<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 SEPTEMBER 30, 1998
------------------
COMMISSION FILE NUMBER 0-23736
-------
GUILFORD PHARMACEUTICALS INC.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
DELAWARE 52-1841960
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6611 TRIBUTARY STREET, BALTIMORE, MARYLAND 21224
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
410-631-6300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 10, 1998
<S> <C>
Common Stock, $.01 par value 19,534,919
- ---------------------------- ----------
</TABLE>
<PAGE> 2
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page (s)
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997..............................3
Consolidated Statements of Operations
Three and nine months ended
September 30, 1998 and 1997...........................................4
Consolidated Statements of Stockholders' Equity
Nine months ended September 30, 1998..................................5
Consolidated Statements of Cash Flows
Three and nine months ended
September 30, 1998 and 1997...........................................6
Notes to Consolidated Financial Statements............................7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................11-23
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...........................................................23
PART II. OTHER INFORMATION..............................................................24-25
SIGNATURES.....................................................................26
</TABLE>
2
<PAGE> 3
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(UNAUDITED) DECEMBER 31, 1997
----------------------------- --------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,965 $ 24,980
Investments 114,149 123,120
Investments - restricted 12,723 12,119
Accounts receivable 1,266 606
Inventories 1,606 1,342
Other current assets 761 494
----------------------------- -------------------------------
Total current assets 140,470 162,661
Property and equipment, net 21,105 17,153
Other assets 267 267
----------------------------- -------------------------------
$ 161,842 $ 180,081
============================= ===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,199 $ 2,743
Current portion of long-term debt 2,159 2,159
Accrued payroll related costs 2,132 2,000
Accrued contracted services 2,849 1,527
Accrued licensing and royalty payments 2,183 531
Accrued expenses and other current liabilities 1,046 776
Deferred income 1,125 1,125
----------------------------- -------------------------------
Total current liabilities 12,693 10,861
Long-term liabilities:
Long-term debt, net of current portion 9,306 10,926
----------------------------- -------------------------------
Total liabilities 21,999 21,787
----------------------------- -------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share
Authorized 4,700,000 shares, none issued - -
Series A junior participating preferred stock,
par value $.01 per share. Authorized 300,000
shares, none issued - -
Common stock, par value $.01 per share.
Authorized 75,000,000 shares
19,496,201 and 19,387,946 issued and
outstanding at September 30, 1998
and December 31, 1997, respectively 195 194
Additional paid-in capital 186,421 185,205
Accumulated deficit (47,379) (26,311)
Accumulated other comprehensive income 1,946 426
Notes receivable on common stock (60) (60)
Treasury stock, at cost (924) (878)
Deferred compensation (356) (282)
----------------------------- -------------------------------
Total stockholders' equity 139,843 158,294
----------------------------- -------------------------------
$ 161,842 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenues $ 1,000 $ 15,000 $ 1,000 $ 15,000
Product sales 920 1,055 2,575 4,880
License fees and royalties 717 496 2,027 1,152
Revenues under collaborative agreements 1,194 97 3,521 266
----------------- ----------------- ----------------- -----------------
Total revenues 3,831 16,648 9,123 21,298
Costs and Expenses:
Cost of sales 423 538 1,267 2,060
Research and development 9,479 9,469 27,444 23,080
General and administrative 2,675 2,152 7,724 5,779
----------------- ----------------- ----------------- -----------------
Total costs and expenses 12,577 12,159 36,435 30,919
----------------- ----------------- ----------------- -----------------
Operating income (loss) (8,746) 4,489 (27,312) (9,621)
Other income (expense):
Investment and other income 2,028 2,067 6,832 4,963
Interest expense (189) (215) (588) (615)
----------------- ----------------- ----------------- -----------------
Net income (loss) $ (6,907) $ 6,341 $ (21,068) $ (5,273)
================= ================= ================= =================
Basic earnings (loss) per common share: $ (0.35) $ 0.34 $ (1.08) $ (0.31)
================= ================= ================= =================
Average common shares outstanding 19,481 18,644 19,453 16,961
================= ================= ================= =================
Diluted earnings (loss) per common share: $ (0.35) $ 0.32 $ (1.08) $ (0.31)
================= ================= ================= =================
Average common and dilutive
equivalent shares outstanding 19,481 20,052 19,453 16,961
================= ================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------- ADDITIONAL
NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT CAPITAL DEFICIT
--------- ------ ------- -------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 19,387,946 $ 194 $ 185,205 $ (26,311)
Issuances of common stock 108,255 1 886
Purchase of 2,077 shares of common stock
Stock option compensation 330
Amortization of deferred compensation
Net loss for the period (21,068)
Unrealized gain on available-for-sale securities
--------------- ------------ --------------- ----------------
BALANCE, SEPTEMBER 30, 1998 19,496,201 $ 195 $ 186,421 $ (47,379)
=============== ============ =============== ================
<CAPTION>
ACCUMULATED NOTES
OTHER RECEIVABLE
COMPREHENSIVE ON COMMON TREASURY DEFERRED
INCOME * STOCK STOCK, AT COST COMPENSATION
------ ----- -------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 426 $ (60) $ (878) $ (282)
Issuances of common stock (151)
Purchase of 2,077 shares of common stock (46)
Stock option compensation
Amortization of deferred compensation 77
Net loss for the period
Unrealized gain on available-for-sale securities 1,520
------------------- -------------- ------------------ --------------
BALANCE, SEPTEMBER 30, 1998 $ 1,946 $ (60) $ (924) $ (356)
=================== ============== ================== ==============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------
<S> <C>
BALANCE, DECEMBER 31, 1997 $ 158,294
Issuances of common stock 736
Purchase of 2,077 shares of common stock (46)
Stock option compensation 330
Amortization of deferred compensation 77
Net loss for the period (21,068)
Unrealized gain on available-for-sale securities 1,520
----------------
BALANCE, SEPTEMBER 30, 1998 $ 139,843
================
</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 SEPTEMBER 30,
1998 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (6,907) $ 6,341
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 830 874
Noncash compensation expense 140 132
Gain on sale of assets 20 -
Changes in assets and liabilities:
Accounts receivable, other current assets, and other assets 155 (19,578)
Inventory (148) 176
Accounts payable and other current liabilities (1,392) 1,577
-------------- -------------
Net cash used in operating activities (7,302) (10,478)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in purchases of property and equipment, net (633) (897)
Sale and maturities of marketable securities 31,455 26,137
Purchases of marketable securities (19,675) (49,354)
Restricted investments (1,118) 205
-------------- -------------
Net cash provided by (used in) investing activities 10,029 (23,909)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock 393 20,849
Purchase of treasury stock - (151)
Proceeds from bond and term loan issuances - 620
Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option - -
Payment of notes receivable on common stock - 39
Principal payments on bond and term loan payable (540) (236)
-------------- -------------
Net cash provided by (used in) financing activities (147) 21,121
-------------- -------------
Net increase (decrease) in cash and cash equivalents 2,580 (13,266)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 7,385 20,985
-------------- -------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 9,965 $ 7,719
============== =============
Supplemental disclosures of cash flow information:
Net interest paid $ 181 $ 215
Income taxes paid $ - $ -
Unrealized gain on available-for-sale securities $ 1,032 $ 226
Collateral transferred from unrestricted to restricted investments, net $ 172 $ 800
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (21,068) $ (5,273)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 2,578 2,073
Noncash compensation expense 407 1,072
Gain on sale of assets 26 -
Changes in assets and liabilities:
Accounts receivable, other current assets, and other assets (928) (20,701)
Inventory (264) 280
Accounts payable and other current liabilities 1,831 275
-------------- -------------
Net cash used in operating activities (17,418) (22,274)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in purchases of property and equipment, net (6,358) (3,680)
Sale and maturities of marketable securities 75,573 61,192
Purchases of marketable securities (65,429) (137,595)
Restricted investments (604) 556
Net cash provided by (used in) investing activities 3,182 (79,527)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock 887 92,067
Purchase of treasury stock (46) (878)
Proceeds from bond and term loan issuances - 1,710
Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option - 698
Payment of notes receivable on common stock - 69
Principal payments on bond and term loan payable (1,620) (706)
-------------- -------------
Net cash provided by (used in) financing activities (779) 92,960
-------------- -------------
Net increase (decrease) in cash and cash equivalents (15,015) (8,841)
-------------- -------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 24,980 16,560
-------------- -------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 9,965 $ 7,719
============== =============
Supplemental disclosures of cash flow information:
Net interest paid $ 594 $ 609
Income taxes paid $ - $ 179
Unrealized gain on available-for-sale securities $ 1,520 $ 375
Collateral transferred from unrestricted to restricted investments, net $ (429) $ 1,656
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1997.
