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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1996
Commission File Number 0-26872
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GELTEX PHARMACEUTICALS, INC.
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(Exact name of Registrant as Specified in its Charter)
Delaware 04-3136767
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 Bear Hill Road
Waltham, Massachusetts 02154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 290-5888
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share
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(Title of Class)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value, based upon the closing sale price of the shares
as reported by the NASDAQ National Market System, of voting stock held by
non-affiliates (without admitting that any person whose shares are not included
in such calculation is an affiliate) at March 21, 1997 was $ 206,475,839.
As of March 21, 1997, 13,524,002 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders are incorporated by
reference into Part III of this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
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OVERVIEW
GelTex Pharmaceuticals, Inc. ("GelTex" or the "Company") is developing
non-absorbed, polymer-based pharmaceuticals that selectively bind and eliminate
target substances from the intestinal tract. In January and March 1997, GelTex
successfully completed two Phase III clinical studies of RenaGel(R) phosphate
binder for the control of elevated phosphorus levels in chronic kidney failure
patients. These studies showed that RenaGel significantly decreased average
serum phosphorus levels. The Company intends to file a New Drug Application
("NDA") with the United States Food and Drug Administration ("FDA") for RenaGel
in the fourth quarter of 1997. In February 1997, GelTex completed two Phase II
trials of CholestaGel(R) non-absorbed cholesterol reducer. The first study
demonstrated clinically and statistically significant reductions in LDL
cholesterol levels in patients with hypercholesterolemia (elevated cholesterol).
The second study demonstrated similar cholesterol lowering activity between once
daily and split dosing. The Company intends to initiate another Phase II study
with a tablet formulation of CholestaGel in the second quarter of 1997. In 1996,
the Company strengthened its efforts in the infectious disease area by
increasing the size of the research team devoted to this program and focusing
efforts in this area on Cryptosporidium parvum.
THE COMPANY'S TECHNOLOGY
During the digestive process, the intestinal tract delivers nutrients and
water to the bloodstream and eliminates waste products and indigestible
materials through the bowel. Absorption of nutrients, electrolytes, water and
certain digestive substances such as bile acids is controlled by the intestinal
wall, which acts as a gateway from the intestines to the bloodstream, allowing
small molecules to pass from the intestinal tract into the bloodstream and
preventing larger molecules from entering circulation. Orally administered drugs
are either absorbed through the intestinal wall into the bloodstream, or are
non-absorbed and achieve their intended therapeutic effect by acting in the
intestinal tract. Non-absorbed drugs are less likely to cause the toxicities
associated with many absorbed drugs.
GelTex's pharmaceuticals act in the intestinal tract without absorption
into the bloodstream, thereby minimizing the potential for adverse effects. The
Company's product development approach represents an advance in the use of
polymer hydrogels as pharmaceuticals. The Company's technology combines an
understanding of chemical interactions necessary for molecular recognition with
the ability to design and synthesize polymer hydrogels. The Company's technology
enables it to combine commercially available monomers that have distinct
structural qualities to create proprietary, non-absorbed polymers that
selectively bind target molecules. The Company designs its polymers to carry a
high density of selective binding sites for the targeted molecules, making them
potent at low dosage levels.
GelTex's products are designed to be orally administered in capsule or
tablet form. The hydrogels are not broken down during the digestive process and,
as a result, are too large to be absorbed through the intestinal wall and into
the bloodstream. As the hydrogels pass through the stomach and into the
intestines, they selectively and tightly bind targeted molecules and absorb
significant amounts of water, forming a soft, gelatinous material. In this form,
the hydrogel passes easily through the intestinal tract and, with the attached
target molecules, is excreted from the body.
The Company's enabling technology offers the following benefits:
* Broad Application to Diseases and Conditions. The Company believes its
enabling technology is applicable to a broad range of diseases and
conditions treatable through the intestinal tract such as elevated
cholesterol, elevated phosphorus levels, certain infectious diseases,
ulcers, and inflammatory bowel disease.
* Low Risk of Adverse Side Effects. The Company's polymer-based products
are designed to be non-absorbed and well tolerated. Since the products
act only in the intestinal tract and are not
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absorbed into the bloodstream, they are less likely to cause the
toxicities associated with many absorbed drugs.
* Convenient Oral Dosage Form. The Company's polymer-based products are
designed to be potent at low dosage levels, thereby permitting oral
administration in a convenient capsule or tablet form.
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The key elements of the Company's product development and commercialization
strategy include: (i) applying the Company's polymer technology to produce drug
therapies that act in the intestinal tract; (ii) producing pharmaceuticals for
which there are major and well defined markets; (iii) producing pharmaceuticals
that offer significant improvements over available therapies or treat diseases
for which no effective therapy currently exists; and (iv) collaborating with
strategic partners to fund and assist in product development activities, as well
as the manufacture and distribution of the Company's products. The Company
believes that the safety profile and well defined clinical pathways of its
products have contributed to its clinical progress to date.
The Company has novel pharmaceutical products in various stages of research
and development for the treatment of elevated cholesterol, elevated phosphorus
and C. parvum. The table below outlines the status of the Company's product
development and research programs.
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PRODUCT/PROGRAM INTENDED INDICATIONS DEVELOPMENT STATUS
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RenaGel Control of elevated phosphorus levels in patients with Phase IIb clinical trial
chronic kidney failure completed in April 1996;
Phase III clinical trials
completed in March 1997
CholestaGel Treatment of elevated cholesterol in patients with Phase IIb and IIc
primary hypercholesterolemia (elevated low-density clinical trials completed
lipoprotein (LDL) cholesterol) in February 1997; Phase
IId clinical trial
planned for mid-1997
Infectious Diseases:
C. parvum Treatment of cryptosporidiosis in Research
immunocompromised patients
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Notes
"Clinical trials" refers to testing in humans. See "Government Regulation."
"Research" includes the discovery or creation of prototype compounds, in vitro studies of those
compounds and preliminary evaluation in animals.
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RENAGEL
Overview
The United States Health Care Financing Administration ("HCFA") estimates
that in 1995 more than 200,000 patients in the United States underwent chronic
dialysis treatment for end-stage kidney disease. According to HCFA, the number
of end-stage kidney failure patients in the United States is increasing by 8% to
10% per year. In western Europe, the number of dialysis patients in 1995 was
estimated to be 159,000 and to be increasing by approximately 5% to 7% per year.
In Japan, the number of dialysis patients in 1995 was estimated to be 138,000
and to be increasing by approximately 6% per year.
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Control of blood phosphorus levels is central to the prevention of renal
bone disease in patients with chronic kidney failure. Phosphate is absorbed into
the bloodstream through the small intestine from protein-rich high-phosphate
foods such as meat, fish and dairy products. Healthy kidneys maintain a delicate
balance between phosphorus and calcium levels in the blood by excreting excess
phosphorus in the urine. In patients with chronic kidney failure, the kidneys
are unable to remove enough phosphorus to maintain the necessary balance.
Elevated phosphorus levels signal the body to excrete parathyroid hormone (PTH),
which breaks down bone to release calcium into the blood in an effort to
reestablish the balance between calcium and phosphorus. Chronic kidney failure
patients with uncontrolled elevated phosphorus levels (hyperphosphatemia)
experience bone loss as well as calcification of the circulatory system caused
by excessive amounts of phosphorus and calcium in the blood.
To reduce elevated phosphorous levels, nearly all dialysis patients use
some form of phosphate binder, currently the only available treatment for
hyperphosphatemia. Phosphate binders bind dietary phosphate in the intestinal
tract, thereby preventing its absorption into the bloodstream. The Company
estimates that the worldwide market for phosphate binders for dialysis patients
is $300 million. In addition to the dialysis population, many patients in the
early stages of chronic kidney failure (the pre-dialysis population) use
phosphate binders. An estimated 600,000 Americans can be classified as
pre-dialysis patients.
Currently available phosphate binders include calcium acetate, the only
FDA-approved phosphate binder, and calcium carbonate and aluminum hydroxide,
neither of which is approved in the United States for the control of
hyperphosphatemia in patients with chronic kidney failure. Calcium acetate and
calcium carbonate, the most commonly used agents, must be taken at sufficient
doses to achieve adequate reductions in phosphate absorption, which can lead to
constipation and noncompliance. In addition, calcium therapy requires frequent
monitoring because its use can cause dangerous elevations of blood calcium
levels (hypercalcemia). Hypercalcemia occurs in 25% to 50% of patients taking
calcium-based binders. Aluminum hydroxide is more effective at lower doses than
calcium acetate or calcium carbonate, but it is infrequently used because
aluminum absorbed from the intestinal tract accumulates in the tissues of
patients with chronic kidney failure, causing aluminum-related osteomalacia
(softening of the bones) and dialysis dementia (deterioration of intellectual
function). The Company believes that a non-absorbed, non-calcium-based phosphate
binder will offer significant benefits in the treatment of hyperphosphatemia in
patients with chronic kidney failure.
RenaGel Phosphate Binder
GelTex is developing RenaGel phosphate binder, an orally administered,
non-absorbed hydrogel intended to control hyperphosphatemia in patients with
chronic kidney failure. The product is designed to provide significant
advantages over currently available phosphate binders. RenaGel binds dietary
phosphate without the use of either calcium or aluminum and, therefore, will not
cause hypercalcemia or aluminum toxicities. The Company intends to supply
RenaGel in a convenient capsule form that is more palatable than the chalky
chewable and acidic uncoated tablet forms of currently available phosphate
binders.
The Company filed an Investigational New Drug Application ("IND") for
RenaGel with the FDA in November 1994. In December 1994, the Company initiated a
double-blind, randomized, placebo-controlled, dose-escalation Phase I clinical
trial, designed to establish safety, toleration and phosphate binding efficacy
in 24 healthy volunteers. The trial demonstrated that RenaGel was well
tolerated, and all subjects completed the trial without any drug-related adverse
reactions. The trial also demonstrated a dose-dependent decrease in urinary
phosphorus excretion, indicating that RenaGel bound dietary phosphate, leaving
less to be absorbed into the bloodstream.
The safety, efficacy and tolerability of RenaGel in 36 patients on dialysis
was studied in a double-blind, randomized, cross-over, placebo-controlled Phase
IIa clinical trial completed in August 1995. This study was designed to
demonstrate that RenaGel is equivalent in potency to currently available
calcium-based phosphate binders. In this study, RenaGel was shown to be safe and
well tolerated by patients on dialysis. All patients completed drug treatment,
and the adverse reaction profile of RenaGel was similar to that of the placebo.
This trial demonstrated that RenaGel produces a dose-dependent decrease in serum
phosphorus levels and is approximately equal in potency to the currently
available calcium-based phosphate binders.
The Company completed a two month open-label, dose titration Phase IIb
clinical trial in 48 dialysis patients in April 1996 at five clinical sites.
This trial design followed the expected treatment regimen for RenaGel, which
will
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involve initiation of therapy at a low dose, followed by bi-weekly dose
titration until the dose reflects the unique dietary phosphate intake of each
patient. Results of this trial demonstrated that RenaGel significantly decreased
serum phosphorus without increasing serum calcium, while maintaining adequate
control of PTH levels.
GelTex initiated two pivotal Phase III clinical trials with RenaGel in June
1996. These studies were completed in the first quarter of 1997. The first
trial, a 172-patient open-label placebo controlled study, confirmed and expanded
the results of the Company's Phase IIb study, demonstrating RenaGel's ability to
control phosphate levels without elevating calcium levels. Results of this study
also suggest that reducing phosphorus levels in the absence of calcium
supplementation can aid in the control of PTH levels.
The second Phase III study, an 82-patient crossover study, was designed to
compare the safety and efficacy of RenaGel with that of calcium acetate
(PhosLo(R)). A preliminary analysis of the results of this trial shows that
RenaGel is as effective as calcium acetate in reducing serum phosphorus levels
with significantly fewer incidents of hypercalcemia. The Company expects to file
a NDA for RenaGel with the FDA in the fourth quarter of 1997.
In December 1994, GelTex granted Chugai Pharmaceutical Co., Ltd. ("Chugai")
an exclusive license to develop and commercialize RenaGel in Japan and other
Pacific Rim countries. See "Development and Marketing Agreements."
CHOLESTAGEL
Overview
Elevated LDL cholesterol (hypercholesterolemia) has been widely recognized
as a significant risk factor for coronary heart disease since the mid-1980s. As
a result of the increased awareness and the broad prevalence of elevated LDL
cholesterol, cholesterol-reducing drugs have emerged as one of the largest and
fastest growing pharmaceutical product categories. Worldwide, more than 21
million people used cholesterol-reducing drugs in 1996, representing a global
market exceeding $6 billion.
While the risks of hypercholesterolemia are well recognized, the condition
remains significantly under-treated worldwide. According to a 1993 report from
the National Cholesterol Education Program ("NCEP") of the National Institutes
of Health, an estimated 65 million Americans have elevated cholesterol levels.
Of these, 13 million would require both drug and diet therapy to achieve
adequate reductions in cholesterol levels. A separate 1993 study showed that
only 5 million Americans were receiving cholesterol-reducing drugs. Worldwide,
only an estimated one-third of individuals who should be receiving
cholesterol-reducing drugs are receiving therapy. The market for
cholesterol-reducing drugs is expected to grow as awareness and diagnosis
continue to increase.
Physicians frequently prescribe a low fat, low cholesterol diet (the NCEP
Step I diet) as an initial approach to lowering elevated cholesterol. In cases
where dietary changes alone do not adequately lower a patient's cholesterol
levels, drug therapy may be needed. Physicians have the option of prescribing
one of two types of therapies: non-absorbed cholesterol-reducing drugs (i.e.,
bile acid sequestrants) or several classes of absorbed agents. One class of
absorbed agents is the HMG-CoA reductase inhibitors, the most widely prescribed
class of cholesterol-reducing agents in the United States. Worldwide sales of
the three leading HMG-CoA reductase inhibitors each exceeded $1 billion in 1995.
These drugs work by blocking cholesterol synthesis and enhancing the liver's
ability to clear LDL cholesterol from the blood.
Bile acid sequestrants, an alternative therapy to absorbed agents such as
HMG-CoA reductase inhibitors, have been marketed for decades. Bile acids are
synthesized by the liver from cholesterol and secreted into the intestines to
aid digestion of fats. Bile acid sequestrants bind to bile acids in the
intestinal tract and increase their excretion from the body. To replenish the
bile acid pool, the liver draws cholesterol from the bloodstream, resulting in a
reduction in blood cholesterol levels. Bile acid sequestrants work without
entering the bloodstream and are generally regarded as safer than absorbed
agents such as HMG-CoA reductase inhibitors, which require frequent liver
function tests. Since cholesterol-reducing therapy typically involves a
life-long drug regimen, many doctors prescribe bile acid sequestrants as
first-line drug therapy, especially for primary prevention and in younger
patients.
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Sales of bile acid sequestrants in the United States exceeded $140 million
in 1995. The most widely prescribed bile acid sequestrant in the United States
is cholestyramine, a polymer resin which is based on a single monomer.
Cholestyramine is an inefficient and weak binder of bile acids and, therefore,
must be taken in large quantities. Typically, patients must drink a mixture of
two to three tablespoons of cholestyramine in eight ounces of water twice a day.
The unpleasant intestinal side effects and necessarily large doses of currently
available bile acid sequestrants prompt many patients to discontinue this
therapy. As a result, many physicians either switch patients to or initially
prescribe HMG-CoA reductase inhibitors. The Company believes that CholestaGel, a
bile acid sequestrant with improved efficacy and tolerability in a convenient
capsule or tablet form, will increase patient acceptance and use of bile acid
sequestrant therapy.
CholestaGel Non-Absorbed Cholesterol Reducer
GelTex is developing CholestaGel, an orally administered, non-absorbed
hydrogel intended to reduce elevated LDL cholesterol levels in patients with
hypercholesterolemia. The Company believes that the structural design of
CholestaGel represents a significant advance over existing bile acid
sequestrants in that it carries a high density of bile acid binding sites,
making it more potent at lower doses than currently marketed agents. The Company
expects CholestaGel to meet the needs of the market for a non-absorbed
cholesterol-reducing drug that is safe and well tolerated in long term use, that
is effective at low doses and is available in a convenient capsule or tablet
form.
CholestaGel may be particularly appropriate therapy for young people with
elevated cholesterol levels who may be on therapy for the rest of their lives.
CholestaGel may also expand treatment of mild-to-moderate cholesterol elevations
(LDL cholesterol from 130 to 160 mg/dL) by giving physicians a safer therapy to
prescribe to patients at lower risk of coronary heart disease. In addition,
those patients with established coronary heart disease may benefit by combining
low doses of CholestaGel and HMG-CoA reductase inhibitors, since currently
available bile acid sequestrants are approved for use in combination with
HMG-CoA reductase inhibitors.
The Company filed an IND for CholestaGel with the FDA in May 1995. In June
1995, the Company initiated a double-blind, placebo-controlled, dose-escalation
Phase I clinical trial in 24 healthy volunteers to assess the safety and
tolerability of CholestaGel. Data from this trial indicate that CholestaGel was
well tolerated by all subjects at all dosage levels, and there were no
drug-related adverse events. In addition, CholestaGel caused a significant
dose-dependent reduction in LDL cholesterol in healthy volunteers. Even though
the starting cholesterol levels of the subjects were low, the use of CholestaGel
resulted in statistically significant reductions of LDL cholesterol in all
dosage groups.
In March 1996, the Company completed a Phase IIa study of CholestaGel
initiated in August 1995. This double-blind, placebo-controlled, dose-ranging
study was designed to evaluate the safety, tolerability and lipid-lowering
efficacy of CholestaGel in subjects with LDL cholesterol levels exceeding 160
mg/dL. Analysis of the data from this study indicates that patients receiving
1.2 grams b.i.d. (twice daily) of CholestaGel experienced an average 27 mg/dL
(15%) reduction in LDL cholesterol, and patients receiving 3.6 grams b.i.d.
experienced an average 50 mg/dL (29%) reduction. Patients receiving placebo
experienced no meaningful change in LDL cholesterol levels. No dose-limiting
side effects were reported.
In February 1997, the Company completed a Phase IIb, 147-patient dose
ranging study looking at four dose levels of CholestaGel. Preliminary analysis
of the data from this study indicates patients receiving 1 to 6 grams b.i.d. of
CholestaGel experienced an average 30 mg/dL (15%) reduction in LDL cholesterol
and patients receiving 2.0 grams b.i.d. experienced an average 35 mg/dL (17%)
reduction. This study also showed that CholestaGel was well tolerated with a
lack of gastrointestinal side effects such as constipation, which are
significant problems with existing bile acid sequestrants.
In February 1997, the Company also completed a Phase IIc clinical trial of
CholestaGel. This study compared once daily dosing versus twice daily dosing in
119 patients. All patients took a total of 1.6 grams per day. Results of this
study indicate that once daily dosing is at least as effective as split dosing.
The Phase IIb and IIc studies were conducted with CholestaGel material
manufactured by an improved process which extends the shelf life of the product
and lowers the cost of goods without affecting the cholesterol lowering
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activity of the product. The Company intends to initiate a Phase IId study in
the second quarter of 1997 to test what it believes to be the optimum dosage
form of CholestaGel, a 650 mg tablet.
The Company is continuing to conduct research regarding potential
additional benefits of cholesterol-reduction with CholestaGel. The Company is
conducting animal studies to examine the effects of CholestaGel on the early
stages of atherosclerosis formation (fat deposits on the artery wall). In these
experiments, animals fed diets high in fat develop high cholesterol and
widespread arterial fat deposits similar to those found in humans. When these
animals are treated with CholestaGel, blood cholesterol levels are reduced and
fat deposition on the artery walls is decreased or prevented. In addition to
this research, the Company is continuing to identify more potent bile acid
sequestering polymers and has synthesized several candidates.
In June 1996, the Company received notice from Ono Pharmaceutical Co.,
Ltd., that it had terminated its agreement to develop CholestaGel in Japan,
China, Korea and Taiwan. Upon such termination, GelTex reacquired all rights to
the product in those countries.
INFECTIOUS DISEASE RESEARCH
Overview
The Company is applying its expertise in polymer chemistry and molecular
recognition technology to develop polymers designed to treat infectious diseases
in the intestinal tract by mimicking the body's natural antibody response to
pathogens. In addition to the Company's internal drug discovery and screening
programs, GelTex is collaborating with researchers at Kansas State University,
Tufts University and the VA Palo Alto Healthcare System, who are developing or
have established screening procedures and are testing the effectiveness of
GelTex's compounds in treating targeted infectious diseases. These screening
procedures use animal and cell culture models which enable the Company to
receive information concerning its products in a short time period.
Like antibodies, these polymers are intended to act by selectively
recognizing, binding to and inactivating specific sites on the pathogen's
surface that are used to infect cells on the intestinal wall. The Company
believes that once these sites are blocked, infection will not continue to
occur. The pathogens are then expected to pass through the intestinal tract and
be excreted from the body. GelTex believes that the use of these polymers may be
less likely than current antibiotic therapies to result in the development of
microbial resistance.
GelTex is focusing its research efforts in this area toward designing and
testing polymers for the treatment of cryptosporidiosis. The Company chose this
disorder because (i) no effective drug therapies exist, (ii) the potentially
relevant molecular recognition fragments have been identified and (iii) disease
models are available for testing drug candidates for this condition. In November
1994, GelTex was awarded a $2 million grant from the United States Department of
Commerce's Advanced Technology Program. The grant, which is administered by the
National Institute of Standards and Technology, provides partial funding for
this program distributable over a three year period.
Cryptosporidium parvum
C. parvum is a water borne parasite that can cause cryptosporidiosis, a
debilitating diarrheal disease. In healthy individuals, the immune system is
able to control and eradicate the parasite within 7 to 14 days of infection. In
those individuals with compromised immune function, such as patients with AIDS
and immunosuppressed transplant recipients, the immune system cannot clear the
parasite for months or even years. Patients become rapidly dehydrated, must be
hospitalized for long periods of time and sometimes die from the symptoms of the
infection. There is currently no effective therapy for cryptosporidiosis. Each
year, approximately 10% to 15% of the United States AIDS population develops
cryptosporidiosis.
