-----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, K8TQ3I9vVxc5/WgWNyushFW3pqGyCSBatamaHRLQMOnN6NndsNx9TXlpvPuPlfBv ahySCRxnuBC4yPeAGqAeGA== 0000950133-98-001860.txt : 19980514 0000950133-98-001860.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950133-98-001860 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUILFORD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000918066 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521841960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23736 FILM NUMBER: 98618991 BUSINESS ADDRESS: STREET 1: 6611 TRIBUTARY ST CITY: BALTIMORE STATE: MD ZIP: 21224 BUSINESS PHONE: 4106316300 10-Q 1 GUILFORD PHARMACEUTICALS INC. FORM 10-Q 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 MARCH 31, 1998 -------------- 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 May 7, 1998 Common Stock, $.01 par value 19,456,888 - ---------------------------- -------------------------------------------- 2 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES INDEX
Page(s) ---- PART I. FINANCIAL INFORMATION (UNAUDITED) Item 1. Financial Statements Consolidated Balance Sheets March 31, 1998 and December 31, 1997 3 Consolidated Statements of Operations Three months ended March 31, 1998 and 1997 4 Consolidated Statements of Stockholders' Equity Three months ended March 31, 1998 5 Consolidated Statements of Cash Flows Three months ended March 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION 18-19 SIGNATURES 20
3 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data)
MARCH 31, 1998 (UNAUDITED) DECEMBER 31, 1997 -------------- ----------------- ASSETS ------ Current assets: Cash and cash equivalents $ 11,757 $ 24,980 Short-term investments 33,381 27,946 Short-term investments - restricted 2,428 2,428 Accounts receivable 1,910 606 Inventories 1,634 1,342 Other current assets 310 494 -------- -------- Total current assets 51,420 57,796 Investments 92,761 95,174 Investments - restricted 10,265 9,691 Property and equipment, net 18,462 17,153 Other assets 272 267 -------- -------- $173,180 $180,081 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 2,227 $ 2,743 Current portion of long-term debt 2,159 2,159 Accrued payroll related costs 834 2,000 Accrued legal and professional 1,390 665 Accrued licensing and royalty payments 1,552 531 Accrued expenses and other current liabilities 1,838 1,638 Deferred income 1,283 1,125 -------- -------- Total current liabilities 11,283 10,861 Long-term liabilities: Long-term debt, net of current portion 10,386 10,926 -------- -------- Total liabilities 21,669 21,787 -------- -------- Stockholders' equity: Preferred stock, par value $.01 per share Authorized 4,700,000 shares, none issued - - Series A junior participating preferred stock, par value $.01 per share. Authorized 300,000 shares, none issued - - Common stock, par value $.01 per share. Authorized 40,000,000 shares 19,451,970 and 19,387,946 issued and outstanding at March 31, 1998 and December 31, 1997 194 194 Additional paid-in capital 185,755 185,205 Accumulated deficit (33,385) (26,311) Accumulated other comprehensive income 192 426 Notes receivable on common stock (60) (60) Treasury stock, at cost (924) (878) Deferred compensation (261) (282) -------- -------- Total stockholders' equity 151,511 158,294 -------- -------- $173,180 $180,081 ======== ========
See accompanying notes to consolidated financial statements. 3 4 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (in thousands, except per share data)
Three Months Ended March 31, 1998 1997 ---------- ----------- Revenues: Product sales $ 658 $ 2,050 License fees and royalties 580 201 Revenues under collaborative agreements 1,144 - ---------- ----------- Total revenues 2,382 2,251 Costs and Expenses: Cost of sales 339 899 Research and development 8,655 6,664 General and administrative 2,517 1,781 ---------- ----------- Total costs and expenses 11,511 9,344 ---------- ----------- Operating loss (9,129) (7,093) Other income (expense): Investment and other income 2,258 996 Interest expense (203) (239) ---------- ----------- Net loss $ (7,074) $ (6,336) =========== =========== Basic and diluted loss per common share: $ (0.36) $ (0.45) =========== =========== Average common shares outstanding 19,411 14,237 =========== ===========
See accompanying notes to consolidated financial statements. 4 5 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Three Months Ended March 31, 1998 (Unaudited) (in thousands, except share data)
Accumulated Notes Common stock Additional other receivable Treasury Total Number paid-in Accumulated comprehensive on common stock, Deferred stockholders' of shares Amount capital deficit income* stock at cost compensation equity --------- ------ ------- ------- ------ ----- ------- ------------ ------ Balance, December 31, 1997 19,387,946 $194 $185,205 $(26,311) $426 $(60) $(878) $(282) $158,294 Issuances of common stock 64,024 440 440 Purchase of 2,077 shares of common stock (46) (46) Stock option compensation 110 110 Amortization of deferred compensation 21 21 Net loss for the period (7,074) (7,074) Unrealized loss on available-for-sale securities (234) (234) ---------- ---- -------- -------- ---- ---- ----- ----- -------- Balance, March 31, 1998 19,451,970 $194 $185,755 $(33,385) $192 $(60) $(924) $(261) $151,511 ========== ==== ======== ======== ==== ==== ===== ===== ========
* Relates to unrealized gain (loss) on available-for-sale securities. See accompanying notes to consolidated financial statements. 5 6 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- Cash Flows From Operating Activities: Net loss $ (7,074) $ (6,336) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 824 594 Noncash compensation expense 131 567 Gain on sale of assets 6 - Changes in assets and liabilities: Accounts receivable (1,304) (1,019) Collaborative research receivable - 140 Inventory (292) 68 Other current assets 184 (10) Other assets (5) 89 Accounts payable (516) 144 Accrued expenses and other liabilities 780 (937) Deferred income 158 - -------- -------- Net cash used in operating activities (7,108) (6,700) -------- -------- Cash Flows From Investing Activities: Investment in purchases of property and equipment (3,678) (1,950) Sale leaseback of property and equipment 1,545 584 Sale and maturities of marketable securities 12,604 11,853 Purchases of marketable securities (15,866) (15,646) Restricted investments (574) 208 -------- -------- Net cash used in investing activities (5,969) (4,951) -------- -------- Cash Flows From Financing Activities: Net proceeds from issuances of common stock 440 321 Purchase of treasury stock (46) (655) Proceeds from bond and term loan issuances - 498 Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option - 698 Principal payments on bond and term loan payable (540) (235) -------- -------- Net cash provided by financing activities (146) 627 -------- -------- Net decrease in cash and cash equivalents (13,223) (11,024) Cash and cash equivalents at the beginning of period 24,980 16,560 -------- -------- Cash and cash equivalents at the end of period $ 11,757 $ 5,536 ======== ======== Supplemental disclosures of cash flow information: Net interest paid $ 212 $ 237 Unrealized loss on available-for-sale securities $ (234) $ (245) Collateral transferred from unrestricted to restricted investments, net $ (574) $ 435 ======== ========
See accompanying notes to consolidated financial statements. 6 7 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (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 for the year ended December 31, 1997. 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 three month period ended March 31, 1998 as set forth in the Index. 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. (together with its subsidiaries, "Guilford" or the "Company") and subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. 3. ACCOUNTING POLICIES EARNINGS (LOSS) PER COMMON SHARE Basic earnings (loss) per share ("EPS") is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by increasing the weighted-average number of shares outstanding for the period by the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive. RECENT ACCOUNTING PRONOUNCEMENTS Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components. This Statement also requires that an entity classify items of comprehensive income by their nature and display the accumulated balance of other 7 8 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES comprehensive income separately from accumulated earnings and additional paid-in capital, as shown in the Company's Consolidated Statement of Stockholders' Equity. SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits - an amendment of SFAS No. 87, 88, and 106" requires revised disclosures about pension and other postretirement benefit plans, which is effective for fiscal years beginning after December 15, 1997. The Company does not expect that adoption of the disclosure requirements of this pronouncement will have a material impact on its financial statements. RECLASSIFICATIONS Certain amounts have been reclassified to conform with the current period's presentation. 4. INVENTORIES Inventories at March 31, 1998 and December 31, 1997 consist of the following:
1998 1997 -------- ---- (Unaudited) (in thousands) Raw materials $ 372 $ 386 Work in process 524 497 Finished goods 738 459 ----- ----- $1,634 $1,342 ===== =====
Inventories include products and materials that can be either available for sale and/or production or utilized internally in the Company's development activities. Inventories identified for development activities are expensed immediately upon designation as intended for such use. 5. REVENUES The Company recognized $1.125 million for the three months ended March 31, 1998, related to certain research support funding provided by Amgen Inc. ("Amgen") under the terms of an agreement (the "Amgen Agreement") entered into in August 1997. Under the terms of the Amgen Agreement, Amgen has agreed to provide the Company up to $13.5 million payable quarterly over three years beginning on October 1, 1997 in the aggregate to support research activities relating to the Company's FKBP-based neuroimmunophilin ligand technology. Pursuant to the Company's Marketing, Sales and Distribution Rights Agreement (together with related agreements, the "RPR Agreements") with Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR") and the Company's License and Distribution Agreement with Orion Corporation Farmos ("Orion"), the Company recognized revenues of $1.2 million ($685,000 in product sales and $530,000 in royalty revenues) and $2.3 million ($2.1 million in product sales and $201,000 in royalty revenues), respectively, for the three 8 9 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES months ended March 31, 1998 and 1997 relating to sales of GLIADEL(R) Wafer ("GLIADEL"). GLIADEL was commercially launched in the United States on February 25, 1997. Under the RPR Agreements, Guilford receives a combined transfer price of 20% and royalty of 15% (which escalates up to 20% on incremental sales based on achieving certain levels of total annual GLIADEL sales) of the net sales of GLIADEL. 