In the opinion of the Company's management, any adjustments contained in the
accompanying unaudited consolidated financial statements are of a normal
recurring nature, necessary to present fairly its financial position, results of
operations, changes in stockholders' equity and cash flows for the respective
periods as set forth in the Index to Financial Information. Interim results are
not necessarily indicative of results for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Guilford
Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the
"Company") and subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
3. ACCOUNTING POLICIES
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share ("EPS") is computed by dividing earnings
(loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is computed by increasing the
weighted-average number of shares outstanding for the period by the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. Potential common shares are excluded if
the effect on earnings (loss) per share is antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which
establishes standards for the reporting and display of comprehensive income and
its components. This Statement also requires that an entity classify items of
7
<PAGE> 8
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTING POLICIES (CONTINUED)
comprehensive income by their nature and display the accumulated balance of
other comprehensive income separately from accumulated earnings and additional
paid-in capital, as shown in the Company's Consolidated Statement of
Stockholders' Equity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. It also requires that gains or losses resulting from changes in the
values of those derivatives be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company is
required to adopt SFAS 133 for its fiscal year beginning January 1, 2000. The
Company is currently evaluating the impact of SFAS 133, and believes that the
adoption of SFAS 133 will not have a material impact on its consolidated
financial position and results of operations.
FINANCIAL INSTRUMENTS
The Company is sensitive to changes in the general level of U.S.
interest rates. In this regard, the Company has entered into interest rate swap
agreements to reduce the impact of changes in interest rates on its floating
rate long-term debt. At September 30, 1998, the Company had outstanding one
interest rate swap agreement with First Union National Bank ("First Union") for
a total principal amount of $10 million. This agreement effectively changes the
Company's interest rate exposure on its $10 million floating rate notes to a
fixed 6.125%. This interest rate swap agreement matures at the time the related
notes mature. The differential is accrued as interest rates change and is
recorded as either an increase or decrease in interest expense. In addition, the
Company entered two additional interest rate swap agreements on October 19, 1998
with First Union on current debt of $1.2 million and $8.8 in future financial
obligations related to a real estate development agreement and operating lease
(see Note 6 to Notes to Consolidated Financial Statements). These agreements
change the Company's floating interest rate exposure to a fixed 5.66% and 5.69%,
respectively. No additional cash requirements or related costs are necessary
with respect to these agreements and management believes that any losses related
to this credit risk, which could occur in the event of First Union's
nonperformance under the interest rate swap agreements, are remote.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform with the current period's
presentation.
8
<PAGE> 9
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories at consist of the following:
<TABLE>
<CAPTION>
September 30, 1998
(Unaudited) December 31, 1997
------------------- ---------------
(in thousands)
<S> <C> <C>
Raw materials $ 305 $ 386
Work in process 416 497
Finished goods 885 459
------ ------
$1,606 $ 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 and $3.375 million for the three and
nine months ended September 30, 1998, related to certain research support
funding provided by Amgen Inc. ("Amgen") under the terms of an agreement (the
"Amgen Agreement") entered into in August 1997. Under the terms of the Amgen
Agreement, Amgen has agreed to provide the Company up to $13.5 million in the
aggregate, payable quarterly over three years beginning on October 1, 1997, to
support research activities relating to the Company's FKBP-based
neuroimmunophilin ligand technology.
Pursuant to the Company's Marketing, Sales and Distribution Rights Agreement
(together with related agreements, the "RPR Agreements") with Rhone-Poulenc
Rorer Pharmaceuticals Inc. ("RPR") and the Company's License and Distribution
Agreement with Orion Corporation Farmos, the Company recognized revenues of $1.6
million ($920,000 in product sales and $717,000 in royalty revenues and license
fees) and $4.6 million ($2.6 million in product sales and $2.0 million in
royalty revenues), respectively, for the three and nine months ended September
30, 1998 relating to sales of GLIADEL(R) Wafer ("GLIADEL"). The Company
recognized revenues of $1.45 million ($1.0 million in product sales and $446,000
in royalty revenues) and $6.0 million ($4.9 million in product sales and $1.1
million in royalty revenues), respectively, for the three and nine months ended
September 30, 1997 relating to sales of GLIADEL. GLIADEL was commercially
launched in the United States in February 1997.
9
<PAGE> 10
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REVENUES (CONTINUED)
In September 1998, the Company amended the RPR Agreements by agreeing to
share the costs of a Phase III clinical trial for first surgery indication of
GLIADEL and splitting of the previously agreed international regulatory
milestones between first and recurrent surgery for market clearances of GLIADEL
in France, Germany, Italy, Spain, United Kingdom and Australia. The amendment
also gave certain rights to GLIADEL and other new polymer products back to the
Company.
6. REAL ESTATE DEVELOPMENT AGREEMENT
In February 1998, the Company entered into a real estate development
agreement and an operating lease agreement in connection with the construction
of a new research and development facility. The facility, which is expected to
be approximately 72,500 square feet, will be adjacent to the Company's
headquarters in Baltimore and construction costs are estimated not to exceed $20
million in the aggregate. The lease term is for a maximum term of 84 months,
which includes a construction period termination date ("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. The lease expires in February 2005
and the Company anticipates that the lease payments for this facility will not
exceed $1.5 million annually. 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 requires that the Company
maintain cash, cash equivalents and investments in the aggregate equal to $40
million. As of September 30, 1998, the Company had established cash collateral
of approximately $4.1 million related to this transaction. This cash collateral
is included in "Investments - restricted" in the accompanying 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 for computer and equipment financing. The Company's
ability to draw on these Master Lease Agreements expires on December 31, 1999.
The term of each operating lease may range from 24 to 48 months based upon the
type of equipment being financed. As of September 30, 1998, the Company had
leased an aggregate of $2.6 million in computer and other equipment under these
agreements. Additionally, the Company has remaining operating lease commitments
aggregating approximately $4.8 million, excluding future rental obligations
under the real estate development agreement and operating lease in Note 6.
10
<PAGE> 11
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Any statements made by Guilford Pharmaceuticals Inc. (together with its
subsidiaries, "Guilford" or the "Company") in this quarterly report that are
forward-looking are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements
contained in this quarterly report, may include, but are not limited to, those
concerning (i) application for international regulatory clearances and labeling
expansion for GLIADEL, (ii) polymer product line extensions, (iii) the conduct
and completion of the research programs relating to the Company's FKBP-based
neuroimmunophilin ligand technology ("FKBP Neuroimmunophilin Technology") and
other technologies, (iv) clinical development activities, including without
limitation commencement and conduct of clinical trials related to the Company's
polymer based drug delivery candidates, including GLIADEL, and its
pharmaceutical candidates including DOPASCAN(R), drug candidates falling under
the FKBP Neuroimmunophilin Technology, NAALADase inhibitors and PARP
inhibitors, (v) the Company's strategic plans, (vi) anticipated expenditures
and the need for additional funds, and (vii) the Company's plans to address and
implement solutions, if necessary, to the Year 2000 issue discussed below, 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 and Japan) 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
collaborative agreements relating to the research, development and/or
commercialization of the Company's technologies.
11
<PAGE> 12
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 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, as of September 30, 1998, an
aggregate of $11.7 million in product sales and royalties. Of this $11.7
million, $8.3 million represent sales of GLIADEL to RPR and to Orion Corporation
Farmos, the Company's marketing partner in Scandinavia, and $3.4 million
represent royalties from RPR sales to third parties. In addition, under the
terms of its agreements with RPR, the Company is eligible to receive up to $35
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, labeling
and acceptable pricing 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 with Amgen (the "Amgen
Agreement") respecting the research, development and commercialization of the
Company's 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 provided 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. 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
12
<PAGE> 13
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
relating to the development and commercialization of the FKBP Neuroimmunophilin
Technology. As noted below and in the 1997 Form 10-K, there can be no assurance
Amgen will be able to successfully develop any FKBP-based neuroimmunophilin
compound or that such compounds will be approved as safe and effective drugs for
neurological or other uses and that Guilford will earn any of the milestone
payments related to such development activities.
In addition to revenues related to GLIADEL, the Company's only other
significant revenues recognized in fiscal year 1998 through September 30, 1998
consist of approximately $3.375 million in research payments made by Amgen and a
one-time $1.0 million non-refundable milestone payment from Amgen following
initiation of a one-month Good Laboratory Practices ("GLP") toxicology study of
Amgen's lead FKBP-based neuroimmunophilin compound, NIL-A, which is being
developed initially for the treatment of Parkinson's disease. As noted above,
the Company anticipates recognizing an additional $1.125 million in revenue from
Amgen in the fourth quarter 1998 to support certain research activities related
to the FKBP Neuroimmunophilin Technology. In the future, the Company may be
entitled to certain other non-refundable, milestone payments in the event
certain development and/or regulatory milestones are achieved by Amgen and to
royalties on future product sales, if any. As noted below and in the 1997 Form
10-K, whether the Company will ever recognize future revenues in the form of
milestone payments and royalties under the Amgen Agreement is subject to
significant risk and uncertainty, and there can be no assurance that the Company
will recognize significant revenues, if any, from these sources in the future.
