<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1998.
REGISTRATION NO. 333-45151
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GELTEX PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3136767
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
NINE FOURTH AVENUE, WALTHAM, MASSACHUSETTS 02154 (781) 290-5888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK SKALETSKY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GELTEX PHARMACEUTICALS, INC.
NINE FOURTH AVENUE
WALTHAM, MASSACHUSETTS 02154
(781) 290-5888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
with copies to:
<TABLE>
<S> <C>
MAUREEN P. MANNING, ESQ. STEVEN D. SINGER, ESQ.
PALMER & DODGE LLP PHILIP P. ROSSETTI, ESQ.
ONE BEACON STREET HALE AND DORR LLP
BOSTON, MASSACHUSETTS 02108 60 STATE STREET
(617) 573-0100 BOSTON, MASSACHUSETTS 02109
(617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated March 16, 1998
2,500,000 SHARES
GELTEX LOGO
COMMON STOCK
---------------------------
All of the shares of Common Stock, $.01 par value per share ("Common
Stock"), offered hereby are being sold by GelTex Pharmaceuticals, Inc. ("GelTex"
or the "Company"). The Common Stock is quoted on the Nasdaq National Market
under the symbol "GELX." On February 6, 1998, the last reported sale price of
the Common Stock on the Nasdaq National Market was $26.50 per share.
---------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. THE COMPANY HAS INCURRED
OPERATING LOSSES SINCE INCEPTION AND EXPECTS OPERATING LOSSES TO CONTINUE
THROUGH AT LEAST THE BEGINNING OF 2000. SEE "RISK FACTORS" BEGINNING ON PAGE 6
OF THIS PROSPECTUS.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Per Share............... $ $ $
Total(3)................ $ $ $
</TABLE>
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $320,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 375,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that the delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1998.
---------------------------
COWEN & COMPANY
CIBC OPPENHEIMER
HAMBRECHT & QUIST
, 1998
<PAGE> 3
AVAILABLE INFORMATION
GelTex has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete. With
respect to each such contract or other document filed as an exhibit to a
document incorporated by reference in this Prospectus, reference is made to the
exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits
incorporated by reference as a part thereof, are available for inspection and
copying at the Commission's offices as described below.
GelTex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed
pursuant to the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611; and Northeast Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
GelTex hereby incorporates in this Prospectus by reference the following
documents heretofore filed with the Commission (File No. 0-26872) pursuant to
the Exchange Act: (i) GelTex's Annual Report on Form 10-K for the year ended
December 31, 1996; (ii) GelTex's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997; (iii) GelTex's
Current Report on Form 8-K filed with the Commission on February 11, 1998; (iv)
GelTex's Current Report on Form 8-K/A filed with the Commission on March 16,
1998; (v) the description of the Common Stock contained in GelTex's Registration
Statement on Form 8-A filed with the Commission on September 26, 1995, as
amended on October 12, 1995; and (vi) the description of Junior Participating
Preferred Stock Purchase Rights contained in GelTex's Registration Statement on
Form 8-A filed with the Commission on March 5, 1996.
All documents filed by GelTex pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering made hereby shall be deemed to be incorporated in
this Prospectus by reference and to be a part hereof from the respective dates
of the filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein, modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus.
GelTex hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any and all of the documents referred to above which
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents which are not specifically incorporated by reference
into such documents. Requests for such copies should be directed to the
executive offices of GelTex Pharmaceuticals, Inc., Nine Fourth Avenue, Waltham,
Massachusetts 02154, Attention: Investor Relations, telephone (781) 290-5888,
extension 218.
---------------------------
RenaGel(R) and CholestaGel(R) are registered trademarks of the Company. Trade
names and trademarks of other companies appearing elsewhere in this Prospectus
are the property of their respective holders.
---------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS
AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus and in the documents incorporated into this Prospectus by reference.
Unless otherwise indicated or the context otherwise requires, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
The shares of Common Stock offered hereby involve a high degree of risk. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. Investors should carefully consider the information set forth
under the heading "Risk Factors."
THE COMPANY
GelTex Pharmaceuticals, Inc. is developing non-absorbed, polymer-based
pharmaceuticals that selectively bind to and eliminate target substances from
the intestinal tract. In November 1997, GelTex filed a New Drug Application
("NDA") with the United States Food and Drug Administration ("FDA") for its lead
product, RenaGel phosphate binder, for the control of elevated phosphorus levels
in chronic kidney failure patients. The Company, together with its joint venture
partner, Genzyme Corporation ("Genzyme"), intends to file applications for
RenaGel marketing authorization in Europe and Canada in mid-1998. In December
1997, GelTex initiated the first of two Phase III clinical trials for
CholestaGel non-absorbed cholesterol reducer, a product intended to reduce
elevated LDL cholesterol levels. The Company expects to file a NDA for
CholestaGel in 1999. The Company has initiated an anti-obesity drug discovery
program and is currently conducting pre-clinical studies with several types of
compounds. In addition, the Company is continuing to expand its infectious
disease program.
The Company commenced operations in 1992 and has incurred operating losses
since that time. As of December 31, 1997, the Company had an accumulated deficit
of approximately $55 million. Although the time required to reach sustained
profitability is highly uncertain, the Company expects operating losses to
continue through at least the beginning of 2000.
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 and permitting oral administration in a convenient
capsule form.
RenaGel phosphate binder is an orally administered, non-absorbed hydrogel
intended to control hyperphosphatemia (elevated phosphorus levels) in patients
with chronic kidney failure. RenaGel is designed to provide significant
advantages over currently available calcium- and aluminum-based phosphate
binders. RenaGel binds dietary phosphate without the use of either calcium or
aluminum and, therefore, does not cause dangerous elevated blood calcium levels
or aluminum toxicities. The Company has formulated RenaGel in a convenient
capsule that is more palatable than the chalky chewable and acidic uncoated
tablet forms of currently available phosphate binders. In June 1997, the Company
formed a 50/50 joint venture with Genzyme for the final development and
commercialization of RenaGel phosphate binder in the United States, Europe and
certain other territories.
CholestaGel cholesterol reducer is an orally administered, non-absorbed
hydrogel intended to reduce elevated LDL cholesterol in patients with
hypercholesterolemia. The Company believes that the structural design of
CholestaGel represents a significant advance over existing bile acid
sequestrants in that its high density of high affinity bile acid binding sites
makes it more potent at lower doses than currently marketed agents. The Company
believes that CholestaGel will meet the need for a non-absorbed
cholesterol-reducing drug that is safe and well tolerated in long term use,
effective at low doses and available in a more convenient
3
<PAGE> 5
dosage form. In December 1997, GelTex commenced a Phase III double-blind,
placebo controlled study of CholestaGel designed to evaluate the efficacy and
tolerability of the drug at four dosage levels over a six month treatment
period.
The failure of the Company to obtain FDA approval to market RenaGel or
CholestaGel would have a material adverse effect on the Company. If FDA approval
is obtained, these products will compete with existing products used to control
elevated phosphorus levels or to reduce cholesterol. While the Company believes
that its products will offer certain advantages over available agents, there can
be no assurance that its products will achieve market acceptance.
The Company's anti-obesity program is focused on the development of
non-absorbed polymers that act within the gastrointestinal tract to inhibit the
absorption of fat. The Company is engaged in pre-clinical in vitro and in vivo
animal studies of novel polymers that work within the gastrointestinal tract and
either bind to and inhibit the enzyme responsible for the breakdown of fat or
bind to fat and make it inaccessible to this enzyme. The Company's infectious
disease research program is currently focused on non-absorbed polymers for the
treatment of non-systemic infections in surface sites, including
gastrointestinal, genitourinary, skin and wound sites, and respiratory tract
infections.
THE OFFERING
Common Stock offered hereby........... 2,500,000 shares
Common Stock to be outstanding after
the offering.......................... 16,142,264 shares(1)
Use of proceeds....................... For Phase III clinical trials and
manufacturing and development costs
relating to CholestaGel, to fund the
Company's share of commercialization
and other costs associated with
RenaGel, for research and development
programs, working capital and other
general corporate purposes.
Nasdaq National Market symbol......... GELX
- ------------------
(1) Based on shares outstanding as of December 31, 1997. Excludes 1,439,479
shares issuable upon the exercise of options outstanding as of December 31,
1997 with a weighted average exercise price of $14.07 per share and 11,400
shares issuable upon the exercise of a warrant outstanding as of December
31, 1997 with an exercise price of $2.50 per share.
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fee and research revenue...................... $ 3,000 $ 907 $ 1,663 $ 1,289
Collaborative RenaGel Joint Venture research
revenue............................................ -- -- -- 9,196
------- ------- -------- --------
Total revenue................................. 3,000 907 1,663 10,485
Costs and Expenses:
Research and development.............................. 3,655 6,504 21,755 22,251
Collaborative RenaGel Joint Venture research
expense............................................ -- -- -- 9,196
General and administrative............................ 1,280 1,873 3,154 4,089
------- ------- -------- --------
Total costs and expenses...................... 4,935 8,377 24,909 35,536
------- ------- -------- --------
Loss from operations.................................... (1,935) (7,470) (23,246) (25,051)
Interest income, net.................................... 252 585 3,268 2,877
Equity in loss of RenaGel Joint Venture................. -- -- -- (2,310)
------- ------- -------- --------
Net loss................................................ $(1,683) $(6,885) $(19,978) $(24,484)
======= ======= ======== ========
Net loss per share...................................... $ (0.27) $ (0.85) $ (1.60) $ (1.80)
======= ======= ======== ========
Shares used in computing net loss per share............. 6,139 8,109 12,513 13,592
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $52,623 $114,909
Working capital............................................. 49,099 111,385
Total assets................................................ 67,118 129,404
Long term obligations, less current portion................. 6,923 6,923
Stockholders' equity........................................ 53,418 115,704
</TABLE>
- ------------------
(1) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
hereby, at an assumed public offering price of $26.50 per share (the last
sale price on February 6, 1998), and the receipt of the net proceeds
therefrom.
5
<PAGE> 7
RISK FACTORS
Statements made in this Prospectus (including the documents incorporated by
reference herein) relating to the Company's future capital needs, revenue
expectations, plans for product development, regulatory filings, corporate
partnering and sales and marketing, and the timing of clinical trials and
regulatory approvals, or that otherwise relate to future periods, are
forward-looking statements within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. Actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
risks described below or elsewhere in this Prospectus. Such risks should be
considered carefully in evaluating an investment in the Common Stock.
NO PRODUCT SALES TO DATE; RISKS RELATED TO LEAD PRODUCTS
GelTex has generated no revenues to date from product sales. The Company's
potential products are in various stages of research, development, clinical
testing and FDA review. Although the Company has filed a NDA for its first
product, RenaGel phosphate binder, no assurance can be given that the FDA will
approve the NDA or that, if approved, the product will be successfully marketed
by Genzyme, the Company's joint venture partner. In December 1997, the Company
initiated the first of two planned Phase III clinical trials for CholestaGel. If
the results of these trials are not satisfactory, the Company may need to
conduct additional Phase III clinical trials. Any such additional studies would
likely be time consuming and expensive. There can be no assurance that the
results of any of the Company's Phase III clinical trials will be satisfactory.
Should the Company determine that the results of its Phase III clinical trials
for CholestaGel are sufficient to meet the FDA's requirements for product
approval, there can be no assurance that the FDA will concur with the Company's
analysis and approve CholestaGel for commercial sale. The failure of the Company
to obtain FDA approval for RenaGel or CholestaGel, or any significant delay in
obtaining such approvals, would have a material adverse effect on the Company.
DEPENDENCE ON CORPORATE ALLIANCES; LIMITED RELEVANT SALES AND MARKETING
EXPERIENCE
The Company has entered into a joint venture with Genzyme relating to the
final development and commercialization of RenaGel phosphate binder (the
"RenaGel Joint Venture") and intends to enter into development and marketing
agreements for the continued development and commercialization of CholestaGel
non-absorbed cholesterol reducer. The Company plans to rely upon corporate
partners to conduct certain clinical trials, obtain certain regulatory approvals
for and market other potential 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 its products or expend 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. To
the extent that the Company is successful in obtaining corporate partners for
its products, it will be dependent upon the efforts of these partners and there
can be no assurance that such efforts will be successful. Although Genzyme is
building its own specialty sales force to market RenaGel, it does not have
previous experience marketing to physicians who treat patients with kidney
failure and there can be no assurance that Genzyme will be successful in
achieving market acceptance for RenaGel.
CONTINUING OPERATING LOSSES
As of December 31, 1997, the Company had an accumulated deficit of
approximately $55 million. The continuing development and commercialization of
the Company's potential products will require the commitment of substantial
resources. The Company expects to continue to incur operating losses through at
least the beginning of 2000 as it funds its share of the market introduction
costs of RenaGel phosphate binder and continues to develop its other products.
The amount of net losses and the time required to reach sustained profitability
are highly uncertain. To achieve sustained profitable operations, the Company,
alone or with its corporate partners, must successfully develop, obtain
regulatory approval for, manufacture and market its products. No assurance can
be given that the Company will be able to achieve or sustain profitability.
6
<PAGE> 8
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Although the Company believes that the net proceeds of this offering,
together with existing cash balances and marketable securities, will be
sufficient to fund its operations through at least the year 2000, the Company's
cash requirements may increase materially from those now planned if FDA approval
of the RenaGel phosphate binder NDA is delayed or not obtained, or because of
results of the Company's research and development efforts, results of clinical
trials, the Company's inability to secure new relationships with strategic
partners, competitive technological advances, the FDA regulatory process and
other factors. Adequate additional funds, whether through additional 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.
DEPENDENCE ON OTHERS FOR MANUFACTURING; SINGLE SOURCES OF SUPPLY; PROCESS
DEVELOPMENT RISKS
The Company will rely upon third parties to manufacture commercial
quantities of its products. The Company has non-exclusively sublicensed its
rights to manufacture the starting material for RenaGel and CholestaGel to one
supplier and is purchasing quantities of this material under purchase orders
issued to this supplier. The Company has also obtained bulk pharmaceutical grade
production quantities of RenaGel and CholestaGel from two suppliers (one for
each product). The Company has entered into a long-term fixed price supply
agreement with The Dow Chemical Company, the manufacturer of RenaGel bulk
material, but has not concluded a commercial supply agreement with the
manufacturer of CholestaGel bulk material. The Company is negotiating a
long-term fixed price service agreement with one encapsulator to formulate bulk
material into finished product. Should any of these manufacturing relationships
terminate or should any of the suppliers be unable to satisfy the Company's
requirements for starting material, bulk material or finished goods,
respectively, the Company would be unable to commercialize its products as
expected, and the Company's business and financial condition would be materially
and adversely affected. There can be no assurance that the Company will be
successful in obtaining second sources for any of the products or services
described above or that it will be able to obtain such products or services on
commercially reasonable terms.
In addition, the Company is continuing to work with its third party
manufacturers to optimize processes for the manufacture of commercial quantities
of CholestaGel and RenaGel. In the event that the Company's process development
work is unsuccessful, the Company's anticipated profit margins could be
adversely affected.
RELIANCE ON LICENSE TO MANUFACTURE STARTING MATERIAL
A third party has patents covering the starting material employed in the
manufacture of RenaGel and CholestaGel. The Company has obtained a non-exclusive
license under these patents to manufacture the material in connection with the
production of RenaGel and CholestaGel. The Company may not sublicense its rights
under this license without the licensor's consent, except to the Company's
current supplier of the starting material and certain other parties specified in
the license. The license agreement may be terminated upon short notice if the
Company fails to meet its material obligations under the license agreement,
including lump sum payments, royalties and confidentiality obligations. If the
license is terminated and the owner of the patent is unwilling to supply
material to GelTex, the Company may not be able to commercialize its lead
products using current manufacturing procedures, if at all.
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT
The Company's anti-obesity and infectious disease programs are the primary
focus of the Company's research and development efforts and are in early stages
of pre-clinical development and research, respectively. There can be no
assurance that these programs or the Company's other research and development
activities will be successful or that any product candidates will be chosen from
pre-clinical studies. Should the Company commence the clinical development of
any compounds, there can be no assurance that clinical trials
7
<PAGE> 9
of products under development will demonstrate the safety and efficacy of such
products at all or to the extent necessary to obtain regulatory approvals. With
respect to its research and development activities, the Company may encounter
unanticipated problems, including development, regulatory, manufacturing and
marketing difficulties, some of which may be beyond the Company's ability to
resolve.
COMPREHENSIVE GOVERNMENT REGULATION
The Company's research, development and clinical programs, as well as the
operations of its third party manufacturers and the marketing operations of its
corporate partners, are subject to extensive regulation by numerous governmental
authorities in the United States and other countries. The Company's potential
products require governmental approvals for commercialization, which have not
yet been obtained. The regulatory process, which includes pre-clinical, 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 revenues.
The Company is also subject to numerous environmental, health, and
workplace safety laws and regulations, including those governing laboratory
procedures and the handling of biohazardous materials. Any violation of, and
cost of compliance with, these laws and regulations could adversely affect the
Company's operations. See "Business -- Government Regulation."
COMPETITION AND TECHNOLOGICAL CHANGE
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 the treatment of hyperphosphatemia,
hypercholesterolemia, obesity and infectious diseases. Although there is only
one product approved in the United States for the control of elevated phosphorus
levels in patients with chronic kidney failure, other products currently used as
phosphate binders include over-the-counter calcium- and aluminum-based antacids
and dietary calcium supplements. In addition, there are several phosphate
binders currently under development. 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 1996, sales of HMG-CoA
reductase inhibitors represented approximately 94% of the market for
cholesterol-reducing drugs sold in the United States. Combined worldwide sales
of the three leading HMG-CoA reductase inhibitors exceeded $5 billion in 1996.
While the Company believes that its products will offer certain advantages over
available agents, currently marketed products often have a significant
competitive advantage over new entrants. There can be no assurance that the
Company's products under development will be able to compete successfully with
existing therapies and achieve market acceptance.
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. In addition to competition from existing
therapies, 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 its partners, 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
pre-clinical 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.
8
<PAGE> 10
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The biotechnology and pharmaceutical industries place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company's success will depend, in part, on its
ability to obtain patent protection for its manufacturing processes and products
(including the use of its products), preserve its trade secrets and operate
without infringing the proprietary rights of third parties. The Company has
ongoing research efforts and expects to seek additional patents covering this
research in the future. There can be no assurance of its success or timeliness
in obtaining any patents, or of the breadth or degree of protection that any
such patents will afford the Company. The patent position of biotechnology and
pharmaceutical products is often highly uncertain and usually involves complex
legal and factual questions. There can be no assurance that patent applications
relating to the Company's potential products or technology will result in
patents being issued or that any current or future patents will afford adequate
protection to the Company or not be challenged, invalidated or infringed.
Furthermore, there can be no assurance that others will not independently
develop similar products and processes, duplicate any of the Company's products
or design around any current or future patents of the Company. In addition, the
Company could incur substantial costs in defending itself in suits brought
against it or in suits in which it may assert its patents against others. If the
outcome of any such litigation is unfavorable to the Company, its business could
be materially and adversely affected. To determine the priority of inventions,
the Company may also have to participate in interference proceedings declared by
the United States Patent and Trademark Office, which could result in adverse
decisions and substantial cost to the Company.
In addition, the Company may be required to obtain licenses to patents or
other proprietary rights of third parties. No assurance can be given that any
licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. If the Company does not
obtain such licenses, it could encounter delays in product market introductions
while it attempts to design around such patents or other rights, or it may be
unable to develop, manufacture or sell such products.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if possible, inventions rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach or that the Company's trade secrets will not otherwise
be disclosed to, or discovered by, competitors. There can be no assurance that
such persons or institutions will not assert rights to intellectual property
arising out of their relationships with the Company. See "Business -- Patents
and Trade Secrets."
PRODUCT LIABILITY AND LIMITED INSURANCE
The Company's business exposes it to potential product liability claims,
which are inherent in the testing, manufacturing, marketing and sale of human
therapeutics. The use of the Company's product candidates in clinical trials
also exposes the Company to product liability claims and possible adverse
publicity. These risks increase with respect to the Company's product
candidates, if any, that receive regulatory approval for commercialization. The
Company currently has limited product liability insurance coverage for the
clinical research use of its product candidates. The Company does not have
product liability coverage for the commercial sale of its products but intends
to obtain such coverage if and when its products are commercialized. However,
there can be no assurance that the Company will be able to obtain additional
insurance coverage on acceptable terms, if at all, or that a product liability
claim would not materially adversely affect the business of the Company.
DEPENDENCE ON REIMBURSEMENT
In both domestic and foreign markets, the ability of the Company or its
corporate partners to commercialize the Company's products will depend, in part,
on the availability of reimbursement from third party payors, such as government
health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price and
cost effectiveness of medical products. There can be no assurance that the
Company's potential products will be considered cost effective. If
9
<PAGE> 11
adequate coverage and reimbursement levels are not provided by the government
and third party payors for uses of the Company's therapeutic products, the
market acceptance of these products would be adversely affected. This is
particularly true with respect to RenaGel, which the Company anticipates will
compete with certain low priced over-the-counter products.
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent on the members of its management and
scientific staff, the loss of one or more of whom could have a material adverse
effect on the Company. In addition, the Company believes that its future success
will depend in large part upon its ability to attract and retain highly skilled
scientific and managerial personnel, particularly as the Company expands its
activities in clinical trials and the regulatory approval process. The Company
faces significant competition for such personnel from other companies, research
and academic institutions, government entities and other organizations. There
can be no assurance that the Company will be successful in hiring or retaining
the personnel it requires for continued growth. The failure to hire and retain
such personnel could materially and adversely affect the Company.
CONTROL BY SIGNIFICANT STOCKHOLDER; POTENTIAL EFFECT ON STOCK PRICE
As of September 30, 1997, approximately 24% of the Company's Common Stock
outstanding prior to this offering was owned beneficially by The Equitable
Companies Incorporated ("Equitable"). This ownership interest gives Equitable
the ability to influence the outcome of any election of directors or other
actions requiring approval of the Company's stockholders. Additionally, the
shares owned by Equitable were acquired in the open market without any
contractual restrictions on transfer. A sale by Equitable of a significant
number of shares could adversely affect the prevailing market price of the
Company's Common Stock.
DILUTION
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution in net tangible book value per share. See
"Dilution."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's certificate of incorporation and
by-laws and the terms of its stockholders rights plan may have the effect of
delaying or preventing a change in control of GelTex and thus deprive
stockholders of the opportunity to receive a premium for their shares. In
addition, GelTex's authorized capital stock includes shares of undesignated
preferred stock that may be issued from time to time by the Company's Board in
one or more series. This issuance of series of preferred stock could have the
effect of discouraging attempts to acquire control of GelTex.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby, assuming
a public offering price of $26.50 per share and after deducting underwriting
discounts and commissions and estimated offering expenses, will be approximately
$62,286,000 ($71,677,000 if the Underwriters' over-allotment option is exercised
in full). The Company intends to use the proceeds generated by this offering to
fund Phase III clinical trials and manufacturing and development costs
associated with the CholestaGel program (approximately $25 million); to fund the
Company's portion of the initial commercialization costs and other costs
associated with RenaGel (approximately $15 million); and for research and
development costs associated with its anti-obesity, infectious disease and other
research programs (approximately $10 million). The Company intends to use the
balance of the proceeds for working capital and general corporate purposes. The
Company believes that the net proceeds of this offering, together with existing
cash balances and marketable securities, will be sufficient to fund its
operations through at least the year 2000.
