) reasonably expected to have a more advantageous efficacy profile than the GLIADEL Product and (ii) now or hereafter owned or controlled by Guilford, and all Improvements to any such product. As of the Effective Date, Guilford is contemplating the development of PCPP:SA with 20% BCNU for use in the Field. - 2 - 3 K. "IMPROVEMENT" to a Product shall mean any and all inventions, discoveries, developments, modifications and improvements, whether or not patented or patentable, relating to such Product. L. "KNOW-HOW" shall mean all scientific and technical data, instructions, processes, formulae, specifications, ingredient sources, manufacturing procedures, methods and other information relating to the design, composition, formulation, pre-clinical evaluation, clinical evaluation, manufacture, use, sale, packaging, formulation or administration of the Product, including, but not limited to NDAs, pharmacological, toxicological, analytical, stability and clinical data, specifications and drug master files and/or health registration dossiers and any other premarket application or registration, owned or controlled at any time during the term hereof by either party. M. "LABELLING/PACKAGING SPECIFICATION" shall mean those specifications provided pursuant to the provisions of Article II.D. but shall exclude those labelling and/or packaging specifications required under any Regulatory Approval of the Product N. "LOAN AGREEMENT" shall mean the Loan Agreement, dated as of even date herewith, between GPI and Rhone-Poulenc Rorer Inc., a Pennsylvania Corporation. O. "M.I.T./SCIOS NOVA LICENSE AGREEMENT" shall mean the License Agreement, dated as of July 15, 1988, between Massachusetts Institute of Technology ("M.I.T.") and the predecessor in interest to Scios Nova Inc., as amended, between M.I.T. and Scios Nova Inc. P. "NDA" shall mean a "New Drug Application," as defined in the Act, and all supplements thereto. Q. "NET SALES PRICE" shall mean, with respect to the Product, the gross revenues derived from the sale or other transfer of a Unit of the Product by RPR or its Affiliates or non-Affiliated distributors appointed by RPR and permitted under the Marketing Rights Agreement to an un-Affiliated third party end user at the end of the commercial distribution chain, (A) after subtracting all bona fide trade and cash discounts, volume discounts, rebates, to the extent actually paid, allowed or incurred on such sales or transfers, and (B) taking into account all bona fide claims, refunds, returns and recalls of the Product. R. "OTHER PCPP:SA/BCNU PRODUCTS" shall mean all PCPP:SA-based polymer products containing BCNU, other than the GLIADEL Product, that are now or hereafter during the term of this Agreement owned or controlled by Guilford, including without limitation High Dose GLIADEL Product, and any and all Improvements to any of the foregoing. S. "PATENT(S)" shall mean (i) all of the patents and applications for patents that are identified in Exhibit A to the Marketing Rights Agreement, all patents which may - 3 - 4 be granted thereon, any U.S. or foreign counterparts thereof, as well as all continuations, continuations-in-part, divisions, reissues, renewals, reexaminations, extensions, patents of addition and patents of importation thereof; (ii) any patent application of Guilford or any of its Affiliates related to or based on any Know-How of Guilford or any of its Affiliates and related to the Product that is developed during the term of this Agreement, all patents which may be granted thereon, any foreign counterparts thereof, as well as all continuations, continuations-in-part, divisions, reissues, renewals, reexaminations, extensions, patents of addition and patents of importation thereof; and (iii) all such patent applications and patents, directly or indirectly owned, licensed or controlled by Guilford or any of its Affiliates, which but for the rights granted herein, the manufacture, use or sale of the Product would infringe a Valid Claim. T. "PERSON" shall mean any corporation, partnership, joint venture, other entity or natural person. U. "PROCESS DESCRIPTION" shall mean, with respect to the Product, manufacturing and control procedures and specifications, as well as such other Know-How, technical specifications, instructions, processes and other intellectual property and information which Guilford possesses and owns or controls, and as shall be necessary in order to allow RPR to manufacture and/or have manufactured for it the Product. Such Process Descriptions shall be sufficiently clear and detailed that it can be readily followed and carried out by a skilled Person. V. "PRODUCT" shall mean the GLIADEL Product and all Other PCPP:SA/BCNU Products. W. "PRODUCT SPECIFICATIONS" shall mean the Product specifications and methods set forth in the manufacturing and control sections of the NDA submitted to and approved by the FDA for the Product, including any labeling requirements specified by the FDA, and such other specifications as may be required in connection with any Regulatory Approval, and any amendments to such specifications which may be mutually agreed upon and which shall be incorporated herein. X. "REGULATORY APPROVAL" shall mean, with respect to any country, (i) filing for and receipt of all governmental and regulatory registrations and approvals (including, but not limited to, approvals of all final Product labeling) required for the marketing and sale of the Product for the indication for which it is being marketed in such country, and (ii) the receipt of reimbursement approvals and a reimbursement price acceptable to the Operations Committee as defined in the Marketing Rights Agreement from the national security system or other appropriate governmental or regulatory authorities in such country, except in those countries where such reimbursement approvals and reimbursement price are not granted by a governmental or regulatory authority (such as the United States, as of the Effective Date). Y. "REGULATORY FILINGS" shall mean all applications, filings, materials, - 4 - 5 studies, data and documents of any nature whatsoever filed with, prepared in connection with or necessary to support any Regulatory Approval process in any country or territory. Z. "SCIOS NOVA/GPI LICENSE AGREEMENT" shall mean the License Agreement, dated as of March 14, 1994, as amended, between Scios Nova Inc. and GPI, as assigned to Holdings. AA. "SPECIFICATIONS" shall mean the Product Specifications and the Labelling/Packaging Specifications. AB. "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement, dated as of even date herewith, between GPI and RPR. AC. "TERRITORY" shall mean the entire world, excluding Denmark, Finland, Norway and Sweden. AD. "UNIT" shall mean, in the current formulation of the GLIADEL Product, one (1) PCPP:SA/3.85% BCNU wafer and for all other Products a unit of sale of Product such that reconciliation of Invoice Price and Net Sales Price as contemplated in this Agreement will be made based on the same unit of sale. AE. "VALID CLAIM" shall mean a claim in any issued and unexpired Patent which has not been withdrawn, canceled, abandoned or disclaimed or held invalid by a final decision by a court or other appropriate body of competent jurisdiction from which no appeal is available. - 5 - 6 ARTICLE II II. SUPPLY OF THE PRODUCT A. EXCLUSIVE SUPPLY OF THE PRODUCT. Except as specifically provided by the provisions of this Agreement, during the term of this Agreement, GPI shall supply RPR with all of its requirements of the Product, and RPR shall purchase all of its requirements of the Product from GPI. B. FORECASTS, ORDERS, PRICES AND TERMS. 1. RPR shall provide GPI by the first day of each month with a written twenty-four (24) month rolling forecast, by month, of its requirements of Product. All forecasts shall be prepared in good faith in order to facilitate GPI's manufacture and shipment of the Product in compliance with this Agreement. 2. Firm purchase orders for Product shall be placed by RPR with not less than one hundred twenty (120) days lead time prior to the shipment or other release date(s) requested by RPR unless GPI agrees to and accepts an order for delivery in less than one hundred twenty (120) days. For the first twelve (12) months of this Agreement, GPI will not be obligated to accept orders that are less than 60% or more than 120% of the quantities forecast for the first twelve (12) months of the rolling forecast. After the first twelve (12) months of this Agreement, GPI will not be obligated to accept orders that are less than 80% nor more than 120% of the quantities forecast in the first twelve (12) months of the relevant rolling forecast. By way of an example, RPR will submit a 24 month forecast at month 1; GPI will not be obligated to accept orders during the first 12 months of such forecast outside the relevant band (60%-120% during the first year of the Agreement, 80%-120% thereafter; the "Relevant Band") without GPI's consent; in month 2, RPR will submit another 24 month forecast, in which months 2 through 12 remain unchanged from the preceding month's forecast, and fixing a forecast for month 13, outside the Relevant Band of which GPI will not be obligated to accept an order without GPI's consent; in month 3, RPR will submit another 24 month forecast, in which months 3 through 13 remain unchanged from the preceding month's forecast, and fixing a forecast for month 14, outside the Relevant Band of which GPI will not be obligated to accept an order without GPI's consent; and so forth. For orders outside of the Relevant Band, GPI and RPR will mutually discuss these orders, which are subject to GPI's acceptance. GPI will use commercially reasonable efforts to attempt to fill orders outside the Relevant Band. It is understood that, subject to the duties of RPR under the Marketing Rights Agreement to use commercially reasonable efforts to promote the sale of the Products, RPR has no obligation to order any minimum quantities of Products. Each purchase order shall include (a) the quantity of Product to be purchased; (b) the requested delivery date(s) therefor; (c) any relevant shipping instructions; and (d) any other information dictated by the circumstances of the order. GPI may require RPR to place orders in reasonable minimum batch sizes, as mutually agreed by the parties. To - 6 - 7 the extent of any conflict or inconsistency between this Agreement and any purchase order, purchase order release, confirmation, acceptance or any similar document, the provisions of this Agreement shall govern. 3. GPI shall accept purchase orders issued to it by RPR that are within the ranges specified above by written notification to RPR within ten (10) days after receipt of such purchase order. 4. GPI shall manufacture and ship Product pursuant to RPR's purchase orders accepted by GPI. Delivery by GPI of quantities that are not less than 80% nor more than 120% of the quantities ordered shall be accepted by RPR as satisfactory performance under this Agreement. 5. The purchase price for each Unit ("Purchase Price") purchased from GPI shall be twenty percent (20%) of the Net Sales Price as determined by Article II.B. 6 and 7 below. 6. The parties shall use the Invoice Price (defined below) for purposes of invoicing and shipping the Product. The charges applicable to each shipment of Product shall be separately invoiced by GPI at the time of shipment, or if shipment is made into quarantine as contemplated by Article II.E.1., then, at the time of release of such shipment from quarantine pursuant to delivery by GPI to RPR of a certificate of analysis relating to such shipment. Payment shall be made within thirty (30) days after RPR's receipt of a properly executed invoice. As used herein, the term "Invoice Price" shall mean the invoice price for the Product when shipped by GPI to RPR, which Invoice Price shall initially be twenty percent (20%) of the estimated Net Sales Price for the Units shipped, as estimated in good faith by RPR, and which may be changed by GPI on a quarterly basis to an amount equal to twenty percent (20%) of the actual Net Sales Price of the Units shipped during the calendar quarter immediately preceding the calendar quarter in which the change is made. 7. The parties shall, on a calendar quarter basis, reconcile the Invoice Price initially charged to RPR to the Purchase Price as follows. RPR shall provide to GPI no later than the thirtieth (30th) day after the end of each calendar quarter RPR's calculation (along with a summary of the sales and/or transfers on which such calculation is based) of the total Net Sales Prices for the Products along with a calculation of the difference between 20% of such amount and the actual Invoice Prices charged. The total Net Sales Prices shall be based upon the total Product (excluding Units shipped in accordance with Article II.B.8. of this Agreement) sold by RPR, its Affiliates, or un-Affiliated distributors permitted by the Marketing Rights Agreement during such calendar quarters. If such calculation indicates that the aggregate Invoice Prices exceeded the aggregate Purchase Prices during such quarters, then (1) RPR may credit such excess amount against RPR's future payment obligation to GPI for purchase of Products under this Agreement or (2) if there are no more future payment obligations therefor, GPI shall - 7 - 8 issue a check to RPR within ten (10) business days of receipt of such calculation of such amount or, at RPR's option. If such calculation indicates that the aggregate Invoice Prices was less than the aggregate Purchase Prices during such quarters, then RPR shall submit such amount to GPI when it provides such calculation to GPI. For purposes of this Agreement, calendar quarters commence on each January 1, April 1, July 1 and October 1. 8. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, GPI shall supply those quantities of Product needed from time to time (i) in connection with any clinical study that is conducted by or on behalf of RPR and has been approved by the Governance Committee (as defined in the Marketing Rights Agreement), at no charge to RPR, (ii) to fulfill requests made that are approved by the Governance Committee in accordance with the compassionate use policies approved by such Governance Committee at no charge to RPR, and (iii) to fulfill requests made on behalf of uninsured or financially needy patients, where the Governance Committee has determined that fulfilling such requests is appropriate under the prevailing circumstances, at one-half of the Purchase Price (i.e. at 10% of Net Sales Price). 9. All shipments of the Product shall be shipped to one RPR U.S. distribution center which shall be mutually agreed by the parties and a single second site for non-U.S. distribution which shall also be mutually agreed by the parties. The parties will work together to develop mutually acceptable procedures for packaging and other logistical issues relating to the Product to be marketed outside the U.S. All shipments shall be F.O.B. GPI's U.S. manufacturing facility or other shipping point, and shall be accompanied by a packing slip which describes the Product, states the purchase order number and shows the shipment's destination (as specified above). Title and risk of loss or damage to any Product sold by GPI to RPR hereunder shall pass to RPR upon delivery by GPI to the carrier at the F.O.B. point. RPR shall use its best efforts to designate a carrier at the time of entry of each purchase order with GPI, provided, however, that if RPR fails to designate a carrier on its purchase order, GPI may select a carrier for the account and risk of RPR. For the purposes of this Agreement, a timely shipment shall be a shipment made by GPI, through RPR's carrier, a common carrier, or other method designated by and for the account and at the expense of RPR no later than ten (10) business days from the shipment date set forth in the applicable purchase order. - 8 - 9 C. RECORDS AND AUDIT RIGHTS. 1. RPR shall maintain, and cause to be maintained by its Affiliates and other parties to which RPR or its Affiliates may grant marketing, sales and distribution rights under the Marketing Rights Agreement, complete and accurate books and records with respect to the Net Sales Price, Purchase Price and Invoice Price payable by RPR under this Agreement and the transactions contemplated herein, along with such other reconciliation and other information as may be necessary to calculate and verify all consideration paid or payable by RPR under this Agreement and the transactions contemplated herein. RPR shall maintain the books and records in accordance with generally accepted accounting principles and for a period of three (3) years after the submission of each report required to be submitted by RPR to GPI under this Agreement; provided, however, that if there is a good faith dispute between the parties continuing at the end of any such three (3) year period with respect to such books or records, then the time period for RPR to maintain such books and records under dispute shall be extended until such time as the dispute is finally resolved. 2. GPI shall have the right to nominate an independent accountant acceptable to and approved by RPR (which approval shall not be unreasonably withheld or delayed) who shall have access to the relevant RPR records during reasonable business hours for the purposes of verifying, at GPI's expense, the Net Sales, the Net Sales Price, Purchase Price and Invoice Price provided for in this Agreement for any of the preceding three (3) years, but this right may not be exercised more than once in any year. GPI shall solicit or receive only information relating to the accuracy of the information and the payments made. RPR shall be entitled to withhold approval of an accountant which GPI nominates unless the accountant agrees to sign a confidentiality agreement with RPR which shall obligate such accountant to hold the information he receives from RPR in confidence, except for information necessary for disclosure to GPI, necessary to establish the accuracy of the reports and amounts paid to GPI. Such audit rights shall survive for three (3) years after the expiration or termination of this Agreement. 3. Any underpayment shall be paid within thirty (30) days of the delivery of a detailed written accountant's report to the parties hereto. Any overpayment shall be credited to the next payment due from RPR. If no further payments from RPR will be due then a refund will be made within sixty (60) days of the audit. Notwithstanding Article II.C.2. above, if any audit as contemplated above shows an underpayment by RPR of an amount greater than ten percent (10%) of the amount paid, the fees and costs of such audit shall be for the account of RPR. 4. The provisions of this Article II.C. shall survive the expiration or sooner termination of the term of this Agreement. D. LABELLING AND PACKAGING. 1. RPR shall supply to GPI in ready-to-use form the labels and - 9 - 10 package inserts for the Product, in volumes sufficient to fulfill all orders placed by RPR, together with any applicable Specifications in order for GPI to perform quality control procedures to ensure conformity with all applicable Regulatory Approvals, within a reasonable period of time prior to the first and each subsequent order by RPR, which period shall not in any event be less than sixty (60) days prior to the shipment date of finished Product specified in RPR's firm order. When provided, the Labelling/Packaging Specifications shall become part of the Specifications of the Product. RPR represents and warrants that the labels and other Labelling/Packaging Specifications provided to GPI shall be in full conformity with Regulatory Approvals and all applicable laws and regulations. On the packaging for the Product, RPR shall identify GPI as the manufacturer of the Product. 2. In the event some or all of the Labelling/Packaging Specifications are required for GPI's Regulatory Filings with the FDA for the Product, then RPR shall provide such portion of the Labelling/Packaging Specifications as may be required for such Regulatory Filings. GPI shall use its best efforts to provide RPR at least thirty (30) days advance notice of its requirements for the Regulatory Filings, provided that RPR agrees to use commercially reasonable efforts and to cooperate with GPI to supply Labelling/Packaging Specifications for Regulatory Filings as soon as practicable. 3. GPI acknowledges that RPR is the exclusive owner of and has all rights to the trademarks, copyrights, plans, ideas, names, slogans, artwork and all other intellectual property that appear on or are otherwise used by RPR in connection with the Product, except as provided in the next sentence. RPR acknowledges that such ownership rights do not extend to the trademark GLIADEL(R), the names "Guilford Pharmaceuticals Inc.", "GPI Holdings Inc." or variations thereof or any of GPI's or GPI Holdings, Inc.'s proprietary formulae or other proprietary information or intellectual property rights and nothing in this Agreement shall be considered a license or sublicense of any such rights, nor shall such ownership rights extend to the labelling and packaging requirements specified by the FDA or any other governmental or regulatory authority. - 10 - 11 E. INSPECTION OF SHIPMENTS. 1. GPI will be responsible for quality control testing and formal release of Product, and will provide RPR with a certificate of analysis for all batches of Product shipped to RPR in accordance with the NDA. Delivery of any Product by GPI to RPR shall constitute a certification by GPI that the Product conforms to the Specifications, except in the case of quarantined shipments, described below. GPI may ship Product to RPR directly from GPI's vendor providing sterilization services, and RPR agrees to accept delivery for Product, in quarantine. RPR shall store all Product in controlled conditions as specified in the Product Specifications and Labelling/Packaging Specifications. In the event a shipment is delivered in quarantine, RPR will extract and deliver to GPI samples of the quarantined shipment pursuant to agreed-upon procedures for quality control testing by GPI. Upon satisfactory completion of such quality control procedures, GPI will release such shipment by delivering to RPR a written notice releasing such shipment, accompanied by a certificate of analysis pertaining to such shipment. In the case of quarantined shipments, such release by GPI will constitute a certification by GPI that the Product conforms to the Specifications. GPI will have the right at reasonable times and on reasonable notice to inspect RPR's distribution center for compliance with the aforementioned conditions for storage and treatment of quarantined shipments, but such right may not be exercised more than once in any 12 month period. Such inspection shall be conducted at GPI's sole cost and expense in a manner so as to minimize disruption of RPR's business operations. 