6. REAL ESTATE DEVELOPMENT AGREEMENT In February 1998, the Company entered into a real estate development agreement and an Operating Lease Agreement in connection with the construction of a new research and development facility. The facility, which is expected to be approximately 72,500 square feet, is adjacent to the Company's existing facility in Baltimore and construction costs are estimated not to exceed $20 million in the aggregate. The lease term is for a maximum term of 84 months, which includes a construction period of up to 24 months. The Company will not make rental payments during the construction period and the Company has the option to purchase the facility at the end of the lease term in February 2005. In the event the Company chooses not to exercise this option, the Company is obligated to arrange for the sale of the facility to an unrelated party and is required to pay the lessor any difference between the net sales proceeds and the lessor's net investment in the facility, in an amount not to exceed that which would preclude classification of the lease as an operating lease. The Company prior to the construction period termination date must maintain cash collateral equal to the then aggregate property cost. Upon final completion the Company may reduce the amount of cash collateral by approximately $5.1 million. In addition, the Company is subject to certain financial covenants the most restrictive of which is that the Company must maintain cash, cash equivalents and investments in the aggregate equal to $40 million. As of March 31, 1998, the Company posted cash collateral of approximately $1.0 million. This cash collateral is included in the accompanying consolidated balance sheets as "Investments - restricted" in the Consolidated Balance Sheets. 7. OPERATING LEASE AGREEMENTS In March 1998, the Company entered into certain Master Lease Agreements to provide up to $10.8 million in computer and equipment financing, the terms of which expires on December 31, 1999. The term of each lease entered into thereunder may range from 24 to 48 months based upon the type of equipment being financed. 9 10 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Any statements made by Guilford Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the "Company") in this quarterly report that are forward-looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this quarterly report, may include, but are not limited to, those concerning application for international regulatory clearances and labeling expansion for GLIADEL, polymer product line extensions, the commencement and completion of the research program relating to the Company's FKBP-based neuroimmunophilin ligand technology and other technologies, clinical development activities, including without limitation commencement and conduct of clinical trials related to GLIADEL, the Company's strategic plans, anticipated expenditures and the need for additional funds, all of which involve significant risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Company's filings with the Securities and Exchange Commission including without limitation the section entitled "Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"). * * * GENERAL Guilford is a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery products using proprietary biodegradable polymers for the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic products for neurological diseases and conditions. In February, 1997 the Company commercially launched its first product, GLIADEL(R) Wafer ("GLIADEL"), a proprietary biodegradable polymer product for delivering the chemotherapeutic agent, BCNU, for brain cancer, in the United States through its exclusive worldwide (except Scandinavia) marketing partner, Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR"). The Company has also in-licensed and internally developed certain technologies that may be useful in connection with the prevention and treatment of certain neurological diseases and conditions as well as a new class of biodegradable polymers and has accelerated research and development activities with respect to certain of these technologies. The Company anticipates that its future revenues will come primarily from two sources: (i) transfer payments and/or royalties related to sales of GLIADEL and other products that may be developed in the future and (ii) milestone, rights and other payments made under the Company's current and any future collaboration agreements relating to the research, development and/or commercialization of the Company's technologies. As noted below, the Company is eligible for certain milestone and other payments in the future under its collaborations with RPR and Amgen Inc. ("Amgen") if certain regulatory and/or development objectives are attained and views these potential payments as significant future revenue opportunities. As noted below and in the 1997 Form 10-K, there can be no assurance, however, that the Company will be successful in its efforts to enter into future collaborations for the research, development and/or commercialization of its technologies or will receive any or all of the milestone payments for which 10 11 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES it is eligible under its existing or any future collaborations. GLIADEL was commercially launched in the United States by RPR, in February, 1997, and since launch, the Company has recognized an aggregate of $8.5 million in product sales and royalties. Of this $8.5 million, $6.4 million represent sales of GLIADEL to RPR and Orion Corporation Farmos ("Orion"), the Company's marketing partner in Scandinavia, and $2.1 million represent royalties on RPR sales to third parties. In addition, under the terms of its agreements with RPR, the Company is eligible to receive up to $40 million in additional milestone and equity payments if RPR is able to achieve certain specified regulatory objectives. As noted below and in the 1997 Form 10-K, future sales of GLIADEL are subject to significant risk and uncertainty, and there can be no assurance that both sales to RPR and sales to third parties will increase or continue at the current rate in future periods. Furthermore, the milestone and other payments payable by RPR are contingent on making certain domestic and international regulatory filings and obtaining marketing clearances for GLIADEL, the timing and extent of which are not within the control of the Company, and there can be no assurance that any or all of such regulatory objectives will be attained. Except for GLIADEL, the Company's product candidates are not expected to generate revenues from product sales for at least the next several years, if at all. In August, 1997, the Company entered into an agreement (the "Amgen Agreement") with Amgen respecting the research, development and commercialization of the Company's FKBP-based neuroimmunophilin ligand technology ("FKBP Neuroimmunophilin Technology") for all human therapeutic and diagnostic applications. Pursuant to the terms of the Amgen Agreement, Amgen initially paid the Company an aggregate of $35 million as follows: (a) a one-time, non-refundable payment of $15 million upon the signing of the Amgen Agreement in August, 1997, and (b) a second payment of $20 million made on October 1, 1997 upon the closing of Amgen's purchase of 640,095 shares of the Company's common stock and five-year Warrants to purchase up to an additional 700,000 shares of common stock at an exercise price of $35.15 per share. In connection with the sale of these securities, the Company granted Amgen certain demand and "piggyback" registration rights under applicable securities laws. Under the terms of the Amgen Agreement, Amgen also agreed to provide to the Company up to $13.5 million in the aggregate, payable quarterly over three years beginning October 1, 1997, to support research activities at the Company relating to the FKBP Neuroimmunophilin Technology, with an option to fund a fourth year of research, or under certain conditions, to terminate the research program after two years. The Amgen Agreement provides for milestone payments of up to $392 million in the aggregate to the Company in the event Amgen achieves certain specified development milestones in each of ten different specified clinical indications, seven of which are neurological and three of which are non-neurological. In addition, the Company will receive royalties on product sales, if any, related to the FKBP Neuroimmunophilin Technology in the future. Subject to its obligation to fund two years of research at the Company, Amgen may elect at any time to discontinue all activities relating to the development and commercialization of the FKBP Neuroimmunophilin Technology at any time. As noted below and in the 1997 Form 10-K, there can be no assurance Amgen will be able to successfully develop any FKBP-based neuroimmunophilin compound or that such compounds will be approved as safe and effective drugs for neurological or other uses and that Guilford will earn any of the milestone payments related to such development activities. 11 12 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES The Company has incurred net operating losses in each fiscal year since its inception in July 1993, with the exception of fiscal 1996 for which the Company recorded net earnings of $5.1 million, primarily due to two one-time rights payments from RPR in the aggregate amount of $27.5 million related to the signing of the Company's agreements with RPR for the sales, marketing and distribution of GLIADEL and approval from the U.S. Food & Drug Administration ("FDA") of the New Drug Application for GLIADEL in September, 1996. For the three months ended March 31, 1998, the Company incurred a net operating loss of $7.1 million, and through March 31, 1998, the Company had an accumulated deficit of $33.4 million. In addition to revenues related to GLIADEL, the Company's only other significant revenues recognized in fiscal year 1998 through March 31, 1998 consist of approximately $1.1 million in research payments made by Amgen. As noted above, during the remainder of 1998 the Company anticipates recognizing an additional $3.4 million in revenue from Amgen to support certain research activities related to the FKBP Neuroimmunophilin Technology. In addition, in the future the Company may be entitled to certain non-refundable, milestone payments in the event certain development and/or regulatory milestones are achieved by Amgen and to royalties on future product sales, if any. As noted below and in the 1997 Form 10-K, whether the Company will ever recognize future revenues in the form of milestone payments and royalties under the Amgen Agreement is subject to significant risk and uncertainty, and there can be no assurance that that the Company will recognize significant revenues, if any, from these sources in the future. The Company does not anticipate that 1998 will be profitable, and there can be no assurance that the Company will ever achieve or sustain profitability in the future. Furthermore, the Company expects to experience quarter-to-quarter and year-to-year fluctuations in its operating results based upon the timing and amount of sales of GLIADEL, the timing and realization of milestone and other payments under the Company's agreements with RPR and Amgen and other existing and potential collaborations, expenditures relating to the Company's research and development, clinical and manufacturing activities, and the extent and timing of costs related to the Company's patenting activities and other activities undertaken in connection with the preservation and extension of the Company's intellectual property rights. The Company expects that expenses related to research and product development, preclinical testing, clinical trials, regulatory matters, operations, manufacturing and general and administrative expenses will continue to increase as the Company conducts research and development activities to develop its technologies and potential products. The Company has experienced substantial personnel growth since its inception. As of March 31, 1998 the Company had 195 full-time employees as compared to 164 full-time employees at March 31, 1997. The Company's ability to achieve consistent profitability in the future will depend, among other things, upon future sales of GLIADEL as well as the Company's ability, either alone or with others, to develop its product candidates successfully including any product candidates identified pursuant to activities under the collaboration with Amgen, conduct clinical trials, obtain required regulatory approvals, manufacture at reasonable cost and successfully market its product candidates and enter into collaborative arrangements and license agreements on acceptable terms. For discussion of these and other risks, see the "Risk Factors" section of the 1997 Form 10-K, particularly those paragraphs specifically addressing the aforementioned risks. 