<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 MARCH 31, 1998
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COMMISSION FILE NUMBER 0-23736
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GUILFORD PHARMACEUTICALS INC.
(Exact name of registrant as specified in its charter)
- -------------------------------------------------------------------------------
DELAWARE 52-1841960
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6611 TRIBUTARY STREET, BALTIMORE, MARYLAND 21224
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(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 May 7, 1998
Common Stock, $.01 par value 19,456,888
- ---------------------------- --------------------------------------------
<PAGE> 2
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page(s)
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity
Three months ended March 31, 1998 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION 18-19
SIGNATURES 20
</TABLE>
<PAGE> 3
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 11,757 $ 24,980
Short-term investments 33,381 27,946
Short-term investments - restricted 2,428 2,428
Accounts receivable 1,910 606
Inventories 1,634 1,342
Other current assets 310 494
-------- --------
Total current assets 51,420 57,796
Investments 92,761 95,174
Investments - restricted 10,265 9,691
Property and equipment, net 18,462 17,153
Other assets 272 267
-------- --------
$173,180 $180,081
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,227 $ 2,743
Current portion of long-term debt 2,159 2,159
Accrued payroll related costs 834 2,000
Accrued legal and professional 1,390 665
Accrued licensing and royalty payments 1,552 531
Accrued expenses and other current liabilities 1,838 1,638
Deferred income 1,283 1,125
-------- --------
Total current liabilities 11,283 10,861
Long-term liabilities:
Long-term debt, net of current portion 10,386 10,926
-------- --------
Total liabilities 21,669 21,787
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share
Authorized 4,700,000 shares, none issued - -
Series A junior participating preferred stock,
par value $.01 per share. Authorized 300,000
shares, none issued - -
Common stock, par value $.01 per share.
Authorized 40,000,000 shares
19,451,970 and 19,387,946 issued and
outstanding at March 31, 1998
and December 31, 1997 194 194
Additional paid-in capital 185,755 185,205
Accumulated deficit (33,385) (26,311)
Accumulated other comprehensive income 192 426
Notes receivable on common stock (60) (60)
Treasury stock, at cost (924) (878)
Deferred compensation (261) (282)
-------- --------
Total stockholders' equity 151,511 158,294
-------- --------
$173,180 $180,081
======== ========
</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 March 31,
1998 1997
---------- -----------
<S> <C> <C>
Revenues:
Product sales $ 658 $ 2,050
License fees and royalties 580 201
Revenues under collaborative agreements 1,144 -
---------- -----------
Total revenues 2,382 2,251
Costs and Expenses:
Cost of sales 339 899
Research and development 8,655 6,664
General and administrative 2,517 1,781
---------- -----------
Total costs and expenses 11,511 9,344
---------- -----------
Operating loss (9,129) (7,093)
Other income (expense):
Investment and other income 2,258 996
Interest expense (203) (239)
---------- -----------
Net loss $ (7,074) $ (6,336)
=========== ===========
Basic and diluted loss per common share: $ (0.36) $ (0.45)
=========== ===========
Average common shares outstanding 19,411 14,237
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Three Months Ended March 31, 1998
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Notes
Common stock Additional other receivable Treasury Total
Number paid-in Accumulated comprehensive on common stock, Deferred stockholders'
of shares Amount capital deficit income* stock at cost compensation equity
--------- ------ ------- ------- ------ ----- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 19,387,946 $194 $185,205 $(26,311) $426 $(60) $(878) $(282) $158,294
Issuances of common stock 64,024 440 440
Purchase of 2,077 shares of
common stock (46) (46)
Stock option compensation 110 110
Amortization of deferred
compensation 21 21
Net loss for the period (7,074) (7,074)
Unrealized loss on
available-for-sale
securities (234) (234)
---------- ---- -------- -------- ---- ---- ----- ----- --------
Balance, March 31, 1998 19,451,970 $194 $185,755 $(33,385) $192 $(60) $(924) $(261) $151,511
========== ==== ======== ======== ==== ==== ===== ===== ========
</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 March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (7,074) $ (6,336)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 824 594
Noncash compensation expense 131 567
Gain on sale of assets 6 -
Changes in assets and liabilities:
Accounts receivable (1,304) (1,019)
Collaborative research receivable - 140
Inventory (292) 68
Other current assets 184 (10)
Other assets (5) 89
Accounts payable (516) 144
Accrued expenses and other liabilities 780 (937)
Deferred income 158 -
-------- --------
Net cash used in operating activities (7,108) (6,700)
-------- --------
Cash Flows From Investing Activities:
Investment in purchases of property and equipment (3,678) (1,950)
Sale leaseback of property and equipment 1,545 584
Sale and maturities of marketable securities 12,604 11,853
Purchases of marketable securities (15,866) (15,646)
Restricted investments (574) 208
-------- --------
Net cash used in investing activities (5,969) (4,951)
-------- --------
Cash Flows From Financing Activities:
Net proceeds from issuances of common stock 440 321
Purchase of treasury stock (46) (655)
Proceeds from bond and term loan issuances - 498
Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option - 698
Principal payments on bond and term loan payable (540) (235)
-------- --------
Net cash provided by financing activities (146) 627
-------- --------
Net decrease in cash and cash equivalents (13,223) (11,024)
Cash and cash equivalents at the beginning of period 24,980 16,560
-------- --------
Cash and cash equivalents at the end of period $ 11,757 $ 5,536
======== ========
Supplemental disclosures of cash flow information:
Net interest paid $ 212 $ 237
Unrealized loss on available-for-sale securities $ (234) $ (245)
Collateral transferred from unrestricted to restricted investments, net $ (574) $ 435
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997.
In the opinion of the Company's management, any adjustments contained
in the accompanying unaudited consolidated financial statements are of a normal
recurring nature, necessary to present fairly its financial position, results
of operations, changes in stockholders' equity and cash flows for the three
month period ended March 31, 1998 as set forth in the Index. Interim results
are not necessarily indicative of results for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Guilford
Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the
"Company") and subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
3. ACCOUNTING POLICIES
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share ("EPS") is computed by dividing
earnings (loss) available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS is computed by
increasing the weighted-average number of shares outstanding for the period by
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. Potential common shares are
excluded if the effect on earnings (loss) per share is antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which
establishes standards for the reporting and display of comprehensive income and
its components. This Statement also requires that an entity classify items of
comprehensive income by their nature and display the accumulated balance of
other
7
<PAGE> 8
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
comprehensive income separately from accumulated earnings and additional
paid-in capital, as shown in the Company's Consolidated Statement of
Stockholders' Equity.
SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of SFAS No. 87, 88, and 106" requires
revised disclosures about pension and other postretirement benefit plans,
which is effective for fiscal years beginning after December 15, 1997. The
Company does not expect that adoption of the disclosure requirements of this
pronouncement will have a material impact on its financial statements.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform with the current
period's presentation.
4. INVENTORIES
Inventories at March 31, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- ----
(Unaudited)
(in thousands)
<S> <C> <C>
Raw materials $ 372 $ 386
Work in process 524 497
Finished goods 738 459
----- -----
$1,634 $1,342
===== =====
</TABLE>
Inventories include products and materials that can be either
available for sale and/or production or utilized internally in the Company's
development activities. Inventories identified for development activities are
expensed immediately upon designation as intended for such use.
5. REVENUES
The Company recognized $1.125 million for the three months ended March
31, 1998, related to certain research support funding provided by Amgen Inc.
("Amgen") under the terms of an agreement (the "Amgen Agreement") entered into
in August 1997. Under the terms of the Amgen Agreement, Amgen has agreed to
provide the Company up to $13.5 million payable quarterly over three years
beginning on October 1, 1997 in the aggregate to support research activities
relating to the Company's FKBP-based neuroimmunophilin ligand technology.
Pursuant to the Company's Marketing, Sales and Distribution Rights
Agreement (together with related agreements, the "RPR Agreements") with
Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR") and the Company's License and
Distribution Agreement with Orion Corporation Farmos ("Orion"), the Company
recognized revenues of $1.2 million ($685,000 in product sales and $530,000 in
royalty revenues) and $2.3 million ($2.1 million in product sales and $201,000
in royalty revenues), respectively, for the three
8
<PAGE> 9
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
months ended March 31, 1998 and 1997 relating to sales of GLIADEL(R) Wafer
("GLIADEL"). GLIADEL was commercially launched in the United States on
February 25, 1997. Under the RPR Agreements, Guilford receives a combined
transfer price of 20% and royalty of 15% (which escalates up to 20% on
incremental sales based on achieving certain levels of total annual GLIADEL
sales) of the net sales of GLIADEL.
6. REAL ESTATE DEVELOPMENT AGREEMENT
In February 1998, the Company entered into a real estate development
agreement and an Operating Lease Agreement in connection with the construction
of a new research and development facility. The facility, which is expected to
be approximately 72,500 square feet, is adjacent to the Company's existing
facility in Baltimore and construction costs are estimated not to exceed $20
million in the aggregate. The lease term is for a maximum term of 84 months,
which includes a construction period of up to 24 months. The Company will not
make rental payments during the construction period and the Company has the
option to purchase the facility at the end of the lease term in February 2005.
