Guilford's sale brings CEO hefty payout


Dean J. Mitchell, the chief executive officer of Guilford Pharmaceuticals Inc., is due to receive about $3.7 million - triple his base salary plus accelerated vesting of stock - upon the sale of the Baltimore biotech company which he arrived to lead eight months ago.

Guilford's sale to MGI Pharma Inc. of Bloomington, Minn., for $177.5 million in cash and stock was announced yesterday.

Mitchell, formerly a vice president at Bristol-Myers Squibb Co., began Dec. 1 at Guilford. He took over for Dr. Craig R. Smith, a Guilford co-founder and chief executive officer who retired last fall.

Under Mitchell's contract, on file with the Securities and Exchange Commission, a "change-in-control" provision triggers a lump-sum cash payment equal to three times his base annual salary of $550,000, or $1.65 million.

The payout is to be made no later than 10 days after he leaves the company, the agreement states.

The agreement also calls for the vesting provisions of restricted stock or stock options to be accelerated.

Upon joining the Southeast Baltimore company, Mitchell was granted 50,000 shares of Guilford Pharmaceuticals common stock, which were automatically fully vested at the time they were awarded. Mitchell said yesterday that he was also granted 500,000 shares of restricted stock, which will vest once the change in ownership takes place.

At MGI's offering price of $3.75 per share, the 50,000 shares of common stock will be worth $187,500, while the 500,000 restricted shares would have a value of $1.875 million.

Mitchell was also granted options to purchase 1 million shares of Guilford stock at $5.64 per share. One-quarter of those options were to vest on his first anniversary, with the rest vesting in equal monthly installments over the subsequent 36 months.

In an interview yesterday, Mitchell said he was not sure how Guilford's buyout was to affect the vesting of those options. But the point was moot anyway, he said, because the $3.75 offering price is below the options' exercise price, meaning they are "under water" and worthless.

Mitchell has previously said he took a pay cut to leave New York's Bristol-Myers for the chance to transform Guilford from a startup into a growing concern.

While Mitchell will join the board of directors of the new owner, he will no longer hold an executive post, so his departure will trigger the change-in-control provision.

Mitchell said yesterday that he wasn't fully aware of the details of that part of his employment contract.

"There's not been a lot of focus on that," he said, noting that there may still be items to negotiate.

Mark Poerio, an attorney who focuses on compensation issues with the Washington office of the law firm of Paul, Hastings, Janofsky & Walker LLP, said that "it appears to be a pretty standard 'change-in-control' agreement."

For an executive who leaves a big drug company for a small biotechnology company, such severance agreements are a hedge against risk, Poerio said.

Mitchell said he came to Guilford Pharmaceuticals to build, not sell, the company, but events dictated a change in course. And while the numbers appear large, they're not anywhere close to what he might have earned had the company turned out to be a long-term success, he said.

"Small biotech ... is really an equity play - which obviously isn't the case here," Mitchell said. "But such is the roller-coaster ride that is biotech."

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