12 13 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Future sales of GLIADEL are subject to certain risks, including the following. The Company's agreements with RPR do not impose any minimum purchase requirements on the part of RPR, and there can be no assurance that RPR will be successful in marketing and selling GLIADEL. In particular, prior to the commercial launch of GLIADEL in the United States in February, 1997, RPR's oncology sales force had no prior experience marketing and selling a product to neurosurgeons. Furthermore, GLIADEL represents a novel approach to the treatment of brain cancer, and there can be no assurance of broad acceptance by the medical or patient communities. The Company currently relies on a single supplier for BCNU, the chemotherapeutic agent used in GLIADEL, and while the Company is in the process of qualifying a second supplier of BCNU, there can be no assurance that the Company's efforts in this regard will be successful. Further, the Company currently depends on its own single manufacturing facility to produce GLIADEL, and while the Company is in the process of constructing a second manufacturing facility, both facilities will be located at the same site adjoining the Company's headquarters in Baltimore, Maryland. Inability to secure timely, sufficient, or GMP quality supply of BCNU, unforeseen plant shutdowns due to personnel, plant or equipment problems, or natural disasters, risks associated with regulatory compliance (including the need to manufacture GLIADEL in accordance with the FDA's current Good Manufacturing Practice (cGMP) regulations), uncertainties regarding the receipt and timing of international regulatory clearances for GLIADEL, the potential inability to meet future product demand, the risk of product recalls due to excessive product breakage or other reasons, among others, could adversely affect the timing and extent of any future revenues related to GLIADEL sales. For discussion of these and other risks, see the "Risk Factors" section of the 1997 Form 10-K, particularly those paragraphs specifically addressing the aforementioned risks. Moreover, there can be no assurance that Amgen will be able to achieve any of the development and/or regulatory milestones set forth in the Amgen Agreement with respect to any specified indication. The research, development and commercialization of early stage technology like the FKBP Neuroimmunophilin Technology is subject to significant risks and uncertainty respecting, among other things, selection of an appropriate lead compound, successful completion of the pre-clinical and clinical development activities, regulatory clearances, formulation of final product dosage forms, scale-up from bench quantities to commercial quantities and manufacture of products and commercialization of such products as well as the successful preservation and extension of the patent and other intellectual property rights. For discussion of these and other risks, see the "Risk Factors" section of the 1997 Form 10-K, particularly those paragraphs specifically addressing the aforementioned risks. RESULTS OF OPERATIONS Comparison of the Three Month Periods Ended March 31, 1998 and 1997 The Company recognized $2.4 million in revenues for the three months ended March 31, 1998, consisting primarily of revenues from product sales and royalties relating to GLIADEL and $1.1 million in research funding from Amgen pursuant to the Amgen Agreement entered into in August, 1997. For the same period in 1997 the Company recognized $2.3 million in revenues, all of which resulted from product sales and royalties relating to GLIADEL following its commercial launch on February 25, 1997. 13 14 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES Revenues related to the sale of GLIADEL for the first quarter of 1998 were $1.2 million compared to $2.3 million for the same period in 1997. Of the $1.2 million in revenues related to GLIADEL sales recognized in the first quarter of 1998, $658,000 consist of transfer payments from the Company's marketing partners, including $110,000 paid by the Company's marketing partner for GLIADEL in Scandinavia, Orion. Of the $2.3 million in GLIADEL sales revenues recognized in the first quarter of 1997, $2.1 million related to sales of GLIADEL to RPR to support commercial launch of the product in the United States. The reduction in the level of transfer price payments from RPR in the quarter ended March 31, 1998 as compared to the same period in 1997 reflects a stabilization of RPR's current inventory requirements for GLIADEL. Net royalty revenue with respect to GLIADEL sales increased to $530,000 for the first quarter of 1998 as compared to $201,000 for the same period in 1997. This increase primarily reflects the fact that GLIADEL sales commenced in late February, 1997, and thus were made only during part of the 1997 period. As noted above and in the 1997 Form 10-K, future GLIADEL sales are subject to a number of risks and uncertainties, and there can be no assurance that GLIADEL sales will remain at or increase from current levels or generate significant revenues for the Company in the future. Cost of sales for the three months ended March 31, 1998 were $339,000 compared to $899,000 for the first quarter of 1997. Included in these amounts are approximately $27,000 and $85,000 respectively, representing royalty payments made to a third party from which the Company has licensed certain technologies related to GLIADEL. The reduction in the cost of sales from the 1998 period as compared to the 1997 period primarily reflects a reduction in the number of units sold to RPR during the 1998 period. To the extent GLIADEL production levels increase, the Company expects that per unit product costs may decrease as economies of scale are achieved. There can be no assurance, however, that GLIADEL product sales will ever reach levels necessary for the Company to realize significant costs savings related to manufacturing economies of scale. Research and development expenses increased to $8.7 million for the three months ended March 31, 1998 as compared to $6.7 million for the same period in 1997. The increase in these costs was primarily attributable to expenses related to increased personnel costs, contracted research, consulting, laboratory supplies, as well as anticipated license fees payable to a third party licensor of certain technology. At March 31, 1998, 168 individuals were employed on a full-time basis in the areas of research, development and manufacturing as compared to 137 individuals at March 31, 1997. In the first quarter of 1998, the Company continued to accelerate its research and development efforts, particularly with respect to the Company's NAALADase inhibitor and PARP inhibitor neuroprotectant programs as well as its FKBP neuroimmunophilin ligand program, continued to fund development activities at a potential third-party manufacturer of clinical supply of DOPASCAN(R) Injection, and continued with Phase I clinical trials for a high dose formulation of GLIADEL. In addition, in the three months ended March 31, 1998, research and development expenses included charges relating to certain consulting agreements entered into in April, 1996, consisting of non-cash compensation expense of $110,000 and cash compensation expense of $62,000. For the three month period ended March 31, 1997, the Company recorded non-cash compensation expense related to these agreements of $417,000 and cash compensation expense of $58,000. These agreements are intended to enhance the Company's ability to develop new polymer technologies and products for the delivery of chemotherapeutics in indications where local tumor recurrence is likely and controlled release may be more effective than current therapies. The Company expects it will be required 14 15 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES to record varying amounts of non-cash compensation charges in research and development expenses quarterly through 2001 relating to these agreements of up to an aggregate of an additional $1.1 million. The Company anticipates that its research and development expenses will continue to increase in future periods. General and administrative expenses were $2.5 million for the three months ended March 31, 1998 as compared to $1.8 million for the same period in 1997. The increase in general and administrative expenses of $700,000 for the three months ended March 31, 1998, compared to the same period in 1997 was primarily attributable to higher costs related to the preparation, filing and prosecution of patent applications. The Company anticipates that its general and administrative expenses, particularly those related to patenting and other activities related to establishment and preservation of the Company's intellectual property rights, will increase in future periods. Other income and expense relates primarily to investment income and interest expense. Investment income increased to $2.3 million for the three months ended March 31, 1998 as compared to $996,000 for the same period in 1997. The increase was primarily attributable to an increase in the average invested capital during the three months ended March 31, 1998 as compared to the same period in 1997. The increase in average invested capital was primarily due to the public sale of the Company's common stock in April, 1997, the one-time, non-refundable signing fee of $15 million paid by Amgen in August, 1997 and the sale of shares of Company common stock and warrants to Amgen for $20 million consummated in October, 1997. For the three months ended March 31, 1998, the Company incurred interest expense of $203,000 relating to borrowings under its financing arrangements with First Union National Bank (formerly Signet Bank) providing for the construction of manufacturing, administrative and research and development facilities and the purchase of related equipment. Interest expense was $239,000 for the three months ended March 31, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and investments were approximately $151 million at March 31, 1998. Of this amount, $12.7 million is held as collateral with respect to certain of the Company's indebtedness and other financings and is recorded as restricted cash and investments on the