The Company has incurred net operating losses in each fiscal year since its
inception in July 1993, with the exception of fiscal 1996 for which the Company
recorded net earnings of $5.1 million, primarily due to two one-time rights
payments from RPR in the aggregate amount of $27.5 million related to (i) the
signing of the Company's agreements with RPR for the sales, marketing and
distribution of GLIADEL and (ii) approval from the U.S. Food & Drug
Administration ("FDA") of the New Drug Application for GLIADEL in September
1996. For the three and nine months ended September 30, 1998, the Company
incurred net operating losses of $6.9 million and $21.1 million, respectively,
and through September 30, 1998, the Company had an accumulated deficit of $47.4
million.
The Company does not anticipate that 1998 will be profitable, and there can
be no assurance that the Company will ever achieve or sustain profitability in
the future. Furthermore, the Company expects to experience quarter-to-quarter
and year-to-year fluctuations in its operating results based upon the timing and
amount of sales of GLIADEL, the timing and realization of milestone and other
payments under the Company's agreements with RPR and Amgen and other existing
and potential collaborations, expenditures relating to the Company's research
and development, clinical and manufacturing activities, and the extent and
timing of costs related to the Company's patenting activities and other
activities undertaken in connection with the extension, enforcement and /or
defense of the Company's intellectual property rights.
13
<PAGE> 14
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 September 30, 1998 the
Company had 222 full-time employees compared to 187 full-time employees at
September 30, 1997. The Company's ability to achieve consistent profitability in
the future will depend, among other things, upon future sales of GLIADEL as well
as the Company's ability, either alone or with others, to develop its product
candidates successfully including any product candidates identified pursuant to
activities under the collaboration with Amgen, conduct clinical trials, obtain
required regulatory approvals, manufacture at reasonable cost and successfully
market its product candidates and enter into collaborative arrangements and
license agreements on acceptable terms. For discussion of these and other risks,
see the "Risk Factors" section of the 1997 Form 10-K, particularly those
paragraphs specifically addressing the aforementioned risks.
Future sales of GLIADEL are subject to certain risks, including the
following. The Company's agreements with RPR do not impose any minimum purchase
requirements on the part of RPR, and there can be no assurance that RPR will be
successful in marketing and selling GLIADEL. Furthermore, GLIADEL represents a
novel approach to the treatment of brain cancer, and there can be no assurance
of broad acceptance by the medical or patient communities. The Company currently
relies on a single supplier for BCNU, the chemotherapeutic agent used in
GLIADEL, and while the Company expects to qualify other suppliers in the future,
there can be no assurance that the Company's efforts in this regard will be
successful. Further, the Company currently depends on its own single
manufacturing facility to produce GLIADEL, and while the Company has completed
construction of a second manufacturing facility, both are located in the same
building at the Company's headquarters in Baltimore, Maryland. Inability to
secure timely, sufficient, or current Good Manufacturing Practice (cGMP) quality
supply of BCNU, unforeseen plant shutdowns due to personnel, plant or equipment
problems (including any related to the Year 2000 issue), or natural disasters,
risks associated with regulatory compliance (including the need to manufacture
GLIADEL in accordance with the FDA's cGMP regulations), uncertainties regarding
the receipt and timing of international regulatory clearances for GLIADEL, the
potential inability to meet future product demand, and 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 indications. 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 preclinical 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 extension, enforcement and/or defense of
patent and other intellectual property rights.
14
<PAGE> 15
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
For discussion of these and other risks, see the "Risk Factors" section of the
1997 Form 10-K, particularly those paragraphs specifically addressing the
aforementioned risks.
RESULTS OF OPERATIONS
Comparison of the Three and Nine Month Periods Ended September 30, 1998 and 1997
The Company recognized $3.8 million and $9.1 million in revenues for the
three and nine months ended September 30, 1998, respectively, consisting
primarily of revenues from product sales and royalties relating to GLIADEL and
$1.125 million in quarterly research funding and a one-time $1.0 million
non-refundable milestone payment from Amgen made pursuant to the Amgen
Agreement. For the same periods in 1997 the Company recognized $16.6 million and
$21.3 million in revenues, respectively, consisting primarily of the one-time,
non-refundable signing fee of $15 million from Amgen under the Amgen Agreement
and revenues from product sales and royalties relating to GLIADEL.
Revenues related to the sale and distribution of GLIADEL consist primarily
of transfer payments (sales directly to the Company's marketing and
distribution partners) and royalties based on RPR's end-user sales. Transfer
payments for the three and nine months ended September 30, 1998 were $920,000
and $2.6 million, respectively. Transfer payments for the same periods in 1997
were $1.1 million and $4.9 million, respectively. Sales of GLIADEL to RPR for
the three and nine months ended September 30, 1997 include sales made in the
first half of 1997 which reflect RPR's initial build-up of inventory to support
commercial launch of the product in 1997. The reduction in the level of
transfer payments from RPR in the 1998 periods as compared to the three and
nine months ended September 30, 1997 reflects stabilization of RPR's current
inventory requirements for GLIADEL. Net royalty revenue with respect to GLIADEL
sales increased 45% and 58%, respectively, to $717,000 and $1.9 million for the
three and nine months ended September 30, 1998 as compared to $496,000 and $1.2
million for the same periods in 1997. The increase in royalties paid in the
latter periods reflects increased end-user sales by RPR during the three and
nine months ended September 30, 1998 as awareness about GLIADEL has increased
among neurosurgeons and as neurosurgeons have gained greater familiarity with
the product.
In addition the increase for the nine-month period ended September 30, 1998
also reflects, in part, the fact that GLIADEL sales commenced in late February
1997, and thus were made only during part of the nine months ended September 30,
1997 and a consistent increase in RPR's sales to third parties in consecutive
quarters since product launch. 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 and nine months ended September 30, 1998 were
$423,000 and $1.3 million, respectively, compared to $538,000 and $2.1 million,
respectively, for the same periods in 1997. Included in these amounts are
approximately $32,000 and $100,000, respectively, for the 1998 periods and
approximately $43,000 and $214,000, respectively, for the 1997 periods,
representing royalty payments made to a third party from which the Company has
licensed certain technologies related to GLIADEL. The reduction in the cost of
sales for the 1998
15
<PAGE> 16
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
periods compared to the 1997 periods primarily reflects a reduction in the
number of units sold to RPR during the 1998 periods. To the extent GLIADEL
production levels increase in future periods, the Company expects that per unit
product costs may decrease as greater economies of scale are achieved. There can
be no assurance, however, that GLIADEL product sales will ever reach levels
necessary for the Company to realize significant costs savings related to
manufacturing economies of scale.
Research and development expenses were $9.5 million and $27.4 million,
respectively, for the three and nine months ended September 30, 1998 as compared
to $9.5 million and $23.1 million for the same periods in 1997. While research
and development expenses remained constant for the three month periods ended
September 30, 1998 and 1997, research and development expenses for the third
quarter 1997 included an amount payable to a third-party licensor of certain
technology as a result of the one-time $15 million signing fee from Amgen
recognized in that same quarter. The increase in these costs for the nine months
ended September 30, 1998 as compared to the same period in 1997 was primarily
attributable to expenses related to increased personnel costs, contract
services, and research supply costs, including license fees payable to a third
party licensor of certain technology. At September 30, 1998, 189 individuals
were employed on a full-time basis in the areas of research, development and
manufacturing as compared to 158 individuals at September 30, 1997. In the first
nine months of 1998, the Company continued to increase its research and
development efforts, particularly with respect to the Company's NAALADase
inhibitor and PARP inhibitor neuroprotectant programs, its FKBP
neuroimmunophilin ligand program, and its polymer development program, continued
to fund development activities at a potential third-party manufacturer of
clinical supply of DOPASCAN(R)Injection, continued with Phase I clinical trials
for a high dose formulation of GLIADEL and provided financial support for RPR's
Phase III clinical trial program in support of a first surgery indication for
GLIADEL. In addition, in the three and nine months ended September 30, 1998,
research and development expenses included charges relating to certain
consulting agreements entered into in April 1996, consisting of non-cash
compensation expense of $110,000 and $330,000, respectively, and cash
compensation expense of $68,000 and $208,000, respectively. For the three and
nine month periods ended September 30, 1997, the Company recorded non-cash
compensation expense related to these agreements of $93,000 and $858,000,
respectively, and cash compensation expense of $62,500 and $181,000,
respectively. These agreements are intended to enhance the Company's ability to
develop new polymer technologies and products for the delivery of
chemotherapeutics in indications where local tumor recurrence is likely and
controlled release may be more effective than current therapies. The Company
expects it will be required to record varying amounts of non-cash compensation
charges in research and development expenses quarterly through 2001 relating to
these agreements of up to an aggregate of an additional $860,000. The Company
anticipates that its research and development expenses will continue to increase
in future periods.
General and administrative expenses were $2.7 million and $7.7 million,
respectively, for the three and nine months ended September 30, 1998 as compared
to $2.2 million and $5.8 million, respectively, for the same periods in 1997.