In the event the Company chooses not to exercise this option, the Company is
obligated to arrange for the sale of the facility to an unrelated party and is
required to pay the lessor any difference between the net sales proceeds and
the lessor's net investment in the facility, in an amount not to exceed that
which would preclude classification of the lease as an operating lease. The
Company prior to the construction period termination date must maintain cash
collateral equal to the then aggregate property cost. Upon final completion
the Company may reduce the amount of cash collateral by approximately $5.1
million. In addition, the Company is subject to certain financial covenants
the most restrictive of which is that the Company must maintain cash, cash
equivalents and investments in the aggregate equal to $40 million. As of March
31, 1998, the Company posted cash collateral of approximately $1.0 million.
This cash collateral is included in the accompanying consolidated balance
sheets as "Investments - restricted" in the Consolidated Balance Sheets.
7. OPERATING LEASE AGREEMENTS
In March 1998, the Company entered into certain Master Lease
Agreements to provide up to $10.8 million in computer and equipment financing,
the terms of which expires on December 31, 1999. The term of each lease
entered into thereunder may range from 24 to 48 months based upon the type of
equipment being financed.
9
<PAGE> 10
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Any statements made by Guilford Pharmaceuticals Inc. (together with
its subsidiaries, "Guilford" or the "Company") in this quarterly report that
are forward-looking are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The forward-looking
statements contained in this quarterly report, may include, but are not limited
to, those concerning application for international regulatory clearances and
labeling expansion for GLIADEL, polymer product line extensions, the
commencement and completion of the research program relating to the Company's
FKBP-based neuroimmunophilin ligand technology and other technologies, clinical
development activities, including without limitation commencement and conduct
of clinical trials related to GLIADEL, the Company's strategic plans,
anticipated expenditures and the need for additional funds, all of which
involve significant risks and uncertainties. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the Company's filings with the
Securities and Exchange Commission including without limitation the section
entitled "Risk Factors" contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 (the "1997 Form 10-K").
* * *
GENERAL
Guilford is a biopharmaceutical company engaged in the development and
commercialization of novel products in two principal areas: (i) targeted and
controlled drug delivery products using proprietary biodegradable polymers for
the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic
products for neurological diseases and conditions. In February, 1997 the
Company commercially launched its first product, GLIADEL(R) Wafer ("GLIADEL"),
a proprietary biodegradable polymer product for delivering the chemotherapeutic
agent, BCNU, for brain cancer, in the United States through its exclusive
worldwide (except Scandinavia) marketing partner, Rhone-Poulenc Rorer
Pharmaceuticals Inc. ("RPR"). The Company has also in-licensed and internally
developed certain technologies that may be useful in connection with the
prevention and treatment of certain neurological diseases and conditions as
well as a new class of biodegradable polymers and has accelerated research and
development activities with respect to certain of these technologies.
The Company anticipates that its future revenues will come primarily
from two sources: (i) transfer payments and/or royalties related to sales of
GLIADEL and other products that may be developed in the future and (ii)
milestone, rights and other payments made under the Company's current and any
future collaboration agreements relating to the research, development and/or
commercialization of the Company's technologies. As noted below, the Company
is eligible for certain milestone and other payments in the future under its
collaborations with RPR and Amgen Inc. ("Amgen") if certain regulatory and/or
development objectives are attained and views these potential payments as
significant future revenue opportunities. As noted below and in the 1997 Form
10-K, there can be no assurance, however, that the Company will be successful
in its efforts to enter into future collaborations for the research,
development and/or commercialization of its technologies or will receive any or
all of the milestone payments for which
10
<PAGE> 11
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
it is eligible under its existing or any future collaborations.
GLIADEL was commercially launched in the United States by RPR, in
February, 1997, and since launch, the Company has recognized an aggregate of
$8.5 million in product sales and royalties. Of this $8.5 million, $6.4
million represent sales of GLIADEL to RPR and Orion Corporation Farmos
("Orion"), the Company's marketing partner in Scandinavia, and $2.1 million
represent royalties on RPR sales to third parties. In addition, under the
terms of its agreements with RPR, the Company is eligible to receive up to $40
million in additional milestone and equity payments if RPR is able to achieve
certain specified regulatory objectives. As noted below and in the 1997 Form
10-K, future sales of GLIADEL are subject to significant risk and uncertainty,
and there can be no assurance that both sales to RPR and sales to third parties
will increase or continue at the current rate in future periods. Furthermore,
the milestone and other payments payable by RPR are contingent on making
certain domestic and international regulatory filings and obtaining marketing
clearances for GLIADEL, the timing and extent of which are not within the
control of the Company, and there can be no assurance that any or all of such
regulatory objectives will be attained. Except for GLIADEL, the Company's
product candidates are not expected to generate revenues from product sales for
at least the next several years, if at all.
In August, 1997, the Company entered into an agreement (the "Amgen
Agreement") with Amgen respecting the research, development and
commercialization of the Company's FKBP-based neuroimmunophilin ligand
technology ("FKBP Neuroimmunophilin Technology") for all human therapeutic and
diagnostic applications. Pursuant to the terms of the Amgen Agreement, Amgen
initially paid the Company an aggregate of $35 million as follows: (a) a
one-time, non-refundable payment of $15 million upon the signing of the Amgen
Agreement in August, 1997, and (b) a second payment of $20 million made on
October 1, 1997 upon the closing of Amgen's purchase of 640,095 shares of the
Company's common stock and five-year Warrants to purchase up to an additional
700,000 shares of common stock at an exercise price of $35.15 per share. In
connection with the sale of these securities, the Company granted Amgen certain
demand and "piggyback" registration rights under applicable securities laws.
Under the terms of the Amgen Agreement, Amgen also agreed to
provide to the Company up to $13.5 million in the aggregate, payable quarterly
over three years beginning October 1, 1997, to support research activities at
the Company relating to the FKBP Neuroimmunophilin Technology, with an option
to fund a fourth year of research, or under certain conditions, to terminate
the research program after two years. The Amgen Agreement provides for
milestone payments of up to $392 million in the aggregate to the Company in the
event Amgen achieves certain specified development milestones in each of ten
different specified clinical indications, seven of which are neurological and
three of which are non-neurological. In addition, the Company will receive
royalties on product sales, if any, related to the FKBP Neuroimmunophilin
Technology in the future. Subject to its obligation to fund two years of
research at the Company, Amgen may elect at any time to discontinue all
activities relating to the development and commercialization of the FKBP
Neuroimmunophilin Technology at any time. As noted below and in the 1997 Form
10-K, there can be no assurance Amgen will be able to successfully develop any
FKBP-based neuroimmunophilin compound or that such compounds will be approved
as safe and effective drugs for neurological or other uses and that Guilford
will earn any of the milestone payments related to such development activities.
11
<PAGE> 12
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
The Company has incurred net operating losses in each fiscal year
since its inception in July 1993, with the exception of fiscal 1996 for which
the Company recorded net earnings of $5.1 million, primarily due to two
one-time rights payments from RPR in the aggregate amount of $27.5 million
related to the signing of the Company's agreements with RPR for the sales,
marketing and distribution of GLIADEL and approval from the U.S. Food & Drug
Administration ("FDA") of the New Drug Application for GLIADEL in September,
1996. For the three months ended March 31, 1998, the Company incurred a net
operating loss of $7.1 million, and through March 31, 1998, the Company had an
accumulated deficit of $33.4 million.
In addition to revenues related to GLIADEL, the Company's only other
significant revenues recognized in fiscal year 1998 through March 31, 1998
consist of approximately $1.1 million in research payments made by Amgen. As
noted above, during the remainder of 1998 the Company anticipates recognizing
an additional $3.4 million in revenue from Amgen to support certain research
activities related to the FKBP Neuroimmunophilin Technology. In addition, in
the future the Company may be entitled to certain non-refundable, milestone
payments in the event certain development and/or regulatory milestones are
achieved by Amgen and to royalties on future product sales, if any. As noted
below and in the 1997 Form 10-K, whether the Company will ever recognize future
revenues in the form of milestone payments and royalties under the Amgen
Agreement is subject to significant risk and uncertainty, and there can be no
assurance that that the Company will recognize significant revenues, if any,
from these sources in the future.
The Company does not anticipate that 1998 will be profitable, and
there can be no assurance that the Company will ever achieve or sustain
profitability in the future. Furthermore, the Company expects to experience
quarter-to-quarter and year-to-year fluctuations in its operating results based
upon the timing and amount of sales of GLIADEL, the timing and realization of
milestone and other payments under the Company's agreements with RPR and Amgen
and other existing and potential collaborations, expenditures relating to the
Company's research and development, clinical and manufacturing activities, and
the extent and timing of costs related to the Company's patenting activities
and other activities undertaken in connection with the preservation and
extension of the Company's intellectual property rights.
