<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
-------------
COMMISSION FILE NUMBER 0-23736
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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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1998
Common Stock, $.01 par value 19,475,622
- ---------------------------- ----------
<PAGE> 2
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page (s)
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations
Three and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity
Six months ended June 30, 1998 5
Consolidated Statements of Cash Flows
Three and six months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
PART II. OTHER INFORMATION 21-23
SIGNATURES 24
</TABLE>
2
<PAGE> 3
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998
(UNAUDITED) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,385 $ 24,980
Investments 125,069 123,120
Investments - restricted 11,605 12,119
Accounts receivable 1,506 606
Inventories 1,458 1,342
Other current assets 671 494
-------- ---------
Total current assets 147,694 162,661
Property and equipment, net 21,299 17,153
Other assets 273 267
-------- ---------
$169,266 $2180,081
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,469 $ 2,743
Current portion of long-term debt 2,159 2,159
Accrued payroll related costs 1,640 2,000
Accrued legal and professional 1,138 665
Accrued licensing and royalty payments 2,000 531
Accrued expenses and other current liabilities 2,395 1,638
Deferred income 1,283 1,125
-------- ---------
Total current liabilities 14,084 10,861
Long-term liabilities:
Long-term debt, net of current portion 9,846 10,926
-------- ---------
Total liabilities 23,930 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 75,000,000 shares
19,475,188 and 19,387,946 issued and
outstanding at June 30, 1998
and December 31, 1997, respectively 195 194
Additional paid-in capital 185,918 185,205
Accumulated deficit (40,472) (26,311)
Accumulated other comprehensive income 914 426
Notes receivable on common stock (60) (60)
Treasury stock, at cost (924) (878)
Deferred compensation (235) (282)
-------- ---------
Total stockholders' equity 145,336 158,294
-------- ---------
$169,266 $ 180,081
======== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 997 $ 1,767 $ 1,655 $ 3,825
License fees and royalties 730 437 1,310 630
Revenues under collaborative agreements 1,183 169 2,327 169
------- ------- -------- --------
Total revenues 2,910 2,373 5,292 4,624
Costs and Expenses:
Cost of sales 505 597 844 1,497
Research and development 9,310 6,948 17,965 13,611
General and administrative 2,532 1,800 5,049 3,626
------- ------- -------- --------
Total costs and expenses 12,347 9,345 23,858 18,734
------- ------- -------- --------
Operating loss (9,437) (6,972) (18,566) (14,110)
Other income (expense):
Investment and other income 2,546 1,901 4,804 2,896
Interest expense (196) (207) (399) (400)
------- ------- -------- --------
Net loss $(7,087) $(5,278) $(14,161) $(11,614)
======= ======= ======== ========
Basic and diluted loss per common share: $ (0.36) $ (0.29) $ (0.73) $ (0.72)
======= ======= ======== ========
Average common shares outstanding 19,466 17,953 19,439 16,105
======= ======= ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED NOTES
------------- ADDITIONAL OTHER RECEIVABLE
NUMBER PAID-IN ACCUMULATED COMPREHENSIVE ON COMMON
OF SHARES AMOUNT CAPITAL DEFICIT INCOME * STOCK
--------- ------ ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 19,387,946 $194 $185,205 $(26,311) $426 $(60)
Issuances of common stock 87,242 1 493
Purchase of 2,077 shares of common stock
Stock option compensation 220
Amortization of deferred compensation
Net loss for the period (14,161)
Unrealized gain on available-for-sale securities 488
---------- ---- -------- -------- ---- ----
BALANCE, JUNE 30, 1998 19,475,188 $195 $185,918 $(40,472) $914 $(60)
========== ==== ======== ======== ==== ====
<CAPTION>
TOTAL
TREASURY DEFERRED STOCKHOLDERS'
STOCK, AT COST COMPENSATION EQUITY
-------------- ------------ ------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $(878) $(282) $158,294
Issuances of common stock 494
Purchase of 2,077 shares of common stock (46) (46)
Stock option compensation 220
Amortization of deferred compensation 47 47
Net loss for the period (14,161)
Unrealized gain on available-for-sale securities 488
----- ----- --------
BALANCE, JUNE 30, 1998 $(924) $(235) $145,336
===== ===== ========
</TABLE>
* Relates to unrealized gain (loss) on available-for-sale securities.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,087) $ (5,278)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 921 605
Noncash compensation expense 139 373
Gain on sale of assets - -
Changes in assets and liabilities:
Accounts receivable, other current assets, and other assets 42 (323)
Inventory 176 36
Accounts payable and other current liabilities 2,801 (509)
---------- -----------
Net cash used in operating activities (3,008) (5,096)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in purchases of property and equipment, net (3,592) (1,417)
Sale and maturities of marketable securities 31,514 23,202
Purchases of marketable securities (29,888) (72,595)
Restricted investments 1,088 143
---------- -----------
Net cash used in investing activities (878) (50,667)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock 54 70,897
Purchase of treasury stock - (72)
Proceeds from bond and term loan issuances - 592
Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option - -
Payment of notes receivable on common stock - 30
Principal payments on bond and term loan payable (540) (235)
---------- -----------
Net cash provided by (used in) financing activities (486) 71,212
---------- -----------
Net increase (decrease) in cash and cash equivalents (4,372) 15,449
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 11,757 5,536
---------- -----------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 7,385 $ 20,985
========== ===========
Supplemental disclosures of each flow information:
Net interest paid $ 201 $ 203
Income taxes paid $ - $ -
Unrealized gain on available-for-sale securities $ 722 $ 394
Collateral transferred from unrestricted to
restricted investments, net $ (27) $ 421
=========== ===========
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (14,161) $ (11,614)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,745 1,199
Noncash compensation expense 270 940
Gain on sale of assets 6 -
Changes in assets and liabilities:
Accounts receivable, other current assets, and other assets (1,083) (1,123)
Inventory (116) 104
Accounts payable and other current liabilities 3,223 (1,302)
----------- -----------
Net cash used in operating activities (10,116) (11,796)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in purchases of property and equipment, net (5,725) (2,783)
Sale and maturities of marketable securities 44,118 35,055
Purchases of marketable securities (45,754) (88,241)
Restricted investments 514 351
----------- -----------
Net cash used in investing activities (6,847) (55,618)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock 494 71,218
Purchase of treasury stock (46) (727)
Proceeds from bond and term loan issuances - 1,090
Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option - 698
Payment of notes receivable on common stock - 30
Principal payments on bond and term loan payable (1,080) (470)
----------- -----------
Net cash provided by (used in) financing activities (632) 71,839
----------- -----------
Net increase (decrease) in cash and cash equivalents (17,595) 4,425
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 24,980 16,560
----------- -----------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 7,385 $ 20,985
=========== ===========
Supplemental disclosures of each flow information:
Net interest paid $ 413 $ 394
Income taxes paid $ - $ 179
Unrealized gain on available-for-sale securities $ 488 $ 149
Collateral transferred from unrestricted to
restricted investments, net $ (601) $ 856
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 consolidated 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 respective
periods as set forth in the Index to Financial Information. Interim results are
not necessarily indicative of results for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Guilford
Pharmaceuticals Inc. (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
In the first quarter of 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
7
<PAGE> 8
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
items of comprehensive income by their nature and display the accumulated
balance of other 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 consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. It also requires that gains or losses resulting from changes in the
values of those derivatives be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company is
required to adopt SFAS 133 for its fiscal year beginning January 1, 2000.
Management believes the adoption of SFAS 133 will not have a material impact on
the Company's consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform with the current period's
presentation.
4. INVENTORIES
Inventories at June 30, 1998 and December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
June 30, 1998
(Unaudited) December 31, 1997
----------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $ 315 $ 386
Work in process 285 497
Finished goods 858 459
----- -----
$1,458 $1,342
===== =====
</TABLE>
8
<PAGE> 9
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and $2.25 million for the three and
six months ended June 30, 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 in the aggregate,
payable quarterly over three years beginning on October 1, 1997, 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, the Company recognized revenues of $1.7
million ($997,000 in product sales and $730,000 in royalty revenues and license
fees) and $3.0 million ($1.7 million in product sales and $1.3 million in
royalty revenues), respectively, for the three and six months ended June 30,
1998 relating to sales of GLIADEL(R) Wafer ("GLIADEL"). The Company recognized
revenues of $2.2 million ($1.8 million in product sales and $400,000 in royalty
revenues) and $4.4 million ($3.8 million in product sales and $600,000 in
royalty revenues), respectively, for the three and six months ended June 30,
1997 relating to sales of GLIADEL. GLIADEL was commercially launched in the
United States on February 25, 1997.
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, will be adjacent to the Company's
headquarters 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
9
<PAGE> 10
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REAL ESTATE DEVELOPMENT AGREEMENT (CONTINUED)
subject to certain financial covenants the most restrictive of which requires
that the Company maintain cash, cash equivalents and investments in the
aggregate equal to $40 million. As of June 30, 1998, the Company had cash
collateral of approximately $2.3 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 operating lease entered
into thereunder may range from 24 to 48 months based upon the type of equipment
being financed. As of June 30, 1998, the Company had leased an aggregate of $1.8
million in computer and other equipment under these agreements. Additionally,
the Company has other operating lease commitments aggregating approximately
$5.5 million.
10
<PAGE> 11
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
11
<PAGE> 12
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Company will be successful in its efforts to enter into future collaborations
for the research, development and/or commercialization of its technologies or
will receive any or all of the milestone payments for which it is eligible under
its existing or any future collaboration.
GLIADEL was commercially launched in the United States by RPR in February
1997, and since launch, as of June 30, 1998 the Company has recognized an
aggregate of $10.1 million in product sales and royalties. Of this $10.1
million, $7.4 million represent sales of GLIADEL to RPR and Orion Corporation
Farmos, the Company's marketing partner in Scandinavia, and $2.7 million
represent royalties from 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
12
<PAGE> 13
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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.
In addition to revenues related to GLIADEL, the Company's only other
significant revenues recognized in fiscal year 1998 through June 30, 1998
consist of approximately $2.25 million in research payments made by Amgen. As
noted above, during the remainder of 1998 the Company anticipates recognizing an
additional $2.25 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 the Company will recognize significant revenues, if any,
from these sources in the future.
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
and six months ended June 30, 1998, the Company incurred net operating losses of
$7.1 million and $14.2 million, respectively, and through June 30, 1998, the
Company had an accumulated deficit of $40.5 million.
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
13
<PAGE> 14
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
technologies and potential products. The Company has experienced substantial
personnel growth since its inception. As of June 30, 1998 the Company had 212
full-time employees as compared to 180 full-time employees at June 30, 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.
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, 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 expects to qualify other suppliers
in the future, 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 has
completed construction of 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.
14
<PAGE> 15
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 and Six Month Periods Ended June 30, 1998 and 1997
The Company recognized $2.9 million and $5.3 million in revenues for the
three and six months ended June 30, 1998, respectively, consisting primarily of
revenues from product sales and royalties relating to GLIADEL and $1.1 million
in quarterly research funding from Amgen pursuant to the Amgen Agreement entered
into in August 1997. For the same periods in 1997 the Company recognized $2.4
million and $4.6 million in revenues, respectively, all of which resulted from
product sales and royalties relating to GLIADEL following its commercial launch
on February 25, 1997 and amounts reimbursed to develop a high dose GLIADEL
product.
Revenues related to the sale of GLIADEL consist primarily of transfer
payments (sales directly to the Company's marketing and distribution partners)
and royalties based on end-user sales. Transfer payments for the three and six
months ended June 30, 1998 were $1.0 million and $1.7 million, respectively.
Transfer payments for the same periods in 1997 were $1.8 million and $3.8
million, respectively. Sales of GLIADEL to RPR for the three and six months
ended June 30, 1997 reflect RPR's initial build-up of inventory to support
commercial launch of the product in 1997. The reduction in the level of transfer
payments from RPR in the 1998 periods as compared to the three and six months
ended June 30, 1997 reflects stabilization of RPR's current inventory
requirements for GLIADEL. Net royalty revenue with respect to GLIADEL sales
increased 44% and 84%, respectively, to $630,000 and $1.2 million for the three
and six months ended June 30, 1998 as compared to $437,000 and $630,000 for the
same periods in 1997. The increase in royalties paid in the latter periods
reflects greater end-user sales by RPR's marketing and sales force during the
three and six months ended June 30, 1998 as awareness about GLIADEL has
increased among neurosurgeons and as neurosurgeons have gained greater
familiarity with the product. In addition the increase for the six-month period
ended June 30, 1998 also reflects, in part, the fact that GLIADEL sales
commenced in late February 1997, and thus were made only during part of the six
months ended June 30, 1997. As noted above and in the 1997 Form 10-K, future
GLIADEL sales are subject to a
15
<PAGE> 16
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 and six months ended June 30, 1998 were $505,000
and $844,000, respectively, compared to $597,000 and $1.5 million, respectively,
for the same periods in 1997. Included in these amounts are approximately
$41,000 and $68,000, respectively, for the 1998 periods and approximately
$86,000 and $171,000, respectively, for the 1997 periods, 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 periods as compared to the 1997 periods primarily reflects a reduction in
the number of units sold to RPR during the 1998 periods. Cost of sales as a
percent of product sales increased during the 1998 periods as compared to the
same periods in 1997 primarily due to decreases in manufacturing economies of
scale resulting from lower numbers of product units produced to support sales
during the 1998 periods. To the extent GLIADEL production levels increase in
future periods, the Company expects that per unit product costs may decrease as
greater 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 $9.3 million and $18.0
million, respectively, for the three and six months ended June 30, 1998 as
compared to $6.9 million and $13.6 million for the same periods in 1997. The
increase in these costs was primarily attributable to expenses related to
increased personnel costs, contract services, and research supply costs,
including license fees payable to a third party licensor of certain technology.