The increase in general and administrative expenses of approximately $523,000
and $1.9 million, respectively, for the three and nine months ended September
30, 1998, compared to the same periods in 1997 was primarily attributable to
higher costs related to the preparation, filing and prosecution of domestic and
international patent applications and
16
<PAGE> 17
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
to a lesser degree higher personnel costs related to an increase in the number
of employees necessary to support the Company's research and development and
commercialization activities. Additionally, indirect personnel costs, including
recruiting and relocation costs, have increased as the total number of such
employees has increased. At September 30, 1998, 33 individuals were employed on
a full-time basis in general and administrative areas as compared to 29
individuals at September 30, 1997. The Company anticipates that its general and
administrative expenses, particularly those related to patenting and other
activities related to extension, enforcement and/or defense 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 was $2.0 million and $6.8 million, respectively, for
the three and nine months ended September 30, 1998 compared to $2.1 million and
$5.0 million, respectively, for the same periods in 1997. The increase for the
nine-month period ended September 30, 1998 was primarily attributable to an
increase in the average invested capital over that period 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. The decrease in investment and other income for the
three months ended September 30, 1998 as compared to the same period in 1997
resulted from a decrease in the amount of average invested capital during the
latter period as a result of the Company's use of cash to meet operating
expenses and to fund capital expenditures.
For the three and nine months ended September 30, 1998, the Company incurred
interest expense of $189,000 and $588,000 relating to borrowings under its
financing arrangements with First Union National Bank (formerly Signet Bank,
hereinafter referred to as "First Union") providing for the construction of
manufacturing, administrative and research and development facilities and the
purchase of related furniture and equipment. Interest expense was $215,000 and
$615,000, respectively, for the three and nine months ended September 30, 1997.
The decrease in interest expense for the three and nine month periods ended
September 30, 1998 as compared to the same periods in 1997 was primarily due to
a lower average outstanding principal balance under the Company's borrowings
from First Union during the latter periods as a result of the Company's
continued repayment of that indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments were approximately
$136.8 million at September 30, 1998. Of this amount, $12.7 million was pledged
as collateral with respect to certain of the Company's indebtedness and other
financial obligations and is recorded as "investments - restricted" on the
accompanying consolidated balance sheet. The increase of $604,000 in the amount
of restricted investments at September 30, 1998 as compared to December 31,
1997 resulted from an increase in cash collateral related to the Company's
design and construction of a new research and development facility (see
discussion below), which increase was partially offset by the release of cash
collateral as a result of an increase in certain loan guarantees from the State
of Maryland effective in June 1998 and the Company's continued repayment of
principal amounts under its indebtedness to First Union.
17
<PAGE> 18
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
In September 1998, the Company announced a share repurchase program for up
to one million shares of its common stock. As of September 30, 1998, the Company
had not repurchased any shares of its common stock under this share repurchase
program.
Long term debt decreased to $11.5 million at September 30, 1998 compared to
$13.1 million at December 31, 1997, primarily as a result of the Company's
continued repayment of principal under its outstanding bond-financed
construction loan and related term loan with First Union.
The Company incurred net capital expenditures of $633,000 for the three
months ended September 30, 1998, compared to net capital expenditures of
$897,000 for the three months ended September 30, 1997. The capital expenditures
made in the 1998 and 1997 periods were primarily related to the construction of
the Company's expansion of its manufacturing plant and research laboratories as
well as for the purchase of research and development equipment.
In March 1998, the Company entered into master equipment lease arrangements
for up to an aggregate of $10.8 million, pursuant to which the Company expects
to lease additional equipment, including computer hardware and software,
furniture and fixtures. Depending on the type of equipment covered and certain
other factors, the term of any lease entered into under these arrangements can
range from two to four years. At September 30, 1998, $8.2 million was available
under these arrangements to lease additional equipment (see Note 7 to Notes to
Consolidated Financial Statements).
Such financing, along with the Company's internal resources as well as
external sources of funds, is expected to provide for the Company's current
equipment needs at least until the end of 1999. To the extent the Company
expands its research and development programs, its capital equipment
requirements may increase and thus require additional capital funding.
In February 1998, in order to meet the Company's anticipated future
facilities needs, the Company entered into an operating lease and related
agreements with a trust affiliated with First Union for an approximately 72,500
square foot facility. This new facility is being 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 $1.5 million annually. At the expiration of the lease
term, the Company may either purchase the property for an amount equal to any
and all unamortized acquisition and construction costs as well as accrued but
unpaid interest and similar costs incurred by the trust as part of its
acquisition and construction activities related to the property (the
"Termination Amount"), or the Company may sell the property on behalf of the
trust, which is then obligated to apply the proceeds from such sale against
repayment of the Termination Amount. If such sale proceeds are insufficient to
cover the entire Termination Amount, the Company is then obligated to repay any
such shortfall, subject to a total cap on such payments by the
18
<PAGE> 19
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Company of an aggregate amount equal to 83% of the Termination Amount. In
addition, the Company may, with the consent of First Union, enter into a new
lease arrangement (see Note 6 to Notes to Consolidated Financial Statements).
The Company has available up to $7.5 million under a loan agreement with RPR
respecting expansion of the Company's GLIADEL and polymer manufacturing
capacity. As of January 2, 1997, $4.0 million was available under the loan
agreement; the remainder is available no earlier than 12 months nor later than
18 months following funding of the initial portion. 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 September 30, 1998. The Company has not yet determined whether to draw
on the capital available under its loan agreement with RPR to finance the
expansion of the Company's manufacturing facilities.
During the third quarter 1998, the Company entered into an interest rate
swap transaction with First Union in order to lock in fixed rates with respect
to certain of the Company's floating rate indebtedness (see Note 3 to Notes to
Consolidated Financial Statements). In particular with respect to $10 million in
principal amount of indebtedness related to the Company's bond-financed
construction loan and term loan with First Union, the Company was able to attain
fixed interest rates of 6.125% for the remaining terms of these loans which are
due December 2004 and April 2003, respectively, as compared to the previous
floating rates of LIBOR plus 75 basis points (6.1875% at September 30, 1998) and
LIBOR plus 62.5 basis points (6.0625% at September 30, 1998), respectively. In
October 1998, the Company entered into two additional interest rate swaps
related to the Company's remaining bond-financed construction and term loan
principal balances of $1.2 million and $8.8 million related to the Company's
future financial obligations under its lease for the new research and
development facility discussed above. The Company was able to attain fixed
interest rates of 5.66% and 5.69%, respectively.
The Company will require substantial funds in order to continue its research
and development programs and preclinical and clinical testing, to manufacture
and, where applicable, market its products and to meet its future facilities
needs. The Company's capital requirements depend on numerous factors, including
the progress of its research and development programs, the progress of
preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing
research relationships, the ability of the Company to establish collaborative
arrangements, the development of collaborative and licensing agreements and
other arrangements and the progress of manufacturing scale-up efforts.
The Company's accumulated deficit was $47.4 million at September 30, 1998.
The Company believes that its existing resources 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 the Company's resources before that time.
19
<PAGE> 20
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 are 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.
THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs that rely on
two-digit date codes, instead of four-digit date codes, to indicate the year.
Such computer programs, which are unable to interpret the date code "00" as the
year 2000, may not be able to perform computations and decision-making functions
and could cause computer systems or other equipment to malfunction. The Company
has developed a multi-phase program for Year 2000 systems compliance that
consists of the following: (i) assessment of the corporate systems and
operations of the Company that could be affected by the Year 2000 issue, (ii)
remediation of non-compliant systems and components, if any, and (iii) testing
of systems and components following remediation. The Company has focused its
Year 2000 compliance assessment program on four principal areas: (a) the
Company's internal information technology ("IT") system applications, including
voice and data systems ("IT Systems"), (b) the Company's internal non-IT
facilities systems, including embedded software in environmental controls,
security systems, fire protection systems, manufacturing hardware and monitoring
controls, and public utility connections for gas, electric and telephone systems
("Facilities Systems"), (c) embedded and external software contained in
laboratory and other equipment ("Equipment"), and (d) Year 2000 compliance by
third parties with which the Company has a material relationship, such as
significant vendors, financial institutions, insurers and corporate partners.
The Company is in the process of conducting an inventory and assessment of
its internal IT Systems, Facilities Systems, and Equipment (collectively,
"internal systems") that it believes could be adversely affected by the Year
2000 issue, and anticipates that such activities will be complete no later than
the end of first quarter 1999. Thereafter, prior to the end of the second
quarter 1999, the Company plans to take the following actions: (i) repair or
replace, as necessary, those internal systems that are found not to be Year 2000
compliant, (ii) re-test such internal systems to verify Year 2000 compliance,
and (iii) seek to engage an outside consultant to conduct a Year 2000
compliance review of the Company's critical business systems.