accompanying balance sheet. The Company's accumulated deficit was $33.4 million at March 31, 1998. The Company incurred net capital expenditures of $2.1 million for the three months ended March 31, 1998 compared to $1.4 million for the same period in 1997. The capital expenditures made in the 1998 and 1997 periods were primarily related to the construction of the Company's expansion of its manufacturing plant and research laboratories. In March, 1998, the Company entered into master equipment lease arrangements for up to an aggregate of $10.75 million, pursuant to which the Company expects to lease additional equipment, including computer hardware and software, furniture and fixtures. Depending on the type of equipment covered and certain other factors, the term of any lease entered into under these arrangements can range from two to four years. Such financing, along with the Company's internal resources as well as 15 16 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES external sources of funds, is expected to provide for the Company's current equipment needs. To the extent the Company expands its research and development programs, its capital equipment requirements may increase and thus require additional capital funding. In February, 1998, in order to meet the Company's future facilities needs, the Company entered into an operating lease with a trust affiliated with First Union National Bank ("First Union") for an approximately 72,500 square foot facility to be constructed on a lot adjacent to the Company's current headquarters in Baltimore, Maryland in order to support the Company's expected future research, development and administrative activities. During the construction period, the Company will act as construction agent for the trust, responsible for performing all duties associated with the development of the property and anticipates that the facility will be ready for occupancy prior to the end of the second quarter of 1999. The lease expires in February, 2005 and the Company anticipates that the lease payments for this facility will not exceed $2.0 million annually. At the expiration of the lease term, the Company has two options under its agreement with the trust. The Company can purchase the property for an amount equal to any and all unamortized acquisition and construction costs as well as accrued but unpaid interest and similar costs incurred by the trust as part of its acquisition and construction activities related to the property (the "Termination Amount"), or the Company may sell the property on behalf of the trust, which is then obligated to apply the proceeds from such sale against repayment of the Termination Amount. If such sale proceeds are insufficient to cover the entire Termination Amount, the Company is then obligated to repay any such shortfall, subject to a total cap on such payments by the Company of an aggregate amount equal to 83% of the Termination Amount. In addition, the Company may, with the consent of First Union, enter into a new lease arrangement (see Note 6 to Notes to Consolidated Financial Statements). The Company has available up to $7.5 million under a loan agreement with RPR respecting expansion of the Company's GLIADEL and polymer manufacturing capacity. As of January 2, 1997, $4.0 million was available under the loan agreement; the remainder is available no earlier than 12 nor later than 18 months following funding of the initial tranche. Any principal amounts borrowed under this loan agreement are due five years from the date borrowed and will carry an interest rate equal to the lowest rate paid by RPR from time to time on its most senior indebtedness. No amounts were outstanding under this loan at March 31, 1998. The Company has not yet determined whether to draw on the capital available under its loan agreement with RPR to fund the expansion of the Company's manufacturing facilities. The Company will require substantial funds in order to continue its research and development programs and preclinical and clinical testing, to manufacture and, where applicable, market its products and to meet its future facilities needs. The Company's capital requirements depend on numerous factors, including the progress of its research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative arrangements, the development of collaborative and licensing agreements and other arrangements and the progress of manufacturing scale-up efforts. 16 17 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES The Company believes that its existing resources, including the proceeds from the sale of common stock and warrants to Amgen in October, 1997 and the interest earned thereon, will be sufficient to fund the Company's activities for at least the next 24 months. There can be no assurance, however, that changes in the Company's research and development and commercialization plans or other factors affecting the Company's operating expenses including potential acquisitions, and anticipated capital expenditures will not result in the expenditure of these proceeds and the Company's other resources before that time. The Company anticipates that it will fund future capital requirements through a combination of its existing working capital, revenues (including product sales, royalty income, and milestones/licensing fees) generated under its agreements with RPR relating to GLIADEL and Amgen relating to the FKBP Neuroimmunophilin Technology, public or private equity or debt financing (as necessary), additional collaborative or other research and development agreements, commercialization and marketing arrangements with corporate partners or other potential sources. The Company's ability to raise future capital on acceptable terms is dependent on conditions in the public and private equity markets and the performance of the Company, as well as the overall performance of other companies in the biopharmaceutical and biotechnology sectors. There can be no assurance that any required future financing arrangements will be available on acceptable terms, or at all. YEAR 2000 ASSESSMENT The year 2000 issue results from computer programs that do not distinguish between the year 1900 and the year 2000 because they were written using two digits rather then four to define the applicable year. The Company is in the process of assessing the impact of the year 2000 on its operations and systems. Management has developed assessment procedures and a plan to address identified issues within the Company. The Company does not yet know the full extent, if any, of the impact of the year 2000 on its systems and equipment, but at this point does not expect the costs associated with its becoming year 2000 compliant to be material. The Company is also in the process of communicating with third parties with which it conducts business to assess whether they are or will be year 2000 compliant. There can be no assurance, however, that such third parties, including suppliers, clinical research organizations and collaborative parties, are using systems that are year 2000 compliant or will address any year 2000 issues in a timely fashion. Any year 2000 compliance problems of the Company, its suppliers, its clinical research organizations, its collaborative partners, or others could have a material adverse effect on the Company's business, results of operations and financial condition. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 17 18 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES 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 None Item 5. Other Information: None Item 6. Exhibits and Reports on Form 8-K: A. Exhibits Exhibit No. Description - ----------- ----------- 10.50 Master Lease Agreement, dated March 19, 1998 by and between Comdisco Laboratory and Scientific Group, a Division of Comdisco Healthcare Group, Inc. and the Company 10.51 Security Agreement, dated as of February 5, 1998, between First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1 (the "Trust") and First Union National Bank ("First Union")* 10.52 Amended and Restated Trust Agreement, dated as of February 5, 1998 between the Several Holders from time to time parties thereto and the Trust* 10.53 Agency Agreement, dated as of February 5, 1998, between the Company 18 19 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES and the Trust* 10.54 Credit Agreement, dated as of February 5, 1998, among the Trust, the Several Holders from time to time parties thereto and First Union* 10.55 Participation Agreement, dated as of February 5, 1998, among the Company, the Trust, the various and other lending institutions which are parties hereto from time to time, as Holders, the various and other lending institutions which are parties hereto from time to time, as Lenders, and First Union* 10.56 Lease Agreement, dated as of February 5, 1998, between the Trust and the Company* 10.57 Employment Letter Agreement, effective March 8, 1998, between the Company and Gregory D. Hockel, Ph.D. 10.58 Employment Letter Agreement, effective January 27, 1998, between the Company and Dana Hilt, M.D. 11.2 Statement Re: Computation of Earnings (Loss) Per Share 27.2 Financial Data Schedule * Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 B. Report on Form 8-K: None 19 20 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES 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: May 13, 1998 /s/ Craig R. Smith, M.D. ----------------------------------- Craig R. Smith, M.D. President and CEO Date: May 13, 1998 /s/ Andrew R. Jordan ----------------------------------- Andrew R. Jordan Senior Vice President and Chief Financial Officer (Principal Accounting Officer) 20 EX-10.50 2 MASTER LEASE AGREEMENT 1 EXHIBIT 10.50 MASTER LEASE AGREEMENT MASTER LEASE AGREEMENT dated as of March 19, 1998 by and between COMDISCO LABORATORY AND SCIENTIFIC GROUP; A DIVISION OF COMDISCO HEALTHCARE GROUP, INC. ("Lessor") and GUILFORD PHARMACEUTICALS INC. ("Lessee"). IN CONSIDERATION of the mutual agreements described below, the parties agree as follows (all capitalized terms are defined in Section 14.12: 1. Property Leased. Lessor leases to Lessee all of the Equipment described on each Schedule. In the event of a conflict, the terms of a Schedule prevail over this Master Lease. 2. Term. On the Commencement Date Lessee will be deemed to accept the Equipment, will be bound to it rental obligations for each item of Equipment and the term of a Schedule will begin and continue through the Initial Term and thereafter until terminated by either party upon prior written notice received during the Notice Period. No termination may be effective prior to the expiration of the Initial Term. 3. Rent and Payment. Rent is due and payable in advance, in immediately available funds, on the first day of each Rent Interval to the payee and at the location specified in Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment is not made when due, Lessee will pay interest at the Overdue Rate. 4. Selection and Warranty and Disclaimer of Warranties. 4.1 Selection. Lessee acknowledges that it has selected the Equipment and disclaims any reliance upon statements made by the Lessor. 4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and peaceful possession, and unrestricted use of the Equipment. To the extent permitted by the manufacturer, Lessor assigns to Lessee during the term of the Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A 2 PARTICULAR PURPOSE OR ITS COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Lessor is not responsible for any liability, claim, loss, damage or expense of any kind (including strict liability in tort) caused by the Equipment except for any loss or damage caused by negligent act of lessor. In no event is Lessor responsible for special, incidental or consequential damages. 