2. Upon receipt of each shipment of Product by RPR at the destination specified in the shipping instructions, RPR agrees to inspect promptly each shipment to determine whether any portion of it does not conform with the applicable Purchase order or the Specifications. In the event that any portion of any shipment fails to conform to the applicable purchase order, the Specifications or the warranties set forth in Article III.B.1. hereof, RPR may reject the non-conforming portion of Product by giving written notice to GPI within thirty (30) days of RPR's receipt of such shipment or, if the shipment is a quarantined shipment as specified above, after receipt of a certificate of analysis as so specified. Such notice shall specify the manner in which Product fails to meet the applicable purchase order, Specifications or warranties. Failing such notification, RPR shall be deemed to have accepted the shipment of Product, except as to latent defects which could not have been detected in such 30 day period. Such acceptance by RPR shall not be deemed to be a waiver by RPR of any of the representations or warranties made by GPI in Article III.B.1. hereof. 3. Upon giving GPI such notification of non-conformance, RPR shall provide GPI with a reasonable opportunity to inspect the Product and make any appropriate adjustment or replacement. In all cases in which the parties agree that there is a shortage or non-compliance, GPI, at its own cost, shall forthwith make up the shortage, if appropriate, or replace any non-conforming Product, as directed by RPR, to be shipped to RPR at GPI's expense. Any non- conforming Product shall, at GPI's direction and - 11 - 12 expense, either be returned by RPR to GPI or destroyed by RPR (and certified as so destroyed by RPR). Any dispute regarding the proper rejection of a shipment shall be submitted for testing to an independent laboratory to be mutually agreed upon. If the independent laboratory finds that the shipment in question or any part of it does not comply in all material respects with the Specifications or is otherwise defective, GPI shall promptly and without cost to RPR, supply RPR with the same quantity of Product as the quantity found to be in non-compliance or defective. GPI's supply of substitute Product which conforms to the Specifications shall satisfy and discharge any claims or potential claims of RPR against GPI with respect to non-complying Product in that shipment. During the pendency of a dispute that requires settlement by an independent laboratory, GPI shall promptly replace the portion of the shipment under dispute until such time as the dispute is resolved. 4. The parties agree to be bound by the laboratory's report. Costs of the independent laboratory's activities shall be borne by RPR if the Product in question is found to comply with the Specifications, and by GPI if such Product is found not to comply with the Specifications. GPI shall complete the adjustment or replacement within sixty (60) days of proper notification by RPR, and shall credit RPR's account for the Product rejected. F. INSPECTION OF THE PRODUCT FACILITY. 1. RPR shall have the right, upon reasonable advance notice and during regular business hours, to inspect and audit the facilities (including any facilities of sub-contractors) being used by GPI for production of the Product to assure compliance with applicable laws, rules and regulations, including without limitation FDA Standards, applicable portions of the NDA for the Product and GPI quality control procedures ("Relevant Standards"). Such inspection and audit shall be conducted at RPR's sole cost and expense in a manner so as to minimize disruption of GPI's business operations. 2. GPI shall, within sixty (60) days after GPI's receipt of written notice from RPR detailing any deficiencies which may be noted in any such audit which relate to the Relevant Standards use good faith efforts to remedy such deficiencies, and submit a plan to the Governance Committee outlining steps proposed to be taken. Failure by GPI to submit such a plan within such 60-day period shall give RPR the right to take the steps specified in Article III.H.7. Any plan timely submitted shall meet the requirements of the second sentence of Article III.H.2. and shall be treated as a Recovery Plan for purposes of Article III.H., including the provisions of Article III.H. 5, 6, 7, 8 and 9. 3. GPI acknowledges that the provisions of this Article II.F. granting RPR certain audit rights shall in no way relieve GPI of any of its obligations under this Agreement, nor shall such provisions require RPR to conduct any such audits. - 12 - 13 G. RECALLS. In the event any governmental agency having applicable jurisdiction shall order, or it shall otherwise become necessary to perform, any corrective action or market action with respect to the Product supplied hereunder, including any recall, field correction, market withdrawal, stock recovery, customer notice or restriction, RPR shall have the exclusive responsibility to appropriately manage such action and, if the cause of such corrective action or market action is due to a breach by GPI of any of its warranties, representations, obligations, covenants or agreements contained herein, then GPI shall be liable, and shall reimburse RPR for the reasonable costs of such action, including the cost of the Product affected thereby and reasonable attorneys' fees and expenses. If the cause of such corrective action or market action is due to a breach by RPR of any of its warranties, representations, obligations, covenants or agreements contained herein, then RPR shall be liable for the costs of such action. If each of GPI and RPR are partly responsible for such breach, each party shall be responsible for its proportionate share of such costs. If neither party is responsible for such breach, both parties will share equally the costs. RPR will also be exclusively responsible for handling all customer complaints, inquiries and the like, and GPI will appropriately cooperate with RPR concerning the same. The provisions of this Article II.G. shall survive the expiration or sooner termination of the term of this Agreement. H. INITIAL FORECAST AND MANUFACTURING PLAN. 1. Within thirty (30) days of the date of this Agreement, RPR shall deliver to GPI the first 24 month rolling forecast described in Article II.B.1. above. Within ninety (90) days of the date of this Agreement, and in any case no sooner than sixty (60) days following GPI's receipt from RPR of such initial forecast, GPI will submit to RPR its one and two year manufacturing capability plan (the "Manufacturing Plan") for completing facilities for producing the GLIADEL Product in conformity with the terms and conditions of this Agreement. Such Manufacturing Plan may assume that availability of proceeds from the loans under the conditions contained in the Loan Agreement. RPR shall promptly review the Manufacturing Plan and confer with GPI respecting any mutually agreeable revisions to the Manufacturing Plan. Notwithstanding RPR's review of such procedures, it is expressly acknowledged that GPI shall be solely responsible for complying with its obligations under this Agreement. 2. At reasonable intervals after the date hereof, GPI shall allow RPR to audit or have audited the manufacturing facilities that GPI shall use to produce the GLIADEL Product to confirm that such facilities are adequate to meet the requirements of RPR's current rolling 24 month forecast and the Manufacturing Plan. Such audit where possible will take place at the same time as any audit contemplated in Article II.F. above. - 13 - 14 ARTICLE III III. GENERAL TERMS AND CONDITIONS A. CONFIDENTIALITY. All confidential information of either party disclosed to the other shall be governed by the confidentiality provisions of Section IV.A of the Marketing Rights Agreement. B. REPRESENTATIONS AND WARRANTIES. 1. GPI represents and warrants to RPR that: a. All Product supplied by GPI to RPR shall be manufactured in accordance with and shall conform to the Specifications assuming handling and storage of such Product in accordance with the Specifications following delivery of such Product to a commercial carrier at GPI's shipping point; b. All Product supplied by GPI to RPR shall be manufactured in accordance with all applicable laws, rules and regulations including, without limitation, all FDA Standards and all applicable portions of the NDA for the Product; c. All Product supplied by GPI to RPR shall not be adulterated or misbranded within the meaning of Section 301 of the Act; and no Product shall be or become an article which may not be introduced into interstate commerce under the provisions of Section 505 of the Act; d. All Product shall be sold to RPR free and clear of any liens, claims and encumbrances of any nature except as contemplated herein and the GPI License Agreements, provided that nothing herein shall limit GPI from financing its inventory via encumbrances thereon until the point of delivery of Product to a commercial carrier F.O.B. GPI's shipping point; e. This Agreement, when executed and delivered by GPI, will be the legal, valid and binding obligation of GPI, enforceable against GPI in accordance with its terms, except as such enforceability may be limited by bankruptcy laws and other similar laws affecting creditors' rights generally and by general principles of equity; f. Upon compliance by the parties with any applicable requirements of the HSR Act, the execution, delivery and performance of this Agreement by GPI do not and will not (i) conflict with, or constitute a breach or default under, its charter documents or any material agreement, contract, - 14 - 15 commitment or instrument to which it is a party, (ii) violate any provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body, or (iii) require the consent, approval or authorization of, or notice, declaration, filing or registration with, any third party or any governmental or regulatory authority; and g. There is no action or proceeding pending or, insofar as GPI knows, threatened against GPI or any of its Affiliates before any court, administrative agency or other tribunal which could impact upon GPI's right, power and authority to enter into this Agreement, to carry out its obligations hereunder, or which might have. a material adverse effect on GPI's business or condition, financial or otherwise, or GPI's operation of any business. - 15 - 16 2. RPR represents and warrants to GPI that: a. This Agreement, when executed and delivered by RPR, will be the legal, valid and binding obligation of RPR, enforceable against RPR in accordance with its terms, except as such enforceability may be limited by bankruptcy laws and other similar laws affecting creditors' rights generally and by general principles of equity; b. Upon compliance by the parties with any applicable requirements of the HSR Act, the execution, delivery and performance of this Agreement by RPR do not and will not (i) conflict with, or constitute a breach or default under, its charter documents or any material agreement, contract, commitment or instrument to which it is a party, (ii) violate any provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body, or (iii) require the consent, approval or authorization of, or notice, declaration, filing or registration with, any third party or any governmental or regulatory authority; and c. There is no action or proceeding pending or, insofar as RPR knows, threatened against RPR or any of its Affiliates before any court, administrative agency or other tribunal which could impact upon RPR's right, power and authority to enter into this Agreement, to carry out its obligations hereunder, or which might have. a material adverse effect on RPR's business or condition, financial or otherwise, or RPR's operation of any business. 3. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER GPI NOR RPR MAKES ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. 4. The provisions of this Article III.B. shall survive the expiration or sooner termination of the term of this Agreement. C. INDEMNIFICATION. 1. In order to distribute among themselves the responsibility for claims arising out of this Agreement, and except as otherwise specifically provided for herein, the parties agree as follows: a. Each of GPI and GPI Holdings, jointly and severally, shall - 16 - 17 defend, indemnify and hold RPR, its Affiliates, and their respective officers, directors, agents, employees and shareholders (collectively, "RPR Indemnitees") harmless, from and against, any and all losses, obligations, liabilities, penalties, and damages (including but not limited to compensatory and punitive damages), costs and expenses (including reasonable attorneys' fees), which the RPR Indemnitees may incur or suffer, and all deficiencies, actions (including without limitation, any proceedings to establish insurance coverage), claims, suits, legal, administrative, arbitration, governmental or other proceedings or investigations, and judgments, with which any of them may be faced arising out of (1) any breach by GPI of any representation or warranty made by GPI in this Agreement or any breach by GPI or GPI Holdings in the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by GPI or GPI Holdings; (2) any negligent or otherwise tortious act or omission by GPI or GPI Holdings in connection with the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by GPI or GPI Holdings; and (3) the enforcement by the RPR Indemnitees of their rights under this Article IIIC.1.a. b. RPR shall defend, indemnify and hold each of GPI and GPI Holdings, its Affiliates, and their respective officers, directors, agents, employees and shareholders (collectively, "GPI Indemnitees") harmless, from and against, any and all losses, obligations, liabilities, penalties, and damages (including but not limited to compensatory and punitive damages), costs and expenses (including reasonable attorneys' fees), which the GPI Indemnities may incur or suffer, and all deficiencies, actions (including without limitation, any proceedings to establish insurance coverage), claims, suits, legal, administrative, arbitration, governmental or other proceedings or investigations, and judgments, with which any of them may be faced arising out of (1) any breach by RPR of any representation or warranty made by RPR in this Agreement or any breach by RPR in the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by RPR; (2) any negligent or otherwise tortious act or omission by RPR in connection with the performance or observation of any covenant, agreement, obligation or provision in this Agreement to be performed or observed by RPR; and (3) the enforcement by the GPI Indemnitees of their rights under this Article III.C.1.b. c. If any action, claim, suit, proceeding or investigation arises as to which a right of indemnification provided in this Article III.C.1. applies, the GPI Indemnitee or RPR Indemnitee, as the case may be (the "indemnified party"), shall promptly notify the party obligated under this Article III.C.1. to indemnify the indemnified party (the "indemnifying party") thereof in writing, and allow the indemnifying party and its insurers the opportunity to assume direction and control of the defense against such action, claim, suit, proceeding or investigation, at its sole expense, including without limitation, the settlement thereof at the sole - 17 - 18 option of the indemnifying party or its insurers to the extent that the indemnified party's liability is not thereby invoked. The indemnified party shall cooperate with the indemnifying party and its insurer in the disposition of any such matter and the indemnified party will have the right to participate in the defense of any action, claim, suit, proceeding or investigation as to which this Article III.C.1. applies, with separate counsel at its election and at its own expense. If the indemnifying party fails or declines to assume the defense of any such action, claim, suit, proceeding or investigation within thirty (30) days after notice thereof, the indemnified party may assume the defense thereof for the account and at the risk of the indemnifying party. The indemnifying party shall pay promptly to the indemnified party any losses, obligations, liabilities, penalties, damages, judgments, reasonable costs and expenses (including reasonable legal fees) to which the indemnity under this Article III.C.1. relates, as incurred. 2. The parties desire to separately allocate between themselves the risks and costs of any product liability claims from third parties with respect to the Product (whether related to the safety or efficacy of the Product or arising out of alleged defects in materials, design or workmanship of the Product or the use, marketing, advertising, promotion, or distribution of the Product, but excluding those claims (1) for which GPI and GPI Holdings are obligated to defend, indemnify and hold the RPR Indemnities harmless under Article III.C.1.a., and (2) for which RPR is obligated to defend, indemnify and hold the GPI Indemnities harmless under Article III.C.1.b.) (hereafter, a "Product Liability Claim"). Any losses, obligations, liabilities, penalties, and damages (including but not limited to compensatory and punitive damages), costs and expenses (including reasonable attorneys' fees), arising out of a Product Liability Claim shall be shared equally by RPR and Guilford. If either party becomes aware of a Product Liability Claim, it shall promptly notify the other party of such matter, and provide copies of any notices, claims, letters or other information which such party received or possesses in connection with such Product Liability Claim. Each party shall reasonably cooperate with the other party with respect to the defense and resolution of any such Product Liability Claim. 3. The provisions of this Article III.C. shall survive the expiration or sooner termination of the term of this Agreement. D. TERM. 1. Subject to Article III.D.3. and 4. below, the term of this Agreement shall commence on the Effective Date and shall continue on a country-by-country basis, subject to the respective termination rights of RPR and GPI expressly set forth in this Agreement, until the termination of the Marketing Rights Agreement for any reason. 2. The following shall survive the expiration or sooner termination of the term of this Agreement: any payment obligations of the parties hereunder accruing prior - 18 - 19 to the date of expiration or termination; and any other provision herein expressly surviving expiration or termination or necessary to interpret the rights and obligations of the parties in connection with the expiration or termination of the term of this Agreement. 3. In the event of a Change in Control of GPI, RPR shall have the right to terminate this Agreement on 30 days' notice. 4. If on or before the first anniversary of the Effective Date, RPR has not received a copy of (a) the written approval letter from the FDA for the Regulatory Approval of the GLIADEL Product for the indication of recurrent form(s) of malignant glioma, including glioblastoma multiforme, in the United States (which Regulatory Approval allows the release of the GLIADEL Product into commerce), or (b) the written approval letter from the FDA for the Regulatory Approval of the GLIADEL Product for the indication of form(s) of malignant glioma, including glioblastoma multiforme (unqualified by any limitation to the recurrent form(s) or malignant glioma), in the United States, RPR shall have the right to terminate the term of this Agreement, exercisable by giving Guilford thirty (30) days prior written notice thereof. E. EVENTS OF DEFAULT. 1. The occurrence of any one or more of the following acts, events or occurrences shall constitute an "Event of Default" under this Agreement: i. either party becomes the subject of a Bankruptcy Event; or ii. either party breaches any material provision of this Agreement, the Marketing Rights Agreement, the Stock Purchase Agreement or the Loan Agreement, or defaults in the performance or observance of any material provision of this Agreement, the Marketing Rights Agreement, the Stock Purchase Agreement or the Loan Agreement, and fails to remedy such breach or default within sixty (60) days after receipt of notice thereof (except in the case of a failure to pay any amounts due, in which event the default if such payment is not received within 10 business days of the due date, shall give rise to an Event of Default unless the parties otherwise agree). 2. Notwithstanding the foregoing Article III.E.1.ii., in the event of a breach or default which cannot be remedied within such sixty (60) day period (other than a failure to make payment as provided herein or to supply the Product as required hereunder), so long as the breaching/defaulting party is diligently attempting to remedy such breach or default, an Event of Default shall not have occurred until four (4) months after notice of such breach or default and only if such breach or default is not cured during such period. - 19 - 20 3. Each party agrees to pay to the other party interest at the Overdue Interest Rate (defined below) on all payment obligations owed to such other party that are not paid within 15 days after the due date for such payment, such interest to accrue from the 16th day after the due date to the date of payment. As used herein, the term "Overdue Interest Rate" means the "Cost of Funds" (as defined in the Loan Agreement), expressed as a per annum interest rate, plus three percent (3%) per annum. F. REMEDIES. 1. Immediately upon the occurrence of any Event of Default by GPI pursuant to Article III.E.1. or E.2. (if the Event of Default is under Article III.E.2. and it involves a Supply Interruption (defined below), such Event of Default must involve a willful act or failure to act by GPI to be covered by this Article III.F.1.; and Events of Default by GPI under Article III.E.2. that involve a Supply Interruption but no willful act or failure to act by GPI are subject to the provisions of Article III.H. below), then RPR shall have the option, in its sole discretion, exercisable by written notice to GPI, to (a) treat such event as one giving rise to the remedies set forth in Article III.H.7. hereof or (b) terminate this Agreement and pursue any and all remedies available to RPR including, without limitation, the right to seek to recover from Guilford any and all damages and losses of any nature whatsoever (including, without limitation, consequential damages, lost profits and direct damages). 