C. parvum colonizes epithelial cells on the surface of the intestinal
tract. During the course of its life cycle, the parasite produces spores
(merozoites) which float freely for a period of time in the intestinal lumen
before infecting new cells. GelTex is designing polymers that will bind to C.
parvum merozoites during this free-floating period. Both epithelial cells and C.
parvum have short life-spans and are shed from the intestinal wall in a matter
of days. Thus, the Company believes that a polymer ingested over the course of
several days would bind and eliminate each
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new generation of merozoites, preventing the infection of new epithelial cells
and reducing colonization or eliminating the pathogen from the intestinal tract.
OTHER APPLICATIONS OF GELTEX'S TECHNOLOGY
In addition to its development programs and infectious disease research,
the Company is currently evaluating a number of other product development
opportunities using its technology. Specifically, the Company believes that
conditions of the intestinal tract such as ulcers and inflammatory bowel
diseases could be treated with polymer-based products developed using the
Company's enabling technology.
DEVELOPMENT AND MARKETING AGREEMENTS
GelTex intends to commercialize its products through development and
marketing agreements with pharmaceutical companies. GelTex expects that such
agreements will provide the Company with (i) financial support in the form of
license, research and development and/or milestone payments, (ii) capabilities
in research and development and sales and marketing and (iii) a revenue stream
on product sales following regulatory approvals. The Company currently has a
major development and marketing agreement in effect with Chugai.
In December 1994, GelTex granted Chugai an exclusive license to develop and
commercialize RenaGel in Japan and other Pacific Rim countries. Chugai, a
leading Japanese pharmaceutical company, is the largest distributor in Japan of
rHuEPO, a product which is used to treat anemia in patients with chronic kidney
failure.
The agreement provides for Chugai to fund the development of RenaGel in
Japan and other Pacific Rim countries and grants Chugai the exclusive right to
manufacture and market the product in the territory. Under the agreement, Chugai
made an upfront license payment to GelTex and has agreed to make milestone
payments to GelTex, payable throughout the development process in Japan. Chugai
will pay a royalty to GelTex on net product sales in the territory. Chugai has
the right to terminate the agreement on short notice at any time prior to
product approval in Japan. Termination will relieve Chugai of any further
payment obligations under the agreement and will end any license granted to
Chugai by GelTex. In December 1996, Chugai informed the Company that it had
initiated a Phase I clinical trial for RenaGel in Japan, resulting in a $1
million milestone payment to GelTex.
RAW MATERIAL AND MANUFACTURING
The Company's two lead products are manufactured from a raw material for
which the Company has a single source of supply. The supplier has a composition
of matter patent covering the material, and the Company believes that no
additional suppliers have been licensed. In order to address issues of supply of
this raw material, the Company has entered negotiations with the supplier to
obtain a manufacturing license. Should the Company or its corporate partners be
unable to secure an adequate supply of the material or to secure such supply at
commercially reasonable rates, the Company may be unable to commercialize these
products as planned.
The Company has chosen not to build the capacity to manufacture its
potential products and, therefore, purchases from third party manufacturers its
compounds for preclinical research and clinical trial purposes and expects to be
dependent on third party manufacturers for commercial production. The Company
believes that it will be able to negotiate arrangements with third party
manufacturers on commercially reasonable terms and that it will not be necessary
for it to develop internal manufacturing capability in order to successfully
commercialize its products. The Company does not have long term, fixed price
manufacturing agreements with respect to RenaGel or CholestaGel with any
suppliers. In the event that the Company is unable to obtain contract
manufacturing, or obtain such manufacturing on commercially reasonable terms, it
may need to acquire manufacturing capability or it may be unable to
commercialize its products as planned.
The Company has obtained pharmaceutical grade bulk production quantities of
its lead compounds, RenaGel and CholestaGel from two suppliers (one for each
compound). This bulk production is being used in clinical trials of these
products. The Company is continuing to work with its third party manufacturers
to optimize processes for the manufacture of commercial quantities of RenaGel
and CholestaGel. In the event the continuing process development work is not
successful, the Company's profit margins could be adversely affected.
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The Company is currently exploring relationships with other suppliers to
complement its relationships with its existing suppliers. The Company has
established a quality control program, including a set of standard operating
procedures, intended to ensure that third party manufacturers under contract
produce the Company's compounds in accordance with the FDA's current Good
Manufacturing Practices.
The production of GelTex's compounds is based in part on technology that
the Company believes to be proprietary. GelTex maintains confidentiality
agreements, contractual arrangements and patent filings to protect this
proprietary knowledge. In the event that such manufacturers fail to abide by the
limitations or confidentiality restrictions in the manufacturing arrangements,
the proprietary nature of GelTex's technology could be adversely affected and,
consequently, any competitive advantage that GelTex has achieved as a result of
the proprietary nature of this technology could be jeopardized.
PATENTS, TRADE SECRETS AND LICENSES
Protection of the Company's proprietary rights is important to maintaining
its competitive position. The Company actively seeks, when appropriate,
protection for its products and proprietary information by means of United
States and foreign patents, trademarks and contractual arrangements. In
addition, the Company relies upon trade secrets and contractual arrangements to
protect certain of its proprietary information and products.
The Company has three issued U.S. patents. The first, covers technology
related to RenaGel and a class of other orally administered non-absorbed
phosphate-binding polymers and their use in the treatment of hyperphosphatemia.
The second covers methods of binding iron in the gastrointestinal tract with
non-absorbed, polymer-based pharmaceuticals, thereby reducing iron absorption
into the bloodstream. The third, issued in March 1996, covers technology related
to CholestaGel and other polymeric materials. The Company also has approximately
16 pending United States patent applications and has filed approximately 37
international and foreign counterparts. There can be no assurance that any
patents will issue from any of the Company's patent applications. Further, there
can be no assurance that any current or future patents will provide the Company
with significant protection against competitive products or otherwise be of
commercial value.
Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of its scientific and technical
personnel. To protect its rights to its proprietary know-how and technology, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements require disclosure
and assignment to the Company of ideas, developments, discoveries and inventions
made by employees, consultants, advisors and, when possible, collaborators.
There can be no assurance that these agreements will effectively prevent
disclosure of the Company's confidential information or will provide meaningful
protection for the Company's confidential information if there is unauthorized
use or disclosure. Furthermore, in the absence of patent protection, the
Company's business may be adversely affected by competitors who independently
develop substantially equivalent technology.
COMPETITION
The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in activities similar to those of the Company, including research and
development of products for hypercholesterolemia, hyperphosphatemia and
cryptosporidiosis.
In the cholesterol-reduction field, products are currently available that
address some of the needs of the market. These products include other bile acid
sequestrants, HMG-CoA reductase inhibitors, fibric acid derivatives and niacin.
In 1995, sales of HMG-CoA reductase inhibitors represented approximately 74% of
the market for cholesterol-reducing drugs sold in the United States. Worldwide
sales of the three leading HMG-CoA reductase inhibitors each exceeded $1 billion
in 1995. Bile acid sequestrants work without entering the bloodstream and are
generally regarded as safer than absorbed agents such as HMG-CoA reductase
inhibitors, which require frequent liver function tests. However, the unpleasant
intestinal side affects and necessarily large doses of currently available bile
acid sequestrants prompt many patients to discontinue this therapy. The most
widely prescribed bile acid sequestrant in the United States is cholestyramine,
a polymer resin which is based on a single monomer.
8
<PAGE> 10
Cholestyramine is an inefficient and weak binder of bile acids and, therefore,
must be taken in large quantities. The Company believes that CholestaGel will
effectively compete with currently available bile acid sequestrants by offering
improved efficacy and tolerability and a more palatable formulation than that of
currently available bile acid sequestrants. However, currently marketed products
often have a significant competitive advantage over new entrants, and there can
be no assurance that the Company will be able to secure a sufficient percentage
of its targeted market to meet its current revenue projections. Failure to do so
will adversely affect the Company's ability to achieve and sustain
profitability. See "CholestaGel-CholestaGel Non-Absorbed Cholesterol Reducer."
Phosphate binders are currently the only available treatment for
hyperphosphatemia. There are several phosphate binders available. A prescription
calcium acetate preparation is currently the only product approved in the United
States for the control of elevated phosphorus levels in patients with chronic
kidney failure. Other products used as phosphate binders include
over-the-counter calcium- and aluminum-based antacids and dietary calcium
supplements. Calcium acetate and calcium carbonate, the most commonly used
agents, must be taken at sufficient doses to achieve adequate reductions in
phosphate absorption, which can lead to constipation and noncompliance. In
addition, calcium therapy requires frequent monitoring because its use can cause
dangerous elevations of blood calcium levels (hypercalcemia). Aluminum hydroxide
is more effective at lower doses than calcium acetate or calcium carbonate, but
it is infrequently used because aluminum absorbed from the intestinal tract
accumulates in the tissues of patients with chronic kidney failure, causing
aluminum-related osteomalacia (softening of the bones) and dialysis dementia
(deterioration of intellectual function). RenaGel binds dietary phosphate
without the use of either calcium or aluminum and, therefore, will not cause
hypercalcemia or aluminum toxicities. The Company believes that RenaGel will
effectively compete with existing phosphate binders by offering an excellent
tolerability profile and a more palatable formulation than that of currently
available phosphate binders. However, currently marketed products often have a
significant competitive advantage over new entrants, and there can be no
assurance that the Company will be able to secure a sufficient percentage of its
targeted market to meet its current revenue projections. Failure to do so will
adversely affect the Company's ability to achieve and sustain profitability. See
"RenaGel-RenaGel Phosphate Binder."
In addition to currently available therapies, several of the Company's
competitors are engaged in development activities and clinical trials of bile
acid sequestrants and other types of cholesterol-reducing agents. Many of the
Company's competitors have substantially greater financial and other resources,
larger research and development staffs and more extensive marketing and
manufacturing organizations than the Company. These competitors may also compete
with the Company in establishing development and marketing agreements with
pharmaceutical companies. There are also academic institutions, governmental
agencies and other research organizations that are conducting research in areas
in which the Company is working.
GOVERNMENT REGULATION
The development, manufacture and potential sale of therapeutics is subject
to extensive regulation by United States and foreign governmental authorities.
In particular, pharmaceutical products are subject to rigorous preclinical and
clinical testing and to other approval requirements by the FDA in the United
States under the Federal Food, Drug and Cosmetic Act and the Public Health
Service Act and by comparable agencies in most foreign countries.
Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
preclinical data must be satisfied. The data, obtained from studies in several
animal species, as well as from laboratory studies, are submitted in an IND
application or its equivalent in countries outside the United States where
clinical studies are to be conducted. The preclinical data must provide an
adequate basis for evaluating both the safety and the scientific rationale for
the initiation of clinical trials.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the compound into healthy human subjects prior to
introduction into patients, the product is tested for safety, adverse affects,
dosage, tolerance, absorption, metabolism, excretion and clinical pharmacology.
Phase II typically involves studies in a small sample of the intended patient
population to assess the efficacy of the compound for a specific indication, to
determine dose tolerance and the optimal dose range as well as to gather
additional information relating to safety and potential adverse effects. Phase
III trials are undertaken to further evaluate clinical safety and efficacy in an
expanded patient population at
9
<PAGE> 11
geographically dispersed study sites, in order to determine the overall
risk-benefit ratio of the compound and to provide an adequate basis for product
labeling. Each trial is conducted in accordance with certain standards under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND.
Data from preclinical and clinical trials are submitted to the FDA as a NDA
for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a new
drug is likely to take a number of years and require the expenditure of
substantial resources. Preparing a NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense, and
there can be no assurance that FDA or any other health authority approval will
be granted on a timely basis, if at all. The approval process is affected by a
number of factors, primarily the risks and benefits demonstrated in clinical
trials as well as the severity of the disease and the availability of
alternative treatments. The FDA or other health authorities may deny a NDA or
marketing authorization application if the authority's regulatory criteria are
not satisfied or may require additional testing or information.
Even after initial FDA or other health authority approval has been
obtained, further studies, including Phase IV post-marketing studies, may be
required to provide additional data on safety and will be required to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially tested. Also, the FDA or other
regulatory authorities may require post-marketing reporting to monitor the side
effects of the drug. Results of post-marketing programs may limit or expand the
further marketing of the products. Further, if there are any modifications to
the drug, including changes in indication, manufacturing process or labeling or
a change in manufacturing facility, an application seeking approval of such
changes will be required to be submitted to the FDA or other regulatory
authority.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements. Further, the FDA
regulates the export of products produced in the United States and may prohibit
the export even if such products are approved for sale in other countries.
In addition to the statutes and regulations described above, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resources
Conservation and Recovery Act and other present and potential future federal,
state and local regulations, and by the Nuclear Regulatory Commission.
Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and a lengthy period of time.
Delay or failure in obtaining the required approvals, clearances, permits or
inclusions by the Company, its corporate partners or its licensees would have a
materially adverse effect on the ability of the Company to generate sales or
royalty revenue. The impact of new or changed laws or regulations cannot be
predicted with any accuracy.
HUMAN RESOURCES
As of March 24, 1997, GelTex had 45 full-time employees. Thirty-two of
these individuals (13 of whom hold Ph.D. or M.D. degrees) are involved in
research and development, and thirteen are in general and administrative
functions. Members of the Company's scientific advisory board come from a number
of different disciplines, with expertise in polymer chemistry, medicinal
chemistry, molecular recognition, clinical pharmacology and clinical medicine.
See "Management - Executive Officers" and "- Scientific and Bile Acid Advisory
Boards."
RESEARCH AND DEVELOPMENT COSTS
The information required by Item 101(c)(xi) of Regulation S-K is
incorporated by reference from Part II, Item 8 "Financial Statements and
Supplementary Data" and specifically from the "Statement of Operations" set
forth on page F-4 of the Company's attached financial statements.
10
<PAGE> 12
ITEM 1(a) MANAGEMENT
- --------------------
EXECUTIVE OFFICERS
The executive officers of the Company, who are elected to serve at the
discretion of the Board of Directors, are as follows:
NAME AGE POSITION
---- --- --------
Mark Skaletsky 48 President, Chief Executive Officer,
Treasurer and Director
Dennis Goldberg, Ph.D. 48 Vice President, Product Development and
Regulatory Affairs
W. Harry Mandeville, Ph.D. 47 Vice President, Chemical Technology
Joseph Tyler 46 Vice President, Manufacturing
MARK SKALETSKY, President, Chief Executive Officer, Treasurer and Director.
Mr. Skaletsky joined GelTex in May 1993 as President, Chief Executive Officer
and a Director of the Company and has served as Treasurer of the Company since
August 1993. Mr. Skaletsky previously served from 1988 to 1993 as Chairman and
Chief Executive Officer of Enzytech, Inc., a biotechnology company, and
President and Chief Operating Officer of Biogen, Inc., a biotechnology company,
from 1983 to 1988. He is a director of Isis Pharmaceuticals, Inc. Mr. Skaletsky
received his B.S. in Finance from Bentley College.
DENNIS GOLDBERG, PH.D., Vice President, Product Development and Regulatory
Affairs. Dr. Goldberg joined GelTex in October 1993 from Transcend Therapeutics,
Inc. (formerly Free Radical Sciences, Inc.), a pharmaceutical company, where he
was a co-founder and served as Vice President, Research and Development since
1993. From 1990 to 1993, he was Director, Research and Development at Clintec
Nutrition Co., a clinical nutrition and pharmaceutical company which is a joint
venture between Baxter Healthcare, Inc. and Nestle S.A. Dr. Goldberg received
his Ph.D. in Physiology and Biochemistry from Temple University.
W. HARRY MANDEVILLE, PH.D., Vice President, Chemical Technology. Dr.
Mandeville joined the Company in 1992 from his position as Director, Research,
Development and Engineering, Chemical Products Group at the Waters
Chromatography Division of Millipore Corp., an analytical instrumentation
company, which he joined in 1987. Dr. Mandeville received his Ph.D. in Organic
Chemistry from the Massachusetts Institute of Technology.
JOSEPH TYLER, Vice President, Manufacturing. Mr. Tyler joined GelTex in
April 1995 from Stryker Biotech, a medical device company, which he joined in
1992, serving as Director, Operations. From 1990 to 1992, Mr. Tyler was employed
at Abbott Biotech (formerly Damon Biotech), a biologicals company, as Director,
Manufacturing and later as General Manager. Mr. Tyler received his M.S. in
Biochemical Engineering from Cornell University.
SCIENTIFIC AND BILE ACID ADVISORY BOARDS
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. Members also evaluate
the Company's research programs, recommend personnel to the Company and advise
the Company on technological matters. In addition to its Scientific Advisory
Board, GelTex has established consulting relationships with a number of
scientific and medical experts who advise the Company on a project-specific
basis. One of the most important of these is the Company's Bile Acid Advisory
Board, a group of leading experts in the field of bile acids and bile acid
sequestrants who help to guide the Company's efforts in this area.
11
<PAGE> 13
No member of the Scientific Advisory Board or the Bile Acid Advisory Board
is employed by the Company, and members may have other commitments to or
consulting or advisory contracts with their employers or other entities that may
conflict or compete with their obligations to the Company. Accordingly, such
persons are expected to devote only a small portion of their time to the
Company.
<TABLE>
The members of the Company's Scientific Advisory and Bile Acid Advisory
Boards are:
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
SCIENTIFIC ADVISORY BOARD
George Whitesides, Ph.D. (Chairman) Mallinckrodt Professor of Chemistry,
Harvard University
Joseph Bonventre, M.D. Associate Professor of Medicine,
Harvard Medical School; Associate Professor
of Health Sciences and Technology,
Massachusetts Institute of Technology
Martin C. Carey, M.D., D.Sc. Professor of Medicine, Harvard University,
Brigham and Women's Hospital
John Thomas LaMont, M.D. Chief, Division of Gastroenterology,
Beth Israel Hospital; Charlotte F. & Irving W. Rabb
Professor of Medicine, Harvard Medical School
Andrew G. Plaut, M.D. Professor of Medicine, Tufts University School of Medicine;
Director, Core Center for Gastroenterology Research,
an NIH Center at New England Medical Center Hospital
and Tufts University School of Medicine
BILE ACID ADVISORY BOARD
Martin C. Carey, M.D., D.Sc. Professor of Medicine, Harvard University,
Brigham and Women's Hospital
Scott Grundy, M.D., Ph.D. Professor of Internal Medicine and BioChemistry
University of Texas Southwest Medical Center
Alan Hofmann, M.D., Ph.D. Professor of Medicine in Gastroenterology,
University of California, San Diego
Willis Maddrey, M.D. Executive Vice President, Clinical Affairs,
Southwest Medical Center
Robert Nicolosi, Ph.D. Director of Cardiovascular Research,
University of Massachusetts, Lowell
Ken Setchell, Ph.D. Professor, Department of Pediatrics,
Director of Clinical Mass Spectrometry,
Children's Hospital, Cincinnati
Randolph C. Steer, M.D., Ph.D. Independent Pharmaceutical Consultant
</TABLE>
12
<PAGE> 14
ITEM 2. PROPERTIES
- ------------------
The Company leases approximately 12,000 square feet of laboratory and
office space in one building at 303 Bear Hill Road in Waltham, Massachusetts.
The lease expires in 2004. The description of the lease terms is incorporated
herein by reference from Note 12 of the Notes to Financial Statements. On
February 28, 1997, the Company entered into a new lease, expiring in 2007, for a
25,200 square foot administrative and research and development facility, located
at 9 Fourth Avenue in Waltham, Massachusetts. Upon the completion of the
construction of leasehold improvements at the new facility, the Company plans to
move all of its operations and personnel and sublease the existing facility. The
Company believes that the new facility will be adequate to meet the Company's
needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The Company's Common Stock is traded on the over-the-counter market under
the symbol "GELX", and is listed on the Nasdaq National Market. The following
table sets forth the high and low sales prices for the Company's Common Stock as
reported by the Nasdaq National Market for the period from the date the
Company's Common Stock first began trading until December 31, 1996:
Year Ended December 31, 1995 High Low
---------------------------- ---- ---
Fourth Quarter (from November 8, 1995) 12 1/2 9 1/2
Year Ended December 31, 1996
----------------------------
First Quarter 25 5/8 12
Second Quarter 26 1/4 17 1/8
Third Quarter 20 1/2 11 1/2
Fourth Quarter 24 1/2 16 13/15
The Company has never paid a cash dividend. The Company intends to retain
all of its earnings, if any, for use in its business and does not intend to pay
cash dividends in the foreseeable future. Future dividend policy will depend,
among other factors, upon the Company's earnings and its financial condition.
As of March 21, 1997, there were approximately 132 holders of record of the
Company's Common Stock.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
<TABLE>
The following selected financial data for the five years ended December 31,
1996 are derived from the Company's financial statements. The data set forth
below should be read in conjunction with the Company's financial statements,
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Annual Report on
Form 10-K. The Company is considered a development stage company as described in
Note 1 of Notes to Financial Statements.
<CAPTION>
YEAR ENDED DECEMBER 31,
1992(1) 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
License fee and research revenue ..... $ -- $ -- $ 3,000,000 $ 750,000 $ 1,244,474
Research grant ....................... -- -- -- 157,410 418,541
---------- ----------- ----------- ----------- ------------
Total revenue ............................ -- -- 3,000,000 907,410 1,663,015
Costs and expenses:
Research and development ............. 283,396 808,191 3,655,067 6,503,788 21,755,298
General and administrative ........... 123,333 776,747 1,279,728 1,873,247 2,923,569
Other, nonrecurring costs ............ -- -- -- -- 230,000
---------- ----------- ----------- ----------- ------------
Total costs and expenses ................. 406,729 1,584,938 4,934,795 8,377,035 24,908,867
---------- ----------- ----------- ----------- ------------
Loss from operations ..................... (406,729) (1,584,938) (1,934,795) (7,469,625) (23,245,852)
Interest income .......................... 11,733 65,514 303,475 684,138 3,342,723
Interest expense ......................... -- -- (51,757) (99,158) (75,015)
---------- ----------- ----------- ----------- ------------
Net loss ................................. $ (394,956) $(1,519,424) $(1,683,077) $(6,884,645) $(19,978,144)
========== =========== =========== =========== ============
Net loss per share ....................... $ (0.27) $ (0.85) $ (1.60)
=========== =========== ============
Shares uses in computing net loss
per share ............................ 6,139,000 8,109,000 12,513,000
DECEMBER 31,
1992(1) 1993 1994 1995 1996
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities ........................... $ 420,758 $ 5,625,637 $13,953,090 $33,175,098 $ 73,424,559
Working capital .......................... 394,508 5,398,601 12,665,333 31,824,253 72,460,802
Total assets ............................. 511,178 5,991,780 16,110,669 35,993,277 78,068,470
Long-term obligations, less current
portion .............................. -- -- 670,693 419,569 124,360
Stockholders' equity ..................... 470,808 5,721,252 13,978,974 33,649,999 75,056,475
<FN>
- -----------
(1) Operations of the Company commenced in January 1992.