At June 30, 1998, 182 individuals were employed on a full-time basis in the
areas of research, development and manufacturing as compared to 154 individuals
at June 30, 1997. In the second quarter and first six months 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, continued with Phase I
clinical trials for a high dose formulation of GLIADEL and provided financial
support for RPR's Phase III clinical trial program in support of a first surgery
indication for GLIADEL. In addition, in the three and six months ended June 30,
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 $220,000, respectively, and cash
compensation expense of $70,000 and $140,000, respectively. For the three and
six month periods ended June 30, 1997, the Company recorded non-cash
compensation expense related to these agreements of $348,000 and $765,000,
respectively, and cash compensation expense of $31,000 and $60,000,
respectively. These agreements are intended to enhance the Company's ability to
develop new polymer technologies and products for the delivery of
chemotherapeutics in indications where local tumor recurrence is likely and
controlled release may be more effective than current therapies. The Company
expects it will be required to record varying amounts of non-cash compensation
charges in research and
16
<PAGE> 17
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
development expenses quarterly through 2001 relating to these agreements of up
to an aggregate of an additional $970,000. The Company anticipates that its
research and development expenses will continue to increase in future periods.
General and administrative expenses were $2.5 million and $5.0 million,
respectively, for the three and six months ended June 30, 1998 as compared to
$1.8 million and $3.6 million, respectively, for the same periods in 1997. The
increase in general and administrative expenses of approximately $700,000 and
$1.4 million, respectively, for the three and six months ended June 30, 1998,
compared to the same periods 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 $2.5 million and $4.8 million,
respectively, for the three and six months ended June 30, 1998 as compared to
$1.9 million and $2.9 million, respectively, for the same periods in 1997. The
increase was primarily attributable to an increase in the average invested
capital during the three and six months ended June 30, 1998 as compared to the
same periods 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 and six months ended June 30, 1998,
the Company incurred interest expense of $196,000 and $399,000 relating to
borrowings under its financing arrangements with First Union National Bank
(formerly Signet Bank, "First Union") providing for the construction of
manufacturing, administrative and research and development facilities and the
purchase of related equipment. Interest expense was $207,000 and $400,000,
respectively, for the three and six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were approximately $144.1 million at June
30, 1998. Of this amount, $11.6 million was held as collateral with respect to
certain of the Company's indebtedness and other financings and is recorded as
"investments - restricted" on the accompanying balance sheet. The Company's
accumulated deficit was $40.5 million at June 30, 1998. The decrease of $514,000
in the amount of restricted investments at June 30, 1998 as compared to December
31, 1997 resulted from an increase in certain loan guarantees from the State of
Maryland effective in June, 1998, which decrease was partially offset by an
increase in cash collateral related to the Company's design and construction of
a new research and development facility (see discussion below).
Long term debt, net of current portion, decreased to $9.8 million at June
30, 1998 as compared to $10.9
17
<PAGE> 18
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
million at December 31, 1997, primarily as a result of the Company's continued
repayment of principal under its outstanding bond-financed construction loan and
related term loan with First Union, the proceeds of which were used to support
the design and construction of certain improvements at the Company's current
headquarters facility as well as the purchase of certain laboratory and other
equipment.
The Company incurred net capital expenditures of $3.6 million for the three
months ended June 30, 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, as well as for the purchase of research and
development equipment.
In March 1998, the Company entered into master equipment lease arrangements
for up to an aggregate of $10.8 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. At June 30, 1998, $9.0 million was available under
these arrangements to lease additional equipment (see note 7 to Notes to
Consolidated Financial Statements).
Such financing, along with the Company's internal resources as well as
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 anticipated future
facilities needs, the Company entered into an operating lease and related
agreements with a trust affiliated with First Union for an approximately 72,500
square foot facility to be constructed on a lot adjacent to the Company's
current headquarters in Baltimore, Maryland in order to support the Company's
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 agreements 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
18
<PAGE> 19
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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
June 30, 1998. The Company has not yet determined whether to draw on the capital
available under its loan agreement with RPR to finance 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.
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
19
<PAGE> 20
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 than 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.
SUBSEQUENT EVENTS
In August 1998, the Company's Board of Directors amended the Company's Bylaws to
increase the size of the Board from six to seven members, and appointed Joseph
"Skip" Klein, III to fill the newly created Board seat. Mr. Klein is currently a
Health Care Analyst with The Kaufmann Fund, an emerging growth mutual fund.
Previously, he served as a Portfolio Manager and Chairman of the Investment
Advisory Committee of the T. Rowe Price Health Sciences Fund. Mr. Klein was also
a Vice President and Health Care Investment Analyst for T. Rowe Price
Associates, an investment management firm. He holds an M.B.A. from the Stanford
Graduate School of Business, and a B.A. in economics from Yale University.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
20
<PAGE> 21
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes In Securities and Use of Proceeds:
None
Item 3. Defaults in Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholder was held on May 19, 1998.
The following individuals were elected to the Company's Board of Directors to
hold office for the ensuing year:
<TABLE>
<CAPTION>
Nominee For Against
-------------------------------------------------------
<S> <C> <C>
Craig R. Smith, M.D. 16,907,416 170,023
Solomon H. Snyder, M.D. 16,905,246 168,193
Richard L. Casey 16,905,246 168,193
W.Leigh Thompson, M.D., Ph.D. 16,905,246 168,193
Elizabeth M. Greetham 16,905,246 168,193
George L. Bunting, Jr. 16,905,246 168,193
</TABLE>
In addition, the following proposals were approved as follows:
Proposal to amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of common stock from
40,000,000 shares to 75,000,000 shares. The vote was as follows:
<TABLE>
<CAPTION>
In Favor Opposed Abstained
---------------------------------------
<S> <C> <C>
16,552,726 498,260 26,453
</TABLE>
21
<PAGE> 22
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
Proposal to ratify the selection of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998.
<TABLE>
<CAPTION>
For Against Abstained
---------------------------------------
<S> <C> <C>
16,965,545 94,761 17,133
</TABLE>
Item 5. Other Information:
In order to present a proposal at the 1999 Annual Meeting of
Stockholders, a Guilford stockholder must provide written notice of the proposal
to the Company no later than March 2, 1999. The Company intends to use
discretionary voting authority with respect to any matter brought before the
1999 Annual Meeting of Stockholders of which the Company has not received
written notice by March 2, 1999. The address to which such written notice must
be sent is Guilford Pharmaceuticals Inc., 6611 Tributary Street, Baltimore,
Maryland 21224, Attention: Corporate Secretary.
Item 6. Exhibits and Reports on Form 8-K:
<TABLE>
<CAPTION>
A. Exhibits
Exhibit No. Description
- ----------- -----------
<S> <C>
3.03 Amendment to Bylaws
10.59 Employment Letter Agreement, effective June 10, 1998, between the
Company and David H. Bergstrom, Ph.D.
10.60 Amendment No. 1 to Loan and Financing Agreement, dated as of June
30, 1998 by and among Maryland Economic Development Corporation,
the Company, and First Union.
10.61 Second Amendment to Insurance Agreement, dated June 29, 1998, by
and between the Maryland Industrial Development Financing
Authority ("MIDFA") and First Union.
10.62 MIDFA Agreement dated June 29, 1998, by and between MIDFA, First
Security Bank, National Association, the Company and First Union.
10.63 Insurance Agreement, dated June 29, 1998, by and between MIDFA
and First Union.
</TABLE>
22
<PAGE> 23
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
A. Exhibits (continued)
<S> <C>
Exhibit No. Description
- ----------- -----------
11.3 Statement Re: Computation of Earnings (Loss) Per Share
27.3 Financial Data Schedule
B. Report on Form 8-K:
None
</TABLE>
23
<PAGE> 24
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: August 13, 1998 /s/ Craig R. Smith, M.D.
----------------------------------------
Craig R. Smith, M.D.
President and CEO
Date: August 13, 1998 /s/ Andrew R. Jordan
----------------------------------------
Andrew R. Jordan
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
24
<PAGE> 1
Exhibit 3.03
AMENDMENT TO BYLAWS
OF
GUILFORD PHARMACEUTICALS INC.
By action of the Board of Directors of Guilford Pharmaceuticals Inc.
(the "Corporation") effective as of August 1, 1998, Section 3.2 of the
Corporation's Bylaws, as amended, was amended to read in its entirety as
follows:
"3.2 Number and Election. The number of directors which shall
constitute the whole board shall be seven (7)."
<PAGE> 1
EXHIBIT 10.59
[Guilford Letterhead]
June 3, 1998
David H. Bergstrom, Ph.D.
15 Kerby Lane
Mendham, NJ 07945
Dear David:
I am very pleased to offer you employment with Guilford
Pharmaceuticals Inc. on the following terms:
1. Your title will be Vice President, Pharmaceutical Development.
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 $14,166.67 per
month (for an annualized salary of $170,000.00)
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 $14,166.67. 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
standard stock option agreement. The price of the
options will be the
<PAGE> 2
David H. Bergstrom, Ph.D.
June 3, 1998
Page 2
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
our 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. Relocation: We have discussed the fact that for
personal reasons, you wish to maintain your New
Jersey household for your family for approximately 18
more months, and will initially procure lodgings in
the Baltimore area for your own individual residence.
In order to assist you in your specific
circumstances, we offer the following relocation
assistance:
i) Reimburse you for two trips to the Baltimore
area for you to find your initial living
accommodations. Reasonable travel and hotel
expenses will be reimbursed.
ii) Provided you move your New Jersey household
to the Baltimore area within 24 months of the
date of this letter, pay the direct cost of
moving your household possessions to the
Baltimore area.
iii) Provided you purchase a new home in the
Baltimore area within 24 months of the date
of this letter, pay the closing costs of 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
<PAGE> 3
David H. Bergstrom, Ph.D.
June 3, 1998
Page 3
mortgage (one point loan origination fee and
one discount point on a mortgage).
iv) Reimburse you for temporary housing costs
(including furniture rental), if needed, of
up to $1,000 per month for up to three months
while you search for your initial residence
in the Baltimore area.
v) Provided you sell your New Jersey home within
24 months of the date of this letter,
reimburse you for the selling costs of your
New Jersey home, not to exceed 8% of its
selling price, grossed-up for tax purposes.
vi) Provided you purchase a home in Maryland
within 24 months of the date of this letter
and prior to selling your New Jersey home,
Guilford will provide duplicate mortgage
assistance as follows. 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 New Jersey home) for a
period commencing when you purchase your
Maryland home and place your New Jersey home
on sale, for a period not to exceed 12
months.
The foregoing relocation benefits shall terminate upon termination of your
employment for any reason, provided that the duplicate mortgage assistance in
vi) above shall continue for a period of up to 3 months following termination of
your employment for any reason other than for cause. Further, should you
terminate your employment with the Company within one year of commencing
employment, you will be responsible for reimbursing the Company the relocation
benefits set forth above actually incurred by the Company, prorated for the term
of your employment.
b. 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.
c. 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
<PAGE> 4
David H. Bergstrom, Ph.D.
June 3, 1998
Page 4
6% of employee salary deferral in the form of newly
issued Guilford Stock.
d. 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 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;
(iii) successful completion of a background investigation;
and
<PAGE> 5
David H. Bergstrom, Ph.D.
June 3, 1998
Page 5
(iii) taking a pre-employment physical, and successfully
passing the included drug screen, which can be
scheduled at your convenience and our expense. The
earliest date you can schedule your start of
employment is three work days after your
pre-employment physical.
You may accept this offer by signing below on or before June 12, 1998
and returning the original letter to the Human Resources Department in the
enclosed envelope. This offer letter supersedes all prior offer letters and
correspondence regarding the terms of your employment and will expire if not
accepted on or before June 12, 1998.
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 physical has been scheduled for June 4, 1998 .
---------------------
(date)
My commencement of hire date will be July 6, 1998 .
----------------------
(date)
Unless otherwise notified, please report to work at 8:30 a.m. on July 6, 1998,
the first day following the Company's summer break, and ask for Mary Halpin.