The Company expects that expenses related to research and product
development, preclinical testing, clinical trials, regulatory matters,
operations, manufacturing and general and administrative expenses will continue
to increase as the Company conducts research and development activities to
develop its technologies and potential products. The Company has experienced
substantial personnel growth since its inception. As of March 31, 1998 the
Company had 195 full-time employees as compared to 164 full-time employees at
March 31, 1997. The Company's ability to achieve consistent profitability in
the future will depend, among other things, upon future sales of GLIADEL as
well as the Company's ability, either alone or with others, to develop its
product candidates successfully including any product candidates identified
pursuant to activities under the collaboration with Amgen, conduct clinical
trials, obtain required regulatory approvals, manufacture at reasonable cost
and successfully market its product candidates and enter into collaborative
arrangements and license agreements on acceptable terms. For discussion of
these and other risks, see the "Risk Factors" section of the 1997 Form 10-K,
particularly those paragraphs specifically addressing the aforementioned risks.
12
<PAGE> 13
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
Future sales of GLIADEL are subject to certain risks, including the
following. The Company's agreements with RPR do not impose any minimum
purchase requirements on the part of RPR, and there can be no assurance that
RPR will be successful in marketing and selling GLIADEL. In particular, prior
to the commercial launch of GLIADEL in the United States in February, 1997,
RPR's oncology sales force had no prior experience marketing and selling a
product to neurosurgeons. Furthermore, GLIADEL represents a novel approach to
the treatment of brain cancer, and there can be no assurance of broad
acceptance by the medical or patient communities. The Company currently relies
on a single supplier for BCNU, the chemotherapeutic agent used in GLIADEL, and
while the Company is in the process of qualifying a second supplier of BCNU,
there can be no assurance that the Company's efforts in this regard will be
successful. Further, the Company currently depends on its own single
manufacturing facility to produce GLIADEL, and while the Company is in the
process of constructing a second manufacturing facility, both facilities will
be located at the same site adjoining the Company's headquarters in Baltimore,
Maryland. Inability to secure timely, sufficient, or GMP quality supply of
BCNU, unforeseen plant shutdowns due to personnel, plant or equipment problems,
or natural disasters, risks associated with regulatory compliance (including
the need to manufacture GLIADEL in accordance with the FDA's current Good
Manufacturing Practice (cGMP) regulations), uncertainties regarding the receipt
and timing of international regulatory clearances for GLIADEL, the potential
inability to meet future product demand, the risk of product recalls due to
excessive product breakage or other reasons, among others, could adversely
affect the timing and extent of any future revenues related to GLIADEL sales.
For discussion of these and other risks, see the "Risk Factors" section of the
1997 Form 10-K, particularly those paragraphs specifically addressing the
aforementioned risks.
Moreover, there can be no assurance that Amgen will be able to achieve
any of the development and/or regulatory milestones set forth in the Amgen
Agreement with respect to any specified indication. The research, development
and commercialization of early stage technology like the FKBP Neuroimmunophilin
Technology is subject to significant risks and uncertainty respecting, among
other things, selection of an appropriate lead compound, successful completion
of the pre-clinical and clinical development activities, regulatory clearances,
formulation of final product dosage forms, scale-up from bench quantities to
commercial quantities and manufacture of products and commercialization of such
products as well as the successful preservation and extension of the patent and
other intellectual property rights. For discussion of these and other risks,
see the "Risk Factors" section of the 1997 Form 10-K, particularly those
paragraphs specifically addressing the aforementioned risks.
RESULTS OF OPERATIONS
Comparison of the Three Month Periods Ended March 31, 1998 and 1997
The Company recognized $2.4 million in revenues for the three months
ended March 31, 1998, consisting primarily of revenues from product sales and
royalties relating to GLIADEL and $1.1 million in research funding from Amgen
pursuant to the Amgen Agreement entered into in August, 1997. For the same
period in 1997 the Company recognized $2.3 million in revenues, all of which
resulted from product sales and royalties relating to GLIADEL following its
commercial launch on February 25, 1997.
13
<PAGE> 14
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
Revenues related to the sale of GLIADEL for the first quarter of 1998
were $1.2 million compared to $2.3 million for the same period in 1997. Of the
$1.2 million in revenues related to GLIADEL sales recognized in the first
quarter of 1998, $658,000 consist of transfer payments from the Company's
marketing partners, including $110,000 paid by the Company's marketing partner
for GLIADEL in Scandinavia, Orion. Of the $2.3 million in GLIADEL sales
revenues recognized in the first quarter of 1997, $2.1 million related to sales
of GLIADEL to RPR to support commercial launch of the product in the United
States. The reduction in the level of transfer price payments from RPR in the
quarter ended March 31, 1998 as compared to the same period in 1997 reflects a
stabilization of RPR's current inventory requirements for GLIADEL. Net royalty
revenue with respect to GLIADEL sales increased to $530,000 for the first
quarter of 1998 as compared to $201,000 for the same period in 1997. This
increase primarily reflects the fact that GLIADEL sales commenced in late
February, 1997, and thus were made only during part of the 1997 period. As
noted above and in the 1997 Form 10-K, future GLIADEL sales are subject to a
number of risks and uncertainties, and there can be no assurance that GLIADEL
sales will remain at or increase from current levels or generate significant
revenues for the Company in the future.
Cost of sales for the three months ended March 31, 1998 were $339,000
compared to $899,000 for the first quarter of 1997. Included in these amounts
are approximately $27,000 and $85,000 respectively, representing royalty
payments made to a third party from which the Company has licensed certain
technologies related to GLIADEL. The reduction in the cost of sales from the
1998 period as compared to the 1997 period primarily reflects a reduction in
the number of units sold to RPR during the 1998 period. To the extent GLIADEL
production levels increase, the Company expects that per unit product costs may
decrease as economies of scale are achieved. There can be no assurance,
however, that GLIADEL product sales will ever reach levels necessary for the
Company to realize significant costs savings related to manufacturing economies
of scale.
Research and development expenses increased to $8.7 million for the
three months ended March 31, 1998 as compared to $6.7 million for the same
period in 1997. The increase in these costs was primarily attributable to
expenses related to increased personnel costs, contracted research, consulting,
laboratory supplies, as well as anticipated license fees payable to a third
party licensor of certain technology. At March 31, 1998, 168 individuals were
employed on a full-time basis in the areas of research, development and
manufacturing as compared to 137 individuals at March 31, 1997. In the first
quarter of 1998, the Company continued to accelerate its research and
development efforts, particularly with respect to the Company's NAALADase
inhibitor and PARP inhibitor neuroprotectant programs as well as its FKBP
neuroimmunophilin ligand program, continued to fund development activities at a
potential third-party manufacturer of clinical supply of DOPASCAN(R) Injection,
and continued with Phase I clinical trials for a high dose formulation of
GLIADEL. In addition, in the three months ended March 31, 1998, research and
development expenses included charges relating to certain consulting agreements
entered into in April, 1996, consisting of non-cash compensation expense of
$110,000 and cash compensation expense of $62,000. For the three month period
ended March 31, 1997, the Company recorded non-cash compensation expense
related to these agreements of $417,000 and cash compensation expense of
$58,000. These agreements are intended to enhance the Company's ability to
develop new polymer technologies and products for the delivery of
chemotherapeutics in indications where local tumor recurrence is likely and
controlled release may be more effective than current therapies. The Company
expects it will be required
14
<PAGE> 15
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
to record varying amounts of non-cash compensation charges in research and
development expenses quarterly through 2001 relating to these agreements of up
to an aggregate of an additional $1.1 million. The Company anticipates that
its research and development expenses will continue to increase in future
periods.
General and administrative expenses were $2.5 million for the three months
ended March 31, 1998 as compared to $1.8 million for the same period in 1997.
The increase in general and administrative expenses of $700,000 for the three
months ended March 31, 1998, compared to the same period in 1997 was primarily
attributable to higher costs related to the preparation, filing and prosecution
of patent applications. The Company anticipates that its general and
administrative expenses, particularly those related to patenting and other
activities related to establishment and preservation of the Company's
intellectual property rights, will increase in future periods.
Other income and expense relates primarily to investment income and
interest expense. Investment income increased to $2.3 million for the three
months ended March 31, 1998 as compared to $996,000 for the same period in
1997. The increase was primarily attributable to an increase in the average
invested capital during the three months ended March 31, 1998 as compared to
the same period in 1997. The increase in average invested capital was primarily
due to the public sale of the Company's common stock in April, 1997, the
one-time, non-refundable signing fee of $15 million paid by Amgen in August,
1997 and the sale of shares of Company common stock and warrants to Amgen for
$20 million consummated in October, 1997. For the three months ended March 31,
1998, the Company incurred interest expense of $203,000 relating to borrowings
under its financing arrangements with First Union National Bank (formerly
Signet Bank) providing for the construction of manufacturing, administrative
and research and development facilities and the purchase of related equipment.
Interest expense was $239,000 for the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were approximately $151 million at
March 31, 1998. Of this amount, $12.7 million is held as collateral with
respect to certain of the Company's indebtedness and other financings and is
recorded as restricted cash and investments on the accompanying balance sheet.
The Company's accumulated deficit was $33.4 million at March 31, 1998.
The Company incurred net capital expenditures of $2.1 million for the
three months ended March 31, 1998 compared to $1.4 million for the same period
in 1997. The capital expenditures made in the 1998 and 1997 periods were
primarily related to the construction of the Company's expansion of its
manufacturing plant and research laboratories.