2. Immediately upon the occurrence of any Event of Default by RPR pursuant to Article III.E.1. or E.2., Guilford shall have the right to terminate this Agreement by delivering written notice thereof to RPR. If Guilford so terminates this Agreement, then Guilford shall also have the right to pursue any and all remedies available to Guilford at law or in equity including, without limitation, the right to seek to recover from RPR any and all damages and losses of any nature whatsoever (including, without limitation, consequential damages, lost profits, and direct damages). 3. The parties expressly acknowledge that the remedy provisions contained in this Section are reasonable, considering the intended nature and scope of this Agreement, and considering the investments and undertakings required on the part of the parties in connection herewith. 4. Upon termination of this Agreement by Guilford, RPR shall have one hundred eighty (180) days in which to sell out its stock of any Product it possesses or has committed to purchase under this Agreement (it being understood that RPR's payment obligations under this Agreement shall continue to apply to any such sales). 5. If either party terminates this Agreement in accordance with the terms herein, the terminating party shall owe no penalty or indemnity to the terminated party on account of such termination. - 20 - 21 G. FORCE MAJEURE. The obligations of GPI and RPR hereunder shall be subject to any delays or non-performance caused by: acts of God, earthquakes, fires, floods, explosion, sabotage, riot, accidents; regulatory, governmental, or military action or inaction; strikes, lockouts or labor trouble; perils of the sea; or failure or delay in performance by third parties, including suppliers and service providers; or any other cause beyond the reasonable control of either party ("Force Majeure Event"). The party which is not performing its obligations under this Agreement as a result of any such event of Force Majeure shall use commercially reasonable efforts to resume compliance with this Agreement as soon as possible. H. INTERRUPTIONS IN SUPPLY. 1. As used in this Article III.H., the term "Supply Interruption Trigger Event" shall mean any of the following events: (a) any Force Majeure Event (as defined above) which results in an interruption in supply of Product to RPR or in GPI being unable to fulfill its obligation to supply Product to RPR in accordance with the provisions of Article II of this Agreement (a "Supply Interruption"); (b) any event or circumstance which (i) is not a Force Majeure Event, (ii) is not caused by and does not result from a willful act or failure to act by GPI or a Bankruptcy Event involving GPI, and (iii) results in a Supply Interruption; or (c) GPI receives written notice from RPR of a breach by GPI of GPI's obligation to supply Product to RPR in accordance with the provisions of Article II of this Agreement, provided that such breach is not caused by and does not result from a willful act or failure to act by GPI or a Bankruptcy Event involving GPI (a "Non-Willful Supply Breach"). 2. GPI shall, within 60 days after the occurrence of any Supply Interruption Trigger Event, (a) in good faith prepare a plan (the "Proposed Recovery Plan") detailing the steps to be taken and implemented by GPI in order to eliminate the Supply Interruption or cure the Non-Willful Supply Breach as soon as possible, and (b) submit the Proposed Recovery Plan to the Governance Committee (as defined in the Marketing Rights Agreement). The Proposed Recovery Plan (a) may identify those portions of the Proposed Recovery Plan which constitute "Critical Milestones" (material stages in the plan, the failure to meet would render the Proposed Recovery Plan unattainable) to be met by GPI, and the time period required to complete such Critical Milestones, and (b) will identify the time period required to complete the Proposed Recovery Plan. 3. If GPI fails to submit a Proposed Recovery Plan to the Governance Committee within 60 days after the occurrence of any Supply Interruption Trigger Event, RPR shall be entitled to immediately exercise its rights and remedies under Article III.H.7. below. 4. The Governance Committee shall (a) promptly meet to review the Proposed Recovery Plan and (b) as soon as possible, and in any event within thirty (30) days after the date that GPI submits the Proposed Recovery Plan to the Governance Committee, develop and approve a final plan (the "Recovery Plan") detailing the steps to be taken and implemented in order to eliminate the Supply Interruption or to cure the Non-Willful Supply Breach as soon as possible, including (i) Critical Milestones, if any, in such Recovery Plan and the respective dates by which such Critical Milestones are - 21 - 22 required to be completed, and (ii) the date by which the Recovery Plan must be completed. The Governance Committee shall promptly deliver copies of the Recovery Plan to each of GPI and RPR. If the Governance Committee is unable to approve a Recovery Plan within such 30-day period, the matter shall be submitted to arbitration in accordance with the procedures set forth in Article III.H.10. of this Agreement. 5. If the Recovery Plan calls for GPI to perform the Recovery Plan, GPI shall use commercially reasonable efforts to implement, perform and complete the Recovery Plan in accordance with its terms. Upon the occurrence of any of the following acts, events or occurrences, RPR shall be entitled to immediately exercise its rights and remedies under Article III.H.7. below: (a) if GPI abandons its performance of the Recovery Plan; (b) if GPI fails for any reason whatsoever to complete any of the Critical Milestones set forth in the Recovery Plan by the required completion date for such Critical Milestone, as set forth in the Recovery Plan; or (c) if GPI fails for any reason whatsoever to complete the Recovery Plan by the required completion date, as set forth in the Recovery Plan. 6. If the Recovery Plan calls for RPR to perform the Recovery Plan, RPR shall be entitled to immediately exercise its rights and remedies under Article III.H.7. below. 7. Immediately upon the occurrence of any of the acts, events or occurrences specified in Article III.H.3., 5. or 6. above or the occurrence of any Event of Default by or involving GPI of the type described in Article III.F.1., RPR shall have the right and option, upon written notice to GPI (a "RPR Manufacturing Notice") to either manufacture itself the Product or to have a third party so manufacture the Product. In addition, upon the occurrence of (a) the failure of GPI specified in Article III.H.3., (b) an abandonment by GPI specified in Article III.H.5.a., or (c) any failure by GPI specified in Article III.H.5.b. or c. that is caused by a willful act or failure to act by GPI, or (d) any Event of Default by or involving GPI of the type described in Article III.F.1., RPR shall have the right to terminate this Agreement, exercisable by including notice of termination in the RPR Manufacturing Notice (if RPR exercises such right of termination, RPR's rights under this Article III.H.7. to manufacture the Product or have the Product manufactured for RPR will be coterminous with the Marketing Rights Agreement). Upon delivery of the RPR Manufacturing Notice, (a) RPR shall be entitled to manufacture the Product itself and shall have a royalty-free, non-exclusive license in, to and under the Patents and Guilford's Know-How to make, have made and use the Product throughout the Territory for use in the Field during the term of the Marketing Rights Agreement, as well as all rights to use and cross-reference GPI's Regulatory Filings in connection with RPR's exercise of such license rights, and (b) GPI shall deliver to RPR, within five - 22 - 23 business days after GPI's receipt of the RPR Manufacturing Notice, a true and complete copy of the current Process Descriptions for the Product and all the Regulatory Filings made by GPI relating to the Product, which may be used by RPR solely in connection with the exercise of such license rights. GPI shall provide such assistance and other information as shall be necessary in order for RPR to manufacture itself or have someone else manufacture the Product. In the event that RPR uses a third party manufacturer for the Product pursuant to this clause, RPR shall require such third party to be bound by the same confidentiality provisions as are contained in this Agreement. Nothing in this Article III.H.7. (including any termination of this Agreement by RPR as provided above) shall be deemed to relieve RPR of its obligation to pay Net Sales Fees and Research and Development Fees under the Marketing Rights Agreement. 8. In the event that manufacture of the Product is undertaken by or on behalf of RPR as a result of RPR exercising its rights thereto under Article III.H.7., and RPR did not terminate this Agreement pursuant to its right under Article III.H.7., then upon the elimination of the Supply Interruption or Non-Willful Supply Breach, GPI shall have the right to resume supply of the Product under this Agreement; provided, however, that resumption of such supply shall be subject to any agreement or other arrangement RPR shall have entered into in order to obtain supply of such Product (it being understood that RPR will use commercially reasonable efforts to negotiate, to the extent possible, such agreement or arrangement to enable GPI to resume supply when it is able and shall not voluntarily renew or extent any such arrangement); and provided further, however, that GPI shall be obligated to reimburse RPR for those costs it incurred in order to obtain supply of such Product (either directly incurred or those paid to a third party). 9. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, if for any reason whatsoever any Supply Interruption or Non-Willful Supply Breach is not eliminated or cured on or before the first anniversary of the corresponding Supply Interruption Trigger Event, RPR shall have the right to terminate this Agreement, exercisable by delivering written notice thereto to GPI, provided that any such termination is contemporaneous with termination of the Marketing Rights Agreement. 10. Notwithstanding anything contained in this Agreement or the Marketing Rights Agreement to the contrary, if any dispute arises between the parties relating to or arising out of this Article III.H., such dispute shall be submitted to J.A.M.S./Endispute for final binding arbitration pursuant to J.A.M.S./Endispute's Arbitration Rules for Expedited Arbitration then in effect. Such arbitration shall be conducted by a single arbitrator in Wilmington, Delaware. The parties agree that, if available from J.A.M.S./Endispute, they will request the services of a retired judge (from an appellate level state or federal court if possible, even if it may be necessary to import such a judge from another jurisdiction) acceptable to the parties hereto to serve as the arbitrator, applying the applicable law, and that they will require such arbitrator to furnish a written decision in reasonable detail setting forth the bases in fact and law for the - 23 - 24 arbitrator's decision. Arbitration may be commenced at any time by any party hereto giving written notice to each other party to a dispute that such dispute has been referred to arbitration under this Article III.H.10. In any such proceeding, the arbitrator shall have the right to consider, as an appropriate remedy for RPR, the remedies set forth in Article III.H.7. above. The parties agree that the decision of the arbitrator shall be final and binding on the parties. I. CERTAIN COVENANTS OF GPI. During the term of this Agreement, GPI and its Affiliates shall: i. Refer to RPR all customers' inquiries and correspondence which it receives relating to the sale of the Product in the Territory, as well as all customer complaints, adverse reaction information or notifications, correspondence, etc., with respect to the use of the Product; ii. Use commercially reasonable efforts to maintain at all times manufacturing capacity and capabilities which shall allow it to satisfy the provision of this Agreement and timely supply the Product to RPR as contemplated under this Agreement; iii. Adhere in all material respects to all laws, rules and regulations applicable to the manufacture, storage, packaging and sale to RPR of the Product under this Agreement including, without limitation, all FDA Standards and all applicable portions of the NDA for the Product; iv. Refer promptly to RPR any leads concerning prospective customers in the Territory which come to the attention of GPI during the term of this Agreement; and v. Procure and maintain in full force and effect during the term of this Agreement valid and collectible insurance policies in connection with GPI's activities as contemplated hereby which policies shall provide for the type of insurance and amount of coverage as may be approved by the Governance Committee from time to time and, upon RPR's request, provide to RPR a certificate of coverage or other written evidence reasonably satisfactory to RPR of such insurance coverage. J. CERTAIN COVENANTS OF RPR. During the term of this Agreement, RPR and its Affiliates shall inform GPI of all material written adverse reaction information or notifications, with respect to the use of the Product, as well as written customer complaints or correspondence regarding the manufacture of the Product. - 24 - 25 K. COVENANTS OF EACH PARTY. Each party will consult, cooperate and collaborate with the other in making any changes in the manufacturing process that would affect potency, purity or quality of the Product. ARTICLE IV IV. CONDITIONS A. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Agreement and the rights and obligations of RPR and GPI under this Agreement are subject to the execution and delivery of the Marketing Rights Agreement, the Stock Purchase Agreement and the Loan Agreement by RPR and GPI simultaneously with the execution and delivery of this Agreement by RPR and GPI. ARTICLE V V. MISCELLANEOUS A. INDEPENDENT CONTRACTOR. In making and performing this Agreement, the parties are acting and shall act as independent contractors. Nothing in this Agreement shall be deemed to create an agency, joint venture or partnership relationship between the parties hereto. Neither party shall have the authority to obligate the other party in any respect, and neither party shall hold itself out as having any such authority. All personnel of GPI shall be solely employees of GPI and shall not represent themselves as employees of RPR. All personnel of RPR shall be solely employees of RPR and shall not represent themselves as employees of GPI. B. ASSIGNMENT. Neither GPI nor RPR may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the other party. C. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted successors and assigns. Nothing contained herein shall give to any other Person any benefit or any legal or equitable right, remedy or claim. D. AMENDMENTS. This Agreement may only be modified, amended or supplemented by an instrument in writing executed by GPI and RPR. E. WAIVERS. No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted. No consent by either party to, or waiver of, a breach by either party, whether express or implied, will constitute a consent to, waiver of, or excuse of any other, different, or subsequent breach by either party. - 25 - 26 F. NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by facsimile transmission, air courier, or registered or certified mail, return receipt requested, addressed as follows: if to GPI to: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attention: President and Chief Executive Officer Fax: (410) 631-6338 if to RPR to: Rhone-Poulenc Rorer Pharmaceuticals Inc. 500 Arcola Road P.O. Box 1200 Collegeville, Pennsylvania 19428-0107 Attention: General Counsel Fax: (610) 454-3807 or to such other address as the party to whom notice is to be given may have furnished to the other parties in writing in accordance herewith. Any such communication shall be deemed to have been delivered (i) when delivered, if delivered personally, (ii) when sent (with confirmation received), if sent by facsimile transmission on a business day, (iii) on the first business day after dispatch (with confirmation received), if sent by facsimile transmission on a day other than a business day, (iv) on the second business day after dispatch, if sent by air courier, and (v) on the fifth business day after mailing, if sent by mail. G. COUNTERPARTS. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument. H. HEADINGS. The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. I. GOVERNING LAW. This Agreement and any claims, disputes or causes of action relating to or arising out of this Agreement, shall be construed in accordance with and governed by the laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. - 26 - 27 J. SEVERABILITY. Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof or affecting the validity or enforceability of any of the provisions of this Agreement in any other jurisdiction. K. ENTIRE AGREEMENT. This Agreement, including all Exhibits hereto, the Marketing Rights Agreement, Stock Purchase Agreement and the Loan Agreement, constitute the entire agreement between the parties relating to subject matter of this Agreement and supersede all prior or simultaneous representations, discussions, negotiations, and agreements relating to such subject matter, whether written or oral, including without limitation, the Confidentiality Agreement dated as of February 29, 1996 between GPI and RPR. L. DISPUTES. 1. Notwithstanding anything contained in this Agreement or the Marketing Rights Agreement to the contrary, if any dispute arises between the parties relating to or arising out of this Agreement (except pursuant to Article III.H. hereof, which shall be governed by the provisions stated in Article III.H.10.), appropriate representatives of the parties shall first use commercially reasonable efforts to negotiate in good faith a resolution of the dispute as expeditiously as is reasonably practicable. 2. If such representatives of the parties are unable to resolve the dispute within 15 business days after each party has been apprised of the dispute, either party shall have the right, exercisable by delivering written notice thereof to the other party, to refer the dispute to the Chief Executive Officer of GPI and the President of Pharmaceutical Operations of RPR. If either party exercises such right, such officers shall use commercially reasonable efforts to negotiate in good faith a resolution of the dispute as expeditiously as is reasonably practicable. 3. If the dispute is not resolved within 20 business days after the date that a party referred that matter to the Chief Executive Officer of GPI and the President of the Pharmaceutical Operations of RPR (or such other period of time as the parties may mutually agree), each party shall have the right to initiate and pursue any remedy available to it at law or in equity provided, however, that all claims, disputes or causes of action relating to or arising out of this Agreement shall be brought, heard and resolved solely and exclusively by and in a federal or state court situated in Wilmington, New Castle County, Delaware. Each of the parties hereto agrees to submit to the jurisdiction of such courts and that such courts are a proper venue for resolving all claims, disputes or causes of action relating to or arising out of this Agreement. - 27 - 28 IN WITNESS WHEREOF, duly authorized representatives of the parties hereto have duly executed this Agreement as of the Effective Date. RHONE-POULENC RORER PHARMACEUTICALS INC. By: /c/ Timothy G. Rothwell ------------------------------- Name: Timothy G. Rothwell ----------------------------- Title: President ----------------------------- GUILFORD PHARMACEUTICALS INC. By: /c/ Craig R. Smith, M.D. -------------------------------- Name: Craig R. Smith, M.D. Title: President and Chief Executive Officer For purposes of consenting to and agreeing to be bound by the provisions of Article II and Article III.C. and H. only: GPI Holdings Inc. By: /c/ Daniel P. McCollom ------------------------------ Name: Daniel P. McCollom Title: Vice President and Secretary - 28 - EX-10.42 4 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.42 STOCK PURCHASE AGREEMENT BETWEEN GUILFORD PHARMACEUTICALS INC. AND RHONE-POULENC RORER INC. DATED AS OF JUNE 13, 1996 2 THIS STOCK PURCHASE AGREEMENT is entered into as of June 13, 1996 between Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company") and Rhone-Poulenc Rorer Inc., a Pennsylvania corporation (the "Purchaser"). WHEREAS, in connection with that certain Marketing, Sales and Distribution Agreement dated the date hereof (the "Master Agreement") and certain related agreements contemplated therein, including without limitation, the Manufacturers and Supply Agreement and the Loan Agreement, as defined in the Master Agreement and this Agreement (collectively the "Transaction Documents"), between the Company and the Purchaser, the Company desires to issue and sell to the Purchaser shares of the Company's common stock, $0.01 par value; and WHEREAS, the Purchaser wishes to acquire shares of the Company's common stock, $0.01 par value, on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I SECTION 1.01 AUTHORIZATION. The Company has authorized the issuance and sale pursuant hereto of up to 455,000 shares of common stock, par value $0.01 per share ("Authorized Shares"), having the rights, restrictions and privileges set forth in the Amended and Restated Certificate of Incorporation of the Company. SECTION 1.02 ISSUANCE AND SALE OF THE SHARES. Subject to the terms and conditions of this Agreement, the Company hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to acquire from the Company, (i) on the First Closing Date, as defined below, the number of shares of the Company's common stock, $0.01 par value, rounded to the nearest whole share (the "Initial Shares") equal to $7,500,000 divided by the lesser of (a) 120% of the Market Price (as defined below) or (b) 115% of the last reported sale price of a share of the common stock on the NASDAQ Stock Market on the last trading day immediately preceding the First Closing Date; and (ii) on