/s/ David H. Bergstrom. Ph.D.
- --------------------------------------
Signature
June 10, 1998
- --------------------------------------
Date
<PAGE> 1
EXHIBIT 10.60
AMENDMENT NO. 1 TO
LOAN AND FINANCING AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN AND FINANCING AGREEMENT is dated as of
the 30th day of June, 1998, by and among MARYLAND ECONOMIC DEVELOPMENT
CORPORATION, a body politic and corporate and a public instrumentality of the
State of Maryland (the "Issuer"), GUILFORD PHARMACEUTICALS INC., a Delaware
corporation (the "Borrower"), and FIRST UNION NATIONAL BANK, successor by
merger to Signet Bank/Maryland (the "Lender").
RECITALS
Reference is made to that certain Loan and Financing Agreement dated
December 5, 1994, by and among the Issuer, the Borrower and the Lender (the
"Financing Agreement"), pursuant to which the Issuer made a loan to the
Borrower in the principal amount of $8,000,000 (the "Loan"). A portion of the
obligations of the Borrower with respect to the Loan have been insured by the
Maryland Industrial Development Financing Authority, a body politic and
corporate and a public instrumentality of the State of Maryland ("MIDFA"),
pursuant to a certain Insurance Agreement dated as of December 5, 1994.
Pursuant to a certain letter agreement dated February 20, 1998, by the
Lender and MIDFA to the Borrower, it was agreed that upon obtaining the
Issuer's consent, the Financing Agreement would be amended by substituting
certain of the covenants contained in that certain Participation Agreement
dated as of February 5, 1998, to which the Lender and the Borrower were
parties, for the corresponding covenants contained in the Financing Agreement.
For the purpose of effecting such amendment to the Financing Agreement, the
parties hereto have entered into this Amendment No. 1.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and such other consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. All capitalized terms not otherwise defined herein which are
defined in the Financing Agreement shall have the same meanings assigned to them
in the Financing Agreement.
2. All references herein, in the Financing Agreement and in the
Notes to "this Financing Agreement", "this Agreement", "the Financing Agreement"
<PAGE> 2
and "the Agreement" shall mean and include the Financing Agreement as amended by
this Amendment No. 1.
3. Section 1.1 of the Financing Agreement is hereby amended by
amending the definition of "Permitted Encumbrances" by deleting the "." at the
conclusion thereof and adding the following language:
, and (f) any other Encumbrance included in the definition of
"Permitted Liens" in the ELLF Participation Agreement.
4. Section 1.1 of the Financing Agreement is hereby amended by
amending the definition of "Subsidiary" to read in its entirety as follows:
"Subsidiary" shall mean, as to any Person, any corporation of
which at least a majority of the outstanding stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time owned by such Person, or by one (1) or
more Subsidiaries, or by such Person and one (1) or more Subsidiaries.
5. Section 1.1 of the Financing Agreement is hereby amended by
adding the following defined terms in the alphabetically correct sequence:
"Affiliate" shall mean, with respect to any Person, any Person
or group acting in concert in respect of the Person in question that,
directly or indirectly, controls or is controlled by or is under
common control with such Person.
"Capital Lease" shall mean, as applied to any Person, any
lease of property (whether real, personal, tangible, intangible or
mixed of such Person) by such Person as the lessee which would be
capitalized on a balance sheet of such Person prepared in accordance
with GAAP.
"Cash Equivalents" shall mean (a) securities issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in
support thereof) having maturities of not more than twelve months from
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<PAGE> 3
the date of acquisition, (b) U.S. dollar denominated time and demand
deposits and certificates of deposit of (i) the Lender, (ii) any
domestic commercial bank having capital and surplus in excess of
$500,000,000, (iii) any bank whose short-term commercial paper rating
from S&P is at least A-1 or the equivalent thereof or from Moody's is
at least P-1 or the equivalent thereof, or (iv) any other bank which
is an "Approved Bank" as defined in the ELLF Participation Agreement
(any such bank being an "Approved Bank"), in each case with maturities
of not more than 270 days from the date of acquisition, (c) commercial
paper and variable or fixed rate notes issued by any Approved Bank (or
by the parent company thereof) or any variable rate notes issued by,
or guaranteed by, any domestic corporation rated A-1 (or the
equivalent thereof) or better by S&P or P-1 (or the equivalent
thereof) or better by Moody's and maturing within six months of the
date of acquisition and (d) repurchase agreements with a bank or trust
company (including the Lender) or securities dealer having capital and
surplus in excess of $500,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which the Lender
shall have a perfected first priority security interest (subject to
no other Encumbrances) and having, on the date of purchase thereof, a
fair market value of at least 100% of the amount of the repurchase
obligations.
"Cashflow Coverage Ratio" shall mean, with respect to the
Borrower and its Subsidiaries (direct and indirect), on a consolidated
basis, as of the end of each fiscal quarter of the Borrower for the
four fiscal quarter periods ending on such date, the ratio of (a)
EBITDAR for the applicable period to (b) the sum of (i) Interest
Expense for the applicable period plus (ii) current maturities of
Funded Debt Payments for the applicable period plus (iii) Rental
Expense for the applicable period plus (iv) income taxes (determined
in accordance with GAAP) payable by the Borrower and/or its
Subsidiaries (direct or indirect) on a consolidated basis for the
applicable period.
"Credit Support Subsidiaries" shall mean GPI Holdings, Inc.,
GPI Polymer Holdings, Inc. and GPI NIL Holdings, Inc., each a Delaware
holding company.
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<PAGE> 4
"EBITDA" shall mean for any period with respect to the
Borrower and its Subsidiaries (direct and indirect) on a consolidated
basis, the sum of (a) net income for such period plus (b)
depreciation, amortization, income taxes and other non-cash charges
for such period, in each case determined in accordance with GAAP
applied on a consistent basis. Except as expressly provided
otherwise, the applicable period shall be for the four consecutive
quarters ending as of the date of determination.
"EBITDAR" shall mean, for any period with respect to the
Borrower and its Subsidiaries (direct and indirect) on a consolidated
basis, the sum of (a) EBITDA for such period plus (b) to the extent
deducted in determining EBITDA for such period, Rental Expense for
such period.
"ELLF Participation Agreement" shall mean, as the same may be
amended, restated or otherwise modified from time to time, that
certain Participation Agreement dated as of February 5, 1998, among
the Borrower, as Construction Agent and the Lessee, First Security
Bank, National Association, as Owner Trustee, the various banks and
other lending institutions which are parties thereto from time to
time, as the Holders, and First Union National Bank, as Agent.
"Funded Debt" shall mean, with respect to any Person, without
duplication, all long term Indebtedness of such Person as stated on
the balance sheet of such Person, determined in accordance with GAAP.
"Funded Debt Payments" shall mean, as of the end of each
fiscal quarter of the Borrower and its Subsidiaries (direct and
indirect) on a consolidated basis, the sum of all scheduled current
maturities of Funded Debt.
"Indebtedness" of a Person shall mean, without duplication,
such Person's:
(a) obligations for borrowed money;
(b) obligations representing the deferred
purchase price of property (whether real, personal, tangible,
intangible or mixed) or services (other than accounts payable
arising in the ordinary course of such
-4-
<PAGE> 5
Person's business payable on terms customary in the trade);
(c) obligations, whether or not assumed, secured
by liens or payable out of the proceeds of production from
property now or hereafter owned or acquired by such Person;
(d) obligations which are evidenced by notes,
acceptances or other similar instruments;
(e) Capital Lease obligations;
(f) net liabilities under interest rate swap,
exchange or cap agreements; and
(g) contingent obligations.
"Interest Expense" shall mean, for any period with respect to
the Borrower and its Subsidiaries (direct and indirect) on a
consolidated basis all interest expense, including the amortization of
debt discount and premium and the interest component under Capital
Leases, in each case determined in accordance with GAAP applied on a
consistent basis. Except as expressly provided otherwise, the
applicable period shall be for the four consecutive quarters ending as
of the date of determination.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the business, condition (financial or otherwise), assets,
liabilities or operations of the Borrower, (b) the ability of the
Borrower to perform its respective obligations under the Documents to
which it is a party, (c) the validity or enforceability of any of the
Documents or the rights and remedies of the Issuer, the Lender, the
Holder or MIDFA thereunder, (d) the validity, priority or
enforceability of any Encumbrance on the Property created by any of
the Documents, or (e) the value, utility or useful life of the
Property or the use, or the ability of the Borrower to use, the
Property for the purpose for which it was intended.
"Moody's" shall mean Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
-5-
<PAGE> 6
"Permitted Subsidiary Activity" shall mean (a) with respect to
GPI Holdings, Inc., (i) owning and maintaining intangible assets,
including but not limited to, stocks, bonds, and other financial
instruments and securities and collecting and disbursing income from
such investments; (ii) engaging financial advisors and hiring
employees to oversee investment activities; (iii) engaging service
providers, including attorneys and accountants; (iv) performing all
obligations under existing agreements to which it is a party as of
February 20, 1998; and (v) any other act or activity incidental to and
in support of the foregoing, including transfer of funds or other
assets through dividends to the Borrower or by way of intercompany
loans or advances to the Borrower or its Subsidiaries (direct or
indirect), and (b) with respect to GPI Polymer Holdings, Inc. and GPI
NIL Holdings, Inc., (i) owning and maintaining intangible assets,
including but not limited to, stocks, bonds, and other financial
instruments and securities and collecting and disbursing income from
such investments; (ii) engaging financial advisors and hiring
employees to oversee investment activities; (iii) engaging service
providers, including attorneys and accountants; (iv) acquiring, owning
(through fee simple ownership as well as licenses and assignments),
and maintaining intellectual property, including patents, tradenames,
trademarks, technology, trade secrets, and know-how (collectively,
"IP"); (v) engaging third parties (including the Borrower) to perform
research and development of IP; (vi) licensing and sublicensing IP;
(vii) developing (including manufacturing of) products through
contracts with third parties (including the Borrower) utilizing the IP
and commercializing such products; (viii) acquiring additional IP;
(ix) engaging advisors and hiring employees to oversee IP activities;
(x) performing all obligations under existing agreements to which it
is a party as of February 20, 1998; (xi) registering IP on a worldwide
basis; and (xii) any other act or activity incidental to and in
support of the foregoing, including transfer of funds or other assets
through dividends to GPI Holdings, Inc. or by way of intercompany
loans or advances to the Borrower or its Subsidiaries (direct or
indirect).
"Rental Expense" shall mean, for any period, the total rental
expense under all leases (other than Capital
-6-
<PAGE> 7
Leases) of the Borrower and its Subsidiaries (direct and indirect) on
a consolidated basis, as determined in accordance with GAAP.
"S&P" shall mean Standard & Poor's Ratings Group, a division
of McGraw Hill, Inc., or any successor or assignee of the business of
such division in the business of rating securities.
"Tangible Net Worth" shall mean the total assets of the
Borrower and its Subsidiaries (direct and indirect) on a consolidated
basis exclusive of goodwill, trademarks, licenses and such other
assets as are classified as intangible assets (including without
limitation any and all loans (whether or not permitted) referenced in
Section 5.3(c)(iv) and any and all loans, advances or investments
(whether or not permitted) referenced in Section 5.3(d) in accordance
with GAAP less total liabilities of the Borrower and its Subsidiaries
(direct and indirect) on a consolidated basis.
6. Section 5.2(d) of the Financing Agreement is hereby amended to
read in its entirety as follows:
(d) Conduct of Business; Corporate Existence; Compliance
With Laws. Continue, and cause each of its Subsidiaries (direct and
indirect) to continue, to engage in or support its business of the
discovery, development and marketing of pharmaceuticals and medical
devices and shall cause to be done all things necessary to (i) obtain,
preserve and keep in full force and effect (A) the Borrower's existence
in good standing as a Delaware corporation qualified to do business in
all jurisdictions where the failure to so qualify would have a Material
Adverse Effect and (B) the existence of each Subsidiary of the Borrower
(direct and indirect) in good standing in its particular jurisdiction
of its formation and in all jurisdictions where the failure to so
qualify would have a material adverse effect on the business of such
Subsidiary and (C) its Licenses which are necessary for its business
operations at the Facility, and (ii) observe the valid requirements of
any Governmental Authority in all material respects. Notwithstanding
the foregoing, the Borrower and each Subsidiary (direct and indirect)
may, with prior notice to, but without consent of, the Holder or
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<PAGE> 8
MIDFA, change its state of incorporation if such change would not
otherwise result in the occurrence of an Event of Default.