In March, 1998, the Company entered into master equipment lease
arrangements for up to an aggregate of $10.75 million, pursuant to which the
Company expects to lease additional equipment, including computer hardware and
software, furniture and fixtures. Depending on the type of equipment covered
and certain other factors, the term of any lease entered into under these
arrangements can range from two to four years. Such financing, along with the
Company's internal resources as well as
15
<PAGE> 16
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
external sources of funds, is expected to provide for the Company's current
equipment needs. To the extent the Company expands its research and
development programs, its capital equipment requirements may increase and thus
require additional capital funding.
In February, 1998, in order to meet the Company's future facilities
needs, the Company entered into an operating lease with a trust affiliated with
First Union National Bank ("First Union") for an approximately 72,500 square
foot facility to be constructed on a lot adjacent to the Company's current
headquarters in Baltimore, Maryland in order to support the Company's expected
future research, development and administrative activities. During the
construction period, the Company will act as construction agent for the trust,
responsible for performing all duties associated with the development of the
property and anticipates that the facility will be ready for occupancy prior to
the end of the second quarter of 1999. The lease expires in February, 2005 and
the Company anticipates that the lease payments for this facility will not
exceed $2.0 million annually. At the expiration of the lease term, the Company
has two options under its agreement with the trust. The Company can purchase
the property for an amount equal to any and all unamortized acquisition and
construction costs as well as accrued but unpaid interest and similar costs
incurred by the trust as part of its acquisition and construction activities
related to the property (the "Termination Amount"), or the Company may sell the
property on behalf of the trust, which is then obligated to apply the proceeds
from such sale against repayment of the Termination Amount. If such sale
proceeds are insufficient to cover the entire Termination Amount, the Company
is then obligated to repay any such shortfall, subject to a total cap on such
payments by the Company of an aggregate amount equal to 83% of the Termination
Amount. In addition, the Company may, with the consent of First Union, enter
into a new lease arrangement (see Note 6 to Notes to Consolidated Financial
Statements).
The Company has available up to $7.5 million under a loan agreement
with RPR respecting expansion of the Company's GLIADEL and polymer
manufacturing capacity. As of January 2, 1997, $4.0 million was available
under the loan agreement; the remainder is available no earlier than 12 nor
later than 18 months following funding of the initial tranche. Any principal
amounts borrowed under this loan agreement are due five years from the date
borrowed and will carry an interest rate equal to the lowest rate paid by RPR
from time to time on its most senior indebtedness. No amounts were outstanding
under this loan at March 31, 1998. The Company has not yet determined whether
to draw on the capital available under its loan agreement with RPR to fund the
expansion of the Company's manufacturing facilities.
The Company will require substantial funds in order to continue its
research and development programs and preclinical and clinical testing, to
manufacture and, where applicable, market its products and to meet its future
facilities needs. The Company's capital requirements depend on numerous
factors, including the progress of its research and development programs, the
progress of preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing
research relationships, the ability of the Company to establish collaborative
arrangements, the development of collaborative and licensing agreements and
other arrangements and the progress of manufacturing scale-up efforts.
16
<PAGE> 17
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
The Company believes that its existing resources, including the
proceeds from the sale of common stock and warrants to Amgen in October, 1997
and the interest earned thereon, will be sufficient to fund the Company's
activities for at least the next 24 months. There can be no assurance,
however, that changes in the Company's research and development and
commercialization plans or other factors affecting the Company's operating
expenses including potential acquisitions, and anticipated capital expenditures
will not result in the expenditure of these proceeds and the Company's other
resources before that time.
The Company anticipates that it will fund future capital requirements
through a combination of its existing working capital, revenues (including
product sales, royalty income, and milestones/licensing fees) generated under
its agreements with RPR relating to GLIADEL and Amgen relating to the FKBP
Neuroimmunophilin Technology, public or private equity or debt financing (as
necessary), additional collaborative or other research and development
agreements, commercialization and marketing arrangements with corporate
partners or other potential sources. The Company's ability to raise future
capital on acceptable terms is dependent on conditions in the public and
private equity markets and the performance of the Company, as well as the
overall performance of other companies in the biopharmaceutical and
biotechnology sectors. There can be no assurance that any required future
financing arrangements will be available on acceptable terms, or at all.
YEAR 2000 ASSESSMENT
The year 2000 issue results from computer programs that do not
distinguish between the year 1900 and the year 2000 because they were written
using two digits rather then four to define the applicable year. The Company is
in the process of assessing the impact of the year 2000 on its operations and
systems. Management has developed assessment procedures and a plan to address
identified issues within the Company. The Company does not yet know the full
extent, if any, of the impact of the year 2000 on its systems and equipment,
but at this point does not expect the costs associated with its becoming year
2000 compliant to be material. The Company is also in the process of
communicating with third parties with which it conducts business to assess
whether they are or will be year 2000 compliant. There can be no assurance,
however, that such third parties, including suppliers, clinical research
organizations and collaborative parties, are using systems that are year 2000
compliant or will address any year 2000 issues in a timely fashion. Any year
2000 compliance problems of the Company, its suppliers, its clinical research
organizations, its collaborative partners, or others could have a material
adverse effect on the Company's business, results of operations and financial
condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
17
<PAGE> 18
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes In Securities:
None
Item 3. Defaults in Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
A. Exhibits
Exhibit No. Description
- ----------- -----------
10.50 Master Lease Agreement, dated March 19, 1998 by and between
Comdisco Laboratory and Scientific Group, a Division of
Comdisco Healthcare Group, Inc. and the Company
10.51 Security Agreement, dated as of February 5, 1998, between
First Security Bank, National Association, not
individually, but solely as the Owner Trustee under the
Guilford Real Estate Trust 1998-1 (the "Trust") and First
Union National Bank ("First Union")*
10.52 Amended and Restated Trust Agreement, dated as of February
5, 1998 between the Several Holders from time to time
parties thereto and the Trust*
10.53 Agency Agreement, dated as of February 5, 1998, between the
Company
18
<PAGE> 19
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
and the Trust*
10.54 Credit Agreement, dated as of February 5, 1998, among the
Trust, the Several Holders from time to time parties
thereto and First Union*
10.55 Participation Agreement, dated as of February 5, 1998,
among the Company, the Trust, the various and other lending
institutions which are parties hereto from time to time, as
Holders, the various and other lending institutions which
are parties hereto from time to time, as Lenders, and First
Union*
10.56 Lease Agreement, dated as of February 5, 1998, between the
Trust and the Company*
10.57 Employment Letter Agreement, effective March 8, 1998,
between the Company and Gregory D. Hockel, Ph.D.
10.58 Employment Letter Agreement, effective January 27, 1998,
between the Company and Dana Hilt, M.D.
11.2 Statement Re: Computation of Earnings (Loss) Per Share
27.2 Financial Data Schedule
* Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997
B. Report on Form 8-K:
None
19
<PAGE> 20
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Guilford Pharmaceuticals Inc.
Date: May 13, 1998 /s/ Craig R. Smith, M.D.
-----------------------------------
Craig R. Smith, M.D.
President and CEO
Date: May 13, 1998 /s/ Andrew R. Jordan
-----------------------------------
Andrew R. Jordan
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
20
<PAGE> 1
EXHIBIT 10.50
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT dated as of March 19, 1998 by and between
COMDISCO LABORATORY AND SCIENTIFIC GROUP; A DIVISION OF COMDISCO HEALTHCARE
GROUP, INC. ("Lessor") and GUILFORD PHARMACEUTICALS INC. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties
agree as follows (all capitalized terms are defined in Section 14.12:
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each
Schedule. In the event of a conflict, the terms of a Schedule prevail over
this Master Lease.
2. Term.
On the Commencement Date Lessee will be deemed to accept the
Equipment, will be bound to it rental obligations for each item of Equipment
and the term of a Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance, in immediately available funds, on
the first day of each Rent Interval to the payee and at the location specified
in Lessor's invoice. Interim Rent is due and payable when invoiced. If any
payment is not made when due, Lessee will pay interest at the Overdue Rate.
4. Selection and Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected
the Equipment and disclaims any reliance upon statements made by the Lessor.
4.2 Warranty and Disclaimer of Warranties. Lessor
warrants to Lessee that, so long as Lessee is not in default, Lessor will not
disturb Lessee's quiet and peaceful possession, and unrestricted use of the
Equipment. To the extent permitted by the manufacturer, Lessor assigns to
Lessee during the term of the Schedule any manufacturer's warranties for the
Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT
OR ITS FITNESS FOR A
<PAGE> 2
PARTICULAR PURPOSE OR ITS COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Lessor is
not responsible for any liability, claim, loss, damage or expense of any kind
(including strict liability in tort) caused by the Equipment except for any
loss or damage caused by negligent act of lessor. In no event is Lessor
responsible for special, incidental or consequential damages.