In addition, Company IT personnel have had discussions with vendors of the
Company's enterprise-wide software systems and tested those systems for Year
2000 compliance, and based on these activities, Company management believes that
such systems are Year 2000 compliant. The Company has been, and will continue to
be, in contact with such vendors in order to obtain any additional revisions or
upgrades issued by the vendors to ensure
20
<PAGE> 21
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
that such enterprise-wide software remains Year 2000 compliant.
The Company is also examining the Year 2000 readiness of third parties with
which the Company has a material relationship, including (i) certain suppliers
of manufacturing and laboratory equipment and supplies, (ii) financial
institutions with which the Company has significant banking and investment
management relationships, (iii) major insurance providers (iv) and its corporate
partners, RPR and Amgen (collectively, "major third parties"). The Company
considers these third parties, either collectively or potentially individually,
to pose the greatest Year 2000 risk to the Company because their failure to
become Year 2000 compliant could (a) result in the Company's inability to obtain
equipment and supplies in a timely manner, (b) result in the inability to access
the Company's financial capital and timely and accurate information about the
Company's financial assets and materially disrupt the Company's financial
transactions, and (c) interfere with the efforts of the Company's corporate
partners to continue their research, development and/or commercialization
activities with respect to GLIADEL and/or the FKBP Neuroimmunophilin
Technology.
The Company is in the process of requesting information from its major third
parties with respect to Year 2000 compliance status. The Company currently
expects to have mailed out Year 2000 compliance inquiry letters to its major
third parties no later than the end of the fourth quarter 1998 and is asking for
responses prior to the end of the first quarter 1999. Other than making
inquiries of these third parties and assessing their responses regarding Year
2000 compliance, the Company is not in a position, however, to verify
independently the Year 2000 compliance status of such third parties and in most
cases has limited or no ability to directly influence the Year 2000 compliance
activities of these major third parties. Failure of any or all of these third
parties to achieve substantial Year 2000 compliance could have a material
adverse effect on the Company's business, financial condition and results of
operations.
For the three and nine months ended September 30, 1998, the costs incurred
by the Company related to its Year 2000 compliance assessment and remediation
efforts have not been material. While the Company historically has not tracked
such costs, management estimates that the Company's internal costs related to
Year 2000 compliance have not exceeded $40,000 and $75,000 for the three and
nine months ended September 30, 1998, respectively. The Company has incurred no
external costs during 1998 related the Year 2000 issue. Based on information
currently available to the Company's management, the Company does not believe
that the future costs associated with bringing its internal systems into Year
2000 compliance and developing a Year 2000 compliance plan will be material and
should not exceed $200,000 in the aggregate. However, as noted above, with
respect to most of its internal systems the Company is still in the initial
phase of its Year 2000 compliance assessment and remediation activities, and
depending on the actual outcome of its initial Year 2000 compliance testing
activities, the amount required may be significantly greater than management's
current estimates. Furthermore, it is uncertain at this time whether the costs
associated with the Company's efforts to assess and remediate any Year 2000
compliance concerns regarding major third parties will have a material
financial effect on the Company's business, financial condition and results of
operations. Moreover, as noted above, with most major third parties, the
Company will have little or no direct ability to influence the Year 2000
compliance efforts of its major third parties.
21
<PAGE> 22
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Depending on the responses it receives from suppliers, the Company will make
a determination, on a case by case basis, as to whether it will seek out
alternative suppliers. Nevertheless, in the event the Company determines to seek
out an alternative supplier in the future because of that supplier's inability
to assure the Company of its Year 2000 compliance, there can be no assurance
that the Company will be able to find an adequate alternative supplier who will
be able to supply the pertinent goods or services at a reasonable cost on a
timely basis, or at all. Moreover, in certain cases, a vendor may represent the
sole supplier for certain goods or services, such as is the case currently, for
example, with the Company's supply of BCNU, the chemotherapeutic agent used in
GLIADEL, and thus the Company may not have recourse to alternative suppliers in
the event that supply of goods and services from such a sole source vendor is
disrupted because of a Year 2000 issue.
The Company, in consultation with an outside consulting firm, is in the
process of putting together a comprehensive disaster recovery plan, which will
include, among others, provisions addressing the Year 2000 issue, and the
Company currently anticipates putting such a plan into place no later than the
end of the second quarter 1999. The Company does not anticipate that the
external costs associated with putting such a plan in place will exceed $75,000
in the aggregate. Furthermore, the Company currently makes complete back-up
copies of all of the data generated on its IT System on a weekly basis, and
backs-up changes to such data on a daily basis, which Company management
believes should limit the amount of such IT System data that would be lost in
the event of an IT Systems failure as a result of a Year 2000 issue. In
addition, many of the Company's internal facilities systems, including its
environmental controls, security systems, and fire protection systems have
manual override functions that allow for continued operation in the event the
software operating these systems malfunctions.
Due to the nature of the Company's business, in the event (i) the Company
were to fail to successfully implement its Year 2000 compliance program with
respect to its internal systems in a timely manner or (ii) the Year 2000
compliance provisions of its disaster recovery plan were to prove inadequate,
the Company believes that while such events would be disruptive to the Company's
operations in the short term, such circumstances would not have a material
adverse effect on the business, financial condition and results of operations of
the Company over the long term. However, failure of the major third parties, in
particular the financial institutions with which the Company has significant
banking and investment management relationships and the Company's corporate
partners, to be Year 2000 compliant could have a material adverse effect on the
Company's business, financial condition and results of operations.
The costs of the Company's Year 2000 compliance program and disaster
recovery plan and the expected dates for implementing the initiatives are based
on management's current best estimates, which were derived using numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no assurance that actual
costs will not exceed management's expectations or that the business, financial
condition or results of operations of the Company will not be substantially
adversely affected as a result of the Year 2000 issue. Specific factors that
might cause such material differences include, but are not limited to, the
ability to locate and correct all relevant computer codes, including software
imbedded in items of equipment related to environmental controls and
manufacturing and laboratory equipment, the ability of the major
22
<PAGE> 23
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
third parties to identify and resolve their own Year 2000 issues, and the
availability and cost of personnel trained in the area of Year 2000 compliance.
Furthermore, the Company's current cost estimates do not include costs that may
be incurred as a result of the failure of major third parties, including Amgen
and RPR, to become Year 2000 compliant on a timely basis.
Finally, the ability of the Company to continue to manufacture GLIADEL,
continue its research and development programs, and function as a viable
business enterprise is dependent upon the continued availability of various
basic infrastructure systems, including electric power, telecommunications and
transportation systems. There can be no assurance at this time that these
infrastructure systems will not experience disruptions caused by Year 2000
issues. If such disruptions were to occur in the Baltimore metropolitan region
where the Company's manufacturing facilities and research and development
laboratories are located and/or the East Coast of the United States, there can
be no assurance that such disruptions will not have a material adverse effect on
the Company's business, financial condition, results of operations, or business
prospects.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
23
<PAGE> 24
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes In Securities and Use of Proceeds:
None
Item 3. Defaults in Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
A. Exhibits
Exhibit No. Description
- ----------- -----------
3.04 Amendment to Form of Stock Option Agreement
3.05 Amendment to Form of Restricted Share Agreement
4.03 Form of First Amendment to Rights Agreement (incorporated by
reference to the Company's Current Report on Form 8-K, filed
with the SEC on October 20, 1998)
10.65 Form of Change in Control Severance Agreement
10.66 Severance Provisions from the Employment Letter Agreement,
effective September 21 1998 between the Company and Nancy
Linck, Esq.
11.4 Statement Re: Computation of Earnings (Loss) Per Share
24
<PAGE> 25
27.4 Financial Data Schedule
B. Reports on Form 8-K:
On September 2, 1998, the Company filed a Current Report on Form 8-K, the
purpose of which was to describe the material terms of a stock repurchase
program authorized by a committee of the Company's Board of Directors to
repurchase up to one million shares of the Company's common stock and to file as
an exhibit the press release announcing the repurchase program.
On October 2, 1998, the Company filed a Current Report on Form 8-K, the
purpose of which was to summarize the material terms of amendments to certain of
the Company's agreements with RPR and to file those amendments as exhibits.
On October 20, 1998, the Company filed a Current Report on Form 8-K, the
purpose of which was to file the form of the First Amendment to the Company's
Shareholder Rights Agreement, dated September 26, 1995.
25
<PAGE> 26
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: November 13, 1998 /s/ Craig R. Smith, M.D.
---------------------------------
Craig R. Smith, M.D.
President and CEO
Date: November 13, 1998 /s/ Andrew R. Jordan
---------------------------------
Andrew R. Jordan
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
26
<PAGE> 1
EXHIBIT 3.04
AMENDMENT TO SHARE OPTION AGREEMENTS UNDER
THE 1993 AND 1998 SHARE OPTION AND RESTRICTED SHARE PLANS, ADOPTED
BY THE BOARD IN AUGUST 1998
I. Pursuant to Section 12.2 of the Guilford Pharmaceuticals Inc. 1993
Share Option and Restricted Share Plan, as amended, and Section 11.2 of the
Guilford Pharmaceuticals Inc. 1998 Share Option and Restricted Share Plan, the
limitations on exercise of all outstanding options granted under these plans are
modified and Section 4.1 of the Optionee's Share Option Agreement is amended to
read as follows:
4.1 VESTING UPON A CHANGE IN CONTROL
Notwithstanding any other provisions of the Plan or this Agreement,
in the event of a "Change in Control" (as defined below), any unvested Options
granted hereunder shall be accelerated and be fully vested as of the date
immediately prior to the effective date of the Change in Control if the Optionee
continues to be employed by the Company as of the date of such accelerated
vesting.