7. Section 5.2(f) of the Financing Agreement is hereby amended to
read in its entirety as follows:
(f) Financial Covenants. The Borrower and GPI Holdings,
Inc. on a consolidated basis (i) shall at all times maintain cash, Cash
Equivalents, short-term investments and investments in the aggregate in
an amount equal to or greater than $40,000,000 (as shown on the
Borrower's then most recent balance sheet, prepared in accordance with
GAAP), and such in all cases shall not be subject to any Encumbrance or
(ii) (A) as of the end of each fiscal quarter for the immediately
preceding twelve (12) month period, shall maintain a Cashflow Coverage
Ratio greater than 1.25 to 1.00 and (B) shall at all times maintain a
Tangible Net Worth of not less than $40,000,000.
8. A new Section 5.2(n) is hereby added to the Financing
Agreement to read in its entirety as follows:
(n) Subsidiaries. The Borrower shall notify the Lender
in writing regarding the formation or acquisition of any Subsidiary
within thirty (30) days of such formation or acquisition.
9. Sections 5.3(a), 5.3(b), 5.3(c), 5.3(d), 5.3(e) and 5.3(f) of
the Financing Agreement are each hereby amended to read in their entireties as
follows:
(a) Encumbrances. Create, incur, assume or suffer to
exist any Encumbrance of any kind upon any of its property or assets
including the Security, whether now owned or hereafter acquired, except
(i) the Permitted Encumbrances; (ii) Encumbrances securing purchase
money indebtedness permitted by Section 5.3(k)(iii) of this Agreement;
provided, that such shall attach only to the property being financed;
(iii) Encumbrances on accounts, inventory and other current assets of
the Borrower which are not part of the Security; (iv) Encumbrances
imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' Encumbrances, incurred in good faith in the
ordinary course of business and securing obligations which are not yet
due or which are being
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<PAGE> 9
contested in good faith by appropriate proceedings; (v) Encumbrances
upon property (other than upon any Property or any component hereof)
existing at the time such property is acquired by the Borrower or any
Subsidiary (direct or indirect) of the Borrower; provided, in each case
that (A) such Encumbrances were not created in contemplation of the
acquisition by the Borrower or any Subsidiary (direct or indirect) of
the Borrower of such property, and (B) such Encumbrances do not attach
or extend to any other property; (vi) attachment, judgment or other
similar Encumbrances arising in connection with court proceedings,
provided, that the execution or other enforcement of such Encumbrances
is effectively stayed and the claims secured thereby are being actively
contested in good faith by appropriate legal proceedings; (vii)
Encumbrances permitted by the Lender and MIDFA; (viii) Encumbrances for
Taxes not delinquent or being contested in good faith and by
appropriate proceedings; (ix) Encumbrances in connection with worker's
compensation, unemployment insurance and other security obligations;
(x) deposits or pledges to secure bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations,
surety and appeal bonds and other obligations of like nature arising in
the ordinary course of business; (xi) Encumbrances contemplated in
favor of the Issuer and/or the Holder pursuant to the Documents; (xii)
Encumbrances contemplated under that certain Loan Agreement dated June
13, 1996 (the "RPR Agreement") between the Borrower and Rhone-Poulenc
Rorer Inc., and (xiii) extensions, renewals and replacements of any
Encumbrance permitted hereunder or under the other Documents.
(b) Merger, Acquisition or Sale of Assets; Licenses; New
Ventures. Enter into any merger or consolidation or acquire (except by
gift or bequest) all or substantially all of the assets of any person,
firm, joint venture or corporation; provided, however, that, so long as
no Event of Default shall have occurred and be continuing immediately
prior to or after giving effect to the specified transaction (i) the
Borrower may acquire (A) all or any part or interest of any person in
intellectual property or other intangible assets and (B) all or
substantially all of the assets or stock of any other person to the
extent the
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<PAGE> 10
limitation on capital expenditures set forth in Section 5.3(f) hereof
would not be exceeded; and (ii) any Subsidiary (direct or indirect) of
the Borrower may merge with or into or consolidate or combine with the
Borrower or with another Subsidiary (direct or indirect) of the
Borrower, provided, that if such merger involves the Borrower as a
merging party the Borrower is the surviving corporation. Neither the
Borrower nor any Subsidiary (direct or indirect) of the Borrower shall
sell, lease or otherwise dispose of any of its assets except: (i)
assets disposed of in the ordinary course of business; (ii)
intellectual property assigned, licensed or sublicensed in the ordinary
course of business; (iii) Equipment Collateral disposed of in
accordance with the provisions of Section 7.4 hereof; (iv) assets
(other than the Equipment Collateral) sold or otherwise disposed of
which are obsolete or no longer useful in the business in arm's-length
transactions; or (v) machinery, equipment and other tangible personal
property (other than the Equipment Collateral) sold or otherwise
disposed of in the ordinary course of business in arm's-length
transactions; provided, that the proceeds of such transactions are used
within three (3) months after the closing of such transactions to
purchase comparable machinery, equipment and tangible personal
property, as the case may be. Further, neither the Borrower nor any
Subsidiary (direct or indirect) of the Borrower shall (except for
Permitted Subsidiary Activity) sell, transfer, assign or encumber, in
any manner, any License with respect to the business operations on any
Property; or enter into any new ventures or businesses, other than the
business of the discovery, development and marketing of pharmaceuticals
and medical devices or activities in support thereof. Notwithstanding
anything to the contrary contained in this Section 5.3(b), neither the
Borrower nor any Subsidiary (direct or indirect) of the Borrower shall
be required to obtain the written consent of any of the Issuer, the
Holder or MIDFA with respect to any sale, lease, transfer, assignment
or other disposition of assets of any kind to the Borrower or to a
Subsidiary (direct or indirect) of the Borrower; provided, however,
that (x) prior to any sale, lease, transfer, assignment or other
disposition of assets in any twelve (12) month period having an
aggregate "net book value" (as defined in GAAP) in excess of two
million five hundred thousand
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<PAGE> 11
dollars ($2,500,000) to a Subsidiary (direct or indirect) of the
Borrower (as opposed to the Borrower), the applicable recipient
Subsidiary (direct or indirect) of the Borrower shall have delivered to
the Holder and MIDFA a guarantee agreement substantially in form and
substance reasonably satisfactory to the Holder and MIDFA or (y) with
respect to any investment by the Borrower, the Borrower shall be in
compliance with Section 5.3(d) below.
(c) Loans or Advances - Generally. Exclusive of Section
5.3(d), make loans or advances to any Person or permit loans or
advances to any Person to remain outstanding except for: (i) loans and
advances existing on February 20, 1998; (ii) advances made for normal
and customary business purposes; (iii) loans to employees for the
purchase of common stock of the Borrower; and (iv) additional loans
which, in any event, shall not at any time exceed $6,000,000 for the
Borrower and its Subsidiaries (direct and indirect) on a consolidated
basis in the aggregate outstanding at the end of any one fiscal
quarter.
(d) Loans or Advances - Additional. Exclusive of Section
5.3(c) and excluding matters pertaining directly to loans, advances or
investments in or with GPI Holdings, Inc., make any loans, advances or
investments in or with any Subsidiary (direct or indirect) or Affiliate
of the Borrower or any new venture or Person in an amount which exceeds
$6,000,000 for the Borrower and its Subsidiaries (direct or indirect)
on a consolidated basis, in the aggregate outstanding at the end of any
one fiscal year.
(e) Subsidiaries. Except for Permitted Subsidiary
Activity, permit any Credit Support Subsidiary to engage in any
business or other activity or permit any Credit Support Subsidiary
without the prior written consent of the Holder and MIDFA (not to be
unreasonably withheld, delayed or conditioned) to (A) incur or
otherwise be obligated for any Indebtedness (except for intercompany
Indebtedness directly with the Borrower or a wholly-owned Subsidiary
(direct or indirect) of the Borrower) or (B) cause or permit any of its
assets to be subject to any Encumbrance or (C) merge with or into
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<PAGE> 12
or otherwise consolidate with any Person except for the Borrower (and
in which case the Borrower shall be the surviving entity).
(f) Capital Expenditures. Make any capital expenditures
for fixed assets exceeding, in the aggregate, during any one fiscal
year, the total sum of $10,000,000 for the Borrower and its
Subsidiaries (direct or indirect) on a consolidated basis.
10. Section 5.2(k) of the Financing Agreement is hereby amended to
read in its entirety as follows:
(k) Cash Collateral. The Borrower shall maintain with
the Lender, pursuant to the terms of the Pledge Agreement, until the
Termination Date, the Cash Collateral which shall at all times be in an
amount which is not less than eighteen and twenty-seven hundredths
percent (18.27%) of the outstanding principal balance of the Bond minus
the Exposure. For the purposes of this Agreement, "Exposure" shall
initially mean the amount of One Hundred Fifty Thousand Dollars
($150,000.00), which amount shall decrease by Twenty-Five Thousand
Dollars ($25,000.00) annually, commencing on December 1, 1998 and
continuing on the first day of each December thereafter, with the
Exposure being eliminated by not later than December 1, 2004.
11. Sections 5.3(j) and 5.3(k) of the Financing Agreement are each
hereby amended to read in their entireties as follows:
(j) ERISA Compliance. (i) Restate or amend or permit
any Affiliate of the Borrower to restate or amend any Plan established
and maintained by the Borrower or any Affiliate of the Borrower, in a
manner designed to disqualify such Plan under the applicable
requirements of the Code; (ii) permit any officers of the Borrower or
any Affiliate of the Borrower to materially adversely affect the
qualified tax-exempt status of any Plan of the Borrower or any
Affiliate of the Borrower; (iii) engage in or permit any Affiliate of
the Borrower to engage in any Prohibited Transaction; (iv) incur or
permit any Affiliate of the Borrower to incur any Accumulated Funding
Deficiency, whether or not waived, in connection with any Plan; (v)
take or permit any Affiliate of the
-12-
<PAGE> 13
Borrower to take any action or fail to take any action which causes a
termination of any Plan in a manner which could result in the
imposition of a lien on the property of the Borrower or any Affiliate
of the Borrower pursuant to Section 4068 of ERISA; (vi) fail to notify
the Lender that notice has been received of a termination of any
Multiemployer Plan to which the Borrower or any Affiliate of the
Borrower has an obligation to contribute; (vii) incur or permit any
Affiliate of the Borrower to incur a complete or partial withdrawal
from any Multiemployer Plan to which the Borrower or any Affiliate of
the Borrower has an obligation to contribute that shall have or could
reasonably be expected to have a Material Adverse Effect; or (viii)
fail to notify the Lender that notice has been received from the
administrator of any Multiemployer Plan to which the Borrower or any
Affiliate of the Borrower has an obligation to contribute that any such
plan will be placed in "reorganization".
(k) Borrowing. Create, incur, assume or suffer to exist
any liability for borrowed money (as measured on a consolidated basis
for the Borrower and its Subsidiaries (direct and indirect)) at any
point in time except: (i) indebtedness of the Borrower secured by
Encumbrances specifically permitted by Section 5.3(a); (ii) short-term
trade indebtedness incurred in the ordinary course of the Borrower's
business operations; (iii) indebtedness incurred to finance the
purchase price of tangible assets acquired to the extent the aggregate
principal amount of such indebtedness incurred at any time of the
Borrower does not exceed $10,000,000; (iv) lease, royalty and other
similar deferred payments required to be made in connection with the
licensure or acquisition of intellectual property and other intangible
assets; (v) indebtedness subordinated to the obligations of the
Borrower under the Documents on terms acceptable to the Holder and
MIDFA; (vi) unsecured indebtedness incurred for working capital
purposes in the form of a working capital loan in a maximum aggregate
principal amount not to exceed $5,000,000 at any time outstanding;
(vii) additional unsecured indebtedness in an amount not to exceed
$5,000,000 at any time outstanding for the Borrower and all its
Subsidiaries (direct and indirect); (viii) indebtedness incurred
pursuant to the RPR Agreement, (ix) any other indebtedness permitted
under
-13-
<PAGE> 14
Section 8.3B(k) of the ELLF Participation Agreement, and (x)
indebtedness (not to exceed the principal amount of the indebtedness
being refinanced) representing the refinancing of any indebtedness
permitted under this Section 5.3(k).
12. Notwithstanding anything to the contrary contained in the
Financing Agreement, the parties hereto acknowledge and agree that (a) the
covenants set forth in Sections 5.3(a) and 5.3(k) of the Financing Agreement
shall not be construed to prohibit the Borrower from entering into, and
performing under, any operating lease, sale/leaseback or other similar
arrangement the purposes of which is to permit the use by the Borrower of
equipment, furniture and/or fixtures in the normal course of its business,
including without limitation the Master Lease Agreement dated September 10,
1996, between the Borrower and General Electric Capital Corporation (and all
agreements and instruments contemplated thereby), and (b) all calculations with
respect to covenants in the Financing Agreement shall be made by ignoring any
intercompany loans or advances between or among any of the Borrower and/or its
Subsidiaries (direct or indirect).
13. Except as amended hereby, the Financing Agreement shall remain
unchanged, and the Financing Agreement, as so amended, shall continue in full
force and effect in accordance with its terms.
14. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed and delivered, shall be an original, but all such counterparts
shall together constitute one and the same instrument.
15. The recitals hereto and all of the terms of the Financing
Agreement are hereby incorporated into and made a part hereof as though fully
set forth herein.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to
Loan and Financing Agreement to be duly executed under seal by their duly
authorized respective officers as of the day and year first above written.
ATTEST/WITNESS: MARYLAND ECONOMIC
DEVELOPMENT CORPORATION
/s/ Charlotte B. Trainor By: /s/ Hans F. Mayer (SEAL)
- ---------------------------- --------------------------
Name: Hans F. Mayer
Title: Executive Director
GUILFORD PHARMACEUTICALS INC.
/s/ Jordan P. Karp By: /s/ Andrew R. Jordan (SEAL)
- ---------------------------- --------------------------
Name: Andrew R. Jordan
Title: Senior Vice President and Chief
Financial Officer
FIRST UNION NATIONAL BANK
/s/ Michael J. Weinfeld By: /s/ Louis E. Flori (SEAL)
- ---------------------------- --------------------------
Name: Louis E. Flori
Title: Vice President
CONSENTED AND AGREED TO THIS
30TH DAY OF JUNE, 1998
MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
By: /s/ D. Gregory Cole
-----------------------------
Name: D. Gregory Cole
Title: Executive Director
-15-
<PAGE> 1
EXHIBIT 10.61
$8,000,000 Maryland Economic Development Corporation
Taxable Economic Development Revenue Bond
(Guilford Pharmaceuticals Inc. Facility),
1994 Issue
SECOND AMENDMENT TO INSURANCE AGREEMENT
THIS SECOND AMENDMENT TO INSURANCE AGREEMENT is made this 29th day of
June, 1998 by and between the MARYLAND INDUSTRIAL DEVELOPMENT FINANCING
AUTHORITY, a body corporate and politic and a public instrumentality of the
State of Maryland (the "Authority"), and FIRST UNION NATIONAL BANK, a national
banking corporation and successor by merger to Signet Bank (the "Lender" or
"Holder").
The Maryland Economic Development Corporation, a body politic and
corporate and a public instrumentality of the State of Maryland ("MEDCO")
extended a loan in the principal amount of $8,000,000 (the "Loan") from the
proceeds of the sale of MEDCO's Taxable Economic Development Revenue Bond
(Guilford Pharmaceuticals Inc. Facility), 1994 Issue (the "Bond") pursuant to
the Loan and Financing Agreement dated December 5, 1994 by and among MEDCO,
Guilford Pharmaceuticals Inc. (the "Borrower") and the Lender (the "Financing
Agreement"). Pursuant to the Financing Agreement: (i) the Bond was issued and
sold to the Lender; (ii) the Borrower assumed all of the obligations to make all
payments due on the Bond to the Holder; and (iii) MEDCO assigned its rights to
all security for the Bond to the Lender. The Authority insured 30% of the Bond
not to exceed $2,400,000 pursuant to the Insurance Agreement dated December 5,
1994 by and between the Authority and the Lender (the "Original Insurance
Agreement").
On May 24, 1996, the Lender extended additional financing to the
Borrower. As a result of the additional financing, the Authority increased the
percentage of its insurance from 30% to 50% and increased the corresponding
maximum dollar amount of its insurance from $2,400,000 to $4,000,000 pursuant to
the First Amendment to Insurance Agreement dated May 24, 1996 (the "First
Amendment"; the Original Insurance Agreement as amended by the First Amendment
is hereinafter called the "Insurance Agreement").
The Lender and the Borrower wish to enter into additional financing for
the benefit of the Borrower and to reduce the amount of cash collateral pledged
by the Borrower to the Lender as security for the Bond.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Lender and the Authority agree as follows:
<PAGE> 2
1. Modifications. The Insurance Agreement is hereby modified as follows:
(a) In lines 1 and 5 of the definition of "Insured Portion of the Bond"
delete "fifty percent (50%)" and insert in lieu thereof "eighty one and
seventy-three hundredths percent (81.73%)".
(b) In the last line of the definition of "Insured Portion of the Bond"
delete "$4,000,000" and insert in lieu thereof "$5,000,000".
2. No Other Change. Except as specifically set forth herein, the
Insurance Agreement shall remain unchanged and in full force and effect.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Second Amendment to Insurance Agreement under their respective seals, as of the
day and year first above written.
WITNESS: MARYLAND INDUSTRIAL
DEVELOPMENT FINANCING AUTHORITY
By: /s/ D. Gregory Cole (SEAL)
- ------------------------ --------------------------
D. Gregory Cole,
Executive Director
WITNESS: FIRST UNION NATIONAL BANK
By: /s/ Louis E. Flori (SEAL)
- ------------------------ --------------------------
Louis E. Flori,
Vice President
3
<PAGE> 1
EXHIBIT 10.62
MIDFA AGREEMENT
THIS MIDFA AGREEMENT (this "Agreement") is dated this 29th day of
June, 1998, by and between the MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY, a body politic and corporate and a public
instrumentality of the State of Maryland ("MIDFA"), FIRST SECURITY
BANK, NATIONAL ASSOCIATION, as Owner Trustee under the Guilford Real
Estate Trust 1998-1 (the "Borrower"), GUILFORD PHARMACUETICALS INC.,
a Delaware corporation ("Guilford"), and FIRST UNION NATIONAL BANK, a
national banking association (the "Lender").
RECITALS
As of February 5, 1998, the Lender committed to make a loan in
the amount of $16,600,000 (the "Tranche A Loan") and a loan in the
amount of $2,800,000 (the "Tranche B Loan") to the Borrower for
acquisition and construction of laboratory, manufacturing and ancillary
office space located at Lot 2B, Holabird Industrial Park, in Baltimore
City, Maryland (the "Property"). The Lender also committed to make
certain equity advances of $600,000 to the Borrower as of February 5,
1998 (the "Holder Advances").
MIDFA has agreed to insure a portion of the Borrower's
obligations to the Lender to repay the Tranche A Loan pursuant to terms
and conditions of the Insurance Agreement of even date herewith between
the Lender and MIDFA (the "Insurance Agreement"). As a condition of
its entering into the Insurance Agreement, MIDFA has required, among
other things, that the Lender, the Borrower and Guilford execute and
deliver this Agreement which amends and modifies certain terms of the
Operative Documents (as defined in the Participation Agreement dated as
of February 5, 1998 among the Borrower, the Lender, and Guilford).
THEREFORE, in consideration of MIDFA entering into the Insurance
Agreement and for other good and valuable consideration, the Borrower,
the Lender and Guilford hereby agree as follows:
1. Definitions. Unless otherwise defined in this
Agreement, all terms used in this Agreement shall have the meanings
given to such terms in the Participation Agreement dated as of February
5, 1998 among the Borrower, the Lender and Guilford (the "Participation
Agreement").
2. Affirmative Covenants of Guilford. Guilford covenants and
agrees that it will:
(a) Employment Count. Upon written request, but not more
frequently than twice annually, furnish to MIDFA a written statement as
to the number of employees employed by Guilford in the State of
Maryland.
(b) Equal Employment. Comply with all federal and State
of Maryland laws regarding equal employment.
<PAGE> 2
(c) Drug and Alcohol Free Workplace. Comply with the
State of Maryland's policy regarding drug and alcohol free workplaces,
as set forth in Code of Maryland Regulations 01.01.1989.18 and
21.11.08, as adopted by the Department of Business and Economic
Development and remain in compliance so long as MIDFA's insurance
remains in effect.
3. Insurance Provided by MIDFA. MIDFA is providing financial
assistance by insuring, through the Authorized Purpose Insurance Fund,
the repayment of a portion of the principal and interest on the Tranche
A Loan, pursuant to the Insurance Agreement. In recognition of the
interests of MIDFA as an insurer, the parties to this Agreement hereby
agree that, in addition to the rights and remedies of MIDFA set forth
in the Insurance Agreement, MIDFA has certain rights and remedies in
connection with this transaction as follows:
(a) Notices to MIDFA; Consents. The Borrower, the
Lender and Guilford agree:
(i) to provide MIDFA with copies of all financial
statements, certifications, evidence of insurance coverage, and any
other information or documentation required by the Operative Agreements
to be given to the Lender, and to give MIDFA notice of any occurrences
or circumstances requiring notice to be given to the Lender as provided
in any of the Operative Agreements;
(ii) to obtain the consent, approval, determination,
permission, opinion or similar agreement of MIDFA under such
circumstances and at such times as is required to be given by the
Lender under the Operative Agreements (such consent, approval,
determination, permission, opinion or similar agreement not to be
unreasonably withheld); and
(iii) that, for so long as MIDFA's insurance remains
in place, none of the terms of the Operative Agreements may be
modified, amended or waived without the prior written consent of MIDFA
(such consent not to be unreasonably withheld).
(b) Payments by MIDFA. Notwithstanding any of
the provisions of this Agreement or any of the other Operative
Agreements, MIDFA, on behalf of the Borrower or Guilford, may, in its
discretion, elect to make any payments required to be made by the
Borrower or Guilford under the Operative Agreements and not paid by the
Borrower or Guilford within the time provided for therein or any
approved extension thereof, and may elect to cure any defaults under
any of the Operative Agreements if it so chooses. MIDFA shall be
entitled to reimbursement by the Borrower or Guilford on demand for any
such payments made by it pursuant to this paragraph.
(c) Subrogation and Reimbursement of MIDFA to the Extent
of Payments Made. MIDFA, to the extent of any payments made by it
pursuant to the Insurance Agreement or pursuant to paragraph (b) above,
shall be subrogated to (i) all rights of the Lender to receive payment
of such amounts from the Borrower, Guilford, any guarantor or others
under any of the Operative Agreements, and (ii) all rights of the
Borrower, Guilford or any guarantor to receive payment or reimbursement
of such amounts from other sources. MIDFA's subrogation rights
2
<PAGE> 3
shall be subordinate to the rights of the Lender to receive payment in full of
all amounts outstanding due to the Lender for the Borrower's obligations under
the Tranche A Note, the Tranche B Note and the Holder Advances. In addition, the
Borrower and Guilford agree to reimburse MIDFA for any payments made by MIDFA
under the Insurance Agreement, and such obligation to reimburse MIDFA, as well
as the obligation to reimburse MIDFA for payments made by MIDFA pursuant to the
provisions of Section 3(b) above, shall be deemed to be secured by this
Agreement and the other Operative Agreements.
(d) MIDFA a Third-Party Beneficiary. MIDFA is, to the
extent set forth in this Agreement and in the Insurance Agreement,
hereby intended to be a third-party beneficiary of the Operative
Agreements.
In addition, if MIDFA is temporarily or permanently prevented,
restricted or delayed in the performance of any or all of the duties
and obligations imposed upon or assumed by it hereunder or under the
Insurance Agreement, by act of the General Assembly of Maryland, by a
court of competent jurisdiction or by administrative delay not due to
the fault of MIDFA, its members or agents, MIDFA (and its members and
agents) shall not be deemed to be unreasonable or arbitrary in
connection with or as a result of such prevention, restriction or
delay. Upon the termination of a temporary prevention, restriction or
delay in the performance by MIDFA of any or all of its obligations
imposed upon or assumed by it hereunder or under the Insurance
Agreement, MIDFA shall assume and continue to perform such duties and
obligations to the extent permitted by law.
(e) Notices. All notices, certificates or other
written communications required by the terms of this Agreement shall be
sent to MIDFA at the following address:
Maryland Industrial Development Financing Authority
217 East Redwood Street, 22nd Floor
Baltimore, Maryland 21202
Attention: Executive Director
All notices or other communications sent pursuant to this
Agreement shall be in writing and shall be deemed sufficiently given if
sent pursuant to the provisions of Section 12.2 of the Participation
Agreement.
4. Representations and Warranties. The Borrower, Guilford
and the Lender (each a "Representing Party") represent and warrant
severally, but not jointly, the following as of the date hereof:
(a) Each and every representation of such Representing
Party contained in the Operative Agreements to which it is a party is
true and correct in all material respects on and as of the date hereof.
(b) To the best knowledge of such Representing Party, no
Default or Event of Default has occurred and is continuing under any
Operative Agreement.
3
<PAGE> 4
(c) Each Operative Agreement to which such Representing
Party is a party is in full force and effect with respect to it.
(d) To the best knowledge of such Representing Party, the
Borrower, Guilford and the Lender have duly performed and complied with
all covenants contained in the Participation Agreement or in any other
Operative Agreement required to be performed or complied with by it on
or prior to the date hereof.
5. Property Financed. Notwithstanding any provision to
the contrary in the Operative Agreements, the use of the proceeds of
the Tranche A Loan, the Tranche B Loan and the Holder Advances are
limited to the financing of the Guilford property located at Lot 2B,
Holabird Industrial Park, Baltimore City, Maryland and to no other
Property, provided that such proceeds may be used for any use permitted
under the Operative Agreements with respect to such Guilford property.