5. Title and Assignment.
5.1 Title. Lessee holds the Equipment subject and
subordinate to the rights of the Owner, Lessor, any Assignee and any Secured
Party. Lessee authorizes Lessor, as Lessee's agent, to prepare, execute and
file in Lessee's name precautionary Uniform Commercial Code financing
statements showing the interest of the Owner, Lessor, and any Assignee or
Secured Party in the Equipment and to insert serial numbers in Schedules as
appropriate. Except as provided in Sections 5.2 and 7.2, Lessee will, at its
expense, keep the Equipment free and clear from any liens or encumbrances of
any kind (except any caused by Lessor) and will indemnify and hold Lessor,
Owner, any Assignee and Secured Party harmless from and against any loss caused
by Lessee's failure to do so.
5.2 Relocation or Sublease. Upon prior written notice,
Lessee may relocate the Equipment to any location within the continental United
States provided (i) the Equipment will not be used by any entity exempt from
federal income tax, (ii) all additional costs (including any administrative
fees, additional taxes and insurance coverage) are reconciled and promptly paid
by Lessee. Lessee may sublease the Equipment upon the reasonable consent of
the Lessor and the Secured party and provided Lessee meets the requirements
under (i) and (ii) above. No relocation or sublease will relieve Lessee from
any of its obligations under this Master Lease and the applicable Schedules.
5.3 Assignment by Lessor. The terms and conditions of
each Schedule have been fixed by Lessor in order to permit Lessor to sell
and/or assign or transfer its interest or grant a security interest in each
Schedule and/or the Equipment to a Secured Party or Assignee. In that event
the term Lessor will mean the Assignee and any Secured Party. However, any
assignment, sale, or other transfer by Lessor will not relieve Lessor of its
obligations to Lessee and will not materially change Lessee's duties or
materially increase the burdens or risks imposed on Lessee. The Lessee
consents to and will acknowledge such assignments in a written notice given to
Lessor. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of
Lessor's rights, but will not be obligated to perform
any of the obligations of Lessor. The Secured Party
will not disturb Lessee's quiet and peaceful
possession and unrestricted use of the Equipment so
2
<PAGE> 3
long as Lessee is not in default and the Secured
Party continues to receive all Rent payable under the
Schedule;
(b) Lessee will pay all Rent and all other amounts
payable to the Secured Party, despite any defense or
claim which it has against Lessor. Lessee reserves
its right to have recourse directly against Lessor
for any defense or claim; and
(c) Subject to and without impairment of Lessee's
leasehold rights in the Equipment, Lessee holds the
Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. Net Lease and Taxes and Fees.
6.1 Net Lease. Each Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts is absolute and
unconditional and is not subject to any abatement, reduction, sell-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or
reimburse Lessor for all taxes, fees or other charges (together with any
related interest or penalties not arising from the negligence of Lessor)
accrued for or arising during the term of each Schedule against Lessor. Lessee
or the Equipment by any governmental authority (except only Federal, state and
local taxes on the capital or the net income of Lessor). Lessor will file all
personal property tax returns for the Equipment and pay all property taxes due.
Lessee will reimburse Lessor for property taxes within thirty (30) days of
receipt of an invoice.
7. Care, Use and Maintenance, Attachments and Reconfigurations,
and Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will operate the
Equipment in accordance with all laws and regulations and maintain the
Equipment in good operating order and appearance, protect the Equipment from
deterioration, other than normal wear and tear, and will not use the Equipment
for any purpose other than that for which it was designed. If commercially
available, Lessee will maintain in force a standard maintenance contract with
the manufacturer of the Equipment and upon request will provide Lessor with a
complete copy of that contract. With lessor's prior written consent, Lessee
may have the Equipment maintained by a party other than the manufacturer.
Lessee agrees to pay any costs necessary for the manufacturer to bring the
Equipment to then current release, revision and engineering change levels and
to re-certify the Equipment as eligible for manufacturer's maintenance at the
expiration of the lease term. The lease term
3
<PAGE> 4
will continue upon the same terms and conditions until recertification has been
obtained.
7.2 Attachments and Reconfigurations. Upon Lessor's
prior written consent Lessee may reconfigure and install Attachments on the
Equipment. In the event of such a Reconfiguration or Attachment, Lessor shall,
upon return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order, repair and
appearance as when installed (normal wear and tear excluded). Alternately,
with Lessor's prior written consent which shall not be unreasonably withheld,
Lessee may return the Equipment with any Attachment or upgrade.
7.3 Inspection by Lessor. Upon request, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records, instruction
manuals, published statements of capabilities and technical specifications and
certification, qualification and calibration reports available to Lessor for
inspection.
8. Representations and Warranties of Lessee.
Lessee represents and warrants that for the master Lease and each
Schedule;
(a) The execution, delivery and performance of the Lessee have
been duly authorized by all necessary corporate action;
(b) The individual executing was duly authorized to do so;
(c) The Master Lease and each Schedule constitute legal, valid and
binding agreements of the Lessee enforceable in accordance
with their terms;
(d) The Equipment is personal property and when subjected to use
by the Lessee will not be or become fixtures under applicable
law; and
(e) The Equipment will be for laboratory use only and will not be
used in a clinical environment on patients.
9. Delivery and Return of Equipment.
Lessee assumes the full expense of transportation of the Equipment to
its initial location, installation, deinstallation and return to a location
within the continental United States (including without limitation the expense
of in-transit insurance) all pursuant to Lessor's instructions and
manufacturer's specifications. Regarding deinstallation, Lessee will assure
that the Equipment is deinstalled by the manufacturer in accordance with the
manufacturer's recommended procedures
4
<PAGE> 5
and decontaminated for transport in accordance with any Environmental Law, and
returned with a Verification of Uncontamination in the same operating order,
repair, condition and appearance as when originally installed (less normal wear
and tear and depreciation) meeting all original equipment manufacturer's
specifications for continued manufacturer's maintenance, and accompanied by all
associated documents, manuals (including, but not limited to, those listed in
Section 7.3), spare parts and accessories and maintenance records for the
duration of the Schedule. In connection with deinstallation, Lessee will
assure that any contaminant removed from the Equipment will be removed and
transported by a licensed waste removal transporter.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's
interest. Lessee will keep all equipment free from any other marking or
labeling which might be interpreted as a claim of ownership.
11. Indemnity.
Lessee will indemnify and hold Lessor, its parent company, any
Assignee and any Secured Party harmless from and against any and all claims,
cases, expenses, damages and liabilities, including reasonable attorneys' fees
arising out of the ownership (for strict liability in tort only), selection
possession, leasing operation control, use maintenance, delivery, return or
other disposition of the Equipment. However, Lessee is not responsible to a
party indemnified hereunder for any claims, costs, expenses, damages and
liabilities occasioned by the negligent acts of such indemnified party. Lessee
agrees to carry death, bodily injury and property damage liability insurance
during the term of the Master Lease in amounts and against risks customarily
insured against by the Lessee on similar equipment owned by it. Any amounts
received by Lessor under that insurance will be credited against Lessee's
obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss
or destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or expiration. The Lessee will
furnish appropriate evidence of such insurance. Lessee shall promptly repair
any damaged item of Equipment unless such Equipment has suffered a Casualty
Loss. Within fifteen (15) days of a Casualty Loss, Lessee will provide written
notice of that loss to Lessor and Lessee will at Lessor's option, either (a)
replace the items of equipment with Like Equipment and marketable title to the
Like Equipment will automatically vest in
5
<PAGE> 6
Lessor or (b) pay the Casualty value and after that payment and the payment of
all other amounts due and owing, Lessor's obligation to pay further Rent for
the item of Equipment will cease.
13. Default, Remedies and Litigation.
13.1 Default. The occurrence of any one or more of the
following Events of Default constitutes a default under a Schedule.
(a) Lessee's failure to pay Rent or other amounts payable
by Lessee when due if that failure continues for ten (10) days
after written notice, or
(b) Lessee's failure to perform any other term or
condition of the Schedule or the material inaccuracy of any
representation or warranty made by the Lessee in the Schedule
or in any document or certificate furnished to the Lessor
hereunder if first failure or inaccuracy continues for
fifteen (15) days after written notice; or
(c) An assignment by Lessee for the benefit of its
creditors, the failure by Lessee to pay its debts when due,
the insolvency of Lessee, the filing by Lessee or the filing
against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other
officer with similar powers the adjudication of Lessee as
insolvent the liquidation of Lessee or the taking of any
action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any
Schedule or other agreement between Lessee and Lessor or its
Assignee or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above
Events of Default, Lessor, at its option may:
(a) enforce Lessee's performance of the provisions of the
applicable Schedule by appropriate court action in law or in
equity;
(b) recover from Lessee any damages and or expenses
including Default Costs;
(c) with notice and demand, recover all sums due and
accelerate and recover the present value of the remaining
payment stream of all Rent due under the defaulted Schedule
(discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus
any prepayment fees charged to lessor by the Secured Party or,
if there is no Secured Party, then discounted at 5%)
6
<PAGE> 7
together with all Rent, and other amounts currently due as
liquidated damages and not as a penalty;
(d) With notice and process of law and in compliance with
Lessee's security requirements, Lessor may enter on Lessee's
premises to remove and repossess the Equipment without being
liable to Lessee for damages due to the repossession, except
those resulting from Lessor's its assignees, agents or
representatives negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies in Lessor's discretion and to the extent permitted
by law, are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment
pursuant to the terms of Section 13.2, Lessor will use its best efforts in
accordance with its normal business procedures (and without obligation to give
any priority to such Equipment) to mitigate Lessor's damages as described
below: EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS
NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO
MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED
HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the
Equipment at a public or private sale for cash or credit with the privilege of
purchasing the Equipment. The proceeds from any sale, lease or other
disposition of the Equipment are defined as either:
(a) If sold or otherwise disposed of, the cash proceeds less the
Fair Market Value of the Equipment at the expiration of the
Initial Term less the Default Costs; or
(b) if leased, the present value (discounted at three points over
the prime rate as referenced in The Wall Street Journal at the
time of the mitigation) of the rentals for a term not to
exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other
sums due to Lessor from Lessee. However, Lessee is liable to Lessor for, and
Lessor may recover, the amount by which the proceeds are less than the
liquidated damages and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1. Entire Agreement. This Master Lease and associated
Schedules supersede all other oral or written agreements or understandings
between the parties concerning the Equipment including, for example, purchase
orders, ANY
7
<PAGE> 8
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE
ENFORCED.