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
-----------------------------------------------------------------------
Since inception, the Company has devoted substantially all of its resources
to its research and product development programs. GelTex has generated no
revenues from product sales and has been dependent upon funding from external
financing, a strategic corporate alliance, interest income and government
grants. The Company has not been profitable since inception and has incurred a
cumulative net loss of $30.5 million through December 31, 1996. Losses have
resulted principally from costs incurred in research, development and clinical
testing of potential products and from general and administrative expenses. The
Company expects its research and development expenses to continue to increase in
connection with the advancement of its potential products through clinical
trials, the continuing development of a process for the manufacture of
commercial quantities of its products and the expansion of its programs. As a
result, the Company expects to incur increasing operating losses over the next
several years. The Company's ability to achieve profitability is dependent on
its ability to develop and obtain regulatory approval for its products, to enter
into agreements for product development and commercialization with corporate
partners, to secure supply of the raw material for its lead products and to
secure contract manufacturing services for the commercial supply of its products
at an acceptable cost.
RESULTS OF OPERATIONS
Fiscal Years Ended 1996, 1995 and 1994
The Company earned revenues of $1.7 million during 1996, consisting of $1.2
million in milestone payments and research revenue from its corporate partner
and $419,000 from a grant under the United States Department of Commerce's
Advanced Technology Program. In comparison, the Company earned revenues of
$907,000 during 1995, consisting of $750,000 of research revenue from a
corporate partner and $157,000 from the same Department of Commerce program and
$3.0 million in 1994 from a non-recurring license fee.
The Company's total operating expenses for 1996 were $25.0 million,
compared to $8.4 million for 1995 and $4.9 million for 1994. Research and
development expenses more than tripled to $21.8 million for 1996 from the $6.5
million that was spent in 1995, compared to a 78% increase in 1995 from the $3.7
million that was spent in 1994. These increases were due primarily to increasing
third party expenses associated with the development of CholestaGel and RenaGel
(including the production of clinical trial material, clinical trial expenses
and process development expenses) and increases in research and development
personnel costs to expand the infectious disease program and begin preparation
for filing a NDA for RenaGel. General and administrative expenses increased
approximately 56% to $2.9 million in 1996 from $1.9 million for 1995 and $1.3
million in 1994 due primarily to increased business development expenses and
increased administrative personnel costs. In addition, in 1996, the Company
experienced additional administrative costs associated with being a new public
company.
Interest income increased to $3.3 million in 1996 from $684,000 and
$303,000 in 1995 and 1994, respectively, due primarily to higher average cash
and marketable securities balances resulting from the Company's initial public
offering in November 1995 and from a follow-on public offering in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through December 31, 1996 primarily
with $87.3 million in net proceeds from two public offerings of equity
securities, $17.8 million from private sales of equity securities, $5.0 million
from license fees and research revenues from collaborative research agreements
and $4.4 million in interest income. Cash and marketable securities were $73.4
million at December 31, 1996, compared to $33.2 million at December 31, 1995.
The Company leases its administrative and research and development facility
under a long term operating lease expiring in 2004 and certain leasehold
improvements and equipment under capital leases expiring in 1997. Upon the
expiration of the capital leases, the Company intends to exercise its option to
purchase the leasehold improvements and equipment at a cost of $230,000, all of
which was charged to operations in the period ended December 31, 1996. On
February 28, 1997, the Company entered into a lease, expiring in 2007, for a new
administrative and research and development facility at an annual cost of
$302,000 for the first five years and $353,000 for the remainder of the lease
term. Upon the completion of the construction of leasehold improvements at the
new facility, the Company plans to move all of its operations and personnel and
sublease the existing facility
15
<PAGE> 17
and accompanying leasehold improvements. The Company expects to finance the cost
of the leasehold improvements, estimated at approximately $5.0 million, with
additional bank financing.
At December 31, 1996, the Company had $1.0 million available through
December 18, 1997 on a line of credit with a bank and had $288,000 outstanding
on various lines of credit with the bank. The amounts outstanding bear interest
at the prime rate and are due in monthly installments through March 1999.
At December 31, 1996, the Company had net operating losses of approximately
$31.0 million which expire through 2011. Since the Company expects to incur
substantial losses for at least the next several years, the Company believes
that it is more likely than not that all of the deferred tax assets will not be
realized, and therefore no tax benefit for the prior losses has been provided.
The future utilization of net operating loss carryforwards may be subject to
limitation under the changes in stock ownership rules of the Internal Revenue
Code of 1986, as amended. Because of this limitation, it is possible that
taxable income in future years, which would otherwise be offset by net operating
losses, will not be offset and therefore will be subject to tax. See Note 8 of
the Notes to the Financial Statements.
The Company believes that its cash and marketable securities balance and
the interest income thereon, should be sufficient to fund its operating expenses
as currently planned through at least 1998. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of clinical trials, its ability to enter into
new relationships with strategic partners, competitive technological advances,
the FDA regulatory process and other factors. Adequate additional funds, whether
through sales of securities or collaborative or other arrangements with
corporate partners or from other sources, may not be available when needed or on
terms acceptable to the Company. Insufficient funds may require the Company to
delay, scale back or eliminate certain of its research and product development
programs or to license third parties to commercialize products or technologies
under terms that the Company might otherwise find unacceptable.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The discussion in this section as well as elsewhere in this Annual Report
on Form 10-K contains forward-looking statements that represent the current
expectations of the Company's management. Actual results could differ materially
from those projected due to factors affecting the Company's cash requirements as
described in the preceding paragraph. In addition, the Company's ability to
achieve the results projected is subject to certain risks and uncertainties
regarding the Company's business such as those set forth below. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
Dependence on Single Source of Supply
The Company uses a single supplier to provide a raw material necessary for
the manufacture of CholestaGel and RenaGel. The supplier has a composition of
matter patent covering the material, and the Company believes that there are no
alternative suppliers of this material. The Company does not have a long-term
supply agreement with the supplier. The Company has entered into negotiations to
obtain a manufacturing license to enable it to manufacture the raw material.
Should the Company or its corporate partners be unable to secure an adequate
supply of the material, or to secure such supply at commercially reasonable
rates, the Company may be unable to commercialize its products as planned.
Dependence on Others for Manufacturing; Process Development Risks
The Company is continuing to work with its third party manufacturers to
optimize processes for the manufacture of commercial quantities of CholestaGel
and RenaGel. The Company will rely upon such third parties to manufacture
commercial quantities of the products. In the event that the Company's process
development work is unsuccessful, the Company's profit margins could be
adversely affected.
16
<PAGE> 18
Dependence on Corporate Alliances
The Company intends to enter into additional development and marketing
agreements for the continued development and commercialization of CholestaGel
and for the commercialization of RenaGel. The Company plans to rely upon
corporate partners to conduct certain clinical trials, obtain certain regulatory
approvals for and market these products. If the Company is unable to conclude
agreements with partners as planned, the Company will have to either delay the
continued development and commercialization of the products or consume its
resources to fund such activities. This could result in a need for the Company
to seek additional sources of funding and there can be no assurance that such
funding will be available to the Company when needed or on acceptable terms.
No Assurance of FDA Approval; Comprehensive Government Regulation
The Company's potential products require governmental approvals for
commercialization, which have not yet been obtained. The regulatory process,
which includes preclinical, clinical and, in certain instances, post-marketing
testing to establish safety and efficacy, can take many years and require the
expenditure of substantial resources. Delays in obtaining such approvals could
adversely affect the marketing of products developed by the Company and the
Company's ability to generate commercial product revenue.
Competition
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Competitors of the Company in the United
States and abroad are numerous and include, among others, pharmaceutical and
biotechnology companies, universities and other research institutions. The
Company's success depends upon developing and maintaining a competitive position
in the development of products and technologies in its areas of focus. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than any which are being
developed by the Company or which would render the Company's technology and
products obsolete or noncompetitive. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company, and certain of these competitors may
compete with the Company in establishing development and marketing agreements
with pharmaceutical companies. In addition, many of the Company's competitors
have greater experience than the Company in conducting preclinical testing and
human clinical trials and obtaining FDA and other regulatory approvals. The
Company's competitors may succeed in obtaining FDA approval for products more
rapidly than the Company or its partners.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Financial Statements and Supplementary Data appear at pages F-1 through
F-17 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
(a) DIRECTORS. The information with respect to directors required by this
item is incorporated herein by reference from the section entitled "Election of
Directors" in the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 22, 1997 (the "1997 Proxy Statement").
(b) EXECUTIVE OFFICERS. See the section entitled "Management-Executive
Officers" in Item 1(a) in Part I above.
17
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Executive Compensation" in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Certain Transactions" in the 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS:
Index to Financial Statements....................................F-1
Report of Independent Auditors...................................F-2
Balance Sheets as of December 31, 1996 and 1995..................F-3
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and the period November
15, 1991 (date of inception) through December 31, 1996.........F-4
Statements of Changes in Stockholders Equity for the period
from November 15, 1991 (date of inception)
through December 31, 1996 .....................................F-5
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 and the period November
15, 1991 (date of inception) through December 31, 1996.........F-7
Notes to Financial Statements....................................F-8
18
<PAGE> 20
(2) FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) EXHIBITS
Exhibit Number Description
- -------------- -----------
3.1 Restated Certificate of Incorporation of the Company. Filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference.
3.2 Certificate of Designation. Filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
3.3 Amended and Restated By-laws of the Company, as amended. Filed
as Exhibit 3.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein by
reference.
4.1 Specimen certificate for shares of Common Stock of the Company.
Filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (File No. 33-97322) and incorporated herein by
reference.
4.2 Rights Agreement dated as of March 1, 1996 between the Company
and American Stock Transfer & Trust Company. Filed as Exhibit 1
to the Company's Registration Statement on Form 8-A dated March
1, 1996 and incorporated herein by reference.
10.1# 1992 Equity Incentive Plan, as amended. Filed as Exhibit 99.1 to
the Company's Registration Statement on Form S-8 (File No.
333-08535) and incorporated herein by reference.
10.2 Express Master Lease Agreement with Equipment Schedule No. VL-1
between the Company and Comdisco, Inc. dated September 27, 1993.
Filed as Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (File No. 33-97322) and incorporated herein by
reference.
10.3# Letter Agreement between the Company and Dennis Goldberg dated
October 1, 1993. Filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (File No. 33-97322) and
incorporated herein by reference.
10.4 Promissory Note executed by the Company in favor of Silicon
Valley Bank dated December 9, 1993 with Commercial Security
Agreement attached thereto. Filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No. 33-97322)
and incorporated herein by reference.
10.5 Agreement of Sublease between the Company and H&Q Waltham
Limited Partnership dated May 4, 1994, with Exhibit B thereto
(Lease Agreement between the Company and Hickory Drive
Properties Realty Trust dated April 12, 1994). Filed as Exhibit
10.9 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.6 Assignment and Assumption Agreement and Landlord Consent among
Registrant and Hickory Drive Properties Realty Trust and H&Q
Waltham Limited Partnership dated May 4, 1994. Filed as Exhibit
10.10 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.7* License Agreement between the Company and Chugai Pharmaceutical
Co., Ltd. dated December 26, 1994. Filed as Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (File No. 33-97322)
and incorporated herein by reference.
19
<PAGE> 21
10.8 Promissory Note executed by the Company in favor of Silicon
Valley Bank dated February 2, 1995. Filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (File No.
33-97322) and incorporated herein by reference.
10.9# Letter Agreement between the Company and Joseph E. Tyler dated
March 28, 1995. Filed as Exhibit 10.16 to the Company's
Registration Statement on Form S-1 (File No. 33-97322) and
incorporated herein by reference.
10.10 Form of Common Stock Purchase Agreement. Filed as Exhibit 10.17
to the Company's Registration Statement on Form S-1 (File No.
33-97322) and incorporated herein by reference.
10.11 Form of Restricted Common Stock Purchase Agreement. Filed as
Exhibit 10.18 to the Company's Registration Statement on Form
S-1 (File No. 33-97322) and incorporated herein by reference.
10.12# Form of Incentive Stock Option Certificate. Filed as Exhibit
10.19 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.13 Forms of Nonstatutory Stock Option Certificate. Filed as Exhibit
10.20 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.14# 1995 Director Stock Option Plan. Filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.15# 1995 Employee Stock Purchase Plan. Filed as Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (File No.
333-00864) and incorporated herein by reference.
10.16 Lease Agreement dated February 28, 1997, between the Company and
J. F. White Properties, Inc. Filed herewith.
11.1 Statement re: computation of per share earnings. Filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed
herewith.
24.1 Power of Attorney. Contained on signature page hereto.
27.1 Financial Data Schedule. Filed herewith. (EDGAR filing only).
----------------------
* Certain confidential material contained in Exhibit 10.7 has been omitted
and filed separately with the Securities and Exchange Commission pursuant
to Rule 406 of the Securities Act of 1933, as amended.
# Identifies a management contract or compensatory plan or agreement in which
an executive officer or director of the Company participates.
20
<PAGE> 22
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fiscal quarter ended December
31, 1996.
21
<PAGE> 23
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors..........................................F-2
Balance Sheets as of December 31, 1996 and 1995.........................F-3
Statements of Operations for the years ended December 31, 1996,
1995 and 1994, and the period from November 15, 1991
(date of inception) through December 31, 1996...........................F-4
Statements of Changes in Stockholders' Equity for
the period from November 15, 1991 (date of inception)
through December 31, 1996...............................................F-5
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994, and the period from November 15, 1991
(date of inception) through December 31, 1996...........................F-7
Notes to Financial Statements...........................................F-8
F-1
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
GelTex Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of GelTex Pharmaceuticals,
Inc. (a development stage company) as of December 31, 1996 and 1995, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996 and the period
from November 15, 1991 (date of inception) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GelTex Pharmaceuticals, Inc.
(a development stage company) at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 and for the period November 15, 1991 (date of inception)
through December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 21, 1997
F-2
<PAGE> 25
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (inclusive of reverse repurchase
agreements of $8,720,000 and $3,726,000 at
December 31, 1996 and December 31, 1995,
respectively) $ 20,801,465 $ 12,179,988
Marketable securities 52,623,094 20,995,110
Prepaid expenses and other current assets 1,923,878 572,864
------------ ------------
Total current assets 75,348,437 33,747,962
Long-term receivables 20,000 20,000
Property and equipment, net 2,246,910 1,948,788
Intangible assets, net 453,123 276,527
------------ ------------
$ 78,068,470 $ 35,993,277
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,495,869 $ 1,388,416
Current portion of long-term obligations 391,766 535,293
------------ ------------
Total current liabilities 2,887,635 1,923,709
Long-term obligations, less current portion 124,360 419,569
Commitments and contingencies
Stockholders' equity:
Undesignated Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued or outstanding -- --
Common Stock, $.01 par value, 50,000,000 and 20,000,000
shares authorized; 13,521,302 and 10,535,065 shares
issued and outstanding at December 31, 1996 and 1995,
respectively 135,213 105,350
Additional paid-in capital 105,407,670 44,000,986
Deferred compensation (46,129) (55,825)
Unrealized gain on available-for-sale securities 19,967 81,590
Deficit accumulated during the development stage (30,460,246) (10,482,102)
------------ ------------
Total stockholders' equity 75,056,475 33,649,999
------------ ------------
$ 78,068,470 $ 35,993,277
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 26
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE PERIOD
NOVEMBER 15,
1991 (DATE OF
INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31
1996 1995 1994 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
License fee and research revenue $ 1,244,474 $ 750,000 $ 3,000,000 $ 4,994,474
Research grant 418,541 157,410 575,951
------------ ----------- ----------- ------------
Total revenue 1,663,015 907,410 3,000,000 5,570,425
COSTS AND EXPENSES:
Research and development 21,755,298 6,503,788 3,655,067 33,005,740
General and administrative 2,923,569 1,873,247 1,279,728 6,976,624
Other, nonrecurring costs 230,000 -- -- 230,000
------------ ----------- ----------- ------------
Total costs and expenses 24,908,867 8,377,035 4,934,795 40,212,364
------------ ----------- ----------- ------------
Loss from operations (23,245,852) (7,469,625) (1,934,795) (34,641,939)
Interest income 3,342,723 684,138 303,475 4,407,623
Interest expense (75,015) (99,158) (51,757) (225,930)
------------ ----------- ----------- ------------
Net loss $(19,978,144) $(6,884,645) $(1,683,077) $(30,460,246)
============ =========== =========== =============
Net loss per share $ (1.60) $ (.85) $ (.27)
============ =========== ===========
Shares used in computing
net loss per share 12,513,000 8,109,000 6,139,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 27
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Deficit Unrealized
Accumulated Gain (Loss)
Preferred Stock Common Stock Additional during the on Available Total
--------------- ------------ Paid-In Deferred Development for Sale Stockholder's
Shares Amounts Shares Amounts Capital Compensation Stage Securities Equity
------ ------- ------ ------- ------- ------------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of Common Stock,
January, April and
May 1992 276,000 $2,760 $ 2,760
Issuance of Common
Stock in exchange for
intangible assets,
January 1992 270,000 2,700 2,700
Sale of Series A
Preferred Stock net
of issuance costs of
$19,696, March and
June 1992 700,000 $ 855,304 855,304
Issuance of Common
Stock as
compensation,
May 1992 40,000 400 $4,600 5,000
Net loss $ (394,956) (394,956)
--------- ----------- ------- ----- ----- ----------- ---------- -----------
Balance at
December 31, 1992 700,000 855,304 586,000 5,860 4,600 (394,956) 470,808
Sale of Series B
Preferred Stock net
of issuance costs of
$55,132, August 1993 2,656,000 6,584,868 6,584,868
Issuance of Series B
Preferred Stock in
exchange for
cancellation of
indebtedness,
August 1993 74,000 185,000 185,000
Net loss (1,519,424) (1,519,424)
--------- ----------- ------- ----- ----- ----------- ---------- -----------
Balance at
December 31, 1993 3,430,000 7,625,172 586,000 5,860 4,600 (1,914,380) 5,721,252
Sale of Common
Stock, May 1994 2,916 29 335 364
Sale of Series C
Preferred Stock net
of issuance costs of
$36,742, August 1994 3,168,949 10,040,516 10,040,516
Sale of warrants to
purchase 32,500
shares of Series B
Preferred Stock 325 325
Unrealized loss on
available-for-sale
securities $ (100,406) (100,406)
Net loss (1,683,077) (1,683,077)
--------- ----------- ------- ----- ----- ----------- ---------- -----------
Balance at
December 31, 1994 6,598,949 17,665,688 588,916 5,889 5,260 (3,597,457) (100,406) 13,978,974
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 28
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (Continued)
<CAPTION>
Deficit Unrealized
Accumulated Gain (Loss)
Preferred Stock Common Stock Additional during the on Available Total
--------------- ------------ Paid-In Deferred Development for Sale Stockholder's
Shares Amounts Shares Amounts Capital Compensation Stage Securities Equity
------ ------- ------ ------- ------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock under stock
option plan and
exercise of warrants 472,200 $ 4,722 $ 110,533 $ 115,255
Adjustment to
unrealized gain
(loss) on
available-for-sale
securities $181,996 181,996
Deferred compensation
associated with stock
option grants 77,178 $(77,178) --
Amortization of
deferred compensation 21,353 21,353
Issuance of Common
Stock upon conversion
of all outstanding
Preferred Stock (6,598,949) $(17,665,688) 6,598,949 65,989 17,599,699 --
Issuance of Common
Stock through an
Initial Public
Offering, net of
offering costs of
$2,512,934 2,875,000 28,750 26,208,316 26,237,066
Net loss $ (6,884,645) (6,884,645)
--------- ------------ ---------- -------- ------------ -------- ------------ ------- ------------
Balance at
December 31, 1995 -0- -0- 10,535,065 105,350 44,000,986 (55,825) (10,482,102) 81,590 $33,649,999
Issuance of Common
Stock under stock
option plan and
exercise of warrants 103,837 1,039 152,868 153,907
Issuance of Common
Stock under employee
stock purchase plan 7,400 74 113,919 113,993
Adjustment to
unrealized gain
(loss) on
available-for-sale
securities (61,623) (61,623)
Amortization of
deferred compensation 9,696 9,696
Issuance of Common
Stock through
a Secondary Public
Offering, net of
offering costs of
$327,602 2,875,000 28,750 61,139,897 61,168,647
Net loss (19,978,144) (19,978,144)
--------- ------------ ---------- -------- ------------ -------- ------------ ------- ------------
Balance at
December 31, 1996 -0- -0- 13,521,302 $135,213 $105,407,670 $(46,129) $(30,460,246) $19,967 $ 75,056,475
========= ============ ========== ======== ============ ======== ============ ======= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 29
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE PERIOD
NOVEMBER 15,
1991 (DATE OF
INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31
1996 1995 1994 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(19,978,144) $ (6,884,645) $(1,683,077) $ (30,460,246)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 745,805 503,730 276,322 1,666,274
Common Stock compensation --- --- --- 5,000
Changes in operating assets and
liabilities:
Prepaid expenses and other current
assets (1,351,014) (399,619) (129,753) (1,923,878)
Long term receivables --- 20,000 --- (20,000)
Accounts payable and accrued expenses 1,107,453 333,501 784,387 2,495,869
------------ ------------ ----------- -------------
Net cash used in operating activities (19,475,900) (6,427,033) (752,121) (28,236,981)
INVESTING ACTIVITIES
Purchase of marketable securities (89,360,425) (21,713,604) (7,493,386) (121,573,585)
Proceeds from sale and maturities of
marketable securities 57,670,818 8,293,470 3,006,170 68,970,458
Purchase of intangible assets (327,829) (265,469) (67,079) (737,587)
Purchase of property and equipment, net (882,998) (497,889) (879,216) (2,603,261)
------------ ------------ ----------- -------------
Net cash used in investing activities (32,900,434) (14,183,492) (5,433,511) (55,943,975)
FINANCING ACTIVITIES
Sale of Common Stock and warrants, net of
issuance costs 61,322,554 26,352,321 689 87,678,324
Proceeds from employee stock purchase plan 113,993 --- --- 113,993
Sale of Preferred Stock, net of issuance costs --- --- 10,040,516 17,480,688
Proceeds from lease financing of assets --- 300,000 248,290 735,000
Payments on notes payable and capital lease
obligations (438,736) (421,918) (163,220) (1,025,584)
------------ ------------ ----------- -------------
Net cash provided by financing activities 60,997,811 26,230,403 10,126,275 104,982,421
------------ ------------ ----------- -------------
Increase in cash and cash equivalents 8,621,477 5,619,878 3,940,643 20,801,465
Cash and cash equivalents at beginning of period 12,179,988 6,560,110 2,619,467 ---
------------ ------------ ----------- -------------
Cash and cash equivalents at end of period $20,801,465 $ 12,179,988 $ 6,560,110 $ 20,801,465
=========== ============ =========== =============
Schedule of noncash investing
and financing activities:
Property and equipment acquired
under capital leases --- --- $ 992,000 $ 1,110,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 30
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
GelTex Pharmaceuticals, Inc. (the Company) was incorporated in
November 1991 and commenced operations in 1992. The Company is a
development-stage enterprise as it has not derived revenues from planned
principal operations. The Company is engaged in the design and development
of non-absorbed polymer-based pharmaceuticals that selectively bind to and
eliminate target substances from the intestinal tract. Since inception,
principal activities have been to perform research and technology
development, develop business plans, obtain financing and recruit and train
employees. The Company's ability to progress beyond the development stage
is dependent upon the timely and successful development of its products and
the adequacy of future capital raising.
