<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
GUILFORD PHARMACEUTICALS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(*)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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(*) Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
NOTICE OF
ANNUAL MEETING
AND PROXY STATEMENT
Guilford Pharmaceuticals Inc.
Annual Meeting of Stockholders
May 16, 2000
6611 Tributary Street
Baltimore, Maryland 21224
[GUILFORD PHARMACEUTICALS INC.]
<PAGE> 3
[Guilford Logo]
- --------------------------------------------------------------------------------
Craig R. Smith, M.D. Guilford Pharmaceuticals Inc.
Chairman of the Board 6611 Tributary Street
and Chief Executive Officer Baltimore, Maryland 21224
April 14, 2000
Dear Stockholder:
I'd like to invite you to attend our annual meeting of stockholders, which
we will hold on May 16, 2000, at 10:00 a.m. (Eastern Time) at the Company's
facilities at 6411 Beckley Street, Baltimore, Maryland. We have enclosed a copy
of our 1999 annual report to stockholders for your review.
At the meeting, I will review our 1999 performance, discuss our plans for
2000, and answer questions you and other stockholders may have about our
company. In addition, you and our other stockholders will vote on the following
business matters:
- the annual election of directors, and
- the selection of KPMG LLP as our independent auditors for 2000.
We've enclosed a proxy card that lists all matters that require your vote.
PLEASE COMPLETE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE PRE-ADDRESSED,
POSTAGE PAID ENVELOPE PROVIDED. This will allow your shares to be voted whether
or not you plan to attend the meeting. If you plan to attend the meeting, please
check the box on your proxy card.
The facility is handicapped accessible. In addition, if you need any other
special accommodations, please indicate them on your proxy card.
Thank you for your continued support of Guilford Pharmaceuticals Inc.
Sincerely,
[Craig R. Smith Signature]
Craig R. Smith, M.D.
Chairman and Chief Executive Officer
<PAGE> 4
GUILFORD PHARMACEUTICALS INC.
6611 TRIBUTARY STREET
BALTIMORE, MARYLAND 21224
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 2000
We will hold our annual meeting of stockholders on TUESDAY, MAY 16, 2000 at
10:00 a.m. (Eastern Time) at the Company's facilities at 6411 Beckley Street,
Baltimore, Maryland. The meeting is being held for the following purposes:
1. To elect eight directors to serve on our board for the next year and
until their successors are elected and qualified;
2. To ratify the selection of KPMG LLP as our independent auditors for
2000; and
3. To transact such other business as may properly come before the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
We discuss the above business matters in more detail in the attached Proxy
Statement.
Common stockholders of record at the close of business on March 24, 2000
will be entitled to vote at the meeting.
/s/ THOMAS C. SEOH
Thomas C. Seoh
Senior Vice President, General
Counsel & Secretary
Baltimore, Maryland
April 14, 2000
<PAGE> 5
GUILFORD PHARMACEUTICALS INC.
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Frequently Asked Questions.................................. 3
Business Matters to Be Voted On............................. 7
Board of Directors.......................................... 8
Nominees for the Board of Directors............... 8
Board Committees.................................. 11
Attendance at Board and Committee Meetings........ 12
Directors' Compensation........................... 13
Section 16(a) Beneficial Ownership Reporting
Compliance...................................... 14
Beneficial Ownership of Common Stock........................ 15
Executive Compensation...................................... 17
Summary Compensation Table........................ 17
Option Grants..................................... 18
Options Exercises and Holdings.................... 19
Employment Agreements............................. 19
401(k) Retirement Savings Plan.................... 20
Employee Share Option and Restricted Share
Plans........................................... 20
Key Person Life Insurance......................... 21
Compensation Committee Interlocks and Insider
Participation................................... 21
Certain Relationships and Related Party Transactions........ 21
Compensation Committee Report on Executive Compensation..... 22
Stock Performance Chart..................................... 26
</TABLE>
2
<PAGE> 6
FREQUENTLY ASKED QUESTIONS
-------------------------
Q: WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING AND HOW MANY VOTES DO THEY
HAVE?
A: Common stockholders of record at the close of business on March 24,
2000 may vote at the meeting. Each share has one vote. There were
23,647,402 shares of common stock outstanding on that date.
-------------------------
Q: WHEN ARE THE ANNUAL REPORT TO STOCKHOLDERS AND THIS PROXY FIRST BEING SENT
TO STOCKHOLDERS?
A: The annual report to stockholders and this proxy statement are being
sent to stockholders beginning on or about April 14, 2000.
-------------------------
Q: WHAT AM I VOTING ON?
A: 1. Election of eight directors.
2. Ratification of KPMG LLP as our independent auditors.
3. Any other business that properly comes before the meeting for a
vote.
-------------------------
Q: HOW DO I VOTE?
A: You must be present, or represented by proxy, at the annual meeting in
order to vote your shares. Since many of our stockholders are unable to
attend the meeting in person, we send proxy cards to all of our
stockholders.
-------------------------
Q: WHAT IS A PROXY?
A: A proxy is a person you appoint to vote on your behalf. Proxies are
solicited so that all common shares may be voted at the annual meeting.
You must complete and return the enclosed proxy card to have your
shares voted by proxy.
-------------------------
Q: BY COMPLETING AND RETURNING THE PROXY CARD, WHO AM I DESIGNATING AS MY
PROXY?
A: You will be designating: Craig R. Smith, M.D. (Chairman of the Board
and Chief Executive Officer), Andrew R. Jordan (Senior Vice President
and Chief Financial Officer) and Thomas C. Seoh (Senior Vice President,
General Counsel and Secretary) as your proxies.
-------------------------
Q: HOW WILL MY PROXY VOTE MY SHARES?
A: Your proxy will vote according to the instructions you mark on your
proxy card. If you complete and return your proxy card but do not
indicate your vote on the business matters, your proxy will vote "FOR"
Items 1 and 2. Also, your proxy is
3
<PAGE> 7
authorized to vote, using his best judgment, on any other business that
properly comes before the meeting.
-------------------------
Q: HOW DO I REVOKE MY PROXY?
A: You may revoke your proxy at any time before your shares are voted at
the annual meeting by:
- notifying our Corporate Secretary, Thomas C. Seoh, in writing at 6611
Tributary Street, Baltimore, Maryland 21224, that you are revoking
your proxy;
- executing a later dated proxy card; or
- attending the annual meeting and voting by ballot.
-------------------------
Q: HOW DO I VOTE USING MY PROXY CARD?
A: There are three steps.
1. Vote on each of the business matters as follows:
- ITEM 1. THE ELECTION OF EIGHT DIRECTORS. The names of all the
directors to be elected are listed on your proxy card. You have three
options:
- OPTION 1. To vote for all directors, you check the box marked
"FOR."
- OPTION 2. To vote for some of the directors and against the rest,
you should write the names of the directors you do NOT want to vote
for in the space provided on the proxy card. You should NOT check
the box marked "FOR."
- OPTION 3. To abstain from voting for all directors (that is, not
vote for or against any of the directors), you check the box marked
"WITHHOLD AUTHORITY."
- ITEM 2. RATIFY THE SELECTION OF KPMG LLP AS OUR INDEPENDENT AUDITORS
FOR 2000.