5. Title and Assignment. 5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's name precautionary Uniform Commercial Code financing statements showing the interest of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to insert serial numbers in Schedules as appropriate. Except as provided in Sections 5.2 and 7.2, Lessee will, at its expense, keep the Equipment free and clear from any liens or encumbrances of any kind (except any caused by Lessor) and will indemnify and hold Lessor, Owner, any Assignee and Secured Party harmless from and against any loss caused by Lessee's failure to do so. 5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate the Equipment to any location within the continental United States provided (i) the Equipment will not be used by any entity exempt from federal income tax, (ii) all additional costs (including any administrative fees, additional taxes and insurance coverage) are reconciled and promptly paid by Lessee. Lessee may sublease the Equipment upon the reasonable consent of the Lessor and the Secured party and provided Lessee meets the requirements under (i) and (ii) above. No relocation or sublease will relieve Lessee from any of its obligations under this Master Lease and the applicable Schedules. 5.3 Assignment by Lessor. The terms and conditions of each Schedule have been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its interest or grant a security interest in each Schedule and/or the Equipment to a Secured Party or Assignee. In that event the term Lessor will mean the Assignee and any Secured Party. However, any assignment, sale, or other transfer by Lessor will not relieve Lessor of its obligations to Lessee and will not materially change Lessee's duties or materially increase the burdens or risks imposed on Lessee. The Lessee consents to and will acknowledge such assignments in a written notice given to Lessor. Lessee also agrees that: (a) The Secured Party will be entitled to exercise all of Lessor's rights, but will not be obligated to perform any of the obligations of Lessor. The Secured Party will not disturb Lessee's quiet and peaceful possession and unrestricted use of the Equipment so 2 3 long as Lessee is not in default and the Secured Party continues to receive all Rent payable under the Schedule; (b) Lessee will pay all Rent and all other amounts payable to the Secured Party, despite any defense or claim which it has against Lessor. Lessee reserves its right to have recourse directly against Lessor for any defense or claim; and (c) Subject to and without impairment of Lessee's leasehold rights in the Equipment, Lessee holds the Equipment for the Secured Party to the extent of the Secured Party's rights in that Equipment. 6. Net Lease and Taxes and Fees. 6.1 Net Lease. Each Schedule constitutes a net lease. Lessee's obligation to pay Rent and all other amounts is absolute and unconditional and is not subject to any abatement, reduction, sell-off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. 6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes, fees or other charges (together with any related interest or penalties not arising from the negligence of Lessor) accrued for or arising during the term of each Schedule against Lessor. Lessee or the Equipment by any governmental authority (except only Federal, state and local taxes on the capital or the net income of Lessor). Lessor will file all personal property tax returns for the Equipment and pay all property taxes due. Lessee will reimburse Lessor for property taxes within thirty (30) days of receipt of an invoice. 7. Care, Use and Maintenance, Attachments and Reconfigurations, and Inspection by Lessor. 7.1 Care, Use and Maintenance. Lessee will operate the Equipment in accordance with all laws and regulations and maintain the Equipment in good operating order and appearance, protect the Equipment from deterioration, other than normal wear and tear, and will not use the Equipment for any purpose other than that for which it was designed. If commercially available, Lessee will maintain in force a standard maintenance contract with the manufacturer of the Equipment and upon request will provide Lessor with a complete copy of that contract. With lessor's prior written consent, Lessee may have the Equipment maintained by a party other than the manufacturer. Lessee agrees to pay any costs necessary for the manufacturer to bring the Equipment to then current release, revision and engineering change levels and to re-certify the Equipment as eligible for manufacturer's maintenance at the expiration of the lease term. The lease term 3 4 will continue upon the same terms and conditions until recertification has been obtained. 7.2 Attachments and Reconfigurations. Upon Lessor's prior written consent Lessee may reconfigure and install Attachments on the Equipment. In the event of such a Reconfiguration or Attachment, Lessor shall, upon return of the Equipment, at its expense, restore the Equipment to the original configuration specified on the Schedule in accordance with the manufacturer's specifications and in the same operating order, repair and appearance as when installed (normal wear and tear excluded). Alternately, with Lessor's prior written consent which shall not be unreasonably withheld, Lessee may return the Equipment with any Attachment or upgrade. 7.3 Inspection by Lessor. Upon request, Lessee, during reasonable business hours and subject to Lessee's security requirements, will make the Equipment and its related log and maintenance records, instruction manuals, published statements of capabilities and technical specifications and certification, qualification and calibration reports available to Lessor for inspection. 8. Representations and Warranties of Lessee. Lessee represents and warrants that for the master Lease and each Schedule; (a) The execution, delivery and performance of the Lessee have been duly authorized by all necessary corporate action; (b) The individual executing was duly authorized to do so; (c) The Master Lease and each Schedule constitute legal, valid and binding agreements of the Lessee enforceable in accordance with their terms; (d) The Equipment is personal property and when subjected to use by the Lessee will not be or become fixtures under applicable law; and (e) The Equipment will be for laboratory use only and will not be used in a clinical environment on patients. 9. Delivery and Return of Equipment. Lessee assumes the full expense of transportation of the Equipment to its initial location, installation, deinstallation and return to a location within the continental United States (including without limitation the expense of in-transit insurance) all pursuant to Lessor's instructions and manufacturer's specifications. Regarding deinstallation, Lessee will assure that the Equipment is deinstalled by the manufacturer in accordance with the manufacturer's recommended procedures 4 5 and decontaminated for transport in accordance with any Environmental Law, and returned with a Verification of Uncontamination in the same operating order, repair, condition and appearance as when originally installed (less normal wear and tear and depreciation) meeting all original equipment manufacturer's specifications for continued manufacturer's maintenance, and accompanied by all associated documents, manuals (including, but not limited to, those listed in Section 7.3), spare parts and accessories and maintenance records for the duration of the Schedule. In connection with deinstallation, Lessee will assure that any contaminant removed from the Equipment will be removed and transported by a licensed waste removal transporter. 10. Labeling. Upon request, Lessee will mark the Equipment indicating Lessor's interest. Lessee will keep all equipment free from any other marking or labeling which might be interpreted as a claim of ownership. 11. Indemnity. Lessee will indemnify and hold Lessor, its parent company, any Assignee and any Secured Party harmless from and against any and all claims, cases, expenses, damages and liabilities, including reasonable attorneys' fees arising out of the ownership (for strict liability in tort only), selection possession, leasing operation control, use maintenance, delivery, return or other disposition of the Equipment. However, Lessee is not responsible to a party indemnified hereunder for any claims, costs, expenses, damages and liabilities occasioned by the negligent acts of such indemnified party. Lessee agrees to carry death, bodily injury and property damage liability insurance during the term of the Master Lease in amounts and against risks customarily insured against by the Lessee on similar equipment owned by it. Any amounts received by Lessor under that insurance will be credited against Lessee's obligations under this Section. 12. Risk of Loss. Effective upon delivery and until the Equipment is returned, Lessee relieves Lessor of responsibility for all risks of physical damage to or loss or destruction of the Equipment. Lessee will carry casualty insurance for each item of Equipment in an amount not less than the Casualty Value. All policies for such insurance will name the Lessor and any Secured Party as additional insured and as loss payee, and will provide for at least thirty (30) days prior written notice to the Lessor of cancellation or expiration. The Lessee will furnish appropriate evidence of such insurance. Lessee shall promptly repair any damaged item of Equipment unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss, Lessee will provide written notice of that loss to Lessor and Lessee will at Lessor's option, either (a) replace the items of equipment with Like Equipment and marketable title to the Like Equipment will automatically vest in 5 6 Lessor or (b) pay the Casualty value and after that payment and the payment of all other amounts due and owing, Lessor's obligation to pay further Rent for the item of Equipment will cease. 13. Default, Remedies and Litigation. 13.1 Default. The occurrence of any one or more of the following Events of Default constitutes a default under a Schedule. (a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if that failure continues for ten (10) days after written notice, or (b) Lessee's failure to perform any other term or condition of the Schedule or the material inaccuracy of any representation or warranty made by the Lessee in the Schedule or in any document or certificate furnished to the Lessor hereunder if first failure or inaccuracy continues for fifteen (15) days after written notice; or (c) An assignment by Lessee for the benefit of its creditors, the failure by Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee or the filing against Lessee of any petition under any bankruptcy or insolvency law or for the appointment of a trustee or other officer with similar powers the adjudication of Lessee as insolvent the liquidation of Lessee or the taking of any action for the purpose of the foregoing; or (d) The occurrence of an Event of Default under any Schedule or other agreement between Lessee and Lessor or its Assignee or Secured Party. 