2. SIGNIFICANT ACCOUNTING POLICIES
RECENT ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The effect of adoption did not have a
material impact on the Company's financial position or results of
operations.
In 1996, the Company also adopted Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). In
accordance with the provisions of SFAS 123, the Company has elected to
continue to apply Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its stock-based compensation plans. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Compensation
cost in 1996 and 1995 was immaterial. Note 10 to the Financial Statements
contains a summary of the pro forma effects to reported net loss and loss
per share in 1996 and 1995 as if the Company had elected to recognize
compensation expense based on the fair value at grant date of the options
as prescribed by SFAS 123.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an
initial maturity of three months or less and money market funds to be cash
equivalents. These cash equivalents are classified as "available-for-sale"
and are carried at fair value, with unrealized gains and losses reported in
a separate component of stockholders' equity. Realized gains and losses and
declines in value which are judged to be other than temporary on
available-for-sale securities are included in investment
F-8
<PAGE> 31
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
income. The cost of securities sold is based on the specific identification
method. Interest and dividends and amortization of premiums and accretion
of discounts on available-for-sale securities are included in interest
income.
At December 31, 1996 and 1995, the Company held certain securities
under agreements to resell on January 2, 1997 and 1996, respectively
("Reverse Repurchase Agreements"). Due to the short-term nature of the
agreements, the Company did not take possession of the securities which
were instead held in the Company's safekeeping account at its investment
advisor bank. The Company purchases only high grade securities, typically
with short maturities.
MARKETABLE SECURITIES
Marketable securities consist of U.S. government obligations and
high-grade commercial instruments maturing within one to two years and are
classified as available-for-sale. The Company considers these investments,
which represent funds available for current operations, an integral part of
their cash management activities. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates
such designation on an ongoing basis.
PROPERTY AND EQUIPMENT
Equipment, furniture and fixtures are stated at cost and are being
depreciated using the straight-line method over estimated useful lives of
five years. Equipment under capital leases is stated at the present value
of future lease obligations and is depreciated over the life of the leases.
Leasehold improvements are stated at cost and are amortized over the
remaining life of the related building lease. (See Note 9).
INTANGIBLE ASSETS
The Company capitalizes the costs of purchased technology and
obtaining patents on its technology. These capitalized costs are amortized
over their estimated future lives of five years using the straight-line
method. Accumulated amortization at December 31, 1996 and 1995 was $287,172
and $135,939 respectively.
REVENUE RECOGNITION
The Company recognizes grant revenue as reimbursable expenses are
incurred. The Company recognizes license fee revenue as earned.
F-9
<PAGE> 32
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
outstanding shares of Common Stock and Common Stock equivalents, assuming
the conversion of Series A, B and C Convertible Preferred Stock into common
shares as of their original date of issuance, which occurred upon
completion of the initial public offering in November 1995, and the
exercise of stock options and warrants using the treasury stock method.
Common Stock equivalent shares are excluded from the computation if their
effect is anti-dilutive; however, pursuant to the requirements of the
Securities and Exchange Commission, common equivalent shares relating to
stock options (using the treasury stock method and the initial public
offering price) issued during the twelve months prior to the initial filing
of the initial public offering are included for all periods prior to the
offering whether or not they are anti-dilutive.
3. AVAILABLE-FOR-SALE SECURITIES
<TABLE>
The following is a summary of available-for-sale securities:
DECEMBER 31, 1996:
------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Corporate Securities $48,336,763 $ --- $(4,030) $48,332,733
U.S. Government Obligations 20,106,537 23,997 --- 20,130,534
Money Market Accounts 4,928,183 --- --- 4,928,183
------------ ------- ------- -----------
Total Securities $73,371,483 $23,997 $(4,030) $73,391,450
=========== ======= ======= ===========
DECEMBER 31, 1995:
------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
U.S. Corporate Securities $12,310,155 $15,465 $ $12,325,620
U.S. Government Obligations 14,899,366 66,125 --- 14,965,491
Money Market Accounts 5,702,093 --- --- 5,702,093
----------- ------- ------- -----------
Total Securities $32,911,614 $81,590 $ --- $32,993,204
=========== ======= ======= ===========
</TABLE>
F-10
<PAGE> 33
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. AVAILABLE-FOR-SALE SECURITIES (CONTINUED)
<TABLE>
The fair value of available-for-sale securities is determined using the
published closing prices of these securities as of December 31, 1996 and 1995.
These securities are classified at their estimated fair value in the
accompanying balance sheet as follows:
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Cash equivalents $20,768,356 $11,998,094
Marketable securities 52,623,094 20,995,110
------------ -----------
$73,391,450 $32,993,204
=========== ===========
</TABLE>
<TABLE>
The cost and estimated fair value of available-for-sale debt securities at
December 31, 1996, by contractual maturity, are shown below.
<CAPTION>
Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
Due in one year or less $57,356,400 $57,390,422
Due in one year through two years 11,086,900 11,072,845
----------- -----------
$68,443,300 $68,463,267
=========== ===========
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
Accounts payable and accrued expenses consist of the following at December
31:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accounts payable $1,209,777 $ 636,653
Accrued research and development expenses 711,153 417,412
Accrued compensation 329,548 182,275
Accrued other 245,391 152,076
---------- ----------
$2,495,869 $1,388,416
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
<TABLE>
At December 31, property and equipment consisted of the following:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $1,718,986 $1,682,036
Equipment 1,758,117 912,069
---------- ----------
3,477,103 2,594,105
Less accumulated depreciation and amortization 1,230,193 645,317
---------- ----------
Property and equipment, net $2,246,910 $1,948,788
========== ==========
</TABLE>
F-11
<PAGE> 34
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was approximately $585,000, $400,000 and $250,000, respectively.
At December 31, 1996 and 1995, property under capitalized leases includes
$92,194 in equipment and $900,000 in leasehold improvements with aggregate
accumulated amortization at December 31, 1996 and 1995 of $299,677and $224,798
respectively.
6. STOCKHOLDERS' EQUITY
In November 1995, the Company completed an initial public offering of its
common stock, selling 2,875,000 common shares, with net proceeds to the Company
of $26,237,066 after deducting offering costs. Concurrent with the completion of
the initial public offering, all 6,598,949 shares of Series A, B and C
Convertible Preferred Stock were converted into 6,598,949 shares of Common Stock
pursuant to the conversion terms of the preferred stock agreements. In
connection with this conversion, all such shares of convertible preferred stock
were retired. Effective upon the completion of the initial public offering, the
Company authorized 5,000,000 shares of undesignated preferred stock with a par
value of $.01. In February 1996, the Board of Directors approved an increase in
the authorized shares of common stock to 50,000,000 shares which was approved at
the 1996 Annual Meeting of Stockholders. In May 1996, the Company completed a
public offering of its common stock, selling 2,875,000 common shares, with net
proceeds to the Company of $61,168,647 after deducting offering costs.
The Company has a Shareholder Rights Plan (the "Rights Plan") designed to
protect shareholders from unsolicited attempts to acquire the Company on terms
that do not maximize stockholder value. In connection with the Rights Plan, the
Board of Directors designated 500,000 shares of the Company's preferred stock as
Series A Junior Participating Preferred Stock. Under the Rights Plan, a right to
purchase one one-hundredth of one share of the Series A Junior Participating
Stock (the "Rights") was distributed as a dividend for each share of Common
Stock. The terms of the Rights Plan provide that the Rights will become
exercisable upon the earlier of the tenth day after any person or group acquires
20% or more of the Company's outstanding Common Stock or the tenth business day
after any person or group commences a tender or exchange offer which would, if
completed, result in the offer or owning 20% or more of the Company's
outstanding Common Stock. The Rights may generally be redeemed by action of the
Board of Directors at $0.001 per Right at any time prior to the tenth day
following the public announcement that any person or group has acquired 20% or
more of the outstanding Common Stock of the Company. The Rights expire on March
11, 2006. The Rights have certain anti-takeover effects in that they would cause
substantial dilution to the party attempting to acquire the Company.
In certain circumstances, the Rights allow the Company's stockholders to
purchase the number of shares of the Company's Common Stock having a market
value at the time of the transaction equal to twice the exercise price of the
Rights, or in certain circumstances, the stockholders would be able to acquire
that number of shares of the acquirer's common stock having a market value, at
the time of the transaction, equal to twice the exercise price of the Rights.
The Company will continue to issue Rights with future issuances of common stock.
F-12
<PAGE> 35
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EQUITY INCENTIVE PLANS AND STOCK WARRANTS
Under the Company's 1992 Equity Incentive Plan (the "Plan"), all employees
of the Company and others who have made a significant contribution to the
Company are eligible for awards. At December 31, 1996, the Company has reserved
1,725,000 shares of its Common Stock for awards. Awards can consist of incentive
and nonstatutory stock options, stock appreciation rights, restricted stock
awards and other stock-based awards. Incentive and nonstatutory options granted
under the Plan may be exercisable upon grant and vest over five years or may be
exercisable over a four-year vesting period; however, the Company maintains the
right to repurchase any unvested shares of Common Stock upon termination of such
stockholder's employment with the Company. Of the total options outstanding at
December 31, 1996, options to purchase 225,000 shares of the Company's Common
Stock vest upon the earlier of the achievement by the Company of certain product
development milestones or December 2004.
Incentive stock options are granted with an option price of not less than
the fair market value of the Common Stock at the award date. Nonstatutory
options may be granted at prices as determined by the Board of Directors. Stock
appreciation rights may be awarded in tandem with stock options or alone. Stock
appreciation rights granted alone may be granted at prices as determined by the
Board. The Board may also award performance shares, restricted stock and stock
units subject to such terms, restrictions, performance criteria, vesting
requirements and other conditions deemed appropriate.
The Company has a 1995 Employee Stock Purchase Plan (the "ESPP") which
provides for the grant of rights to eligible employees to purchase up to 250,000
shares of the Company's Common Stock at the lesser of 85% of the fair market
value at the beginning or the end of the established offering period. There were
7,400 shares issued under the ESPP at an average price of $16 in 1996. There
were no shares issued under the ESPP in 1995.
Under the Company's 1995 Director Stock Option Plan (the "Directors Plan"),
all directors who are not employees of the Company are currently eligible to
participate in the Directors Plan. The Directors Plan provides for the granting
of options with a term of 10 years to purchase up to 75,000 shares of Common
Stock at an exercise price equal to the fair market value of Common Stock at the
date of grant. Generally, upon election or re-election at each annual meeting,
each eligible director shall be granted options to purchase 4,000 shares of
Common Stock for each year of the term of office to be served.
The Company applies APB 25 and related interpretations in accounting for
its stock-based compensation plans, including its 1992 Equity Incentive Plan,
its 1995 Employee Stock Purchase Plan, and its 1995 Director Stock Option Plan.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
Had compensation expense for the Company's stock-based compensation plans
been determined based upon the fair market value at the grant date for stock
option awards ("stock options") and at the end of the plan period for stock
purchased under its Employee Stock Purchase Plan ("stock purchase shares"),
consistent with the methodology prescribed under SFAS 123, the Company's net
loss and loss per share would have been $20,415,636, or $1.63 per share, and
$6,928,242 or $.85 per share, in 1996 and 1995.
F-13
<PAGE> 36
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EQUITY INCENTIVE PLANS AND STOCK WARRANTS (CONTINUED)
The fair value of stock options granted and stock purchase shares issued
during 1996 and 1995 was estimated at the date of the grant and the end of the
plan period, respectively, using the Black-Scholes option-pricing model with the
following weighted-average assumptions for 1996 and 1995, respectively:
volatility of 60% and 60%, risk-free interest rate of 6.2% and 6.3%,
weighted-average expected life (years) of 4 and 6.4, and no dividends. The
effects on fiscal 1996 and 1995 pro forma net loss and loss per share of
expensing the estimated fair value of stock options and stock purchase shares
are not necessarily representative of the effects of reported net loss for
future years due to such things as the vesting period of the stock options and
the potential for issuance of additional stock options and stock purchase shares
in future years.
The weighted average per-share exercise price of stock options granted,
exercised and canceled during 1996 was $18.48, $2.02 and $5.53, respectively.
The weighted average fair value of stock options granted during 1996 was $9.38.
The weighted-average fair value of stock purchase shares issued during 1996 was
$5.49.
<TABLE>
A summary of activity in the Plan and the Directors Plan through December
31, 1996 follows:
<CAPTION>
Options
---------------------------------------------------------------
Available Price
for Award Outstanding Per Share
--------- ----------- ---------
<S> <C> <C> <C>
Authorized 400,000 ---
Awarded (40,000) 40,000 $.125
------- ---------
Balance at December 31,1992 360,000 40,000 $.125
Authorized 150,000 ---
Awarded (411,000) 411,000 $.125 -- $.25
------- ---------
Balance at December 31, 1993 99,000 451,000 $.125 -- $.25
Authorized 150,000 ---
Awarded (219,500) 219,500 $.25 -- $.32
Exercised --- (2,916) $.125
Canceled 22,084 (22,084) $.25 -- $.32
------- ---------
Balance at December 31, 1994 51,584 645,500 $.125 -- $.32
Authorized 700,000 ---
Awarded (589,150) 589,150 $.32 -- $11.25
Exercised --- (449,450) $.125 -- $.32
------- ---------
Balance at December 31, 1995 162,434 785,200 $.125 -- $11.25
Authorized 400,000 ---
Awarded (336,400) 336,400 $11.75-- $24.25
Exercised --- (76,668) $.125 -- $13.00
Canceled or repurchased 35,051 (31,151) $.25 -- $9.00
------- ---------
BALANCE AT DECEMBER 31, 1996 261,085 1,013,781 $.125 -- $24.25
======= =========
</TABLE>
F-14
<PAGE> 37
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EQUITY INCENTIVE PLANS AND STOCK WARRANTS (CONTINUED)
<TABLE>
A summary of the weighted-average exercise price and remaining contractual
life of options outstanding under the Plan and the Directors Plan as of December
31, 1996 follows:
<CAPTION>
Weighted-Average
Remaining
Options Weighted-Average Contractual Life
Price Per Share Outstanding Exercise Price (Years)
--------------- ----------- -------------- -------
<S> <C> <C> <C>
$.125 - $.32 534,617 $ .28 7.71
$9 - $15 227,764 $11.73 9.15
$16 - $24.25 251,400 $20.37 9.64
</TABLE>
<TABLE>
A summary of the weighted-average exercise price of options exercisable
under the Plan and the Directors Plan as of December 31, 1996 follows:
<CAPTION>
Options Weighted-Average
Price Per Share Exercisable Exercise Price
--------------- ----------- --------------
<S> <C> <C>
$.125 - $.32 309,617 $ .30
$9 - $15 119,697 $11.77
$16 - $24.25 43,499 $20.56
</TABLE>
At December 31, 1996, the Company had warrants outstanding to purchase
shares of the Company's Common Stock. The warrants, which provide for the
purchase of 11,400 shares at an exercise price of $2.50, expire on November 8,
2000.
8. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
$30,932,000 and research and development tax credit carry forwards of
approximately $1,290,000, which expire through 2011. Since the Company has
incurred only losses since its inception and due to the degree of uncertainty
related to the ultimate use of the loss carryforwards and tax credits, the
Company has fully reserved this tax benefit. Additionally, the future
utilization of net operating loss carryforwards and tax credits will be subject
to limitations under the change in stock ownership rules of the Internal Revenue
Service.
<TABLE>
Significant components of the Company's deferred tax assets as of December
31 are as follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 12,373,000 $ 4,182,000
Research and development tax credits 1,290,000 697,000
Other 236,000 100,000
------------ -----------
Total deferred tax assets 13,899,000 4,979,000
Valuation allowance (13,708,000) (4,836,000)
------------ -----------
Net deferred tax assets 191,000 143,000
Deferred tax liabilities:
Intangible assets and other (191,000) (143,000)
------------ -----------
Total deferred tax liabilities (191,000) (143,000)
------------ -----------
Net deferred tax asset (liability) $ --- $ ---
============ ===========
</TABLE>
The valuation allowance increased by $8,872,000 and $3,032,000 during 1996
and 1995, respectively, due primarily to the increase in tax credits and net
operating loss carryforwards.
F-15
<PAGE> 38
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG TERM OBLIGATIONS
<TABLE>
The Company has issued notes payable to finance purchases of new equipment.
Additionally, the Company has financed certain leasehold improvements and
equipment under capital leases expiring in 1997. Long term obligations consist
of the following:
December 31,
1996 1995
---- ----
<S> <C> <C>
Note payable to a bank bearing interest at prime
(8.25% at December 31, 1996) due in
monthly installments through March 1999 $288,398 $388,207
Capital lease obligations 227,728 566,655
-------- --------
516,126 954,862
Less current portion 391,766 535,293
-------- --------
$124,360 $419,569
======== ========
</TABLE>
In 1996, the Company determined that it was likely to exercise an option to
acquire title to certain leasehold improvements which is payable in July 1997.
Accordingly, the accompanying statement of operations includes a nonrecurring
charge of $230,000 for such option.
<TABLE>
At December 31, 1996, annual note maturities and capital lease payments
over the next three years are as follows:
<S> <C>
1997 $391,766
1998 113,632
1999 10,728
--------
$516,126
========
</TABLE>
In December 1996, the interest rate on notes payable to a bank existing as
of the prior year were reduced from prime plus 1.5% to prime. Given the variable
rate of interest, the carrying value of the notes payable approximates their
fair value at December 31, 1996. The notes payable require the Company to
maintain a minimum cash balance and net worth (as defined).
The Company has a $1,000,000 line of credit available through December 18,
1997 with a bank for the purchase of new equipment. Borrowings bear interest at
the prime rate and are secured by equipment. The line requires repayment of any
outstanding amounts in 36 equal monthly installments and maintenance of a
minimum liquidity balance and tangible net worth (as defined). There were no
borrowings outstanding under this line at December 31, 1996.
10. LICENSE AGREEMENTS
In December 1994 and October 1995, the Company entered into license
agreements (the "Agreements") with two Japanese pharmaceutical companies (the
"Partners") whereby the Company granted to the Partners licenses to make, use,
and sell certain of the Company's products in certain areas of the world, as
defined by the Agreements (the "Territories"). The Agreements require the
Partners to bear all costs to develop and commercialize the licensed products in
the respective Territories. In consideration of these Agreements, the Company
received a non-refundable license fee in 1994, research support revenue in 1995
and 1996, and a milestone payment in 1996. The payment of the license fee
received in 1994 and the milestone payment in 1996 were made net of a 10%
withholding tax, which was paid on the Company's
F-16
<PAGE> 39
GELTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LICENSE AGREEMENTS
behalf by the respective partner. The Agreement requires the Company to remit to
this partner any future tax benefit received by the Company as a result of the
withholding taxes paid. The 1995 Agreement was canceled in 1996. The 1994
Agreement calls for additional milestone payments to be paid to the Company
through the commercialization of the product licensed under the Agreement and
royalties based on certain percentages of sales, as defined in the Agreement.
11. RESEARCH GRANT
In February 1995, the Company was awarded a Federal research grant of $2.0
million. The grant is to be paid to the Company for reimbursement of expenses
related to the development of certain products through January 1998.
12. COMMITMENTS
<TABLE>
The Company leases its administrative and research and development
facilities under a long-term operating lease expiring in 2004. The future
minimum lease payments under this noncancelable lease are as follows:
<S> <C>
1997 $ 75,000
1998 75,000
1999 75,000
2000 75,000
2001 75,000
Thereafter 187,500
--------
Total minimum lease payments $562,500
========
</TABLE>
Rental expense charged to operations during the years ended December 31,
1996, 1995 and 1994 was approximately $76,425, $78,928 and $111,000,
respectively.
F-17
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GELTEX PHARMACEUTICALS, INC.