You check the box "FOR," or "AGAINST," or "ABSTAIN" (to cast no vote).
2. Sign and date your proxy card. IF YOU DO NOT SIGN YOUR PROXY CARD, YOUR
SHARES CANNOT BE VOTED.
3. Mail your proxy card in the pre-addressed, postage paid envelope.
REMEMBER TO CHECK THE BOX ON YOUR PROXY CARD IF YOU PLAN TO ATTEND THE
ANNUAL MEETING.
-------------------------
Q: WHAT IS A QUORUM OF STOCKHOLDERS, AND HOW MANY VOTES DOES IT TAKE TO PASS
EACH BUSINESS MATTER?
A: A quorum is the presence at the annual meeting in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to
be cast. Since on March 24, 2000, there were 23,647,402 shares of
common stock outstanding, 11,823,702 shares constitute a quorum.
4
<PAGE> 8
Broker non-votes, abstentions and withhold-authority votes COUNT for
purposes of determining a quorum.
Assuming that a quorum of stockholders is present at the meeting:
- the affirmative vote of a majority of all the votes cast at the
meeting is needed to ratify the selection of our independent
auditors; and
- those directors who receive a plurality of the votes cast at the
meeting will be elected, meaning those individuals nominated for the
eight directorships who receive the highest number of votes cast,
even if less than a majority of the votes cast.
Broker non-votes, abstentions and withhold-authority votes DO NOT
COUNT as votes cast.
-------------------------
Q: WHY MIGHT I RECEIVE MORE THAN ONE PROXY CARD?
A: First, you may have various accounts with us that are registered
differently, perhaps in different names or different social security or
federal tax identification numbers. Second, you may own shares
indirectly through one or more brokers. Each of your brokers will send
you a proxy card for these shares. You should vote on EACH PROXY CARD
you receive and mail it to the address shown on the proxy card.
-------------------------
Q: CAN I VOTE BY PROXY EVEN IF I PLAN TO ATTEND THE ANNUAL MEETING?
A: Yes. If you vote by proxy, you do not need to fill out a ballot at the
annual meeting, unless you want to change your vote.
-------------------------
Q: WHEN IS THE DEADLINE FOR STOCKHOLDER PROPOSALS TO BE CONSIDERED FOR
INCLUSION IN OUR PROXY STATEMENT FOR OUR 2001 ANNUAL MEETING?
A: You must submit your proposal in writing to our Corporate Secretary,
Thomas C. Seoh, at 6611 Tributary Street, Baltimore, Maryland 21224, so
that he receives it by December 15, 2000. Proposals will not be
accepted by facsimile.
-------------------------
Q: WHEN MAY GUILFORD MANAGEMENT USE ITS DISCRETIONARY VOTING AUTHORITY TO VOTE
PROXIES ON A STOCKHOLDER PROPOSAL SUBMITTED FOR CONSIDERATION AT OUR 2001
ANNUAL MEETING?
A: Pursuant to Rule 14a-4(c) under the Securities Exchange Act of 1934, if
we do not receive advance notice of a stockholder proposal to be raised
at our Annual Meeting for 2001 in accordance with the requirements of
our company by-laws, our management may use its discretionary voting
authority to vote management proxies on the stockholder proposal.
Our by-laws provide that written notice of a stockholder proposal must
be delivered to or mailed and received by our Corporate Secretary at
our principal
5
<PAGE> 9
executive offices at least 45 days before the date on which we mailed
notice of the annual meeting of stockholders and proxy materials for
the previous year's annual meeting of stockholders. Assuming that next
year's Annual Meeting is to be held within 30 days of May 16, 2001, in
order for a stockholder proposal to be properly brought before the 2001
Annual Meeting, we need to have received notice of the proposal no
later than February 28, 2001. As we mentioned above, the deadline for
stockholder proposals to be considered for inclusion in our proxy
statement for our 2001 annual meeting is December 15, 2000.
If our 2001 Annual Meeting is not held within 30 days of May 16, 2001,
however, in order for a stockholder proposal to be properly brought
before the 2001 Annual Meeting, our by-laws provide that we must
receive the stockholder's notice of the proposal no later than the
close of business on the 10th day following the day on which we mail or
make public disclosure of the date of the 2001 Annual Meeting.
6
<PAGE> 10
BUSINESS MATTERS TO BE VOTED ON
ITEM 1. ELECTION OF DIRECTORS.
Our entire board of directors is elected each year at the annual meeting.
Directors serve for one year and until a successor director is elected and
qualified. Except for Ronald M. Nordmann, all of the nominees were elected
directors at the 1999 annual meeting. On April 13, 2000, the board adopted
resolutions recommending to the shareholders that Mr. Nordmann be elected at the
annual meeting to join the board, and amending the by-laws of the company to
expand the board from seven to eight members to accommodate the addition of Mr.
Nordmann, should he be elected. Each of the nominated directors agrees to serve
if elected. However, if for some reason one or more of them is unable to accept
nomination or election, we intend to vote proxies for the election of a nominee
or nominees designated by the board of directors, unless the board reduces the
total number of directors on the board or decides to fill the vacant position at
a later time. Biographical information for each of the nominees and other
information about them is presented beginning on page 8.
ITEM 2. RATIFICATION OF OUR SELECTION OF KPMG LLP AS OUR INDEPENDENT AUDITORS
FOR 2000.
KPMG LLP, certified public accountants, have been our independent auditors
since our inception in 1993. A member of their firm will be at the annual
meeting and will have the opportunity to make a statement and answer appropriate
questions.
KPMG audited our 1999 consolidated financial statements. As part of their
audit function, they also reviewed our 1999 annual report to stockholders and
various filings with the Securities and Exchange Commission.
The audit committee of the board of directors reviewed the non-audit
services provided by KPMG during 1999 and concluded that these services do not
affect KPMG's independence as our auditors.
If you do not approve the appointment of KPMG as independent public
auditors for 2000, we will consider this adverse vote as a direction to our
board of directors to consider the selection of other auditors for 2001.
However, because of the difficulty in making any substitution of auditors so
long after the beginning of the current year, we contemplate that their
appointment for 2000 will be permitted to stand unless our board finds other
good reason for making a change.
ITEM 3. OTHER BUSINESS MATTERS.
The board of directors is not aware of any other business matters to be
presented for action at the annual meeting. However, if any other matters come
before the meeting, your proxy holders intend to vote or act in accordance with
their best judgment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
7
<PAGE> 11
BOARD OF DIRECTORS
NOMINEES FOR THE BOARD OF DIRECTORS
Below we set out brief biographical descriptions for each of our eight
nominated directors:
<TABLE>
<S> <C>
Craig R. Smith, M.D.................. Chairman of the Board of Directors, President and
Age 54 Chief Executive Officer and member of the Science
Committee.
Dr. Smith joined Guilford as a director at
Guilford's inception in July 1993. Dr. Smith was
elected president and chief executive officer in
August 1993 and was elected chairman of the board
January 1994. Prior to joining Guilford, Dr.