The application of the Operative Agreements to any other property will
require the prior written consent of MIDFA.
6. Governing Law; Consent to Jurisdiction. This Agreement
shall be governed and construed according to the internal laws of the
State of Maryland. The parties hereto consent to the jurisdiction of
the federal and state courts located in Baltimore City, Maryland
involving any matter arising out of or relating to the Operative
Agreements and agree that any suit brought against MIDFA shall be
brought only in a federal or state court located in Baltimore City,
Maryland..
7. Conflict Among Agreements. To the extent that the
terms of this Agreement are inconsistent with any provisions of the
Operative Agreements, the terms of this Agreement shall control.
8. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all
of which shall together constitute one and the same instrument.
9. Actions of Lender. If the MIDFA Guaranty is reduced or
terminated as a result of either the Lender's default under the
Insurance Agreement or an action taken by the Lender, such MIDFA
Guaranty shall be deemed to remain in effect solely for purposes of
determining Guilford's obligations under the Operative Agreements to
maintain a specific amount on deposit in the Cash Collateral Account.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
4
<PAGE> 5
IN WITNESS WHEREOF, MIDFA, the Borrower, Guilford and the Lender
have executed this MIDFA Agreement under their respective seals as of
the day and year first above written.
WITNESS: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
By: /s/ D. Gregory Cole (SEAL)
---------------------------- ------------------------
D. Gregory Cole,
Executive Director
WITNESS: FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, except as
expressly stated herein, but solely as the
Owner Trustee under the Guilford Real
Estate Trust 1998-1
By: /s/ Brett R. King (SEAL)
---------------------------- ------------------------
Brett R. King
Asst. Vice President
WITNESS: GUILFORD PHARMACEUTICALS INC.,
as the Construction Agent and as the Lessee
By: /s/ Andrew R. Jordan (SEAL)
---------------------------- ------------------------
Andrew R. Jordan,
Senior Vice President and Chief
Financial Officer
WITNESS: FIRST UNION NATIONAL BANK;
as a Holder, as a Lender and
as the Agent
By: /s/ Louis E. Flori (SEAL)
---------------------------- ------------------------
Louis E. Flori,
Vice President
5
<PAGE> 1
EXHIBIT 10.63
$16,600,000 LOAN MADE BY FIRST UNION NATIONAL BANK
TO FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER TRUSTEE UNDER THE
GUILFORD REAL ESTATE TRUST 1998-1 AND INSURED
PURSUANT TO THE CONVENTIONAL LOAN PROGRAM OF
THE MARYLAND INDUSTRIAL DEVELOPMENT FINANCING AUTHORITY
INSURANCE AGREEMENT
THIS INSURANCE AGREEMENT (this "Agreement") is entered into as of this
29th day of June, l998 by and between the MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY, a body corporate and politic and a public
instrumentality of the State of Maryland (the "Authority"), and FIRST UNION
NATIONAL BANK, a national banking corporation (the "Lender").
In consideration of the premises, the respective representations,
warranties, covenants and agreements contained in the Participation Agreement
dated as of February 5, 1998 by and between Guilford Pharmaceuticals Inc.,
First Security Bank, National Association as Owner Trustee under the Guilford
Real Estate Trust 1998-1, First Union National Bank, and other lenders and
holders from time to time (the "Participation Agreement"), and in
consideration of the respective undertakings of all of the parties to the
transactions described herein and therein, the Authority and the Lender agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Defined Terms. Unless the context clearly indicates
otherwise, the terms defined in this Article shall have the meanings set
forth in this Section 1.1. Certain other terms used in this Agreement are
defined in the Participation Agreement. When and if used herein, such terms
shall have the meanings given to them in the Participation Agreement and
shall be construed in accordance with the rules of construction set forth in
the Participation Agreement, unless clearly specified otherwise or unless the
context clearly indicates otherwise.
"Assignment Agreement" means the Assignment of Cash Collateral Account
dated as of February 5, 1998 pursuant to which Guilford pledges the Cash
Collateral to the Lender, as agent for the Borrower as lessor, the Lenders
and the Holders.
"Authority's Insurance Premium" means the annual insurance premium
which is waived by the Authority under Article 83A, Section 5-937 of the
Maryland Industrial Development Financing Authority Act of the Annotated Code
of Maryland.
"Authorized Purpose Insurance Fund" means the Authorized Purpose
Insurance Fund created pursuant to the Maryland Industrial Development
Financing Authority
<PAGE> 2
Act. The faith and credit of the State are not pledged to the Authorized Purpose
Insurance Fund.
"Borrower" means First Security Bank, National Association, not
individually, except as expressly stated in the various Operative Agreements,
but solely as the Owner Trustee under the Guilford Real Estate Trust 1998-1,
its successors and permitted assigns. The Borrower is also defined as the
"Owner Trustee" and the "Lessor" in the Participation Agreement.
"B-Note" means the Tranche B Note dated February 20, 1998 in the
principal amount of $2,800,000 made by the Borrower to the Lender and secured
by a first priority security interest in the Property.
"Cash Collateral" means such cash and cash equivalents of at least
$14,855,000 pledged by Guilford to the Lender and maintained by the Lender in
a trust account pursuant to the Assignment Agreement as security for the Loan.
"Certification" means the written certification to be made by the
Lender to the Authority in accordance with Section 6.2 hereof which shall
include (a) a certification of the amount of the Loan Deficiency, (b) a
detailed statement as to the calculation of such amount, and (c) a
certification that the Lender has completed with due diligence the
enforcement of the Operative Agreements and the liquidation of the Security.
"Claim" means any liability, suit, action, claim, demand, lien, loss,
expense or cost of any kind or nature whatsoever.
"Closing Date" means the date of this Agreement.
"Completion Certificate" means collectively the Completion Certificates
delivered to the Lender in accordance with Section 5.4A(e) of the
Participation Agreement.
"Deed of Trust" means the Deed of Trust, Assignment of Leases and
Security Agreement dated February 20, 1998 executed and delivered by the
Borrower and Guilford in favor of the trustee for the Lender, creating a
first lien on real property located at Lot 2B, Holabird Industrial Park, in
Baltimore City, Maryland, together with all Supplements thereto from time to
time made in accordance with the terms thereof and of this Agreement.
"Guarantor" means Guilford.
"Guaranty" means the Guaranty Agreement dated as of February 5, 1998
executed and delivered by the Guarantor, together with all Supplements
thereto from time to time made in accordance with the terms thereof and of
this Agreement.
"Guilford" means Guilford Pharmaceuticals Inc., a Delaware
corporation.
- 2 -
<PAGE> 3
Guilford is also defined as the "Lessee" and "Construction Agent" in the
Participation Agreement.
"Holders" means any holders making Holder Advances under the terms of
the Operative Agreements. As of the Closing Date, the Lender is the only
Holder.
"Holder Advances" means advances made by the Holders to the Borrower in
the maximum amount of $600,000 pursuant to the terms of the Trust Agreement
and the Participation Agreement and secured by a second priority interest in
the Property.
"Insured Portion of the Note" means the sum of (a) six and three
hundredths percent (6.03%) of the outstanding principal balance of the Note
calculated as of the date of the Authority's response to the most recent
Notice of Default in accordance with Section 5.1 of this Agreement or in the
event the Authority fails to respond within the time period required by
Section 5.1 of this Agreement, then as of the date of the expiration of such
time period, plus (b) six and three hundredths percent (6.03%) of all accrued
and unpaid interest at the pre-default rate on the Note calculated as of the
date of the Authority's response to the most recent Notice of Default in
accordance with Section 5.1 of this Agreement or in the event the Authority
fails to respond within the time period required by Section 5.1 of this
Agreement, then as of the date of the expiration of such time period;
provided, however, that in no event shall the Authority's obligations under
this Agreement exceed $1,000,000. The Insured Portion of the Note is
calculated on the principal and interest due prior to application of any
proceeds received from enforcement of the Operative Agreements and
liquidation of the Security.
"Lease" means the Lease Agreement dated as of February 5, 1998 between
the Borrower and Guilford pursuant to which Guilford is leasing the Property
from the Borrower.
"Lender" means First Union National Bank, a national banking
association. The Lender is also defined as the "Agent" under the
Participation Agreement.
"Lenders" means the lenders making the Loans to the Borrower under the
terms of the Operative Agreements. As of the Closing Date, the Lender is the
only lender.
"Loan" means the $16,600,000 loan made by the Lender to the Borrower
and evidenced by the Operative Agreements. The "Loan" is also defined as the
"Tranche A Loans" in the Participation Agreement.
"Loans" means the Loan and the loan evidenced by the B-Note.
"Loan Deficiency" means (a) the outstanding principal balance of the
Loan, plus all accrued and unpaid interest at the pre-default rate on the
Note as of the date of the Certification (without deduction for the
application of any proceeds received from enforcement of the Operative
Agreements and liquidation of the Security), less (b) the
- 3 -
<PAGE> 4
Net Proceeds resulting from the enforcement of the Operative Agreements and the
liquidation of the Security in accordance with Section 5.2B hereof.
"MIDFA Agreement" means the MIDFA Agreement of even date herewith by
and between MIDFA, the Lender, the Borrower and Guilford.
"Net Proceeds" means the amount, if any, by which (a) all those
proceeds resulting from the enforcement or liquidation of the liens and
security interests created by the Operative Agreements in the Security
exceeds (b) reasonable costs and expenses incurred by the Lender in
connection with the Loans and the Holder Advances in enforcing the Operative
Agreements or liquidating the liens and security interests evidenced and
secured by the Operative Agreements.
"Note" means the Tranche A Note dated February 20, 1998 in the maximum
principal amount of $16,600,000 made by the Borrower to the Lender, together
with all Supplements thereto from time to time made in accordance with the
terms thereof and of this Agreement.
"Notice" means a written communication given by personal delivery or by
certified mail, postage prepaid, return receipt requested, addressed to the
person to whom such communication is to be given, at the following addresses
or such other address as the Lender or the Authority may specify hereafter:
Authority: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
Redwood Tower, 22nd Floor
217 East Redwood Street
Baltimore, Maryland 21202
Attention: Executive Director
Lender: FIRST UNION NATIONAL BANK
c/o First Union Capital Markets Group
DC-6
301 South College Street
Charlotte, North Carolina 28222-0166
Attention: Ms. Jane O. Hurley, Capital Markets Services
"Notice of Default" means the Notice of the occurrence of an Event of
Default under the Operative Agreements given by the Lender to the Authority
stating the procedures and remedies the Lender proposes to follow with
respect to the Event of Default.
"Operative Agreements" shall have the meaning given to such term in the
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Participation Agreement.
"Property" means the land and improvements located at Lot 2B, Holabird
Industrial Park, in Baltimore City, Maryland owned by the Borrower and leased
to Guilford, and more fully described in the Deed of Trust.
"Security" means the Collateral, the Cash Collateral, the Deed of
Trust, the Guaranty, and all other security for the Loans and the Holder
Advances.
"State" means the State of Maryland.
"Supplements" means any and all extensions, renewals, modifications,
amendments, supplements and substitutions.
ARTICLE II
INSURANCE OF LOAN
Section 2.l. A. Terms and Conditions. Subject to the terms and
conditions hereof, and in the manner provided herein, the Authority agrees to
pay to the Lender, and to the assigns of the Lender permitted by Section 8.l
hereof, from the Authorized Purpose Insurance Fund, the lesser of the Insured
Portion of the Note or the Loan Deficiency. It is understood and agreed that it
is a requirement for the Authority's insurance that the Loan be secured by a
first priority interest in the Cash Collateral and the Guaranty, and by a third
priority lien on the Property subject to the interest of the B-Note and the
Holder Advances. Interest on the Loan due and payable in excess of the LIBOR
rate of interest plus 5/8% shall not be insured by the Authority under this
Agreement. It is also understood and agreed that if and when the Lender
exercises its remedies under the Operative Agreements in accordance with the
provisions of this Agreement, (a) the Net Proceeds resulting from the
enforcement of the Operative Agreements with respect to the lien on the Property
shall be first applied to the repayment in full of the B-Note and the Holder
Advances and then to the extent available to the repayment of the Note, and (b)
the Net Proceeds resulting from the enforcement of the Operative Agreements with
respect to the assignment of the Cash Collateral and the Guaranty shall be first
applied to the repayment in full of the Note and then to the extent available to
the repayment of the B-Note and the Holder Advances. The Authority will not
insure any late payment charges or interest thereon or any other fees or
charges.
B. Limitations. Notwithstanding any provision in the
Operative Agreements to the contrary, the Authority's insurance shall apply
to the Property only and not to any other property or financing allowed under
the provisions of the Operative Agreements.