Date: March 26, 1997 By: /s/ Mark Skaletsky
_______________________________
Mark Skaletsky
President and Chief Executive Officer
We, the undersigned officer and directors of GelTex Pharmaceuticals, Inc.,
hereby severally constitute Mark Skaletsky and Elizabeth Grammar, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them to sign for use, in our names and in the capacity indicated below, any and
all amendments to this Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Mark Skaletsky Director and President, Chief March 26, 1997
- ---------------------- Executive Officer and Treasurer
Mark Skaletsky (Principal Executive Officer,
Principal Financial Officer
and Principal Accounting Officer)
/s/ Robert Carpenter
- ---------------------- Chairman of the Board March 26, 1997
Robert Carpenter and Director
/s/ Ernest Parizeau
- ---------------------- Director March 26, 1997
Ernest Parizeau
/s/ Barbara A. Piette
- ---------------------- Director March 26, 1997
Barbara A. Piette
/s/ Henri Termeer
- ---------------------- Director March 26, 1997
Henri Termeer
/s/ Jesse Treu
- ---------------------- Director March 26, 1997
Jesse Treu
/s/ George Whitesides
- ---------------------- Director March 26, 1997
George Whitesides
22
<PAGE> 41
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3.1 Restated Certificate of Incorporation of the Company. Filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference.
3.2 Certificate of Designation. Filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
3.3 Amended and Restated By-laws of the Company, as amended. Filed
as Exhibit 3.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein by
reference.
4.1 Specimen certificate for shares of Common Stock of the Company.
Filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (File No. 33-97322) and incorporated herein by
reference.
4.2 Rights Agreement dated as of March 1, 1996 between the Company
and American Stock Transfer & Trust Company. Filed as Exhibit 1
to the Company's Registration Statement on Form 8-A dated March
1, 1996 and incorporated herein by reference.
10.1# 1992 Equity Incentive Plan, as amended. Filed as Exhibit 99.1 to
the Company's Registration Statement on Form S-8 (File No.
333-08535) and incorporated herein by reference.
10.2 Express Master Lease Agreement with Equipment Schedule No. VL-1
between the Company and Comdisco, Inc. dated September 27, 1993.
Filed as Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (File No. 33-97322) and incorporated herein by
reference.
10.3# Letter Agreement between the Company and Dennis Goldberg dated
October 1, 1993. Filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (File No. 33-97322) and
incorporated herein by reference.
10.4 Promissory Note executed by the Company in favor of Silicon
Valley Bank dated December 9, 1993 with Commercial Security
Agreement attached thereto. Filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No. 33-97322)
and incorporated herein by reference.
10.5 Agreement of Sublease between the Company and H&Q Waltham
Limited Partnership dated May 4, 1994, with Exhibit B thereto
(Lease Agreement between the Company and Hickory Drive
Properties Realty Trust dated April 12, 1994). Filed as Exhibit
10.9 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.6 Assignment and Assumption Agreement and Landlord Consent among
Registrant and Hickory Drive Properties Realty Trust and H&Q
Waltham Limited Partnership dated May 4, 1994. Filed as Exhibit
10.10 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.7* License Agreement between the Company and Chugai Pharmaceutical
Co., Ltd. dated December 26, 1994. Filed as Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (File No. 33-97322)
and incorporated herein by reference.
10.8 Promissory Note executed by the Company in favor of Silicon
Valley Bank dated February 2, 1995. Filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (File No. 33-97322)
and incorporated herein by reference.
<PAGE> 42
10.9# Letter Agreement between the Company and Joseph E. Tyler dated
March 28, 1995. Filed as Exhibit 10.16 to the Company's
Registration Statement on Form S-1 (File No. 33-97322) and
incorporated herein by reference.
10.10 Form of Common Stock Purchase Agreement. Filed as Exhibit 10.17
to the Company's Registration Statement on Form S-1 (File No.
33-97322) and incorporated herein by reference.
10.11 Form of Restricted Common Stock Purchase Agreement. Filed as
Exhibit 10.18 to the Company's Registration Statement on Form S-1
(File No. 33-97322) and incorporated herein by reference.
10.12# Form of Incentive Stock Option Certificate. Filed as Exhibit
10.19 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.13 Forms of Nonstatutory Stock Option Certificate. Filed as Exhibit
10.20 to the Company's Registration Statement on Form S-1 (File
No. 33-97322) and incorporated herein by reference.
10.14# 1995 Director Stock Option Plan. Filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.15# 1995 Employee Stock Purchase Plan. Filed as Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (File No. 333-00864)
and incorporated herein by reference.
10.16 Lease Agreement dated February 28, 1997, between the Company and
J. F. White Properties, Inc. Filed herewith.
11.1 Statement re: computation of per share earnings. Filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed
herewith.
24.1 Power of Attorney. Contained on signature page hereto.
27.1 Financial Data Schedule. Filed herewith. (EDGAR filing only).
- ----------------------
* Certain confidential material contained in Exhibit 10.7 has been omitted
and filed separately with the Securities and Exchange Commission pursuant
to Rule 406 of the Securities Act of 1933, as amended.
# Identifies a management contract or compensatory plan or agreement in which
an executive officer or director of the Company participates.
<PAGE> 1
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") made as of the 28th day of
February, 1997 between Nine Fourth Avenue LLC, a Massachusetts limited liability
company and having offices at c/o J.F. White Properties, Inc., One Gateway
Center, Newton, Massachusetts 02158 (the "Lessor"), and GelTex Pharmaceuticals,
Inc., a Delaware corporation with a principal office at 303 Bear Hill Road,
Waltham, Massachusetts 02154(the "Lessee").
In consideration of the rents and the covenants to be paid and performed by
the Lessee and upon the terms and conditions of this Lease, the Lessor leases to
Lessee and Lessee hires from Lessor the following: a parcel of land (the "Land")
known as 120 Third Avenue (also known as 9 Fourth Avenue) in Waltham,
Massachusetts and more particularly described on a plan of land dated June 22,
1988 and recorded with the Middlesex County Registry of Deeds as Plan No. 1365
of 1988, a copy of which is attached to this Lease as Exhibit A and an
approximately 25,200 square foot building (the "Building") located on the Land
together with the other improvements located on the Land (hereinafter referred
to as the "Premises" or the "Demised Premises").
1.0 REFERENCE DATA
Each reference in this Lease to any term defined in this Article shall be
deemed and construed to incorporate the data stated following that term in this
Article.
ADDITIONAL RENT: Sums or other charges payable by Lessee to Lessor under this
Lease, other than Annual Base Rent.
<TABLE>
ANNUAL BASE RENT:
--------------------------------------------------------------------------
<CAPTION>
Period Annual Base Monthly
Rent Installment
--------------------------------------------------------------------------
<S> <C> <C>
April 1, 1997 through March 31, 2002 $302,400.00 $25,200.00
--------------------------------------------------------------------------
April 1, 2002 through March 31, 2007 $352,800.00 $29,400.00
--------------------------------------------------------------------------
</TABLE>
BROKER: Lynch Murphy Walsh & Partners, Inc. and Whittier Partners
BUILDING: The building as defined above
BUSINESS DAY: All days except Saturdays, Sundays and days defined as
"legal holidays" for the entire state under the laws of the
Commonwealth of Massachusetts
DEMISED PREMISES: The Premises as defined above
LAND: The parcel of land as defined above
LEASE YEAR: A twelve (12) month period beginning on Term Commencement
Date
-1-
<PAGE> 2
LESSEE'S ADDRESS: Until the Term Commencement Date, GelTex
Pharmaceuticals, Inc., 303 Bear Hill Road,
Waltham, Massachusetts 02154, and thereafter,
the Premises
LESSOR'S ADDRESS: c/o J.F. White Properties, Inc.,
One Gateway Center, Newton, MA 02158
MORTGAGE: A mortgage, deed of trust, trust indenture, or
other security instrument of record creating
an interest in or affecting title to the Land
or Building or any part thereof, and any
renewal, modification, consolidation or
extension of any such instrument.
MORTGAGEE: The holder of any Mortgage.
OPTION ANNUAL BASE RENT: Fair market rent for the Premises determined
as of the Option Notice Date in accordance
with Section 3.2, "Option to Extend".
OPTION NOTICE DATE: April 1, 2006.
OPTION TERM: A period of time commencing on the Option Term
Commencement Date and ending on the Option
Term Expiration Date.
OPTION TERM
COMMENCEMENT DATE: April 1, 2007.
OPTION TERM
EXPIRATION DATE: March 31, 2012.
PROPERTY: The Land, the Building and all other
improvements to the Land.
RENT: Annual Base Rent and Additional Rent.
TERM COMMENCEMENT DATE: April 1, 1997.
TERM EXPIRATION DATE: March 31, 2007.
TERM: A period of time commencing on the Term
Commencement Date and ending on the Term
Expiration Date.
USE OF THE DEMISED
PREMISES: General office and research and development,
including, but not limited to, research and
development involving small animal studies and
other activities customarily undertaken by
companies engaged in the biomedical,
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biotechnology or pharmaceutical industry.
2.0 DESCRIPTION OF DEMISED PREMISES
2.1 DEMISED PREMISES. The demised premises shall be the Demised Premises (as the
same may from time to time be constituted after changes therein and additions to
this Lease).
2.2 APPURTENANT RIGHTS. Lessee shall have, as appurtenant to the Demised
Premises, rights to use in common with others, subject to reasonable rules and
regulations from time to time made by Lessor, communicated to Lessee, those
common roadways and walkways necessary for access to the Demised Premises and
utilities serving the Premises. Lessor agrees that Lessor will take all
reasonable action necessary to provide uninterrupted (except in emergencies)
access to the Demised Premises by use of public or private roadways or
easements.
3.0 TERM OF LEASE; OPTION TO EXTEND TERM
3.1 TERM. The term of this Lease shall be for the Term (or until such Term shall
sooner cease or expire) commencing on the Term Commencement Date and ending on
the Term Expiration Date.
3.2 OPTION TO EXTEND. So long as this Lease is in full force and effect and
Lessee is not and has not at any time been in default under the Lease beyond any
applicable cure period, Lessee may extend the Term of this Lease for the period
of the Option Term by giving notice to Lessor on or before the Option Notice
Date. The terms and conditions applicable to such option term shall be the same
as set forth in this Lease except that the Lessee shall have no further right to
extend the Term of this Lease and the Annual Base Rent payable by Lessee with
respect to the Option Term shall be the Option Annual Base Rent, but not less
than the Annual Base Rent immediately prior to the start of the Option Term.
The fair market rental value of the Demised Premises may be mutually agreed to
by Lessor and Lessee and, if they have not so agreed in writing in any case
within one (l) month following the exercise of such option, the same shall be
determined by appraisers, one to be chosen by Lessor, one to be chosen by
Lessee, and a third to be selected by the two first chosen. In determining the
fair market value of the Demised Premises, the parties shall take into account,
not only the prevailing market terms (such as rent rates, amount of allowances,
free rent periods and other similar factors), but also that Lessee has built out
the then existing leasehold improvements and fixtures at Lessee's expense. As a
result, the parties agree that the fair market rental value of the Demised
Premises will be consistent with that of Class A office space (on the assumption
that the Lessor had built out the Demised Premises for such use at Lessor's
expense) or any other higher use at that time in comparable buildings in the
area, but not with that of a built-out research and development laboratory. All
appraisers chosen or selected hereunder shall be independent of the parties,
shall have received the M.A.I. (Member, Appraisal Institute) designation from
the American Institute of Real Estate Appraisers and shall have had at least
five (5) years of experience in appraising commercial real estate. The unanimous
written decision of the two first chosen, without selection and participation of
a third appraiser, or otherwise the written decision of a majority of three
appraisers chosen and selected as aforesaid, shall be conclusive and binding
upon Lessor and Lessee. Lessor and Lessee shall each notify the other of its
appraiser within thirty (30) days following expiration of the aforesaid one (l)
month period and, unless such two appraisers shall have reached a unanimous
decision within seventy-five (75) days from said expiration, they shall within a
further fifteen (15) days elect a third appraiser and notify Lessor
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and Lessee thereof. The third appraiser shall deliver to the Lessor and Lessee
the written decision of the majority of them within 30 days of the selection of
the third appraiser. Lessor and Lessee shall each bear the expense of the
appraiser chosen by it and shall equally bear the expense of the third appraiser
(if any).
If, as contemplated by this Section, Annual Base Rent with respect to any Option
Term shall not have been determined before the commencement date of such Option
Term, then such Option Term may commence and from and after such commencement
date, until the amount of such Option Annual Base Rent is so determined either
by agreement of the parties or by appraisal, Lessee shall make payments towards
such Option Annual Base Rent at the rates applicable for Annual Base Rent
immediately prior to the commencement date of such Option Term, subject to
retroactive adjustment in conformity with and payment of any additional amount
within fifteen (15) days of the determination of Option Annual Base Rent for
such option term pursuant to this Section. In no event shall the provisions of
this Section be deemed to authorize an Annual Base Rent less than the Annual
Base Rent immediately prior to the start of any Option Term.
If the Lessee exercises its option to extend this Lease, the phrase Annual Base
Rent as used in this Lease shall mean the Option Annual Base Rent during the
Option Term and the word Term as used in this Lease shall mean the combined
terms of the Term and the Option Term.
4.0 OCCUPANCY
4.1 OCCUPANCY AS IS. Lessee shall accept occupancy of the Demised Premises "as
is", and any work necessary to prepare the Demised Premises for occupancy by
Lessee shall be performed by Lessee in compliance with the terms and provisions
of this Lease at its own expense. Lessor shall provide Lessee with an allowance
of $145,400 for Lessee to perform work with respect to bringing the existing
roof and existing HVAC systems in good repair, upgrading the fire alarm systems,
installing new windows in existing openings, upgrading the building entrance and
facade, and repairing the sidewalk and parking areas, all to be performed by
Lessee in accordance with the requirements of Article 8 of this Lease,
including, without limitation, submission and approval of plans and
specifications describing the proposed work. Lessor shall make the Premises
available to Lessee for early occupancy in accordance with Section 4.2 of this
Lease at least sixty (60) days before the Term Commencement Date. If Lessor is
delayed in making the Premises available by such date, because of strikes, labor
difficulties, inability to obtain materials, fire, governmental regulations, or
any other circumstances beyond its control, then such date will be postponed for
a period of time equal to the delay thus incurred. Failure on the part of the
Lessor to make the Premises available as described in this Section shall not
constitute a breach or default on the part of the Lessor under this Lease or
give rise to any claims of damage or expenses of any kind against the Lessor by
Lessee, either direct or consequential. In the event Premises are not made
available to Lessee at least sixty (60) days prior to the Term Commencement Date
because of Lessor but not Lessee, the Term Commencement Date, the Term
Expiration Date, the Option Notice Date, the Option Term Commencement Date and
the Option Term Expiration Date shall be adjusted to reflect the date that
Lessor makes the premises available to Lessee that is sixty (60) days prior to
the adjusted Term Commencement Date. Lessor shall not adjust the Rent. Lessor
shall not adjust the Term Commencement Date, the Term Expiration Date, the
Option Notice Date, the Option Term Commencement Date or the Option Term
Expiration Date in the event such delay of Lessor's work is caused by Lessee.
4.2 EARLY OCCUPANCY. Notwithstanding anything to the contrary provided in this
Lease, Lessor shall notify Lessee when the Premises are available for Lessee to
install its equipment and
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furnishings, or to perform other work to be done by Lessee. It is understood
that upon such notification, the Lessee may occupy the Premises prior to the
Term Commencement Date for the purposes of preparing the Premises for its
occupancy on all of the terms and conditions of the Lease except the obligation
to pay rent shall not apply to the first sixty (60) days of such occupancy,
provided that such occupancy by Lessee shall not interfere with Lessor's
performance of its obligations under this Lease. However, if Lessee is given the
Premises more than sixty (60) days prior to the Term Commencement Date, then it
shall pay rent from the end of such sixty (60) day period at daily rate
calculated from the Annual Base Rent for the first year of the Term of this
Lease
5.0 USE OF PREMISES
5.1 PERMITTED USE. Lessee shall continuously during the Term of this Lease
occupy and use the Demised Premises for the permitted Use of the Demised
Premises and for no other purpose. Service and utility areas (whether or not a
part of the Demised Premises) shall be used only for the particular purpose for
which they are designated.
5.2 PROHIBITED USES. Lessee shall not use, or suffer or permit the use of, or
suffer or permit anything to be done in or anything to be brought into or kept
in the Premises or any part of the Premises (i) which would violate any
covenant, agreement, term, provision or condition of this Lease, (ii) which
would violate any law, ordinance, by-law, code, rule, regulation or order
applicable to the Premises, (iii) for any unlawful purpose or in any unlawful
manner, or (iv) which, in the reasonable judgment of Lessor shall in any way (a)
impair or tend to impair the appearance or reputation of the Building or the
Property, or (b) disturb the quiet enjoyment of any of the other tenants or
occupants of nearby properties, whether through the transmission of noise or
odors or vibrations or otherwise; provided, however, that the Lessor agrees that
the Lessee's use of the Demised Premises for the Use of the Demised Premises
shall not be restricted as a result of this subsection (iv). No supplies or
materials shall be stored outside of the Building. Lessee shall not bring or
permit to be brought into or keep in or on the Premises or elsewhere in the
Building or on the Land, any oil or any toxic, hazardous, inflammable,
combustible or explosive fluids, materials, chemicals or substances, (including
without limitation any hazardous substances within the meaning of Chapter 21E of
the Massachusetts General Laws) (except such as are related to Lessee's use of
the Demised Premises, provided that the same are stored and handled in a proper
fashion consistent with applicable legal standards), or cause or permit any
offensive odors to emanate from or permeate the Premises. The Demised Premises
shall be maintained in a sanitary condition, and kept free of rodents and vermin
(except as such are related to Lessee's Use of the Demised Premises so long as
such are contained, controlled and kept in accordance with industry practices
and with applicable laws and regulations). Lessee shall suitably store all trash
and rubbish in the Demised Premises or other locations reasonably designated by
Lessor from time to time.
5.3 LICENSES AND PERMITS. If any governmental license, permit or approval shall
be required for the proper and lawful conduct of Lessee's business, Lessee, at
Lessee's expense, shall duly procure and maintain and comply with such licenses,
permits and approvals and submit the same to inspection by Lessor. Lessee, at
Lessee's expense, shall at all times comply with the terms and conditions of
each such license or permit.
6.0 RENT
6.1 ANNUAL BASE RENT. Lessee shall pay to Lessor, without any set-off or
deduction, at
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Lessor's Address, or to such other person or at such other place as Lessor may
designate by notice to Lessee, the Annual Base Rent. The Annual Base Rent shall
be paid in equal Monthly Installments in advance on or before the first Business
Day of each calendar month during the Term of this Lease and shall be
apportioned for any fraction of a month in which the Term Commencement Date or
the last day of the Term of this Lease may fall. Rent for the first full month
of the initial Term for which rent is due shall be paid by Lessee upon the
execution of this Lease.
6.2 TAXES. "Real Estate Taxes" shall mean all taxes, assessments and
betterments, levied, assessed or imposed by any governmental authority upon the
Property, or arising from, or imposed on, the ownership or operation of the
Property, or the ownership of the tenant's interest under any ground lease and
any payment in lieu of any of the same required now or in the future.
Lessee shall pay to Lessor as Additional Rent all Real Estate Taxes,
pro-rated with respect to any portion of a tax year in which the Term of this
Lease begins or ends. Such payments are to be made by the Lessee to the Lessor
in installments corresponding to the installments in which said taxes are
payable by the Lessor. Each payment shall be due and payable within fifteen (15)
days after written notice by the Lessor to the Lessee of the amount of such
installment. If Lessor shall receive any refund of any real estate taxes of
which Lessee has paid a portion pursuant to this Section, then, out of any
balance remaining after deducting Lessor's expenses incurred in obtaining such
refund, Lessor shall pay or credit to Lessee the same proportionate share of
said balance, prorated as set forth above, but in no event more than the amount
paid by the Lessee with respect to the year in question. Lessor shall have no
obligation to seek any such and Lessee shall have no right to seek or to control
any abatement, dispute, or other proceeding with any governmental agencies or
entities with respect to the real estate taxes as described in this Section.
Lessor agrees to provide Lessee with copies of all invoices for Real Estate
Taxes promptly after receipt of same by Lessor. If the Lessee makes a timely (as
measured by the time deadlines for filing an abatement application) request for
the Lessor to pursue an abatement, the Lessor shall proceed with an abatement
application and the related procedures at the expense of the Lessee. If such
abatement is successful, the expense of pursuing the abatement shall be
reimbursed from the tax refund resulting from such abatement.
Lessee shall, if, as and when demanded by Lessor and with each Monthly
Installment of Annual Base Rent, make tax fund payments to Lessor. "Tax fund
payments" refer to such payments as Lessor shall determine to be sufficient to
provide in the aggregate a fund adequate to pay, when they become due and
payable, all payments required from Lessee under this Section. In the event that
tax fund payments are so demanded, and the aggregate of said tax fund payments
is not adequate to pay such taxes, Lessee shall pay to Lessor the amount by
which such aggregate is less than the amount of said taxes, such payment to be
due and payable at the time set forth above. Any surplus tax fund payments shall
be accounted for to Lessee after such surplus has been determined, and shall be
credited by Lessor against future tax fund payments or refunded to Lessee at
Lessor's option within a reasonable period of time.
If during the term of this Lease or any extension thereof, a tax or excise
on rents or other tax (excluding income, inheritance, estate, or gift taxes or
transfer taxes on transfers by Lessor), however described, shall be levied or
assessed against Lessor by the Commonwealth of Massachusetts or any political
subdivision thereof on account of the rental hereunder, such tax or excise on
rents or other taxes assessed on the land and buildings of which the Demised
Premises form a part shall be deemed to constitute Real Estate Taxes for the
purposes of this Section.
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It is also understood and agreed that the term Real Estate Taxes includes
betterments and improvement assessments that may be assessed after the date of
this Lease or during any extension thereof, provided, however, that the Lessor
shall for the purposes of this Section, be deemed to have elected to pay any
such assessments over the longest period of time permitted by law (whether or
not the Lessor in fact makes such election), and only those installments which
are or would be payable with respect to the tax years which are included in the
term of this Lease or any extension thereof (with interest which is or would be
payable thereon) shall be included in the Real Estate Taxes for said tax years
for the purposes of this Section.