Smith was senior vice president for business and
market development at Centocor, Inc. (a
biotechnology company). Dr. Smith joined Centocor
in 1988 as vice president of clinical research
after serving on the faculty of the Department of
Medicine at Johns Hopkins Medical School for 13
years. Dr. Smith received his M.D. from the State
University of New York at Buffalo in 1972 and
received training in Internal Medicine at Johns
Hopkins Hospital from 1972 to 1975. Dr. Smith is
a member of the board of directors of CellGate,
Inc., a privately held biopharmaceutical company
of which Richard L. Casey, a director of the
Company, is the chief executive officer and
chairman of the board of directors.
Richard L. Casey..................... Director and Chairman of the Audit Committee.
Age 53
Mr. Casey has been a director since Guilford's
inception in July 1993 and served as chairman of
the board from inception through December 1993.
Mr. Casey is chief executive officer and chairman
of the board of directors of CellGate, Inc,
positions he has held since January 2000. Mr.
Casey retired as chairman of the board and chief
executive officer of Scios Inc. (a biopharma-
ceutical company) in September 1998. He joined
Scios in December 1987 as president and chief
executive officer and served as a director of
Scios until his retirement in September 1998. Mr.
Casey was elected chairman of the board of Scios
in November 1992 and held that position until his
retirement. Mr. Casey has over 20 years'
experience in the pharmaceutical industry and has
served in various positions with ALZA Corpo-
ration, Syntex Medical Diagnostics and Eli Lilly
and Company. Mr. Casey serves on the boards of
directors of SYNSORB Biotech Inc. and NEXELL
Therapeutics, Inc.
</TABLE>
8
<PAGE> 12
<TABLE>
<S> <C>
Solomon H. Snyder, M.D............... Director, member of the Audit Committee and
Age 61 Chairman of the Science Committee, and consultant
to Guilford.
Dr. Snyder has been a Guilford director since
Guilford's inception in July 1993 and a
consultant of ours since August 1993. Dr. Snyder
received his M.D. in 1962 from Georgetown Medical
School, trained as a research associate with
Julius Axelrod at the National Institute of
Mental Health and completed his Psychiatry Resi-
dency at Johns Hopkins Hospital. He is presently
director of the Department of Neuroscience at
Johns Hopkins Medical School and Distinguished
Service Professor of Neuroscience, Pharmacology
and Molecular Sciences, and Psychiatry. Dr.
Snyder has received a number of awards including
the Albert Lasker Award in Basic Biomedical
Research, the Wolf Prize and the Bower Award. He
is a member of the U.S. National Academy of
Sciences, the Institute of Medicine and the
American Academy of Arts and Sciences. Dr. Snyder
is a director of Scios.
W. Leigh Thompson, M.D., Ph.D........ Director and member of the Compensation Committee
Age 61 and Science Committee.
Dr. Thompson has been a Guilford director since
April 1995. Dr. Thompson joined Eli Lilly in 1982
and was appointed executive vice president for
research in 1991 and chief scientific officer in
1993. Dr. Thompson retired from Eli Lilly in
December 1994 and is president and chief
executive officer of Profound Quality Resources,
Ltd. (an independent consulting firm advising
clients in the pharmaceutical industry). Dr.
Thompson is a director of DepoMed, Inc., Inspire
Pharmaceuticals, Inc., La Jolla Pharmaceutical
Co., Maret Pharmaceuticals, Ontogeny, Inc.,
Ophidian Pharmaceuticals, Inc., Orphan Medical,
Inc., Tanabe Research Laboratories Inc. and
Bioanalytical Systems, Inc.
Elizabeth M. Greetham................ Director and member of the Compensation
Age 50 Committee.
Ms. Greetham has been a Guilford director since
November 1995. From 1992 to 1999, Ms. Greetham
was portfolio manager of WPG Life Sciences Fund,
L.P. and WPG Institutional Life Sciences Fund,
L.P., and since 1990 she had been involved in
health care investments for institutional, growth
and individual high net worth accounts at Weiss,
Peck & Greer, L.L.C. Since June 1999, Ms.
Greetham has been Chief Financial Officer of Drug
Abuse Sciences, Inc. She is a member of the
boards of directors of Pathogenesis
</TABLE>
9
<PAGE> 13
<TABLE>
<S> <C>
Corp., Sangstat Medical Corp. and Drug Abuse
Sciences, Inc.
George L. Bunting, Jr................ Director and Chairman of the Compensation
Age 59 Committee.
Mr. Bunting has been a Guilford director since
May 1996. Mr. Bunting is president and chief
executive officer of Bunting Management Group, a
position he has held since July 1991. He formerly
served as chairman of the board and chief
executive officer of the Noxell Corporation (a
Procter & Gamble Company as of November 1989).
Mr. Bunting joined Noxell Corporation in 1966 as
a product manager. In 1968, he was elected to the
board of directors of Noxell. In March 1970, he
was elected to the position of executive vice
president and served as president and chief
executive officer from November 1973 until April
1986, when he became chairman and chief executive
officer. Mr. Bunting is a director of Crown
Central Petroleum Corporation, Mercantile
Bankshares Corporation, Baltimore Equitable
Insurance Company and Mercantile Safe Deposit and
Trust Company. He served as chairman of the Johns
Hopkins University, Johns Hopkins Health System,
and Johns Hopkins Hospital from 1994 until 1998
and for Johns Hopkins Medicine from 1996 until
1998. Mr. Bunting continues to serve as a trustee
for these institutions.
Joseph ("Skip") Klein, III........... Director and member of the Audit Committee.
Age 39
Mr. Klein has been a Guilford director since
August 1998. Mr. Klein is currently Senior Vice
President, Strategy for CareInsite, Inc. Mr.
Klein also currently serves as Vice President,
Strategy for Medical Manager Corporation. Mr.
Klein had been a health care analyst with The
Kaufmann Fund (an emerging growth mutual fund)
since June 1998. Previously, he served as an
investment consultant from April 1998 until June
1998. Mr. Klein was employed at T. Rowe Price
Associates (an investment management firm) from
December 1988 until March 1998, for a time as a
portfolio manager and chairman of the investment
advisory committee of T. Rowe Price Associates
and also as a vice president and health care
investment analyst. He holds an M.B.A. from the
Stanford Graduate School of Business and a B.A.
in economics from Yale University. Mr. Klein is a
director of NPS Pharmaceuticals, Inc. and
Synbiotics Corp.
</TABLE>
10
<PAGE> 14
<TABLE>
<S> <C>
Ronald M. Nordmann................... Director
Age 58
Mr. Nordmann is currently a private investor.
From 1994 until January 2000, Mr. Nordmann was a
partner at Deerfield Management, a health care
investment management firm where he served as a
portfolio manager of a $1.2 billion health care
sector fund. Prior to joining Deerfield
Management, Mr. Nordmann was the Managing
Director and Senior Health Care Analyst at Paine
Webber Incorporated (a broker dealer) for
approximately nine years. Mr. Nordmann has over
25 years experience in investment management
specializing in the pharmaceutical industry. He
received his B.A. in Business and Industrial
Management from The Johns Hopkins University in
1963 and his MBA in Finance and Marketing from
Fairleigh Dickinson University in 1966. Mr.
Nordmann serves on the board of directors of
Shire Pharmaceuticals Group plc.