the Second Closing Date, as defined below, the number of shares of the Company's Common Stock, par value $.01 per share, rounded to the nearest whole share (the "Additional Shares") equal to $7,500,000 divided by the lesser of (x) 120% of the Market Price (as defined below) or (y) 115% of the last reported sale price of a share of the common stock on the NASDAQ Stock Market or any principal national securities exchange on which the common stock is then quoted (or, if not then quoted on the NASDAQ Stock Market or any such exchange, the fair market value thereof as determined in good faith by the Board of Directors of the Company) on the last trading or business day, as the case may be, immediately preceding the Second Closing Date (the "Last Sale Price"); provided, however, that if the total number of Additional Shares so determined would exceed a number that, together with the Initial Shares, 3 would cause the Purchaser to own in excess of the Authorized Shares (approximately adjusted for any stock splits, stock dividends, recapitalizations and the like), after giving effect to such issuance, then the total number of Additional Shares shall equal that lesser number that, together with the Initial Shares, would equal the number of Authorized Shares (approximately adjusted for any stock splits, stock dividends, recapitalizations and the like), and the purchase price to be paid therefor per share shall equal the lesser of (aa) 120% of the Market Price or (bb) 115% of the Last Sale Price. The total purchase price for the Initial Shares shall be $7,500,000, and the total purchase price for the Additional Shares shall be the lesser of $7,500,000 or the aggregate purchase price determined pursuant to the last clause of the preceding sentence. As used herein "Market Price" means the average of the last sale prices of a share of the common stock for each of the last 10 trading days preceding the date of issuance of the Initial Shares or Additional Shares, as the case may be, on the NASDAQ Stock Market (or any principal national securities exchange or which the common stock is then quoted or, if not then quoted on any exchange or listed on the NASDAQ Stock Market, the fair market value thereof as determined in good faith by the Board of Directors of the Company as reflecting the market value of a share of common stock over the 10 business days immediately preceding the date of determination). SECTION 1.03 CLOSING. (a) The date of purchase of the Initial Shares (the "First Closing Date") shall occur on the later of the date of the execution and delivery of this Agreement by both parties hereto or the first business day following the date on which all required waiting periods under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have expired or early termination thereof been granted, if a filing thereunder is required to be made, (such date of expiration or termination, the "HSR Date") or at any other time, following the HSR Date, as may be agreed upon between the Purchaser and the Company. The purchase and sale of the Initial Shares to occur on the First Closing Date shall commence at 10:00 a.m. Baltimore time at the offices of Hogan & Hartson L.L.P., 111 South Calvert Street, Baltimore, Maryland 21202 or such other location as the Purchaser and the Company may agree, and at such closing the Company will deliver the Initial Shares to Purchaser in the form of a single certificate issued in the name of Purchaser against payment of the purchase price therefor by federal wire transfer of immediately available funds to an account of the Company designated in writing to Purchaser at least two business days prior to the First Closing Date. (b) The date of purchase of the Additional Shares (the "Second Closing Date") shall be fifteen business days following the date on which the United States Food and Drug Administration ("FDA") approves commercial sale of the Company's GLIADEL wafer for the treatment of primary form(s) of malignant glioma, including glioblastoma multiforme. The purchase and sale of the Additional Shares to occur on the Second Closing Date shall commence at 10:00 a.m. Baltimore time at the offices of Hogan & Hartson L.L.P., 111 South Calvert Street, Baltimore, Maryland 21202, or such other location as the Purchaser and the Company may agree, - 2 - 4 and at such closing, the Company will deliver the Additional Shares to the Purchaser in the form of a single certificate issued in the name of the Purchaser against payment of the purchase price therefor by federal wire transfer of immediately available funds to an account of the Company designated in writing to the Purchaser at least two business days prior to the Second Closing Date. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser as follows: SECTION 2.01. ORGANIZATION, QUALIFICATION, AND STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is duly authorized to conduct business and is in good standing under the laws of each jurisdiction in which the conduct of its business requires such qualification, except where the failure to qualify to do business would not have a material adverse effect upon the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"). The Company is not in default under or in violation of any provision of its Certificate of Incorporation or bylaws except for defaults which, individually or in the aggregate, would not have a Material Adverse Effect. SECTION 2.02 CORPORATE POWER. The Company has the corporate power and authority to execute, deliver and perform this Agreement and to issue, sell and deliver the Initial Shares and the Additional Shares (collectively, the "Shares"). The issuance and delivery of the Shares and the execution, delivery and performance of this Agreement by the Company have been duly authorized by all necessary corporate action of the Company. SECTION 2.03 CAPITALIZATION. The authorized capital stock of the Company consists of (i) 4,700,000 shares of Preferred Stock, of which no shares are issued or outstanding, (ii) 300,000 shares of Series A Junior Participating Preferred Stock, of which no shares are issued or outstanding and (iii) 20,000,000 shares of common stock (the "Common Stock") of which 9,108,934 shares were issued and outstanding as of April 26, 1996. The Shares have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. In addition, a total of 1,678,769 shares of Common Stock were reserved for issuance as of May 31, 1996 under outstanding options, warrants and exchange rights. - 3 - 5 The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Certificate of Incorporation and all the designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. SECTION 2.04 NONCONTRAVENTION. The execution, delivery and performance of this Agreement by the Company will not (i) violate any statute, regulation, rule, judgment, order, decree, stipulation or injunction of any government, governmental agency or court to which the Company is subject or any provision of the Certificate of Incorporation or bylaws of the Company, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any contract or other arrangement to which Company is a party or by which it is bound or to which any of its assets is subject. Subject to the accuracy of the representations and warranties of the Purchaser set forth in Article III, no registration or filing with, or consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement, except for filings which may be required under the HSR Act and the approval required by the FDA as a condition to the issuance of the Additional Shares and certain other matters as provided herein. SECTION. 2.05 VALIDITY. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, moratorium and other laws of general application affecting the enforcement of creditors' rights and by the exercise of judicial discretion and the application of principles of equity. SECTION. 2.06 DISCLOSURE. The Company has filed with the Securities and Exchange Commission (the "SEC"), and has heretofore made available to Purchaser true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 1995 under the Securities Exchange Act of 1934 (the "Exchange Act") or the Securities Act of 1933 (the "Securities Act") (as such documents have been amended since the time of their filing, collectively, the "Company SEC Documents"). The Company SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the - 4 - 6 applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements of the Company included in the Company SEC Documents complied, at the date of filing, as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the financial position of the Company as at the dates thereof and the results of its operations and cash flows for the periods then ended. Except as disclosed in the Company SEC Documents, since December 31, 1995, there have been no events, changes or effects having, individually or in the aggregate, a material adverse effect on the Company. Except as and to the extent set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, as of December 31, 1995, the Company did not have any liability or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by generally accepted accounting principles to be reflected on a balance sheet of the Company (including the notes thereto). Since December 31, 1995, and except as set forth in the Company SEC Documents, the Company has not incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, which could reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company as follows: SECTION 3.01 INVESTMENT REPRESENTATIONS. (a) The Purchaser is an "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended (the "Securities Act"); (b) the Shares being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; (c) the Purchaser understands that (i) the Shares have not been and will not be registered under the Securities Act by reason of their issuance in transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rules 505 or - 5 - 7 506 promulgated under the Securities Act, and that the holders of the Shares do not have any rights to cause such Shares to be registered under the Securities Act, (ii) the Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is otherwise exempt from registration, (iii) the Shares will bear a legend to that effect and (iv) the Company will make a notation on its transfer books to that effect; (d) in no event will the Purchaser dispose of any of the Shares (other than pursuant to Rule 144(k) promulgated by the Securities and Exchange Commission) unless and until (i) the Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, the Purchaser shall have furnished the Company with an opinion of counsel reasonably satisfactory in form and substance to the Company to the effect that (x) the disposition will not require registration under the Securities Act and (y) appropriate action necessary for compliance with the Securities Act and any applicable state, local or foreign law has been taken; (e) the Purchaser understands that each certificate evidencing the Shares shall initially bear the appropriate restrictive legend set forth in Article IV below; (f) the Purchaser has not been offered the Shares by any form of general solicitation or general advertising; (g) (i) the Purchaser has the knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Shares; (ii) it has received all the information it has requested from the Company and considers necessary or appropriate to make a determination as to whether to purchase the Shares; (iii) it has the ability to bear the economic risks of the investment; (iv) it is able, without materially impairing its financial condition, to hold the Shares for an indefinite period of time and to suffer complete loss on its investment; and (v) it understands and has fully considered for purposes of this investment the risks of this investment and understands that (1) the investment is suitable only for an investor who is able to bear the economic consequences of losing its entire investment, (2) the Company has limited financial and operating history, has not had any net income and has yet to generate any product revenue, (3) the Shares represent an extremely speculative investment involving a high risk of loss, (4) there are substantial restrictions on the transferability of the Shares and, accordingly, it may not be possible for the Purchaser to liquidate its investment in the Shares; and (5) it is not relying on any representations of the Company or its officers, directors, employees or representatives as to the possible future value, if any, of the Shares. SECTION 3.02 CORPORATE POWER, ORGANIZATION AND AUTHORIZATION. The Purchaser has the corporate power and authority to execute, deliver and - 6 - 8 perform this Agreement, and the Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. The execution, delivery and performance of this Agreement by the Purchaser have been duly authorized by all necessary corporate action of the Purchaser. SECTION 3.03 NONCONTRAVENTION. The execution, delivery and performance of this Agreement by the Purchaser will not (i) violate any statute, regulation, rule, judgment, order, decree, stipulation or injunction of any government, governmental agency or court to which the Purchaser is subject or any provision of the Certificate of Incorporation or bylaws of Purchaser, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any contract or other arrangement to which the Purchaser is a party or by which it is bound or to which any of its assets is subject. SECTION 3.04. VALIDITY. This Agreement has been duly executed and delivered by the Purchaser and constitutes the legal, valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, moratorium and other laws of general application affecting the enforcement of creditors' rights and by the exercise of judicial discretion and the application of principles of equity. ARTICLE IV RESTRICTED TRANSFER LEGENDS SECTION 4.01 LEGENDS. Each certificate representing the Shares shall be endorsed with the following legend (in addition to any legend required by applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THE SALE OF THE SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144(k) OR ITS - 7 - 9 SUCCESSOR RULE UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE. The Company need not register a transfer of Shares on its books, unless the conditions specified in the foregoing legend are satisfied, and the Company may instruct its transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend are satisfied. SECTION 4.02 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend endorsed on a stock certificate pursuant to Section 4.01 of this Agreement and the transfer restrictions with respect to the Shares represented by the certificate shall be removed and the Company shall issue a certificate without legend if the Shares are transferred in a transaction pursuant to which the Shares are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is made available to the purchasers of the Shares or if the holder provides to the Company an opinion of counsel for the holder of the Shares reasonably satisfactory to the Company to the effect that a public sale, transfer or assignment of the Shares may be made pursuant to SEC Rule 144(k) or otherwise without restriction under the Securities Act. ARTICLE V CONDITIONS TO CLOSINGS SECTION 5.01 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of the Purchaser to acquire and pay for the Shares and to carry out the terms of this Agreement are subject to the fulfillment on or before the First Closing Date or the Second Closing Date, as the case may be, of each of the following conditions, any of which may be waived by the Purchaser: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Article II shall be true, complete and correct on and as of the First Closing Date and the Second Closing Date with the same effect as if made on and as of such First Closing Date and Second Closing Date. - 8 - 10 (b) PERFORMANCE. The Company shall have performed and complied with all agreements contained herein required to be performed or complied with by it prior to or at the respective First Closing Date or Second Closing Date. (c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser and its counsel. (d) SUPPORTING DOCUMENTS. The Purchaser and its counsel shall have received copies of the following documents: (i) (A) the Certificate of Incorporation, certified as of a recent date by the Secretary of State of the State of Delaware (the "Secretary of State") and (B) a certificate of the Secretary of State dated as of a recent date as to the due incorporation and good standing of the Company and listing all documents of the Company on file with the Secretary of State; (ii) a certificate of the Secretary or an Assistant Secretary of the Company dated the Closing Date certifying: (A) that attached thereto is a true and complete copy of the bylaws of the Company as in effect on the date of the certification; (B) that attached thereto is a true and complete copy of all resolutions adopted by the Board of Directors or the stockholders of the Company authorizing the execution, delivery and performance of this Agreement and the issuance, sale and delivery of the Shares and that all the resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; (C) that the Certificate of Incorporation has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(B) above; and (D) to the incumbency and specimen signature of each officer of the Company executing this Agreement, and any certificate or instrument furnished pursuant hereto, and a certification by another officer of the Company as to the incumbency and signature of the officer signing the certificate referred to in this clause. (e) HSR ACT. If a filing under the HSR Act is made, all waiting periods shall have expired or been terminated under the HSR Act so as to permit the purchase of the Shares on the respective First Closing Date and the Second Closing Date. - 9 - 11 (f) OPINION OF COUNSEL. The Purchaser shall have received from counsel to the Company favorable legal opinions concerning the incorporation and existence of the Company, corporate power and corporate authority to enter into the Agreement and perform the obligations to be performed hereunder on the date of such opinion, and that the Shares when issued are validly issued, fully paid and nonassessable under the Delaware General Corporate Law. (g) OTHER AGREEMENTS. The Company shall not be in default under any of the other Transaction Documents. SECTION 5.02 CONDITIONS TO COMPANY'S OBLIGATIONS. The obligations of the Company to issue and deliver the Shares and to carry out the terms of this Agreement are subject to the fulfillment at or before the First Closing Date and the Second Closing Date, as the case may be, of each of the following conditions, any of which may be waived by the company: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchaser contained in Article III shall be true, complete and correct on and as of the First Closing Date and the Second Closing Date with the same effect as if made on and as of such First Closing Date and Second Closing Date. (b) PERFORMANCE. The Purchaser shall have performed and complied with all agreements contained herein required to be performed or complied by the Purchaser prior to or at the respective First Closing Date or Second Closing Date. (c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other proceedings to be taken by the Purchaser in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and its counsel. (d) HSR ACT. All waiting periods shall have expired or been terminated under the HSR Act so as to permit the purchase of the Shares on the respective First Closing Date and the Second Closing Date. - 10 - 12 (e) OTHER AGREEMENTS. Purchaser shall not be in default under any of the other Transaction Documents. ARTICLE VI COVENANTS OF THE COMPANY SECTION 6.01 FINANCIAL STATEMENTS AND OTHER REPORTS. So long as the Purchaser holds at least 10,000 Shares (adjusted for any stock split, stock dividend or other recapitalization event of the Company), the Company will deliver to the Purchaser copies of all reports filed by the Company with the Securities and Exchange Commission, including Forms 10-Q, 8-K and 10-K, within ten days of the date of filing with the Securities and Exchange Commission and, promptly upon transmission thereof, copies of all other financial statements, proxy statements, information statements, notices and reports as the Company shall send to its stockholders generally. SECTION 6.02 CORPORATE EXISTENCE, LICENSES AND PERMITS. So long as the Purchaser owns any Shares, the Company will at all times cause to be done all things necessary to maintain, preserve and renew its existence as a corporation organized under the laws of a state of the United States of America and will preserve and keep in force and effect all licenses and permits deemed by management of the Company to be necessary and material to the conduct of its businesses, and will remain in compliance with respect to all applicable material regulatory requirements. SECTION 6.03 BOARD NOMINEE. On and after the Second Closing Date, and so long as the Purchaser owns all of the Shares purchased by it hereunder, the Company will nominate and recommend as a candidate for election to the Board of Directors of the Company a person (the "Nominee") who is reasonably acceptable to the then current Board of Directors of the Company and who is designated by the Purchaser. At the Company's election, Purchaser shall cause the Nominee to resign from the Board of Directors of the Company, and the Company will be under no obligation to nominate and recommend the Nominee, at any time when (i) the Purchaser owns less than all of the Shares purchased by it hereunder, (ii) the Master Agreement is terminated, (iii) in the good faith judgment of the Chairman of the Board of Directors of the Company, Purchaser is in default under the Transaction Documents, or (iv) at such time as, in the good faith judgment of the Chairman of the Board of Directors of the Company, a dispute exists between - 11 - 13 the Company and the Purchaser with respect to any material aspect of any of the Transaction Documents. At such time as such of the conditions stated in the preceding sentence that have led to the resignations of the Nominee or the suspension of the Company's nomination obligation are cured or are no longer applicable in the good faith judgment of the Chairman of the Board of Directors of the Company, the Company will again nominate and recommend as a candidate for election to the Board of Directors of the Company the Nominee or another nominee reasonably acceptable to