C. Completion of Facility.
(1) If the proceeds of the Note are not fully disbursed
upon the
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receipt and approval by the Lender of the Completion Certificate, the Authority
and the Lender agree to enter into an amendment to this Agreement at that time
to modify the Insured Portion of the Note to reflect the accurate percentage of
$1,000,000 to the total principal amount advanced under the Note.
(2) The Authority's obligation to pay under this
Agreement shall not cover the risks of construction and completing the Facility
and shall not be effective until the Authority shall have received a Notice from
the Lender that the Lender has received and approved the Completion Certificate;
however, the Authority and the Lender shall be entitled to the remaining
provisions of this Agreement relating to consents and approvals and other rights
of the Authority and the Lender under the terms of this Agreement.
Section 2.2. Authority's Insurance Premium. The Authority
waived the payment of the Authority's Insurance Premium at the time of
approval of its insurance.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; FINDINGS BY THE AUTHORITY
Section 3.1. Representations and Warranties of the Authority. The
Authority hereby represents and warrants the following to the Lender:
A. Organization of the Authority. The Authority is a body
corporate and politic and a public instrumentality of the State.
B. Authority. Under the provisions of the Maryland
Industrial Development Financing Authority Act, as amended, the Authority has
the power to enter into this Agreement and the MIDFA Agreement, and the
transactions contemplated hereunder and thereunder and to carry out its
obligations hereunder and thereunder.
C. Necessary Actions. By proper action, the Authority has
(1) approved the Loan and the acquisition of the Property, (2) approved
financial assistance with respect to the transaction as described herein, and
(3) duly authorized the execution of this Agreement and the MIDFA Agreement.
D. Compliance with Laws. The Authority is not in violation
of any laws of the State which would affect its existence or its ability to
enter into this Agreement or the MIDFA Agreement or to carry out its obligations
hereunder or thereunder.
E. Satisfaction of Conditions Precedent. To the best of the
Authority's knowledge, all conditions precedent to its insurance of the Loan
have been satisfied or waived or provisions for the satisfaction thereof have
been made pursuant to a post closing agreement.
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Section 3.2. Findings and Determinations by the Authority. The
Authority hereby confirms each of the findings and determinations made by the
Authority in the Authority's resolutions dated January 29, 1998 and February
26, 1998.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES; COVENANTS OF THE LENDER
Section 4.l. Representations and Warranties of the Lender. The
Lender hereby confirms each of the representations and warranties made by the
Lender in the Operative Agreements and represents and warrants the following
to the Authority:
A. Authority of Lender. The Lender has full corporate power
and authority to enter into and execute and deliver this Agreement and each
of the other Operative Agreements executed and delivered by it and to enter
into the transactions contemplated hereunder and thereunder and to carry out
and perform its obligations hereunder and thereunder.
B. Execution of Operative Agreements. This Agreement and
each of the Operative Agreements executed and delivered by the Lender have been
duly and properly executed by the Lender.
C. Satisfaction of Conditions Precedent. To the best of the
Lender's knowledge, all conditions precedent to its extension of the Loan
have been satisfied or waived or provisions for the satisfaction thereof have
been made pursuant to a post closing agreement.
D. Authority's Subrogation Rights. The Lender acknowledges
and agrees to all of the Authority's rights of subrogation as may be
available under law and in the MIDFA Agreement and in the Operative
Agreements.
E. No Defaults. Neither the Borrower nor Guilford is in
default under the terms of the Operative Agreements; the Lender has waived no
defaults or events of default of the Borrower or Guilford since February 20,
1998; and no amendments have been made to the Operative Agreements since
February 20, 1998.
Section 4.2. Covenants of the Lender. Until this Agreement has
been terminated and is of no further force and effect, the Lender will:
A. Administration of Security and Operative Agreements.
Prudently service and administer the Security and the Operative Agreements in
accordance with the terms and provisions of the Operative Agreements. In the
servicing and administration of the Security and the Operative Agreements,
the Lender will:
1. collect and receive payments to be made by the
Borrower under the Note, the B-Note and the Holder Advances and by the
Borrower or other persons under the other Operative Agreements and apply such
proceeds in accordance
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with the provisions of the Operative Agreements;
2. exercise the same degree and standard of care that it
exercises in the servicing and administration of loans for its own account,
similar in nature and amount to the Loan;
3. act in accordance with generally accepted business
and lending practices (including the monitoring of covenants under the Operative
Agreements); and
4. take all reasonable steps to collect all amounts due
under the Operative Agreements, including, without limitation, the enforcement
of the Operative Agreements and the liquidation of the Security.
B. Advance of Proceeds. Advance the proceeds of the Loans and
the Holder Advances in accordance with the provisions of the Operative
Agreements.
C. Tax and Insurance Escrow (if any). Maintain and administer
the escrow account (if any) required by the Operative Agreements for the payment
of property taxes and insurance, and, if such escrow account is maintained, pay,
on or prior to the date on which the same are due and payable, all property
taxes and premiums on the insurance required by the Operative Agreements.
D. Perfection of Encumbrances. File all necessary financing
statements and deeds of trust within the time prescribed by Maryland law and
the laws of other states, and take all necessary action to continue the
perfection of any mortgage, pledge, lien, security interest, charge or other
encumbrance in favor of or securing the Authority and/or the Lender.
E. Books and Accounting. Maintain customary records as may be
required by its supervisory authorities with respect to all moneys received
by it pursuant to the Operative Agreements, and make such records available
to the Authority at all reasonable times during the normal business hours of
the Lender.
F. Custody of Operative Agreements. Retain physical
possession of the Operative Agreements and all policies of insurance.
G. No Assignment or Transfer of Operative Agreements. Not
assign or transfer the Note or its interest in and under the other Operative
Agreements to any other Holder without the prior written consent of the
Authority, which consent will not be unreasonably withheld. Provided, however,
that the Lender may, subject to the terms and conditions of the Operative
Agreements, grant participation in the Loan without the Authority's consent, so
long as the Lender continues to be liable for its obligations under this
Agreement and any such participation agreement between the Lender and such
purchaser specifically states that such purchaser is not entitled to any direct
rights under this Agreement, but only such derivative rights as may arise
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<PAGE> 9
through its participation agreement with the Lender.
H. Enforcement of Covenants and Agreements. Enforce all
covenants and agreements required to be maintained under the Operative
Agreements unless such covenants or agreements have been waived by the
Authority.
I. Enforcement of Claims and Remedies. Enforce all Claims,
and upon the occurrence of an Event of Default which has not been waived by
the Authority, use all reasonable efforts to collect all sums due from the
Borrower, Guilford and any other person so as to minimize the liability of
the Authority. Except as may be provided otherwise in this Agreement, the
Lender will enforce and pursue all remedies which it has against the
Borrower, Guilford and any other person. In the event payments or expenses
are incurred by the Authority under this Agreement and such payments or
expenses are thereafter collected by the Lender from any person, the Lender
will promptly remit such sums to the Authority.
J. Duties Upon Acceleration of Maturity. Upon the occurrence
of an Event of Default and the acceleration of the maturity of the Note:
1. enforce the Operative Agreements and liquidate the
Security and continue with due diligence until completion, such enforcement
and liquidation;
2. pursue without delay and with due diligence any
course of action permitted by the Operative Agreements and approved by the
Authority (which approval shall not be unreasonably withheld), including,
without limitation, the management and preservation of the Security until and
through final liquidation thereof, exercising any of the remedies set forth
in the Operative Agreements, and in the case of any liquidation or
foreclosure proceeding, the prosecution of any claim for a deficiency
judgment; and
3. work together with and keep the Authority apprised of
all such enforcement and liquidation proceedings.
K. Application of Proceeds. Apply any proceeds recovered by
the Lender from any sources in connection with any Security to the payment or
prepayment of the sums due and owing to the Lender under the Note and the
other Operative Agreements, including, but not limited to the following:
1. any payment or performance bond in connection with
the Loan to the extent not needed to complete construction;
2. any policy of insurance referred to in the Operative
Agreements;
3. any title insurance policy on the Property;
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4. any rentals received as a result of leasing the
Security, or any portion thereof;
5. any sale of the Security, or any portion thereof;
6. the amount (if any) of any condemnation awards or
insurance proceeds allocable to the Security and remaining after payment of
all expenses (including attorneys' fees) incurred in their collection (unless
otherwise applied in accordance with the Operative Agreements);
7. any sums collected as a result of any breach by any
tenant from such tenant under any lease or sublease heretofore or hereafter
executed in connection with, or for, the use and occupation of the Security
(or any part thereof), including (without limitation) the Lease, together
with any and all extensions, renewals, modifications, amendments, supplements
and substitutions; and
8. any sums collected under the Guaranty and any other
similar agreement of guaranty or indemnification.
Provided, however, that to the extent the Authority makes any payments or
suffers any losses pursuant to this Agreement, the Lender shall pay to the
Authority any excess of such proceeds after (a) the payment or prepayment of
all sums due and owing to the Lender under the Note and the other Operative
Agreements and (b) the payment of all sums incurred by the Lender in
managing, preserving, owning and selling any Security.
L. No Waiver of Claims or Events of Default. Not, without the
prior written consent of the Authority, waive any (1) Claim against the
Borrower, Guilford or any other person under any of the Operative Agreements
or (2) Event of Default under the Operative Agreements.
M. Assignment of Operative Agreements to the Authority. If
the Authority makes any payment to the Lender required by this Agreement, and
all sums due under the Note and the other Operative Agreements are
simultaneously or thereafter paid in full, assign to the Authority, without
recourse, within five days after all sums due under the Note and the other
Operative Agreements are paid in full, all of its right, title and interest
in and to the Operative Agreements. The Lender's duties and obligations to
the Authority shall cease and terminate immediately upon such assignment.
N. Amendment of Operative Agreements. Not, without the prior
written consent of the Authority, agree to any amendment, supplement or
modification to the Operative Agreements.
O. Additional Indebtedness and Liens. Notwithstanding any
provision in the Operative Agreements to the contrary, not, without the prior
written
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consent of the Authority, extend additional loans to the Borrower or Guilford or
take additional liens on the Borrower's or Guilford's property.
ARTICLE V
EVENT OF DEFAULT UNDER THE OPERATIVE AGREEMENTS
Section 5.1. Notification Procedures Upon Occurrence of Event of
Default.
A. Notification by Lender to the Authority. Within 10 days
after (1) the failure of the Borrower to pay any principal of, or interest on,
the Loan as and when due and payable or (2) the Lender has knowledge of the
occurrence of any other Event of Default described in the Operative Agreements,
the Lender shall send a Notice of Default to the Authority.
B. Notification by Authority to the Lender. Within 15 days
after receipt of a Notice of Default from the Lender, the Authority shall send a
Notice to the Lender stating the Authority's intent to proceed in accordance
with one of the four options described in Section 5.2 hereof and specifying the
option the Authority has elected to pursue. The Lender shall not exercise any
remedy under the Operative Agreements or pursue any Claim against the Borrower
or any other person until (1) receipt of such Notice from the Authority or (2)
the expiration of such 15 day period in the event the Authority fails to give
such Notice.
Section 5.2. Authority's Options Upon Occurrence of Event of
Default. The Authority's four options upon receipt of a Notice of Default
are described in the following Subsections A, B, C, and D:
A. Authority's Right to Cure. The Authority shall have the
right to cure any Event of Default which can be cured by the Authority. If
the Authority elects to cure, it shall cure such Event of Default within 60
days after receipt of a Notice of Default. The Lender covenants and agrees
that following receipt of the Authority's election to cure any Event of
Default, the Lender will not, by action at law, in equity, or otherwise,
demand payment under the Note, or enforce any of the Operative Agreements or
liquidate any of the Security without specific written authorization from the
Authority. Nothing contained in this Agreement shall obligate the Authority
to cure any Event of Default, nor shall the curing of any Event of Default by
the Authority constitute a waiver of any Claim or remedy of the Lender or the
Authority under the Operative Agreements against the Borrower, Guilford or
any other person. Any payment by the Authority under this subsection shall
decrease its obligations under this Agreement.
Notwithstanding the foregoing provisions of this Section 5.2A:
1. In the event that the Lender sends a Notice to the
Authority stating that the Lender has determined that the Security will be
materially impaired by any delay or omission to exercise any Claim or remedy
described in the Operative
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Agreements, the Lender may, with the prior written consent of the Authority,
which consent will not be unreasonably withheld, exercise any such Claim or
remedy and the Authority's obligation hereunder shall remain in full force and
effect, and the Authority shall proceed under one of the remaining three options
described in Subsections B, C, or D of this Section 5.2.
2. In the event that the Authority receives a Notice of
Default, and the Event of Default described therein cannot be cured by the
Authority, the Lender shall request the Authority to (a) elect one of the
remaining three options described in Subsections B, C or D of this Section
5.2, or (b) take no action. If the Lender requests that the Authority take
no action, the Authority may send a Notice to the Lender stating that the
Authority has determined that the Security will be materially impaired by any
delay or omission to exercise any option described in this Agreement, and the
Authority shall, with the prior written consent of the Lender, which consent
will not be unreasonably withheld, proceed under any of the remaining three
options described in Subsections B, C or D of this Section 5.2.