</TABLE>
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR DIRECTOR LISTED
ABOVE.
BOARD COMMITTEES
Our board had three standing committees: a compensation committee, an audit
committee and a science committee.
Compensation Committee. The compensation committee has three members and
serves the functions set forth in the following table.
<TABLE>
<CAPTION>
NO. OF
NAME OF MEETINGS
COMPENSATION COMMITTEE MEMBERS COMPENSATION COMMITTEE FUNCTIONS IN 1999
<S> <C> <C>
George L. Bunting, Jr. - fixes compensation of the chief 2
executive officer
W. Leigh Thompson, M.D., Ph.D.
- reviews and approves executive
Elizabeth M. Greetham compensation
- prepares annual report to
stockholders on executive
compensation practices
- administers employee stock
option and restricted share plans
and such other plans as we may
adopt from time to time
- approves and establishes
policies with regard to company
salary, incentive, equity and
other compensation programs
</TABLE>
11
<PAGE> 15
Audit Committee. The audit committee has three members and serves the
functions set forth in the following table. None of the directors on the audit
committee has ever been employed by Guilford.
<TABLE>
<CAPTION>
NO. OF
NAME OF MEETINGS
AUDIT COMMITTEE MEMBERS AUDIT COMMITTEE FUNCTIONS IN 1999
<S> <C> <C>
Richard L. Casey - recommends action to the board on the 3
appointment or discharge of the
Solomon H. Snyder, M.D. independent auditing firm
Joseph Klein, III - reviews the proposed scope of the
annual audit and estimated fees
- reviews any major new accounting
policies or changes to existing ones
- reviews with the independent auditors
their annual audit report and our
quarterly and annual financial
statements
- consults with auditors and our internal
accounting staff on their appraisals of
the strengths and limitations of our
accounting personnel, internal
accounting controls and systems, and
other factors pertinent to the
integrity of our published financial
reports
- reviews the annual letter from the
independent auditors on internal
accounting controls
- reviews and approves other services and
fees of independent auditors
</TABLE>
Science Committee. The science committee has three members and serves the
functions set forth in the following table.
<TABLE>
<CAPTION>
NO. OF
NAME OF MEETINGS
SCIENCE COMMITTEE MEMBERS SCIENCE COMMITTEE FUNCTIONS IN 1999
<S> <C> <C>
Solomon H. Snyder, M.D. - engages consultants to advise 1
the committee in its review of the
Craig R. Smith, M.D. Company's research and
development programs
W. Leigh Thompson, M.D., Ph.D.
- conducts peer review of the
Company's research and
development projects
- advises the president and chief
executive officer of the Company
regarding future research and
development efforts
</TABLE>
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1999, our board held six meetings. All of our directors attended at
least 75% of these meetings as well as meetings of the committees on which they
serve, except that Solomon H. Snyder, M.D. did not attend the initial meeting of
the Science Committee which was held in 1999.
12
<PAGE> 16
DIRECTORS' COMPENSATION
At its meeting on August 17, 1999 (the "August Meeting"), our board of
directors increased the compensation of all non-employee directors from an
annual retainer of $10,000 and $1,500 for each board meeting attended to an
annual retainer of $12,500 and $1,500 for each board meeting attended. The board
also set compensation for members of the Audit Committee and Compensation
Committee at $500 for each meeting attended. Also at the August Meeting, the
board created a Science Committee and set compensation at $5,000 for each
meeting attended. We do not pay directors who are also employees of Guilford
(currently only Dr. Smith) for serving on the board or any committee thereof. In
addition, Dr. Snyder has a consulting agreement with Guilford (see the Section
entitled "Certain Relationships and Related Party Transactions" beginning on
page 21), and, except as described below, does not receive any compensation for
his service on the board or any committee thereof.
We reimburse each director, whether an employee or not, for expenses of
attending board and committee meetings.
In 1994, we adopted the Directors' Stock Option Plan (the "1994 Plan") to
attract individuals to serve as outside directors. Under the 1994 Plan, each
eligible director received an option to purchase 30,000 shares of our common
stock at the time he or she initially began serving on the board. Thereafter,
each eligible director receives additional options to purchase 7,500 shares of
our common stock, immediately following each of the next four annual elections
of directors so long as he or she has served on the board for at least one full
year and continues to serve as a director on the grant date. Directors may
exercise these options for up to one-half of the shares covered on the first
anniversary of the date of the grant. The remaining 50% vest on the second
anniversary date. Once vested, directors may exercise these options for up to 10
years from the initial option grant date. Dr. Snyder and Mr. Casey did not
participate in the 1994 Plan.
At the August Meeting, it was determined that those current non-employee
directors who receive annual stock option grants under the 1994 Plan would
continue to receive annual grants under the 1994 Plan in accordance with its
terms, and after reaching the applicable limits under the 1994 Plan, will, so
long as each remains a director of the Company, receive annual grants of stock
options to purchase 7,500 shares of our common stock under the terms of our 1998
Employee Share Option and Restricted Share Plan (the "1998 Plan") immediately
following re-election to the Board at the annual meeting of stockholders of
Guilford. Directors may exercise these options for up to one-half of the shares
covered on the first anniversary of the date of the grant. The remaining 50%
vest on the second anniversary date. Once vested, directors may exercise these
options for up to 10 years from the initial option grant date.
In addition, at the August Meeting, we granted stock options under the 1998
Plan to purchase 7,500 shares of our common stock to each of Dr. Snyder and Mr.
Casey. Dr. Snyder and Mr. Casey may exercise these options for up to one-half of
the shares covered on the first anniversary of the date of the grant. The
remaining 50% vest on the second anniversary date. Once vested, Dr. Snyder and
Mr. Casey may exercise these options for up to 10 years from the initial option
grant date. Dr. Snyder and Mr. Casey will also be eligible, so long as they
remain directors of Guilford, to receive annual grants of stock options to
purchase 7,500 shares of our common stock under the 1998 Plan immediately
following re-election to the board of directors at the annual meeting of
stockholders of Guilford, on the same terms extended to other non-employee
directors. Dr. Smith, as an employee-director, does not receive stock option
grants for serving as a
13
<PAGE> 17
director of Guilford, although he is eligible to receive stock options as an
employee of Guilford.
Options we issue under the 1994 Plan and 1998 Plan are considered
"non-qualified" stock options for tax purposes, meaning that directors may be
subject to certain federal and state taxes at the time they exercise these
options. The exercise price of options we grant under the 1994 Plan and 1998
Plan is equal to the closing price of our stock (as reported on the NASDAQ Stock
Market) on the day immediately prior to the date we grant the options.
A director may also transfer these options to his or her spouse, children
or grandchildren (and certain trusts for the benefit of these family members or
partnerships in which such family members are the only partners) so long as he
or she receives no payment for that transfer. In addition, these immediate
family members (or their trusts or partnerships) may transfer options among
themselves so long as no amounts are paid for these transfers. A director may
also transfer these options following his or her death by will or the laws of
descent and distribution.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
For 1999, we believe that our officers and directors filed all the reports
required by Section 16 of the Securities Exchange Act of 1934 on a timely basis.