the then current Board of Directors of the Company designated by the Purchaser. It is understood by the parties that if, in the good faith judgment of the Chairman of the Board of Directors of the Company, matters come before the Board of Directors for consideration which either (a) could constitute a conflict of interest if considered by the Nominee in light of the Nominee's obligations to the Company as a director and to the Purchaser as its representative, or (b) involve confidential information concerning the Company and its relationships with one or more third parties the disclosure of which to a representative of the Purchaser would not be in the best interests of the Company's stockholders generally, the Board of Directors may require that such information not be disclosed to the Nominee and that the Nominee be recused from any meeting or other action of the Board of Directors at which such matters are considered (and the Purchaser shall cause the Nominee to be so recused). SECTION 6.04 OTHER AGREEMENTS The Company shall fully perform all agreements between the parties to be performed by it under each of the Transaction Documents. ARTICLE VII COVENANTS OF THE PURCHASER SECTION 7.01 STANDSTILL AGREEMENT. The Purchaser agrees that until the later of June 30, 2006 or five years after the termination of the Master Agreement, it will not, directly or indirectly, (unless in any such case specifically invited in writing to do so by the Board of Directors of the Company) do any of the following: (i) except as acquired pursuant to this Agreement or as a result of any stock split, stock dividend or similar recapitalization by the Company, acquire, offer to acquire, or agree to acquire by purchase or otherwise, individually or by joining a partnership, limited partnership, syndicate or other "group" (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (any such act, to "acquire"), any securities of the Company entitled to vote, or securities convertible into or exercisable or exchangeable for such securities (collectively, "Voting Securities") if, after such acquisition, the Purchaser would beneficially own 5% or more of the total combined voting power of the Company's Voting Securities then outstanding; - 12 - 14 (ii) form, join, participate in or encourage the formation of a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of Voting Securities; (iii) make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act) or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to the Company, or initiate, propose or otherwise solicit stockholders of the Company for the approval of one or more stockholder proposals with respect to the Company or induce or attempt to induce any other person to initiate any stockholder proposal; (iv) deposit any Voting Securities into a voting trust or subject them to any voting agreement or other agreement or arrangement with respect to the voting of such Voting Securities; (v) otherwise act, directly or indirectly, alone or in concert with others, to seek to control the management, Board of Directors, policies or affairs of the Company, or solicit, propose, seek to effect or negotiate with any other person with respect to any form of business combination transaction with the Company or any affiliate thereof, or any restructuring, recapitalization or similar transaction with respect to the Company or any affiliate thereof, or announce or disclose an intent, purpose, plan or proposal with respect to the Company or any voting securities inconsistent with the provisions of this Agreement, including an intent, purpose, plan or proposal that is conditioned on or would require the Company to waive the benefit of or amend any provision of this Agreement, or assist, participate in, facilitate or encourage or solicit any effort or attempt by any person to do or seek to do any of the foregoing; provided, however, that designation of an individual as a Nominee pursuant to Section 6.03 hereof shall not constitute a breach of this clause (v); and (vi) encourage or render advice to or make any recommendation or proposal to any person, or directly or indirectly participate, aid and abet or otherwise induce any person to engage in any of the actions prohibited by this Article VII or to engage in any actions inconsistent with such prohibitions. SECTION 7.02 "LOCK-UP" AGREEMENTS. If and to the extent requested by the Company and any underwriter of shares of capital stock of the Company, the Purchaser shall enter into any lock-up or similar agreements under which it shall agree not to sell or otherwise transfer or dispose of any of the Shares for a period not to exceed 120 days following the effective date of any registration statement filed by the Company under the Securities Act, except for transfers or dispositions to affiliates or donees of the Purchaser who agree to enter into similar lock-up agreements, provided that similar - 13 - 15 agreements are entered into by directors, senior executive officers and major shareholders as requested by the Company and such underwriter. SECTION 7.03 OTHER AGREEMENTS. Purchaser shall fully perform all agreements between the parties to be performed by it under each of the Transaction Documents. ARTICLE VIII MISCELLANEOUS SECTION 8.01 SURVIVAL. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issuance, sale and delivery of the Shares. SECTION 8.02 BINDING EFFECT; ASSIGNMENT. All representations, covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. This Agreement may not be assigned by the Company and may only be assigned by Purchaser to Rhone-Poulenc Rorer (Holdings) Inc., a Delaware corporation, or any other wholly-owned subsidiary of Rhone-Poulenc Rorer Inc. SECTION 8.03 NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person or by facsimile transmission, overnight delivery by a recognized express courier company such as Federal Express, DHL or UPS or mailed by certified or registered mail, return receipt requested, addressed as follows: (a) if to the Company: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attention: Thomas C. Seoh, Vice President, General Counsel and Secretary - 14 - 16 with a copy to: Hogan & Hartson, L.L.P. Suite 1600 111 S. Calvert Street Baltimore, Maryland 21202-6191 Attention: Michael J. Silver (b) if to the Purchaser: Rhone-Poulenc Rorer Inc. 500 Arcola Road Collegeville, Pennsylvania 19426 Attention: General Counsel (c) with a copy to Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, Pennsylvania 19103 Attention: James W. Jennings or, in any case, at any other address or addresses as shall have been furnished in writing by a party to the others. All notices shall be deemed given when delivered, if delivered in person or by facsimile or telecopy, overnight delivery or five days after deposit in the U.S. Mail, if delivered by U.S. Mail. SECTION 8.04 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware, excluding the choice of law provisions thereof. SECTION 8.05 ENTIRE AGREEMENT. This Agreement, and the other Transaction Documents contain the entire understanding of the parties relating to the subject matter hereof and supersedes all prior agreements, arrangements, and understandings, written or oral, between the parties relating to the subject matter hereof. - 15 - 17 SECTION 8.06 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 8.07 AMENDMENTS. This Agreement may be amended or modified only with the written consent of the Company and the Purchaser. No waiver shall be effective without the written consent of the party entitled to waive compliance. SECTION 8.08 SEVERABILITY. If any provision of this Agreement shall be declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby. SECTION 8.09 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement. IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement as of the day and year first above written. GUILFORD PHARMACEUTICALS INC. By: /c/ Craig R. Smith, M.D. ------------------------------------ Craig R. Smith, M.D. President and Chief Executive Officer RHONE-POULENC RORER INC. By: /c/ Claude Dupuis ------------------------------------ Name: Claude Dupuis ------------------------------ Title: Vice President ------------------------------ - 16 - EX-10.43 5 LOAN AGREEMENT 1 EXHIBIT 10.43 LOAN AGREEMENT BETWEEN GUILFORD PHARMACEUTICALS INC. AND RHONE-POULENC RORER INC. DATED AS OF JUNE 13, 1996 - -------------------------------------------------------------------------------- 2 LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement"), is entered into as of June 13, 1996, by and among Guilford Pharmaceuticals Inc., a Delaware corporation (the "BORROWER"), and Rhone-Poulenc Rorer Inc., a Pennsylvania corporation (the "LENDER"). WHEREAS, the Lender's subsidiary, Rhone-Poulenc Rorer Pharmaceuticals Inc., a Delaware corporation ("RPR Pharmaceuticals"), the Borrower and the Borrower's subsidiary, GPI Holdings, Inc., a Delaware corporation ("GPI Holdings") have executed a Marketing, Sales and Distribution Rights Agreement dated as of the date hereof (the "Marketing Rights Agreement"), concerning an arrangement relating to the marketing, sale and distribution worldwide (except for Denmark, Finland, Norway and Sweden) by RPR Pharmaceuticals of the Borrower's anticancer therapeutic, GLIADEL(R) wafer and other PCPP:SA-based polymer products containing carmustine for brain cancer and certain related arrangements regarding the Borrower's other polymer cancer therapeutic products, which contemplates the provision by the Lender of a line of credit in the amount of $7,500,000 to be used by the Borrower in expanding its manufacturing and related facilities; and WHEREAS, the Lender is willing, upon and subject to the terms and conditions hereof, to extend such a line of credit to the Borrower; NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms (whether or not underscored or spelled with initial capitals) shall, except where the context otherwise requires, have the meanings specified in this Section (such definitions to be equally applicable to the singular and plural forms thereof): "AGREEMENT" shall mean this Loan Agreement, as the same from time to time may be amended, supplemented or modified. "APPLICABLE LAW" shall mean the laws of the State of Maryland. "BORROWER" shall have the meaning provided in the recitals hereto. "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Maryland are authorized or required by law to close. "COLLATERAL" shall mean (i) the Second Mortgage and the property interest secured thereby, (ii) the Equipment and (iii) such other security as the parties may agree to the Lender as -1- 3 security for the Obligations. "COST OF FUNDS" shall mean the lowest interest rate from time to time paid by the Lender on its most senior Indebtedness. "DEFAULT" shall mean any of the events specified in Section 6 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DOLLAR" and "$" shall mean dollars in lawful currency of the United States of America. "EQUIPMENT" shall have the meaning given such term in Section 9-109(2) of the Uniform Commercial Code, including, without limitation, machinery, equipment, furnishings, fixtures, and vehicles hereafter acquired by the Borrower with Loan proceeds under this Agreement, including, without limitation, all items of machinery and equipment of any kind, nature and description, whether affixed to real property or not, as well as trucks and vehicles of every description, trailers, handling and delivery equipment, fixtures and office furniture, as well as all additions to, substitutions for, replacements of or accessions to any of the items recited as aforesaid and all attachments, components, parts (including spare parts) and accessories whether installed thereon or affixed thereto and all fuel for any thereof. "EVENT OF DEFAULT" shall mean any of the events specified in Section 6 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. "GPI HOLDINGS" shall have the meaning provided in the recitals hereto. "INDEBTEDNESS" of any Person shall mean: (a) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (including, without limitation, all notes payable and drafts accepted representing extensions of credit and all obligations evidenced by bonds, debentures, notes or other similar instruments or on which interest charges are customarily paid); -2- 4 (b) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder; and (c) all other items (including, without limitation, capitalized leases) which, in accordance with GAAP, would be included as indebtedness on the liability side of a balance sheet of such Person as of the date at which Indebtedness is to be determined. "INITIAL FUNDING DATE" shall have the meaning specified in Section 2.3 of this Agreement. "LEASE" shall mean the Lease Agreement dated August 30, 1994. between the Borrower as lessee and Crown Royal Limited Parntership as lessor, relating to the property located at 6611 Tributary Street, Baltimore, Maryland. "LENDER" shall have the meaning provided in the recitals hereto. "LIEN" shall mean any mortgage, security interest, deed of trust, pledge, hypothecation, assignment, assigned deposit arrangement, encumbrance, lien (statutory or other), claim, option, reservation, right-of-way, easement, covenant, lease, condition, restriction, charge or defect of any kind, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other type of title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "LOAN" shall have the meaning specified in Section 2.1 of this Agreement. "LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Second Mortgage and the Pledge Agreement, and all certificates, documents and instruments required by, referred to in or delivered pursuant to this Agreement, the Notes, or the Pledge Agreement. "MARKETING RIGHTS AGREEMENT" shall have the meaning provided in the recitals hereto. "MATERIAL ADVERSE EFFECT" shall mean any event which may have a material adverse effect on the financial condition or results of operations of the Borrower and its subsidiaries, taken as a whole. "MIDFA" shall mean the Maryland Industrial Development Financing Authority. "NOTES" shall have the meaning specified in Section 2.3 of this Agreement. -3- 5 "OBLIGATIONS" shall mean: (a) all of the unpaid principal of and accrued interest on the Notes; and (b) all other indebtedness, liabilities and obligations of the Borrower to the Lender, whether now existing or hereafter incurred or created under, arising out of, or in connection with this Agreement and the Loan Documents, including, without limitation, any future advances hereunder or thereunder. "PERSON" shall mean an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLEDGE AGREEMENT" shall mean the pledge and security agreement executed by the Borrower, in substantially the form of Exhibit B attached hereto (together with all amendments, if any, thereafter from time to time made thereto), pledging as collateral a first lien on the Equipment and such other security as the parties may agree to the Lender as security for the Obligations. "PRODUCT" shall have the meaning provided in the Marketing Rights Agreement. "RPR PHARMACEUTICALS" shall have the meaning provided in the recitals hereto. "SECOND FUNDING DATE" shall have the meaning specified in Section 2.3 of this Agreement. "SECOND MORTGAGE" shall mean the second mortgage executed by the Borrower, in form and substance satisfactory to the Lender, pledging as collateral a second industrial leasehold mortgage on the Borrower's facility at 6611 Tributary Street, Baltimore, Maryland. "SIGNET AGREEMENT" shall mean the Loan and Financing Agreement dated December 5, 1994, by and among Maryland Economic Development Corporation, the Borrower and Signet Bank/Maryland, or any agreement evidencing the renewal or refinancing of the Indebtedness incurred thereunder. "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement of even date herewith (together with all amendments, if any, thereafter from time to time made thereto), executed by the Borrower and the Lender, pursuant to which the Lender or certain of its subsidiaries may purchase common stock, par value $0.01 per share, of the Borrower. "SUPPLY AGREEMENT" shall have the meaning specified in Section 2.4 of this Agreement. "UNIFORM COMMERCIAL CODE" or "UCC" shall mean the provisions of the Uniform Commercial Code adopted by and in effect in the State of Maryland. -4- 6 2. LOAN AND NOTES 2.1 LOAN Subject to the terms and conditions set forth herein, the Lender agrees to extend to the Borrower, a line of credit in the principal amount of $7,500,000 (the "Loan"). The Loan shall be made (subject to the conditions precedent specified in Section 4 hereof) in accordance with the procedures specified in Section 2.3. hereof. 2.2 INTEREST The principal amount outstanding from time to time of the Loan shall bear interest, from the date of the Initial Funding Date until paid in full, at an annual rate (computed on the basis of a 360-day year and applied to the actual number of days in each interest calculation period) equal to the Lender's Cost of Funds. Such rate of interest shall be adjusted simultaneously with each change in the Lender's Cost of Funds, provided, however, that no rate of interest will be charged which would, over the term of the Loan, exceed the maximum, lawful, non-usurious rate of interest (if any) which under Applicable Law the Lender is permitted to charge the Borrower on this Agreement and the Notes from time to time. Notwithstanding the foregoing, during the continuance of an Event of Default hereunder (after the expiration of any cure periods related to such Event of Default), interest shall accrue on the unpaid principal balance of the Loan at an annual rate equal to the Lender's Cost of Funds plus three percent (3%). 2.3 FUNDING Subject to the terms and conditions set forth herein including, without limitation, the conditions precedent specified in Section 4 hereof, funding of the Loan by the Lender will take place as follows: 2.3.1 INITIAL INSTALLMENT The Lender will disburse $4,000,000 (the "Initial Installment") by wire transfer to an account designated by the Borrower on a date (the "Initial Funding Date") specified by the Borrower to the Lender, which date shall be no earlier than the later of (i) January 2, 1997 or (ii) the first Business Day following the date on which RPR Pharmaceuticals is required to pay to the Borrower the amount specified in Section III.D.3. of the Marketing Rights Agreement; and -5- 7 2.3.2 SECOND INSTALLMENT The Lender will disburse $3,500,000 (the "Second Installment") by wire transfer to an account designated by the Borrower on the date (the "Second Funding Date") specified in writing by the Borrower to the Lender which date shall be no earlier than twelve nor later than eighteen months after the Initial Funding Date; the Initial Funding Date and the Second Funding Date may sometimes be referred to collectively as the "Funding Dates" and individually as a "Funding Date." Notwithstanding the foregoing, the parties agree to consult in good faith to consider making available to the Borrower the proceeds of the Second Installment on a different timetable in order to enable the Borrower to meet RPR Pharmaceutical's forecast for demand of the Product and the Borrower's manufacturing plan for the Product under the Supply Agreement. The Borrower's indebtedness to the Lender for the Loan, together with interest accrued thereon, shall be evidenced by promissory notes executed by the Borrower and delivered to the Lender on each Funding Date (hereinafter called the "Notes"), substantially in the form of Exhibits A-1 and A-2 attached hereto. 2.3.3 TERMINATION Notwithstanding anything herein to the contrary, if, prior to the advance of any funds by the Lender under this Agreement, RPR Pharmaceuticals has exercised its right to terminate the Marketing Rights Agreement as provided in Section IV.D.3. thereof, the Lender shall have no further obligation to advance any funds hereunder and this Agreement shall automatically terminate and be of no further force or effect. 2.4 PAYMENT 2.4.1 INTEREST Interest on each Loan installment shall be due and payable in quarterly installments beginning on the Initial Funding Date or the Second Funding Date, as the case may be, until the principal amount relating to such Loan installment shall be paid in full. Any payment of interest may be made, at the option of the Borrower, in cash or offset against any undisputed payment then due by the Lender or RPR Pharmaceuticals (a) to the Borrower under the Manufacturing and Supply Agreement, dated as of the date hereof, by and between the Borrower and RPR Pharmaceuticals (the "Supply Agreement") or (b) to GPI Holdings under the Marketing Rights Agreement; provided that the Borrower shall furnish the Lender with at least five Business Days prior notice of its intention to offset and, if requested by the Lender, supporting documentation of its right to offset. 2.4.2 PRINCIPAL The principal amount of each Loan installment shall be due and payable upon the -6- 8 fifth anniversary date of the Funding Date on which such Loan installment was made. Unless the principal balance of the Notes is accelerated as provided therein or in Section 6 hereof, no principal amount of any Loan installment shall be due and payable until the fifth anniversary date of the Initial Funding Date or the Second Funding Date, as the case may be. The principal amount of any Loan installment may be prepaid in whole or in part at any time or times without premium or penalty, at the option of the Borrower, in cash or offset against any undisputed payment then due by the Lender or RPR Pharmaceuticals (a) to the Borrower under the Supply Agreement or (b) to GPI Holdings under the Marketing Rights Agreement; provided that the Borrower shall furnish the Lender with at least five Business Days prior notice of its intention to offset and, if requested by the Lender, supporting documentation of its right to offset. 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER In order to induce the Lender to enter into this Agreement and to make the Loan, the Borrower hereby makes the following representations and warranties to the Lender, which representations and warranties shall survive the execution and delivery hereof and of the Notes: 3.1 CORPORATE STATUS The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; has the power and authority, corporate and otherwise, to own, operate and lease its properties, to carry on its business as currently conducted, to execute and deliver this Agreement, the Notes and the other Loan Documents, and to perform all of its obligations under this Agreement, the Notes and the other Loan Documents. The Borrower is duly qualified to conduct business and is in good standing under the laws of the State of Maryland and each other jurisdiction in which the conduct of its business requires such qualification, except where the failure to qualify to do business would not have a Material Adverse Effect. 