3. At any time after the Authority has elected to
exercise its right to cure under this Subsection A, upon 15 days Notice to
the Lender, the Authority may proceed under any of the remaining three
options described in Subsections B, C or D of this Section 5.2.
B. Acceleration of Maturity. Subject to approval by the
Lender, which approval shall not be unreasonably withheld, if the Authority
elects to proceed under this Subsection B, it shall (1) send Notice to the
Lender, directing the Lender to accelerate the maturity of the Note and
proceed to enforce the Operative Agreements and liquidate the Security, and
(2) thereafter make payments in accordance with Article VI hereof.
C. Purchase of Operative Agreements by the Authority. If the
Authority elects to proceed to purchase the Operative Agreements, it shall
send Notice to the Lender of its intent to proceed under this Subsection C.
Within 30 days following such Notice, on a date designated by the Authority,
the Authority shall purchase the Operative Agreements by payment in full of
the outstanding principal balance due under the Note, plus all accrued and
unpaid interest thereon, and all other sums due under the B-Note, the Holder
Advances and the other Operative Agreements as of such date of purchase.
Simultaneously with any such purchase, the Lender shall assign to the
Authority, without recourse, all of its right, title and interest in and to
the Operative Agreements and the Security.
D. Payment of Insured Portion of the Note. If the Authority
elects to pay the Insured Portion of the Note and proceed under this
Subsection D, within 15 days of the last to occur of (1) receipt by the
Authority of a Notice of Default or (2) the Authority's ceasing to cure any
Event of Default pursuant to Subsection A hereof, the Authority shall send
Notice (as provided under Section 5.1B or Section 5.2A(3), as appropriate) to
the Lender of the Authority's intent to pay to the Lender the Insured
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Portion of the Note. Payments shall be made in accordance with Article VI
hereof.
ARTICLE VI
PAYMENT BY THE AUTHORITY
Section 6.1. Payment by the Authority. Upon the occurrence of an
Event of Default, if the Authority elects to proceed pursuant to either one
of the options described in Section 5.2B or 5.2D hereof, the Authority shall
make payments to the Lender to the extent provided in this Section 6.1. Upon
such payment, the obligations of the Authority hereunder shall terminate, and
the Authority shall be forever discharged from any and all liability
hereunder.
A. Payments Upon Acceleration of Maturity. If the Authority
elects to proceed pursuant to the option described in Section 5.2B hereof,
the Authority will pay to the Lender the lesser of (a) the Insured Portion of
the Note, or (b) the Loan Deficiency. The Authority shall not be obligated
to make any payment pursuant to this subsection until the Lender shall have
sent a Notice requesting payment by the Authority. Such Notice shall include
a Certification.
B. Payment Upon Election to Pay Insured Portion of the Note.
If the Authority elects to proceed pursuant to the option described in
Section 5.2D hereof, the Authority will pay to the Lender the Insured Portion
of the Note.
Section 6.2. Procedure for Payment by the Authority. Any
payment by the Authority hereunder shall be made in lawful money of the
United States, and may be made by check of the Maryland State Treasurer.
Payment by the Authority may be made by either of the following (at the
option of the Authority):
A. Lump Sum Payment. A lump sum payment payable within 30
days after (1) receipt and approval, at a regularly scheduled monthly
meeting, by the Authority of the Certification, if payment is made pursuant
to Section 6.1A hereof, or (2) receipt by the Lender of the Authority's
Notice to the Lender of the Authority's intent to pay the Insured Portion of
the Note, if payment is made pursuant to Section 6.1B hereof.
B. Monthly Installments. Equal monthly installments of
principal over the remaining balance of the period beginning on the Closing
Date and ending on the date on which the Loan matures in accordance with the
terms of the Note, as if no Event of Default had occurred, plus interest
thereon at the rate of interest in effect under the Note at the time the
Event of Default occurred. Such monthly installments shall commence on the
next date specified in the payment schedule contained in the Note, following
the Authority's receipt and approval, at its regularly scheduled monthly
meeting, of the Certification or Notice of Default referred to in Subsection
A above. (For the purposes of this Section 6.2B, the Insured Portion of the
Note shall be calculated as of the date of the first monthly installment
payment.)
Section 6.3. Late Payments by the Borrower. In the event that the
Authority
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makes a payment to the Lender pursuant to its right to cure an Event of Default
under Section 5.2A above and the Borrower or another person subsequently pays
the Lender the amount due, the Lender shall advise the Authority of its receipt
of payment from the Borrower or on its behalf and shall remit any excess moneys
to the Authority.
ARTICLE VII
DEFAULTS; REMEDIES
Section 7.1. Default by Lender. It shall be a default under this
Agreement if the Lender breaches any of the covenants or provisions of this
Agreement and fails to cure such breach or to commence and diligently pursue
such cure within 30 days after receipt of a Notice from the Authority
specifying such breach.
Section 7.2. Default by Authority. It shall constitute a default
under this Agreement if the Authority fails to make any payment or breaches
any covenants or provisions of this Agreement and fails to cure such breach
or to commence and diligently pursue such cure within 30 days after receipt
of a Notice from the Lender specifying such breach.
Section 7.3. Remedies of Authority on Lender's Default. Whenever
a default referred to in Section 7.1 hereof occurs, the Authority may take
any one or more of the following remedial steps:
A. Notice of Default. The Authority shall send the Lender a
Notice of any default specified in Section 7.1 hereof.
B. Agreement Null and Void. The Authority, at its option,
at the expiration of any cure period set forth in Section 7.1 of this Agreement,
may by a Notice to the Lender declare this Agreement to be null and void and of
no further force and effect, if the Authority reasonably determines that as a
result of the Lender's default, the Security, or any portion thereof, has been
materially impaired.
C. Reduction of the Authority's Obligations. The Authority,
at its option, may elect to reduce its obligation to pay to the Lender the
amounts required by Section 2.1 and Article VI hereof, by the amount by which
any default by the Lender has, in the opinion of the Authority, (1) reduced
or impaired the value of any Security for the Loan, or (2) adversely affected
the ability of the Lender to enforce the Operative Agreements or liquidate
the Security.
Section 7.4. Remedies of Lender on Authority's Default. Except to
the extent provided in Section 8.2 of this Agreement, upon any default by the
Authority under this Agreement, the Lender shall send the Authority Notice of
such default, and if such default is not cured within 30 days after delivery
of such Notice, the Lender may proceed to exercise any rights or remedies
under the Operative Agreements with or without notice to or approval of the
Authority, notwithstanding any other terms or provisions of this Agreement.
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<PAGE> 15
Section 7.5. No Additional Waiver Implied by One Waiver. In the
event any covenant or provision contained in this Agreement is breached by
the Lender and such breach is thereafter waived by the Authority, such waiver
shall be limited to the particular breach so waived and the Authority shall
not be deemed to have waived any other breach hereunder.
Section 7.6. No Remedy Exclusive. No remedy herein conferred upon
or reserved to the Authority or the Lender is intended to be exclusive of any
other available remedy or remedies but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and
as often as may be deemed expedient.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Requirements for Liability to Subsequent Lender.
Notwithstanding the provisions of Section 4.2G hereof, the Authority shall
not be liable under the terms and provisions of this Agreement to any
subsequent Lender unless:
A. Agreement by Subsequent Lender. Such Lender,
simultaneously with the acquisition of the Note and the other Operative
Agreements, agrees in writing to be bound by the terms and provisions of this
Agreement and to keep and perform all of the terms, covenants and conditions
of this Agreement on the part of the Lender to be kept and performed; and
B. Authority Approval. The Authority has approved, in
writing, the assignment or transfer of the Note and the other Operative
Agreements to such Lender, which consent will not be unreasonably withheld.
Section 8.2. Inability of Authority to Perform its Obligations.
Notwithstanding any other terms or provisions of this Agreement, in the event
the Authority is temporarily or permanently prevented, restricted or delayed
in the performance of any or all of the duties and obligations imposed upon
or assumed by it hereunder, by act of the General Assembly of Maryland, by a
court of competent jurisdiction or by administrative delay not due to the
fault of the Authority, its members or agents, the Authority (and its members
and agents) shall not be liable directly or indirectly for any Claims caused
to or suffered by the Lender or any other person in connection with or as a
result of such prevention, restriction or delay. Upon the termination of a
temporary prevention, restriction or delay in the performance by the
Authority of any or all of the duties and obligations imposed upon or assumed
by it hereunder, the Authority shall resume and continue to perform such
duties and obligations to the extent permitted by law.
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Section 8.3. Conflict of Terms. In the event of any conflict
between the provisions of this Agreement and any of the other Operative
Agreements, the provisions of this Agreement shall control insofar as the
rights and duties of the Authority are concerned.
Section 8.4. Severability. If any provision or remedy set forth
in this Agreement for any reason shall be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or remedy of this Agreement and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision or remedy had never been set forth but only to the extent of such
invalidity, illegality or unenforceability.
Section 8.5. Binding Effect. Subject to the provisions hereof,
this Agreement shall bind upon and inure to the benefit of the parties
hereto, and their respective successors and permitted assigns of the Lender
meeting the requirements of Section 8.1 hereof, and shall be governed,
construed and interpreted in all respects in accordance with the laws of the
State. Any action brought by the Lender against the Authority may be filed
only in a state or federal court located in Baltimore City, Maryland.
Section 8.6. Headings. The titles or headings to the various
articles, sections and subsections of this Agreement have been inserted for
convenient reference purposes only and shall not be deemed to affect the
meaning or construction of any of the provisions hereof. As used herein the
singular shall include the plural and vice versa.
Section 8.7. No Individual Liability. No covenant or agreement
contained in this Agreement or in any of the other Operative Agreements shall
be deemed to be the covenant or agreement of any agent or employee of the
Authority or the Department of Business and Economic Development (the
"Department") or the State executing this Agreement or any of the other
Operative Agreements entered into by the Authority, nor shall any agent or
employee of the Authority, the Department or the State be liable personally
on this Agreement or any of the other Operative Agreements entered into by
the Authority or be subject to any personal liability or accountability by
reason of the issuance, execution or delivery thereof.
Section 8.8. Final Agreement. This Agreement contains the final
and entire agreement and understanding of the parties, and any terms and
conditions not set forth in this Agreement are not a part of this Agreement
and the understanding of the parties hereof.
Section 8.9. Amendment. This Agreement may be amended or altered
only in writing signed by the Authority and the Lender.
Section 8.10. Borrower and Guilford Not Third Party Beneficiaries.
The Lender and the Authority agree that they do not intend that the Borrower
and Guilford be
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intended third party beneficiaries of this Agreement. The Lender and the
Authority agree that they may, by mutual agreement, vary the terms of this
Agreement without consulting with or notifying the Borrower or Guilford.
Section 8.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall together constitute one and the same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Insurance Agreement under their respective seals, as of the day and year
first above written.
WITNESS: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
By: /s/ D. Gregory Cole (SEAL)
- ------------------------- ------------------------
D. Gregory Cole,
Executive Director
WITNESS: FIRST UNION NATIONAL BANK
By: /s/ Louis E. Flori (SEAL)
- ------------------------- ------------------------
Louis E. Flori,
Vice President
- 18 -
<PAGE> 1
EXHIBIT 11
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 19,488 17,863 19,439 16,105
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 share 19,466 17,853 19,439 16,105
============ =========== =========== ===========
Net income (loss) $ (7,087) $ (6,278) $ (14,181) $ (11,614)
============ =========== =========== ===========
Basic earnings per share $ (0.36) $ (0.29) $ (0.73) $ (0.72)
============ =========== =========== ===========
Diluted earnings per share $ (0.36) $ (0.29) $ (0.73) $ (0.72)
============ =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7385
<SECURITIES> 136674
<RECEIVABLES> 1506
<ALLOWANCES> 0
<INVENTORY> 1458
<CURRENT-ASSETS> 147694
<PP&E> 27326
<DEPRECIATION> 6027
<TOTAL-ASSETS> 169266
<CURRENT-LIABILITIES> 14084
<BONDS> 9846
0
0
<COMMON> 195
<OTHER-SE> 145141
<TOTAL-LIABILITY-AND-EQUITY> 169226
<SALES> 2965
<TOTAL-REVENUES> 5292
<CGS> 844
<TOTAL-COSTS> 23858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399
<INCOME-PRETAX> (14161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14161)
<EPS-PRIMARY> (.73)<F1>
<EPS-DILUTED> (.73)<F2>
<FN>
<F1>THE EPS-PRIMARY TAG REPRESENTS BASIC EPS UNDER SFAS 128
<F2>THE EPS-DILUTED TAG REPRESENTS DILUTED EPS UNDER SFAS 128
</FN>
</TABLE>