14
<PAGE> 18
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table shows the beneficial ownership of our common stock as
of April 1, 2000 of each nominee for director, the five executive officers shown
in the Summary Compensation Table on page 17, and all of our directors and
executive officers as a group. The table also lists those stockholders that
beneficially hold 5% or more of our common stock as of April 1, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES RIGHT TO OUTSTANDING
NAME OWNED (1) ACQUIRE (2) SHARES
- ---- ---------- ------------ -----------
<S> <C> <C> <C>
College Retirement Equities Fund (3)......... 1,407,900 -- 6.0%
Amgen Inc. (4)............................... 640,095 700,000 5.7%
Capital Research and Management Company (5).. 1,100,000 -- 4.7%
Craig R. Smith, M.D. (6)..................... 340,620 194,784 2.3%
John P. Brennan.............................. 59,071 123,717 *
Andrew R. Jordan............................. 115,635 128,750 1.0%
Peter D. Suzdak, Ph.D........................ 1,850 93,000 *
Thomas C. Seoh............................... 32,806 71,250 *
George L. Bunting, Jr. (7)................... 661,650 48,750 3.0%
Richard L. Casey............................. 5,400 55,000 *
Elizabeth M. Greetham........................ 7,452 48,750 *
Joseph Klein III............................. 7,500 15,000 *
Solomon H. Snyder, M.D. (6).................. 498,217 90,000 2.5%
W. Leigh Thompson, M.D., Ph.D................ 18,705 56,250 *
Ronald M. Nordmann........................... 25,000 -- *
All officers and directors as a group........ 1,795,048 991,043 11.8%
</TABLE>
- -------------------------
* Represents less than 1% of the shares outstanding.
(1) Includes shares for which the named person:
- has sole voting and investment power,
- has shared voting and investment power with a spouse or minor child,
and/or
- holds in a 401(k) Retirement Savings Plan account, unless otherwise stated
in these footnotes.
Excludes shares that may be acquired through stock option or warrant
exercises.
(2) Shares that can be acquired upon the exercise of stock options or warrants
through May 30, 2000.
(3) The address of this stockholder is 730 Third Avenue, New York, NY 10017. The
information concerning this stockholder is based solely on a Schedule 13G,
dated February 11, 2000, filed with the SEC.
15
<PAGE> 19
The number of shares reported for this stockholder in the above table is as
of December 31, 1999. The percent of shares outstanding in the above table,
however, is based on the common stock outstanding on March 24, 2000.
According to the Schedule 13G, the investment advisor for this stockholder,
TIAA-CREF Investment Management, LLC, is affiliated with and employs some of
the same investment personnel as Teachers Advisors, Inc., the investment
advisor for certain entities that hold Guilford stock as follows:
<TABLE>
<CAPTION>
NUMBER
NAME OF ENTITY OF SHARES
<S> <C>
- TIAA Separate Account VA-1 - 200
- TIAA-CREF Mutual Funds - 53,980
- NYS College Choice Tuition LLC - 4,836
- TIAA-CREF Institutional Mutual Funds - 3,595
</TABLE>
According to the Schedule 13G, because separate investment decisions are
made with respect to the holdings of each of the entities listed above and
the College Retirement Equities Fund, there is no oral or written agreement
or arrangement among them and the College Retirement Equities Fund with
respect to acquisition, voting, disposition or otherwise of their
securities, and each of these entities and the College Retirement Equities
Fund (a) disclaims beneficial ownership of the others' securities holdings
and (b) disclaims its membership in a group with the others where the
purpose of the group is to acquire control of or influence management of
Guilford.
(4) The address of this stockholder is One Amgen Center Drive, Thousand Oaks, CA
92320.
(5) The address of this stockholder is 333 South Hope Street, Los Angeles, CA
90071. The information concerning this stockholder is based solely on a
Schedule 13G filed with the SEC on February 11, 2000. The number of shares
reported in the above table is as of December 31, 1999. The percent of
shares outstanding in the above table, however, is based on the common stock
outstanding on March 24, 2000. According to the Schedule 13G, this
stockholder is an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940.
(6) Drs. Smith and Snyder have entered into so-called "covered call" options
with a third party that will be able to exercise these options on October
30, 2000. If this third party decides to exercise the options on that day,
the transactions will settle in cash. The amount of cash required for
settlement of the call options could be an amount equal to the sale of up to
100,000 shares to the third party at a price of $40.58 per share for Dr.
Smith, and the sale of up to 93,478 shares to the third party at a price of
$36.98 per share for Dr. Snyder.
(7) Includes 650,000 shares held by The Abell Foundation, Inc., for which Mr.
Bunting disclaims a beneficial interest. Mr. Bunting serves as a trustee and
a member of the finance committee of The Abell Foundation. Does not include
3,500 shares held by a limited liability company for which Mr. Bunting
disclaims beneficial interest except as to his 1% pecuniary interest in the
limited liability company.
16
<PAGE> 20
EXECUTIVE COMPENSATION
The following table summarizes the compensation of our Chief Executive
Officer and our four most highly compensated executive officers as of December
31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)(2)
- --------------------------- ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Smith, M.D......... 1999 $366,667 $200,000 $ -- 100,000 $92,984
Chairman, President and 1998 341,667 75,000 -- 50,000 48,498
Chief Executive Officer 1997 300,000 150,000 -- 80,000 2,708
John P. Brennan............. 1999 226,476 57,500 -- 40,000 40,036
Senior Vice President, 1998 205,879 38,000 -- 20,000 23,444
Technical Operations & 1997 191,000 50,000 -- 30,000 2,708
General Manager, Drug
Delivery
Andrew R. Jordan............ 1999 226,444 46,000 -- 30,000 29,086
Senior Vice President, 1998 205,720 50,000 -- 30,000 11,733
Chief Financial Officer 1997 191,000 60,000 -- 40,000 2,708
and Treasurer
Peter D. Suzdak, Ph.D. ..... 1999 233,333 60,000 -- 50,000 21,732
Senior Vice President, 1998 194,167 50,000 -- 30,000 6,616
Research & Development 1997 165,000 65,000 351,563 40,000 2,708
Thomas C. Seoh.............. 1999 217,792 60,000 -- 50,000 18,158
Senior Vice President, 1998 201,962 31,000 -- 25,000 7,510
General Counsel & 1997 178,000 65,000 281,250 40,000 3,824
Secretary
</TABLE>
- -------------------------
(1) The amounts set forth under the heading Other Annual Compensation in the
above table consist of the dollar value of non-cash compensation related to
the vesting in 1996 and 1997 of restricted shares granted to Mr. Seoh and
Mr. Suzdak upon the start of their employment.
(2) Represents the value at December 31, 1999 of shares issued in 1997, 1998 and
1999 to the 401(k) Plan account of each executive listed above as part of
Guilford's program of matching employee contributions to 401(k) Plan
accounts. The value of these shares is based on a closing price of $17.00
per share on December 31, 1999. The value of the company match in 1999 was
as follows: Dr. Smith -- $6,482; Mr. Brennan -- $6,482; Mr.