In the event the taxing authorities shall, during the term of this Lease,
or any extension thereof, assess along with Real Estate Taxes, personal
property, excise or other taxes (including, without limitation, any occupancy,
sales, use or other tax) on the Premises or on the Lessee's use of the Premises
or on Lessee's trade fixtures, leasehold improvements, furnishings, lighting
fixtures, heating and cooling equipment or other equipment in or on the
Premises, the taxes thus assessed shall be paid by Lessee within fifteen (15)
days of notice by Lessor of the amount due.
6.3 NET LEASE. Lessee agrees that this Lease is a fully "net lease" and that
Lessor has no obligation to provide or pay for any utilities, services, work or
anything whatsoever with respect to the Premises or in connection with Lessee's
use or occupancy of the Premises, except for those items Lessor has specifically
agreed to perform in Sections 13 and 14 of this Lease. Lessee shall provide,
maintain and pay for all utilities (including, without limitation, electricity,
gas telephone, cable, sewer, water, etc.), services (including, without
limitation, heat and air conditioning), work and anything whatsoever with
respect to the Premises or in connection with Lessee's use or occupancy of the
Premises, except for those items Lessor has specifically agreed to perform in
Sections 13 and 14 of this Lease.
6.4 LATE PAYMENT CHARGE. If any installment of Rent or Additional Rent or any
other sum due from Lessee shall not be received by Lessor on the date such
installment or sum is due, Lessor reserves the right to assess, and Lessee then
shall pay, a late payment charge equal to one and one-half percent of the total
amount that is in arrears after the expiration of the applicable notice and cure
period provided in the section of this Lease entitled "15.5 - Grace Period" and
a further late payment charge equal to one and one-half percent of the amount
then outstanding may be assessed for each additional thirty (30) day period (or
any fraction thereof) that such amount remains unpaid. Acceptance of such late
payment charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of Lessor's other rights and remedies granted by this Lease.
6.5 MANAGEMENT FEE. In addition to Annual base Rent and if Lessor elects to
perform the tasks delineated in the last sentence of Section 8.1, Lessee shall
pay Lessor an annual management fee equal to two percent (2.0%) of the Annual
Base Rent which fee shall be payable in equal monthly installments with each
Monthly Installment of Annual Base Rent.
7.0 LESSOR'S RESERVATION
7.1 INTERRUPTION OR CURTAILMENT OF SERVICES. Lessor reserves the right to
interrupt, curtail, stop or suspend the furnishing of services and the operation
of any building system, when necessary by reason of (a) accident or emergency,
or (b) repairs, alterations, replacements or improvements in the reasonable
judgment of Lessor necessary to be made with respect to Lessee's failure to
perform its obligations under this Lease, or (c) difficulty or inability in
securing supplies or labor, or of strikes, or of any other cause beyond the
reasonable control of
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Lessor, whether such other cause be similar or dissimilar to those specifically
mentioned, until said cause has been removed. Lessor shall have no
responsibility or liability for any such interruption, curtailment, stoppage, or
suspension of service or system, except that Lessor shall exercise reasonable
diligence to eliminate the cause of same and shall use reasonable efforts to
minimize interference with the operation of the Premises for the Use of the
Demised Premises.
8.0 MAINTENANCE OF AND IMPROVEMENTS TO PREMISES
8.1 MAINTENANCE. Lessee, at its sole cost and expense, shall keep, repair
(including repairs in the nature of replacements) and maintain the Premises and
all private roadways, easement areas, areas adjacent to the foregoing,
sidewalks, landscaped areas and curbs appurtenant to the Premises, including,
without limitation, landscaping, parking areas and driveways, windows and plate
glass, mechanical, electrical and plumbing systems, telephone and cable systems,
exterior lighting systems, sprinkler systems, heating, ventilating and air
conditioning systems and equipment (including conduit and duct), load-bearing
and non-load bearing interior and exterior walls, roofs, foundations,
substructure and structural frame for the Building, and utility and other
systems, in good order, condition and repair. Lessee shall keep in good repair
and in clean orderly condition the outside surface areas of the Premises,
including, without limitation, general maintenance, removal of snow and ice,
sealing the pavement and walkway surfaces with a method acceptable to Lessor,
keeping surfaces in good condition free from defects, keeping surfaces clean,
maintaining planting, shrubbery and planters and maintaining and operating the
outside illumination of these areas. At the election of Lessor, Lessor may
arrange for, at the expense of Lessee, the maintenance and care of all or any
portion of the exterior grounds (including, without limitation, landscaping or
snow removal) and other elements of the exterior.
8.2 ALTERATIONS AND IMPROVEMENTS BY LESSEE. Except as set forth in the following
sentence, Lessee shall make no alterations, removals, additions or improvements
in or to the Demised Premises or the Building without first obtaining Lessor's
written consent, which consent will not be unreasonably withheld.
Notwithstanding the preceding sentence, Lessee shall be permitted to make
non-structural interior changes to the Demised Premises which cost less than
$75,000 without the consent of the Lessor; provided Lessee shall notify Lessor
in writing of such changes and provide Lessor with a copy of a plan showing the
changes. All alterations, removals, additions or improvements in or to the
Demised Premises or the Building, when the same requires Lessor's consent, shall
be by contractors or mechanics which shall first have been approved in writing
by Lessor which approval of contractors or mechanics shall not be unreasonably
withheld. No such installations or other work requiring Lessor's consent shall
be undertaken or begun by Lessee until Lessor has approved written plans and
specifications therefor which approval shall not be unreasonably withheld; and
no amendments or additions to such plans and specifications shall be made
without prior written consent of Lessor which consent shall not be unreasonably
withheld. Any such alteration, removal, addition and improvement shall be done
at the sole expense of Lessee and, with respect to activities that affect the
exterior of the Building or the Land, at such times and in such manner as Lessor
may reasonably designate.
8.3 LESSEE'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD OF LESSEE'S
PERFORMANCE - COMPLIANCE WITH LAWS. Whenever Lessee shall make any alteration,
removal, addition or improvement or do any other work (including, without
limitation, work under Sections 8.1 or 8,2) in or to the Demised Premises
(whether or not the same requires Lessor's consent), Lessee will strictly
observe the following covenants and agreements:
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(a) In no event shall any material or equipment be incorporated in or added
to the Demised Premises in connection with any such alteration, removal,
addition or improvement which is subject to any lien, charge, mortgage or other
encumbrance of any kind whatsoever or is subject to any security interest or any
form of title retention agreement. This paragraph 8.3(a) shall not prevent
Lessee from giving a security interest in the ice machines, drying ovens and
telephone/data network equipment provided it does not create any lien against
the Demised Premises. Any notice of contract or mechanic's or materialmen's lien
filed against the Demised Premises or the Building for work claimed to have been
done for, or materials claimed to have been furnished to Lessee shall be removed
or discharged by Lessee within thirty (30) days thereafter, at the expense of
Lessee, by filing the bond required by law or otherwise. If Lessee fails so to
remove or discharge any lien, Lessor may do so, by filing the bond required by
law when such bonding is available as a full and complete remedy to protect
Lessor's interests and if it is not so available by other appropriate means, at
Lessee's expense and Lessee shall reimburse Lessor for any expenses or costs
incurred by Lessor in so doing within fifteen (15) days after rendition of a
bill therefor.
(b) All installations or work done by Lessee under this or any other
Article of this Lease shall be at its own expense (unless expressly otherwise
provided) and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing insurance
rating bureaus; (iii) plans and specifications prepared by and at the expense of
Lessee showing all work and, if required by the provisions of this Lease,
approved by Lessor prior to the commencement of any work, and (iv) be performed
by contractors or mechanics which shall first have been approved in writing by
Lessor which approval of contractors or mechanics shall not be unreasonably
withheld.
(c) Lessee shall procure all necessary permits before undertaking any work
in the Demised Premises; do all such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements, and defend, save harmless, exonerate and indemnify Lessor from all
injury, loss or damage to any person or property occasioned by or growing out of
such work.
8.4 FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY LESSEE. Except for the ice
machines, drying ovens and telephone/data network equipment, all fixtures,
equipment, improvements and appurtenances attached to or built into the Demised
Premises prior to or during the Term, or any extension thereof, whether by
Lessor, at its expense or at the expense of Lessee, or by Lessee shall be and
remain part of the Demised Premises and shall not be removed by Lessee at the
end of the Term. Where not built into the Demised Premises, and if furnished and
installed by and at the sole expense of Lessee, all removable electrical
fixtures, carpets, drinking or tap water facilities, furniture, or trade
fixtures or business equipment shall not be deemed to be included in such
fixtures, equipment and improvements and may be, and upon the request of Lessor
will be, removed by Lessee, at Lessee's expense, upon the condition that such
removal shall not materially damage the Premises and in the event of any damage
to the Premises, Lessee shall repair the damage to the Demised Premises or the
Building arising from such removal at the expense of Lessee, provided, however,
that any of such items toward which Lessor shall have granted any allowance or
credit to Lessee shall be deemed not to have been furnished and installed in the
Demised Premises by or at the sole expense of Lessee.
8.5 LESSEE'S IMPROVEMENTS AND CONDITION OF PREMISES AT TERMINATION. Upon the
termination
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of this Lease and any extension thereof, by its own terms or otherwise, Lessee
will remove its goods and effects and those of all persons claiming under the
Lessee from the Demised Premises and will peaceably yield up to the Lessor the
Demised Premises and all alterations, erections, additions and improvements
pursuant to the article entitled "Fixtures, Equipment and Improvements - Removal
by Lessee", in good repair, order, and condition in all respects, reasonable use
and wear (which for the purposes of this paragraph shall not be deemed to
include holes in floors or walls or special wiring, conduit, piping and similar
devices caused by the installation of Lessee's fixtures or equipment) and damage
by fire and other casualty excepted provided that in the event of damage by fire
or other casualty, Lessee shall transfer to Lessor all of Lessee's interest with
respect to such damage in insurance proceeds (including participation in any
settlement) from insurance provided under Section 9.1(II). It is further agreed
and understood that at the termination of this Lease or any extension of this
Lease, Lessee shall have restored the Demised Premises to good repair, order and
condition in all respects (reasonable wear and tear excepted and casualty
repaired in accordance with Article 13), including but not limited to repair of
all floor surfaces damaged by the removal of partitions, machinery and
equipment, and shall restore all floor areas to a good condition and repair,
using materials to provide a consistent floor surface, satisfactory to Lessor;
and shall have cleaned and removed accumulations of dirt and particles, oils,
greases, and discolorations from all surfaces resulting from Lessee's processes
and shall leave the Premises broom clean.
9.0 INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
9.1 PROPERTY INSURANCE.
(I) Lessor shall procure and keep in force insurance in the following forms
and amounts with respect to the Building (including an amount sufficient to
build out the Building as Class A office space), but not with respect to the
Lessee's improvements:
(a) building insurance on a "Special Form" (formerly "All Risk" form)
(including earthquake and flood in reasonable amounts as determined by Lessor)
in an amount not less than 100% of the then full replacement cost of the
Premises and the Building or such other amount as is acceptable to Lessor and
personal property insurance (on Lessor's personal property, if any, included in
the Building) on the "Special Form" in the full amount of the replacement cost
of the personal property;
(b) insurance for loss or damage or loss of use (direct or indirect) from
steam boilers, pressure vessels or similar apparatus, now or hereafter installed
in the Premises, in the minimum amount of $5,000,000 or in such greater amounts
as are then customary for properties similar to the Premises; and
(c) insurance against abatement or loss of rent in case of loss under
Section 9.1(I)(a) or Section 9.1(I)(b) or other peril similarly insured against,
in an amount equal to Rent payments to be made by Lessee for eighteen months
based on the Rent paid or payable for the most recent complete Lease Year.
The phrase "replacement cost" shall mean the actual replacement cost of the
Premises including an increased cost of construction endorsement, if available,
and the cost of debris removal, as well as the cost of architectural,
engineering and other expenses in connection with reconstructing the Premises.
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Lessee shall pay to Lessor as Additional Rent Lessor's expense of procuring
the insurance described in this section 9.1(I) and of procuring Lessor's general
liability insurance, pro-rated with respect to any portion of a lease year in
which the Term of this Lease begins or ends. Such payments are to be made by the
Lessee to the Lessor in installments corresponding to the installments in which
said insurance expenses are payable by the Lessor. Each payment shall be due and
payable within fifteen (15) days after written notice by the Lessor to the
Lessee of the amount of such installment. Lessee shall, if, as and when demanded
by Lessor and with each Monthly Installment of Annual Base Rent, make insurance
fund payments to Lessor. "Insurance fund payments" refer to such payments as
Lessor shall determine to be sufficient to provide in the aggregate a fund
adequate to pay, when they become due and payable, all payments required from
Lessee under this Section. If the aggregate of said insurance fund payments is
not adequate to pay Lessor's insurance expenses with respect to this Section
9.1(I), Lessee shall pay to Lessor the amount by which such aggregate is less
than the amount of said expenses, such payment to be due and payable within
fifteen (15) days of notice by Lessor of the amount due. Any surplus insurance
fund payments shall be accounted for to Lessee after such surplus has been
determined, and shall be credited by Lessor against future insurance fund
payments or refunded to Lessee at Lessor's option within a reasonable period of
time.
(II) Lessee, at Lessee's expense, shall procure and keep in force insurance
in the following forms and amounts with respect to the Lessee's improvements:
(a) building insurance on a "Special Form" (formerly "All Risk" form)
(including earthquake and flood in reasonable amounts as determined by Lessor)
in an amount not less than 100% of the then full replacement cost of Lessee's
improvements to the Premises and the Building or such other amount as is
acceptable to Lessor and personal property insurance (on Lessee's personal
property, if any, included in the Building) on the "Special Form" in the full
amount of the replacement cost of the personal property;
(b) insurance for loss or damage or loss of use (direct or indirect) from
steam boilers, pressure vessels or similar apparatus, now or hereafter installed
in the Premises, in the minimum amount of $5,000,000 or in such greater amounts
as are then customary for properties similar to the Premises; and
(c) insurance against abatement or loss of rent in case of loss under
Section 9.1(II)(a) or Section 9.1(II)(b) or other peril similarly insured
against, in an amount equal to Rent payments to be made by Lessee for eighteen
months based on the Rent paid or payable for the most recent complete Lease
Year.
The phrase "replacement cost" shall mean the actual replacement cost of
Lessee's improvements to the Premises including an increased cost of
construction endorsement, if available, and the cost of debris removal, as well
as the cost of architectural, engineering and other expenses in connection with
reconstructing Lessee's improvements to the Premises.
9.2 INSURANCE. Lessee shall procure, keep in force and pay for insurance
covering all claims and demands for injury to or death of persons or damage to
property arising out of or related to Lessee's occupancy of the Premises.
Insurance shall not be in amounts less than the following:
COMMERCIAL GENERAL LIABILITY
$1,000,000 combined single limit per occurrence, Coverage A
$1,000,000 any one person or organization, Coverage B
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$10,000,000 products/completed operations liability aggregate (claims-made
coverage permitted for products/completed operations liability coverage only)
$ 10,000 medical payments
$ 50,000 fire damage legal liability
$ 2,000,000 general aggregate, applying per location, per project OR
$4,000,000 general aggregate
The general liability is to be written on the 1988 Insurance Services Office
form and shall extend to broad form contractual liability covering the
indemnification provisions of this Lease, premises-operations liability,
independent contractors liability, products and completed operations liability,
personal injury liability, host liquor liability, "fire legal Liability",
contractual liability coverage.
UMBRELLA LIABILITY
$3,000,000 each occurrence
$3,000,000 aggregate
Coverage to be at least as broad as under the underlying General Liability,
Automobile Liability and Employer's Liability policies
WORKERS' COMPENSATION
Coverage A Workers' Compensation -Statutory Coverage B Employer's
Liability - $500,000 bodily injury by
accident, each accident
$500,000 bodily injury by disease, each
employee
$500,000 bodily injury by disease, policy
aggregate
AUTOMOBILE LIABILITY
$1,000,000 Combined single limit, each accident applying to all owned, hired and
non-owned automobiles,
GLASS COVERAGE
Covering glass windows in the Premises, if any, in such reasonable amounts as
may be established from time to time by Lessor.
CONTENTS AND LEASEHOLD IMPROVEMENTS COVERAGE
Adequately insuring all property situated in the Demised Premises and belonging
to or removable by Lessee.
BUSINESS INTERRUPTION COVERAGE
Insurance shall not be less than such higher amounts as are customarily carried
by responsible tenants of comparable premises in the Greater Boston area and as
may be required by Lessor from time to time.
9.3 ADDITIONAL INSUREDS. The Lessee shall add the Lessor and such other entities
or individuals with an interest in the Property as the Lessor may, from time to
time, direct as Additional Insureds on a primary and noncontributing basis on
Lessee's Commercial General Liability, Umbrella Liability and Automobile
Liability policies.
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With respect to business interruption coverages, the Lessor shall be named as an
Additional Insured and Loss Payee As Their Interest May Appear. With respect to
glass, contents and leasehold improvement coverages, the Lessor shall be named
as an Additional Insured.
Lessee shall use all reasonable efforts to have its General Liability,
Automobile Liability and Umbrella policies endorsed to waive the carriers' right
of subrogation against Lessor.
9.4 CERTIFICATES OF INSURANCE. All insurance required under this Article shall
be effected with insurers authorized to do business in the Commonwealth of
Massachusetts under valid and enforceable policies. All insurance companies
shall have a Best rating of not less than A/XII, or an equivalent rating in the
event Best ceases to provide such rating service. Such insurance shall provide
that it shall not be canceled without at least thirty (30) days prior written
notice to each insured named therein. On or before the first day of the term of
this Lease and thereafter not less than fifteen (15) days prior to the
expiration date of each expiring policy, original copies of the policies
provided for in this Lease, issued by the respective insurers, or certificates
of such policies, setting forth in full the provisions thereof and issued by
such insurers, together with evidence reasonably satisfactory to Lessor of the
payment of all premiums for such policies, shall be delivered by Lessee to
Lessor, or to any additional or named insureds, entities or individuals as the
Lessor may from time to time direct.
9.5 LESSEE'S COMPLIANCE. Lessee covenants and agrees that during the Term and
for such further time as Lessee shall hold the Demised Premises or any part of
the Demised Premises, Lessee will comply with all requirements of the Insurance
Services Offices of Massachusetts and/or the Factory Mutual Engineering
Association (or any similar bodies succeeding to their respective powers) and
any local Board of Fire Underwriters; will not make, allow or suffer any use or
occupation of the Demised Premises that may make any insurance on the Building,
or the contents thereof, void or voidable; and that in the event that Lessee
does or permits anything to be done on the Demised Premises or on the Property
(including, without limiting the generality of the foregoing, anything which in
any way affects the sprinkler system) which: (a) is classified as a "common
hazard" or "special hazard" by said Insurance Services Offices of Massachusetts
(or its successor); (b) causes an aftercharge or (c) otherwise increases
insurance rates and premium charges over those which would apply but for the
doing of such thing, including, but without limiting the generality thereof,
increases resulting from the refusal of the Factory Mutual Engineering
Association (or any similar body succeeding to its business) to continue
coverage of the Building; then the Lessee will pay to Lessor within fifteen (15)
days of written notice all increased premium charges caused by the same for any
and all of the following insurance:
insurance on the Property against damage by fire, with extended coverage,
demolition, sprinkler leakage and vandalism and malicious mischief endorsements;
Lessor's rental insurance; use and occupancy insurance carried by any tenant of
any portion of the Property; insurance on the contents of Lessor against damage
by fire (with extended coverage, sprinkler leakage and vandalism and malicious
mischief endorsements) or water.
9.6 INDEMNIFICATION BY LESSEE. To the fullest extent permitted by law (and not
limited by the amounts of any insurance coverage required of Lessee under this
Lease), the Lessee agrees to indemnify and hold harmless the Lessor (which term
shall include, without limitation, the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives, disclosed or undisclosed, of Lessor or any managing agent) and
such other entities or individuals as the Lessor may, from time to time, direct
as additional
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insureds on Lessee's general liability, umbrella liability, automobile, glass,
contents and leasehold improvements and business interruption coverage policies,
from and against any and all claims, liabilities, penalties, damages or expenses
(including, without limitation, reasonable attorneys' fees) asserted against or
incurred by them:
(a) on account of or based upon any injury to person, or loss of or damage
to property sustained or occurring on the Demised Premises on account of or
based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (other than Lessor or its agents, contractors or employees) or based
on the Lessee's failure to perform its obligations under this Lease, including,
without limitation, any claims under liquor liability, "dram shop" or similar
laws;
(b) on account of or based upon any injury to person or loss of or damage
to property, sustained or occurring elsewhere (other than on the Demised
Premises) in or about the Property arising out of the use or occupancy of the
Property or Demised Premises by Lessee, or any person claiming by, through or
under Lessee (including, without limitation, any claims under liquor liability,
"dram shop" or similar laws) or arising out of the Lessee's failure to perform
its obligations under this Lease, and caused by any person other than the Lessor
or its agents, contractors, or employees; and
(c) on account of or based upon (including moneys due on account of) any
work or thing whatsoever done (other than by Lessor or its contractors, or
agents or employees of either) in the Demised Premises during the Term of this
Lease and during the period of time, if any, prior to the Term Commencement Date
when Lessee may have been given access to the Demised Premises;
and, in case any action or proceeding be brought against Lessor by reason of any
of the foregoing, Lessee, upon notice from Lessor, shall, at Lessee's expense,
resist or defend such action or proceeding and employ counsel therefor
reasonably satisfactory to Lessor, it being agreed that such counsel as may act
for insurance underwriters of Lessee engaged in such defense shall be deemed
satisfactory.