The amount and timing of funds required for such uses by the Company
cannot, however, be precisely determined at this time and will be dependent
upon, among other things, regulatory approvals for and the commercial success of
RenaGel, the progress of the Company's research and development programs,
determinations as to commercial potential of the Company's products, the terms
of any collaborative arrangements entered into by the Company for the
development and licensing of its products and other factors, many of which are
beyond the control of the Company. From time to time in the ordinary course of
its business, the Company evaluates possible acquisitions of businesses,
products and technologies that are complementary to those of the Company. The
Company currently has no agreements or understandings and is not engaged in
active negotiations with respect to any material acquisitions.
Pending the application of the net proceeds of this offering, the Company
intends to invest such proceeds in investment grade, interest-bearing
securities.
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "GELX." The following table sets forth, for the periods indicated,
the range of the high and low last sale prices for the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter............................................. $27 $12
Second Quarter............................................ 28 14 1/2
Third Quarter............................................. 20 3/4 11
Fourth Quarter............................................ 24 1/2 15 3/4
1997
First Quarter............................................. $27 $18 1/4
Second Quarter............................................ 23 15 3/4
Third Quarter............................................. 27 17 1/2
Fourth Quarter............................................ 32 24
1998
First Quarter (through February 6, 1998).................. $29 1/2 $25 1/2
</TABLE>
The last sale price of Common Stock on February 6, 1998, as reported on the
Nasdaq National Market, was $26.50 per share. There were 143 holders of record
of Common Stock as of January 27, 1998.
The Company has never declared or paid cash dividends on shares of its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if any, for use
in its business. In addition, the terms of the Company's bank debt prohibit the
payment of dividends.
CAPITALIZATION
The following table sets forth, as of December 31, 1997, the actual
capitalization of the Company and the capitalization as adjusted to reflect the
sale of the 2,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $26.50 per share (the last sale price on February 6, 1998)
after deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long term obligations, less current portion................. $ 6,923 $ 6,923
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued or outstanding................. -- --
Common Stock, $.01 par value, 50,000,000 shares
authorized; 13,642,264 shares issued and outstanding
(actual); 16,142,264 issued and outstanding (as
adjusted)(1)........................................... 136 161
Additional paid-in capital................................ 108,659 170,920
Deferred compensation..................................... (510) (510)
Accumulated deficit....................................... (54,944) (54,944)
Unrealized gain on marketable securities.................. 77 77
-------- --------
Total stockholders' equity................................ 53,418 115,704
-------- --------
Total capitalization...................................... $ 60,341 $122,627
======== ========
</TABLE>
- ------------------
(1) Excludes 1,435,479 shares issuable upon the exercise of options outstanding
as of December 31, 1997 with a weighted average exercise price of $14.25 per
share and 11,400 shares issuable upon the exercise of a warrant outstanding
as of December 31, 1997 with an exercise price of $2.50 per share.
12
<PAGE> 14
DILUTION
The net tangible book value of the Company at December 31, 1997 was
$52,952,000, or $3.88 per share of Common Stock. Giving effect to the sale of
the 2,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $26.50 per share, after deducting underwriting discounts and
commissions and estimated offering expenses, the Company's pro forma net
tangible book value at December 31, 1997 would have been $115,239,000, or $7.14
per share. This represents an immediate dilution in net tangible book value of
$19.36 per share to new investors purchasing shares in the offering and an
immediate increase in net tangible book value of $3.26 per share to existing
stockholders. The following table illustrates the per share dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $26.50
Net tangible book value before the offering............... $3.88
Increase in net tangible book value attributable to this
offering............................................... 3.26
-----
Pro forma net tangible book value after the offering(1)..... 7.14
------
Dilution to new investors(2)................................ $19.36
======
</TABLE>
- ---------------
(1) Pro forma net tangible book value per share represents the amount of total
tangible assets of the Company less total liabilities, divided by
16,142,264, the number of shares of Common Stock outstanding as of December
31, 1997, after giving effect to the sale of the 2,500,000 shares of Common
Stock offered hereby.
(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the amount of cash paid by a new investor for
a share of Common Stock.
13
<PAGE> 15
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1997 are derived from the Company's audited financial statements. The data set
forth below should be read in conjunction with the Company's financial
statements and related notes thereto incorporated by reference in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fee and research revenue............... $ -- $ 3,000 $ 750 $ 1,244 $ 1,000
Collaborative RenaGel Joint Venture project
reimbursement................................ -- -- -- -- 9,196
Research grant................................. -- -- 157 419 289
------- ------- ------- -------- --------
Total revenue................................ -- 3,000 907 1,663 10,485
Costs and Expenses:
Research and development....................... 808 3,655 6,504 21,755 22,251
Collaborative RenaGel Joint Venture project
costs........................................ -- -- -- -- 9,196
------- ------- ------- -------- --------
Total research and development............... 808 3,655 6,504 21,755 31,447
General and administrative..................... 777 1,280 1,873 2,924 4,089
Other, nonrecurring............................ -- -- -- 230 --
------- ------- ------- -------- --------
Total costs and expenses..................... 1,585 4,935 8,377 24,909 35,536
------- ------- ------- -------- --------
Loss from operations............................. (1,585) (1,935) (7,470) (23,246) (25,051)
Interest income.................................. 66 303 684 3,343 3,095
Interest expense................................. -- (51) (99) (75) (218)
Equity in loss of RenaGel Joint Venture.......... -- -- -- -- (2,310)
------- ------- ------- -------- --------
Net loss......................................... $(1,519) $(1,683) $(6,885) $(19,978) $(24,484)
======= ======= ======= ======== ========
Net loss per share(1)............................ $ (0.27) $ (0.85) $ (1.60) $ (1.80)
======= ======= ======== ========
Shares used in computing net loss per share(1)... 6,139 8,109 12,513 13,592
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and marketable
securities....................................... $ 5,626 $13,953 $33,175 $73,425 $52,623
Working capital.................................... 5,399 12,665 31,824 72,461 49,099
Total assets....................................... 5,992 16,111 35,993 78,068 67,118
Long term obligations, less current portion........ -- 671 420 124 6,923
Stockholders' equity............................... 5,721 13,979 33,650 75,056 53,418
</TABLE>
- ------------------
(1) Historical earnings per share for 1993 have not been presented because such
amounts are not deemed meaningful due to the significant change in the
Company's capital structure that occurred in connection with the initial
public offering of the Company's Common Stock in 1995.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW
The Company was incorporated on November 15, 1991 (date of inception) and
commenced operations in 1992. Since inception, the Company has devoted
substantially all of its resources to its research and product development
programs, including manufacturing potential products. GelTex has generated no
revenues from product sales and has been dependent upon funding from external
financing, strategic corporate alliances, interest income and government grants.
The Company has not been profitable since inception and had an accumulated
deficit of $55.0 million at December 31, 1997. Losses have resulted principally
from costs incurred in research and development, and manufacturing 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 Phase III clinical trials for CholestaGel, the continuing
development of processes for the manufacture of commercial quantities of
CholestaGel, and the expansion of its anti-obesity, infectious disease and other
research programs. In addition, the Company expects to report increasing losses
from its interest in the RenaGel Joint Venture during the period leading to the
market introduction of RenaGel. As a result, the Company expects to incur
additional operating losses through at least the beginning of 2000. The
Company's ability to achieve and sustain profitability is dependent on the
timely receipt of FDA approval for RenaGel phosphate binder, the success of the
Phase III clinical trials of, and the ability to obtain regulatory approval for,
CholestaGel cholesterol reducer, the Company's ability to enter into product
development and commercialization agreements with corporate partners, and the
Company's ability to secure and maintain contract manufacturing services for the
commercial supply of its potential products at an acceptable cost. Revenue the
Company may earn from Genzyme in connection with the RenaGel Joint Venture or
other revenue earned from any other strategic corporate alliances may result in
the Company experiencing periods of profitability. However, the Company's
results of operations for such periods may not be indicative of the Company's
results of operations for other periods in which the Company does not earn
revenue from strategic corporate alliances.
RESULTS OF OPERATIONS
Fiscal Years Ended 1997, 1996 and 1995
The Company earned total revenue of $10.5 million in 1997 compared to $1.7
million earned during 1996 and $907,000 earned during 1995. Under the terms of
the RenaGel Joint Venture, the Company and Genzyme are each expected to fund the
RenaGel Joint Venture in an amount equal to 50% of budgeted costs and expenses
associated with the final development and commercialization of RenaGel for the
relevant period. Each party that incurs project expenses, either as internal
operating costs or third party obligations, is reimbursed by the RenaGel Joint
Venture for 100% of the costs incurred. During 1997, $9.2 million in revenue
earned by the Company represents reimbursement from the RenaGel Joint Venture
for certain development and manufacturing costs incurred by the Company. The
amount of reimbursement revenue earned by the Company will vary according to the
obligations of, and related expenses incurred by, the Company, and is expected
to decrease in the future as the Company completes its development activities
for the RenaGel Joint Venture. In 1997, the Company's other sources of revenue
consisted of a $1.0 million milestone payment from a corporate partner and
approximately $300,000 under a grant from the United States Department of
Commerce's Advanced Technology Program. The Company has received all the
payments it is expected to receive under this grant. Revenue earned during 1996
consisted of $1.2 million in milestone payments and research revenue from a
corporate partner and $419,000 from the Department of Commerce grant. In 1995,
the Company earned $750,000 of research revenue from a corporate partner and
$157,000 from the same Department of Commerce grant.
The Company's total operating expenses for 1997 were $35.5 million,
compared to $24.9 million in 1996 and $8.4 million in 1995. Research and
development expenses increased 44% to $31.4 million in 1997 from the $21.8
million incurred in 1996, which was triple the $6.5 million spent in 1995. The
increase during 1997 was due primarily to increased process development costs
for the manufacture of RenaGel and CholestaGel, costs
15
<PAGE> 17
associated with manufacturing RenaGel in preparation for filing the NDA, and
costs incurred in filing the NDA for RenaGel, as well as increased clinical
trial expense associated with CholestaGel and increases in personnel and related
research and development costs associated with the initiation of the Company's
anti-obesity program and the expansion of the infectious disease program. The
increase during 1996 was due primarily to increasing third party expenses
associated with the development of RenaGel and CholestaGel, including the
production of clinical trial material, clinical trial expenses and process
development expenses. General and administrative expenses increased
approximately 41% to $4.1 million in 1997 from $2.9 million in 1996 and $1.9
million in 1995 due primarily to increased business development costs and
increased administrative personnel and related costs.
The Company's equity in the loss of the RenaGel Joint Venture was $2.3
million for 1997, which represents the Company's 50% portion of the RenaGel
Joint Venture's loss for the year. There was no corresponding amount in prior
years. The Company expects that the RenaGel Joint Venture will continue to
operate at a loss at least into 1999.
Interest income decreased slightly to $3.1 million in 1997 from $3.3
million in 1996 due to a decrease in cash and marketable securities balances
available for investment. Interest income in 1996 exceeded the interest income
of $684,000 in 1995 due to higher average cash and marketable securities
balances available in 1996 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, 1997 primarily
with $87.3 million in net proceeds from two public offerings of equity
securities, $20.3 million from private sales of equity securities, $15.5 million
from license fees and research and development revenues from the RenaGel Joint
Venture and other collaborative research agreements and $7.4 million in interest
income. Cash, cash equivalents and marketable securities were $52.6 million at
December 31, 1997, compared to $73.4 million at December 31, 1996.
In June 1997, the Company formed RenaGel LLC (the "RenaGel Joint Venture")
as the sole initial member and licensed all of its rights to RenaGel phosphate
binder (outside of Japan and certain Pacific Rim countries) to the RenaGel Joint
Venture. Immediately thereafter, the Company transferred 50% of its interest in
the RenaGel Joint Venture to Genzyme and Genzyme agreed to pay the Company $25.0
million, consisting of a $15.0 million non-refundable payment due upon receipt
of marketing approval from the FDA, and a $10.0 million non-refundable payment
due one year after FDA approval. The Company and Genzyme are each required to
make capital contributions to the RenaGel Joint Venture in an amount equal to
50% of all costs and expenses associated with the development and
commercialization of RenaGel, including costs and expenses incurred by either
party in performing under the agreement, and the Company and Genzyme will share
equally in the profits generated from sales of the product. To the extent that
either party fails to fund its 50% share of costs and expenses and the other
party does not exercise its right to terminate the agreement or compel
performance of the funding obligation, the profit sharing interests and the
future funding obligations of the parties will be proportionately adjusted to
correspond to the cumulative amount of capital contributions made by each party
as of such date. In connection with the purchase of its interest in the RenaGel
Joint Venture, Genzyme also purchased 100,000 shares of GelTex Common Stock for
$2.5 million in cash.
In April 1997, the Company entered into a contract manufacturing agreement
for RenaGel phosphate binder. Under the terms of the agreement, the Company is
required to fund capital equipment costs of approximately $6.0 million. The
Company elected to fund its portion of the capital equipment costs through third
party financing as discussed below, and the Company paid the RenaGel Joint
Venture the majority of its portion of the capital equipment costs in the fourth
quarter of 1997. The Company may be obligated to pay up to $3.75 million in
additional equipment costs in the event that the Company requires the
manufacturer to increase capacity and implement certain manufacturing changes
designed to result in a lower product cost. The contract manufacturing agreement
also requires the Company to purchase minimum quantities of product beginning in
1998. The minimums are based upon the Company's estimated product requirements
and are
16
<PAGE> 18
subject to increases as product sales increase and as the manufacturer increases
its capacity for the product. As a result of the execution of the contract
manufacturing agreement, the Company will be obligated to make a $1.0 million
payment to a third party that developed certain process development technology
under contract to the Company. All of the above-referenced capital equipment
costs, the minimum purchase obligations and the third party payment are costs
associated with the RenaGel Joint Venture and, to the extent that each company
is funding 50% of the budgeted costs and expenses of the RenaGel Joint Venture,
they will be borne equally by the Company and Genzyme.
In May 1997, the Company entered into a $5.0 million term loan to finance
the cost of leasehold improvements to, and equipment purchases for, its new
facility. The agreement provides for repayment of the principal amount of the
loan in 48 equal monthly installments which commenced in January 1998. The loan
bears interest at the bank's prime rate, and certain equipment purchased with
funds received under the term loan has been pledged as collateral. In October
1997 this term loan was increased by $3.0 million to finance the Company's
portion of the capital equipment costs under the contract manufacturing
agreement for RenaGel. At December 31, 1997, the Company had fully drawn down on
this loan. In addition, at December 31, 1997, the Company had approximately
$757,000 outstanding on an equipment line of credit with a bank, bearing
interest at the bank's prime rate and due in monthly installments through
December 2000.
In February 1997, the Company entered into a ten year lease for its new
research and development and administrative facility. The lease requires annual
payments of $302,000 for the first five years and $353,000 for the remainder of
the term. The Company will continue to lease an administrative and research and
development facility at its previous location through 2004. In October 1997, the
Company entered into a three year sublease agreement covering the facility.
At December 31, 1997, the Company had net operating loss carryfowards for
income tax purposes of approximately $55.0 million which expire through 2012.
Since the Company expects to incur operating losses through at least the
beginning of 2000, 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 will 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.
The Company believes that the net proceeds from this offering, together
with its existing cash balances and marketable securities, will be sufficient to
fund its operations through at least the year 2000. However, the Company's cash
requirements may increase materially from those now planned if FDA approval of
the RenaGel NDA is delayed or not obtained, or because of results of the
Company's research and development efforts, results of clinical trials, the
Company's inability to enter into new relationships with strategic partners,
competitive technological advances, the FDA regulatory process and other
factors. Adequate additional funds, whether through additional 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.
IMPACT OF YEAR 2000
The Company has conducted an assessment of its software and related systems
and believes they are year 2000 compliant.
17
<PAGE> 19
BUSINESS
OVERVIEW
GelTex Pharmaceuticals, Inc. is developing non-absorbed, polymer-based
pharmaceuticals that selectively bind to and eliminate target substances from
the intestinal tract. The Company's product development efforts are focused on
therapeutic agents for the treatment of hyperphosphatemia (elevated phosphorous
levels) in patients with chronic kidney failure; hypercholesterolemia (elevated
LDL cholesterol levels); obesity; and infectious diseases.
The Company's most advanced product candidate, RenaGel phosphate binder, is
an orally administered, non-absorbed hydrogel for the control of
hyperphosphatemia in patients with chronic kidney failure. In November 1997,
GelTex filed a NDA with the FDA for RenaGel phosphate binder. The Company,
together with its joint venture partner, Genzyme, intends to file applications
for RenaGel marketing authorization in Europe and Canada in mid-1998.
GelTex is also developing CholestaGel, an orally administered, non-absorbed
hydrogel, for the reduction of elevated LDL cholesterol levels in patients with
hypercholesterolemia. In December 1997, GelTex commenced a Phase III clinical
study of CholestaGel. The double-blind, placebo controlled study is designed to
evaluate the efficacy and tolerability of the drug at four dosage levels over a
six month treatment period. The Company intends to initiate another Phase III
study of CholestaGel in mid-1998 in order to evaluate once daily and split
dosing regimens. The Company expects to file a NDA for CholestaGel in 1999.
The Company has initiated an anti-obesity drug discovery program focused on
the development of non-absorbed polymers that act in the gastrointestinal tract
to inhibit the body's absorption of fat. The Company is continuing to expand its
infectious disease program focused on the development of non-absorbed polymer-
based pharmaceuticals to treat or prevent non-systemic infectious diseases.
The Company commenced operations in 1992 and has incurred operating losses
since that time. As of December 31, 1997, the Company had an accumulated deficit
of approximately $55 million. Although the time required to reach sustained
profitability is highly uncertain, the Company expects operating losses to
continue through at least the beginning of 2000. See "Risk Factors -- No Product
Sales to Date; Risks Related to Lead Products" and "Risk Factors -- Continuing
Operating Losses."
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
18
<PAGE> 20
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
phosphorus levels, elevated LDL cholesterol, obesity and certain
infectious diseases.
- Low Risk of Adverse Side Effects. The Company's polymer-based products
currently under development are designed to be non-absorbed and well
tolerated. Since the products act only in the intestinal tract and are
not 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 the manufacture and distribution of the Company's
products and product development activities. 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
regulatory review, clinical testing and research and development for the
treatment of elevated phosphorus levels, elevated LDL cholesterol, obesity and
infectious diseases. The table below outlines the status of the Company's
product development and research programs.
19
<PAGE> 21
<TABLE>
<CAPTION>
PRODUCT/PROGRAM INTENDED INDICATIONS DEVELOPMENT STATUS*
- ------------------ -------------------------------- --------------------------------
<S> <C> <C>
RenaGel Control of elevated phosphorus NDA filed with the FDA in
levels in patients with chronic November 1997
kidney failure European and Canadian marketing
authorization applications
expected to be filed in mid-1998
CholestaGel Reduction of elevated First Phase III clinical trial
cholesterol in patients with commenced December 1997
primary hypercholesterolemia Second Phase III clinical trial
(elevated low-density to be initiated in mid-1998
lipoprotein (LDL) cholesterol) NDA expected to be filed with
the FDA in 1999
Anti-Obesity Inhibit absorption of fat Pre-clinical
Infectious Disease Treatment or prevention of non- Research
systemic infectious diseases
</TABLE>
- ---------------
* "Clinical trials" refers to testing in humans. "Pre-clinical" refers to
testing in animals. "Research" includes the discovery or creation of prototype
compounds, in vitro studies of those compounds and preliminary evaluation in
animals. See "Business -- Government Regulation."
RENAGEL PHOSPHATE BINDER
Overview
The United States Health Care Financing Administration ("HCFA") estimates
that, at the end of 1996, approximately 214,000 patients in the United States
were receiving chronic dialysis treatment for end-stage kidney disease.
According to HCFA data, the number of dialysis patients in the United States
increased by 7% to 10% annually between 1985 and 1996. Based on reported growth
rates of approximately 5% to 7% per year, the Company estimates that the number
of dialysis patients in Western Europe in 1996 was in excess of 170,000. In
Japan, with reported growth rates of approximately 6% per year, the Company
estimates that the number of dialysis patients in 1996 was approximately
165,000.
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 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 phosphorus 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 potential worldwide market for phosphate binders for dialysis
patients is between $300 and $500 million. In addition to the dialysis
population, many patients in the early stages of chronic kidney failure (the
pre-dialysis
20
<PAGE> 22
population) use phosphate binders. The Company estimates that greater than
700,000 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. In order to achieve
adequate reductions in phosphate absorption, calcium acetate and calcium
carbonate, the most commonly used agents, must be taken at doses 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), anemia and dialysis dementia (deterioration of
intellectual function). The Company believes that a non-absorbed, calcium-free
and aluminum-free phosphate binder will offer significant benefits in the
treatment of hyperphosphatemia in patients with chronic kidney failure.
Development Status
GelTex has developed RenaGel phosphate binder for the control of
hyperphosphatemia in patients with chronic kidney failure. GelTex filed a NDA
for RenaGel with the FDA in November 1997. 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. Additionally, RenaGel has
been formulated in a convenient capsule form that is more palatable than the
chalky chewable and acidic uncoated tablet forms of currently available
phosphate binders. Although the Company believes that RenaGel will offer these
advantages over currently available phosphate binders, there can be no assurance
that RenaGel will compete successfully with existing therapies for hyper-
phosphatemia and achieve market acceptance. See "Risk Factors -- Competition and
Technological Change" and "Business -- Competition."
The Company filed an Investigational New Drug Application ("IND") for
RenaGel with the FDA in November 1994, three years prior to the filing of the
NDA. The Company commenced the clinical development of the product in December
1994 with a 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 that the adverse reaction profile of RenaGel was
similar to that of placebo. 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 dialysis patients
was studied in a 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 dialysis patients. 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 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.
21
<PAGE> 23
GelTex completed two pivotal Phase III clinical trials 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 phosphorus levels without elevating
calcium levels. The reduction of serum phosphorus levels resulting from RenaGel
treatment is shown in the graph below. Results of this study also suggest that
reducing phosphorus levels in the absence of calcium supplementation can aid in
the control of PTH levels.
<TABLE>
<CAPTION>
Duration of
Measurement Period RenaGel
(Fiscal Year Covered) Washout Treatment Washout
<S> <C> <C> <C>
0 6.80
1 8.00
2 9.10 9.10
3 8.20
4 7.70
5 7.20
6 7.10
7 7.10
8 6.80
9 6.70
10 6.60 6.60
11 7.40
12 8.00
</TABLE>
The second Phase III trial was an 82-patient crossover study, designed to
compare the safety and efficacy of RenaGel with that of calcium acetate
(PhosLo(R)). Results of this trial showed that RenaGel is as effective as
calcium acetate in reducing serum phosphorus levels with significantly fewer
incidents of hypercalcemia.
The Company is currently conducting an extended use study of RenaGel
involving 192 patients. The study, which is expected to conclude in March 1998,
is designed to provide additional safety data and long-term efficacy data. In
mid-1998, the Company expects to commence a pivotal study necessary to support
applications in Europe and the United States for a pre-dialysis indication for
RenaGel. In addition, the Company is continuing its efforts to develop
additional more convenient dosage formulations of RenaGel.
In June 1997, the Company formed a 50/50 joint venture with Genzyme for the
final development and commercialization of RenaGel phosphate binder in the
United States, Europe and other territories not previously licensed to Chugai
Pharmaceutical Co., Ltd. ("Chugai"). See "Business -- Development and Marketing
Agreements."
The Company will rely upon third parties to manufacture commercial
quantities of RenaGel, including the starting material for the product, bulk
material and finished goods. The Company currently has in place one long-term
fixed price supply agreement for RenaGel bulk material, but does not have
agreements in place with its current suppliers of the starting material or
finished goods. Should any of the Company's manufacturing relationships
terminate or should any of the suppliers be unable to satisfy the Company's
requirements for starting material, bulk material or finished goods,
respectively, the Company would be unable
22
<PAGE> 24
to commercialize its products as expected, and the Company's business and
financial condition would be materially and adversely affected. See "Risk
Factors -- Dependence on Others for Manufacturing; Single Sources of Supply;
Process Development Risks."