14.2 No Waiver. No action taken by Lessor or Lessee shall
be deemed to constitute a waiver of compliance with any representation,
warranty or covenant contained in this Master Lease or a Schedule. The waiver
by Lessor or Lessee of a breach of any provision of this Master Lease or a
Schedule will not operate or be construed as a waiver of any subsequent breach.
14.3 Binding Nature. Each Schedule is binding upon, and
inures to the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS
RIGHTS OR OBLIGATIONS.
14.4 Survival of Obligations. All agreements, obligations
including, but not limited to those arising under Section 6.2, representations
and warranties contained in this Master Lease, any Schedule or in any document
delivered in connection with those agreements are for the benefit of Lessor and
any Assignee or Secured Party and survive the execution, delivery, expiration
or termination of this Master Lease.
14.5 Notices. Any notice, request or other communication
in either party by the owner will be given in writing and deemed received upon
the earlier of actual receipt or three days after mailing if mailed postage
prepaid by regular or airmail to Lessor (to the attention of "Lease
Administrator") or Lessee, at the address set out in the Schedule of, one day
after it is sent by courier or facsimile transmission if receipt is verified by
the receiving party.
14.6 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH
SCHEDULE WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS
AND WILL BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS
OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS.
NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE
WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A
SCHEDULE.
14.7 Severability. If any one or more of the provisions
of the Master Lease or any Schedule is for any reason held invalid, illegal or
unenforceable, the remaining provisions of this Master Lease and any such
Schedule will be unimpaired, and the invalid, illegal or unenforceable
provision replaced by a mutually acceptable valid, legal and enforceable
provision that is closest to the original intention of the parties.
8
<PAGE> 9
14.8 Counterparts. This Master Lease and any Schedule may
be executed in any number of counterparts, each of which will be deemed an
original, but as such, counterparts together constitute one and the same
instrument. If Lessor grants a security interest in all or any part of a
Schedule, the Equipment or sums payable thereunder, only that counterpart
Schedule marked "Secured Party's Original" can transfer Lessor's rights and all
other counterparts will be marked "Duplicate."
14.9 Licensed Products. Lessee shall obtain no title to
Licensed Products which at all times remain the property of the owner of the
Licensed Products. A license from the owner may be required and it is the
Lessee's responsibility to obtain any required license before the use of the
Licensed Products. Lessee agrees to treat the Licensed Products as
confidential information of the owner, to observe all copy right restrictions,
and not to reproduce or sell the Licensed Products.
14.10 Additional Documents. Lessee will, upon execution of
this Master Lease and as may be requested thereafter, provide Lessor with a
secretary's certificate of incumbency and authority and any other documents
reasonably requested by Lessor. Upon the execution of each Schedule with an
aggregate Rent in excess of $2,000,000, Lessee will provide Lessor with an
opinion from Lessee's counsel regarding the representations and warranties in
Section 8. Lessee will furnish, upon request, audited financial statements for
the most recent period.
14.11 Electric Communications. Each of the parties may
communicate with the other by electronic means under mutually agreeable terms.
14.12 Definitions. Assignee - means entity to whom Lessor
has sold or assigned its rights as owner and Lessor of Equipment.
Attachment - means any accessory, equipment or device and the
installation thereof that does not impair the original function or use of the
Equipment and is capable of being removed without causing material damage to
the Equipment and is not an accession to the Equipment.
Casualty Loss - means the irreparable loss or destruction of
Equipment.
Casualty Value - means the amount equal to the present value of the
aggregate Rent remaining for the balance of the current term, plus the present
value of the Fair Market Value (determined as of the expiration of the current
term) of Like Equipment computed using an interest rate equal to the rate for
Treasury Securities having a comparable term to the current term. However, if
a Casualty Value Table is attached to the relevant Schedule, its terms will
control.
9
<PAGE> 10
Commencement Certificate - means the Lessor provided certificate which
must be signed by Lessee within ten days of the Commencement Date as requested
by Lessor.
Commencement Date - is defined in each Schedule.
Contaminant - means those substances which are regulated by or form
the basis of liability under Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyl ("PCB") and radioactive substances or other
material or substance which has in the past or could in the future constitute a
health, safety or environmental hazard to any person, property or natural
resource.
Default Costs - means reasonable attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
Environmental Law - means any federal, foreign, state or local law,
rule or regulation pertaining to the protection of the environment, including,
but not limited to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") (42. U.S.C. Section 9601 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. 1251 et seq.), the Resource, Conservation and
Recovery Act (42 U.S.C. 8901 et seq.), the Clean Air Act (42 U.S.C. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. 2501 et seq.), the Federal
Insecticide, Fungicides and Rodanticide Act (7 U.S.C. 1361 et seq.), and the
Occupational Safety and Health Act (10 U.S.C. 851 et seq.), as these laws have
been amended or supplemented and any analogous foreign, state or local
statutes, and the regulations promulgated pursuant therein.
Equipment - means the property described on a Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule but not including any Attachments.
Event of Default - means the events described in Subsection 13.1.
Fair Market Value - means the aggregate amount which would be
obtainable in an arm's-length transaction between an informed and willing
buyer/user purchasing the Equipment in place for its originally intended use
and an informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of
the first full Rent Interval following the Commencement Date for all items of
Equipment and continuing for the number of Rent intervals indicated on a
Schedule.
10
<PAGE> 11
Installation Date - means the day on which the Equipment is installed
and qualified for a commercially available manufacturer's standard maintenance
contract or warranty coverage, if available.
Interim Rent - means the pro-rata portion of Rent due for the period
from the Commencement Date through but not including the first day of the first
full Rent Interval included in the Initial Term.
Licensed Products - means any software or other licensed products
attached to the Equipment.
Like Equipment - means replacement Equipment which is lien free and of
the same model, type, configuration and manufacture as Equipment.
Notice Period - means the time period described in a Schedule during
which Lessee may give Lessor notice of the termination of the term of that
Schedule.
Overdue Rate - means the lesser of 18% per year or the maximum rate
permitted by the law of the state where the Equipment is located.
Owner - means the owner of Equipment.
Reconfiguration - means any change to Equipment that would upgrade or
downgrade the performance capabilities of the Equipment in any way.
Rent - means the rent, including Interim Rent Lessee will pay for each
item of Equipment expressed in a Schedule either as a specific amount or an
amount equal to the amount which Lessor pays for an item of Equipment
multiplied by a lease rate factor plus all other amounts due to Lessor under
this Master Lease or a Schedule.
Rent Interval - means a full calendar month or quarter as indicated on
a Schedule.
Schedule - means an Equipment Schedule which incorporates all of the
terms and conditions of this Master Lease and, for purposes of Section 14.8,
its associated Commencement Certificate(s).
Secured Party - means an entity to whom Lessor has granted a security
interest in a Schedule and related Equipment for the purpose of securing a
loan.
Verification of Decontamination - means a letter from the party
performing the decontamination, stating that it is properly licensed to perform
the decontamination and that an actual decontamination and disposal of
Contaminants was completed in accordance with the manufacturer's specifications
and procedures
11
<PAGE> 12
and all applicable governmental rules and regulations including but not limited
to all Environmental Laws.
IN WITNESS WHEREOF, the parties herein have executed this Master Lease
on or as of the day and year first above written.
<TABLE>
<CAPTION>
GUILFORD PHARMACEUTICALS INC. COMDISCO LABORATORY AND
as Lessee SCIENTIFIC GROUP, A DIVISION
OF COMDISCO HEALTHCARE
GROUP, INC.
as Lessor
<S> <C> <C> <C>
By: /s/ Andrew R. Jordan By: /s/ Doug Berman
--------------------------------------------- -----------------------------------------
Title: S.V.P. & CFO Title: Credit Manager
------------------------------------------ ----------------------------------------
</TABLE>
12
<PAGE> 13
ADDENDUM
TO THE MASTER LEASE AGREEMENT
DATED MARCH 18, 1998
BETWEEN
COMDISCO LABORATORY AND SCIENTIFIC GROUP
A DIVISION OF COMDISCO HEALTHCARE GROUP, INC. ("LESSOR")
AND
GUILFORD PHARMACEUTICALS INC. ("LESSEE")
The terms and conditions of the Master Lease Agreement are hereby modified and
amended as follows:
Section 1 Property Leased
Add the following at the end, "with respect to that particular
Schedule only".