3.2 CERTIFICATE OF INCORPORATION AND BYLAWS The Borrower has furnished to the Lender a complete and correct copy of its Amended and Restated Certificate of Incorporation, as presently in effect, certified as of a recent date by the Secretary of State of the State of Delaware, and a complete and correct copy of the bylaws of the Borrower, as currently in effect, certified by its corporate secretary. 3.3 AUTHORIZATION; NO VIOLATIONS The execution, delivery and performance by the Borrower of this Agreement, the Notes, and the other Loan Documents and the fulfillment of and the compliance with the respective terms and provisions thereof, have been duly and validly authorized by all necessary -7- 9 corporate actions on the part of the Borrower (none of which actions have been modified or rescinded, and all of which actions are in full force and effect), and do not and will not: 3.3.1 APPROVAL Require any consent or approval of the stockholders of the Borrower or of any Governmental Authority; 3.3.2 VIOLATION OF LAW Conflict with, or violate any provision of, any statute, law, ordinance, rule, regulation, order, writ, judgment, injunction, decree, determination or award of any arbitrator or Governmental Authority having applicability to the Borrower, any of its properties, or any provision of its Amended and Restated Certificate of Incorporation or bylaws; 3.3.3 NO DEFAULT OF OTHER OBLIGATIONS Conflict with, or result in any breach of, or constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, or to modify or cancel, any indenture or loan or credit agreement or any other material agreement, commitment, lease, contract, deed of trust, mortgage, note or other instrument to which the Borrower is a party or by which it or any of its properties may be bound or affected; or 3.3.4 DEBTS AND LIENS Result in or require the creation or imposition of or result in the acceleration of any Indebtedness or any Lien of any nature upon, or with respect to, the Borrower or any of the properties now owned or hereafter acquired by the Borrower except as contemplated herein; or In each case except for such conflicts, breaches or violations as would not individually or in the aggregate have a material adverse effect on the Borrower's ability to perform the Obligations or on the Collateral. 3.4 VALIDITY AND BINDING NATURE This Agreement and the Notes constitute, and each of the other Loan Documents when executed and delivered hereunder will constitute, a legal, valid and binding obligation of the Borrower, enforceable against each in accordance with its respective terms. 3.5 LITIGATION No actions, suits, claims, arbitrations, litigation, or proceedings or investigations before or by any arbitrator or Governmental Authority have been instituted or threatened to restrain, prohibit, invalidate or otherwise affect the transactions contemplated by this Agreement. -8- 10 3.6 PLEDGE AGREEMENT The provisions of the Pledge Agreement will be effective to create in favor of the Lender a legal, valid, and enforceable first priority security interest in all of the Equipment and such other security as the parties may agree, (and as more specifically defined in the Pledge Agreement); and, upon filing of the UCC financing statements identified therein, such security interest shall be perfected. 3.7 SECOND MORTGAGE The provisions of the Second Mortgage will be effective to create in favor of the Lender a legal, valid, and enforceable second priority security interest in the property interest secured thereby, and upon the recording thereof in the appropriate office, such security interest shall be perfected. 3.8 PLACE OF BUSINESS; CHIEF EXECUTIVE OFFICE The address stated in Section 8.2 hereof is the principal place of business and chief executive office of the Borrower and the place where its records concerning the Collateral are and will be kept. The Borrower does not conduct business under any trade, assumed or fictitious name and has not done so at any time within the past five years. 3.9 NO VIOLATION The Borrower is not in violation of any term or provision of its Amended and Restated Certificate of Incorporation or bylaws. 3.10 NO EXERCISE OF REMEDIES AGAINST THE BORROWER The Borrower has not received notice of the intent by any party to exercise any of its remedies upon the occurrence of an event of default by the Borrower under the Signet Agreement or the Lease. 3.11 COMPLIANCE WITH LAW The Borrower is in compliance with all laws, ordinances, rules and regulations to which it its subject (including, without limitation, applicable environmental, health and safety laws and regulations), except where the failure to so comply would not have a Material Adverse Effect. -9- 11 3.12 MATERIAL ADVERSE CHANGE There has been no material adverse change affecting the Borrower since the date of the last Quarterly Report on Form 10-Q filed by the Borrower with the Securities and Exchange Commission. 3.13 DISCLOSURE Neither the Loan Documents nor any other document delivered to the Lender in connection therewith contain any misrepresentation or untrue statement of a material fact or omit state any material fact necessary to make the Loan Documents or such other document not misleading. There is no fact that the Borrower has not disclosed to the Lender that materially and adversely affects or would materially and adversely affect the Collateral or the Borrower's ability to perform the Obligations. 4. CONDITIONS PRECEDENT The obligation of the Lender to make the Loan is subject to the satisfaction, at or before each Funding Date, of the following conditions precedent, the satisfaction of which shall be certified in writing by an officer of the Borrower on each Funding Date: 4.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE All representations and warranties made by the Borrower in this Agreement or in the other Loan Documents or otherwise made in writing in connection herewith or therewith shall be true and correct on and as of the applicable Funding Date with the same force and effect as though such representations and warranties had been made at and as of that Funding Date. All of the agreements, terms, covenants and conditions required by this Agreement to be complied with and performed by the Borrower on or prior to such Funding Date shall have been complied with and performed. 4.2 NO DEFAULT No Default or Event of Default under this Agreement and no event of default by the Borrower under the Marketing Rights Agreement, the Supply Agreement or the Stock Purchase Agreement shall have occurred and be continuing on the applicable Funding Date. 4.3 PLEDGE AGREEMENT AND SECOND MORTGAGE The Borrower shall have executed the Pledge Agreement and the Second Mortgage and delivered the same to Lender no less than 15 days prior to the Initial Funding Date, -10- 12 and the Lender shall be entitled to file any and all financing statements and to record any and all documents with the appropriate recording offices to perfect the security interests granted thereby. 4.4 RECEIPT OF NOTE The Lender shall have received an originally executed copy of the Note evidencing the Initial Installment or the Second Installment, as the case may be. 5. AFFIRMATIVE COVENANTS Until all Obligations of the Borrower under this Agreement, under the Notes and under the other Loan Documents are paid in full and performed, the Borrower hereby covenants and agrees that it shall, unless the Lender otherwise consents in advance in writing: 5.1 PAYMENT OF NOTES Punctually pay the principal of and interest on the Notes at the times and places and in the manner specified herein or therein. 5.2 CORPORATE EXISTENCE (a) Preserve, maintain, and keep in full force and effect its corporate existence under the laws of a state of the United States of America; (b) preserve, maintain, and keep in full force and effect all rights, franchises, and privileges necessary or desirable in the opinion of the Board of Directors of the Borrower in the normal conduct of its business; and (c) qualify and remain qualified as a foreign corporation in Maryland and in each jurisdiction in which such qualification is necessary in view of its business and operations and the ownership of its properties. 5.3 OWNERSHIP, USE AND MAINTENANCE OF COLLATERAL (a) Be the sole owner of, and have good and marketable title to, the Collateral, free and clear of all liens and encumbrances (excepting only the liens of the Lender and the lien of Signet Bank and MIDFA on the property secured by the Second Mortgage); (b) not dispose of, transfer or further encumber its interest in the Collateral; (c) to the extent that any Equipment purchased with Loan proceeds shall constitute fixtures, to use reasonable efforts to obtain a waiver of any other party's prior rights in such Equipment; (d) use the Collateral solely in the conduct of its business and in a careful and proper manner; and shall not change the location of any item of Equipment from 6611 Tributary Street, Baltimore, Maryland, or such other location as shall be identified to the Lender prior to the purchase thereof; and (d) keep all Collateral in good repair, working order and condition, and from time to time make all necessary or desirable -11- 13 repairs thereto and renewals and replacements thereof, except where the failure to do so would not have a material adverse effect on the Collateral. 5.4 STATEMENTS, NOTICES AND REPORTS Furnish to the Lender: (i) as soon as available but in no event more than 10 days after filing the same with the United States Securities and Exchange Commission (the "SEC"), a copy of the Borrower's Form 10-Q for each fiscal quarter; (ii) as soon as available but in no event more than 10 days after filing the same with the SEC, a copy of the Borrower's Annual Report to shareholders and/or Form 10-K filed with the SEC; (iii) promptly after the sending or filing thereof, copies of all financial statements and reports that the Company sends to its stockholders and copies of all other regular, periodic, and special reports which the Company files with the SEC; (iv) promptly after the receipt thereof, copies of all notices of the occurrence of an event of default by the Borrower under the Signet Agreement or the Lease, which notice includes a statement by the non-defaulting party of its intention to pursue its remedies under the Signet Agreement or the Lease, as the case may be; and (v) written notice 30 days prior to any contemplated change in the name or address of the Borrower. 5.5 USE OF PROCEEDS Apply the proceeds of the Initial Installment solely for the expansion of its facilities involved in or supporting the production of the Product (including without limitation polymer component and wafer production, stability and other storage, analytical, process development, packaging and shipping facilities), and apply the proceeds of the Second Installment solely toward the construction of a second manufacturing facility at 6611 Tributary Street, Baltimore, Maryland, or such other location as may be chosen by the Borrower with the consent of the Lender (such consent not to be unreasonably withheld), for the scale-up and production of the Product and other polymer systems, or in each case for such other uses as the parties may mutually agree. The parties agree that the Borrower's application of Loan proceeds to refinance the Borrower's expenditures in the second half of calendar 1996 for the foregoing purposes shall be deemed to be in compliance with this use of proceeds covenant. The Borrower will provide the Lender with reasonable documentation evidencing the use of proceeds in compliance with this covenant. -12- 14 5.6 TAXES Pay or cause to be paid when due all taxes and fees relating to the ownership and use of the Collateral. 5.7 INSURANCE 5.7.1 COVERAGE Keep the Collateral or cause it to be kept insured against loss or damage due to fire and the risks normally included in extended coverage, malicious mischief and vandalism, for the full replacement value thereof. All insurance maintained on the Equipment for loss or damage shall list the Lender as an additional insured. The proceeds of such insurance payable as a result of loss of or damage to the Equipment shall be applied toward the replacement, restoration or repair of the Equipment that may be lost, stolen, destroyed or damaged, provided, however, that if an Event of Default has occurred and is continuing, such proceeds may be applied, at the Lender's option, (a) toward the replacement, restoration or repair of the Equipment that may be lost, stolen, destroyed or damaged, or (b) toward payment of the balance outstanding on the Notes or the Obligations. In addition, the Borrower shall also carry public liability insurance against both personal injury and property damage. The Lender shall also be named as a loss payee to the extent of its interest on any fire or similar insurance policy maintained with respect to the property secured by the Second Mortgage. The Borrower shall pay or cause to be paid the premiums therefor and deliver to the Lender evidence satisfactory to Lender of such insurance coverage. The Borrower shall use its reasonable best efforts to provide to the Lender, not less than 15 days prior to the scheduled expiration or lapse of such insurance coverage, evidence satisfactory to the Lender of renewal or replacement coverage. 5.7.2 ENDORSEMENTS The Borrower shall use its reasonable best efforts to ensure that each insurer shall agree, by endorsement upon the policy or policies issued by it, or by independent instrument furnished to the Lender, that (a) it will give the Lender 30 days prior written notice of the effective date of any material alteration or cancellation of such policy; and (b) insurance as to the interest of any named loss payee other than the Borrower shall not be invalidated by any actions, inactions, breach of warranty or conditions or negligence of the Borrower with respect to such policy or policies. 5.8 COMPLIANCE WITH LAWS Comply with the requirements of all applicable statutes, laws, ordinances, rules, regulations, determinations, judgments, decrees and orders of any Governmental Authority, noncompliance with which could have a Material Adverse Effect. -13- 15 5.9 CORPORATE EXISTENCE At all times maintain its corporate existence except as expressly permitted herein. Borrower shall not consolidate with, merge into, or convey, transfer or lease substantially all of its assets as an entirety to (such actions being referred to as an "Event"), any Person, unless such Person shall (i) be an entity organized and existing under the laws of the United States of America or any state or the District of Columbia, and (ii) not less than 30 days before the Event execute and deliver to the Lender an agreement containing an effective assumption by such Person of the due and punctual performance and observance of each covenant and condition of this Agreement to be performed or observed by the Borrower. 5.10 SECURITY INTERESTS IN PRODUCT The Borrower shall not grant any security interest in, on or against the Product or the Patents, Know-How or Licensed Trademark relating to the Product (each as defined in the Marketing Rights Agreement). 5.11 INDEMNITY The Borrower shall indemnify, defend and hold harmless the Lender, its affiliates, subsidiaries, successors and assigns, and their respective directors, officers and employees, from and against any and all claims, actions and suits (including, without limitation, related attorneys' fees) of any kind, nature or description whatsoever arising, directly or indirectly, in connection with any of the Collateral (other than any claim, action or suit of arising out of the Lender's breach of any of the provisions of this Agreement or any other Loan Document or resulting from the Lender's gross negligence or willful misconduct), including, without limitation, any liability or alleged liability under any federal, state or local environmental laws that relate to any item of the Collateral or its use, ownership or disposition, the Lender's interest therein or any substances contained therein or discharged therefrom. The obligations of the Borrower under this Section shall survive the expiration or termination of this Agreement. 6. EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: 6.1 PAYMENT OF PRINCIPAL, INTEREST AND OTHER AMOUNTS The Borrower shall fail to pay, when due, the principal, any interest, or any other sum payable under the Notes (whether upon maturity thereof, upon any installment payment date, upon any prepayment date, upon acceleration or otherwise), and such failure shall continue -14- 16 for two (2) Business Days after written notice of the existence of such Default shall have been received by the Borrower from the Lender. 6.2 REPRESENTATIONS AND WARRANTIES Any representation or warranty made by or on behalf of the Borrower herein or in any other Loan Document shall prove to have been incorrect or breached on or as of any date as of which made. 6.3 OBSERVANCE OF OTHER PROVISIONS The Borrower shall fail to observe or perform any other term, covenant or agreement contained in this Agreement or in any other Loan Document and any such failure shall continue unremedied for thirty (30) Business Days after written notice of the existence of such Default shall have been received by the Borrower from the Lender. 6.4 INSOLVENCY AND SIMILAR EVENTS (a) A decree or order for relief of the Borrower shall be entered by a court of competent jurisdiction, except if the decree or order is stayed or lifted within sixty (60) days, in any involuntary case involving the Borrower under any bankruptcy, insolvency, or other similar law now or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar agent for the Borrower or for any substantial part of the Borrower's affairs shall be appointed, or any action shall be taken by any creditor (other than the Lender) of the Borrower preparatory to or for the purpose of commencing any such involuntary case, appointment, winding-up or liquidation. (b) The Borrower shall commence a voluntary case under any bankruptcy, insolvency or other similar law now or hereafter in effect, or the Borrower shall consent to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar agent for the Borrower or for any substantial part of the Borrower's assets or property, or the Borrower shall make any general assignment for the benefit of creditors, or the Borrower shall take any action preparatory to or otherwise in furtherance of any of the foregoing, or the Borrower shall fail generally to pay its debts as such debts come due. 6.5 LIQUIDATION AND DISSOLUTION The Borrower shall be liquidated or dissolved or shall lose its corporate or legal status by forfeiture or by any judicial or administrative proceeding. -15- 17 6.6 CROSS DEFAULTS The Borrower shall be in default under or with respect to (i) any Loan Document, (ii) the Stock Purchase Agreement, (iii) the Marketing Rights Agreement, (iv) the Signet Agreement, or (v) the Lease, in each case after all applicable cure periods have expired and, with respect to clause (iii), such default results in the termination by the Lender of the Marketing Rights Agreement and the Borrower shall have 60 days following such termination before such event shall be an Event of Default hereunder, and with respect to clauses (iv) and (v) the non-defaulting party shall have commenced pursuit of its remedies under the Signet Agreement or the Lease, as the case may be. 6.7 JUDGMENTS A final judgment, which alone or with other outstanding final judgments against the Borrower exceeds a total of $100,000 is rendered against the Borrower and, if within 30 days after entry thereof, the judgment shall not have been discharged or execution thereof stayed pending appeal, or if within 30 days after the expiration of any stay, the judgment shall not have been discharged. Upon the occurrence of any Event of Default (other than one specified in Section 6.4 or 6.5 hereof), the Lender may: (i) declare its obligation to make the Loan to be terminated, and declare the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement, the Notes and the other Loan Documents, to be accelerated and to be immediately due and payable, whereupon the Notes, all such accrued interest and all such amounts shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the other Loan Documents to the contrary notwithstanding; and (ii) in addition thereto, and not in substitution therefor, may exercise any one or more of the rights and remedies exercisable by the Lender under other provisions of this Agreement, under other Loan Documents, or provided by applicable law. Upon the occurrence of an Event of Default specified in Section 6.4 or 6.5, the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement, the Notes and the other Loan Documents shall be due and payable automatically and without any notice to the Borrower. 7. SECURITY As collateral security for the prompt and complete payment and performance when due of all the Obligations, and in order to induce the Lender to enter into this Agreement, the Borrower shall grant to the Lender (i) the Second Mortgage, and (ii) a first lien on the Equipment and such other security as the parties may agree, to be evidenced by the Pledge Agreement. -16- 18 8. MISCELLANEOUS 8.1 ADDITIONAL ACTIONS AND DOCUMENTS The Borrower hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents and instruments, and to obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement and of the other Loan Documents, whether before, at or after the closing of transactions contemplated hereby and thereby. 