CHOLESTAGEL NON-ABSORBED CHOLESTEROL REDUCER
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. In 1996, the worldwide market
for cholesterol-reducing drugs exceeded $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 (generally referred to as
"statins"), the most widely prescribed class of cholesterol-reducing agents in
the United States. Combined worldwide sales of the three leading HMG-CoA
reductase inhibitors exceeded $5 billion in 1996. 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-reduction therapy typically involves a
life-long drug regimen, many doctors prescribe bile acid sequestrants as
first-line drug therapy, especially for primary prevention of coronary heart
disease and in younger patients.
Sales of bile acid sequestrants in the United States exceeded $111 million
in 1996. 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 (such as constipation) 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 a bile acid sequestrant with improved efficacy and a more convenient dosage
form will increase patient acceptance and use of bile acid sequestrant therapy.
23
<PAGE> 25
Development Status
GelTex is developing CholestaGel for the reduction of elevated LDL
cholesterol levels in patients with hypercholesterolemia. In December 1997,
GelTex initiated the first of two Phase III clinical trials for CholestaGel. 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 high affinity bile acid binding sites, making it more potent at
lower doses than currently marketed agents. The Company believes that
CholestaGel will meet the needs of the market for a non-absorbed
cholesterol-reducing drug that is safe and well tolerated in long term use,
effective at low doses and available in a more convenient dosage form. The
Company also believes that CholestaGel may be a particularly appropriate therapy
for young people with elevated cholesterol levels who may be on therapy for the
rest of their lives and that CholestaGel may 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.
Although the Company believes that CholestaGel will offer certain
advantages over currently available bile acid sequestrants, currently marketed
products often have a significant advantage over new entrants. Additionally,
while the Company believes that a bile acid sequestrant with improved efficacy
and a more convenient dosage form will increase patient acceptance and use of
bile acid sequestrant therapy, currently available HMG-CoA reductase inhibitors
have achieved widespread market acceptance, with worldwide sales of the three
leading products exceeding $5 billion in 1996. There can be no assurance that
CholestaGel will compete effectively with existing bile acid sequestrants or
that the availability of CholestaGel will expand the use or acceptance of bile
sequestrants. See "Risk Factors -- Competition and Technological Change" and
"Business -- Competition."
The Company filed an IND for CholestaGel with the FDA in May 1995, and
commenced the clinical development of CholestaGel in June 1995. In March 1996,
the Company completed a Phase IIa study of CholestaGel. This 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. Analysis of the data
from this study indicates patients receiving 1.6 grams b.i.d. of CholestaGel
experienced an average 24 mg/dL (12%) 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, 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.
In December 1997, the Company initiated the first of two planned Phase III
trials of CholestaGel. The first is a double-blind, placebo controlled study of
560 patients at 18 sites. The study is designed to evaluate the efficacy and
tolerability of CholestaGel at four dosage levels over a treatment period of six
months. The Company plans to commence a second Phase III trial for CholestaGel
in mid-1998. The study is expected to be conducted with 120 patients at six
sites over a treatment period of six weeks. The second Phase III study is
designed to confirm the results of the Company's Phase IIc clinical study which
showed that once daily dosing is at least as effective as split dosing regimens.
Assuming successful completion of these Phase III clinical studies, the Company
expects to file a NDA for CholestaGel in 1999.
If the results of the Company's Phase III trials for CholestaGel are not
satisfactory, the Company may need to conduct additional Phase III clinical
trials. Any such additional studies would likely be time consuming and
expensive. There can be no assurance that the results of any of the Company's
Phase III clinical trials will be satisfactory. Should the Company determine
that the results of its Phase III clinical trials for CholestaGel are sufficient
to meet the FDA's requirements for product approval, there can be no assurance
24
<PAGE> 26
that the FDA will concur with the Company's analysis and approve CholestaGel for
commercial sale. The failure of the Company to obtain FDA approval for
CholestaGel, or any significant delay in obtaining such approval, would have a
material adverse effect on the Company.
In addition to the benefits which the Company expects CholestaGel to
provide as monotherapy, the Company believes that many patients may benefit by
combining low doses of CholestaGel and HMG-CoA reductase inhibitors. Currently
available bile acid sequestrants are approved for use in combination with
HMG-CoA reductase inhibitors. In September 1997, the Company announced positive
results from a Phase II clinical trial designed to evaluate the cholesterol
lowering effect achieved by administering a low dose of CholestaGel in
combination with a low dose of lovastatin, a generic form of a leading HMG-CoA
reductase inhibitor. In the 134-patient study, a low dose of CholestaGel (2.4
grams) administered with half of the lowest recommended dose of lovastatin (10
mg), dosed together and separately, produced a 60 mg/dL (34%) and 53 mg/dL (32%)
reduction in LDL cholesterol, respectively. This reduction was approximately 50%
greater than that achieved with low dose lovastatin alone. The chart below
presents the results of the combination study. The Company intends to commence
development of a product combining low doses of CholestaGel and lovastatin in a
single formulation in late 1998.
CHOLESTAGEL PHASE II STUDY
CLINICAL RESULTS: COMBINATION STUDY WITH LOVASTATIN;
CHANGES IN LDL CHOLESTEROL
[CHART]
<TABLE>
<S> <C>
mg/dL
Placebo 0
CholestaGel (2.4 g) -14.6
Lovastatin (10 mg) -39.5
CholestaGel/Lovastatin dosed together -60.2
CholestaGel/Lovastatin dosed apart -53.1
</TABLE>
The Company is conducting an extended use study with CholestaGel in 260
patients. The study, which is expected to conclude in late 1998, is designed to
provide additional safety data and long term efficacy data.
25
<PAGE> 27
The Company is continuing to develop a tablet formulation of CholestaGel
that will reduce the number of pills required to achieve a targeted reduction in
cholesterol. The Company is also conducting pre-clinical studies in an effort to
identify more potent bile acid sequestrant polymers that can further improve the
dosing necessary to achieve a targeted reduction in cholesterol.
The Company intends to commercialize CholestaGel through collaborations
with third parties. If the Company is unable to conclude agreements with
partners as planned, the Company will either have to delay the continued
development and commercialization of CholestaGel or expend 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. See "Risk
Factors -- Dependence on Corporate Alliances; Limited Relevant Sales and
Marketing Experience."
ANTI-OBESITY PROGRAM
Overview
Obesity is a global healthcare concern and represents one of the most
serious problems facing the medical community today. It is generally recognized
that people who have a body weight exceeding 20% of ideal weight or who have a
body mass index, defined as body weight in kilograms divided by height in meters
squared, of greater than 27 are obese. In 1996, the World Health Organization
expressed its concern that the prevalence of obesity is increasing at an
alarming rate in both industrialized and developing countries. According to
recent industry data, one-third, or 58 million, of all adult Americans are
obese. This chronic and often debilitating disease, which is associated with an
increase in mortality and morbidity, has a significant impact on the healthcare
system. The health problems associated with obesity, including diabetes,
coronary artery disease and hypertension, are reported to result in more than
$60 billion annually in health care costs and loss of income in the United
States.
The conventional therapy for the treatment of obesity is behavioral
modification, which includes a change in quantity and quality of food and a
regular exercise program. However, less than 5% of all patients who enter most
weight loss programs are successful in losing weight. Approximately 66% of all
patients who initially lose weight regain the weight in one year, and virtually
all of them regain the weight in five years. Because obesity is believed to be a
complex metabolic disease with genetic and behavioral components, the medical
community and the obese patient population continue to seek effective
anti-obesity agents.
There are three general approaches for pharmacological intervention for the
treatment of obesity: (i) drugs which achieve their therapeutic effect by
decreasing the patient's appetite; (ii) drugs which block the absorption of fat;
and (iii) drugs which stimulate basal metabolism. Drugs that have been approved
for use in the United States fall into the first category and include: a
combination therapy of phentermine and fenfluramine (Phen/fen), which has been
widely used during the past ten years; dexfenfluamine (Redux) which received FDA
approval in May 1996; and subutramine (Meridia) which received FDA approval in
November 1996. However, the currently available drugs are only recommended for
short term use of up to 12 months. In addition, Phen/fen and Redux have recently
been associated with incidences of primary pulmonary hypertension and heart
valve problems, leading to their voluntary withdrawal from the market. In
addition to the drugs that have been approved for use, orlistat, a drug which
blocks the absorption of fat from the gastrointestinal tract, has been submitted
to the FDA for approval. According to the National Task Force on the Prevention
and Treatment of Obesity, an effective obesity treatment will require long term
drug treatment, in conjunction with diet and behavior modification. The Company
believes that a non-absorbed agent that inhibits the absorption of fat may offer
significant benefits in the long term treatment of obesity.
Application of the Company's Technology
The Company is developing non-absorbed polymers that act within the
gastrointestinal tract to inhibit the absorption of fat. In the gastrointestinal
tract, ingested fat is broken down by pancreatic lipase, permitting absorption
by the intestinal lining. The fat is then transported throughout the bloodstream
to body tissues. An excess of fat delivered to body tissues leads to obesity. By
preventing fat breakdown, fat is eliminated from the body and a patient loses
weight.
26
<PAGE> 28
The Company has synthesized novel polymers that work within the
gastrointestinal tract and either bind to lipase and inhibit the enzyme activity
or bind to fat and make it inaccessible to lipase. The Company is engaged in
pre-clinical in vitro and in vivo animal studies with both classes of compounds.
In animal studies conducted in rats, the Company has seen a two-fold and a
ten-fold increase in the amount of fecal fat excreted following treatment with
its pancreatic lipase inhibitor compounds and its fat binding compounds,
respectively. The Company has initiated long term studies in obese rats to study
the weight reducing effects of the two classes of compounds. The Company plans
to select one or more candidate compounds for clinical development in early
1999. The Company believes that its pancreatic lipase inhibitors or its fat
binding polymers, used alone or in combination, may offer a safe and effective
long term treatment for obesity.
INFECTIOUS DISEASE PROGRAM
Overview
The treatment of infectious diseases has become increasingly more
complicated with the recent appearance and recognition of new pathogenic
organisms, and the emergence of resistance to available antibiotics. Organisms
and resistance patterns previously thought to be exotic or rare are becoming
increasingly more prevalent. These events have stimulated renewed interest
throughout the pharmaceutical and biotechnology industries in research and
development focused on the treatment of infectious diseases. The Company
believes that the use of polymers as antimicrobial agents represents a novel
technological approach to the treatment of infectious disease.
The Company is applying its expertise in polymer design and synthesis and
molecular recognition technology to discover and develop polymer-based
pharmaceuticals designed to treat infectious diseases. The Company's research in
this area is initially focused on non-absorbed compounds for the treatment of
non-systemic infections in surface sites, including gastrointestinal,
genitourinary, skin and wound, and respiratory tract infections. In the area of
infectious disease, the Company believes that polymers may be designed to
achieve their therapeutic effect by (i) killing or inhibiting microbial growth,
(ii) inhibiting the adherence of pathogens to host cell surfaces, (iii) binding
and inactivating microbial toxins essential for virulence and (iv) acting
synergistically with commercially available and investigatory antibiotics.
The Company's initial goal of demonstrating the feasibility of the use of
polymers as antimicrobials was directed at two diarrheal pathogens,
Cryptosporidium parvum and rotavirus. GelTex scientists developed polymers which
effectively inactivated both Cryptosporidium and rotavirus in in vivo
experiments in cultured cells and in experimentally infected animals. Both
programs demonstrated the feasibility of the Company's approach. However, the
Company has chosen not to pursue the development of polymer-based
pharmaceuticals for the treatment of either cryptosporidiosis or rotavirus. In
the case of cryptosporidiosis, the Company's decision was based on the emergence
of protease-inhibitor regimes for the treatment of AIDS patients, which has
caused the overall incidence of cryptosporidiosis and other AIDS-related
infections to decrease dramatically. In the case of rotavirus infections, there
is now a highly efficacious vaccine available for the treatment of the disorder.
Applications of the Company's Technology
During the development of anti-cryptosporidium polymers, the Company
designed polymers active on pathogen surfaces. Unlike conventional antibiotics
which often act through mechanisms targeting single (often intracellular)
enzymes, the Company's polymers have mechanisms combining charge and
hydrophobicity similar to those of peptide antibiotics. GelTex believes that by
targeting the extracellular activity sites it will be able to develop
polymer-based drugs against which pathogens may not become resistant. In
addition, because the mechanism of action of the polymers appears to be
profoundly different from conventional antibiotics, the Company believes that
its polymer-based pharmaceuticals could act synergistically with other
anti-infectives. The Company has commenced a screening program to characterize
activities of numerous polymer classes against panels of important human
bacterial and other types of pathogens.
In collaboration with several academic scientists, the Company is also
investigating the potential use of its polymers to bind, inhibit or inactivate
toxins which are essential virulence factors in diseases caused by many
27
<PAGE> 29
bacterial infections. The preliminary experiments have resulted in in vitro
demonstrations of activity against several toxins important in gastrointestinal
infections. The Company believes that this presents a new approach for the
management and prevention of hospital-associated gastrointestinal infections.
In addition, the Company believes that its technology may be useful in the
treatment of disorders affecting mucins that line various human organ sites such
as the gastrointestinal tract, respiratory tract and the genitourinary tract.
DEVELOPMENT AND MARKETING AGREEMENTS
The Company's strategy is to commercialize its products through development
and marketing agreements with pharmaceutical companies or other strategic
partners. 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.
Genzyme Corporation
In June 1997, GelTex and Genzyme formed the RenaGel Joint Venture under
which the parties will finalize the development of and commercialize RenaGel
phosphate binder in all countries other than Japan and other Pacific Rim
countries. Under the agreement, the Company and Genzyme are each required to
make capital contributions to the RenaGel Joint Venture in an amount equal to
50% of all costs and expenses associated with the development and
commercialization of RenaGel, including costs and expenses incurred by either
party in performing under the agreement, and the Company and Genzyme will share
equally in the profits generated from sales of the product. To the extent that
either party fails to fund its 50% share of costs and expenses and the other
party does not exercise its right to terminate the agreement or compel
performance of the funding obligation, the profit sharing interests and the
future funding obligations of the parties will be proportionately adjusted to
correspond to the cumulative amount of capital contributions made by each party
as of such date. Under the agreement, GelTex licensed all of its rights to
RenaGel phosphate binder in the territory to the RenaGel Joint Venture and
Genzyme was appointed as the exclusive distributor of RenaGel in the territory.
Under the agreement, the Company transferred to Genzyme 50% of the
Company's initial 100% equity interest in the RenaGel Joint Venture and Genzyme
agreed to pay GelTex $15 million upon the receipt of marketing approval from the
FDA and $10 million one year following FDA approval. In addition, Genzyme
purchased 100,000 shares of GelTex Common Stock for $2.5 million in cash.
Chugai Pharmaceutical Co., Ltd.
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. 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. The Company
has received two milestone payments of $1 million each from Chugai, the first in
December 1996 upon Chugai's initiation of a Phase I clinical trial for RenaGel
in Japan and the second in December 1997.
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<PAGE> 30
STARTING MATERIAL AND MANUFACTURING
The Company's two lead products, RenaGel phosphate binder and CholestaGel
cholesterol reducer, are manufactured from a starting material which is covered
by patents owned by a third party. The Company has obtained a non-exclusive
license under these patents to manufacture the material in connection with the
production of RenaGel and CholestaGel. The Company may not sublicense its rights
under this license without the licensor's consent, except to the Company's
current supplier of the starting material and certain other parties specified in
the license. The license agreement may be terminated upon short notice if the
Company fails to meet its material obligations under the license agreement,
including lump sum payments, royalties and confidentiality obligations. See
"Risk Factors -- Reliance on License to Manufacture Starting Material."
The Company has chosen not to build the capacity to manufacture its
potential products and, therefore, purchases from third party manufacturers its
compounds for pre-clinical research and clinical trial purposes and expects to
be dependent on third party manufacturers for commercial production. The Company
has non-exclusively sublicensed its rights to manufacture the starting material
for its two lead compounds, RenaGel and CholestaGel, to one supplier and is
purchasing quantities of this material under purchase orders issued to this
supplier. The Company has also obtained pharmaceutical grade bulk production
quantities of RenaGel and CholestaGel from two suppliers (one for each
compound). This bulk production is being used in clinical trials of CholestaGel
and was used in clinical trials of RenaGel. The Company has entered into a long
term, fixed price commercial manufacturing arrangement with The Dow Chemical
Company, its supplier of RenaGel bulk material. The Dow agreement requires the
Company to purchase minimum quantities of the material beginning this year. The
Company is in discussions with a second supplier for RenaGel bulk material and
is currently negotiating a long term, fixed price manufacturing agreement with
the manufacturer of CholestaGel bulk material. In addition, the Company is
negotiating a long term fixed price service agreement with one encapsulator to
formulate RenaGel bulk material into finished product. See "Risk Factors --
Dependence on Others for Manufacturing; Single Sources of Supply; Process
Development Risks."
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.
The Company is 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 the Company's 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 AND TRADE SECRETS
The biotechnology and pharmaceutical industries place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company actively seeks, when appropriate, protection
for its products and proprietary information by means of United States and
foreign patents and registration of its trademarks. In addition, the Company
relies upon trade secrets and contractual arrangements to protect certain of its
proprietary information and products.
The Company has 11 issued U.S. patents and approximately 25 pending U.S.
patents. In addition, the Company has filed approximately 60 international and
foreign counterparts. The U.S. patents issued to the Company cover technology
related to RenaGel and a class of other orally administered non-absorbed
phosphate-binding polymers and their use in the treatment of hyperphosphatemia
and technology related to CholestaGel and other polymeric materials. There can
be no assurance that any patents will issue from any of
29
<PAGE> 31
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 and, when possible and appropriate, consultants, advisors and
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, the Company's business may be
adversely affected by competitors who independently develop substantially
equivalent or improved 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 hyperphosphatemia, hypercholesterolemia, obesity and
infectious diseases.
Phosphate binders are currently the only available treatment for
hyperphosphatemia. There are several phosphate binders available or under
development. 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 patient
noncompliance. In addition, calcium therapy requires frequent monitoring because
its use can cause 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,
anemia and dialysis dementia. 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.
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 1996, sales of HMG-CoA reductase inhibitors represented approximately 94% of
the market for cholesterol-reducing drugs sold in the United States. Combined
worldwide sales of the three leading HMG-CoA reductase inhibitors exceeded $5
billion in 1996. 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.
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.
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<PAGE> 32
In addition to currently available therapies, several of the Company's
competitors are engaged in development activities and clinical trials of 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. See "Risk Factors -- Competition and Technological Change."
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 pre-clinical 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
pre-clinical 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 pre-clinical 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 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 pre-clinical 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
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<PAGE> 33
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.
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 or permits by
the Company, its corporate partners or its licensees would have a material
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 January 15, 1998, GelTex had 73 full-time employees. 62 of these
individuals (21 of whom hold Ph.D. or M.D. degrees) are involved in research and
development, and 11 are in general and administrative functions. Members of the
Company's Scientific Advisory Board and Bile Acid Advisory Board come from a
number of different disciplines, with expertise in polymer chemistry, medicinal
chemistry, molecular recognition, clinical pharmacology and clinical medicine.
FACILITIES
The Company leases approximately 25,000 square feet of laboratory and
office space in one building at Nine Fourth Avenue, Waltham, Massachusetts. The
lease expires in March 2007 and the Company has the option to extend the lease
until March 2012.
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MANAGEMENT
The executive officers, key employees and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark Skaletsky............................... 49 President, Chief Executive Officer and Director
Edmund J. Sybertz, Jr., Ph.D................. 47 Senior Vice President, Research and Development
Steven K. Burke, M.D. ....................... 37 Vice President, Clinical Research
Paul J. Mellett, Jr. ........................ 42 Vice President, Administration and Finance,
Chief Financial Officer and Treasurer
Martha J. Carter............................. 45 Vice President, Regulatory Affairs
Jeffrey D. Klinger, M.P.H., Ph.D. ........... 51 Vice President, Infectious Diseases
W. Harry Mandeville, Ph.D. .................. 48 Vice President, Chemical Technology
Joseph Tyler................................. 47 Vice President, Manufacturing
Robert J. Carpenter*......................... 52 Chairman of the Board of Directors
J. Richard Crout+............................ 68 Director
Henri A. Termeer+............................ 52 Director
Jesse Treu, Ph.D.*........................... 50 Director
George M. Whitesides, Ph.D. ................. 58 Director
</TABLE>
- ---------------
* Member of the Compensation Committee
+ Member of the Audit Committee
MARK SKALETSKY, President, Chief Executive Officer and Director. Mr.
Skaletsky joined GelTex in May 1993 as President, Chief Executive Officer and a
Director of the Company. He served as Treasurer of the Company from August 1993
until May 1997. 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. and LeukoSite,
Inc.
EDMUND J. SYBERTZ, JR., PH.D., Senior Vice President, Research and
Development. Dr. Sybertz joined the Company in March 1998. Prior to joining
GelTex, Dr. Sybertz held various positions of increasing responsibility at
Schering Plough Research Institute, the pharmaceutical research arm of
Schering-Plough Corporation, a pharmaceuticals corporation, from 1979 to 1998,
including most recently Senior Director and Presidential Fellow, Biological
Research, New Drug Discovery.
STEVEN K. BURKE, M.D., Vice President, Clinical Research. Dr. Burke joined
GelTex in 1994 after having served as Associate Director, Gastrointestinal
Clinical Research of Glaxo, Inc., a pharmaceutical company, from 1992 to 1994
and Assistant Clinical Professor of Medicine, Gastroenterology, at the
University of North Carolina from 1993 until 1994. Dr. Burke currently also
serves as a Staff Physician, Gastroenterology, at the Brockton/West Roxbury VA
Medical Center. He was a Research Fellow in Gastroenterology from 1991 to 1992
and a Clinical Fellow in Gastroenterology from 1990 to 1991 at Brigham and
Women's Hospital.
PAUL J. MELLETT, JR., Vice-President, Administration and Finance, Chief
Financial Officer and Treasurer. Mr. Mellett joined the Company in April 1997
from Marshall Contractors, Inc. where he most recently served as Chief Financial
Officer. Marshall Contractors, Inc. is a construction management firm
specializing in
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<PAGE> 35
biotechnology and microelectronics projects. Before joining Marshall
Contractors, Inc. in 1994, Mr. Mellett was an Audit Partner with Deloitte &
Touche LLP in Boston which he joined in 1977.
MARTHA J. CARTER, Vice President, Regulatory Affairs. Ms. Carter joined the
Company in February 1998 after serving as Director of Regulatory Affairs at
Genetics Institute, Inc., a biotechnology company, from 1995 to 1998. Ms. Carter
previously served as Vice President of Regulatory Affairs at ImmuLogic
Pharmaceutical Corporation, a biotechnology company, which she joined in 1992,
and as Vice President of Regulatory Affairs at Serono Laboratories, Inc., a
pharmaceutical company, which she joined in 1983.
JEFFREY D. KLINGER, M.P.H., PH.D., Vice President, Infectious Diseases. Dr.