Section 4 Selection and Warranty and Disclaimer of Warranties
Subsection 4.2 Warranty and Disclaimer of Warranties
Line 2 after "is not" add "materially" and after "default" add
"under this Agreement or the applicable Schedule".
Line 12 after "negligent acts" add "or willful misconduct".
Section 5 Title and Assignment
Subsection 5.2 Relocation or Sublease
Line 4 after "additional" add "reasonable" and after "costs"
add "of Lessor related to such relocation".
Line 7 after "Secured Party" add "such consent not to be
unreasonably withheld, delayed, or conditioned".
Subsection 5.3 Assignment by Lessor
Subparagraph (a) line 5 after "is not" add "materially" and
after "default" add "under this Agreement or the applicable
Schedule".
At the end of the paragraph add Subparagraph (d)
"Notwithstanding the foregoing, no transfer pursuant to this
section 5.3 shall be effective
<PAGE> 14
as to an Assignee without the prior written consent of Lessee
(which consent shall not be unreasonably withheld, delayed or
conditioned)".
Section 6 Net Lease and Taxes and Fees
Subsection 6.2 Taxes and Fees
Line 5 after "net income" add "or gross receipts in lieu of
state and local taxes on the capital or net income" and after
"of Lessor" add "arising from the Lessee's lease of Equipment
under this Agreement".
Delete the last two sentences in their entirety and replace
with "To the extent permitted by law Lessee shall be
responsible for the filing of all personal property tax
returns in respect of the Equipment and shall pay all taxes
due and owing with respect to Equipment leased hereunder by
Lessee and indicated on such returns. Lessee shall furnish
Lessor with such information as reasonably necessary to verify
Lessee's payment of such personal property tax and all taxes
indicated".
Section 7 Care, Use and Maintenance, Attachments and Reconfigurations, and
Inspection by Lessor
Subsection 7.1 Care, Use and Maintenance
Line 5 delete "if commercially available".
Line 7 after "Equipment" add "or a third party".
Subsection 7.2 Attachments and Reconfigurations
Line 2 after "consent" add "(which consent shall not be
unreasonably withheld, delayed or conditioned)".
Line 8 delete "consent which will not be unreasonably
withheld" and replace with "which consent shall not be
unreasonably withheld, delayed or conditioned".
Subsection 7.3 Inspection by Lessor
Line 2 after "hours" add "and upon reasonable prior notice to
Lessee".
<PAGE> 15
Section 8 Representations and Warranties of Lessee
Subparagraph (c) line 3 after "terms" add "subject to
bankruptcy, in solvency, liquidation, reorganization,
fraudulent conveyance, and similar laws affecting creditors'
rights generally and general principals of equity".
Subparagraph (e) line after "laboratory" add "or office".
Section 9 Delivery and Return of Equipment
Line 6 after "manufacturer" and "or a third party reasonably
acceptable to Lessor".
Section 11 Indemnity
Line 8 after "negligent acts" add "or willful misconduct".
Section 12 Risk of Loss
Line 7 after "Lessee will" add "upon the request of Lessor".
Section 13 Default, Remedies and Mitigation
Subsection 13.1 Default
Line 2 after "constitutes a" add "material".
Subparagraph (a) line 2 after "after" add "Lessee's receipt
of".
Subparagraph (b) line 1 after "other" add "material" and line
5 after "after" add "Lessee's receipt of".
Subparagraph (c) line 3 after "against Lessee" add "unless
such filing is dismissed within sixty (60) days".
Subsection 13.2 Remedies
Subparagraph (d) line 6 after "negligence" add "or willful
misconduct".
<PAGE> 16
Section Additional Provisions
Subsection 14.3 Binding Nature
At end of section delete the period and add "without the prior
consent of Lessor, which consent will not be unreasonably
withheld, delayed or conditioned".
Subsection 14.5 Notices
At the end of section delete the period and add "or in the
case of courier delivery, delivery is refused".
Subsection 14.9 Licensed Products
Line 5 delete the period and add "and Lessor's taking title
thereto".
Subsection 14.10 Additional Documents
Line 2 after secretary's add "or assistant secretary's".
At the end of the paragraph delete the word period and replace
with "fiscal year".
Except as set out herein, Lessor and Lessee hereby agree that the terms and
conditions of the Master Lease Agreement shall remain in full force and effect
as entered into by the parties on or prior to the date hereof.
<TABLE>
<CAPTION>
GUILFORD PHARMACEUTICALS INC. COMDISCO LABORATORY AND
as Lessee SCIENTIFIC GROUP, A DIVISION
OF COMDISCO HEALTHCARE
GROUP, INC.
as Lessor
<S> <C> <C> <C>
By: /s/ Andrew R. Jordan By: /s/ Doug Berman
--------------------------------------------- -----------------------------------------
Title: S.V.P. & CFO Title: Credit Manager
------------------------------------------ ----------------------------------------
Date: 3/20/98 Date: 4/10/98
------------------------------------------ ----------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.57
[GUILFORD LETTERHEAD]
David R. Savello, Ph.D.
Senior Vice President, Development
February 24, 1998
Gregory Hockel, Ph.D.
103 Longfellow Drive
Millersville, MD 21108
Dear Greg:
I am very pleased to offer you employment with Guilford
Pharmaceuticals Inc. on the following terms:
1. Your title will be Vice President, Regulatory Affairs. In
this capacity you will report to and serve at the discretion
of the Senior Vice President of Development, David R. Savello,
Ph.D.
2. In consideration of your services, the Company will provide
the following compensation:
a. Salary: Your salary will be set at $15,416.67 per
month (for an annualized salary of $185,000.00)
payable semi-monthly. Your performance and salary
will be reviewed according to our annual review
program.
b. Bonus: You will be eligible to receive such
bonuses, if any, as are payable pursuant to any
employee bonus plans the Board of Directors may have
adopted from time to time.
c. Joining Bonus: To assist you in the transition to
your new position, the Company will pay you a joining
bonus of $25,000. This payment will be made within
30 days following the first day of your employment
and will be subject to all deductions required by
law. Should you terminate your employment with the
company within one year of your date of hire, you
will be responsible for a prorata reimbursement to
the Company of the joining bonus.
d. Stock Options: The Company will award you options to
purchase 25,000 shares of its common stock, subject
to approval of this award by the Board of Directors
and subject to the terms and conditionals of the
Company's
<PAGE> 2
Gregory Hockel, Ph.D.
February 24, 1998
Page Two
standard stock option agreement. The price of the
options will be the closing price of Guilford's stock
on the trading date immediately preceding the date
such options are approved by the Board of Directors
(or your date of employment if after the Board's
approval). These options will vest 50% after two
years, 75% after three years, and 100% after four
years from the date of the grant. You will be
eligible to receive further stock options, if any, as
may be granted pursuant to any stock option plan the
Board of Directors may have adopted from time to
time.
e. Equity Offering: The Company will offer you 2,500
shares of its common stock, subject to approval of
this award by the Board of Directors and further
subject to the terms and conditions of the Company's
standard restricted share agreement on the following
basis:
i) These shares will vest 25% per year over four
years.
ii) In the event your employment with the Company
is terminated for cause, you voluntarily
leave the Company, or you are unable to
perform your duties for any reason, the
unvested shares will immediately revert to
the Company.
All taxes relating to such grant will be your
responsibility.
3. In addition to the aforementioned, you will be eligible for
the following benefits:
a. Insurance: The Company will offer you medical,
dental, vision, life, short-term, long-term
disability and accidental death and dismemberment
insurance as is generally available to its employees.
b. 401(k) Plan: Once you meet the employment eligibility
requirements to participate in the Company's 401(k)
Plan, you will receive certain matching rights,
subject to the terms and conditions of such plan as
may be in effect from time to time. Guilford
currently matches 50% of the first 6% of employee
salary deferral in the form of newly issued Guilford
Stock.
c. Vacation: You will be entitled to vacation in
accordance with our corporate vacation policy as in
effect from time to time (based on current rate of
accrual, you will accrue at an annualized rate of 20
days of company designated and discretionary vacation
days, (not counting
<PAGE> 3
Gregory Hockel, Ph.D.
February 24, 1998
Page Three
company-observed holidays), during your first year of
employment).
In the event your employment is terminated by the Company other than
for cause, you would be entitled to severance in the form of a continuation of
your then-current base salary, as follows:
1. Six months salary if the termination occurs in the first
twelve months of your employment; and
2. Twelve months salary if the termination occurs thereafter.
Such payments (except those resulting from a change in
control) would cease upon your commencement of paid employment or
consultancy during the severance period. During the severance period,
the Company would also reimburse you for the cost of continuation of
any health, life and disability insurance coverage available at the
time of the termination of employment, provided that the Company
reserves the right to provide substantially equivalent alternative
life and disability coverage to the extent reasonably available upon
conversion from full-time employment. Such continuing coverage is
conditioned upon your reasonable cooperation in complying with any
necessary application procedures. Remaining benefits of employment,
including your eligibility for any bonus program and the vesting of
unvested options would cease at termination and not continue to accrue
during the severance period.