13.2 Remedies. Upon the occurrence of any of the above Events of Default, Lessor, at its option may: (a) enforce Lessee's performance of the provisions of the applicable Schedule by appropriate court action in law or in equity; (b) recover from Lessee any damages and or expenses including Default Costs; (c) with notice and demand, recover all sums due and accelerate and recover the present value of the remaining payment stream of all Rent due under the defaulted Schedule (discounted at the same rate of interest at which such defaulted Schedule was discounted with a Secured Party plus any prepayment fees charged to lessor by the Secured Party or, if there is no Secured Party, then discounted at 5%) 6 7 together with all Rent, and other amounts currently due as liquidated damages and not as a penalty; (d) With notice and process of law and in compliance with Lessee's security requirements, Lessor may enter on Lessee's premises to remove and repossess the Equipment without being liable to Lessee for damages due to the repossession, except those resulting from Lessor's its assignees, agents or representatives negligence; and (e) pursue any other remedy permitted by law or equity. The above remedies in Lessor's discretion and to the extent permitted by law, are cumulative and may be exercised successively or concurrently. 13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section 13.2, Lessor will use its best efforts in accordance with its normal business procedures (and without obligation to give any priority to such Equipment) to mitigate Lessor's damages as described below: EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the Equipment at a public or private sale for cash or credit with the privilege of purchasing the Equipment. The proceeds from any sale, lease or other disposition of the Equipment are defined as either: (a) If sold or otherwise disposed of, the cash proceeds less the Fair Market Value of the Equipment at the expiration of the Initial Term less the Default Costs; or (b) if leased, the present value (discounted at three points over the prime rate as referenced in The Wall Street Journal at the time of the mitigation) of the rentals for a term not to exceed the Initial Term, less the Default Costs. Any proceeds will be applied against liquidated damages and any other sums due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may recover, the amount by which the proceeds are less than the liquidated damages and other sums due to Lessor from Lessee. 14. Additional Provisions. 14.1. Entire Agreement. This Master Lease and associated Schedules supersede all other oral or written agreements or understandings between the parties concerning the Equipment including, for example, purchase orders, ANY 7 8 AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED. 14.2 No Waiver. No action taken by Lessor or Lessee shall be deemed to constitute a waiver of compliance with any representation, warranty or covenant contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach of any provision of this Master Lease or a Schedule will not operate or be construed as a waiver of any subsequent breach. 14.3 Binding Nature. Each Schedule is binding upon, and inures to the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS. 14.4 Survival of Obligations. All agreements, obligations including, but not limited to those arising under Section 6.2, representations and warranties contained in this Master Lease, any Schedule or in any document delivered in connection with those agreements are for the benefit of Lessor and any Assignee or Secured Party and survive the execution, delivery, expiration or termination of this Master Lease. 14.5 Notices. Any notice, request or other communication in either party by the owner will be given in writing and deemed received upon the earlier of actual receipt or three days after mailing if mailed postage prepaid by regular or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at the address set out in the Schedule of, one day after it is sent by courier or facsimile transmission if receipt is verified by the receiving party. 14.6 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE. 14.7 Severability. If any one or more of the provisions of the Master Lease or any Schedule is for any reason held invalid, illegal or unenforceable, the remaining provisions of this Master Lease and any such Schedule will be unimpaired, and the invalid, illegal or unenforceable provision replaced by a mutually acceptable valid, legal and enforceable provision that is closest to the original intention of the parties. 8 9 14.8 Counterparts. This Master Lease and any Schedule may be executed in any number of counterparts, each of which will be deemed an original, but as such, counterparts together constitute one and the same instrument. If Lessor grants a security interest in all or any part of a Schedule, the Equipment or sums payable thereunder, only that counterpart Schedule marked "Secured Party's Original" can transfer Lessor's rights and all other counterparts will be marked "Duplicate." 14.9 Licensed Products. Lessee shall obtain no title to Licensed Products which at all times remain the property of the owner of the Licensed Products. A license from the owner may be required and it is the Lessee's responsibility to obtain any required license before the use of the Licensed Products. Lessee agrees to treat the Licensed Products as confidential information of the owner, to observe all copy right restrictions, and not to reproduce or sell the Licensed Products. 14.10 Additional Documents. Lessee will, upon execution of this Master Lease and as may be requested thereafter, provide Lessor with a secretary's certificate of incumbency and authority and any other documents reasonably requested by Lessor. Upon the execution of each Schedule with an aggregate Rent in excess of $2,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel regarding the representations and warranties in Section 8. Lessee will furnish, upon request, audited financial statements for the most recent period. 14.11 Electric Communications. Each of the parties may communicate with the other by electronic means under mutually agreeable terms. 14.12 Definitions. Assignee - means entity to whom Lessor has sold or assigned its rights as owner and Lessor of Equipment. Attachment - means any accessory, equipment or device and the installation thereof that does not impair the original function or use of the Equipment and is capable of being removed without causing material damage to the Equipment and is not an accession to the Equipment. Casualty Loss - means the irreparable loss or destruction of Equipment. Casualty Value - means the amount equal to the present value of the aggregate Rent remaining for the balance of the current term, plus the present value of the Fair Market Value (determined as of the expiration of the current term) of Like Equipment computed using an interest rate equal to the rate for Treasury Securities having a comparable term to the current term. However, if a Casualty Value Table is attached to the relevant Schedule, its terms will control. 9 10 Commencement Certificate - means the Lessor provided certificate which must be signed by Lessee within ten days of the Commencement Date as requested by Lessor. Commencement Date - is defined in each Schedule. Contaminant - means those substances which are regulated by or form the basis of liability under Environmental Law, including, without limitation, asbestos, polychlorinated biphenyl ("PCB") and radioactive substances or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any person, property or natural resource. Default Costs - means reasonable attorney's fees and remarketing costs resulting from a Lessee default or Lessor's enforcement of its remedies. Environmental Law - means any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42. U.S.C. Section 9601 et seq.), the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.), the Resource, Conservation and Recovery Act (42 U.S.C. 8901 et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. 2501 et seq.), the Federal Insecticide, Fungicides and Rodanticide Act (7 U.S.C. 1361 et seq.), and the Occupational Safety and Health Act (10 U.S.C. 851 et seq.), as these laws have been amended or supplemented and any analogous foreign, state or local statutes, and the regulations promulgated pursuant therein. Equipment - means the property described on a Schedule and any replacement for that property required or permitted by this Master Lease or a Schedule but not including any Attachments. Event of Default - means the events described in Subsection 13.1. Fair Market Value - means the aggregate amount which would be obtainable in an arm's-length transaction between an informed and willing buyer/user purchasing the Equipment in place for its originally intended use and an informed and willing seller under no compulsion to sell. Initial Term - means the period of time beginning on the first day of the first full Rent Interval following the Commencement Date for all items of Equipment and continuing for the number of Rent intervals indicated on a Schedule. 10 11 Installation Date - means the day on which the Equipment is installed and qualified for a commercially available manufacturer's standard maintenance contract or warranty coverage, if available. Interim Rent - means the pro-rata portion of Rent due for the period from the Commencement Date through but not including the first day of the first full Rent Interval included in the Initial Term. Licensed Products - means any software or other licensed products attached to the Equipment. Like Equipment - means replacement Equipment which is lien free and of the same model, type, configuration and manufacture as Equipment. Notice Period - means the time period described in a Schedule during which Lessee may give Lessor notice of the termination of the term of that Schedule. Overdue Rate - means the lesser of 18% per year or the maximum rate permitted by the law of the state where the Equipment is located. Owner - means the owner of Equipment. Reconfiguration - means any change to Equipment that would upgrade or downgrade the performance capabilities of the Equipment in any way. Rent - means the rent, including Interim Rent Lessee will pay for each item of Equipment expressed in a Schedule either as a specific amount or an amount equal to the amount which Lessor pays for an item of Equipment multiplied by a lease rate factor plus all other amounts due to Lessor under this Master Lease or a Schedule. Rent Interval - means a full calendar month or quarter as indicated on a Schedule. Schedule - means an Equipment Schedule which incorporates all of the terms and conditions of this Master Lease and, for purposes of Section 14.8, its associated Commencement Certificate(s). Secured Party - means an entity to whom Lessor has granted a security interest in a Schedule and related Equipment for the purpose of securing a loan. Verification of Decontamination - means a letter from the party performing the decontamination, stating that it is properly licensed to perform the decontamination and that an actual decontamination and disposal of Contaminants was completed in accordance with the manufacturer's specifications and procedures 11 12 and all applicable governmental rules and regulations including but not limited to all Environmental Laws. IN WITNESS WHEREOF, the parties herein have executed this Master Lease on or as of the day and year first above written.