Klinger joined the Company in August 1997 after having served as an independent
consultant to companies in areas of technology applications, markets and
strategy and as Vice President, Corporate Research at Vysis, Inc. from 1995 to
1996. Dr. Klinger held several senior level positions at GENE-TRAK, a probe
diagnostics company for infectious disease testing, from 1987 to 1994, including
Vice President and General Manager. From 1985 to 1986, Dr. Klinger served as
Senior Scientist & Project Leader, Clinical Microbiology at Integrated Genetics,
a company specializing in infectious and genetic disease diagnostics and
recombinant protein therapeutics. Previously, Dr. Klinger served as an Assistant
Professor at Case Western Reserve University School of Medicine from 1978 to
1985 where he co-directed the Microbiology Core Facility, a major NIH-funded
cystic fibrosis research and teaching center.
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.
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 biologics company, as Director,
Manufacturing and later as General Manager.
ROBERT J. CARPENTER, Chairman of the Board. Mr. Carpenter, a co-founder of
GelTex, has served as Chairman of the Board since 1991. He is President of
Boston Medical Investors, Inc., an investment firm. Mr. Carpenter served as
President and Chief Executive Officer of GelTex from 1991 to 1993. He served as
an Executive Vice President of Genzyme Corporation, a human health care company,
from 1989 to 1991, and was Chief Executive Officer and Chairman of the Board of
IG Laboratories, Inc., a genetic testing service company, from 1989 to 1991.
Prior to that, he was Chairman, President and Chief Executive Officer of
Integrated Genetics, Inc., a biotechnology company, which he joined as President
in 1981. He is a director of Genzyme Corporation.
J. RICHARD CROUT, Director. Dr. Crout was elected a director in May 1997.
Dr. Crout has served as President of Crout Consulting, a firm providing
consulting services to the pharmaceutical and biotechnology industries, since
1994. From 1984 to 1994, Dr. Crout served as Vice President, Medical and
Scientific Affairs, of Boehringer Mannheim Pharmaceuticals Corporation, a
pharmaceutical company. Prior to that, Dr. Crout served as Associate Director
for Medical Applications of Research at the National Institutes of Health from
1982 to 1984 and as Director, Bureau of Drugs, U.S. Food and Drug Administration
from 1973 to 1982.
HENRI A. TERMEER, Director. Mr. Termeer has been a director since 1992. He
joined Genzyme Corporation, a human health care company, in 1983 and holds the
positions of Chief Executive Officer, President and Chairman. Prior to joining
Genzyme, Mr. Termeer held various management positions at Baxter Travenol
Laboratories, Inc., a manufacturer of human health care products, including
Executive Vice President of Baxter's Hyland Therapeutics Division. Mr. Termeer
is also a director of Genzyme Transgenics Corporation, Abiomed, Inc.,
AutoImmune, Inc., Diacrin, Inc. and Xenova Ltd. and a trustee of Hambrecht &
Quist Healthcare Investors and Hambrecht & Quist Life Sciences Investors.
JESSE TREU, PH.D., Director. Dr. Treu has been a director since 1993. He
has been a General Partner of the venture capital firm, Domain Associates, since
1986. Dr. Treu is a director of Trimeris, Inc., Focal, Inc. and Ribogene, Inc.
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<PAGE> 36
GEORGE M. WHITESIDES, PH.D., Director. Dr. Whitesides, a co-founder of
GelTex, has been a director since 1992. He has been affiliated with Harvard
University since 1982, where he is the Mallinckrodt Professor of Chemistry. He
has extensive experience as a consultant in both research and research
management in the chemical, pharmaceutical and related industries. Dr.
Whitesides is a director of Dexter Corporation and Advanced Magnetics, Inc.
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<PAGE> 37
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, CIBC Oppenheimer Corp. and Hambrecht & Quist LLC, have
severally agreed to purchase from the Company the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
----------------
<S> <C>
Cowen & Company.............................................
CIBC Oppenheimer Corp. .....................................
Hambrecht & Quist LLC.......................................
---------
Total.................................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the public offering, the offering price and other selling terms may be changed
by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,500,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,500,000 shares are being offered.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The directors and officers of the Company and Genzyme, holding in the
aggregate approximately 697,555 shares of Common Stock outstanding prior to this
offering and 344,096 shares of Common Stock subject to exercisable stock
options, and the Company have agreed that, for a period of 90 days after the
effective date of the Registration Statement, they will not, without the prior
written consent of Cowen & Company, offer, sell or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exchangeable for,
or warrants to purchase, any shares of Common Stock, or grant any option to
purchase, any shares of Common Stock, except that the Company may issue (i)
shares or options to purchase Common Stock pursuant to the Company's employee
and director stock plans and (ii) shares of Common Stock upon the exercise of
outstanding warrants.
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<PAGE> 38
In order to facilitate this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
this offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of the Common
Stock in the open market. The Underwriters may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Common Stock in this
offering, if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for and purchase shares of the
Common Stock in market making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the Common Stock above
market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
marker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements of GelTex Pharmaceuticals, Inc. at December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 appearing in the Company's Current Report on Form 8-K/A, dated March 16,
1998, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Patents and Trade Secrets" have been reviewed and approved by
Hamilton, Brook, Smith & Reynolds, P.C., patent counsel to the Company, as
experts on such matters, and are included herein in reliance upon that review
and approval.
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<PAGE> 39
=========================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 2
Incorporation of Certain Documents
by Reference........................... 2
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 11
Price Range of Common Stock and Dividend
Policy................................. 12
Capitalization........................... 12
Dilution................................. 13
Selected Financial Data.................. 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 15
Business................................. 18
Management............................... 33
Underwriting............................. 36
Legal Opinions........................... 37
Experts.................................. 37
</TABLE>
=========================================================
=========================================================
2,500,000 SHARES
GELTEX LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
COWEN & COMPANY
CIBC OPPENHEIMER
HAMBRECHT & QUIST
, 1998
=========================================================
<PAGE> 40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by GelTex in connection with this offering of
Common Stock are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 25,075
Nasdaq listing fee.......................................... $ 17,500
NASD fees and expenses...................................... $ 9,000
Blue Sky fees and expenses.................................. $ 10,000
Printing and engraving expenses............................. $ 70,000
Accounting fees and expenses................................ $ 40,000
Legal fees and expenses..................................... $125,000
Transfer Agent and Registrar fees........................... $ 10,000
Miscellaneous expenses...................................... $ 13,425
--------
Total.................................................. $320,000
========
</TABLE>
All of the above figures, except the SEC registration fee and the Nasdaq
listing fee, are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees and agents of the Registrant against
actual and reasonable expenses (including attorneys' fees) incurred by them in
connection with any action, suit or proceeding brought against them by reason of
their status or service as a director, officer, employee or agent by or on
behalf of the Registrant, and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him in
connection with any such action, suit or proceeding, if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, and (ii) in the case of a criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. Except as ordered
by a court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the corporation where the person involved is
adjudged to be liable to the Registrant.
Article EIGHTH of the Registrant's Restated Certificate of Incorporation
provides that a director shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that elimination or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit or proceeding whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become a director or officer of the Registrant, or
is or was serving, or has agreed to serve at the request of the Registrant as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification provided for in Article NINTH is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and shall inure to the benefit of the heirs, executors and administrators of
such persons. Article NINTH further permits the Board of Directors to authorize
the grant of indemnification rights to other employees and agents of the
Registrant and such rights may be equivalent to, or greater or less than, those
set forth in Article NINTH.
II-1
<PAGE> 41
Article V, Section 1 of the Registrant's Amended and Restated By-laws
provides that the Registrant shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity or arising out of
such person's status as such.
The Registrant maintains insurance for directors and officers and has
entered into agreements with certain officers and directors affirming the
Registrant's obligation to indemnify them to the fullest extent permitted by law
and providing various other protections.
ITEM 16. EXHIBITS
See Exhibit Index immediately following the signature page.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 hereof, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on March
16, 1998.
GELTEX PHARMACEUTICALS, INC.
By: /s/ MARK SKALETSKY
------------------------------------
Mark Skaletsky, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ MARK SKALETSKY President (Principal Executive March 16, 1998
- --------------------------------------------------- Officer) and Director
Mark Skaletsky
* Vice President March 16, 1998
- --------------------------------------------------- Administration and Finance
Paul J. Mellett, Jr. (Principal Financial and
Accounting Officer)
* Chairman of the Board and March 16, 1998
- --------------------------------------------------- Director
Robert J. Carpenter
* Director March 16, 1998
- ---------------------------------------------------
J. Richard Crout
* Director March 16, 1998
- ---------------------------------------------------
Henri A. Termeer
* Director March 16, 1998
- ---------------------------------------------------
Jesse Treu
* Director March 16, 1998
- ---------------------------------------------------
George M. Whitesides
*By: /s/ MARK SKALETSKY
---------------------------------------------
Attorney-in-fact
</TABLE>
II-3
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement dated as of , 1998
by and among the Company, Cowen & Company, CIBC Oppenheimer
Corporation and Hambrecht & Quist LLC.
3.1 Restated Certificate of Incorporation of the Company dated
June 4, 1996.*
4.1 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.
4.2 First Amendment to Rights Agreement between the Company and
American Stock Transfer & Trust Company dated as of July 29,
1997. Filed as Exhibit 4.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference.
4.3 Promissory Note dated May 21, 1997 issued to Fleet National
Bank.
4.4 Security Agreement (Equipment) between the Company and Fleet
National Bank dated May 21, 1997.
4.5 Letter Agreement between the Company and Fleet National Bank
dated May 21, 1997.
4.6 Promissory Note dated October 31, 1997 issued to Fleet
National Bank.
4.7 Loan Modification Agreement between the Company and Fleet
National Bank dated October 31, 1997.
5.1 Opinion of Palmer & Dodge LLP.*
23.1 Consent of Ernst & Young LLP, independent auditors to
Company.
23.2 Consent of Hamilton, Brook, Smith and Reynolds, P.C.*
23.3 Consent of Palmer & Dodge LLP. Included in Exhibit 5.1.*
24.1 Power of Attorney.*
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
GELTEX PHARMACEUTICALS, INC.
2,500,000 Shares
Common Stock
FORM OF UNDERWRITING AGREEMENT
March ___, 1998
COWEN & COMPANY
HAMBRECHT & QUIST LLC
CIBC OPPENHEIMER CORP.
As Representatives of
Several Underwriters
c/o Cowen & Company
Financial Square
New York, NY 10005
Ladies and Gentlemen:
GelTex Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (herein collectively called the "Underwriters") an aggregate of 2,500,000
shares of the Company's common stock, par value $.01 per share (herein called
the "Common Stock"). The foregoing shares of Common Stock (herein called the
"Firm Shares") are to be sold to the Underwriters, acting severally and not
jointly, in such amounts as are set forth in Schedule I hereto opposite the
respective names of such Underwriters. The Company also proposes to grant to the
Underwriters an option to purchase up to 375,000 shares of Common Stock (herein
called the "Option Shares" and with the Firm Shares herein collectively called
the "Shares"). The Common Stock is more fully described in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Shares by the several Underwriters for whom you are acting as
Representatives.
1. Registration Statement. The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3 (No.
333-45151), including the related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of the
Shares. The Company and the proposed offering meet the conditions for the use of
Form S-3. The Registration
<PAGE> 2
Statement has been declared effective under the Securities Act, and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. Copies of such Registration Statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission),
heretofore filed by the Company with the Commission have been delivered to you.
Any reference herein to the Registration Statement, any Pre-Effective
Prospectus or the Prospectus shall be deemed to include the documents
incorporated therein by reference, and any supplements or amendments thereto
filed with the Commission after the date of filing of the Prospectus under Rules
424(b) or 430A and prior to the termination of the offering of the Shares by the
Underwriters. Any reference herein to the Registration Statement, any
Pre-Effective Prospectus, the Prospectus or any amendment or supplement to any
of the foregoing, shall be deemed to include the respective copies thereof filed
with the Commission on the Commission's Electronic Data Gathering, Analysis and
Retrieval.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement, including all exhibits and financial statements,
any registration statement filed by the Company pursuant to Rule 462(b) of the
Securities Act and all information omitted therefrom in reliance upon Rule 430A
of the Commission and contained in the Prospectus referred to below, in the form
in which it became effective and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the "Effective
Date"), shall also mean (from and after the effectiveness of such amendment)
such registration statement as so amended. The term "Prospectus" as used in this
Agreement shall mean (a) the prospectus relating to the Shares first filed by
the Company with the Commission pursuant to Rule 424(b) and Rule 430A of the
Commission or (b) the term sheet or abbreviated term sheet filed by the Company
with the Commission pursuant to Rule 424(b)(7) together with the last
preliminary prospectus included in the Registration Statement filed prior to the
time it became effective or filed pursuant to Rule 424(a) under the Securities
Act that is delivered by the Company to the Underwriters for delivery to
purchasers of the Shares, except that if any revised Prospectus shall be
provided to the several Underwriters by the Company for use in connection with
the offering of the Shares which Prospectus differs from the Prospectus on file
at the Commission at the time the Registration Statement became effective, the
term "Prospectus" shall refer to such revised Prospectus from and after the time
it is first provided to the several Underwriters for such use. The term
"Pre-Effective Prospectus" as used in this Agreement shall mean each prospectus
(subject to completion) included in the Registration Statement prior to the time
the Registration Statement became effective. The Company has caused to be
delivered to you copies of each Pre-Effective Prospectus and has consented to
the use of such copies for the purposes permitted by the Securities Act.
-2-
<PAGE> 3
The Company understands that the Underwriters propose to make a public
offering of the Shares as soon as the Representatives deem advisable after the
Registration Statement becomes effective.
2. Representations and Warranties of the Company. The Company represents
and warrants to the several Underwriters as follows:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, has full
corporate power and authority to own or lease its properties and conduct its
businesses as described in the Registration Statement and as being conducted and
is duly qualified or licensed to transact business in all jurisdictions in which
the character of the property owned or leased or the nature of the business
transacted by it requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the business, properties,
operations, financial conditions, income or business prospects of the Company as
presently being conducted). The Company has no "significant subsidiaries" as
defined in Rule 1-02 of the Commission's Regulation S-X.
(b) The Company now holds, and at the First Closing Date (as
hereinafter defined) will hold, all material licenses, certificates and permits
from state, Federal, and other regulatory authorities that are necessary for the
conduct of its business as it is presently conducted, except where the failure
to hold such licenses, certificates and permits would not have a material
adverse effect on the business, properties, operations, financial condition,
income or business prospects of the Company; the Company is not in violation of
its corporate charter or by-laws, or in default in the performance or observance
of any provision of any obligation, agreement, covenant, or condition contained
in a bond, debenture, mortgage, loan agreement, joint venture, or other material
agreement or instrument to which the Company is a party or by which the Company
or any of its properties may be bound, or in violation of any law, order, rule,
regulation, writ, injunction, or decree of any government, governmental
instrumentality, or court, domestic or foreign, except where such violation
would not have a material adverse effect on the business, properties,
operations, financial condition, income or business prospects of the Company as
presently being conducted.
(c) Except as disclosed in the Prospectus, the Company owns, or
possesses adequate rights to use, all patents, patent rights, inventions, trade
secrets, know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names and copyrights described or referred to
in the Prospectus as owned or used by it or which is necessary for the conduct
of its business as it is presently conducted, except where the failure to own or
possess, such patents, patent rights, inventions, trade secrets, know-how,
proprietary techniques, including processes
-3-
<PAGE> 4
and substances, trademarks service marks, trade names and copyrights would not
have a material adverse effect on the business, properties, operations,
financial condition or income of the Company. Except as disclosed in the
Prospectus, the Company has not received notice of infringement of or conflict
with asserted rights of others with respect to any patents, patent rights,
inventions, trade secrets, know-how, proprietary techniques, including processes
and substances, trademarks, service marks, tradenames or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the business, properties, operations,
financial condition, income or business prospects of the Company as presently
being conducted or as proposed to be conducted.
(d) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement enforceable against the Company
in accordance with its terms, except (i) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies, and (ii) to the extent that indemnification provisions herein may be
limited by applicable federal or state securities laws; the execution, delivery
and performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed or trust, loan agreement, bond debenture, note agreement, or
other material evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by which the property of the
Company is bound, (ii) the corporate charter or by-laws of the Company, or (iii)
any statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or over the properties of the
Company; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions herein contemplated, except such as may be required under the
Securities Act or under applicable state securities laws.
(e) Except as set forth in the Prospectus, there is not any action,
suit or proceeding, at law or in equity, against the Company by a private
litigant, by any Federal, state, or other commission, board or agency, or any
proceedings before any administrative agency pending or, to the knowledge of the
Company, threatened, wherein any unfavorable decision, ruling or finding could
adversely affect the business, properties, operations, financial condition,
income or business prospects of the Company as presently being conducted, or
prevent consummation of the transactions contemplated hereby.
(f) The capitalization of the Company is as set forth in the "Actual"
column under the caption "Capitalization" in the Registration Statement and the
Prospectus, it being understood that the information therein regarding shares
-4-
<PAGE> 5
outstanding is as of December 31, 1997. The outstanding shares of Common Stock
of the Company have been duly authorized and validly issued and are fully-paid
and non-assessable. The Shares have been duly and validly authorized, and when
issued and paid for on the First Closing Date and the Option Closing Date (each
as hereinafter defined) will be duly and validly issued, fully paid and
non-assessable; there are no preemptive rights or other rights to subscribe for
or to purchase, or any restriction upon the voting or transfer of the Shares;
and there are no outstanding options, warrants or other rights, granted to or by
the Company to purchase shares of Common Stock or other securities of the
Company other than as described in the Prospectus other than options granted
pursuant to employee and director plans after the date as of which information
with respect thereto is given in the Prospectus. No holder of shares of Common
Stock or other securities of the Company has the right (other than a right which
has been waived) (i) to have any securities owned by such holder included in the
Registration Statement or (ii) to require registration of any securities owned
by such holder under the Securities Act at any time prior to and including the
date 90 days following the Effective Date. No further approval or authority of
the stockholders or the Board of Directors of the Company will be required for
the issuance and sale of the Shares as contemplated herein. A registration
statement relating to the Common Stock has been declared effective by the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Common Stock is duly registered thereunder. The
Company's Common Stock is listed on the Nasdaq National Market, and the Company
has received no notice of any proceeding having the purpose or effect of
discontinuing such listing. The Company has filed a notification form relating
to the issuance of the shares with the National Association of Securities
Dealers, Inc. ("NASD") in accordance with the NASD By-laws. The Company knows of
no reason or set of facts which is likely to result in the termination of
inclusion of the Common Stock in the Nasdaq National Market or the inability of
the Shares to continue to be included in the Nasdaq National Market.
(g) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any material
adverse change in the business, properties, operations, financial condition,
income or business prospects of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in the
Registration Statement and the Prospectus, and since such dates, the Company has
not entered into any material transaction not referred to in the Registration
Statement and the Prospectus that would be required to be disclosed therein.
(h) To the best of the Company's knowledge, the Commission has not
issued an order preventing or suspending the use of any Pre-Effective Prospectus
or the Prospectus, nor has it instituted proceedings for that purpose and each
Pre-Effective Prospectus, at the time of filing thereof, did not contain any
untrue statement of a
-5-
<PAGE> 6
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Registration Statement, the
Pre-Effective Prospectus and the Prospectus comply, and on the First Closing
Date and the Option Closing Date will comply, in all material respects with the
provisions of the Securities Act and the rules and regulations of the Commission
thereunder. There are no contracts or documents of the Company which would be
required to be filed as exhibits to the Registration Statement by the Securities
Act or by the rules and regulations of the Commission which have not been filed
as exhibits to the Registration Statement. The documents incorporated by
reference in the Prospectus when they became effective or were filed with the
Commission conformed in all respects to the requirements of the Exchange Act or
the Securities Act and the rules and regulations thereunder. On the Effective
Date and at all times subsequent thereto up to and including the First Closing
Date and the Option Closing Date, neither the Registration Statement nor any
amendment thereto, and neither the Pre-Effective Prospectus or the Prospectus,
nor any supplement thereto, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein (in the case
of the Registration Statement at any time other than the Effective Date and the
Pre-Effective Prospectus and the Prospectus, in light of the circumstances under
which they were made) not misleading; provided, however, that none of the
representations and warranties in this subsection (h) shall apply to statements
in or omissions from the Registration Statement, the Pre-Effective Prospectus or
the Prospectus made in reliance upon and in conformity with the information set
forth in Section 4 hereof.
(i) The financial statements of the Company, together with related
notes thereto incorporated by reference in the Registration Statement, the
Pre-Effective Prospectus and the Prospectus, present fairly in all material
respects the financial position and the results of operations of the Company, at
the indicated dates and for the indicated periods. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such period have been made. The
summary and selected financial data included in the Registration Statement and
the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with the financial statements included therein.
(j) The Company has good and marketable title to all the properties and
assets reflected as owned by it in the financial statements (or as described as
owned by it in the Registration Statement) hereinabove described subject to no
liens, mortgages, pledges, charges or encumbrances of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company occupies its leased
properties under valid and
-6-
<PAGE> 7
binding leases conforming to the description thereof set forth in the
Registration Statement.
(k) All material leases, contracts and agreements referred to in or
filed as exhibits to the Registration Statement to which the Company is a party,
or by which the Company is bound, are in full force and effect or have expired
or terminated in accordance with their terms or have been superseded by leases,
contracts or agreements referred to in the Registration Statement or
subsequently filed as exhibits to the Registration Statement.
(l) The Company has filed all Federal, state and foreign tax returns
which have been required to be filed (or have obtained any required extensions
in connection therewith) and has paid all taxes indicated by said returns and
all assessments received by it to the extent that such taxes have become due and
are not being contested in good faith, except where the failure to file such
returns would not have a material adverse effect on the business, properties,
operations, financial condition, income or business prospects of the Company.
The Company has no knowledge of any tax deficiency which has been or might be
asserted against it which would materially and adversely affect the business or
properties of the Company. To the knowledge of the Company, all tax liabilities
are adequately provided for on the books of the Company.
(m) Each approval, consent, order, authorization, designation,
declaration, or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated has been obtained or made and is in full force and effect, except
such steps as may be required by the National Association of Securities Dealers,
Inc. (herein called the "NASD") or as may be necessary to qualify the Shares for
public offering by the Underwriters under the state securities laws or filing
requirements under Rule 424(b) or Rule 430A.
(n) To the Company's knowledge, Ernst & Young LLP, who have certified
certain of the financial statements included in the Registration Statement, are
independent public accountants as required by the Securities Act and the rules
and regulations thereunder.
(o) The Company is not, and does not intend to conduct its business in
a manner in which it would become, an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940, as amended (herein called the
"Investment Company Act").
-7-
<PAGE> 8
(p) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares. The
Company acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on the Nasdaq National Market in accordance with Rule
10b-6A under the Exchange Act.
3. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell the Firm Shares to the several Underwriters,
and each of the Underwriters agrees to purchase from the Company, the respective
aggregate number of the Firm Shares set forth opposite its name in Schedule I
hereto. In making this Agreement, each Underwriter is contracting severally and
not jointly; except as provided in Sections 3(b) and 3(c) of this Agreement, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Firm Shares specified in Schedule I. The purchase price of the
Shares to be paid by the several Underwriters shall be $_____ per share, being
an amount equal to the public offering price less $_____per share.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to the other
Underwriters, and such non-defaulting Underwriters shall have the right within
24 hours after the receipt by such Underwriters of such notice to purchase in
such other proportions as they may mutually agree, all or any part of the Shares
which such defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that if the non-defaulting Underwriters fail to make such purchases
with respect to such Shares, the number of such Shares which a non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb all of the remaining
Shares. Notwithstanding the foregoing, the non-defaulting Underwriters shall not
be obligated to purchase the Shares which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such Shares exceeds
10% of the total number of shares which the Underwriters have agreed to purchase
hereunder. If the total number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, in addition
to any other right or remedies it may have, within 24 hours next succeeding the
24-hour period
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<PAGE> 9
above referred to, to make arrangements with other underwriters for the purchase
of such Shares on the terms herein set forth. The term "Underwriter" shall
include any such substituted underwriter. In any such case where the number of
Shares to be purchased by the defaulting Underwriters exceeds 10% of the total
number of Shares to be purchased hereunder, either the non-defaulting
Underwriters or the Company shall have the right to postpone the First Closing
Date or Option Closing Date, as the case may be, determined as provided in
Section 5, for not more than seven (7) business days after the date originally
fixed as the First Closing Date or Option Closing Date, as the case may be,
pursuant to Section 5, in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
the aggregate number of shares to be purchased by the defaulting Underwriter(s)
exceeds 10% of the total number of shares which the Underwriters have agreed to
purchase hereunder and neither the non-defaulting Underwriters nor the Company
shall make arrangements within the 24-hour periods stated above for the purchase
of all of the Shares which the defaulting Underwriter(s) agreed to purchase
hereunder, this Agreement shall be terminated without further act or deed and
without any liability on the part of the Company to the non-defaulting
Underwriters and without any liability on the part of the non-defaulting
Underwriters to the Company. Nothing in this Section 3(b), and no action taken
hereunder, shall relieve the defaulting Underwriter or Underwriters from
liability in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, the Option Shares from the Company at the same price per share as
the Underwriters shall pay for the Firm Shares, as set forth in Section 3(a).
Said option may be exercised only to cover over-allotments in the sale of the
Firm Shares by the Underwriters. The option may be exercised in whole or in part
at any time (but not more than once) on or before the thirtieth (30th) day after
the date of the Prospectus, upon written or fax notice by you to the Company
setting forth the aggregate number of the Option Shares as to which the several
Underwriters are exercising the option. Delivery of certificates for the Option
Shares, and payment therefore, shall be made as provided in Section 5 hereof.
The number of Option Shares to be purchased by each Underwriter shall be the
same percentage of the total number of Option Shares to be purchased by the
Underwriters as such Underwriter is purchasing of the Firm Shares, as adjusted
by you in such manner as you deem advisable to avoid fractional shares.
4. Offering by Underwriters. The first sentence of the last paragraph on
the cover page of the Prospectus, the statement with respect to stabilization
and passive market making set forth on the inside front cover page of the
Prospectus and the information under "Underwriting" in the Registration
Statement, any Pre-Effective
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<PAGE> 10
Prospectus, and the Prospectus relating to the Shares filed by the Company
(insofar as such information relates to the Underwriters), including the
concession and reallowance amounts appearing in the third paragraph thereof,
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Pre-Effective Prospectus, and
the Prospectus, and you represent and warrant to the Company that the statements
made therein are correct and complete and comply with the rules and regulations
of the Commission under the Securities Act.
5. Delivery of and Payment for the Shares.
(a) Delivery of certificates for the Firm Shares and the Option Shares
(if the option granted by Section 3(c) hereof shall have been exercised not
later than 10:00 a.m., New York City time, on the date two (2) business days
preceding the First Closing Date), and payment therefor, shall be made at the
offices of Cowen & Company, Financial Square, New York, New York at 10:00 a.m.,
New York City time, on the fourth (4th) business day after the date of this
Agreement, unless otherwise required by the Commission pursuant to Rule 15c6-1
of the Exchange Act or at such time on such other day not later than seven (7)
full business days after such fourth (4th) business day as shall be agreed upon
in writing by the Company and you. The date and hour of such delivery and
payment (which may be postponed as provided in Section 3(b) hereof) are herein
called the "First Closing Date."
(b) If the option granted by Section 3(c) hereof shall be exercised
after 10:00 a.m., New York City time, on the date two (2) business days
preceding the First Closing Date, delivery of certificates for the shares of
Option Shares, and payment therefor, shall be made at the offices of Cowen &
Company, Financial Square, New York, New York at 10:00 a.m., New York City time,
on the third (3rd) business day after the exercise of such option. The date and
hour of such delivery and payment are herein called the "Option Closing Date."
(c) Payment for the Shares purchased from the Company shall be made to
the Company or its order in New York, New York by one or more certified or
official bank check or checks in New York Clearing House (next-day) funds or, at
the Company's election, by wire transfer of immediately available funds to an
account designated by the Company. Such payment shall be made upon delivery of
certificates for the Shares to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Shares
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least three business days before the
First Closing Date, in the case of Firm Shares, and at least 24 hours prior to
the purchase thereof in the case of the Option Shares. Such certificates will be
made available to the Underwriters for inspection, checking and packaging at the
offices of the agent for Cowen & Company not less than
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<PAGE> 11
one full business day prior to the First Closing Date or, in the case of the
Option Shares, by 3:00 p.m., New York City time, on the business day preceding
the Option Closing Date.
It is understood that each of you, individually and not on behalf of
the other Underwriters, may (but shall not be obligated to) make payment to the
Company for shares to be purchased by any underwriter whose check shall not have
been received by you on the First Closing Date or any later date on which Option
Shares are purchased for the account of such other Underwriter. Any such payment
by you shall not relieve such Underwriter from any of its obligations hereunder.
6. Further Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceedings for that purpose, (iv) the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Shares for sale in any jurisdiction or any action by the NASD suspending or
terminating the inclusion of the Shares on the Nasdaq National Market, or (v)
the receipt by the Company of notice of the initiation or threat of any
proceedings for such purpose. The Company will make every reasonable effort to
prevent the issuance of such a stop order and, if such an order shall at any
time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will (i) on or before the First Closing Date, deliver
to each of you a copy of the signed copy of the Registration Statement as
originally filed and each amendment thereto filed prior to the time the
Registration Statement becomes effective and, promptly upon the filing thereof,
a copy of the signed copy of each post-effective amendment, if any, to the
Registration Statement (together with, in each case, all exhibits thereto unless
previously furnished to you), (ii) deliver to each of you additional conformed
copies of each of the foregoing (but without exhibits), (iii) deliver
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<PAGE> 12
to each of you, at such office or offices you may designate, as many copies of
the Prospectus as you may reasonably request, and (iv) thereafter from time to
time during the period in which a prospectus is required by law to be delivered
by an Underwriter or dealer, likewise send to each of you as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended Prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act. The
foregoing delivery requirements shall include any document filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus.
(d) If at any time during the period in which a Prospectus is required
by law to be delivered by any Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the reasonable opinion
of counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Shares, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. The Company
authorizes the Underwriters and all dealers to whom any of the shares may be
sold by the Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Shares in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your approval after reasonable notice thereof, such approval
not to be unreasonably withheld or delayed, a copy of any post-effective
amendment to the Registration Statement proposed to be filed or a copy of any
document proposed to be filed under the Exchange Act before the termination of
the offering of the Shares by the Underwriters.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a Prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so
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<PAGE> 13
qualified or to take any action which would subject it to taxation as doing
business in a jurisdiction where it is not now doing business. The Company will,
from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period (not in excess of 180 days after the commencement of the
public offering of the shares by the Underwriters) as you may reasonably request
for distribution of the Shares.
(g) During a period of two years commencing with the date hereof, the
Company will furnish to each of you and, upon request, to each of the other
Underwriters copies of all periodic and special reports furnished to
stockholders of the Company and of all reports filed with the Commission under
Section 13(a) or 15(d) of the Exchange Act
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the "effective date of the
registration statement" (as defined in Rule 158(c) under the Securities Act),
the Company will make generally available to its security holders in the manner
contemplated by Rule 158(b) under the Securities Act an earning statement in
accordance with Section 11(a) of the Securities Act and the rules and
regulations thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
all costs and expenses incident to (i) the preparation, printing and filing with
the Commission and the NASD of the Registration Statement, any Pre-Effective
Prospectus and the Prospectus (including, without limitation the fees and
expenses of the Company's accountants and counsel), (ii) the furnishing to the
Underwriters of copies of any Pre-Effective Prospectus and of the several
documents required by Section 6(c) to be so furnished, (iii) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in Section 6(d), (iv) the furnishing to the Underwriters of the reports and
information referred to in Section 6(g), (v) the printing and issuance of stock
certificates, including the transfer agent's fees, (vi) the reproduction of this
Agreement and related documents delivered to the Underwriters and (vii) the
costs of listing the Shares on the Nasdaq National Market.
(j) The Company agrees to reimburse you for blue sky fees and related
disbursements (including costs of reproducing memoranda for the Underwriters)
paid by or for the account of the Underwriters or their counsel under state
securities or blue sky laws and for fees and related disbursements (including
reasonable legal fees and disbursements of counsel) in connection with such
filings as may be required by the NASD with respect to the offering contemplated
hereby.
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<PAGE> 14
(k) The Company agrees that, without the prior written consent of Cowen
& Company on behalf of the Representatives and the Underwriters, the Company
will not sell, offer, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for or warrants to purchase Common Stock for a period of 90
days after the Effective Date, other than (i) the shares to be sold to the
Underwriters pursuant to this Agreement, (ii) shares of Common Stock issued upon
the exercise of options granted under the Company's 1992 Equity Incentive Plan
(the "Option Plan") or under the Company's 1995 Director Stock Option Plan (the
"Director Plan") or upon the exercise of warrants previously issued, (iii)
shares of Common Stock issued under the Company's 1995 Employee Stock Purchase
Plan ("ESPP") and (iv) options to purchase Common Stock granted under the Option
Plan, Director Plan or ESPP. For purposes of this Section 6(k) a sale, offer,
option or disposition shall be deemed to include any sale to an institution
which can, following such sale, sell Common Stock to the public in reliance on
Rule 144A, but shall not include a sale, offer, option or disposition under
circumstances where the holder may not, for a period of at least 90 days after
the commencement of the public offering of the Shares by the Underwriters, sell
the shares of Common Stock acquired by the holder to the public.
(l) The Company shall cause each officer and director of the Company,
and each stockholder of the Company listed on Schedule II hereto that has not
furnished to you such a letter or letters prior to the date of this Agreement,
to furnish to you, on the date of this Agreement, a letter or letters, in form
and substance satisfactory to counsel for the Underwriters, pursuant to which
each such person shall agree not to offer for sale, sell, distribute or
otherwise dispose of any shares of Common Stock during the 90 days following the
Effective Date, except with the prior written consent of Cowen & Company.
(m) The Company will use the net proceeds received by it from the sale
of the Shares being sold by it in the manner specified in the Prospectus.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such
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<PAGE> 15
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceedings which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any document filed under the
Exchange Act and incorporated by reference therein) or any post-effective
amendment thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Pre-Effective Prospectus or the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (iii) any untrue statement or alleged untrue statement
of a material fact contained in any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, provided, however,
that (i) the indemnity agreement of the Company contained in this Section 7(a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter expressly for use in any Pre-Effective Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement thereto, or any
Blue Sky Application and (ii) the indemnity agreement contained in this Section
7(a) with respect to any Pre-Effective Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Shares which is the subject
thereof (or the benefit of any person controlling such Underwriter) if at or
prior to the written confirmation of the sale of such Shares a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material fact
contained in such Pre-Effective Prospectus was corrected in the Prospectus (or
the Prospectus was amended or
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<PAGE> 16
supplemented) unless such failure is the result of noncompliance by the Company
with Section 6(c) hereof.
The indemnity agreement of the Company contained in this Section 7(a)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, and each
person (including each partner or officer thereof), if any, who controls the
Company within the meaning of Section 15 of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or several, to which
such indemnified parties or any of them may become subject under the Securities
Act, the Exchange Act, or the common law or otherwise and to reimburse each of
them for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceedings which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as a part thereof), or any
post-effective amendment thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Pre-Effective Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of circumstances under which they were made,
not misleading, or (iii) any Blue Sky Application, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case only if
such statement or omission was made in reliance upon and in conformity with
information furnished in writing as herein stated or otherwise furnished in
writing to the Company by or on behalf of such indemnifying Underwriter
expressly for use in any Pre-Effective Prospectus, the Registration Statement,
the Prospectus, or any such amendment or supplement thereto, or any Blue Sky
Application.
The indemnity agreement of each Underwriter contained in this Section
7(b) shall remain operative and in full force and effect regardless of any
investigation
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<PAGE> 17
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Shares.
(c) Each party indemnified under the provisions of Section 7(a) or 7(b)
agrees that, upon the service of a summons or other initial legal process upon
it in any action or suit instituted against it or upon its receipt of written
notification of the commencement of any investigation or inquiry of, or
proceedings against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the "Notice") of such service or notification to
the party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceedings to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission to notify such indemnifying party or parties of any
such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled to participate in the defense of any
action, suit or proceedings against, or investigation or inquiry of, any
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(herein called the "Notice of Defense") to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceedings, in
which event such defense shall be conducted at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determined that there
may be a conflict between the positions of the indemnifying party or parties and
of the indemnified party or parties in conducting the defense of such action,
suit, investigation, inquiry or proceedings or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled, at the expense of the
indemnifying party or parties, to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties, and (ii) in any event, the indemnified party or
parties shall be entitled, at its own expense, to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under Section 7(a) through 7(c)
for any legal or other expenses subsequently incurred by the indemnified party
or parties in connection with the
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<PAGE> 18
defense of the action, suit, investigation, inquiry or proceedings, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the provision to the preceding sentence, and (B) the indemnifying party
or parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceedings.
(d) Notwithstanding the above, in no event shall the indemnifying
parties be responsible for fees and expenses of more than one counsel for all
indemnified parties in connection with one action (or separate but similar or
related actions) arising out of the same general allegations or circumstances.
Further, no indemnifying party shall be responsible for any settlement of an
action or claim effected without its written consent.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7(a) or 7(b) above although applicable in accordance with its terms, then each
such indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Sections 7(a) or
7(b) above (i) in such proportion as is appropriate to reflect the relative
benefits received by each indemnifying party from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities or actions in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Shares (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, as set
forth in the table on the cover page of the Prospectus, bear to the aggregate
public offering price of the Shares. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this Section 7(e) were to be determined by pro-rata
allocation (even if the
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<PAGE> 19
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to in the first sentence of this Section 7(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in the first sentence of
this Section 7(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating,
preparing to defend or defending against any action or claim which is the
subject of this Section 7(e). Notwithstanding the provisions of this Section
7(e), no Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(g) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contributions
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought of any
obligation it may have hereunder or otherwise (except as specifically provided
in Section 7(c) hereof).
(f) No indemnifying party will, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceedings in
respect of which indemnification may be sought hereunder (whether or not such
indemnifying party or any person who controls such indemnifying party within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless the indemnifying party
uses its reasonable efforts to insure that such settlement, compromise or
consent includes an unconditional release of such indemnified party and each
such controlling person from all liability arising out of such claim, action,
suit or proceedings.
8. Termination. This Agreement may be terminated by you by giving written
notice to the Company (i) if at or prior to the First Closing Date trading in
securities on any of the New York Stock Exchange, American Stock Exchange or
Nasdaq National Market System shall have been suspended or minimum or maximum
prices shall have been established on any such exchange or market, or a banking
moratorium shall have been declared by New York or United States authorities;
(ii) if after the date of this Agreement trading of any securities of the
Company shall have
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<PAGE> 20
been suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign power or of
any other insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis, which, in either such
case, in the judgment of the Representatives, makes it impractical or
inadvisable to offer or sell the Shares on the terms contemplated by the
Prospectus; (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or the transactions contemplated by this Agreement, which, in your
judgment, makes it impractical or inadvisable to offer or deliver the Shares on
the terms contemplated by the Prospectus; (v) if there shall be any litigation
or proceeding pending or threatened, which, in your judgment, makes it
impractical or inadvisable to offer or deliver the Shares on the terms
contemplated by the Prospectus, or (vi) if there shall have occurred any of the
events specified in the immediately preceding clauses (i) - (v) together with
any other such event that makes it, in your judgment, impractical or inadvisable
to offer or deliver the Shares on the terms contemplated by the Prospectus. If
this Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to honor all of its obligations set forth in
Sections 6(i), 6(j) and 7 hereof.
9. Conditions of Underwriters' Obligations. The obligations of each of the
Underwriters to purchase and pay for the Shares shall be subject to the
performance by the Company of all of its obligations to be performed hereunder
at or prior to the First Closing Date or the Option Closing Date, as the case
may be, and to the following further conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) (if required) within the applicable time period prescribed for
such filing by the rules and regulations under the Securities Act; the
Registration Statement shall have become effective; and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings therefor
shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Shares hereunder
and the validity and form of the certificates representing the Shares, all
corporate proceedings and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been at or prior to the
First Closing Date reasonably acceptable to Hale and Dorr LLP, counsel for the
Underwriters, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this subsection.
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<PAGE> 21
(c) On each Closing Date there shall have been furnished to you the
opinion (addressed to the Underwriters) of Palmer & Dodge LLP, counsel for the
Company, dated such Closing Date and in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
(1) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease the properties known to us to be
owned or leased by it and to conduct its business as described in the
Registration Statement; the Company is duly qualified to transact business in
all jurisdictions in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a
materially adverse effect upon its business; and to such counsel's knowledge the
Company does not own or control, directly or indirectly, any corporation or
other entity other than those that are not "significant subsidiaries" within the
meaning of the Commission's Regulation S-X.
(2) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company; the performance of the Underwriting Agreement and
the consummation of the transactions therein contemplated will not result in a
breach or a violation of any of the terms and provisions of, or constitute a
default under (A) any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which the
Company is a party or by which the property of the Company is bound, (B) the
corporate charter or bylaws of the Company or (C) (assuming compliance with all
applicable federal and state securities laws) any statute, rule or regulation or
any order of any court or governmental agency or body having jurisdiction over
the Company or over any of its properties.
(3) Except as set forth in the Prospectus, there is not known to
such counsel any action, suit or proceeding, at law or in equity, pending
against the Company before any court or administrative agency, which, if
determined adversely to the Company, would materially adversely affect the
business, operations, financial condition, income or business prospects of the
Company, or prevent the consummation of the transaction contemplated by this
Underwriting Agreement.
(4) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable. The
Shares have been duly authorized and, when issued and paid for as provided in
the Underwriting Agreement, will be validly issued, fully paid, non-assessable
and free of preemptive rights. To such counsel's knowledge, no person or entity
holds a right to require or participate in a registration under the Securities
Act of shares of Common Stock of the Company with respect to the registration of
shares pursuant to the
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<PAGE> 22
Registration Statement, and no person holds a right to require registration
under the Securities Act of shares of Common Stock of the Company at any other
time.
(5) The Registration Statement has become effective under the
Securities Act, and to such counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings therefor are pending or
threatened by the Commission.
(6) The Registration Statement, each Preliminary Prospectus, the
Prospectus and each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations thereunder (except that such counsel need express no opinion as to
the financial statements and schedules or other financial data included
therein). In passing upon the form of such documents, such counsel need not have
independently verified and is not passing upon, and may have necessarily assumed
the correctness and completeness of, the statements made therein and take no
responsibility therefor.
(7) Such counsel has reviewed all contracts of the Company referred
to in the Registration Statement. The descriptions thereof (insofar as such
descriptions constitute a summary of the legal matters referred to therein) are
accurate in all material respects (except that such counsel need express no
opinion as to any descriptions thereof appearing in the financial statements,
schedules and other financial or statistical data contained in the Registration
Statement or incorporated by reference therein). With respect to any contract
description appearing in any document incorporated by reference in the
Registration Statement that is modified or superseded by a description in the
Prospectus, the foregoing opinion is limited to the description of such contract
appearing in the Prospectus. Such counsel need express no opinion as to the
validity or enforceability of any contract referred to.
(8) Such counsel does not know of any contracts or other documents
required to be filed as an exhibit to the Registration Statement which have not
been so filed.
(9) Each approval, consent, order, authorization, designation,
declaration or filing by or with any United States regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of the Underwriting Agreement and the consummation of the
transactions therein contemplated has been obtained or made and is in full force
and effect (except that no opinion shall be given as to state and foreign
securities laws or approvals required from the NASD).
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<PAGE> 23
(10) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act, nor will the Company become such after giving effect to the sale of
the Shares and the application of the proceeds thereof as described in the
Prospectus.
In rendering such opinion, such counsel may rely as to matters governed
by laws of jurisdictions other than the laws of the Commonwealth of
Massachusetts, the General Corporation Law of the State of Delaware, or federal
laws, on opinions of local counsel in such jurisdictions. Further, such counsel
may state that they are not passing upon any matters relating to patents,
trademarks or United States Food and Drug Administration regulation or other
Federal or state regulation of pharmaceutical products. Such counsel may state
that as to various questions of fact material to their opinion, they have relied
upon representations made in or pursuant to this Agreement and upon certificates
of officers of the Company. In addition to the matters set forth above, the
opinion shall also include a statement to the effect that no facts have come to
such counsel's attention which would cause such counsel to believe that the
Registration Statement at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that, on the Closing Date, the Prospectus and the Registration Statement
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except that such
counsel need express no belief as to the financial statements and schedules or
other financial data included therein). With respect to such statement, such
counsel may state that their belief is based on the procedures set forth
therein, but is without independent check and verification.
(d) On each Closing Date there shall have been furnished to you the
opinion (addressed to the Underwriters) of Hamilton, Brook, Smith & Reynolds,
P.C., patent counsel to the Company, dated such Closing Date and in form and
substance satisfactory to counsel for the Underwriters to the effect that such
counsel is familiar with that portion of the technology used by the Company in
its business concerning which such counsel has been consulted and has read the
Registration Statement and the Prospectus, including in particular the portions
of the Registration Statement and the Prospectus under the captions "Risk
Factors-Dependence on Patents and Proprietary Technology" and "Business-Patents
and Trade Secrets" (the "Technology Portion"), such counsel consents to being
named as an "Expert" in the Registration Statement, if required by the
Securities Act and the rules and regulations thereunder, and:
(i) such counsel has no knowledge of any fact which would
preclude the Company from having clear title to the
Company's patents and patent applications referenced in the
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<PAGE> 24
Technology Portion. To the best of such counsel's knowledge,
none of the patents owned by the Company is unenforceable or
invalid. To the best of such counsel's knowledge, the
Company has not received any notice of infringement of or
conflict with rights or claims of others with respect to any
patents, trademarks, service marks, trade names, copyrights
or know-how which is reasonably likely to result in any
material adverse effect upon the Company. Such counsel is
not aware of any patents of others which are infringed by
specific products or processes referred to in the Prospectus
in such manner as to materially and adversely affect the
Company.
(ii) to the best of such counsel's knowledge, other than
proceedings (except interference proceedings) of the various
patent and trademark offices, there are no legal or
governmental proceedings pending relating to patent rights,
trade secrets, trademarks, service marks or other
proprietary information or materials of the Company, and to
the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or
others;
(iii) the statements in the Technology Portion of the Prospectus,
insofar as such statements constitute a summary of documents
referred to therein or matters of law, are accurate
summaries and fairly present, in all material respects, the
information called for with respect to such documents and
matters; provided, however, that such counsel may rely on
representations of the Company with respect to the factual
matters contained in such statements, and provided that such
counsel shall state that nothing has come to the attention
of such counsel which leads them to believe that such
representations are not true and correct in all material
respects.
(e) The Underwriters shall be satisfied that (i) as of the Effective
Date, the statements made in the Registration Statement and the Prospectus were
true and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, respectively, not misleading, (ii) since
the Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus
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<PAGE> 25
which has not been set forth in such a supplement or amendment, (iii) since the
respective date as of which information is given in the Registration Statement
in the form in which it originally became effective and the Prospectus contained
therein, there has not been any material adverse change in the business,
properties, operations, financial condition, income or business prospects of the
Company, as presently being conducted, whether or not arising from transactions
in the ordinary course of business, and, since such dates except in the ordinary
course of business, the Company has not entered into any material transaction
not referred to in the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein that would be required to
be disclosed therein, (iv) there are not any pending or known threatened legal
proceedings to which the Company is a party or of which property of the Company
is the subject which are material and which are not disclosed in the
Registration Statement and the Prospectus, (v) there are not any franchise
agreements, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required,
and (vi) the representations and warranties of the Company herein are true and
correct in all material respects as of the First Closing Date or the Option
Closing Date, as the case may be.