This offer of employment at will is conditioned among other things on:
(i) continuing compliance with relevant requirements
under the Immigration Reform Act of 1986, including
presentation of documentation that proves your
identity and legal right to work in the United
States;
(ii) your signing a Patent and Confidentiality Agreement
in connection with your employment by the Company;
and
(iii) successful completion of a background investigation.
<PAGE> 4
Gregory Hockel, Ph.D.
February 24, 1998
Page Four
You may accept this offer by signing below and returning the original
letter to the Human Resources Department in the enclosed envelope.
All of us at Guilford very much look forward to welcoming you to the
Guilford team!
Sincerely,
/s/ DAVID R. SAVELLO, PH.D.
----------------------------------
David R. Savello, Ph.D.
Senior Vice President, Development
I accept this offer and agree to comply with all Guilford Pharmaceuticals Inc.
corporate policies and procedures which may be in effect from time to time.
My first day of work will be on or about April 1, 1998.
--------------------------
/s/ GREGORY HOCKEL
- ------------------------------
Signature
March 8, 1998
- ------------------------------
Date
<PAGE> 1
EXHIBIT 10.58
[GUILFORD LETTERHEAD]
David R. Savello, Ph.D.
Senior Vice President, Development
January 23, 1998
Dana C. Hilt, M.D.
3122 West Sierra Drive
Thousand Oaks, CA 91362
Dear Dana:
I am very pleased to offer you employment with Guilford
Pharmaceuticals Inc. on the following terms:
1. Your title will be Vice President, Clinical Research. In this
capacity you will report to and serve at the discretion of the
Senior Vice President of Development, David R. Savello, Ph.D.
2. In consideration of your services, the Company will provide
the following compensation:
a. Salary: Your salary will be $17,500. per month (an
annual rate of $210,000), payable semi-monthly. Your
performance and salary will be reviewed according to
our annual review program.
b. Bonus: You will be eligible to receive such bonuses,
if any, as are payable pursuant to any employee bonus
plans the Board of Directors may have adopted from
time to time.
c. Joining Bonus: To assist you in the transition to
your new position, the Company will pay you a joining
bonus of $17,500. This payment will be made within
30 days following the first day of your employment
and will be subject to all deductions required by
law. Should you terminate your employment with the
company within one year of your date of hire, you
will be responsible for a prorata reimbursement to
the Company of the joining bonus.
d. Stock Options: The Company will award you
Non-Qualified stock options to purchase 35,000 shares
of its common stock, subject to approval of this
award by the Board of Directors and subject to the
terms and conditions of the Company's standard stock
option agreement. The price of the options will be
the fair market value of the stock on the trading
date immediately preceding the grant date. These
options will vest 50% after two years, 75% after
three years, and 100% after four years from the date
of the grant. You will be
<PAGE> 2
Dana C. Hilt, M.D.
January 23, 1998
Page Two
eligible to receive further stock options, if any, as
may be granted pursuant to any stock option plan the
Board of Directors may have adopted from time to
time.
e. Equity Offering: The Company will offer you 10,000
shares of its common stock, subject to approval of
this award by the Board of Directors and further
subject to the terms and conditions of the Company's
standard restricted share agreement on the following
basis:
i) These shares will vest 25% per year over 4
years.
ii) In the event your employment with the Company
is terminated for cause, you voluntarily
leave the Company, or you are unable to
perform your duties for any reason, the
unvested shares will immediately revert to
the Company.
All taxes relating to such grant will be your
responsibility.
3. In addition to the compensation described above, you will be
eligible for the following benefits:
a. Relocation: To assist you in relocating to the
Baltimore area, the Company will:
i) Pay for two trips to the Baltimore area for
you to find living accommodations.
Reasonable travel and hotel expenses will be
reimbursed.
ii) Pay the direct cost of moving your household
possessions to the Baltimore area.
iii) Pay the closing costs for a new home in the
Baltimore area up to 3 1/2% of its purchase
price, grossed-up for tax purposes. This
includes up to two points on a mortgage (one
point loan origination fee and one discount
point on a mortgage).
iv) To assist you in your transition to Maryland,
Guilford will reimburse you temporary housing
assistance, if needed (if you must maintain
two households for a short period of time),
of up to $1,000 per month for up to three
months (cost of temporary rental, including
furniture rental).
<PAGE> 3
Dana C. Hilt, M.D.
January 23, 1998
Page Three
v) Pay the selling costs of your California
home, not to exceed 8% of its fair market
value, grossed-up for tax purposes. for a
period of time not to exceed 18 months from
the date of employment
vi) In the event you purchase a home in Maryland
prior to selling your California home,
Guilford will provide duplicate mortgage
assistance. Guilford will reimburse the
lesser of the two monthly mortgage payments
(including property tax payments subject to
your obligation to repay the property tax
portion upon final settlement of your
California home) for a period not to exceed
twelve months.
Should you terminate your employment with the company
within one year of your date of hire, you will be
responsible for reimbursement to the Company of the
relocation expenses, prorated for the term of your
employment.
b. Insurance: The Company will offer medical,
dental, vision, life, accidental death, short-term
and long-term disability insurance as described in
the attached.
c. Vacation: You will be entitled to 20 vacation days,
to be used according to the Company Vacation policy,
and paid Company Holidays in effect from time to time
(currently 11).
d. 401(k) Match: Once you meet the employment
eligibility requirements to participate in the
company's 401(k) Plan, you will be eligible to
receive the Company match subject to the terms and
conditions of such plan as may be in effect from time
to time. Guilford currently matches 50% of the first
6% of employee salary deferral in the form of newly
issued Guilford stock.
In the event your employment is terminated by the Company other than
for cause, you would be entitled to severance in the form of a continuation of
your then-current base salary, as follows:
1. Six months salary if the termination occurs in the first
twelve months of your employment; and
2. Twelve months salary if the termination occurs thereafter.
Such payments (except those resulting from a change in control) would
cease upon your commencement of paid employment or consultancy during the
severance period. During the severance period, the Company would also
reimburse you for the cost of continuation of any health, life and disability
insurance coverage available at the time of the termination of employment,
provided that the Company reserves the right to provide substantially
equivalent
<PAGE> 4
Dana C. Hilt, M.D.
January 23, 1998
Page Four
alternative life and disability coverage to the extent reasonably available
upon conversion from full-time employment. Such continuing coverage is
conditioned upon your reasonable cooperation in complying with any necessary
application procedures. Remaining benefits of employment, including your
eligibility for any bonus program and the vesting of unvested options would
cease at termination and not continue to accrue during the severance period.
This offer of employment at will is conditioned on:
(i) continuing compliance with relevant
requirements under the Immigration Reform Act
of 1986, including presentation of
documentation that proves your identity and
legal right to work in the United States;
(ii) your signing a Patent and Confidentiality
Agreement in connection with your employment
by the Company; and
(iii) successful completion of a background
investigation.
You may accept this offer by signing below and returning the original
letter to me. I would like you to start at Guilford on or before May 1, 1998.
We very much look forward to welcoming you to the Guilford team!
Sincerely,
/s/ DAVID R. SAVELLO
-----------------------------------
David R. Savello, Ph.D.
Senior Vice President of Development
I accept this offer and agree to comply with all Guilford Pharmaceuticals Inc.
policies and procedures which may be in effect from time to time.
s/ DANA C. HILT, M.D. 1/27/98
- ----------------------------- ---------------------------------
Dana C. Hilt, M.D. Date
<PAGE> 1
EXHIBIT 11.2
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the calculation of total number of shares used in
the computation of net earnings (loss) per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------------ -------------
<S> <C> <C>
Weighted average common shares outstanding 19,411 14,237
Dilutive incremental shares assumed to be
outstanding related to stock options,
warrants and put options - -
Weighted average common and common
equivalent shares used in the computation ------------ ------------
of net income (loss) per common share 19,411 14,237
============ ============
Net income (loss) $(7,074) $(6,336)
============ ============
Basic earnings (loss) per common share $ (0.36) $ (0.45)
============ ============
Diluted earnings (loss) per common share $ (0.36) $ (0.45)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,757
<SECURITIES> 0
<RECEIVABLES> 1,910
<ALLOWANCES> 0
<INVENTORY> 1,634
<CURRENT-ASSETS> 51,420
<PP&E> 23,546
<DEPRECIATION> 5,084
<TOTAL-ASSETS> 173,180
<CURRENT-LIABILITIES> 11,283
<BONDS> 10,386
0
0
<COMMON> 194
<OTHER-SE> 151,317
<TOTAL-LIABILITY-AND-EQUITY> 173,180
<SALES> 1,238
<TOTAL-REVENUES> 2,382
<CGS> 339
<TOTAL-COSTS> 11,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> (7,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,074)
<EPS-PRIMARY> (.36)<F1>
<EPS-DILUTED> (.36)<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>