8.2 NOTICES All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), telegram, telex, or facsimile transmission, addressed as follows: (i) If to the Borrower: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attention: Thomas C. Seoh Vice President, General Counsel and Secretary Telephone: (410) 631-6441 Facsimile: (410) 631-6450 with a copy (which shall not constitute notice) to: Michael J. Silver, Esquire Hogan & Hartson L.L.P. 111 South Calvert Street, 16th Floor Baltimore, Maryland 21202 Telephone: (410) 659-2741 Facsimile: (410 539-6981 -17- 19 (ii) If to the Lender: Rhone-Poulenc Rorer Inc. 500 Arcola Road Collegeville, Pennsylvania 19426 Attention: General Counsel Telephone: (610) 454-8000 Facsimile: (610) 454-3807 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be mailed, delivered or transmitted in the manner described above shall be deemed sufficiently given, served, sent and received for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the affidavit of messenger or (with respect to a telex) the answerback being deemed conclusive (but not exclusive) evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 8.3 SEVERABILITY If fulfillment of any provision of this Agreement or of the other Loan Documents, or performance of any transaction related hereto or thereto, at the time such fulfillment or performance shall be due, shall involve transcending the limit of validity prescribed by law, then the obligation to be fulfilled or performed shall be reduced to the limit of such validity; and if any clause or provision contained in this Agreement or in the other Loan Documents operates or would operate prospectively to invalidate this Agreement or the other Loan Documents, in whole or in part, then only such clause or provision shall be held ineffective, as though not herein contained, and the remainder of this Agreement and of the other Loan Documents shall remain operative and in full force and effect. 8.4 SURVIVAL It is the express intention and agreement of the parties hereto that all covenants, agreements, statements, representations, warranties and indemnities made by the Borrower in this Agreement shall survive the execution and delivery of this Agreement, the making of all advances and extensions of credit, and the execution and delivery of all other Loan Documents. 8.5 WAIVERS No waiver by the Lender of or consent by the Lender to a variation from any provision of this Agreement or of any other Loan Document shall be effective unless made in a written instrument duly executed on behalf of the Lender by its duly authorized officer. No such -18- 20 waiver shall be considered a waiver of any rights of the Lender with respect to the particular obligations of the Borrower or with respect to the conditions to the obligations of the Lender beyond the rights or conditions as expressly waived, or a waiver in any respect with regard to any other rights of the Lender with respect to any other obligations of the Borrower. No failure or delay on the part of the Lender in exercising any power, right or privilege under this Agreement or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof, or the exercise of any other right or power under this Agreement or under any other Loan Document. No other actions taken by the Lender, including, without limitation, any investigation by or on behalf of the Lender, and no failure to take action, shall be deemed to constitute a waiver or an extension by the Lender of compliance with any representation, warranty, condition, agreement or indemnification set forth in this Agreement or in any other Loan Document. 8.6 RIGHTS CUMULATIVE The rights and remedies herein or in any of the other Loan Documents expressly provided are cumulative and not exclusive of any other rights or remedies which the Lender or the then holder of the Notes otherwise would have at law or in equity or otherwise. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the rights of the Lender or the then holder of the Notes to be entitled to any other or further action in any circumstances without notice or demand. 8.7 BINDING EFFECT Subject to any provisions hereof restricting assignment, this Agreement and the other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 8.8 ASSIGNMENT The Borrower may not assign its rights under this Agreement or under the other Loan Documents or any interest herein or therein, or attempt to have any other person or entity assume their obligations under this Agreement or under the other Loan Documents, without the prior written consent of the Lender. 8.9 AMENDMENT No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification or discharge is sought. -19- 21 8.10 ENTIRE AGREEMENT This Agreement (including the Loan Documents and the Exhibits hereto) constitutes the entire agreement between the parties hereto with respect to the Loan, and it supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein. 8.11 TERMINATION This Agreement shall terminate upon payment in full of all amounts payable and performance of all other Obligations owed by the Borrower to the Lender under this Agreement, the Notes and the other Loan Documents. 8.12 PAYMENTS If any payment or performance of the Notes or of any of the other Obligations becomes due on a day other than a Business Day, the due date shall be extended to the next succeeding Business Day, and interest thereon (if applicable) shall be payable at the then applicable rate during such extension. 8.13 HEADINGS Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 8.14 GOVERNING LAW This Agreement, the Notes and the other Loan Documents, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Pennsylvania. 8.15 EXECUTION To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all Persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the Persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing -20- 22 the respective signatures of, or on behalf of, all of the parties hereto. 8.16 RIGHT TO PERFORM If the Borrower fails to perform or comply with any of its agreements contained herein or in any other Loan Document, the Lender shall have the right, but not the obligation, to effect such performance or compliance, and the amount of any out-of-pocket expenses and other reasonable expenses (including reasonable attorneys' fees) of the Lender thereby incurred, together with interest thereon, shall be due and payable by the Borrower on demand. IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf, as of the day and year first hereinabove set forth. GUILFORD PHARMACEUTICALS INC.: Attest: /c/ Andrew R. Jordan By /c/ Craig R. Smith - -------------------- ------------------ Vice President & Chief President & Chief Executive Officer - ---------------------- ----------------------------------- Financial Officer [Title] - ----------------- [Title] RHONE-POULENC RORER INC.: Attest: /c/ R. B. Young By /c/ Claude Dupuis - --------------- ----------------- Secretary Vice President - --------- -------------- [Title] [Title] -21- 23 EXHIBIT A-1 NOTE $4,000,000 ________, 199_ FOR VALUE RECEIVED, Guilford Pharmaceuticals Inc., a Delaware corporation, (the "Maker"), promises to pay to the order of Rhone-Poulenc Rorer Inc. (the "Holder"), the principal amount of FOUR MILLION DOLLARS ($4,000,000) together with interest on the unpaid principal amount hereof from the date hereof, until paid in full, said interest to be due and payable on a quarterly basis at a rate per annum (computed on the basis of a 360 day year and applied to the actual number of days elapsed in each interest calculation period) equal to the Holder's Cost of Funds, as defined in the Loan Agreement, dated as of June 13, 1996 between Maker and the Holder (the "Loan Agreement"), with the entire remaining unpaid principal amount (together with accrued interest thereon) to be due and payable in a single payment on the fifth anniversary of the date hereof. All payments hereunder shall be made in lawful money of the United States of America, without offset, provided, however, that, as provided in Loan Agreement, the Maker shall be entitled to offset against any amount due hereunder any undisputed payment then due by the Holder or RPR Pharmaceuticals (a) to the Maker under the Supply Agreement or (b) to GPI Holdings under the Marketing Rights Agreement, each as defined in the Loan Agreement. The unpaid principal amount of this Note may be prepaid in whole or in part at any time or times without premium or penalty in accordance with the terms of the Loan Agreement. Each prepayment shall be applied first to the payment of all interest and other amounts accrued hereunder on the date of any such prepayment, and the balance of any such prepayment shall be applied to the principal amount hereof. No prepayment shall entitle any person to be subrogated to the rights of the Holder unless and until this Note has been paid in full. This Note evidences a loan advanced by the Holder for the benefit of the Maker as a borrower under the Loan Agreement and is secured by (i) a Second Mortgage (the "Second Mortgage"), of even date herewith, made and executed by the Maker for the benefit of the Holder, and (ii) a Pledge Agreement (the "Pledge Agreement"), of even date herewith, made and executed by the Holder and the Maker for the benefit of the Holder. Neither the reference to the Loan Agreement or to the Second Mortgage or the Pledge Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Maker to pay the principal amount hereof, together with interest accrued thereon, when due. This Note shall evidence, and the Second Mortgage and the Pledge Agreement shall secure, the indebtedness described herein and any future loans or advances or payments that may be made to or on behalf of the Maker by the Holder at any time or times hereafter under the Loan Agreement, and any such loans or advances or payments shall be added to and shall bear interest at the same rate as the principal indebtedness hereunder. The occurrence of any one or more of the following shall constitute an event of default ("Event of Default") hereunder: A-1 24 (1) Failure to pay, when due, the principal, any interest, or any other sum payable hereunder, and continuance of such failure for two (2) business days after written notice of the existence of such default shall have been received by the Maker from the Holder; or (2) The occurrence of any event of default under the Loan Agreement. Upon the occurrence of any such uncured Event of Default hereunder, the entire principal amount hereof, and all accrued and unpaid interest thereon, and any other amounts due under the Loan Agreement and the Pledge Agreement shall be accelerated, and shall be immediately due and payable, at the option of the Holder, without demand or notice, and in addition thereto, and not in substitution therefor, the Holder shall be entitled to exercise any one or more of the rights and remedies provided by applicable law, or as provided in the Loan Agreement. Failure to exercise said option or to pursue such other remedies shall not constitute a waiver of such option or such other remedies or of the right to exercise any of the same in the event of any subsequent Event of Default hereunder. The Holder may, upon the occurrence of any such Event of Default hereunder, have resort to the collateral, whether real or personal property, given as security for this Note in any order, and may sell and dispose of such collateral in whole or in part, at any time or from time to time, with no requirement on the part of the Holder of this Note to marshal assets. The Holder shall not be required to preserve any rights in such collateral as against prior parties. In the event that the Holder is required to give notice of any intended disposition of collateral held as security for this Note, fifteen days' notice given by mail or telegraph to the last known address of the Maker shall be deemed to be reasonable notice. The Maker promises to pay all reasonable costs and expenses (including without limitation reasonable attorneys' fees and disbursements) incurred in connection with the collection hereof or in the protection or realization of any collateral now or hereafter given as security for the repayment hereof and to perform each and every covenant or agreement to be performed by the Maker under this Note, the Loan Agreement, any Loan Document and any other instrument evidencing or securing the obligation represented by this Note. Any payment on this Note coming due on a Saturday, a Sunday, or a day which is a legal holiday in the place at which a payment is to be made hereunder shall be made on the next succeeding day which is a business day in such place, and any such extension of the time of payment shall be included in the computation of interest hereunder. Each Obligor (which term shall include the Maker and all makers, sureties, guarantors, endorsers, and other persons assuming obligations pursuant to this Note) under this Note hereby waives presentment, protest, demand, notice of dishonor, and all other notices, and all defenses and pleas on the grounds of any extension or extensions of the time of payments or the due dates of this Note, in whole or in part, before or after maturity, with or without notice. No renewal or extension of this Note, no release or surrender of any collateral given as security for this Note, no release of any Obligor, and no delay in enforcement of this Note or in exercising any right or power hereunder, shall affect the liability of any Obligor. The pleading of any statute of limitations as a defense to any demand against any Obligor is expressly waived. No single or partial exercise by the Holder of any right hereunder, under the Loan A-2 25 Agreement, under any Loan Document or under any other agreement given as security for this Note or pertaining hereto, shall preclude any other or further exercise thereof or the exercise of any other rights. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note. Whenever used herein, the words "Maker" and "Holder" and "Obligor" shall be deemed to include their respective successors and assigns. This Note shall be governed by and construed under and in accordance with the laws of Pennsylvania. IN WITNESS WHEREOF, the undersigned have duly executed this Note, or have caused this Note to be duly executed on their behalf, as of the day and year first hereinabove set forth. GUILFORD PHARMACEUTICALS INC.: Attest: By - -------------------------- -------------------------- - -------------------------- -------------------------- [Title] [Title] RHONE-POULENC RORER INC.: Attest: By - -------------------------- -------------------------- - -------------------------- -------------------------- [Title] [Title] A-3 26 EXHIBIT A-2 NOTE $3,500,000 ________, 199_ FOR VALUE RECEIVED, Guilford Pharmaceuticals Inc., a Delaware corporation, (the "Maker"), promises to pay to the order of Rhone-Poulenc Rorer Inc. (the "Holder"), the principal amount of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000) together with interest on the unpaid principal amount hereof from the date hereof, until paid in full, said interest to be due and payable on a quarterly basis at a rate per annum (computed on the basis of a 360 day year and applied to the actual number of days elapsed in each interest calculation period) equal to the Holder's Cost of Funds, as defined in the Loan Agreement, dated as of June 13, 1996 between the Maker and the Holder (the "Loan Agreement"), with the entire remaining unpaid principal amount (together with accrued interest thereon) to be due and payable in a single payment on the fifth anniversary date of the date hereof. All payments hereunder shall be made in lawful money of the United States of America, without offset, provided, however, that, as provided in the Loan Agreement, the Maker shall be entitled to offset against any amount due hereunder any undisputed payment then due by the Holder or RPR Pharmaceuticals (a) to the Maker under the Supply Agreement or (b) to GPI Holdings under the Marketing Rights Agreement, each as defined in the Loan Agreement. The unpaid principal amount of this Note may be prepaid in whole or in part at any time or times without premium or penalty in accordance with the terms of the Loan Agreement. Each prepayment shall be applied first to the payment of all interest and other amounts accrued hereunder on the date of any such prepayment, and the balance of any such prepayment shall be applied to the principal amount hereof. No prepayment shall entitle any person to be subrogated to the rights of the Holder unless and until this Note has been paid in full. This Note evidences a loan advanced by the Holder for the benefit of the Maker as a borrower under the Loan Agreement and is secured by (i) a Second Mortgage (the "Second Mortgage"), of even date herewith, made and executed by the Maker for the benefit of the Holder, and (ii) a Pledge Agreement (the "Pledge Agreement"), of even date herewith, made and executed by the Holder and the Maker for the benefit of the Holder. Neither the reference to the Loan Agreement or to the Second Mortgage or the Pledge Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Maker to pay the principal amount hereof, together with interest accrued thereon, when due. This Note shall evidence, and the Second Mortgage and the Pledge Agreement shall secure, the indebtedness described herein and any future loans or advances or payments that may be made to or on behalf of the Maker by the Holder at any time or times hereafter under the Loan Agreement, and any such loans or advances or payments shall be added to and shall bear interest at the same rate as the principal indebtedness hereunder. The occurrence of any one or more of the following shall constitute an event of default ("Event of Default") hereunder: A-1 27 (1) Failure to pay, when due, the principal, any interest, or any other sum payable hereunder, and continuance of such failure for two (2) business days after written notice of the existence of such default shall have been received by the Maker from the Holder; or (2) The occurrence of any event of default under the Loan Agreement. Upon the occurrence of any such uncured Event of Default hereunder, the entire principal amount hereof, and all accrued and unpaid interest thereon, and any other amounts due under the Loan Agreement and the Pledge Agreement shall be accelerated, and shall be immediately due and payable, at the option of the Holder, without demand or notice, and in addition thereto, and not in substitution therefor, the Holder shall be entitled to exercise any one or more of the rights and remedies provided by applicable law, or as provided in the Loan Agreement. Failure to exercise said option or to pursue such other remedies shall not constitute a waiver of such option or such other remedies or of the right to exercise any of the same in the event of any subsequent Event of Default hereunder. The Holder may, upon the occurrence of any such Event of Default hereunder, have resort to the collateral, whether real or personal property, given as security for this Note in any order, and may sell and dispose of such collateral in whole or in part, at any time or from time to time, with no requirement on the part of the Holder of this Note to marshal assets. The Holder shall not be required to preserve any rights in such collateral as against prior parties. In the event that the Holder is required to give notice of any intended disposition of collateral held as security for this Note, fifteen days' notice given by mail or telegraph to the last known address of the Maker shall be deemed to be reasonable notice. The Maker promises to pay all reasonable costs and expenses (including without limitation reasonable attorneys' fees and disbursements) incurred in connection with the collection hereof or in the protection or realization of any collateral now or hereafter given as security for the repayment hereof and to perform each and every covenant or agreement to be performed by the Maker under this Note, the Loan Agreement, any Loan Document and any other instrument evidencing or securing the obligation represented by this Note. Any payment on this Note coming due on a Saturday, a Sunday, or a day which is a legal holiday in the place at which a payment is to be made hereunder shall be made on the next succeeding day which is a business day in such place, and any such extension of the time of payment shall be included in the computation of interest hereunder. Each Obligor (which term shall include the Maker and all makers, sureties, guarantors, endorsers, and other persons assuming obligations pursuant to this Note) under this Note hereby waives presentment, protest, demand, notice of dishonor, and all other notices, and all defenses and pleas on the grounds of any extension or extensions of the time of payments or the due dates of this Note, in whole or in part, before or after maturity, with or without notice. No renewal or extension of this Note, no release or surrender of any collateral given as security for this Note, no release of any Obligor, and no delay in enforcement of this Note or in exercising any right or power hereunder, shall affect the liability of any Obligor. The pleading of any statute of limitations as a defense to any demand against any Obligor is expressly waived. No single or partial exercise by the Holder of any right hereunder, under the Loan A-2 28 Agreement, under any Loan Document or under any other agreement given as security for this Note or pertaining hereto, shall preclude any other or further exercise thereof or the exercise of any other rights. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note. Whenever used herein, the words "Maker" and "Holder" and "Obligor" shall be deemed to include their respective successors and assigns. This Note shall be governed by and construed under and in accordance with the laws of Pennsylvania. A-3 29 IN WITNESS WHEREOF, the undersigned have duly executed this Note, or have caused this Note to be duly executed on their behalf, as of the day and year first hereinabove set forth. GUILFORD PHARMACEUTICALS INC.: Attest: By - -------------------------- -------------------------- - -------------------------- -------------------------- [Title] [Title] RHONE-POULENC RORER INC.: Attest: By - -------------------------- -------------------------- - -------------------------- -------------------------- [Title] [Title] A-4 30 EXHIBIT B PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT ("Agreement") is entered into as of ______, 199_ between Guilford Pharmaceuticals Inc. ("Pledgor") and Rhone-Poulenc Rorer Inc. ("Secured Party"). WHEREAS, Pledgor and Secured Party have entered into a Loan Agreement, dated as of June 13, 1996, which, among other things, provides for the extension of a line of credit by the Secured Party to Pledgor for $7,500,000 (the "Loan Agreement"; capitalized terms used herein without definition shall have the meanings assigned to such terms in the Loan Agreement); and WHEREAS, Pledgor has agreed, pursuant to the Loan Agreement, to grant Secured Party, among other things, a first priority lien on equipment purchased with the proceeds pursuant to the Loan Agreement and such other security as the parties may agree; and WHEREAS, as a condition to the obligation of Secured Party to extend a line of credit to Pledgor, Pledgor is required to execute and deliver this Pledge Agreement and to pledge hereunder the Pledged Interest (as hereinafter defined); and NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS For the purposes of this Agreement: (a) An "Event of Default" means any violation of the obligations or breach by Pledgor of the representations and warranties set forth in this Agreement, which violation of obligations continues unremedied for a period of thirty (30) days after Secured Party gives written notice thereof to Pledgor; it being understood and agreed that Pledgor shall not be entitled to a thirty (30) day period within which to remedy a breach of a representation or warranty. (b) "Pledged Interest" means the Equipment (as defined in the Loan Agreement), all proceeds thereof, and such other security as the parties may agree. 