II. Sections 4.2 and 4.3 of each Optionee's Share Option Agreement are
hereby deleted in their entirety and Section 4.4 is hereby denominated Section
4.2, and is amended and restated to read in its entirety as follows:
4.2 DEFINITION OF "CHANGE IN CONTROL".
A "Change in Control" shall be deemed to have occurred if: (a) any
"person" (including, without limitation, any individual, sole proprietorship,
partnership, trust, corporation, association, joint venture, pool, syndicate, or
other entity, whether or not incorporated), or any two or more persons acting as
a syndicate or group or otherwise acting in concert with regard to the ownership
of securities of the Company and thereby deemed collectively to be a "person")
as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), becomes, after the date hereof, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities
(but excluding for purposes of such computation all securities of the Company
beneficially owned by such person as of February 22, 1995), unless, in
transaction in which a "person" becomes, after the date hereof, the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing less than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities,
prior to the acquisition by such person of securities of the Company which
causes such person to have such beneficial ownership, the full Board shall
<PAGE> 2
by at least a two-thirds vote have specifically approved such acquisition and
determined that such acquisition shall not constitute a Change in Control for
purposes of options granted under the Plan despite such beneficial ownership; or
(ii) during any two (2) year period, individuals who at the beginning of such
period constitute the Board, together with any new directors elected or
appointed during the period whose election or appointment resulted from a
vacancy on the Board caused by the retirement, death, or disability of a
director and whose election or appointment was approved by a vote of at least
two-thirds (2/3rds) of the directors then still in office who were directors at
the beginning of the period, cease for any reason to constitute a majority
thereof.
III. Section 6 of each Optionee's Share Option Agreement is hereby amended to
read as follows:
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
Notwithstanding any other provision of this Share Option Agreement or of
any other agreement, contract, or understanding heretofore or hereafter entered
into by the Optionee and the Company, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 6 (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
the Company for the direct or indirect compensation of the Optionee (including
groups or classes of participants or beneficiaries of which the Optionee is a
member), whether or not such compensation is deferred, is in cash, or is in the
form of a benefit to or for an Optionee (a "Benefit Arrangement"), if the
Optionee is a "disqualified individual," as defined in Section 280G(c) of the
Code, in the event it shall be determined that any right to receive any payment
or other benefit under this Share Option Agreement, taking into account all
other rights, payments, or benefits to or for Optionee under the Plan, all Other
Agreements, and all Benefit Arrangements, would cause any payment or benefit to
an Optionee under this Plan to be considered a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code as then in effect (a "Payment") which
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Optionee with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Optionee
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Optionee of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Optionee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 6(c), all determinations required
to be made under this Section, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by KPMG Peat Marwick
or such other certified public accounting firm as may be designated by the
Optionee (the "Accounting Firm") which shall provide detailed supporting
calculations both
- 2 -
<PAGE> 3
to the Company and the Optionee within 15 business days of the receipt of notice
from the Optionee that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Optionee may appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section, shall be paid by the Company to the
Optionee within five days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the Optionee. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 6(c) and the Optionee thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Optionee.
(c) The Optionee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. The Optionee shall not pay such claim prior to
the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Optionee in writing prior to the expiration of such period that it desires to
contest such claim, the Optionee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Optionee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment
- 3 -
<PAGE> 4
of costs and expenses. Without limitation on the foregoing provisions of this
Section 6(c), the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Optionee to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Optionee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Optionee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Optionee, on an interest-free basis and shall indemnify and hold
the Optionee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Optionee with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Optionee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Optionee of an amount advanced by
the Company pursuant to Section 6(c), the Optionee becomes entitled to receive
any refund with respect to such claim, the Optionee shall (subject to the
Company's complying with the requirements of Section 6(c)) promptly pay to the
Company the amount of such refund (together with any interest actually paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Optionee of an amount advanced by the Company pursuant to Section 6(c), a
determination is made that the Optionee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Optionee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
IV. Capitalized terms not otherwise defined herein shall have the
means set forth in Guilford Pharmaceuticals Inc. 1993 Share Option and
Restricted Share Plan, as amended, or the Guilford Pharmaceuticals Inc. 1998
Share Option and Restricted Share Plan, as applicable, or the Share Option
Agreement.
* * * * *
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment to Share Option Agreement, or caused this Amendment to
Share Option Agreement to be duly executed and delivered on their behalf, as of
the 17th day of August, 1998.
ATTEST: GUILFORD PHARMACEUTICALS INC.
By:
- --------------------- -----------------------------
Title:
---------------------------
OPTIONEE:
---------------------------------
- 5 -
<PAGE> 1
EXHIBIT 3.05
AMENDMENT TO RESTRICTED SHARE AGREEMENTS UNDER
THE 1993 SHARE OPTION AND RESTRICTED SHARE PLAN, ADOPTED BY THE
BOARD IN AUGUST 1998
I. Pursuant to Section 12.2 of the Guilford Pharmaceuticals Inc. 1993
Share Option and Restricted Share Plan, as amended, the share forfeiture
requirements with respect to outstanding Restricted Share Awards granted under
that plan are modified and Section 3.2 of the Holder's Restricted Agreement by
replacing current Section 6.1 and replacing in its entirety with the following:
6.1 VESTING UPON A CHANGE IN CONTROL
Notwithstanding any other provisions of the Plan or this Agreement,
in the event of a "Change in Control" (as defined below), the Limitation Period
shall be deemed terminated, the restrictions on transfer set forth above in
Section 3.2 and the forfeiture provisions of Section 3.1 above shall be deemed
waived in full with respect to all Shares granted hereunder, and all such Shares
shall be deemed fully vested as of the date immediately prior to effective date
of the Change in Control if the Holder continues to be employed by the Company
as of the date of such accelerated vesting.
II. Sections 6.2 and 6.3 of each Holder's Restricted Share Agreement is
hereby deleted in their entirety and Section 6.4 is hereby denominated Section
6.2., and is amended and restated to read in its entirety as follows:
6.2 DEFINITION OF "CHANGE IN CONTROL".
A "Change in Control" shall be deemed to have occurred if: (a) any
"person" (including, without limitation, any individual, sole proprietorship,
partnership, trust, corporation, association, joint venture, pool, syndicate, or
other entity, whether or not incorporated), or any two or more persons acting as
a syndicate or group or otherwise acting in concert with regard to the ownership
of securities of the Company and thereby deemed collectively to be a "person")
as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), becomes, after the date hereof, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities
(but excluding for purposes of such computation all securities of the Company
beneficially owned by such person as of February 22, 1995), unless, in
transaction in which a "person" becomes, after the date hereof, the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of
<PAGE> 2
securities of the Company representing less than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities, prior to the
acquisition by such person of securities of the Company which causes such person
to have such beneficial ownership, the full Board shall by at least a two-thirds
vote have specifically approved such acquisition and determined that such
acquisition shall not constitute a Change in Control for purposes of options
granted under the Plan despite such beneficial ownership; or (ii) during any two
(2) year period, individuals who at the beginning of such period constitute the
Board, together with any new directors elected or appointed during the period
whose election or appointment resulted from a vacancy on the Board caused by the
retirement, death, or disability of a director and whose election or appointment
was approved by a vote of at least two-thirds (2/3rds) of the directors then
still in office who were directors at the beginning of the period, cease for any
reason to constitute a majority thereof.
III. A new Section 8A of each Holder's Restricted Share Agreement is hereby
added to read as follows:
8A. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
Notwithstanding any other provision of this Restricted Share Agreement or
of any other agreement, contract, or understanding heretofore or hereafter
entered into by the Holder and the Company, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 8A (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
the Company for the direct or indirect compensation of the Holder (including
groups or classes of participants or beneficiaries of which the Holder is a
member), whether or not such compensation is deferred, is in cash, or is in the
form of a benefit to or for a Holder (a "Benefit Arrangement"), if the Holder is
a "disqualified individual," as defined in Section 280G(c) of the Code, in the
event it shall be determined that any right to receive any payment or other
benefit under this Restricted Share Agreement, taking into account all other
rights, payments, or benefits to or for Holder under the Plan, all Other
Agreements, and all Benefit Arrangements, would cause any payment or benefit to
a Holder under this Plan to be considered a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code as then in effect (a "Payment") which
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Holder with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Holder shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Holder of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Holder retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
- 2 -
<PAGE> 3
(b) Subject to the provisions of Section 8A(c), all determinations
required to be made under this Section, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by KPMG Peat
Marwick or such other certified public accounting firm as may be designated by
the Holder (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Holder within 15 business days of the
receipt of notice from the Holder that there has been a Payment, or such earlier
time as is requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the Change of Control, the Holder may appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section, shall be paid by the
Company to the Holder within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Holder. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 8A(c) and the Holder
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Holder.