9.7 INDEMNIFICATION BY LESSOR. Lessor represents that to the best of Lessor's
knowledge and belief there are no hazardous substances contaminating the
Building and there is no friable asbestos present in the Building. Should Lessee
discover during its initial buildout of the Demised Premises that the Building
contains hazardous materials or friable asbestos, Lessor shall reimburse Lessee
for the cost of removal and disposal of such hazardous materials or friable
asbestos; provided Lessor participates in the selection of the contractor to
perform such work and the pricing of the same. Lessor shall indemnify and hold
harmless the Lessee, its officers, directors, employees and shareholders from
any and all claims, damages, fines, judgments, penalties, costs, liabilities or
losses incurred by Lessee as a result of any contamination of the Land (but not
of the Building or any improvements to the Land) by hazardous substances that
was present, whether known or unknown, prior to the date of this Lease. Such
damages may include, without limitation, costs associated with the removal and
cleanup of such contamination. Lessee shall promptly notify Lessor of any
hazardous substance contaminating the Land or the Building, and with respect to
such contamination of the Land that is covered by Lessor's indemnity provide
Lessor with an opportunity to respond to the situation.
In case any action or proceeding be brought against Lessee by reason of any
contamination of the Land that is covered by Lessor's indemnity, Lessor, upon
notice from
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Lessee, shall, at Lessor's expense, resist or defend such action or proceeding
and employ counsel therefor reasonably satisfactory to Lessee, it being agreed
that such counsel as may act for insurance underwriters of Lessor engaged in
such defense shall be deemed satisfactory.
9.8 PROPERTY OF LESSEE. In addition to and not in limitation of the foregoing,
and subject only to provisions of applicable law, Lessee covenants and agrees
that all merchandise, furniture, fixtures and property of every kind, nature and
description which may be in or upon the Demised Premises or elsewhere on the
Property during the Term of this Lease, shall be at the sole risk and hazard of
Lessee, and that if the whole or any part thereof shall be damaged, destroyed,
stolen or removed for any cause or reason whatsoever other than the negligence
or misconduct of Lessor, no part of said damage or loss shall be charged to, or
borne by Lessor.
9.9 LESSOR'S LIABILITY. Lessor shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain, ice or snow or leaks from any
part of the Building or from the pipes, appliances or plumbing works or from the
roof, street or sub-surface or from any other place or caused by any other cause
of whatever nature, unless caused by or due to the negligence of Lessor, its
agents, contractors or employees; nor shall Lessor or its agents be liable for
any such damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work; nor
shall Lessor be liable for any latent defect in the Demised Premises or
elsewhere in the Building or the Property.
9.10 WAIVER OF SUBROGATION. The parties to this Lease shall each endeavor to
procure an appropriate clause in, or endorsement on, any fire or extended
coverage insurance policy covering the Demised Premises and the Building and
personal property, fixtures and equipment located thereon or therein, pursuant
to which the insurance companies waive subrogation or consent to a waiver of
right of recovery, and having obtained such clauses and/or endorsements of
waiver of subrogation or consent to a waiver of right of recovery each party to
this Lease agrees that it will not make any claim against or seek to recover
from the other for any loss or damage to its property or the property of others
resulting from fire or other perils covered by such fire and extended coverage
insurance; provided, however, that the release, discharge, exoneration and
covenant not to sue contained in this Lease shall be limited by the terms and
provisions of the waiver of subrogation clauses and/or endorsements or clauses
and/or endorsements consenting to a waiver of right of recovery and shall be
co-extensive therewith. If either party may obtain such clause or endorsement
only upon payment of an additional premium, such party shall promptly so advise
the other party and shall be under no obligation to obtain such clause or
endorsement unless such other party pays the premium.
10.0 ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
Lessee covenants and agrees that neither this Lease nor the term and estate by
this Lease granted nor any interest herein or therein, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred (whether voluntarily or
by operation of law), and that neither the Demised Premises, nor any part
thereof, will be encumbered in any manner by reason of any act or omission on
the part of Lessee, or used or occupied, or permitted to be used or occupied, or
utilized for any reason whatsoever, by anyone other than Lessee in its Use of
the Demised Premises, or for any use or purpose other than Use of the Demised
Premises, or be sublet, or offered or advertised for subletting, without the
prior written consent of Lessor in every case, which consent will not be
unreasonably withheld. For purposes of this Lease, the transfer of a
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controlling interest in the corporation or other entity constituting Lessee
shall be deemed an assignment of this Lease. Lessor agrees that Lessor will not
unreasonably withhold its consent to an assignment by the Lessee of the Lessee's
interest in this Lease for security purposes in connection with a financing of
Lessee's improvements to the Demised Premises; provided such assignment is
junior to the interests of Lessor in all respects and shall not encumber the
real estate of which the Demised Premises are a part.
In connection with any request by Lessee for such consent or intention by
Lessee to make an assignment in accordance with the provisions of second
paragraph of this Article, Lessee shall submit to Lessor, in writing, a
statement containing the name of the proposed assignee, subtenant or other third
party, such information as to its financial responsibility and standing as
Lessor may require, and all of the terms and provisions upon which the proposed
transaction is to take place. Lessee shall reimburse Lessor promptly, as
Additional Rent, for reasonable legal and other expense incurred by Lessor in
connection with any request by Lessee for any consent required under the
provisions of this Article.
The listing of any name other than that of Lessee, whether on the doors of
the Demised Premises or on the Building, or otherwise, shall not operate to vest
any right or interest in this Lease or in the Demised Premises or be deemed to
be the written consent of Lessor mentioned in this Article, it being expressly
understood that any such listing is a privilege extended by Lessor revocable at
will by written notice to Lessee.
If this Lease be assigned, or if the Demised Premises or any part thereof
be sublet or occupied (other than Use of the Demised Premises by Lessee) by
anybody other than Lessee, Lessor may at any time and from time to time, collect
rent and other charges from the assignee, subtenant or occupant, and apply the
net amount collected to the Rent and other charges reserved in this Lease, but
no such assignment or collection shall be deemed a waiver of this covenant, or
the acceptance of the assignee, subtenant or occupant as a tenant, or a release
of Lessee from the further performance by Lessee of covenants on the part of
Lessee contained in this Lease. The consent by Lessor to an assignment or
subletting or occupancy shall not in any way be construed to relieve Lessee from
obtaining the express consent in writing of Lessor to any further assignment or
subletting or occupancy.
Notwithstanding any consent by Lessor, no assignment or subletting of the
Demised Premises by Lessee shall relieve Lessee from Lessee's obligation to pay
rent to Lessor or from Lessee's obligation to observe or perform any and all of
the terms, provisions, covenants and conditions of this Lease.
11.0 MISCELLANEOUS COVENANTS
11.1 RULES AND REGULATIONS. Lessee and Lessee's servants, employees, agents,
visitors and licensees will faithfully observe such Rules and Regulations as are
attached to this Lease as Exhibit B and made a part of this Lease or as Lessor
hereafter at any time or from time to time may make and may communicate in
writing to Lessee and which in the reasonable judgment of Lessor shall be
necessary for the reputation, safety, care or appearance of the Property, or the
preservation of good order therein, or the operation or maintenance of the
Property, or the equipment thereof, provided, however, that in the case of any
conflict between the provisions of this Lease and any such Rules and
Regulations, the provisions of this Lease shall control, and provided further
that nothing contained in this Lease shall be construed to impose upon Lessor
any duty or obligation to enforce such Rules and Regulations and Lessor shall
not be
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liable to Lessee for violation of the same. Notwithstanding the foregoing
provisions of this Section 11.1, Lessor agrees that Lessee's use of the Demised
Premises for the Use of the Demised Premises shall not be restricted as a result
of this Section 11.1.
11.2 NUISANCE. Lessee shall not permit any nuisance or use
or practice on or about the Premises which is in violation of any municipal
ordinance, law, rule or regulation or any state or federal laws.
11.3 ACCESS TO PREMISES. Lessee shall: (i) permit Lessor to erect, use and
maintain pipes, ducts and conduits in and through the Premises, provided the
same do not materially reduce the floor area or materially adversely affect the
appearance of the Premises; (ii) permit the Lessor and any Mortgagee to have
access to and to enter upon the Premises at all reasonable hours for the
purposes of inspection or of making repairs, replacements or improvements in or
to the Premises or the Building with respect to Lessor's performance of its
rights or obligations under this Lease or of complying with all laws, orders and
requirements of governmental or other authority or of exercising any right
reserved to Lessor by this Lease (including the right during the progress of any
such repairs, replacements or improvements or while performing work and
furnishing materials in connection with compliance with any such laws, orders or
requirements to take upon or through, or to keep and store within, the Demised
Premises all necessary materials, tools and equipment); and (iii) permit Lessor,
at reasonable times, to show the Demised Premises during ordinary business hours
to any Mortgagee, prospective purchaser of any interest of Lessor in the
Property, prospective Mortgagee, or prospective assignee of any Mortgage, and
during the period of twelve months next preceding the Term Expiration Date to
any person contemplating the leasing of the Demised Premises or any part
thereof. If Lessee shall not be personally present to open and permit any entry
into the Demised Premises at any time when for any reason an entry therein shall
be necessary or permissible, Lessor or Lessor's agents must nevertheless be able
to gain such entry by contacting a responsible representative of Lessee, whose
name, address and telephone number shall be furnished by Lessee. Lessor shall
exercise its rights of access to the Demised Premises permitted under any of the
terms and provisions of this Lease only following reasonable written notice to
Lessee (except in emergencies, in which case such notice shall not be required)
containing a description of the work and in such manner as to minimize, to the
extent practicable, interference with Lessee's use and occupation of the Demised
Premises. In exercising its rights to enter the Demised Premises, Lessor shall
be subject to such reasonable business confidentiality, safety and security
conditions as Lessee may specify, including conditions permitting Lessor to
enter the Building only when accompanied by a representative of Lessee. If an
excavation shall be made upon land adjacent to the Demised Premises or shall be
authorized to be made, Lessee shall afford, to the person causing or authorized
to cause such excavation, license to enter upon the Demised Premises for the
purpose of doing such work as said person shall deem necessary to preserve the
Building from injury or damage and to support the same by proper foundations
without any claim for damage or indemnity against Lessor, or diminution or
abatement of Rent.
11.4 ACCIDENTS. Lessee shall give to Lessor prompt notice of any fire or
accident in the Demised Premises or in the Building and of any damage to the
Demised Premises.
11.5 SIGNS, BLINDS AND DRAPES. Lessee shall not place any signs on the exterior
of the Building or on or in any window, public corridor or door visible from the
exterior of the Demised Premises. No drapes or blinds may be put on or in any
window which present a non-uniform appearance or an unattractive color as viewed
from the exterior. Lessee may erect, and, if erected, shall maintain and
replace, on or about the Premises one usual sign as is customary for the Use of
the Demised Premises and in compliance with all applicable laws and as Lessee
may
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desire, subject to Lessor's prior written approval which approval shall not be
unreasonably withheld. All such signs shall comply with all the requirements of
the City of Waltham and other governmental laws and regulations.
11.6 ESTOPPEL CERTIFICATE. Lessee shall at any time and from time to time upon
not less than fifteen (15) days' prior notice by Lessor or by a Mortgagee to
Lessee, execute, acknowledge and deliver to the party making such request a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), and the dates to which
Rent has been paid in advance, if any, and stating whether or not to the best
knowledge of the signer of such certificate Lessor is in default in performance
of any covenant, agreement, term, provision or condition contained in this Lease
and, if so, specifying each such default of which the signer may have knowledge,
it being intended that any such statement delivered pursuant to this Lease may
be relied upon by any prospective purchaser of any interest in the Property, any
Mortgagee or prospective Mortgagee, any lessee or prospective lessee thereof,
any prospective assignee of any Mortgage, or any other party designated by
Lessor. The form of any such estoppel certificate requested by a Mortgagee shall
be satisfactory to such Mortgagee.
11.7 REQUIREMENTS OF LAW - FINES AND PENALTIES. Lessee at its sole expense shall
comply with all laws, rules, orders and regulations of federal, state, county
and local governments (including, without limitation, the Americans with
Disabilities Act, Public Law 101-336, 42 U.S.C. ss.ss.12101 et seq., as amended;
the Resource Conservation and Recovery Act, 42 U.S.C. ss.9602 et seq., 6901 et
seq., as amended; the Comprehensive Environmental Response, Compensation and
Responsibility Act of 1980, codified in scattered sections of 26 U.S.C., 33
U.S.C., 42 U.S.C. and 42 U.S.C. ss.9602 et seq., as amended; the Toxic
Substances Control Act, 15 U.S.C. ss.2061 et seq., as amended; the Massachusetts
Oil and Hazardous Materials Release Prevention and Response Act, M.G.L. c.21E,
as amended; and the Massachusetts Hazardous Waste Management Act, M.G.L. c.21C,
as amended) and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Lessor or Lessee with respect to and
arising out of Lessee's use or occupancy of the Demised Premises. If Lessee
receives notice of any violation of law, ordinance, order or regulation
applicable to the Demised Premises, it shall give prompt notice thereof to
Lessor.
11.8 FLOOR LOADING. Lessee shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which such floor was designed to
carry and which is allowed by law.
12.0 PARKING
Lessee, at its expense, shall operate, maintain and keep in repair the
automobile parking facilities on the Premises to accommodate Lessee's employees,
visitors and patrons and other customers.
13.0 CASUALTY
In the event of loss of, or damage to, the Demised Premises or the Building by
fire or other casualty, the rights and obligations of the parties to this Lease
shall be as follows:
(a) If the Demised Premises, or any part thereof, shall be damaged by
fire or other casualty, Lessee shall give prompt notice thereof to Lessor,
and Lessor, upon receiving such notice, shall proceed promptly and with due
diligence, subject to unavoidable delays, to repair,
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or cause to be repaired, such damage with respect to the portion of the Building
that Lessor is obligated to provide insurance coverage for under Section 9.1(I)
and Lessee shall proceed promptly and with due diligence, subject to unavoidable
delays, to repair, or cause to be repaired, such damage with respect to Lessee's
improvements. If Lessee shall be unable to utilize the Demised Premises, or any
part thereof, for the Use of the Demised Premises by reason of damage to the
portion of the Building that Lessor is obligated to provide insurance coverage
for under Section 9.1(I), Annual Base Rent shall proportionately abate for the
period from the date of such damage to the date when such damage shall have been
repaired. The period within which the required repairs may be accomplished shall
be extended by the number of days lost as a result of unavoidable delays, which
term shall be defined to include all delays referred to in the article contained
in this Lease entitled "INABILITY TO PERFORM - EXCULPATORY CLAUSE".
(b) Notwithstanding anything in this Lease to the contrary, Lessor shall
not be obligated to expend more in restoring the Premises under this Article
than Lessor receives in insurance proceeds from the property insurance provided
under Section 9.1
(c) If, as a result of fire or other casualty, the whole or a substantial
portion of the Building is rendered untenantable and Lessor reasonably
determines that the Building cannot be restored within eighteen months of the
occurrence of such fire or casualty, Lessor, within 120 days from the date of
such fire or casualty, may elect to terminate this Lease by notice to Lessee,
specifying a date not less than twenty (20) nor more than forty (40) days after
the giving of such notice on which the Term of this Lease shall terminate and
the Lease shall so terminate.
(d) Upon the occurrence of the following, Lessee may elect to terminate
this Lease upon written notice to Lessor, specifying a date not less than twenty
(20) days nor more than forty (40) days after the giving of such notice on which
the Term of this Lease shall terminate and the Lease shall terminate: (I) the
Lessor fails to give written notice withinninety (90) days of the fire and
casualty of Lessor's intention to restore the portion of the Building that
Lessor is obligated to provide insurance coverage for under Section 9.1(I) or
(ii) Lessor fails to restore the portion of the Building that Lessor is
obligated to provide insurance coverage for under Section 9.1(I) within twelve
months of the fire or other casualty.
(e) Lessor shall not be required to repair or replace any of Lessee's
improvements or any of Lessee's business machinery, equipment, cabinet work,
furniture, personal property or other installations or improvements, and no
damages, compensation or claim shall be payable by Lessor for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Property, except to the extent caused
by the negligence of the Lessor, its agents, contractors or employees.
(f) The provisions of this Article shall be considered an express agreement
governing any instance of damage or destruction of the Property or the Demised
Premises by fire or other casualty, and any law now or hereafter in force
providing for such a contingency in the absence of express agreement shall have
no application.
(g) In the event of any termination of this Lease pursuant to this Article,
the Term of this Lease shall expire as of the effective termination date as
fully and completely as if such date were the date originally fixed in this
Lease for the end of the Term of this Lease. Lessee shall have access to the
Demised Premises for a period of thirty (30) days after the date of termination
in order to remove Lessee's personal property.
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(h) Lessor's architect's certificate, given in good faith, shall be deemed
conclusive of the statements therein contained and binding upon Lessee with
respect to the performance and completion of any repair or restoration work
undertaken by Lessor pursuant to this Article or the Article contained in this
Lease entitled "CONDEMNATION - EMINENT DOMAIN".
14.0 CONDEMNATION - EMINENT DOMAIN
In the event that the whole of the Premises shall be taken or appropriated by
eminent domain or shall be condemned for any public or quasi-public use either
permanently or for a period of at ;east one year, this Lease shall cease and
terminate as of the date the taking, appropriating or condemning agency has the
right to possession of the Premises; provided, however, if the taking is
temporary, Lessee shall have the option to continue this Lease by so notifying
Lessor in writing within sixty (60) days of the taking, and, upon such
notification, the provisions of this paragraph shall apply as if such taking
were for a period of less than one year.
If less than the whole of the Premises is so taken, appropriated or condemned
and the floor area of the Premises is reduced by more than twenty percent (20%)
by such taking, appropriation or condemnation, Lessee shall have the option, by
notice in writing to the other within 30 days following the date on which Lessee
received notice of such taking, appropriation or condemnation, to terminate this
Lease.
Upon the giving of any such notice of termination by Lessee, this Lease and the
Term of this Lease shall terminate on or retroactively as of the date on which
Lessee shall be required to vacate any part of the Demised Premises. In the
event of any such termination, this Lease and the Term of this Lease shall
expire as of the effective termination date as fully and completely as if such
date were the date originally fixed in this Lease for the end of the Term of
this Lease.
In the event of any other taking, appropriation or condemnation or if Lessee is
entitled to terminate this Lease but does not elect to do so, Lessor will, with
reasonable diligence and at Lessor's expense, restore the remainder of the
Demised Premises as nearly as practical to the same condition as obtained prior
to such taking, appropriation or condemnation in which event (i) a just
proportion of the Annual Base Rent, according to the nature and extent of the
taking, appropriation or condemnation and the resulting permanent injury to the
Premises, shall be permanently abated, and (ii) a just proportion of the
remainder of the Annual Base Rent, according to the nature and extent of the
taking, appropriation or condemnation and the resultant injury sustained by the
Premises, shall be abated until what remains of the Premises shall have been
restored as fully as may be for permanent use and occupation by Lessee for the
Use of the Demised Premises hereunder.
Except for any award specifically reimbursing Lessee for moving, relocation or
Lessee's improvement (reduced by any cost to bring the Demised Premises into
Class A office space) expenses, except for any award specifically made to Lessee
for interruption of Lessee's business and except for any award made to Lessee
for damage or loss of Lessee's personal property and equipment, there are
expressly reserved to Lessor all rights to compensation and damages created,
accrued or accruing by reason of any such taking, appropriation or condemnation.
In implementation and in confirmation of which Lessee does acknowledge that
Lessor shall be entitled to receive and retain all such compensation and
damages, grants to Lessor all and whatever rights (if any) Lessee may have to
such compensation and damages, and agrees to execute and deliver all and
whatever further instruments of assignment as Lessor may from time
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to time request. In any condemnation proceeding, Lessee and Lessor shall each
seek its award in conformity with this Article, at its respective expense;
provided that Lessee shall not initiate, prosecute or acquiesce in any
proceedings that may result in diminution of any award payable to Lessor.
In the event of any taking of the Demised Premises or any part thereof for a
period of less than one year, (i) this Lease shall be and remain unaffected
thereby, and (ii) Lessee shall be entitled to negotiate with the taking
authority and to receive for itself any award made for such use, provided, that
if any taking is for a period extending beyond the Term of this Lease, such
award shall be apportioned between Lessor and Lessee as of the Term Expiration
Date.
15.0 DEFAULT
15.1 CONDITIONS OF LIMITATION - RE-ENTRY - TERMINATION. This Lease and the term
and estate of this Lease are upon the condition that if (a) Lessee shall neglect
or fail to perform or observe any of the Lessee's covenants contained in this
Lease, including (without limitation) the covenants with regard to the payment
when due of Rent; or (b) Lessee shall be involved in financial difficulties as
evidenced by an admission in writing by Lessee of Lessee's inability to pay its
debts generally as they become due, or by the making or offering to make a
composition of its debts with its creditors; or (c) Lessee shall make an
assignment or trust mortgage, or other conveyance or transfer of like nature, of
all or a substantial part of its property for the benefit of its creditors, or
(d) the leasehold created by this Lease shall be taken on execution or by other
process of law and shall not be revested in Lessee within sixty (60) days
thereafter; or (e) a receiver, sequester, trustee or similar officer shall be
appointed by a court of competent jurisdiction to take charge of all or a
substantial part of Lessee's property and such appointment shall not be vacated
within sixty (60) days; or (f) any proceeding shall be instituted by or against
Lessee pursuant to any of the provisions of any Act of Congress or state law
relating to bankruptcy, reorganization, arrangements, compositions or other
relief from creditors, and, in the case of any such proceeding instituted
against it, if Lessee shall fail to have such proceeding dismissed within sixty
(60) days or if Lessee is adjudged bankrupt or insolvent as a result of any such
proceeding; or (g) any event shall occur or any contingency shall arise whereby
this Lease, or the term and estate created by this Lease, would (by operation of
law or otherwise) devolve upon or pass to any person, firm or corporation other
than Lessee, except as expressly permitted under Article 10 of this Lease; or
(h) Lessee shall vacate all or substantially all of the Demised, then, and in
any such event Lessor may, in a manner consistent with applicable law,
immediately or at any time thereafter declare this Lease terminated by notice to
Lessee or, without further demand or notice, enter into and upon the Demised
Premises (or any part thereof in the name of the whole), and in either such case
(and without prejudice to any remedies which might otherwise be available for
arrears of rent or other charges due under this Lease or for any breach of
covenant or obligation of Lessee under this Lease and without prejudice to
Lessee's liability for damages as hereinafter stated or otherwise under the
law), this Lease shall terminate. The words "re-entry" and "re-enter" as used in
this Lease are not restricted to their technical legal meaning. As used in items
(b), (c), (d) and (e) of this Section, the term "Lessee" shall also be deemed to
refer to any guarantor of Lessee's obligations under this Lease.