2. PLEDGE OF PLEDGED INTEREST (a) As security for the due and punctual payment and performance by Pledgor of all of its obligations under the Notes issued pursuant to the Loan Agreement (the "Notes"), 31 under this Agreement, under any Loan Document and under any other related agreement to which Pledgor is a party (the "Secured Obligations") Pledgor hereby grants, transfers, sets over, pledges and assigns to Secured Party a first priority lien and security interest in the Pledged Interest and the proceeds thereof. (b) It is expressly agreed by Pledgor that, anything herein to the contrary notwithstanding, Pledgor shall remain liable under each contract or other agreement to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions thereof. Secured Party shall not have any obligation or liability thereunder by reason of or arising out of this Agreement or the assignment of such contract or other agreement to Secured Party or the receipt by Secured Party of any payment relating thereto pursuant hereto, nor shall Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of Pledgor thereunder or pursuant thereto, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party thereunder, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (c) If Pledgor fails to perform or comply with any of its agreements contained herein or in any Loan Document and Secured Party, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreements, the reasonable expenses of Secured Party incurred in connection with such performance or compliance (including, without limitation, reasonable attorneys' fees and expenses), together with interest thereon at the rate provided for in respect of the Notes, shall be payable by Pledgor to Secured Party on demand and shall constitute obligations secured hereby. 3. FINANCING STATEMENTS (a) At the request of Secured Party, Pledgor will promptly join with Secured Party in executing financing statements, continuation statements, certificates and other documents with respect to the Pledged Interest pursuant to the Uniform Commercial Code as in effect from time to time in the state of Maryland (the "UCC") and otherwise as may be necessary in the Secured Party's sole discretion to enable Secured Party to perfect or from time to time renew the security interests granted hereby, including, without limitation, such financing statements, continuation statements, certificates and other documents as may be necessary to perfect a security interest in any additional property or rights hereafter acquired by the Pledgor or in any replacements or proceeds thereof, in form satisfactory to Secured Party, and Pledgor will pay the cost of filing the same in all public offices wherever Secured Party deems filing to be necessary or desirable. Without limiting the foregoing, it is understood and agreed that, if requested by Secured Party, Pledgor shall execute financing statements from time to time that specifically identify and describe the Equipment that is purchased from time to time with the proceeds of the Loan. (b) Pledgor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact -2- 32 with full irrevocable power and authority in the place and stead of Pledgor and in the name of Pledgor or in its own name, from time to time in Secured Party's discretion, for the purpose of filing financing statements and making other similar filings, and to take any and all appropriate actions in connection with such filings. Pledgor hereby ratifies all that said attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. (c) The powers conferred on Secured Party hereunder are solely to protect its interests in the collateral and Secured Party shall not be under any duty to exercise any such powers. Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to Pledgor for any act or failure to act, except for its own gross negligence or willful misconduct. 4. REMEDIES ON DEFAULT (a) If at any time an Event of Default shall have occurred and be continuing, then, in addition to having the right to exercise any right or remedy of a secured party upon default under the UCC, Secured Party may, to the extent permitted by law, without being required to give any notice to Pledgor except as provided below: (i) Apply any cash held by it hereunder in the manner provided in Section 4(c) below; and (ii) If there shall be no such cash or if the cash so applied shall be insufficient to pay in full all such obligations, collect, receive, appropriate and realize upon the Pledged Interest or any part thereof, and sell, assign, contract to sell or otherwise dispose of and deliver the Pledged Interest or any part thereof, in one or more portions, at public or private sale, for cash, upon credit or for future delivery, and at such price or prices as Secured Party may deem best, and Secured Party may (except as otherwise provided by law) be the purchaser of any or all of the Pledged Interest so sold and thereafter may hold the same, absolutely, free from any right or claim of whatsoever kind. In the event of a sale as aforesaid, Secured Party is authorized, at any such sale, if it deems it advisable so to do, to restrict the number of prospective bidders or purchasers. Upon any such sale Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Pledged Interest so sold. Each purchaser at any such sale shall hold the property sold, absolutely, free from any claim or right of whatsoever kind. Secured Party shall give Pledgor not less than fifteen (15) days' written notice of its intention to make any such public or private sale. Such notice, in case of public sale, shall state the time and place fixed for such sale. -3- 33 Any such public sale shall be held at such time or times within the ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. Secured Party shall not be obligated to make any sale pursuant to any such notice. Secured Party may, without notice or publication, adjourn any sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Pledged Interest on credit or for future delivery, the Pledged Interest so sold may be retained by Secured Party until the selling price is paid by the purchaser thereof, but Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay for the Pledged Interest so sold and, in case of any such failure, such Pledged Interest may again be sold upon like notice. Secured Party, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose this Agreement and sell the Pledged Interest, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. On any sale of the Pledged Interest, Secured Party is hereby authorized to comply with any limitation or restriction in connection with such sale that it may be advised by counsel is necessary in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any governmental regulatory authority or officer or court. Compliance with the foregoing procedures shall result in such sale or disposition being considered or deemed to have been made in a commercially reasonable manner. (b) Each of the rights, powers, and remedies provided herein, or in any other related agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Agreement, in any Loan Document in any other related agreement, or now or hereafter existing at law or in equity or by statute or otherwise. The exercise of any such right, power or remedy shall not preclude the simultaneous or later exercise of any or all other such rights, powers or remedies. (c) The proceeds of any collection, recovery, receipt, appropriation, realization or sale as aforesaid shall be applied as follows: (1) First, to the payment of all costs and expenses of every kind incurred by Secured Party in connection therewith, including, without limitation, reasonable attorneys' fees and expenses; (2) Second, to the payment to Secured Party in satisfaction of the obligations of the Notes or any other Secured Obligations or, in the case of an Event of Default involving only the breach of a representation, warranty or covenant by Pledgor under this Agreement or under any other related agreement rather than a failure by Pledgor to perform one or more of its obligations under the Notes, to Secured Party, in satisfaction of such representation, warranty or -4- 34 covenant; or, in the case of an Event of Default involving the breach or any such representation, warranty or covenant and a failure by Pledgor to perform one or more of its obligations under the Notes, to satisfy all such representations, warranties, covenants and obligations; (3) Third, to the payment of any other amounts required by applicable law; and (4) Fourth, to the payment of any surplus then remaining from such proceeds to Pledgor, unless otherwise required by law or directed by a court of competent jurisdiction; provided that Pledgor shall not be liable for any deficiency if such proceeds are insufficient to satisfy all representations, warranties, covenants and obligations under the Notes, under this Agreement and under any other related agreement. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR (a) Representations and Warranties. Pledgor represents, warrants and covenants that: (i) Pledgor has all requisite capacity, power and authority, being under no legal restriction, limitation or disability, to enter into this Agreement, to pledge the Pledged Interest for the purposes described herein, and to carry out the transactions contemplated by this Agreement. This Agreement constitutes a legal, valid, and binding obligation of Pledgor, enforceable in accordance with its terms. (ii) Pledgor has good, valid and marketable title to the Pledged Interest, free and clear of all Liens other than Liens created by this Agreement. (iii) The Pledged Interest is duly and validly pledged to Secured Party in accordance with law and Secured Party has a good, valid, and perfected first priority lien on and security interest in the Pledged Interest and the proceeds thereof. (iv) The execution, delivery and performance by Pledgor of this Agreement does not and will not result in any violation of any agreement, indenture or other instrument, license, judgment, decree, order, law, statute, ordinance or other governmental rule or regulation applicable to Pledgor. (v) No approval, consent or other action by Pledgor, by any governmental authority, or by any other person or entity is or will be necessary to permit the valid execution, delivery or performance of this Agreement by Pledgor. -5- 35 (vi) There is no claim, litigation, proceeding or investigation pending, threatened or reasonably anticipated against or affecting Pledgor, this Agreement, or the transactions contemplated hereby, before or by any court, arbitrator or governmental authority which might adversely affect Pledgor's ability to perform Pledgor's obligations under this Agreement. (b) Covenants. Until all Secured Obligations have been paid and performed in full or until all of the Pledged Interest is returned to Pledgor pursuant to Section 6 hereof, whichever is earlier, Pledgor hereby covenants that, unless Secured Party otherwise consents in advance in writing: (i) Preservation of Pledge. Pledgor shall execute, deliver, and file any and all financing statements, continuation statements, stock powers, instruments, and other documents, necessary in the sole discretion of Secured Party to create, perfect, preserve, validate or otherwise protect the pledge of the Pledged Interest to Secured Party and Secured Party's lien on and security interest in the Pledged Interest and the first priority thereof; maintain, or cause to be maintained, at all times, the pledge of the Pledged Interest to Secured Party and Secured Party's lien on and security interest in the Pledged Interest and the first priority thereof; and defend the Pledged Interest and Secured Party's interests therein against all claims and demands of all persons asserting such claims or demands by or through Pledgor at any time claiming the same or any interest therein adverse to Secured Party and pay all costs and expenses (including, without limitation, attorneys' fees and expenses) in connection with such defense. (ii) Transfer of Pledged Interest. Pledgor shall not sell, transfer, pledge, assign or otherwise dispose of the Pledged Interest or any interest therein, and Pledgor shall not create, incur, assume or suffer to exist any Lien with respect to any of the Pledged Interest or any interest therein. (iii) Other Actions. Pledgor shall not take or permit to be taken any action in connection with the Pledged Interest or otherwise which would impair the value of the interests or rights of Pledgor therein or which would impair the interests or rights of Secured Party therein or with respect thereto. (iv) Location of Pledged Interest. Pledgor shall keep and maintain all Equipment at the locations identified on Schedule 1 attached hereto and made a part hereof and shall not change the location of any Equipment without the prior written consent of the Secured Party. (v) Notice of Purchase of Equipment. From the date of the Initial Installment until one month after all of the proceeds of the Loan advanced in the Initial Installment have been expended, Pledgor shall -6- 36 provide Secured Party with written notice each month of all items of Equipment that Pledgor has purchased with the proceeds of the Loan and shall promptly provide such additional descriptive information regarding the Equipment as Secured Party shall request. 6. RELEASE OF PLEDGED INTEREST So long as no Event of Default has occurred, when the Notes have been paid in full and all other Secured Obligations have been paid or performed in full, this Agreement shall terminate and the Pledged Interest held by Secured Party shall promptly be returned to Pledgor at the address of Pledgor set forth in Section 13 hereof. 7. ADDITIONAL ACTIONS AND DOCUMENTS Pledgor hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents and instruments, and to obtain such consents, as may be necessary or as may be desirable in order to fully effectuate the purposes, terms and conditions of this Agreement, whether before, at or after the occurrence of an Event of Default. 8. EXPENSES OF SECURED PARTY Pledgor agrees to reimburse Secured Party for, and save Secured Party harmless against liability for the payment of, all out-of-pocket expenses arising in connection with the enforcement of, or for the preservation or exercise of any rights (including the right to realize upon the Pledged Interest) under, this Agreement, including, without limitation, the reasonable fees and expenses of counsel to Secured Party arising in such connection. 9. ENTIRE AGREEMENT; AMENDMENT This Agreement constitutes the entire agreement among the parties hereto with respect to the transactions contemplated herein, and it supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein. No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed and delivered by the party against whom enforcement of the amendment, modification, or discharge is sought. 10. WAIVER No waiver by Secured Party of or consent by Secured Party to a variation from any provision of this Agreement shall be effective unless made in a written instrument duly executed on behalf of Secured Party by its duly authorized officer. No such waiver shall be considered a waiver of any rights of Secured Party with respect to the particular obligations of -7- 37 Pledgor or with respect to the conditions to the obligations of Secured Party beyond the rights or conditions as expressly waived, or a waiver in any respect with regard to any other rights of Secured Party with respect to any obligations of Pledgor. No delay or failure on the part of Secured Party in exercising any right, power or privilege under this Agreement shall impair any such right, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege, or the exercise of any other right, power or privilege. No other actions taken by Secured Party, including, without limitation, any investigation by or on behalf of Secured Party, and no failure to take action, shall be deemed to constitute a waiver or an extension by Secured Party of compliance with any representation, warranty, condition, agreement or indemnification set forth in this Agreement. 11. SEVERABILITY If any part of any provision of this Agreement shall be invalid or unenforceable in any respect, 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. 12. GOVERNING LAW This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the state of Maryland. 13. NOTICES All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), telegram, telex, or facsimile transmission, addressed as follows: (i) If to Pledgor: Guilford Pharmaceuticals Inc. 6611 Tributary Street Baltimore, Maryland 21224 Attention: Thomas C. Seoh Vice President, General Counsel and Secretary Telephone: (410) 631-6441 Facsimile: (410) 631-6450 -8- 38 (ii) If to Secured Party: Rhone-Poulenc Rorer Inc. 500 Arcola Road Collegeville, Pennsylvania 19426 Attention: General Counsel Telephone: (610) 454-8000 Facsimile: (610) 454-3807 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be mailed, delivered or transmitted in the manner described above shall be deemed sufficiently given, served, sent and received for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the affidavit of messenger or (with respect to a telex) the answerback being deemed conclusive (but not exclusive) evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 14. HEADINGS Section headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 15. EXECUTION IN COUNTERPARTS To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 16. SECURED PARTY'S RIGHTS CUMULATIVE The rights and remedies of, or for the benefit of, Secured Party described herein, in any other related agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Agreement. The exercise of any such right, power or remedy shall not preclude the simultaneous or later exercise of any or all other such rights, powers or remedies. No notice to or demand on Pledgor in any case shall entitle Pledgor to any other notice or demand in similar or other circumstances. -9- 39 17. BINDING EFFECT Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and assigns. 18. ASSIGNMENT This Agreement may not be assigned by Pledgor without the prior written consent of Secured Party. [In the event of a sale or assignment by Secured Party of all or any part of the interests in the Notes, Secured Party may assign and transfer its rights and interests under this Agreement in whole or in part to the purchaser or purchasers of such interests in the Notes, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to Secured Party hereunder, and shall be deemed to be a "Secured Party" for all purposes hereunder, and the predecessor Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility hereunder with respect to the rights and interests so assigned.] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first above written. GUILFORD PHARMACEUTICALS INC.: Attest: By - --------------------------- --------------------------- - --------------------------- --------------------------- [Title] [Title] RHONE-POULENC RORER INC.: Attest: By - --------------------------- --------------------------- - --------------------------- --------------------------- [Title] [Title] -10- EX-10.44 6 1993 EMPLOYEE SHARE OPTION PLAN 1 EXHIBIT 10.44 AMENDMENT TO 1993 EMPLOYEE SHARE OPTION AND RESTRICTED SHARE PLAN, AS AMENDED On May 21, 1996, the stockholders of the Company approved amending the above-referenced plan to increase the number of shares of common stock, par value $.01 per share, of the Company available for grant as stock options from 600,000 shares to 1,800,000 shares. All other terms of the plan remained unchanged. EX-10.45 7 AMENDMENT TO THE DIRECTORS' STOCK OPTION PLAN 1 EXHIBIT 10.45 AMENDMENT TO THE DIRECTORS' STOCK OPTION PLAN On May 21, 1996, the stockholders of the Company approved amending the above-referenced plan to change the definition of "eligible director" to read in its entirety as follows: "a member of the Company's Board of Directors who is not an officer or employee of (i) the Company, (ii) any of its subsidiaries or (iii) a stockholder who owns twenty percent (20%) or more of the shares of Stock or of the shares of voting preferred stock of the Company which is convertible into twenty percent (20%) or more of the shares of Stock of the Company". All other terms of the plan remained unchanged. EX-11.1 8 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- Weighted average common shares outstanding 9,140,271 3,834,867 8,015,569 3,810,706 Dilutive incremental shares assumed to be outstanding related to stock options and warrants 1,096,488 - - - Weighted average common and common equivalent shares used in the computation of ------------- ------------- ------------- ------------- net income (loss) per share 10,236,759 3,834,867 8,015,569 3,810,706 ============= ============= ============= ============= Net Income (loss) $ 2,775,104 $ (2,904,691) $(1,743,996) $(5,093,698) ============= ============= ============= ============= Net Income (loss) per share $ 0.27 $ (0.76) $ (0.22) $ (1.34) ============= ============= ============= =============
Notes: (1) Both primary and fully diluted earnings per share are the same for the three months ended June 30, 1996. (2) For the six months ended June 30, 1996, the computation of both primary and fully diluted earnings per share exclude common stock equivalents since their effect on earnings per share is antidilutive. EX-27.2 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q, FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT (FORM 10-Q) 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 10,898,687 0 0 0 0 62,796,533 13,067,402 1,100,332 80,164,221 4,884,162 8,236,241 0 0 93,016 67,043,818 80,164,221 0 7,618,701 0 10,329,808 0 0 187,424 (1,743,996) 0 (1,743,996) 0 0 0 (1,743,996) (.22) (.22)
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