(f) The Underwriters shall have received on the First Closing Date and
on the Option Closing Date a certificate, dated the First Closing Date or the
Option Closing Date, as the case may be, and signed by the President of the
Company, stating that to the best of his knowledge, the representations and
warranties of the Company in this Agreement are true and correct.
(g) The Underwriters shall have received from Ernst & Young LLP a
letter or letters, addressed to the Underwriters and dated the Effective Date,
the First Closing Date and the Option Closing Date, as the case may be,
confirming that they are independent public accountants with respect to the
Company within the meaning of the Securities Act and the applicable published
rules and regulations thereunder and based upon the procedures described in
their letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five business days prior to the Effective Date, First Closing Date, or the
Option Closing Date, as the case may be, (i) confirming, to the extent true,
that the statements and conclusions set forth in the Original Letter are
accurate as of the Effective Date, First Closing Date or the Option Closing
Date, as the case may be, and (ii) setting forth any revisions and additions to
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company not contemplated by the Prospectus which, in the sole
judgment of the Underwriters, makes it impracticable or inadvisable to
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<PAGE> 26
proceed with the public offering of the Shares or the purchase of the Option
Shares as contemplated by the Prospectus.
(h) The Representatives of the Underwriters shall have been furnished
evidenced in usual written or fax form from the appropriate authorities of the
several states, or other evidence satisfactory to you, of the qualification
referred to in Section 6(f) hereof.
(i) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company) as to the accuracy of the representations and
warranties of the Company, the performance of their respective obligations
hereunder and as to other conditions concurrent and precedent to the obligations
of the Underwriters hereunder.
All the agreements, opinions, certificates and letters referred to in
this Section 9 or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if Hale and Dorr, counsel for the
Underwriters, shall reasonably be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs and expenses
referred to in Sections 6(i) and 6(j) hereof, and (ii) if this Agreement is
terminated by the Underwriters because of any refusal, inability or failure on
the part of the Company to perform any agreement herein, to fulfill any of the
conditions herein required to be fulfilled by the Company, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters or
the occurrence of an event specified in Section 8, the Company will reimburse
the Underwriters, severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the transactions contemplated hereby.
10. Conditions of the Obligations of the Company. The obligation of the
Company to deliver the Shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective, and (b) no stop order
suspending the effectiveness of the Registration Statement thereof shall be in
effect and no proceedings therefor shall be pending or threatened by the
Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
the
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<PAGE> 27
Underwriters. Any such termination shall be without liability of the Company to
the Underwriters and without liability of the Underwriters to the Company;
provided, however, (i) that in the event of any such termination the Company
agrees to indemnify and hold harmless the Underwriters from all costs or
expenses referred to in Sections 6(i) and 6(j) hereof.
11. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse the Underwriters on a quarterly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or proceedings arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
Section 7(a) of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to be
improper; provided, however, (i) to the extent that indemnification under
Section 7(a) is held to be unavailable by its terms then such expenses shall be
promptly refunded to the Company by the indemnified persons who received such
expenses, and (ii) the Company shall not be obligated to so reimburse the
Underwriters to the extent it is not liable for such expenses under the fifth
sentence of Section 7(c).
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 7 and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim under or in
respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as such
purchaser, of any of the Shares from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by fax and, if to the Underwriters, shall be
mailed, telecopied or delivered to Cowen & Company, Financial Square, New York,
New York 10005, telecopy no. (212) 480-8212; and if to the Company, shall be
mailed, telecopied or delivered to it at its office at Nine Fourth Avenue,
Waltham, Massachusetts 02154, telecopy no. (781) 290-5890. All notices given by
fax shall be promptly confirmed by letter.
14. Miscellaneous.
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<PAGE> 28
(a) The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants
contained in this Agreement shall remain in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any party hereto and (iii) delivery of and payment for the Shares
under this Agreement; provided, however, that if this Agreement is terminated
prior to the First Closing Date, the provisions of Sections 2, 3, 5 and 6
(except for paragraphs (i) and (j) thereof) shall be of no further force and
effect, and provided further that no party shall be barred from taking any
action or seeking any remedy with respect to the breach of any representation,
warranty or covenant contained in this Agreement prior to the termination.
(b) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(c) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to the choice of
law or conflict of laws principles thereof.
(intentionally left blank]
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<PAGE> 29
Please sign and return to the Company the enclosed duplicate of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
GELTEX PHARMACEUTICALS, INC.
By:________________________________
Title:_____________________________
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written
COWEN & COMPANY
HAMBRECHT & QUIST LLC
CIBC OPPENHEIMER CORP.
Acting on behalf of themselves
and as the Representatives of
the Several Underwriters
BY: COWEN & COMPANY
By:_____________________________
Title:__________________________
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<PAGE> 30
SCHEDULE I
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------------
Cowen & Company
Hambrecht & Quist LLC
CIBC Oppenheimer & Co., Inc.
Total 2,500,000
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<PAGE> 31
SCHEDULE II
Shares Subject to
Stockholders "Lock-up" Letters
- ------------ -----------------
Genzyme Corporation 100,000
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<PAGE> 1
EXHIBIT 4.3
PROMISSORY NOTE
$5,000,000.00 Boston, Massachusetts
May 21, 1997
FOR VALUE RECEIVED, the undersigned GelTex Pharmaceuticals, Inc., a
Delaware corporation (the "Borrower") hereby promises to pay to the order of
FLEET NATIONAL BANK (the "Bank") the principal amount of Five Million and 00/100
($5,000,000.00) Dollars or such portion thereof as may be advanced by the Bank
pursuant to ss.1.2 of that certain letter agreement of even date herewith
between the Bank and the Borrower (the "Letter Agreement") and remains
outstanding from time to time hereunder ("Principal"), with interest, at the
rate hereinafter set forth, on the daily balance of all unpaid Principal, from
the date hereof until payment in full of all Principal and interest hereunder.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the Prime Rate, as in effect from time to time (but in no event in excess of the
maximum rate permitted by then applicable law), with a change in the aforesaid
rate of interest to become effective on the same day on which any change in the
Prime Rate is effective; provided, however, that (A) if a Eurodollar Interest
Rate (as defined in the Letter Agreement) shall have become applicable to all or
any portion of the outstanding Principal for any Interest Period (as defined in
the Letter Agreement), then interest on such Principal or portion thereof shall
accrue at said applicable Eurodollar Interest Rate for such Interest Period and
shall be payable on the Interest Payment Date (as defined in the Letter
Agreement) applicable to such Interest Period, and (B) if a COF Interest Rate
(as defined in the Letter Agreement) shall have become applicable to the
outstanding Principal, then interest on the outstanding Principal shall accrue
at said COF Interest Rate and shall be paid on the first day of each month.
Overdue Principal and, to the extent permitted by law, overdue interest shall
bear interest at a fluctuating rate per annum which at all times shall be equal
to the sum of (i) two (2%) percent per annum plus (ii) the per annum rate
otherwise payable under this note with respect to the Principal which is overdue
(or as to which such interest is overdue) (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto. If the entire amount of any required
Principal and/or interest is not paid within ten (10) days after the same is
due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of
the required payment, provided that such late fee shall be reduced to three
percent (3%) of any required Principal and interest that is not paid within
fifteen (15) days of the date it is due if this note is secured by a mortgage on
an owner-occupied residence of 1-4 units.
<PAGE> 2
All outstanding Principal shall be repaid by the Borrower to the Bank in 48
equal consecutive monthly installments (each in an amount equal to 1/48th of the
total Principal outstanding at the close of business on January 2, 1998), such
installments to commence January 31, 1998 and to continue thereafter on the last
day of each month through and including December 31, 2001, on which date all
then remaining Principal and all interest accrued but unpaid thereon will be due
and payable in full.
The Borrower may at any time and from time to time prepay all or any
portion of any Term Loan (as defined in the Letter Agreement), but, as to Fixed
Rate Loans (as defined in the Letter Agreement), only at the times and in the
manner, and (under certain circumstances) with the additional payments, provided
for in the Letter Agreement. Any prepayment of Principal, in whole or in part,
will be without premium or penalty (but, in the case of Fixed Rate Loans, may
require payment of additional amounts, as provided for in the Letter Agreement).
Each Principal prepayment shall be accompanied by payment of all interest on the
prepaid amount accrued but unpaid to the date of payment. Any partial prepayment
of Principal will be applied against Principal installments in inverse order of
normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the office of the Bank located at 75 State Street, Boston,
Massachusetts 02109, or at such other address as the Bank may from time to time
designate.
The undersigned Borrower irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to this note or on the books of the Bank, at
or following the time of making any Term Loan and of receiving any payment of
Principal, an appropriate notation reflecting such transaction (including date,
amount and maturity) and the then aggregate unpaid balance of Principal. Failure
of the Bank to make any such notation shall not, however, affect any obligation
of the Borrower hereunder or under the Letter Agreement. The unpaid Principal
amount of this note, as recorded by the Bank from time to time on such schedule
or on such books, shall constitute presumptive evidence of the aggregate unpaid
principal amount of the Term Loans.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
the Bank in enforcing this note and any collateral or security therefor, all
whether or not litigation is commenced.
This note is the Term Note referred to in the Letter Agreement and is
secured by and entitled to the benefits of the Security Agreement (as defined in
the Letter Agreement). This
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<PAGE> 3
note is subject to prepayment as set forth in the Letter Agreement. The maturity
of this note may be accelerated upon the occurrence of an Event of Default, as
provided in the Letter Agreement.
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE SEAL GELTEX PHARMACEUTICALS, INC.
ATTEST:
/s/ Elizabeth A. Grammer By: /s/ Mark Skaletsky
- ------------------------ ---------------------------
Secretary Name: Mark Skaletsky
Title: President
-3-
<PAGE> 1
EXHIBIT 4.4
SECURITY AGREEMENT (EQUIPMENT)
SECURITY AGREEMENT (EQUIPMENT) dated as of May 21, 1997 by and between
GelTex Pharmaceuticals, Inc., a Delaware corporation (the "Debtor") and Fleet
National Bank (the "Secured Party").
WHEREAS, the Debtor and the Secured Party are parties to that certain
letter agreement of even date herewith (the "Letter Agreement") pursuant to
which the Secured Party may from time to time make loans (the "Term Loans") to
the Debtor for the purpose of acquisition of certain items of equipment; and
WHEREAS, the Term Loans are evidenced by the Debtor's $5,000,000 face
principal amount promissory note of even date herewith (the "Term Note") payable
to the order of the Secured Party; and
WHEREAS, as a condition to the making of any Term Loan, the Secured Party
requires that the Debtor grant to the Secured Party a security interest in the
Collateral (as defined in Section 1);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby act and agree
as follows:
1. DEFINITIONS. As used in this Security Agreement, the following terms
have the following meanings:
"COLLATERAL" - All of the Equipment and all of the following:
(a) all warranties, licenses, contract rights and other rights and
interests pertaining to any of the Equipment and/or the use thereof, all
whether now or hereafter existing or owned by the Debtor or in which the
Debtor shall now or hereafter have any interest; and
(b) all liens, guaranties, securities, rights, remedies and privileges
pertaining to, and all proceeds (including, without limitation, insurance
proceeds) of and all accessions to, any of the foregoing items of
Collateral, all whether now or hereafter existing or owned by the Debtor or
in which the Debtor shall now or hereafter have any interest.
"EQUIPMENT" - All of the items listed on Exhibit A hereto, as same may be
from time to time supplemented, and all accessions, additions, substitutions or
replacements to or for any of such items and all attachments, components,
accessories, parts and supplies relating thereto; all whether affixed or
moveable and wherever located, and whether now existing and owned by the Debtor
or herewith arising or acquired; provided, however, that the Debtor's Leasehold
Improvements are expressly excluded from the definition of "Equipment" and
"Collateral".
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"EVENT OF DEFAULT" - The occurrence of any one or more of the following:
(i) any "Event of Default" as defined in any Loan Document; or (ii) any
representation or warranty by the Debtor contained in this Security Agreement
shall prove to have been inaccurate or incomplete in any material respect on the
date when made; or (iii) the failure or default by the Debtor under any of
Subsections 4(a), 4(c), 4(d), 4(e), 4(f) or 4(g); or (iv) any failure by the
Debtor to perform or observe any of its other obligations or agreements under
this Security Agreement, which failure remains uncured for thirty (30) days
after notice thereof has been given to the Debtor.
"LEASEHOLD IMPROVEMENTS" - All fixtures, equipment, improvements and
appurtenances which are so attached to or built into the New Premises such that
same are integrated with and incorporated into the real estate and cannot
readily be removed, including, without limitation, heating, ventilation and air
conditioning systems, laboratory hoods and laboratory benches.
"LIEN" - Any lien, charge, encumbrance or security interest, whether
voluntary or involuntary.
"NEW PREMISES" - The Premises leased by the Debtor at 9 Fourth Avenue,
Waltham MA, 02154.
"LOAN DOCUMENTS" - This Security Agreement, the Letter Agreement, the Term
Note and any other instruments, documents or other agreements made by the Debtor
with or in favor of the Secured Party in connection with any Term Loan, all
whether now existing or hereafter entered into or delivered.
"OBLIGATIONS" - Any and all indebtedness, liabilities or obligations of the
Debtor, joint or several, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, to or for the benefit of the
Secured Party, including, without limitation, those arising out of or provided
for in any of the Loan Documents, such term to include obligations to perform
acts and refrain from taking action as well as obligations to pay money.
"PERSON" - As defined in the Letter Agreement.
"PREMISES" - All locations (whether owned, leased, operated or otherwise
used by the Debtor) in which any of the Equipment is or will be located, all of
which are listed on Exhibit B hereto together with the record owner of each such
location.
"UCC" - The Uniform Commercial Code as in effect from time to time in
Massachusetts, except that with respect to Collateral located or deemed located
in any other jurisdiction, such term shall refer to the Uniform Commercial Code
as in effect in each such other jurisdiction.
Any defined term used in the plural preceded by the definite article shall
be taken to encompass all members of the relevant class. Any defined term used
in the singular preceded by "any" shall be taken to indicate any number of the
members of the relevant class.
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2. GRANT OF SECURITY INTEREST. As security for the full and timely
satisfaction of the Obligations, the Debtor hereby grants to the Secured Party a
continuing security interest in the Collateral, and in each item thereof, all to
the maximum extent that the Debtor has an interest therein or at any time in the
future obtains such an interest.
3. REPRESENTATIONS AND WARRANTIES. The Debtor represents and warrants to
the Secured Party that:
(a) The execution, delivery and performance by the Debtor of this Security
Agreement, including the security interests herein granted or intended to be
granted, has been duly authorized by all necessary corporate and other action
and does not and will not:
(i) require any waiver, consent or approval of its shareholders, any
governmental authority or any other Person (other than the consent of
Silicon Valley Bank obtained prior to the date hereof);
(ii) contravene its charter or by-laws;
(iii) to the best of the Debtor's knowledge, violate any provision of, or
require any filing (other than the filing of financing statements under the
UCC with respect to the security interests herein granted), registration,
consent or approval under, any law, rule, regulation (including, without
limitation, Regulation U), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Debtor;
(iv) result in a breach of or constitute a default or require any waiver or
consent (other than the consent of Silicon Valley Bank obtained prior to
the date hereof) under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Debtor is party or by
which it or any of its properties may be bound or affected; or
(v) result in, or require, the creation or imposition of any Lien (other
than as created hereunder) upon or with respect to any of the properties
now owned or hereafter acquired by the Debtor.
(b) This Security Agreement has been duly executed and delivered on behalf
of the Debtor and is a legal, valid and binding obligation of the Debtor.
(c) No Obligation has been or will hereafter be incurred on account of
personal, family or household purposes.
(d) The principal place of business and chief executive offices of the
Debtor are currently located at 303 Bear Hill Road, Waltham, MA 02154 and all of
the books and records of the Debtor are currently kept at that location. Upon
completion of the planned Leasehold
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Improvements, the primary place of business and chief executive offices of the
Debtor will be located at the New Premises. At such time, all of the books and
records of the Debtor will be kept at the New Premises and none of the
Collateral will be kept at any other location. The Debtor will be a tenant at
the New Premises and the record owner of such location is as set forth on
Exhibit B hereto.
(e) The Debtor does not conduct business under any trade name or style
other than its corporate name.
(f) The Debtor owns (or, at the time each item of Equipment becomes
Collateral hereunder, will own) the Collateral free and clear of all Liens
except Liens in favor of the Secured Party.
(g) This Agreement, coupled with the filing of appropriate UCC financing
statements with appropriate public offices, creates in favor of the Secured
Party a valid and perfected first priority security interest in the Collateral,
which security interest secures the Obligations.
(h) At the time of the making of each Term Loan, each item of the Equipment
with respect to which such Term Loan is made will have been accepted by the
Debtor and is in good repair, working order and condition, and the Debtor has
not asserted (and the Debtor knows of no basis for) any material warranty or
other claim against any seller or manufacturer thereof.
4. COVENANTS. (a) PAYMENT AND PERFORMANCE. The Debtor shall unconditionally
pay when due or within any applicable grace period (or on demand, if so payable)
each Obligation and shall duly and punctually perform each Obligation.
(b) FURTHER ASSURANCES. The Debtor will from time to time at its expense,
upon the Secured Party's request, promptly execute and deliver all such further
instruments and documents, and take all such further action, as may be necessary
or that the Secured Party may reasonably request in order to perfect and/or
protect the security interests granted or intended to be granted hereby or to
enable the Secured Party to enforce its rights and remedies hereunder with
respect to any Collateral. Without limitation of the foregoing, as a
precondition to the making of each Term Loan, the Debtor will execute and
deliver to the Secured Party (i) an agreement in form and substance satisfactory
to the Secured Party amending Exhibit A hereto by adding to same (without
deleting any items of Equipment previously shown thereon) a list of the
additional items of Equipment to be purchased with the proceeds of such Term
Loan and all such additional items of Equipment will thereupon be deemed
included in the Equipment described in this Security Agreement, (ii) UCC
financing statements which will be sufficient (when filed) to give the Secured
Party a fully perfected first security interest in all of such additional items
of Equipment, and (iii) a certificate of the Debtor confirming that the
representation and warranties contained in Section 3 above remain true and
correct as of the date of such Term Loan and taking into account such additional
items of Equipment.
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(c) INFORMATION. The Debtor shall maintain complete and accurate records of
all of its Collateral and its dealings with respect thereto in accordance with
generally accepted accounting principles applied on a consistent basis. Upon
reasonable notice from time to time (and at any time and without notice after
the occurrence and during the continuance of an Event of Default), the Debtor
shall permit the Secured Party and its employees, representatives and agents
access to the Premises and the Secured Party shall have the right to inspect the
Collateral and make copies of such books and records. Notwithstanding the
foregoing, (i) unless an Event of Default has occurred, the Secured Party shall
not exercise the rights of access and inspection described in the immediately
preceding sentence more than once in any calendar year and (ii) such rights of
access and inspection will be subject to the execution by the Secured Party of
such confidentiality agreement as may be reasonably requested by the Debtor and
is reasonably satisfactory to the Secured Party. The Debtor shall from time to
time furnish to the Secured Party such information concerning the Collateral as
the Secured Party may reasonably request, and will promptly notify the Secured
Party if any representation or warranty of the Debtor in Section 3 hereof
becomes inaccurate, incomplete or misleading in any material respect.
(d) INSURANCE. The Debtor shall at its expense maintain fire and extended
coverage insurance policies insuring the Equipment, with responsible and
reputable insurance companies or associations, in amounts sufficient to provide
for full replacement cost coverage (with agreed amount endorsement) and in any
event not less than the amount necessary to avoid co-insurance. All such
insurance with respect to the Equipment shall name the Secured Party as secured
party and first loss payee. All policies of such insurance shall contain a
provision forbidding cancellation of such insurance either by the carrier or by
the insured without at least 15 days' prior written notice to the Secured Party.
The Debtor shall upon the Secured Party's request deliver to the Secured Party
duplicate policies of such insurance and/or binders, certificates or other
evidence thereof (with evidence of premiums having been paid) from the insurer
or a reputable insurance broker. In case of any casualty, loss or damage to
which the following sentence is not applicable, the Debtor shall make the
necessary repairs or replacements and shall be entitled to be reimbursed
therefor from and to the extent of the proceeds of such insurance. Upon the
occurrence and during the continuance of any Event of Default, all insurance
payments in respect of Equipment shall be paid and applied as specified in
Subsection 8(c) below.
(e) TITLE; SALE OR REMOVAL OF COLLATERAL. The Debtor shall not create or
suffer to exist any Lien in or on any of the Collateral, except the Lien of the
Secured Party. The Debtor shall not, without the Secured Party's prior written
approval, sell, transfer or remove from the Premises or otherwise dispose of any
of the Collateral; provided that the Debtor may move the Collateral to a new
facility within The Commonwealth of Massachusetts acquired or leased by the
Debtor if the Debtor gives the Secured Party not less than thirty (30) days'
prior written notice of such move and provides all such financing statements and
other documentation as may be necessary to protect, perfect and/or confirm the
first priority security interests granted or intended to be granted in this
Security Agreement. Except as provided in the immediately preceding sentence, no
Collateral will be located at any premises other than as described in Subsection
3(d) above. The Debtor (i) shall maintain books and records relating to
Collateral only as described in Subsection 3(d) above, (ii) will not move its
chief executive office or principal place of business
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<PAGE> 6
from the existing location described in Subsection 3(d) above (except the move
to the New Premises as described in Subsection 3(d) above), (iii) will not
change its name or identity (or use any trade name or style except as described
in Subsection 3(e) above), and (iv) will not make or suffer to be made any
change in its corporate structure until, in each case, after receipt of a
certificate from the Secured Party, signed by an officer thereof, stating that
the Secured Party has, to its satisfaction, obtained all documentation that it
deems necessary or desirable to obtain, maintain, perfect and/or confirm the
first priority security interests granted or intended to be granted herein.
(f) MAINTENANCE AND USE OF EQUIPMENT. The Debtor will maintain all
Equipment in good order and condition, making all necessary repairs thereto. The
Debtor will not suffer any waste or destruction of any Equipment, nor use any
Equipment in violation of any applicable law or any insurance thereon. The
Debtor will promptly restore or replace any Equipment damaged or destroyed by
fire or other casualty, and this obligation will not be limited by the
availability or sufficiency of insurance proceeds. The Debtor shall promptly
furnish to the Secured Party a statement as to any casualty, loss or damage in
excess of $10,000 to any Equipment.
(g) TAXES. The Debtor promptly shall pay, as they become due and payable,
all taxes, unemployment contributions and all other charges of any kind or
nature levied, assessed or claimed against the Debtor or the Collateral by any
Person whose claim could result in a Lien upon any of the Collateral, except to
the extent such taxes, contributions or other charges are being contested in
good faith and by appropriate proceedings which operate as a matter of law to
stay the enforcement of any such Lien and adequate reserves have been
established and are maintained by the Debtor.
5. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. (a) The Debtor hereby
irrevocably appoints the Secured Party as the Debtor's attorney-in-fact, with
full authority in the name, place and stead of the Debtor, from time to time in
the Secured Party's discretion, to take any action and to execute any instrument
which the Secured Party may deem necessary or advisable to accomplish the
purposes of this Security Agreement, including, without limitation, to obtain
and adjust any insurance required pursuant to this Security Agreement and/or the
Letter Agreement.