GUILFORD PHARMACEUTICALS INC. COMDISCO LABORATORY AND as Lessee SCIENTIFIC GROUP, A DIVISION OF COMDISCO HEALTHCARE GROUP, INC. as Lessor By: /s/ Andrew R. Jordan By: /s/ Doug Berman --------------------------------------------- ----------------------------------------- Title: S.V.P. & CFO Title: Credit Manager ------------------------------------------ ----------------------------------------
12 13 ADDENDUM TO THE MASTER LEASE AGREEMENT DATED MARCH 18, 1998 BETWEEN COMDISCO LABORATORY AND SCIENTIFIC GROUP A DIVISION OF COMDISCO HEALTHCARE GROUP, INC. ("LESSOR") AND GUILFORD PHARMACEUTICALS INC. ("LESSEE") The terms and conditions of the Master Lease Agreement are hereby modified and amended as follows: Section 1 Property Leased Add the following at the end, "with respect to that particular Schedule only". Section 4 Selection and Warranty and Disclaimer of Warranties Subsection 4.2 Warranty and Disclaimer of Warranties Line 2 after "is not" add "materially" and after "default" add "under this Agreement or the applicable Schedule". Line 12 after "negligent acts" add "or willful misconduct". Section 5 Title and Assignment Subsection 5.2 Relocation or Sublease Line 4 after "additional" add "reasonable" and after "costs" add "of Lessor related to such relocation". Line 7 after "Secured Party" add "such consent not to be unreasonably withheld, delayed, or conditioned". Subsection 5.3 Assignment by Lessor Subparagraph (a) line 5 after "is not" add "materially" and after "default" add "under this Agreement or the applicable Schedule". At the end of the paragraph add Subparagraph (d) "Notwithstanding the foregoing, no transfer pursuant to this section 5.3 shall be effective 14 as to an Assignee without the prior written consent of Lessee (which consent shall not be unreasonably withheld, delayed or conditioned)". Section 6 Net Lease and Taxes and Fees Subsection 6.2 Taxes and Fees Line 5 after "net income" add "or gross receipts in lieu of state and local taxes on the capital or net income" and after "of Lessor" add "arising from the Lessee's lease of Equipment under this Agreement". Delete the last two sentences in their entirety and replace with "To the extent permitted by law Lessee shall be responsible for the filing of all personal property tax returns in respect of the Equipment and shall pay all taxes due and owing with respect to Equipment leased hereunder by Lessee and indicated on such returns. Lessee shall furnish Lessor with such information as reasonably necessary to verify Lessee's payment of such personal property tax and all taxes indicated". Section 7 Care, Use and Maintenance, Attachments and Reconfigurations, and Inspection by Lessor Subsection 7.1 Care, Use and Maintenance Line 5 delete "if commercially available". Line 7 after "Equipment" add "or a third party". Subsection 7.2 Attachments and Reconfigurations Line 2 after "consent" add "(which consent shall not be unreasonably withheld, delayed or conditioned)". Line 8 delete "consent which will not be unreasonably withheld" and replace with "which consent shall not be unreasonably withheld, delayed or conditioned". Subsection 7.3 Inspection by Lessor Line 2 after "hours" add "and upon reasonable prior notice to Lessee". 15 Section 8 Representations and Warranties of Lessee Subparagraph (c) line 3 after "terms" add "subject to bankruptcy, in solvency, liquidation, reorganization, fraudulent conveyance, and similar laws affecting creditors' rights generally and general principals of equity". Subparagraph (e) line after "laboratory" add "or office". Section 9 Delivery and Return of Equipment Line 6 after "manufacturer" and "or a third party reasonably acceptable to Lessor". Section 11 Indemnity Line 8 after "negligent acts" add "or willful misconduct". Section 12 Risk of Loss Line 7 after "Lessee will" add "upon the request of Lessor". Section 13 Default, Remedies and Mitigation Subsection 13.1 Default Line 2 after "constitutes a" add "material". Subparagraph (a) line 2 after "after" add "Lessee's receipt of". Subparagraph (b) line 1 after "other" add "material" and line 5 after "after" add "Lessee's receipt of". Subparagraph (c) line 3 after "against Lessee" add "unless such filing is dismissed within sixty (60) days". Subsection 13.2 Remedies Subparagraph (d) line 6 after "negligence" add "or willful misconduct". 16 Section Additional Provisions Subsection 14.3 Binding Nature At end of section delete the period and add "without the prior consent of Lessor, which consent will not be unreasonably withheld, delayed or conditioned". Subsection 14.5 Notices At the end of section delete the period and add "or in the case of courier delivery, delivery is refused". Subsection 14.9 Licensed Products Line 5 delete the period and add "and Lessor's taking title thereto". Subsection 14.10 Additional Documents Line 2 after secretary's add "or assistant secretary's". At the end of the paragraph delete the word period and replace with "fiscal year". Except as set out herein, Lessor and Lessee hereby agree that the terms and conditions of the Master Lease Agreement shall remain in full force and effect as entered into by the parties on or prior to the date hereof.
GUILFORD PHARMACEUTICALS INC. COMDISCO LABORATORY AND as Lessee SCIENTIFIC GROUP, A DIVISION OF COMDISCO HEALTHCARE GROUP, INC. as Lessor By: /s/ Andrew R. Jordan By: /s/ Doug Berman --------------------------------------------- ----------------------------------------- Title: S.V.P. & CFO Title: Credit Manager ------------------------------------------ ---------------------------------------- Date: 3/20/98 Date: 4/10/98 ------------------------------------------ ----------------------------------------
EX-10.57 3 EMPLOYMENT AGREEMENT RE: GREGORY D. HOCKEL, PH.D. 1 EXHIBIT 10.57 [GUILFORD LETTERHEAD] David R. Savello, Ph.D. Senior Vice President, Development February 24, 1998 Gregory Hockel, Ph.D. 103 Longfellow Drive Millersville, MD 21108 Dear Greg: I am very pleased to offer you employment with Guilford Pharmaceuticals Inc. on the following terms: 1. Your title will be Vice President, Regulatory Affairs. In this capacity you will report to and serve at the discretion of the Senior Vice President of Development, David R. Savello, Ph.D. 2. In consideration of your services, the Company will provide the following compensation: a. Salary: Your salary will be set at $15,416.67 per month (for an annualized salary of $185,000.00) payable semi-monthly. Your performance and salary will be reviewed according to our annual review program. b. Bonus: You will be eligible to receive such bonuses, if any, as are payable pursuant to any employee bonus plans the Board of Directors may have adopted from time to time. c. Joining Bonus: To assist you in the transition to your new position, the Company will pay you a joining bonus of $25,000. This payment will be made within 30 days following the first day of your employment and will be subject to all deductions required by law. Should you terminate your employment with the company within one year of your date of hire, you will be responsible for a prorata reimbursement to the Company of the joining bonus. d. Stock Options: The Company will award you options to purchase 25,000 shares of its common stock, subject to approval of this award by the Board of Directors and subject to the terms and conditionals of the Company's 2 Gregory Hockel, Ph.D. February 24, 1998 Page Two standard stock option agreement. The price of the options will be the closing price of Guilford's stock on the trading date immediately preceding the date such options are approved by the Board of Directors (or your date of employment if after the Board's approval). These options will vest 50% after two years, 75% after three years, and 100% after four years from the date of the grant. You will be eligible to receive further stock options, if any, as may be granted pursuant to any stock option plan the Board of Directors may have adopted from time to time. e. Equity Offering: The Company will offer you 2,500 shares of its common stock, subject to approval of this award by the Board of Directors and further subject to the terms and conditions of the Company's standard restricted share agreement on the following basis: i) These shares will vest 25% per year over four years. ii) In the event your employment with the Company is terminated for cause, you voluntarily leave the Company, or you are unable to perform your duties for any reason, the unvested shares will immediately revert to the Company. All taxes relating to such grant will be your responsibility. 3. In addition to the aforementioned, you will be eligible for the following benefits: a. Insurance: The Company will offer you medical, dental, vision, life, short-term, long-term disability and accidental death and dismemberment insurance as is generally available to its employees. b. 401(k) Plan: Once you meet the employment eligibility requirements to participate in the Company's 401(k) Plan, you will receive certain matching rights, subject to the terms and conditions of such plan as may be in effect from time to time. Guilford currently matches 50% of the first 6% of employee salary deferral in the form of newly issued Guilford Stock. c. Vacation: You will be entitled to vacation in accordance with our corporate vacation policy as in effect from time to time (based on current rate of accrual, you will accrue at an annualized rate of 20 days of company designated and discretionary vacation days, (not counting 3 Gregory Hockel, Ph.D. February 24, 1998 Page Three company-observed holidays), during your first year of employment). In the event your employment is terminated by the Company other than for cause, you would be entitled to severance in the form of a continuation of your then-current base salary, as follows: 1. Six months salary if the termination occurs in the first twelve months of your employment; and 2. Twelve months salary if the termination occurs thereafter. Such payments (except those resulting from a change in control) would cease upon your commencement of paid employment or consultancy during the severance period. During the severance period, the Company would also reimburse you for the cost of continuation of any health, life and disability insurance coverage available at the time of the termination of employment, provided that the Company reserves the right to provide substantially equivalent alternative life and disability coverage to the extent reasonably available upon conversion from full-time employment. Such continuing coverage is conditioned upon your reasonable cooperation in complying with any necessary application procedures. Remaining benefits of employment, including your eligibility for any bonus program and the vesting of unvested options would cease at termination and not continue to accrue during the severance period. This offer of employment at will is conditioned among other things on: (i) continuing compliance with relevant requirements under the Immigration Reform Act of 1986, including presentation of documentation that proves your identity and legal right to work in the United States; (ii) your signing a Patent and Confidentiality Agreement in connection with your employment by the Company; and (iii) successful completion of a background investigation. 