15.2 DAMAGES - TERMINATION. Upon the termination of this Lease under the
provisions of this Article, Lessee shall pay to Lessor the Rent payable by
Lessee to Lessor up to the time of such termination, shall continue to be liable
for any preceding breach of covenant or obligation of Lessee under this Lease,
and in addition, shall pay to Lessor as damages, at the election of Lessor
either:
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(x) the amount by which, at the time of the termination of this Lease (or
at any time thereafter if Lessor shall have initially elected damages under
Subparagraph (y), below), (i) the aggregate of the Rent projected over the
period commencing with such time and ending on the originally-scheduled Term
Expiration Date as stated in Article 1) exceeds (ii) the aggregate projected
rental value of the Demised Premises for such period, or,
(y) amounts equal to the Rent which would have been payable by Lessee had
this Lease not been so terminated, payable upon the due dates therefor specified
in this Lease following such termination and until the originally-scheduled Term
Expiration Date as specified in Article 1, provided, however, if Lessor shall
re-let the Demised Premises during such period, that Lessor shall credit Lessee
with the net rents received by Lessor from such re-letting, such net rents to be
determined by first deducting from the gross rents as and when received by
Lessor from such re-letting the expenses incurred or paid by Lessor in
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the Demised Premises for new tenants, brokers'
commissions, and all other similar and dissimilar expenses properly chargeable
against the Demised Premises and the rental therefrom, it being understood that
any such re-letting may be for a period equal to or shorter or longer than the
remaining term of this Lease; and provided, further, that (i) in no event shall
Lessee be entitled to receive any excess of such net rents over the sums payable
by Lessee to Lessor hereunder and (ii) in no event shall Lessee be entitled in
any suit for the collection of damages pursuant to this Subparagraph (y) to a
credit in respect of any net rents from a re-letting except to the extent that
such net rents are actually received by Lessor prior to the commencement of such
suit. If the Demised Premises or any part thereof should be re-let in
combination with other space, then proper apportionment on a square foot area
basis shall be made of the rent received from such re-letting and of the
expenses of re-letting.
Suit or suits for the recovery of such damages, or any installments thereof, may
be brought by Lessor from time to time at its election, and nothing contained in
this Lease shall be deemed to require Lessor to postpone suit until the date
when the term of this Lease would have expired if it had not been terminated
hereunder.
Nothing contained in this Lease shall be construed as limiting or precluding the
recovery by Lessor against Lessee of any sums or damages to which, in addition
to the damages particularly provided above, Lessor may lawfully be entitled by
reason of any default under this Lease on the part of Lessee.
15.3 FEES AND EXPENSES. If Lessee shall default in the performance of any
covenant or obligation on Lessee's part to be performed as contained in this
Lease, Lessor may after providing Lessee with five (5) days written notice and
opportunity to commence a cure (except for emergencies, in which case such
notice shall not be required) immediately, or at any time thereafter, without
notice, perform the same for the account of Lessee. If Lessor at any time is
compelled to pay or elects (in accordance with this Section) to pay any sum of
money, or do any act which will require the payment of any sum of money, by
reason of the failure of Lessee to comply with any provision of this Lease, or
if Lessor is compelled to or does incur any expense, including without
limitation reasonable attorneys' fees, in instituting, prosecuting and/or
defending any action or proceeding instituted by reason of any default of Lessee
under this Lease or any costs incurred in recovering possession of the Premises
after the termination of the Lease, Lessee shall on demand pay to Lessor by way
of reimbursement the sum or sums so paid by Lessor with all interest, costs and
damages.
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15.4 LESSOR'S REMEDIES NOT EXCLUSIVE. The specified remedies to which Lessor may
resort under this Lease are cumulative and are not intended to be exclusive of
any remedies or means of redress to which Lessor may at any time be lawfully
entitled, and Lessor may invoke any remedy (including without limitation the
remedy of specific performance) allowed at law or in equity as if specific
remedies were not provided for in this Lease.
15.5 GRACE PERIOD. Notwithstanding anything to the contrary contained in this
Lease with respect to Lessee's failure to perform Lessee's obligations under
this Lease, Lessor agrees not to take any action to terminate this Lease (a) for
default by Lessee in the payment when due of Rent, if Lessee shall cure such
default within ten (10) days after written notice thereof given by Lessor to
Lessee, or (b) for default by Lessee in the performance of any other covenant,
if Lessee shall cure such default within a period of thirty (30) days after
written notice thereof given by Lessor to Lessee (except where the nature of the
default is such that remedial action should appropriately take place sooner, as
indicated in such written notice), or with respect to covenants other than to
pay a sum of money within such additional period as may reasonably be required
to cure such default if (because of governmental restrictions or any other cause
beyond the reasonable control of Lessee) the default is of such a nature that it
cannot be cured within such thirty (30)-day period, provided, however, that
there shall be no extension of time beyond such thirty (30)-day period for the
curing of any such default unless, not more than twenty (20) days after the
receipt of the notice of default, Lessee in writing (i) shall specify the cause
on account of which the default cannot be cured during such period and shall
advise Lessor of its intention duly to institute all steps necessary to cure the
default and (ii) shall as soon as may be reasonable duly institute and
thereafter diligently prosecute to completion all steps necessary to cure such
default.
16.0 ABANDONED PROPERTY
Any personal property in which Lessee has an interest which shall remain in the
Building or on the Demised Premises after the expiration or termination of the
Term of this Lease shall be conclusively deemed to have been abandoned, and may
be disposed of in such manner as Lessor may see fit; provided, however, that, if
any part thereof shall be sold, that Lessor may receive and retain the proceeds
of such sale and apply the same, at its option, against the expenses of the
sale, the cost of moving and storage, any arrears of Rent payable hereunder by
Lessee to Lessor and any damages to which Lessor may be entitled under Article
19 of this Lease or pursuant to law, with the balance if any, to be paid to
Lessee.
17.0 SUBORDINATION AND NON-DISTURBANCE
This Lease is subject and subordinate in all respects to all mortgages and other
matters of record and to mortgages which may hereafter be placed on or affect
the Land, the Building or the Property or Lessor's interest or estate therein,
and to each advance made or hereafter to be made under any such mortgage, and to
all renewals, modifications, consolidations, replacements and extensions thereof
and substitutions therefore; provided, however, that so long as Lessee is not in
default of any of the material provisions of this Lease continuing beyond any
applicable notice, grace and cure period, Lessee's rights under this Lease shall
not be disturbed. This section shall be self operative and no further instrument
of subordination shall be required. In confirmation of such subordination and
non-disturbance agreement, Lessee agrees upon request of Lessor to execute and
deliver promptly any certificate acknowledging or confirming such subordination
and non-disturbance which Lessor or any mortgagee or their respective successor
in interest may request. Lessor agrees to make reasonable efforts to obtain a
subordination and non-disturbance agreement from any Mortgagee.
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18.0 QUIET ENJOYMENT
Lessor covenants that if, and so long as, Lessee keeps and performs each and
every covenant, agreement, term, provision and condition contained in this Lease
on the part and on behalf of Lessee to be kept and performed, Lessee shall
quietly enjoy the Demised Premises from and against the claims of all persons
claiming by, through or under Lessor subject, nevertheless, to the covenants,
agreements, terms, provisions and conditions of this Lease and to all Mortgages
to which this Lease is subject and subordinate.
Without incurring any liability to Lessee, Lessor may permit access to the
Demised Premises and open the same, whether or not Lessee shall be present, upon
any demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer entitled to, or reasonably purporting to be
entitled to, such access for the purpose of taking possession of, or removing
Lessee's property or for any other lawful purpose (but this provision and any
action by Lessor hereunder shall not be deemed a recognition by Lessor that the
person or official making such demand has any right or interest in or to this
Lease, or in or to the Demised Premises), or upon demand of any representative
of the fire, police, building, sanitation or other department of the city,
county, state or federal governments.
19.0 ENTIRE AGREEMENT - WAIVER - SURRENDER
19.1 Entire Agreement. This Lease and the Exhibits made a part of this Lease
contain the entire and only agreement between the parties relative to the
Demised Premises and any and all statements and representations, written and
oral, including previous correspondence and agreements between the parties to
this Lease, are merged in this Lease. Lessee acknowledges that all
representations, and statements upon which it relied in executing this Lease are
contained in this Lease and that Lessee in no way relied upon any other
statements or representations, written or oral. Any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of this Lease in whole or in part unless such executory agreement is
in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought. Nothing in this Lease shall
prevent the parties from agreeing to amend this Lease and the Exhibits made a
part of this Lease as long as such amendment shall be in writing and shall be
duly signed by both parties.
19.2 WAIVER. The failure of Lessor or Lessee to seek redress for violation, or
to insist upon the strict performance or of any covenant or condition of this
Lease, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. Neither the receipt by Lessor of Rent nor the payment by Lessee of
Rent with knowledge of the breach of any covenant of this Lease shall not be
deemed a waiver of such breach. No provisions of this Lease shall be deemed to
have been waived by Lessor or Lessee unless such waiver be in writing signed by
the waiving party. No payment by Lessee or receipt by Lessor of a lesser amount
than the monthly rent stipulated in this Lease shall be deemed to be other than
on account of the stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
19.3 SURRENDER. No act or thing done by Lessor during the term of this Lease
demised shall be deemed an acceptance of a surrender of the Demised Premises,
and no agreement to accept such
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surrender shall be valid, unless in writing signed by Lessor. No employee of
Lessor or of Lessor's agents shall have any power to accept the keys of the
Demised Premises prior to the termination of this Lease. The delivery of keys to
any employee of Lessor or of Lessor's agents shall not operate as a termination
of the Lease or a surrender of the Demised Premises.
20.0 INABILITY TO PERFORM - EXCULPATORY CLAUSE
Lessor or Lessee shall be relieved from performing its obligations under this
Lease (other than Lessee's obligations to pay Rent and make other monetary
payments under this Lease, which shall not be excused or delayed by the
provisions of this Article) if it is prevented or delayed from doing so by
reason of strikes or labor troubles or any other similar or dissimilar cause
whatsoever beyond its reasonable control, including but not limited to,
governmental preemption in connection with a national emergency or by reason of
any rule, order or regulation of any department or subdivision thereof of any
governmental agency or by reason of the conditions of supply and demand which
have been or are affected by war, hostilities or other similar or dissimilar
emergency. Lessor's or Lessee's financial inability to perform shall not relieve
Lessor or Lessee, respectively, from performance of its obligations under this
Lease. In each such instance of inability of Lessor or Lessee to perform, Lessor
or Lessee, as the case may be, shall exercise reasonable diligence to eliminate
the cause of such inability to perform.
Lessee shall neither assert nor seek to enforce any claim for breach of this
Lease against any of Lessor's assets other than Lessor's interest in the Land
and Building of which the Premises are a part and in the rents, issues, proceeds
and profits thereof, and Lessee agrees to look solely to such interest for the
satisfaction of any liability of Lessor under this Lease, it being specifically
agreed that in no event shall Lessor (which term shall include, without
limitation, the officers, trustees, directors, partners, beneficiaries, joint
venturers, members, stockholders or other principals or representatives,
disclosed or undisclosed, of Lessor or any managing agent) ever be personally
liable for any such liability. This paragraph shall not limit any right that
Lessee might otherwise have to obtain injunctive relief against Lessor or to
take any other action which shall not involve the personal liability of Lessor
to respond in monetary damages from Lessor's assets other than the Lessor's
interest in said real estate, as aforesaid. Neither Lessor nor Lessee shall be
liable for consequential damages.
21.0 LESSOR'S CONSENT
It is understood and agreed that whenever Lessor's consent or approval is
required, either expressed or implied, by any provision of this Lease, the
consent or approval may be granted or withheld arbitrarily in Lessor's sole
discretion unless otherwise specifically stated in such provision.
Notwithstanding anything to the contrary contained in the Lease, if any
provision of the Lease obligates Lessor not to unreasonably withhold its consent
or approval, an action for specific performance will be Lessee's sole right and
remedy in any dispute as to whether Lessor has breached such obligation.
22.0 BILLS AND NOTICES
All bills and statements for reimbursement or other payments or charges due from
Lessee to Lessor hereunder shall be due and payable in full thirty (30) days,
unless otherwise provided in this Lease, after submission thereof by Lessor to
Lessee. Lessee's failure to make timely payment of any amounts indicated by such
bills and statements, whether for work done by Lessor at Lessee's request,
reimbursement provided for by this Lease or for any other sums properly
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owing by Lessee to Lessor, shall be treated as a default in the payment of Rent,
in which event Lessor shall have all rights and remedies provided in this Lease
for the nonpayment of Rent.
Any notice by either party to the other party shall be in writing. Any notice
from the Lessor to the Lessee related to the Demised Premises or to the
occupancy thereof shall be deemed duly served if and when such notice is
delivered, attempted to be delivered or refused, whichever shall first occur, to
the Lessee at the Lessee's Address by registered or certified mail, return
receipt requested, postage prepaid or by FedEx, UPS or other nationally known
reputable overnight courier service. Any notice from the Lessee to the Lessor
related to the Demised Premises or to the occupancy thereof shall be deemed duly
served if and when such notice is delivered, attempted to be delivered or
refused, whichever shall first occur, to the Lessor at the Lessor's Address by
registered or certified mail, return receipt requested, postage prepaid or by
FedEx, UPS or other nationally known reputable overnight courier service.
The Lessor may change the Lessor's Address and the Lessee may change the
Lessee's Address by delivering or sending a notice in accordance with the
foregoing paragraph to the other party stating the change and setting forth the
changed address, provided such changed address is within the United States.
23.0 HOLDOVER
If the Lessee remains in the Premises beyond the expiration or earlier
termination of the Term of this Lease such holding over shall not be deemed to
create any tenancy, but the Lessee shall be a tenant-at-sufferance only and
shall pay rent to Lessor at the times and manner determined by Lessor at a daily
rate in an amount equal to three times the daily rate of the Rent and other sums
payable under this Lease as of the last day of the Term of this lease.
24.0 PARTIES BOUND - SEIZIN OF TITLE
The covenants, agreements, terms, provisions and conditions of this Lease shall
bind and benefit the successors and assigns of the parties to this Lease with
the same effect as if mentioned in each instance where a party to this Lease is
named or referred to, except that no violation of the provisions of the article
contained to this Lease entitled "ASSIGNMENT, MORTGAGING, SUBLETTING, ETC." of
this Lease shall operate to vest any rights in any successor or assignee of
Lessee.
If, in connection with or as a consequence of the sale, transfer or other
disposition of the real estate (Land and/or Building, either or both, as the
case may be) of which the Demised Premises are a part, Lessor ceases to be the
owner of the reversionary interest in the Demised Premises, Lessor shall be
entirely freed and relieved from the performance and observance thereafter of
all covenants and obligations hereunder accruing thereafter on the part of
Lessor to be performed and observed, it being understood and agreed in such
event (and it shall be deemed and construed as a covenant running with the land)
that the person succeeding to Lessor's ownership of said reversionary interest
shall thereupon and thereafter assume, and perform and observe, any and all of
such covenants and obligations of Lessor.
25.0 MISCELLANEOUS
25.1 SEPARABILITY. If any provision of this Lease or portion of such provision
or the application thereof to any person or circumstance is for any reason held
invalid or unenforceable, the
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remainder of the Lease (or the remainder of such provision) and the application
thereof to other persons or circumstances shall not be affected thereby. In the
event that any charge under this Lease is interpreted to be the payment of
interest, the rate of interest shall be equal to the lesser of the amount stated
in the Lease or the maximum amount permitted by law.
25.2 CAPTIONS. The captions are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this Lease nor
the intent of any provisions thereof.
25.3 LESSOR OR LESSEE. The words "Lessor" and "Lessee" as used in this Lease may
extend to and be applied to several parties whether male or female and to
corporations and partnerships, and words importing the singular may include the
plural and all obligations of the Lessee as defined in this Lease shall be joint
and several. Each of the provisions of this Lease shall bind and inure to the
benefit of the heirs, legal representatives, successors and assigns of the
parties to this Lease and it is specifically understood that the Lessor has the
right to assign all of its right, title and interest, or any portion thereof, in
and to this Lease and any amendments to this Lease to any other party or entity
during the Term of this Lease and any extension thereof and that the Lessee
shall execute any and all instruments that may be necessary to acknowledge and
assent to such assignment.
25.4 BROKER. Each party represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of space in the Building, with any
broker or had its attention called to the Demised Premises or other space to let
in the Building, by any broker other than the broker, if any, listed in the
Article contained in this Lease entitled "REFERENCE DATA" whose commission shall
be the responsibility of Lessor. Each party agrees to exonerate and save
harmless and indemnify the other against any claims for a commission by any
other broker, person or firm, with whom such party has dealt in connection with
the execution and delivery of this Lease or out of negotiations between Lessor
and Lessee with respect to the leasing of other space in the Building.
25.5 GOVERNING LAW. This Lease is made pursuant to, and shall be governed by,
and construed in accordance with, the laws of the Commonwealth of Massachusetts.
25.6 ASSIGNMENT OF LEASE AND/OR RENTS. With reference to any assignment by
Lessor of its interest in this Lease and/or the Rent payable under this Lease,
conditional in nature or otherwise, which assignment is made to or held by a
bank, trust company, insurance company or other institutional lender holding a
Mortgage on the Building, Lessor and Lessee agree:
(a) that the execution thereof by Lessor and acceptance thereof by such
Mortgagee shall never be deemed an assumption by such Mortgagee of any of the
obligations of the Lessor hereunder, unless such Mortgagee shall, by written
notice sent to the Lessee, specifically otherwise elect; and
(b) that, except as aforesaid, such Mortgagee shall be treated as having
assumed the Lessor's obligations hereunder only upon foreclosure of such
Mortgagee's Mortgage and the taking of possession of the Demised Premises after
having given notice of its intention to succeed to the interest of the Lessor
under this Lease.
25.7 NOTICE OF LEASE. Lessee agrees that it will not record this Lease in any
Registry of Deeds or Registry District, provided however that either party shall
at the request of the other, execute
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and deliver a recordable Notice of this Lease in the form prescribed by and as
required by Chapter 183, Section 4 of the Massachusetts General Laws.
IN WITNESS WHEREOF, Lessor and Lessee have caused this instrument to be executed
under seal, all as of the day and year first above written.
NINE FOURTH AVENUE LLC
By: J. F. White Properties, Inc.,
Manager
By /s/ James A. Magliozzi
----------------------------
James A. Magliozzi, President.
GELTEX PHARMACEUTICALS, INC.
By: /s/ Mark Skaletsky
----------------------------
Name: Mark Skaletsky
Title: President
Duly Authorized
<PAGE> 29
EXHIBIT A
[MAP]
<PAGE> 30
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways,
corridors or halls of the Property shall not be obstructed or encumbered or
used for any purpose other than ingress and egress to and from the premises
demised to any occupant.
2. No awnings or other projections shall be attached to the outside walls or
windows of the Building without the prior written consent of Lessor. No
curtains, blinds, shades, or screens shall be attached or hung in, or used in
connection with, any window or door of the premises demised to any occupant,
without the prior written consent of Lessor. Such awnings, projections,
curtains, blinds, shades, screens or other fixtures must be of a quality
type, design and color, and attached in a manner, approved by Lessor in
writing in advance.
3. No sign, advertisement, object, notice or other lettering shall be exhibited,
inscribed, painted or affixed on any part of the outside of the premises
without the prior written consent of Lessor.
4. No show cases or other articles shall be put in front of or affixed to any
part of the exterior of the Building.
5. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein.
6. Lessor shall have the right to prohibit any advertising by any occupant
which, in Lessor's opinion, tends to impair the reputation of the Building or
its desirability as a building, and upon notice from Lessor, such occupant
shall refrain from or discontinue such advertising.
7. No premises shall be used, or permitted to be used, for lodging or sleeping,
or for any immoral or illegal purpose.
8. Canvassing, soliciting and peddling in the Building are prohibited and each
occupant shall cooperate in seeking their prevention.
9. If the premises demised become infested with vermin, such tenant, at its sole
cost and expense, shall cause its premises to be exterminated from time to
time, to the satisfaction of Lessor, and shall employ such exterminators
therefor as shall be approved by Lessor in writing and in advance.
<PAGE> 1
EXHIBIT 11.1
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Weighted average common shares outstanding $ 12,513,000 $ 1,935,000
Effect of Convertible Preferred Stock - assumed --- 5,774,000
converted at date of issuance
Effect of Common and Common equivalent Shares
issued by the Company during the twelve month
period immediately preceding the Company's
initial public offering in November 1995, as if
they were outstanding for all periods presented
prior to the initial public offering (using the
treasury stock method) --- 400,000
------------ -----------
Shares used in computing net loss per share 12,513,000 8,109,000
Net loss $(19,978,144) $(6,884,645)
============ ===========
Net loss per share $ (1.60) $ (.85)
============ ===========
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 Nos. 333-00864, 333-06779, 333-08535) of GelTex Pharmaceuticals, Inc. of
our report dated February 21, 1997 with respect to the financial statements of
GelTex Pharmaceuticals, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
ERNST & YOUNG LLP
Boston, Massachusetts
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,801
<SECURITIES> 52,623
<RECEIVABLES> 238
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,348
<PP&E> 3,477
<DEPRECIATION> 1,230
<TOTAL-ASSETS> 78,068
<CURRENT-LIABILITIES> 2,888
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 74,921
<TOTAL-LIABILITY-AND-EQUITY> 78,068
<SALES> 0
<TOTAL-REVENUES> 1,663
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,909
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> (19,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,978)
<EPS-PRIMARY> (1.60)
<EPS-DILUTED> (1.60)
</TABLE>