(b) The power of attorney granted pursuant to this Section 5 is a power
coupled with an interest and shall be irrevocable until the Obligations are paid
indefeasibly in full.
6. SECURED PARTY MAY PERFORM. If the Debtor fails to perform any agreement
contained herein, the Secured Party may itself perform, or cause performance of,
such agreement, and the expenses of the Secured Party incurred in connection
therewith shall be payable by the Debtor as provided under Section 9 hereof,
with interest as provided in the Letter Agreement.
7. SECURED PARTY'S DUTIES. The powers conferred on the Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral actually in its possession and the accounting for monies
actually received by it hereunder, the Secured Party shall have no duty as
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to any Collateral. The Secured Party shall not be liable for any acts,
omissions, errors of judgment or mistakes of fact or law including, without
limitation, acts, omissions, errors or mistakes with respect to the Collateral,
except for those arising out of or in connection with the Secured Party's gross
negligence or willful misconduct. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Secured Party accords its own like property, it being understood
that the Secured Party shall be under no obligation to take any necessary steps
to collect any Collateral or preserve rights against prior parties or any other
rights pertaining to any Collateral, but may do so at its option, and all
expenses incurred in connection therewith shall be for the sole account of the
Debtor and shall be added to the Obligations.
8. REMEDIES. If any Event of Default shall have occurred and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the UCC and also may
without limitation:
(i) require the Debtor to, and the Debtor hereby agrees that it will,
at its expense and the upon reasonable request of the Secured Party,
forthwith, assemble all or any part of the Collateral as directed by the
Secured Party and make it available to the Secured Party at a place or
places to be designated by the Secured Party which is or are reasonably
convenient to the respective parties;
(ii) itself or through agents, without notice to any Person and without
judicial process of any kind, enter the Debtor's Premises (or any other
premises or location where any Collateral may be) and take physical
possession of any Collateral or disassemble, render unusable and/or
repossess any of the same, and the Debtor shall peacefully and quietly
yield up and surrender the same; and
(iii) without notice except as specified below, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of the
Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at the Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as are commercially reasonable.
(b) The Secured Party may maintain possession of Collateral at the Premises
or remove the same or any part thereof to such places as the Secured Party may
elect. The Debtor agrees that, to the extent notice of sale shall be required by
law, 10 days' prior written notice to the Debtor shall constitute reasonable
notification. Notice of any public sale shall be sufficient if it describes the
Collateral to be sold in general terms, stating the items or amounts thereof and
the location and nature thereof, and is published at least once in any newspaper
selected by the Secured Party and of general circulation in the locale of such
sale, not less than 10 days prior to the sale. The Secured Party shall not be
obligated to make any sale of Collateral regardless of
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notice of sale having been given and may be the purchaser at any such sale, if
public, to the extent permitted by applicable law, free from any right of
redemption. The Debtor shall be fully liable for any deficiency. The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(c) Any cash held by the Secured Party as Collateral and all cash or other
proceeds received by the Secured Party in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral, shall be
applied by the Secured Party in the following order of priorities:
FIRST, to the payment of the reasonable costs and expenses of any sale or
other expenses (including, without limitation, reasonable legal fees and
expenses), liabilities and advances made or incurred by the Secured Party in
connection therewith or referred to in Section 9 or provided for by the Letter
Agreement;
NEXT, to payment of interest on and principal of the Term Note and other
charges relating thereto (in such order as may be provided for in the Letter
Agreement or as otherwise determined by the Secured Party);
NEXT, to the payment of any other Obligations; and
FINALLY, after payment in full of all Obligations, to the payment to the
Debtor or its successors or assigns, or to whomsoever may be lawfully entitled
to receive the same or as a court of competent jurisdiction may direct, of any
surplus then remaining of such cash.
9. EXPENSES AND INDEMNIFICATION. The Debtor agrees to reimburse the Secured
Party for and to indemnify and hold harmless the Secured Party from and against
any and all liability, loss, damage, and all costs or expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts and
agents) imposed on, incurred by or asserted against the Secured Party arising
out of or in connection with: preparation of this Security Agreement, the
documents relating hereto, or amendments, modifications or waivers hereof; taxes
(excluding any corporate excise or income taxes payable by the Secured Party by
reason hereof or otherwise) and other governmental charges in connection with
this Security Agreement and the Collateral; exercise of the Secured Party's
rights with respect to this Security Agreement and the Collateral; any
enforcement, collection or other proceedings resulting therefrom or any
negotiations or other measures to preserve the Secured Party's rights hereunder;
the custody or preservation of, or the sale of or other realization upon, any of
the Collateral; any failure by the Debtor to perform or observe any of the
provisions of this Security Agreement; any investigative, administrative or
judicial proceeding (whether or not the Secured Party is designated a party
thereto) relating to or arising out of this Security Agreement; or any
bankruptcy, insolvency or other similar proceeding relating to the Debtor,
unless the Secured Party was at fault with respect to such liability, loss,
damage, cost or expense or acted in bad faith with respect thereto. The
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Debtor's obligations under the preceding sentence shall constitute Obligations
and shall survive the termination of this Security Agreement.
10. TERMINATION. This Security Agreement shall remain in full force and
effect so long as any Obligation remains outstanding. Upon the satisfaction in
full of all of the Obligations, the Secured Party shall, at the Debtor's
expense, execute and deliver to the Debtor all instruments of assignment or
otherwise as may be necessary to establish full title of the Debtor to any of
the Collateral, subject to any prior sale or other disposition thereof pursuant
to Section 8. Until then, this Security Agreement shall itself constitute
conclusive evidence of the validity, effectiveness and continuing force hereof,
and any Person may rely hereon.
11. WAIVER; RIGHTS CUMULATIVE. No failure to exercise and no delay in
exercising, on the part of the Secured Party, any right or remedy hereunder or
otherwise shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right or remedy. Waiver by the Secured Party of any right or remedy
on any one occasion shall not be construed as a bar to or waiver thereof or of
any other right or remedy on any future occasion. The Secured Party's rights and
remedies hereunder and under the Loan Documents shall be cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
The provisions of this Security Agreement are not in derogation or
limitation of any obligations, liabilities or duties of the Debtor under any of
the other Loan Documents or any other agreement with or for the benefit of the
Secured Party. No inconsistency in default provisions between this Security
Agreement and any of the other Loan Documents or any such other agreement will
be deemed to create any additional grace period or otherwise derogate from the
express terms of each such default provision. No covenant, agreement or
obligation of the Debtor contained herein, nor any right or remedy of the
Secured Party contained herein, shall in any respect be limited by or be deemed
in limitation of any inconsistent or additional provisions contained in any of
the other Loan Documents or any such other agreement.
12. SEVERABILITY. In the event that any provision of this Security
Agreement or the application thereof to any Person, property or circumstance
shall be held to any extent to be invalid or unenforceable, the remainder of
this Security Agreement and the application of such provision to Persons,
properties and circumstances other than those as to which it has been held
invalid or unenforceable shall not be affected thereby, and each provision of
this Security Agreement shall be valid and enforceable to the fullest extent
permitted by law.
13. BINDING EFFECT; ASSIGNMENT. This Security Agreement shall be binding
upon the Debtor and its successors and assigns and shall inure to the benefit of
the Debtor and the Secured Party and their respective successors and assigns.
14. NOTICES. All notices and other communications under or relating to this
Security Agreement shall be given in the manner and to the addresses of the
parties provided for in ss.6.4 of the Letter Agreement.
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15. HEADINGS. Section headings in this Security Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Security Agreement for any other purpose.
16. GOVERNING LAW. This Security Agreement shall be governed by, and
construed and enforced in accordance with, the laws of The Commonwealth of
Massachusetts, except that the creation, perfection and enforcement of security
interests in any Collateral located in jurisdictions other than Massachusetts
will be governed by the laws of the respective jurisdictions in which such
Collateral is located.
IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this
Security Agreement to be executed, as an instrument under seal, by their
respective officers thereunto duly authorized, as of the date first above
written.
GELTEX PHARMACEUTICALS, INC.
By /s/ Mark Skaletsky
_____________________________
Name: Mark Skaletsky
Title: President
FLEET NATIONAL BANK
By /s/ Kimberly Martone
_____________________________
Name: Kimberly Martone
Title: Vice President
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EXHIBIT A
To be supplied as Equipment is purchased.
<PAGE> 12
EXHIBIT B
LOCATION RECORD OWNER
9 Fourth Avenue Nine Fourth Avenue LLC
Waltham, MA
<PAGE> 1
EXHIBIT 4.5
GELTEX PHARMACEUTICALS, INC.
303 Bear Hill Road
Waltham, MA 02154
May 21, 1997
Fleet National Bank
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings between
GelTex Pharmaceuticals, Inc., a Delaware corporation (the "Borrower") and Fleet
National Bank (the "Bank") with respect to Term Loans (hereinafter defined) to
be made by the Bank to the Borrower. In consideration of the mutual promises
contained herein and in the other documents referred to below, and for other
good and valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. REFERENCES TO DOCUMENTS. Reference is made to (i) that certain
$5,000,000 face principal amount promissory note (the "Term Note") of even date
herewith made by the Borrower and payable to the order of the Bank, and (ii)
that certain Security Agreement (Equipment) of even date herewith from the
Borrower to the Bank (the "Security Agreement").
1.2. THE BORROWING; TERM NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make one or more loans (the "Term Loans")
to the Borrower, as the Borrower may request, on any Business Day prior to the
first to occur of (i) December 31, 1997 or (ii) the earlier termination of the
within-described term loan facility pursuant to ss. 5.2 or ss.6.5. A Term Loan
shall be made, not more than once per calendar quarter (except that more than
one Term Loan may be made in any calendar quarter provided that each additional
Term Loan in any one calendar quarter is in an amount of at least $500,000), in
order to finance Qualifying Costs incurred by the Borrower within the 90 days
preceding the request for such Term Loan, each such Term Loan to be in such
amount as may be requested by the Borrower; provided that (i) no Term Loan will
be made after December 31, 1997; (ii) the aggregate original principal amounts
of all Term Loans will not exceed $5,000,000; and (iii) no Term Loan will be in
an amount more than 100% of the invoiced actual amount of the Qualifying Costs
with respect to which such Term Loan is made (excluding taxes, shipping,
software, training fees and other "soft costs" not expressly included within the
definition of "Qualifying Costs" below). Prior to the making of each Term Loan,
and as a precondition thereto, the Borrower will provide the Bank with: (i)
invoices supporting the relevant Qualifying Costs; (ii) such evidence as the
Bank may reasonably require showing that any equipment the purchase price of
which is included in the Qualifying Costs has been delivered to the Borrower's
New Premises (hereinafter defined), has been paid for by the Borrower and is
owned by the Borrower free of all liens and interests of any
<PAGE> 2
other Person (other than the security interest of the Bank pursuant to the
Security Agreement and other than the interest of the Borrower's landlord in
Leasehold Improvements); (iii) Uniform Commercial Code financing statements
coveting any equipment (other than Leasehold Improvements) the purchase price of
which is included in the relevant Qualifying Costs with respect to which such
Term Loan is being made and an appropriate supplement to the Security Agreement
adding any equipment (other than Leasehold Improvements) the purchase price of
which is included in the relevant Qualifying Costs to the description of
Collateral; and (iv) evidence satisfactory to the Bank that any equipment the
purchase price of which is included in the Qualifying Costs is fully insured
against casualty loss, with insurance naming the Bank as secured party and first
loss payee (except as to Leasehold Improvements). The Term Loans will be
evidenced by the Term Note. The Borrower hereby irrevocably authorizes the Bank
to make or cause to be made, on a schedule attached to the Term Note or on the
books of the Bank, at or following the time of making each Term Loan and of
receiving any payment of principal, an appropriate notation reflecting such
transaction and the then aggregate unpaid principal balance of the Term Loans.
The amount so noted shall constitute presumptive evidence as to the amount owed
by the Borrower with respect to principal of the Term Loans. Failure of the Bank
to make any such notation shall not, however, affect any obligation of the
Borrower or any right of the Bank hereunder or under the Term Note.
1.3. PRINCIPAL REPAYMENT OF TERM LOANS. The Borrower shall repay
principal of the Term Loans in 48 equal consecutive monthly installments,
commencing on January 31, 1998 and continuing on the last day of each month
thereafter. Each such monthly installment of principal shall be in an amount
equal to 1/48th of the aggregate principal amounts of the Term Loans outstanding
on January 2, 1998. In any event, the then outstanding principal balance of all
Term Loans and all interest then accrued but unpaid thereon shall be due and
payable in full on December 31, 2001. Except as set forth in ss. 1.7, the
Borrower may prepay, at any time or from time to time, without premium or
penalty, the whole or any portion of the Term Loans; provided that each such
principal prepayment shall be accompanied by payment of all interest under the
Term Note accrued but unpaid to the date of payment. Any partial prepayment of
principal of the Term Loans will be applied to installments of principal of the
Term Loans thereafter coming due in inverse order of normal maturity. Amounts
repaid or prepaid with respect to the Term Loans are not available for
reborrowing.
1.4. INTEREST RATE. Except as otherwise provided below in this
ss.1.4, interest on the Term Loans will be payable at a fluctuating rate per
annum (the "Floating Rate") which shall at all times be equal to the Prime Rate
as in effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law), with a change in such rate of interest to
become effective on each day when a change in the Prime Rate becomes effective.
Subject to the conditions set forth herein, the Borrower may elect that all or
any portion of any Term Loan to be made under ss. 1.2 will be made as a LIBOR
Loan, that all or any portion of any Floating Rate Loan (but not all or any
portion of the COF Loan, if any) will be converted to a LIBOR Loan and/or that
any LIBOR Loan will be continued at the expiration of the Interest Period
applicable thereto as a new LIBOR Loan. Such election shall be made by the
Borrower giving to the Bank a written or telephonic notice received by the Bank
within the time period and containing the
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information described in the next following sentence (a "Fixed Rate Borrowing
Notice"). The Fixed Rate Borrowing Notice must be received by the Bank no later
than 10:00 a.m. (Boston time) on that day which is two Business Days prior to
the date of the proposed borrowing, conversion or continuation, as the case may
be, and must specify the amount of the LIBOR Loan requested (which shall be
$500,000 or an integral multiple thereof), must identify the particular Term
Loan or Loans so to be made, converted or continued, as the case may be, and
must specify the proposed commencement date of the relevant Interest Period.
Notwithstanding anything provided elsewhere in this letter agreement, the
Borrower may not elect to have any installment of a Term Loan included in a
LIBOR Loan if the Interest Period applicable thereto would continue after the
due date of such installment. Any Fixed Rate Borrowing Notice shall, upon
receipt by the Bank, become irrevocable and binding on the Borrower, and the
Borrower shall, upon demand and receipt of a Bank Certificate with respect
thereto, forthwith indemnify the Bank against any loss or expense incurred by
the Bank as a result of any failure by the Borrower to borrow any requested
LIBOR Loan, including, without limitation, any loss or expense incurred by
reason of the liquidation or redeployment of deposits or other funds acquired by
the Bank to fund or maintain such LIBOR Loan. At the expiration of each Interest
Period applicable to a LIBOR Loan, the principal amount of such LIBOR Loan may
be continued as a new LIBOR Loan to the extent and on the terms and conditions
contained in this letter agreement by delivery to the Bank of a new Fixed Rate
Borrowing Notice conforming to the requirements set forth above in this ss. 1.4
(and any LIBOR Loan not repaid and not so continued as a new LIBOR Loan will be
deemed (subject to the provisions of the next following paragraph) to have been
converted into a Floating Rate Loan). Notwithstanding any other provision of
this letter agreement, the Bank need not make any LIBOR Loan or allow any
conversion of a Floating Rate Loan to a LIBOR Loan at any time when there exists
any Default or Event of Default.
On December 31, 1997, the Borrower may convert to a COF Loan all (but
not less than all) of the Terms Loans then outstanding. If the Borrower desires
such conversion to a COF Loan, it will notify the Bank of same not less than two
Business Days prior to the proposed conversion and will request that the Bank
offer with respect to such Term Loans a rate of interest which shall be fixed
(subject to adjustment as provided in this letter agreement) for the period
commencing on the date of such conversion and ending on the final maturity date
applicable to such Term Loans (the "Fixed Rate Period"). Following such request
for a fixed rate, the Bank will endeavor to offer a proposed COF Interest Rate
at a rate determined as provided below and under conditions determined by the
Bank in its sole discretion. The Borrower may elect to accept such offer in the
manner and within the time period specified in such offer. Any such election
shall be irrevocable on the part of the Borrower. Upon such election, the
interest rate payable with respect to the outstanding Term Loans shall be fixed
(subject to adjustment as provided in this letter agreement) for the Fixed Rate
Period and at the rate communicated by the Bank as its proposed COF Interest
Rate. Any proposed COF Interest Rate offered under this Section will be a rate
per annum equal to the sum of (i) 1.75% per annum plus (ii) the COF Rate for the
applicable Fixed Rate Period (expressed as a per annum rate); provided, however,
that the COF Interest Rate shall in no event exceed the maximum rate permitted
by applicable law. The COF Rate shall be determined by the Bank in its
discretion for the purposes of any proposed COF Interest Rate offered under this
Section. The Bank may base the COF Rate for the purpose
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of computing the proposed COF Interest Rate on any (or any combination of)
recognized sources of available funding for transactions of this type,
including, but not limited to, the interbank market, the domestic and European
certificate of deposit market and sales of commercial paper. The COF Rate for
purposes of this computation shall in any event include adjustments for the
costs of maintaining reserves, insurance (including, without limitation,
assessments by the FDIC), taxes, hedging and other costs which may be incurred
by the Bank with respect to the applicable source or sources of funding, all as
determined by the Bank in its discretion. The source or sources of funding
utilized for the computation of the proposed rate shall be selected by the Bank
at its sole discretion for offering to the Borrower, and the Borrower shall not
have any claim against the Bank with respect to computation of any proposed COF
Interest Rate. If the Borrower is dissatisfied with any proposed COF Interest
Rate, the Borrower's sole remedy with respect thereto shall be not to accept
such proposed COF Interest Rate within the applicable time period, and thus to
cause interest on the Term Loans to be payable at the Floating Rate (subject to
the Borrower's ability set forth elsewhere herein to obtain LIBOR Loans).
Notwithstanding the foregoing provisions hereof, the Bank need not offer a
proposed COF Interest Rate for any period of time with respect to which the
Bank, in its sole discretion, determines that there are no recognized sources of
funding available to it for such time period or principal amount or that the
cost of funds with respect thereto would be unreasonably high or if there then
exists any Default or Event of Default. Further, the Borrower may not convert
into a COF Loan any LIBOR Loan prior to the end of the Interest Period
applicable to such LIBOR Loan.
Any request for a Fixed Rate Loan and any election to convert all or any
portion of the Term Loans to a Fixed Rate Loan may be made on behalf of the
Borrower only by a duly authorized officer; provided, however, that the Bank may
conclusively rely upon any written or facsimile communication received from any
individual whom the Bank believes in good faith to be such a duly authorized
officer.
1.5. INTEREST PAYMENTS. The Borrower will pay interest on the
principal amount of the Term Loans outstanding from time to time, from the date
hereof until payment of the Term Loans and the Term Note in full and the
termination of this letter agreement. Interest on Floating Rate Loans and the
COF Loan (if any) will be payable monthly in arrears on the first day of each
month. Interest on each LIBOR Loan will be payable in arrears on the applicable
Interest Payment Date. In any event, interest shall also be payable on the date
of payment of the Term Loans in full. Interest on Floating Rate Loans shall be
payable at the Floating Rate. The rate of interest payable on any LIBOR Loan
will be the Eurodollar Interest Rate applicable thereto. Interest on the COF
Loan will be payable at the applicable COF Interest Rate. In any event, overdue
principal of any Term Loan and, to the extent permitted by law, overdue interest
on any Term Loan shall bear interest at a rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the rate
otherwise applicable to such overdue principal (or to the principal amount: as
to which such interest is overdue) pursuant to the Term Note and this letter
agreement, payable on demand. All interest payable hereunder and/or under the
Term Note will be calculated on the basis of a 360-day year for the actual
number of days elapsed.
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<PAGE> 5
1.6. RATE DETERMINATION PROTECTION. In the event that:
(i) the Bank shall reasonably determine that, by reason of
circumstances affecting the London interbank market or
otherwise, adequate and reasonable methods do not exist for
ascertaining the Eurodollar Interest Rate which would otherwise
be applicable during any Interest Period, or
(ii) the Bank shall reasonably determine that:
(A) the making or continuation of any LIBOR Loan has
been made impracticable or unlawful by (1) the
occurrence of any contingency that materially and
adversely affects the London interbank market or (2)
compliance by the Bank with any applicable law or
governmental regulation, guideline or order or
interpretation or change thereof by any governmental
authority charged with the interpretation or
administration thereof or with any request or directive
of any such governmental authority (whether or not
having the force of law); or
(B) LIBOR will not, in the reasonable determination
of the Bank, adequately and fairly reflect the cost to
the Bank of funding the LIBOR Loans for such Interest
Period
then the Bank shall forthwith give notice of such determination
(which shall be conclusive and binding on the Borrower) to the
Borrower. In such event the obligations of the Bank to make
LIBOR Loans shall be suspended until the Bank determines that
the circumstances giving rise to such suspension no longer
exist, whereupon the Bank shall notify the Borrower.
1.7. PREPAYMENT OF FIXED RATE LOANS. The following provisions of this
ss. 1.7 shall be effective only with respect to Fixed Rate Loans: If, due to
acceleration of the Term Note or due to voluntary prepayment or due to any other
reason, the Bank receives payment of any principal of a LIBOR Loan on any date
prior to the last day of the relevant Interest Period or receives payment of all
or any portion of any installment of the COF Loan prior to the regularly
scheduled due date for such installment, the Borrower shall, upon demand and
receipt of a Bank Certificate from the Bank with respect thereto, pay forthwith
to the Bank all amounts required to compensate the Bank for losses, costs or
expenses which it may have incurred and may reasonably incur as a result of such
payment, including, without limitation, any loss or expense incurred by reason
of the liquidation or redeployment of funds acquired by the Bank to fund or
maintain the relevant Fixed Rate Loan.
1.8 INCREASED COSTS; CAPITAL ADEQUACY.
(i) If the adoption, effectiveness or phase-in, after the
date hereof, of any applicable law, rule or regulation, or any
change therein, or any change in the
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<PAGE> 6
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the
Bank with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable
agency:
(A) shall subject the Bank to any Imposition or
other charge with respect to any Fixed Rate Loan, the
Term Note or the Bank's agreement to make Fixed Rate
Loans, or shall change the basis of taxation of payments
to the Bank of the principal of or interest on any Fixed
Rate Loan or any other amounts due under this letter
agreement in respect of the Fixed Rate Loans or the
Bank's agreement to make Fixed Rate Loans (except for
changes in the rate of tax on the over-all net income of
the Bank); or
(B) shall impose, modify or deem applicable any
reserve, special deposit, deposit insurance or similar
requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the
Federal Reserve System, but excluding, with respect to
any LIBOR Loan, any such requirement already included in
the applicable Reserve Rate) against assets of, deposits
with or for the account of, or credit extended by, the
Bank or shall impose on the Bank or on the London
interbank market any other condition affecting any Fixed
Rate Loans, the Term Note or the Bank's agreement to
make Fixed Rate Loans
and the result of any of the foregoing is to increase the cost
to the Bank of making or maintaining any Fixed Rate Loan or to
reduce the amount of any sum received or receivable by the Bank
under this letter agreement or under the Term Note with respect
to any Fixed Rate Loan by an amount deemed by the Bank to be
material, then, upon demand by the Bank and receipt of a Bank
Certificate from the Bank with respect thereto, the Borrower
shall pay to the Bank such additional amount or amounts as the
Bank certifies to be necessary to compensate the Bank for such
increased cost or reduction in amount received or receivable.