Jordan -- $6,559; Dr. Suzdak -- $6,482; and Mr. Seoh -- $6,158. These
contributions vest in each executive's 401(k) Plan account over a four-year
period based on each executive's term of service with Guilford. In addition,
the amounts for 1998 and 1999 include the dollar value of insurance premiums
paid by Guilford with respect to split-dollar life insurance policies. At
such time as these policies terminate, Guilford will be reimbursed for up to
the entire amount of the premiums previously paid, depending on the cash
surrender value of the policy at the time of policy termination.
17
<PAGE> 21
OPTION GRANTS
The following table sets forth certain information concerning the grant of
stock options to our executives in 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OR OPTION TERM (3)
GRANTED(#) FISCAL YEAR BASE PRICE EXPIRATION -----------------------
NAME AND POSITION (1) (%) ($)(2) DATE 5%($) 10%($)
- ----------------- ----------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Smith, M.D........... 100,000 11.0% $29.813 2/15/10 $1,874,892 $4,751,345
John P. Brennan............... 40,000 4.4 29.813 2/15/10 749,957 1,900,538
Andrew R. Jordan.............. 30,000 3.3 29.813 2/15/10 562,468 1,425,403
Peter D. Suzdak Ph.D.......... 50,000 5.5 29.813 2/15/10 937,446 2,375,672
Thomas C. Seoh................ 50,000 5.5 29.813 2/15/10 937,446 2,375,672
</TABLE>
- -------------------------
(1) Consists of options granted to certain executives in February 2000 relating
to performance in 1999. These options vest 25% per year on the first four
anniversaries of the grant date of the option.
(2) The exercise prices are equal to the fair market value of the common stock
on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by the rules of the
Securities and Exchange Commission and may not accurately reflect the
appreciation of the price of our common stock from the date of grant until
the end of the option term. These assumptions are not intended to forecast
future price appreciation of our common stock.
18
<PAGE> 22
OPTION EXERCISES AND HOLDINGS
Employees and other individuals exercised options to acquire an aggregate
of 61,064 shares in 1999. The following table sets forth information with
respect to certain of our executives concerning the exercise of options during
1999 and unexercised options held as of the end of that year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#)(1) AT FISCAL YEAR END ($)(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Smith, M.D....... -- $ -- 153,784 253,750 $308,700 $245,312
John P. Brennan........... -- -- 99,967 103,750 381,411 105,937
Andrew R. Jordan.......... -- -- 100,937 110,313 389,450 145,235
Peter D. Suzdak, Ph.D..... -- -- 104,686 129,064 551,823 140,029
Thomas C. Seoh............ -- -- 68,126 118,124 289,845 114,841
</TABLE>
- -------------------------
(1) Includes options granted in February 2000 relating to performance in 1999.
(2) Total value of unexercised in-the-money options is based on the closing
price of the common stock of $17.00 per share on December 31, 1999 minus the
exercise price of the options.
EMPLOYMENT AGREEMENTS
Each of the executives listed in the above tables entered into an
employment agreement with Guilford upon starting his employment. These
employment agreements contain severance provisions that entitle the executive to
continuation of his then-current base salary for up to 12 months if we terminate
his employment other than for cause. In the case of Dr. Smith, our chief
executive officer, the severance payments continue for up to 36 months. If the
executive secures full-time employment during this 12- or 36-month period, we
are no longer obligated to continue to make these severance payments. During the
severance period, we also continue to provide health, life and disability
insurance coverage to the executive.
In 1998, we entered into additional severance agreements with our
executives that apply if we are subject to a "change in control" and the
executive's employment is terminated other than for cause or the executive
voluntarily resigns for "good reason". Under these agreements, the executive is
entitled to a lump-sum payment equal to two times the executive's then-current
annual base salary. In the case of Dr. Smith, our chief executive officer, the
severance amount is three times his then-current base salary. We have also
agreed to pay for certain "golden parachute" excise taxes the executive may be
liable for under section 4999 of the Internal Revenue Code of 1986, as amended.
In addition, we are obligated to continue to provide health, life and disability
insurance coverage to the executive for two years or until the executive secures
full-time employment elsewhere, whichever happens first.
19
<PAGE> 23
For purposes of these agreements, a "change in control" is deemed to have
occurred if:
- a third party or group of third parties becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
50% or more of our outstanding voting stock;
- a third party or group of third parties acquires 30% or more of our
voting stock but less than 50%, unless prior to the acquisition of these
shares, the full board by at least a two-thirds (2/3rds) vote
specifically approves the acquisition and determines that the acquisition
shall not trigger the severance payments; or
- during any two-year period those individuals who at the beginning of this
period make up the board ("Original Directors") along with any new
directors elected or appointed during this period whose election or
appointment resulted from a vacancy on the board because of the
retirement, death, or disability of a director and whose election or
appointment was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still on the board, cease for any reason to make
up a majority of the Board.
Under these agreements, an executive has "good reason" to resign if:
- there is any proposed reduction in the executive's base salary;
- there is any reduction in the executive's responsibilities or areas of
supervision; or
- the executive's office is relocated outside the metropolitan area in
which his or her office was located immediately prior to the change in
control.
401(k) RETIREMENT SAVINGS PLAN
We adopted a 401(k) Plan effective January 1, 1994. We intend that this
plan satisfy the tax qualification requirements of sections 401(a), 401(k) and
401(m) of the Internal Revenue Code of 1986, as amended. All employees,
including the executives listed in the above tables, who are at least 21 years
old are eligible to participate in the plan as of the first day of the calendar
quarter following completion of three months of service. The 401(k) Plan permits
participants to contribute up to a fixed dollar amount of their compensation,
excluding fringe benefits, subject to certain limits set by section 402g(1) of
the Internal Revenue Code, as amended. This limit was $10,500 in 1999. All
amounts a participant defers under the 401(k) Plan vest immediately in the
participant's account. Any contributions we make to participant accounts vest
over a four-year period based on the participant's term of service with our
Company. Starting January 1, 1997, we began making "matching contributions" in
newly issued shares of our stock equal in value to fifty percent (50%) of the
first six percent (6%) of an employee's salary contributed to the employee's
401(k) Plan account.
EMPLOYEE SHARE OPTION AND RESTRICTED SHARE PLANS
We have adopted share option and restricted share plans for the benefit of
our employees and certain other individuals who provide value to our Company.
All of our full-time employees, including the executives listed in the above
tables, and certain other individuals, such as consultants, whose participation
the board of directors determines is in our best interests as a corporation, are
eligible to receive options or restricted shares of our stock under our employee
share option and restricted share plans. All unvested options and
20
<PAGE> 24
restricted shares held by our employees vest in full upon a "change in control"
as described in the Section entitled "Employment Agreements"beginning on page
19.