4 Gregory Hockel, Ph.D. February 24, 1998 Page Four You may accept this offer by signing below and returning the original letter to the Human Resources Department in the enclosed envelope. All of us at Guilford very much look forward to welcoming you to the Guilford team! Sincerely, /s/ DAVID R. SAVELLO, PH.D. ---------------------------------- David R. Savello, Ph.D. Senior Vice President, Development I accept this offer and agree to comply with all Guilford Pharmaceuticals Inc. corporate policies and procedures which may be in effect from time to time. My first day of work will be on or about April 1, 1998. -------------------------- /s/ GREGORY HOCKEL - ------------------------------ Signature March 8, 1998 - ------------------------------ Date EX-10.58 4 EMPLOYMENT AGREEMENT RE: DANA HILT, M.D. 1 EXHIBIT 10.58 [GUILFORD LETTERHEAD] David R. Savello, Ph.D. Senior Vice President, Development January 23, 1998 Dana C. Hilt, M.D. 3122 West Sierra Drive Thousand Oaks, CA 91362 Dear Dana: I am very pleased to offer you employment with Guilford Pharmaceuticals Inc. on the following terms: 1. Your title will be Vice President, Clinical Research. In this capacity you will report to and serve at the discretion of the Senior Vice President of Development, David R. Savello, Ph.D. 2. In consideration of your services, the Company will provide the following compensation: a. Salary: Your salary will be $17,500. per month (an annual rate of $210,000), payable semi-monthly. Your performance and salary will be reviewed according to our annual review program. b. Bonus: You will be eligible to receive such bonuses, if any, as are payable pursuant to any employee bonus plans the Board of Directors may have adopted from time to time. c. Joining Bonus: To assist you in the transition to your new position, the Company will pay you a joining bonus of $17,500. This payment will be made within 30 days following the first day of your employment and will be subject to all deductions required by law. Should you terminate your employment with the company within one year of your date of hire, you will be responsible for a prorata reimbursement to the Company of the joining bonus. d. Stock Options: The Company will award you Non-Qualified stock options to purchase 35,000 shares of its common stock, subject to approval of this award by the Board of Directors and subject to the terms and conditions of the Company's standard stock option agreement. The price of the options will be the fair market value of the stock on the trading date immediately preceding the grant date. These options will vest 50% after two years, 75% after three years, and 100% after four years from the date of the grant. You will be 2 Dana C. Hilt, M.D. January 23, 1998 Page Two eligible to receive further stock options, if any, as may be granted pursuant to any stock option plan the Board of Directors may have adopted from time to time. e. Equity Offering: The Company will offer you 10,000 shares of its common stock, subject to approval of this award by the Board of Directors and further subject to the terms and conditions of the Company's standard restricted share agreement on the following basis: i) These shares will vest 25% per year over 4 years. ii) In the event your employment with the Company is terminated for cause, you voluntarily leave the Company, or you are unable to perform your duties for any reason, the unvested shares will immediately revert to the Company. All taxes relating to such grant will be your responsibility. 3. In addition to the compensation described above, you will be eligible for the following benefits: a. Relocation: To assist you in relocating to the Baltimore area, the Company will: i) Pay for two trips to the Baltimore area for you to find living accommodations. Reasonable travel and hotel expenses will be reimbursed. ii) Pay the direct cost of moving your household possessions to the Baltimore area. iii) Pay the closing costs for a new home in the Baltimore area up to 3 1/2% of its purchase price, grossed-up for tax purposes. This includes up to two points on a mortgage (one point loan origination fee and one discount point on a mortgage). iv) To assist you in your transition to Maryland, Guilford will reimburse you temporary housing assistance, if needed (if you must maintain two households for a short period of time), of up to $1,000 per month for up to three months (cost of temporary rental, including furniture rental). 3 Dana C. Hilt, M.D. January 23, 1998 Page Three v) Pay the selling costs of your California home, not to exceed 8% of its fair market value, grossed-up for tax purposes. for a period of time not to exceed 18 months from the date of employment vi) In the event you purchase a home in Maryland prior to selling your California home, Guilford will provide duplicate mortgage assistance. Guilford will reimburse the lesser of the two monthly mortgage payments (including property tax payments subject to your obligation to repay the property tax portion upon final settlement of your California home) for a period not to exceed twelve months. Should you terminate your employment with the company within one year of your date of hire, you will be responsible for reimbursement to the Company of the relocation expenses, prorated for the term of your employment. b. Insurance: The Company will offer medical, dental, vision, life, accidental death, short-term and long-term disability insurance as described in the attached. c. Vacation: You will be entitled to 20 vacation days, to be used according to the Company Vacation policy, and paid Company Holidays in effect from time to time (currently 11). d. 401(k) Match: Once you meet the employment eligibility requirements to participate in the company's 401(k) Plan, you will be eligible to receive the Company match subject to the terms and conditions of such plan as may be in effect from time to time. Guilford currently matches 50% of the first 6% of employee salary deferral in the form of newly issued Guilford stock. In the event your employment is terminated by the Company other than for cause, you would be entitled to severance in the form of a continuation of your then-current base salary, as follows: 1. Six months salary if the termination occurs in the first twelve months of your employment; and 2. Twelve months salary if the termination occurs thereafter. Such payments (except those resulting from a change in control) would cease upon your commencement of paid employment or consultancy during the severance period. During the severance period, the Company would also reimburse you for the cost of continuation of any health, life and disability insurance coverage available at the time of the termination of employment, provided that the Company reserves the right to provide substantially equivalent 4 Dana C. Hilt, M.D. January 23, 1998 Page Four alternative life and disability coverage to the extent reasonably available upon conversion from full-time employment. Such continuing coverage is conditioned upon your reasonable cooperation in complying with any necessary application procedures. Remaining benefits of employment, including your eligibility for any bonus program and the vesting of unvested options would cease at termination and not continue to accrue during the severance period. This offer of employment at will is conditioned on: (i) continuing compliance with relevant requirements under the Immigration Reform Act of 1986, including presentation of documentation that proves your identity and legal right to work in the United States; (ii) your signing a Patent and Confidentiality Agreement in connection with your employment by the Company; and (iii) successful completion of a background investigation. You may accept this offer by signing below and returning the original letter to me. I would like you to start at Guilford on or before May 1, 1998. We very much look forward to welcoming you to the Guilford team! Sincerely, /s/ DAVID R. SAVELLO ----------------------------------- David R. Savello, Ph.D. Senior Vice President of Development I accept this offer and agree to comply with all Guilford Pharmaceuticals Inc. policies and procedures which may be in effect from time to time. s/ DANA C. HILT, M.D. 1/27/98 - ----------------------------- --------------------------------- Dana C. Hilt, M.D. Date EX-11.2 5 COMPUTATION OF EARNINGS (LOSS) PER SHARE 1 EXHIBIT 11.2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table sets forth the calculation of total number of shares used in the computation of net earnings (loss) per common share:
THREE MONTHS ENDED MARCH 31, 1998 1997 ------------ ------------- Weighted average common shares outstanding 19,411 14,237 Dilutive incremental shares assumed to be outstanding related to stock options, warrants and put options - - Weighted average common and common equivalent shares used in the computation ------------ ------------ of net income (loss) per common share 19,411 14,237 ============ ============ Net income (loss) $(7,074) $(6,336) ============ ============ Basic earnings (loss) per common share $ (0.36) $ (0.45) ============ ============ Diluted earnings (loss) per common share $ (0.36) $ (0.45) ============ ============
EX-27.2 6 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 11,757 0 1,910 0 1,634 51,420 23,546 5,084 173,180 11,283 10,386 0 0 194 151,317 173,180 1,238 2,382 339 11,511 0 0 203 (7,074) 0 (7,074) 0 0 0 (7,074) (.36) (.36) THE EPS-PRIMARY TAG REPRESENTS BASIC EPS UNDER SFAS 128 THE EPS-DILUTED TAG REPRESENTS DILUTED EPS UNDER SFAS 128
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