(c) The Holder shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. The Holder shall not pay such claim prior to
the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Holder in writing prior to the expiration of such period that it desires to
contest such claim, the Holder shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
- 3 -
<PAGE> 4
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Holder harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8A(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Holder to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Holder agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Holder to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to the Holder, on an interest-free basis and shall indemnify and hold the Holder
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Holder with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Holder shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Holder of an amount advanced by the
Company pursuant to Section 8A(c), the Holder becomes entitled to receive any
refund with respect to such claim, the Holder shall (subject to the Company's
complying with the requirements of Section 8A(c)) promptly pay to the Company
the amount of such refund (together with any interest actually paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Holder of
an amount advanced by the Company pursuant to Section 8A(c), a determination is
made that the Holder shall not be entitled to any refund with respect to such
claim and the Company does not notify the Holder in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
IV. Capitalized terms not otherwise defined herein shall have the
means set forth in Guilford Pharmaceuticals Inc. 1993 Share Option and
Restricted Share Plan, as amended, or the Restricted Share Agreement.
* * * * *
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment to Restricted Share Agreement, or caused this Amendment
to Restricted Share Agreement to be duly executed and delivered on their behalf,
as of the 17th day of August, 1998.
ATTEST: GUILFORD PHARMACEUTICALS INC.
By:
- --------------------- -----------------------------
Title:
---------------------------
HOLDER:
---------------------------------
- 5 -
<PAGE> 1
Exhibit 10.65
FORM OF
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE> 2
Note: In August 1997, the Company's Board of Directors authorized the
Company to enter into Severance Agreements related to a Change in Control of the
Company with all Company employees at the Vice President level and higher.
<PAGE> 3
CHANGE IN CONTROL SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (the "Agreement") is dated and effective as
of ____________, 1998, between Guilford Pharmaceuticals Inc., (the "Employer"),
and _____________________ (the "Employee"), a resident of the State of
____________.
WHEREAS, the Employee serves as __________ of the Employer, and in
that role has been important in developing and expanding the business and
operations of the Employer and possesses valuable knowledge and skills with
respect to such business; and
WHEREAS, the Board of Directors of the Company (the "Board")
believes that it is in the best interests of the Company to encourage the
Employee's continued employment with and dedication to the Employer, including
in the face of potentially distracting circumstances arising from the
possibility of a change in control of the Company; and
WHEREAS, the Board has adopted a policy which authorizes the
Employer to enter into this Agreement with the Employee; and
WHEREAS, the parties desire to enter into this Agreement setting
forth the terms and conditions for the payment of compensation to the Employee
in the event of a termination of the Employee's employment during the term of
this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements of the parties contained herein and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. TERM.
The term of this Agreement shall be for a period commencing as of
the date set forth above and will remain in effect until the earlier of the date
on which (a) all obligations of the parties hereto shall have been satisfied,
(b) the agreement is terminated by the mutual written agreement of the parties,
(c) or the agreement is terminated pursuant to terms contained elsewhere herein.
2. TERMINATION OF EMPLOYMENT OTHER THAN FOLLOWING A CHANGE IN CONTROL EVENT.
If, prior to a Change in Control Event, the Employee's employment is
terminated by the Employer with or without Cause during the term of this
Agreement or the Employee voluntarily terminates his employment with or without
Good Reason, this Agreement shall, subject to the provisions contained in
Section 17 below, terminate.
<PAGE> 4
3. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL EVENT.
Subject to the terms of this Agreement, including without limitation
Section 17 below, the Employee shall be entitled to receive severance payments
from the Employer for services previously rendered to the Employer and its
affiliates if a Change in Control Event occurs during the term of this Agreement
and the Employee's employment is terminated by the Employee for Good Reason or
by the Employer other than for Cause during the period commencing upon such
Change in Control Event (as defined in SECTION 9) and ending two years after a
Change in Control (as defined in SECTION 9)(the "Change in Control Period").
3.1. GOOD REASON; OTHER THAN FOR CAUSE.
If a Change in Control Event occurs during the term of this
Agreement and the Employer terminates the Employee's employment other than for
Cause or the Employee terminates employment for Good Reason during the Change in
Control Period:
(i) the Employer shall pay to the Employee the following
amounts:
A. the sum of (1) the Employee's Annual Base Salary (as
defined in SECTION 6) through the Date of Termination to the extent
not theretofore paid and (2) any compensation previously deferred by
the Employee (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case, to the extent
not theretofore paid, in a lump sum in cash no later than 10 days
following the date of termination; and
B. the amount equal to two (2) times the Employee's
Annual Base Salary, which amount shall be payable in full in a lump
sum in cash no later than 10 days following the date of
termination.(1)
(ii) for two (2) years after the Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Employer shall continue benefits to the
Employee and/or the Employee's family at least equal to those which would
have been provided to them in accordance with the welfare benefit plans,
practices, policies and programs provided by the Employer and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to the
- ------------------------------
(1) In the case of the Company's Chief Executive Officer, the amount
is three times (3x) base salary.
- 5 -
<PAGE> 5
extent applicable generally to other executive-level employees of the
Employer and its affiliated companies, as if the Employee's employment had
not been terminated; provided, however, that if the Employee becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical
and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility.
3.2. CAUSE; OTHER THAN FOR GOOD REASON.
If the Employee's employment is terminated for Cause during the
Change in Control Period, this Agreement shall terminate without further
obligations to the Employee hereunder. Furthermore, if the Employee voluntarily
terminates employment during the Change in Control Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Employee hereunder.
4. (PROVISION INTENTIONALLY OMITTED)
5. CERTAIN ADDITIONAL PAYMENTS BY EMPLOYER.
5.1. GENERAL
Notwithstanding anything in this Agreement to the contrary and
except as set forth in this SECTION 5, in the event it shall be determined that
any payment or distribution by the Employer to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this SECTION 5) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes, including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax (including any
interest or penalties imposed with respect to such taxes) imposed upon the
Payments.
5.2. PROCEDURES
Subject to the provisions of SECTION 5.3, all determinations
required to be made under this SECTION 5, including whether and when a Gross-Up
Payment is
- 6 -
<PAGE> 6
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by KPMG Peat Marwick
or such other certified public accounting firm as may be designated by the
Employee and reasonably acceptable to the Employer (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Employer and the
Employee within 15 business days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is requested by the Employer.
In the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, the Employee
may appoint another nationally recognized accounting firm and reasonably
acceptable to the Employer to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Employer.
Any Gross-Up Payment, as determined pursuant to this SECTION 5, shall be paid by
the Employer to the Employee within five business days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Employer and the Employee. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Employer should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Employer exhausts its remedies pursuant to
SECTION 5.3 and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Employer to or for the benefit of the Employee.
5.3. NOTIFICATION OF CLAIMS
The Employee shall notify the Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Employer of the Gross-Up Payment. The Employee shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Employer (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Employer
notifies the Employee in writing prior to the expiration of such period that it
desires to contest such claim, the Employee shall:
(i) give the Employer any information reasonably
requested by the Employer relating to such claim,
(ii) take such action in connection with contesting such claim
as the Employer shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by attorneys reasonably selected by the Employer,
- 7 -
<PAGE> 7
(iii) cooperate with the Employer in good faith in order
effectively to contest such claim, and
(iv) permit the Employer to participate in any proceedings
relating to such claim;
provided, however, that the Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this SECTION 5.3, the Employer shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Employee to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Employer shall
determine; provided, however, that if the Employer directs the Employee to pay
such claim and sue for a refund, the Employer shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Employee with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Employer's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
5.4. REFUNDS
If, after the receipt by the Employee of an amount advanced by the
Employer pursuant to SECTION 5.3, the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Employer's
complying with the requirements of SECTION 5.3) promptly pay to the Employer the
amount of such refund (together with any interest actually paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Employee
of an amount advanced by the Employer pursuant to SECTION 5.3, a determination
is made that the Employee shall not be entitled to any refund with respect to
such claim and the Employer does not notify the Employee in writing of its
intent to contest such denial
- 8 -
<PAGE> 8
of refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
6. DEFINITION OF "ANNUAL BASE SALARY".
Annual base salary ("Annual Base Salary") means the greater of (a)
the annual base salary payable to the Employee by the Employer and its
affiliates as of the Date of Termination of employment (the "Current Annual Base
Salary") or (b) the amount equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the Employee by the Employer and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Date of
Termination occurs.
7. DEFINITION OF "CAUSE".
"Cause" means (i) conviction of a crime involving fraud or theft
against the Company or a crime involving moral turpitude; or (ii) a finding by
the Board that an employee has (x) compromised trade secrets or other
proprietary information of the Company, (y) willfully failed or refused to
perform material assigned duties, or (z) engaged in gross or willful misconduct
that causes substantial and material harm to the business and operations of the
Company.