KEY PERSON LIFE INSURANCE
Our Company owns and is the beneficiary of term life insurance policies in
the amount of $1,000,000 covering Drs. Smith and Snyder and Messrs. Jordan and
Brennan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, Mr. Bunting, Ms. Greetham and Dr. Thompson serve on the
compensation committee of our board of directors. These individuals served on
the compensation committee during all of 1999 as well. None of these individuals
is currently, or was during 1999, one of our officers or employees. In addition,
none of theses individuals serves as a member of the board of directors or on
the compensation committee of any company that has an executive officer serving
on our board of directors or its compensation committee.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
CERTAIN TRANSACTIONS WITH DR. SNYDER
In September 1995, we entered into a three-year consulting agreement with
Dr. Snyder. Under this agreement, Dr. Snyder provides certain consulting
services to us. These services include, among others, assisting us to recruit
scientific staff, advising us as to the purchase of laboratory equipment and
acquisition of new technologies, and participating in business meetings as our
president may reasonably request from time to time. We renewed the consulting
agreement with Dr. Snyder quarterly until July 1999. In July 1999, we renewed
the consulting agreement with Dr. Snyder until August 31, 2003. The renewal
contained minor modifications to the consulting agreement with Dr. Snyder. For
each of the one-year periods ending on December 31, 1997, 1998 and 1999, we paid
Dr. Snyder $160,000, $170,000 and $172,500, respectively. We paid these amounts
in equal monthly installments. We also granted Dr. Snyder stock options in
September 1995, vesting over three years to purchase 90,000 shares of our stock
at an exercise price of $5.92 per share. As of December 31, 1999, these options
were fully vested.
CERTAIN TRANSACTIONS WITH SCIOS INC.
Dr. Snyder was a director of Scios during 1999. >Mr. Casey was president,
chief executive officer, and chairman of the board of directors of Scios until
his retirement in September 1998. We paid approximately $334,000, $833,000 and
$341,000 for services, equipment purchases and lease payments to Scios in 1999,
1998 and 1997, respectively. The terms of these agreements resulted from
arms-length negotiations on terms that are no less favorable to Guilford than
those that would have been available from unrelated third parties.
21
<PAGE> 25
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the board is currently comprised of Mr.
Bunting, Ms. Greetham and Dr. Thompson, all of whom are outside directors. We,
on the Committee, are responsible for overseeing Guilford's compensation
programs for all employees, including executives. For executive officers, we
evaluate performance and determine compensation policies and review specific
levels of compensation.
COMPENSATION PHILOSOPHY
The goals of our compensation program are to:
- align employee compensation with Guilford's business objectives and
performance, and
- enable Guilford to attract and retain executive officers and other
employees who contribute to Guilford's long-term success and to motivate
them to enhance long-term stockholder value.
To achieve these goals, we on the committee:
- compare Guilford's salary practices with those of other biopharmaceutical
companies with which Guilford competes for talent to ensure that employee
salaries are competitive and adjust employee salaries from time to time
as market conditions warrant;
- establish annual incentive opportunities to motivate Guilford employees
to achieve specific short-term operating goals; and
- grant significant equity-based incentives for executives and other
employees to ensure that they are motivated over the long-term to respond
to Guilford's business challenges and opportunities, as owners and not
simply as employees.
In general, we seek to set the components of compensation and total
compensation (that is, base salary, annual incentives and long-term equity-based
incentives) to be competitive with other biopharmaceutical companies that:
- we deem comparable to Guilford in terms of size, stage of development,
potential, target peer group and/or other factors, or
- compete in the job market for individuals with skills desired by
Guilford.
BASE SALARY. We, on the committee, compare the base salary of each
executive officer annually, including those of the executives listed in the
"Summary Compensation Table" on page 17, against the base salaries paid for
similar positions by companies within a comparison group. We consider a range of
salary levels for comparable positions. Within this range, we consider
individual factors as we feel appropriate, including:
- individual performance,
- level of responsibility,
- prior experience,
- breadth of knowledge,
- competitive pay practices,
- the extent to which Guilford has achieved its annual corporate
objectives, and
- Guilford's other significant accomplishments during the period under
review.
22
<PAGE> 26
From year to year, the relative weighting of the individual components and
the corporate performance component may differ from executive to executive, and
can be expected to change over time as Guilford develops as a business and the
industry evolves.
Based on our review of the foregoing factors, we authorized Guilford
management to allocate $104,452 for base salary increases for all of Guilford's
executives other than its chief executive officer, whose compensation we discuss
below. This amount represents a 5.6% increase over 1999 base salary levels. We
also authorized Guilford management to allocate $857,099 for base salary
increases for all Guilford employees as a group, again excluding its chief
executive officer. This amount represents a 6.2% increase over 1999 base salary
levels.
ANNUAL INCENTIVE. In addition to base salary, Guilford offers
discretionary cash bonuses to employees, including executives, as annual
incentives to achieve short-term operating objectives. The actual incentive
award earned by any employee depends on the extent to which corporate and
individual performance objectives were achieved during the year. Guilford's
objectives consist of operating, strategic, and financial goals that are
critical to Guilford's fundamental long-term goal of building stockholder value.
After the end of the year, we evaluate the degree to which Guilford has met
its goals and, in our sole discretion, we establish a pool of funds available
for annual incentive awards. Individual awards are determined based on
Guilford's overall performance and by evaluating each participant's performance
against personal and corporate objectives. A portion of the award pool is then
allocated based on the participant's contributions during the year. Guilford
pays awards in cash and distributes these bonuses in the first quarter following
the performance year.
For 1999, we determined that Guilford met many of the corporate goals set
for the year. We also determined that Guilford achieved certain other important
objectives in 1999. Among these were:
- receipt of $4.5 million in milestone payments from Aventis S.A. for
health authority approval of sales of GLIADEL(R) Wafer in certain major
European countries,
- filing of an Investigational New Drug Application for
PACLIMER(TM)Microspheres,
- coordination with Amgen resulting in the filing of an Investigational New
Drug Application for the first neuroimmunophilin ligand, NIL-A,
- completion of enrollment in the GLIADEL(R)Wafer Phase III clinical trial,
- construction and lease of an approximately 73,000 square foot research
and development facility,
- implementation of a development process for going from lead compound
identification to proof-of-principle in humans in less than 1,000 days,
and
- completion of a $45,360,000 private placement of Guilford common stock.
Based on this performance, we authorized Guilford management to allocate
$400,200 for annual incentive bonuses for all of Guilford's executives other
than its chief executive officer. This amount equals 21.5% of the total base
salaries of these executives in 1999. We also authorized Guilford management to
allocate $1,322,619 for annual incentive bonuses for all Guilford employees as a
group, again excluding its chief executive officer. This amount equals 9.7% of
the total base salaries of these employees in 1999.
23
<PAGE> 27
LONG-TERM INCENTIVES. Guilford implements its long-term incentive program
through its stock option and restricted share plans. The program uses vesting
periods (generally four years) to encourage executives and other full-time,
salaried employees to continue in the employ of Guilford. Through option grants
and restricted share awards, executives receive significant equity incentives to
build long-term stockholder value. Grants are made at fair market value equal to
the closing price of Guilford's common stock on the trading date immediately
preceding the grant date. Recipients realize value from these grants only if
Guilford's stock appreciates over the term of the option. We look at the
following factors to determine how many options to grant:
- the option grant practices of the companies in a comparison group,
- Guilford's philosophy of significantly linking executive and employee
compensation with stockholder interests,
- Guilford's performance relative to its objectives, and
- Guilford's other accomplishments during the year.
Based on these factors, in respect of performance in 1999, we on the
committee decided to grant options for a total for 725,477 shares of Guilford
stock for all eligible employees, excluding the chief executive officer. Of this
amount, we granted options to purchase 270,000 shares of stock to Guilford's
executives, again excluding the chief executive officer.
CHIEF EXECUTIVE OFFICER COMPENSATION
In July 1993, Dr. Smith was recruited as Guilford's first employee and
given the mandate to organize its operations, secure additional financing and
recruit its initial staff. Based on Dr. Smith's leadership of the company, we
have voted to increase Dr. Smith's base annual salary each year since inception.
In light of his performance in 1999, we increased his base annual salary,
awarded him a cash bonus and granted him stock options as follows:
- Base Salary Increase: $30,000 (to an annual base salary of $400,000,
effective March 1, 2000),
- Cash Bonus: $200,000,
- Stock Option Grant: 100,000 shares at an exercise price of $29.8125 (the
closing price of the stock on the trading day preceding the grant),
vesting 25% annually.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits tax deductions Guilford
can take for annual executive compensation over $1 million. There are several
exceptions to this limitation, including one for qualified performance-based
compensation. To be qualified, performance-based compensation must meet various
requirements, including shareholder approval. We believe that under Guilford's
current compensation practices, the limitations of Section 162(m) have no or
minimal applicability currently and will not in the near future. We intend to
maximize the extent of tax deductibility of executive compensation under the
provisions of Section 162(m) as long as doing so is compatible with our
determination as to the most appropriate methods and approaches for the design
and delivery of compensation to executive officers of Guilford.
24
<PAGE> 28
CONCLUSION
In summary, we believe that through the arrangements we describe above a
significant portion of Guilford's compensation program as well as Dr. Smith's
compensation is contingent on Guilford's performance and that the level of
benefits is closely linked to increases in long-term stockholder value. Guilford
remains committed to this philosophy of "pay for performance," recognizing that
the competitive market for talented executives and other employees and the
volatility of Guilford's business may result in highly variable compensation for
a particular time period. We will continue to monitor closely the effectiveness
and appropriateness of each of the components of compensation to reflect changes
in Guilford's business environment.
DISCLAIMER
This report is being provided to Guilford stockholders solely for
informational purposes. You should not consider this report and the stock price
performance graph that follows to be "soliciting materials" or to be "filed"
with the SEC. It also is not subject to the SEC's proxy rules or to the
liabilities of Section 18 of the U.S. Security Exchange Act of 1934. In
addition, the report and the performance graph shall not be deemed to be
incorporated by reference into any prior or subsequent filing by Guilford under
the federal securities laws.
COMPENSATION COMMITTEE
George L. Bunting, Jr., Chairman
Elizabeth M. Greetham
W. Leigh Thompson, M.D., Ph.D.
25
<PAGE> 29
STOCK PERFORMANCE CHART
The following graph assumes $100 was invested on June 17, 1994 (the date on
which our stock began to trade publicly) in each of (1) shares of our common
stock, (2) the NASDAQ Stock Market Composite Index, and (3) the BioCentury 100
Index and shows the comparative returns on these hypothetical investments
through December 31, 1999. We compute total return assuming reinvestment of any
dividends. You should not rely on historical price performance to indicate
future stock performance.
GUILFORD PHARMACEUTICALS INC.
STOCK PERFORMANCE CHART
<TABLE>
<CAPTION>
GUILFORD PHARMACEUTICALS NASDAQ STOCK MARKET
INC. BIOCENTURY 100 INDEX COMPOSITE INDEX
------------------------ -------------------- -------------------
<S> <C> <C> <C>
6/17/94 100.00 100.00 100.00
12/31/94 65.63 90.46 103.10
12/31/95 198.44 163.06 144.26
12/31/96 435.96 180.03 177.01
12/31/97 377.37 174.12 215.31
12/31/98 267.20 194.74 300.64
12/31/99 318.77 363.52 557.94
</TABLE>
26
<PAGE> 30
- --------------------------------------------------------------------------------
GUILFORD PHARMACEUTICALS INC.
REVOCABLE PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 16, 2000
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of GUILFORD PHARMACEUTICALS INC. (the
"Corporation") hereby appoints Craig R. Smith, M.D., Andrew R. Jordan and Thomas
C. Seoh, or any of them, as attorneys and proxies of the undersigned, with full
power of substitution and with authority in each of them, to act in the absence
of the other and to vote and act for the undersigned at the Annual Meeting of
Stockholders of the Corporation to be held on Tuesday, May 16, 2000 at 10:00
a.m. (Eastern time) at the Corporation's facilities located at 6411 Beckley
Street, Baltimore, Maryland, and at any adjournments thereof, in respect of all
shares of the Common Stock of the Corporation which the undersigned may be
entitled to vote, on the following matters:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. HOWEVER, IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE NOMINEES IN PROPOSAL 1 AND FOR PROPOSAL 2.
The undersigned hereby acknowledges prior receipt of a copy of the Notice
of Annual Meeting of Stockholders and Proxy Statement dated April 14, 2000 and
the 1999 Annual Report to Stockholders, and hereby revokes any proxy or proxies
heretofore given. This Proxy may be revoked at any time before it is voted by
delivering to the Secretary of the Corporation either a written revocation of
proxy or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person.
(TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE> 31
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
GUILFORD PHARMACEUTICALS INC.
MAY 16, 2000
<TABLE>
<S> <C>
\/ Please Detach and Mail in the Envelope Provided \/
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK YOUR
A [X] VOTES AS IN THIS
EXAMPLE.
FOR all WITHHOLD AUTHORITY
nominees to vote for the
listed at right following nominee(s)
1. Election of [ ] [ ] NOMINEES: 2. Ratification of KPMG LLP as
directors to Craig R. Smith, M.D. independent auditors for the year
the Board of Richard L. Casey 2000.
Directors. Solomon H. Snyder, M.D.
W. Leigh Thompson, M.D., Ph.D. FOR AGAINST ABSTAIN
For, except vote withheld from the following nominee(s): Elizabeth M. Greetham
George L. Bunting, Jr. [ ] [ ] [ ]
Joseph Klein, III
Ronald M. Nordmann 3. In their discretion, on any other
-------------------------------------------------------- matters that may properly come
before the meeting, or any
adjournment thereof, in accordance
with the recommendations of a
majority of the Board of Directors.
If you receive more than one proxy
card, please sign and return all cards
in the accompanying envelope.
PLEASE MARK, DATE AND SIGN THIS PROXY
AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE MEETING. IT IS IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES.
DELAY IN RETURNING YOUR PROXY MAY
SUBJECT THE CORPORATION TO ADDITIONAL
EXPENSE.
IF YOU PLAN TO ATTEND THE
2000 ANNUAL MEETING, [ ]
PLEASE MARK THIS BOX
_____________________________________________________ DATED: __________ ______________________________________ DATED: __________
SIGNATURE OF STOCKHOLDER OR AUTHORIZED REPRESENTATIVE SIGNATURE IF HELD JOINTLY
NOTE: Please date and sign exactly as name appears hereon. Each executor, administrator, trustee, guardian, attorney-in-fact and
other fiduciary should sign and indicate his or her full name. In the case of stock ownership in the name of two or more
persons both persons should sign.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