8. DEFINITION OF "GOOD REASON".
"Good Reason" means (i) any proposed reduction in an employee's base
salary; (ii) any reduction of an employee's responsibilities or areas of
supervision within the Company, or (iii) relocation of an employee's office
outside the metropolitan area in which the office of the employee was located
immediately prior to the change in control.
9. DEFINITION OF "CHANGE IN CONTROL" AND "CHANGE IN CONTROL EVENT".
A "Change in Control" shall be deemed to have occurred if:
(a) any "person" (including, without limitation, any individual,
sole proprietorship, partnership, trust, corporation, association, joint
venture, pool, syndicate, or other entity, whether or not incorporated), or any
two or more persons acting as a syndicate or group or otherwise acting in
concert with regard to the ownership of securities of the Company and thereby
deemed collectively to be a "person") as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
becomes, after the date hereof, the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or
- 9 -
<PAGE> 9
indirectly, of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities,
unless, in transaction in which a "person" becomes, after the date hereof, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing less than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities,
prior to the acquisition by such person of securities of the Company which
causes such person to have such beneficial ownership, the full Board shall by at
least a two-thirds vote have specifically approved such acquisition and
determined that such acquisition shall not constitute a Change in Control for
purposes of this Agreement despite such beneficial ownership; or
(b) during any two (2) year period, individuals who at the beginning
of such period constitute the Board, together with any new directors elected or
appointed during the period whose election or appointment resulted from a
vacancy on the Board caused by retirement, death , or disability of a director
and whose election or appointment was approved by a vote of at least two-thirds
(2/3rds) of the directors then still in office who were directors at the
beginning of the period, cease for any reason to constitute a majority thereof.
A "Change in Control Event" shall mean the earlier of (i) a Change
in Control or (ii) the execution and delivery by the Company of an agreement
providing for a Change in Control.
10. EXPENSES.
The Employer shall pay any and all reasonable legal fees and
expenses incurred by the Employee in seeking to obtain or enforce, by bringing
an action against the Employer, any right or benefit provided in this Agreement
if the Employee is successful in whole or in part in such action.
11. WITHHOLDING.
Notwithstanding anything in this Agreement to the contrary, all
payments required to be made by the Employer hereunder to the Employee or his
estate or beneficiaries shall be subject to the withholding of such amounts
relating to taxes as the Employer reasonably may determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts, in whole or in part, the Employer may, in its sole discretion, accept
other provisions for the payment of taxes and any withholdings as required by
law, provided that the Employer is satisfied that all requirements of law
affecting its responsibilities to withhold compensation have been satisfied.
12. NO DUTY TO MITIGATE.
- 10 -
<PAGE> 10
The Employee's payments received hereunder shall be considered
severance pay in consideration of past service, and pay in consideration of
continued service from the date hereof and entitlement thereto shall not be
governed by any duty to mitigate damages by seeking further employment or
otherwise.
13. AMENDMENTS OR ADDITIONS; ACTION BY THE BOARD OF DIRECTORS.
No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties hereto. The prior approval by the Board
shall be required in order for the Employer to authorize any amendments or
additions to this Agreement, unless this requirement is specifically waived in
writing by the Employee in any document effecting any such amendment.
14. GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by the laws of United States to the
extent applicable and otherwise by the laws of the State of Maryland, excluding
any choice of law rules. In the event that an unresolved dispute arises over the
enforcement, interpretation, construction or breach of this Agreement, the
parties agree that it shall be litigated in the U.S. District Court for the
District of Maryland or in the circuit courts of Baltimore City, Maryland, and
the parties hereby irrevocably submit to the exclusive jurisdiction of such
courts for all purposes with respect to any legal action or proceeding in
connection with this Agreement.
15. ASSIGNMENT.
The rights and obligations of the Employer under this Agreement
shall be binding upon its successors and assigns and may be assigned by the
Employer to the successors in interest of the Employer. The rights and
obligations of the Employee under this Agreement shall be binding upon his
heirs, legatees, personal representatives, executors or administrators. This
Agreement may not be assigned by the Employee, but any amount owed to the
Employee upon his death shall inure to the benefit of his heirs, legatees,
personal representatives, executors, or administrators.
16. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when hand delivered, sent by overnight courier, or mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by telegram, telecopy, or telex (against receipt of
answerback confirming delivery), addressed as follows:
If to the Employer:
- 11 -
<PAGE> 11
Guilford Pharmaceuticals Inc.
6611 Tributary Street
Baltimore, Maryland 21224
Attn: Corporate Secretary
Fax: 410/631-6899
If to the Employee:
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt. In the case of notices sent by telegram,
telecopy, or telex, which notice shall be deemed duly given if made pursuant to
the provisions of this Section 16 above, the notifying party shall also send a
confirmation copy of any such notice to the other party by first class-mail.
17. OTHER AGREEMENTS.
This Agreement may not constitute the entire agreement between the
parties hereto providing for severance payments in connection with a termination
of employment following a Change in Control Event; provided, however, that if
the Employee is entitled to severance payments pursuant to this Agreement and
pursuant to any other oral or written agreements, commitments or understandings
calling for severance payments in connection with a termination of employment
following a Change in Control Event, the severance payments paid to the Employee
by the Employer in connection with such termination of employment shall be
limited to the greater of (i) severance payments provided pursuant to this
Agreement and any share option agreements and restricted share agreements
between the Company and the Employee or (ii) severance payments provided by the
Employer pursuant to such other oral or written agreements, commitments or
understandings. If the Employee is entitled to severance payments pursuant to
this Agreement and any share option agreements and restricted share agreements
between the Company and the Employee, on the one hand, and pursuant to any other
oral or written agreements, commitments or understandings calling for severance
payments in connection with a termination of employment following a Change in
Control Event, on the other hand, the Employee shall determine, in the
Employee's sole discretion, by notice given in writing to the Employer, which
payments are greater. For the avoidance of doubt, the parties agree the terms of
this Agreement shall in no way be deemed to diminish or other modify any
- 12 -
<PAGE> 12
terms set forth in any other oral or written agreements, commitments or
understandings related to the payment of severance amounts to the Employee in
connection with a termination of employment that are not conditioned on a Change
in Control Event, including without limitation the employment offer letter
between the Company and the Employee, effective _______________ 199___.
18. SEVERABILITY.
If any part of any provision of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective to the extent
of such invalidity or unenforceability only, without in any way affecting the
remaining parts of such provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement, or have caused this Agreement to be executed and delivered, to be
effective as of ___________________, 1998.
GUILFORD PHARMACEUTICALS INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
EMPLOYEE
-----------------------------------
Name:
------------------------------
- 13 -
<PAGE> 1
EXHIBIT 10.66
PROVISIONS REGARDING SEVERANCE BENEFITS FROM EMPLOYMENT LETTER AGREEMENT,
EFFECTIVE SEPTEMBER 21, 1998, TO NANCY J. LINCK
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, see
below) 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.
The Company offers certain terms in the event of a change in control of
the Company, including acceleration of vesting of unvested stock options,
indemnity for certain excise tax obligations and increased and modified
severance arrangements, pursuant to standard agreements generally available to
Vice Presidents of the Company. These terms will be extended to you upon
commencement of your hire.
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the calculation of total number of shares used in
the computation of net earnings (loss) per common share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 19,481 18,644 19,453 16,961
Dilutive incremental shares assumed to be outstanding
related to stock options, warrants and put options - 1,408 -
Weighted average common and common
equivalent shares used in the computation of
-------------- -------------- -------------- --------------
net income (loss) per share 19,481 20,052 19,453 16,961
============== ============== ============== ==============
Net income (loss) $ (6,907) $ 6,341 $ (21,068) $ (5,273)
============== ============== ============== ==============
Basic earnings per share $ (0.35) $ 0.34 $ (1.08) $ (0.31)
============== ============== ============== ==============
Diluted earnings per share $ (0.35) $ 0.32 $ (1.08) $ (0.31)
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,965
<SECURITIES> 126,872
<RECEIVABLES> 1,266
<ALLOWANCES> 0
<INVENTORY> 1,606
<CURRENT-ASSETS> 140,470
<PP&E> 27,960
<DEPRECIATION> 6,855
<TOTAL-ASSETS> 161,842
<CURRENT-LIABILITIES> 12,693
<BONDS> 9,306
0
0
<COMMON> 195
<OTHER-SE> 139,648
<TOTAL-LIABILITY-AND-EQUITY> 161,842
<SALES> 4,602
<TOTAL-REVENUES> 9,123
<CGS> 1,267
<TOTAL-COSTS> 36,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 588
<INCOME-PRETAX> (21,068)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,068)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,068)
<EPS-PRIMARY> (1.08)<F1>
<EPS-DILUTED> (1.08)<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>