(ii) If the Bank shall have determined that the adoption,
effectiveness or phase-in after the date hereof of any
applicable law, rule or regulation regarding capital
requirements for banks or bank holding companies, or any change
therein after the date hereof, or any change after the date
hereof in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such
entity regarding capital adequacy (whether or not having the
force of law) has or would have the effect of reducing the
return on the Bank's capital with respect to its agreement
hereunder to make Term Loans or with respect to any Term Loan
(whether or not then subject to any Eurodollar Interest Rate or
COF Interest Rate) to a level below that which the Bank could
have achieved (taking into consideration the Bank's policies
with
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<PAGE> 7
respect to capital adequacy immediately before such adoption,
effectiveness, phase-in, change or compliance and assuming that
the Bank's capital was then fully utilized) by any amount deemed
by the Bank to be material: (A) the Bank shall promptly after
its determination of such occurrence give notice thereof to the
Borrower; and (B) the Borrower shall either (1) within 60 days
after receipt of such notice repay all Term Loans then
outstanding, together with the interest accrued thereon to the
date of payment and such amounts as may be required to be paid
under ss. 1.7, and terminate the facility for Term Loans
described in this letter agreement or (2) pay to the Bank as an
additional fee from time to time on demand such amount as the
Bank certifies to be the amount that will compensate it for such
reduction.
(iii) A Bank Certificate of the Bank claiming compensation
under this ss. 1.8 shall be conclusive in the absence of
manifest error Such certificate shall set forth the nature of
the occurrence giving rise to such compensation, the additional
amount or amounts to be paid to the Bank hereunder and the
method by which such amounts are determined. In determining any
such amount, the Bank may use any reasonable averaging and
attribution methods.
(iv) No failure on the part of the Bank to demand
compensation on any one occasion shall constitute a waiver of
its right to demand such compensation on any other occasion and
no failure on the part of the Bank to deliver any Bank
Certificate in a timely manner shall in any way reduce any
obligation of the Borrower to the Bank under this ss. 1.8.
1.9. ILLEGALITY OR IMPOSSIBILITY. Notwithstanding any other provision
of this letter agreement, if the introduction of or any change in or in the
interpretation or administration of any law or regulation applicable to the Bank
or the Bank's activities in the London interbank market shall make it unlawful,
or any central bank or other governmental authority having jurisdiction over the
Bank or the Bank's activities in the London interbank market shall assert that
it is unlawful, or otherwise make it impossible, for the Bank to perform its
obligations hereunder to make LIBOR Loans or to continue to fund or maintain
LIBOR Loans, then on notice thereof and demand therefor by the Bank to the
Borrower, (i) the obligation of the Bank to fund LIBOR Loans shall terminate and
(ii) all affected LIBOR Loans shall be deemed to have been repaid and reborrowed
as Floating Rate Loans (with the Borrower to be responsible for any amount
payable under ss. 1.7 as a consequence of such repayment) at the last day on
which such LIBOR Loans may legally remain outstanding.
1.10. ADVANCES AND PAYMENTS. The proceeds of all Term Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Term Loan will be used by the Borrower
solely to fund Qualifying Costs.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums due,
from time to time, under this
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<PAGE> 8
letter agreement and/or the: Term Note; and will thereafter notify the Borrower
of the amount so charged. The failure of the Bank so to charge any account or to
give any such notice shall not affect the obligation of the, Borrower to pay
interest, principal or other sums as provided herein or in the Term Note.
Whenever any payment to be made to the Bank hereunder or under the Term
Note shall be stated to be due on a day which is not a Business Day, such
payment may be made on the next succeeding Business Day, and interest payable on
each such date shall include the amount thereof which shall accrue during the
period of such extension of time. All payments by the Borrower hereunder and/or
in respect of the Term Note shall be made net of any Impositions or taxes and
without deduction, set-off or counterclaim, notwithstanding any claim which the
Borrower may now or at any time hereafter have against the Bank. All payments of
interest, principal and any other sum payable hereunder and/or under the Term
Note shall be made to the Bank, in immediately available funds, at its office at
75 State Street, Boston, MA 02109 or to such other address as the Bank may from
time to time direct. All payments received by the Bank after 2:00 p.m. on any
day shall be deemed received as of the next succeeding Business Day. All monies
received by the Bank shall be applied first to fees, charges, costs and
expenses payable to the Bank under this letter agreement, the Term Note and/or
any of the other Loan Documents, next to interest then accrued on account of any
Term Loans and only thereafter to principal of the Term Loans.
1.11. CONDITIONS TO ADVANCE. Prior to the making of the initial Term
Loan, the Borrower shall deliver to the Bank duly executed copies of this letter
agreement, the Security Agreement, the Term Note and the documents and other
items listed on the Closing Agenda delivered herewith by the Bank to the
Borrower, all of which, as well as all legal matters incident to the
transactions contemplated hereby, shall be satisfactory in form and substance to
the Bank and its counsel.
Without limiting the foregoing, any Term Loan (including the initial
Term Loan) is subject to the further conditions precedent that on the date on
which Term Loan is made (and after giving effect thereto):
(a) All statements, representations and warranties of the Borrower
made in this letter and/or in the Security Agreement shall continue to be
correct in all material respects as of the date of such Term Loan.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the Term Loan.
(c) No event which constitutes, or which with notice or lapse of
time or both could constitute, an Event of Default shall have occurred and be
continuing.
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<PAGE> 9
(d) No other material adverse change shall have occurred in the
financial condition of the Borrower from that disclosed in the financial
statements then most recently furnished to the Bank, except continuing losses
from operations theretofore disclosed to the Bank in writing.
Each request by the Borrower for any Term Loan, and each acceptance by
the Borrower of the proceeds of any Term Loan, will be deemed a representation
and warranty by the Borrower that at the date of such Term Loan and after giving
effect thereto all of the conditions set forth in the foregoing clauses (a)-(d)
of this ss. 1.11 will be satisfied.
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this letter agreement and to make Term Loans hereunder, the Borrower
warrants and represents to the Bank as follows:
(a) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. The Borrower has full corporate
power to own its property and conduct its business as now conducted and as
proposed to be conducted, to grant the security interests contemplated by the
Security Agreement and to enter into and perform this letter agreement and the
other Loan Documents. The Borrower is duly qualified to do business and in good
standing in Massachusetts and in each other jurisdiction in which the Borrower
maintains any plant, office, warehouse or other facility and in each other
jurisdiction where the failure so to qualify could (singly or in the aggregate
with all other such failures) have a material adverse effect on the financial
condition, business or prospects of the Borrower, all such jurisdictions being
listed on item 2.1(a) of the attached Disclosure Schedule. At the date hereof,
the Borrower has no Subsidiaries. The Borrower is not a member of any
partnership or joint venture.
(b) At the date of this letter agreement, no Person is known
(without investigation) by the Borrower to own, of record and/or beneficially,
more than 5% of the outstanding shares of any class of the Borrower's capital
stock, except as set forth on item 2.l(b) of the attached Disclosure Schedule.
(c) The execution, delivery and performance by the Borrower of this
letter agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require as a prerequisite
to effectiveness any filing (other than filings under the Uniform
Commercial Code), registration, consent or approval under, any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Borrower;
(ii) violate any provision of the charter or by-laws of the
Borrower, or result in a breach of or constitute a default or require
any waiver or consent (other than any such consent which has been
obtained prior to the date of this letter agreement) under any
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<PAGE> 10
indenture or loan or credit agreement or any other material agreement,
lease or instrument to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or affected or require
any other consent (other than any such consent which has been obtained
prior to the date of this letter agreement) of any Person; or
(iii) result in, or require, the creation or imposition of any
lien, security interest or other encumbrance (other than in favor of the
Bank), upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents
delivered herewith has been duly executed and delivered by the Borrower and
each is a legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its respective terms.
(e) There are no actions, suits or proceedings filed against the
Borrower, nor (to the knowledge of the Borrower) any investigations pending
against the Borrower, nor (to the knowledge of the Borrower) any actions, suits,
proceedings or investigations threatened by or against the Borrower, before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which could hinder or prevent the
consummation of the transactions contemplated hereby or call into question the
validity of this letter agreement or any of the other Loan Documents or any
action taken or to be taken in connection with the transactions contemplated
hereby or thereby or which in any single case or in the aggregate may result in
any material adverse change in the business, prospects, condition, affairs or
operations of the Borrower.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. To the best knowledge of the Borrower, the Borrower is
not in material violation of any term of any mortgage, indenture or judgment,
decree or order, or any other material instrument, contract or agreement to
which it is a party or by which any of its property is bound.
(g) The Borrower has filed all federal, foreign, state and local tax
returns, reports and estimates required to be filed by the Borrower. To the best
knowledge of the Borrower, all such filed returns, reports and estimates are
proper and accurate and the Borrower has paid all taxes, assessments,
impositions, fees and other governmental charges required to be paid in respect
of the periods covered by such returns, reports or estimates. No deficiencies
for any tax, assessment or governmental charge have been asserted or assessed,
and the Borrower knows of no material tax liability or basis therefor.
(h) To the best knowledge of the Borrower, the Borrower is in
compliance with all requirements of law, federal, foreign, state and local, and
all requirements of all governmental bodies or agencies having jurisdiction over
it, the conduct of its business, the use of its properties and assets, and all
premises occupied by it, failure to comply with any of which could (singly or in
the aggregate with all other such failures) have a material adverse effect upon
the assets, business, financial condition or prospects of the Borrower. Without
limiting the foregoing, the
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<PAGE> 11
Borrower has all the material franchises, licenses, leases, permits,
certificates and authorizations needed for the conduct of its business and the
use of its properties and all premises occupied by it, as now conducted, owned
and used and as proposed to be conducted, owned and used.
(i) The audited financial statements of the Borrower as at December
31, 1996, heretofore delivered to the Bank, are complete and fairly present the
financial condition of the Borrower as at the date thereof and for the period
covered thereby. To the best of the Borrower's knowledge, except as described on
item 2.1(i) of the attached Disclosure Schedule, the Borrower does not have any
liability, contingent or otherwise, not disclosed in the aforesaid financial
statements or in any notes thereto that could materially affect the financial
condition of the Borrower. Since December 31, 1996, here has been no material
adverse development in the business, condition or prospects of the Borrower
(except for continuing losses from operations as heretofore disclosed in writing
to the Bank), and the Borrower has not entered into any material transaction
other than in the ordinary course.
(j) As of the date of this letter agreement, the principal place of
business and chief executive offices of the Borrower are located at 303 Bear
Hill Road, Waltham, Massachusetts 02154 (the "Existing Premises"). All of the
books and records of the Borrower are located at the Existing Premises as of the
date of this letter agreement. Upon Completion of the contemplated Leasehold
Improvements, the principal place of business and chief executive offices of the
Borrower will be located at 9 Fourth Avenue, Waltham, Massachusetts 02154 (the
"New Premises") and Borrower's; books and records will be located at the New
Premises. Except as described on item 2.10) of the attached Disclosure Schedule,
no assets of the Borrower are located at any address other than the Existing
Premises and the New Premises. Said item 2.1 (j) of the attached Disclosure
Schedule sets forth the names and addresses of all record owners of the New
Premises.
(k) The Borrower owns or has a valid right to use all of the
material patents, licenses, copyrights, trademarks and trade names now being
used to conduct its business. To the best of the Borrower's knowledge (after
conducting reasonable investigation), the conduct of the Borrower's business as
now operated does not conflict with valid patents, copyrights, trademarks or
trade names of others in any manner that could materially adversely affect the
business, prospects, assets or condition, financial or otherwise, of the
Borrower.
(l) None of the executive officers or key employees of the Borrower
is subject to any agreement in favor of anyone other than the Borrower which
materially limits or restricts that person's right to engage in the type of
business activity conducted or proposed to be conducted by the Borrower Or which
grants to anyone other than the Borrower any rights in any inventions or other
ideas susceptible to legal protection developed or conceived by any such officer
or key employee.
(m) The Borrower is not a party to any contract or agreement which
now has or, as far as can be foreseen by the Borrower at the date hereof, may
have a material adverse effect on the financial condition, business, prospects
or properties of the Borrower.
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<PAGE> 12
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or all or any portion of any Term
Loan or any of the other Obligations shall be outstanding:
3.1. LEGAL EXISTENCE; QUALIFICATION; COMPLIANCE. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business in Massachusetts. The Borrower
will qualify to do business and will remain qualified and in good standing (and
the Borrower will cause each Subsidiary of the Borrower to qualify and remain
qualified and in good standing) in each other jurisdiction where the Borrower
or such Subsidiary, as the case may be, maintains any plant, office, warehouse
or other facility and in each other jurisdiction where the failure so to
qualify could (singly or in the aggregate with all other such failures) have a
material adverse effect on the financial condition, business or prospects of the
Borrower or any such Subsidiary. The Borrower will comply (and will cause each
Subsidiary of the Borrower to comply) with its charter documents and by-laws.
The Borrower will comply with (and will cause each Subsidiary of the Borrower to
comply with) all applicable laws, rules and regulations (including, without
limitation, ERISA and those relating to environmental protection) other than (i)
laws, rules or regulations the validity or applicability of which the Borrower
or such Subsidiary shall be contesting in good faith by proceedings which serve
as a matter of law to stay the enforcement thereof and (ii) those laws, rules
and regulations the failure to comply with any of which could not (singly or in
the aggregate) have a material adverse effect on the financial condition,
business or prospects of the Borrower or any such Subsidiary.
3.2. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower will maintain
and preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets used in its business in good working order
and condition, making all necessary repairs thereto and replacements thereof.
The Borrower will maintain all such insurance as may be required under the
Security Agreement and will also maintain, with financially sound and reputable
insurers, insurance with respect to its property and business against such
liabilities, casualties and contingencies and of such types and in such amounts
as shall be reasonably satisfactory to the Bank from time to time and in any
event all such insurance as may from time to time be customary for companies
conducting a business similar to that of the Borrower in similar locales.
3.3. PAYMENT OF TAXES AND CHARGES. The Borrower will pay and
discharge (and will cause each Subsidiary of the Borrower to pay and discharge)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or property, including, without limitation, taxes, assessments,
charges or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the
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<PAGE> 13
Borrower or any such Subsidiary, except any of the foregoing which is being
contested in good faith and by appropriate proceedings which serve as a matter
of law to stay the enforcement thereof and for which the Borrower has
established and is maintaining adequate reserves. The Borrower will pay, and
will cause each of its Subsidiaries to pay, in a timely manner, all material
lease obligations, material trade debt, material purchase money obligations and
material equipment lease obligations. The Borrower will perform and fulfill all
material covenants and agreements under any material leases of real estate,
material agreements relating to purchase money debt, material equipment leases
and other material contracts. The Borrower will maintain in full force and
effect, and comply with the terms and conditions of, all permits, permissions
and licenses necessary or desirable for its business.
3.4. ACCOUNTS. The Borrower will maintain an operating account with
the Bank.
3.5. CONDUCT OF BUSINESS. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged, being that business which
is customarily undertaken by companies engaged in the biomedical, biotechnology
or pharmaceutical industries. The Borrower will not, without the prior written
consent of the Bank, directly or indirectly (itself or through any Subsidiary)
enter into any other unrelated lines of business, businesses or ventures.
3.6. REPORTING REQUIREMENTS. The Borrower will furnish to the Bank
(or cause to be furnished to the Bank):
(i) Within 90 days after the end of each fiscal year of the
Borrower, a copy of the Borrower's Annual Report on Form 10-K for such
fiscal year, as filed with the SEC. Such Annual Report will contain or
will be accompanied by the annual audit report for such fiscal year for
the Borrower, including therein consolidated (and, if the Borrower then
has any Subsidiaries, consolidating) balance sheets of the Borrower and
Subsidiaries as at the end of such fiscal year and related consolidated
(and, if the Borrower then has any Subsidiaries, consolidating)
statements of income, stockholders' equity and cash flow for the fiscal
year then ended. The annual consolidated financial statements shall be
audited by the Borrower's independent public accountants, such audit
report to be in such form as is generally recognized as "unqualified".
The Borrower will also deliver to the Bank, within 90 days after the
commencement of each fiscal year, projections of sales, income and
expenses of the Borrower for such fiscal year, prepared by the
Borrower's management and approved by the Borrower's Board of Directors,
such projections to be in such detail as is reasonably satisfactory to
the Bank.
(ii) Within 45 days after the end of each fiscal quarter of
the Borrower, a copy of the Borrower's Quarterly Report on Form 10-Q for
such fiscal quarter, as filed with the SEC. Such Quarterly Report will
contain or will be accompanied by consolidated and consolidating balance
sheets of the Borrower and Subsidiaries and related consolidated (and,
if the Borrower then has any Subsidiaries, consolidating) statements of
income and cash flow, unaudited but prepared in accordance with
generally accepted accounting principles consistently applied fairly
presenting the financial
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<PAGE> 14
condition of the Borrower and Subsidiaries as at the dates thereof and
for the periods covered thereby (except that such quarterly statements
need not contain notes to the financial statements) and certified as
complete by the chief financial officer of the Borrower, such balance
sheets to be as at the end of such fiscal quarter and such statements of
income and cash flow to be for such fiscal quarter and for the year to
date, in each case together with a comparison to the results for the
corresponding fiscal period of the immediately prior fiscal year.
(iii) At the time of delivery of each annual or quarterly
report or financial statement of the Borrower, a certificate executed by
the chief financial officer of the Borrower stating that he or she has
reviewed this letter agreement and the other Loan Documents and has no
knowledge of any default by the Borrower in the performance or
observance of any of the provisions of this letter agreement or of any
of the other Loan Documents or, if he or she has such knowledge,
specifying each such default and the nature thereof. Each financial
statement given as at the end of any fiscal quarter of the Borrower will
also set forth the calculations necessary to evidence compliance with
secs.3.7-3.9.
(iv) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any letter of comments directed by such accountants to
the management of the Borrower.
(v) As soon as possible and in any event within five days
after the occurrence of any Default or Event of Default, the statement
of the Borrower setting forth details of each such Default or Event of
Default and the action which the Borrower proposes to take with respect
thereto.
(vi) Promptly after the commencement thereof, notice of ALL
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, to which the Borrower or any Subsidiary of the
Borrower is a party; provided, however, that the Borrower will not be
required by this clause (vi) to notify the Bank of any proceedings with
governmental departments that are ordinary and customary for companies
in the biotechnology industry and which would not reasonably be expected
to have a material adverse effect on the Borrower.
(vii) Promptly upon filing any registration statement or
listing application, a copy of same.
(viii) As long as the Borrower has a class of securities which
is publicly traded, a copy of each periodic or current report of the
Borrower filed with the SEC or any successor agency and each annual
report, proxy statement and other communication sent by the Borrower to
shareholders or other securityholders generally, such copy to be
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<PAGE> 15
provided to the Bank promptly upon such filing with the SEC or such
communication with shareholders or securityholders, as the case may be.
(ix) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which may reasonably
be expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
(x) Promptly upon request, such other information respecting
the financial condition, operations, receivables, inventory, machinery
or equipment of the Borrower or any Subsidiary as the Bank may from time
to time reasonably request.
3.7. CAPITAL BASE. The Borrower will maintain, as at the end of each
fiscal quarter (commencing with March 31, 1997), a consolidated Capital Base of
not less than $40,000,000.
3.8. LIQUIDITY. The Borrower will maintain as at the end of each
fiscal quarter of Borrower (commencing with March 31, 1997), a ratio of Net
Quick Assets to Total Liabilities, which ratio shall be not less than 1.5 to 1.
3.9. DEBT SERVICE COVERAGE. As used herein, "Determination Date"
means the last day of each fiscal quarter of the Borrower. The Borrower will
maintain on a consolidated basis, as at each Determination Date (commencing with
March 31, 1997), a Debt Service Coverage Ratio of not less than 2.0 to 1. As
used herein, the "Debt Service Coverage Ratio", as determined as at any
Determination Date, means the ratio of (x) Earnings Available of the Borrower
and Subsidiaries for the 12-month period ending on such Determination Date to
(y) the total of (1) all interest on any Indebtedness (whether senior or
subordinated, long-term or current), which interest was paid or payable or
accrued by the Borrower or any Subsidiary of the Borrower during such 12-month
period ending on such Determination Date, PLUS (2) the aggregate current
maturities of long-term debt of the Borrower and Subsidiaries outstanding at
such Determination Date. Notwithstanding the foregoing, the Borrower need not
comply with the foregoing provisions of this ss.3.9 as at any Determination Date
if the Borrower's Unencumbered Cash Balance as at such Determination Date
exceeds $20,000,000.
3.10. BOOKS AND RECORDS. The Borrower will maintain (and will cause
each of its Subsidiaries to maintain) complete and accurate books, records and
accounts which will at all times accurately and fairly reflect all of its
transactions in accordance with generally accepted accounting principles
consistently applied. The Borrower will, at any reasonable time and from time to
time upon reasonable notice and during normal business hours (and at any time
and without any necessity for notice following the occurrence of an Event of
Default), permit the Bank, and any agents or representatives thereof, to examine
and make copies of and take abstracts from the records and books of account of,
and visit the properties of the Borrower and any of it's Subsidiaries, and to
discuss its affairs, finances and accounts with its officers, directors and/or
independent accountants, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this ss.3.10.
Notwithstanding the foregoing, (i) unless
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<PAGE> 16
an Event of Default has occurred, the Bank shall not exercise the rights of
access and inspection described in the immediately preceding sentence more than
once in any calendar year and (ii) such rights of access and inspection are
subject to the execution by the Bank of such confidentiality agreement as may be
reasonably requested by the Borrower and is reasonably satisfactory to the Bank.
3.11. LANDLORD'S WAIVER. Prior to the making of the first Term Loan,
the Borrower will obtain, and will thereafter maintain in effect at all times,
waivers from the owners of all premises in which any Collateral is located, such
waivers to be in form and substance satisfactory to the Bank.
IV. NEGATIVE COVENANTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or all or any portion of any Term
Loan or any of the other Obligations shall be outstanding:
4.1. INDEBTEDNESS. Without the prior written consent of the Bank, the
Borrower will not create, incur, assume or suffer to exist any Indebtedness (nor
allow any of its Subsidiaries to create, incur, assume or suffer to exist any
Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Term Note;
(ii) Indebtedness of the Borrower or any Subsidiary for
taxes, assessments and governmental charges or levies not yet due and
payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or for purchase money
Indebtedness with respect to fixed assets) incurred upon customary terms
in the ordinary course of business;
(iv) purchase money Indebtedness (including, without
limitation, Indebtedness in respect of capitalized equipment leases)
owed to equipment vendors, equipment lessors and other Persons providing
purchase money financing to the Borrower for equipment purchased or
leased by the Borrower for use in the Borrower's business, provided that
the total of Indebtedness permitted under this clause (iv) plus
presently-existing equipment financing permitted under clause (v) of
this ss.4.1 will not exceed $9,000,000 in the aggregate outstanding at
any one time, and further provided that if the terms of any financing
permitted under this clause (iv) contain financial covenants in addition
to, or with requirements more stringent than, the financial covenants
set forth in secs.3.7-3.9 above, the Borrower will, forthwith upon the
Bank's request, enter into such amendments to this letter agreement as
the Bank may request in order to give the Bank the benefit of such
additional or more stringent covenants;
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<PAGE> 17
(v) other Indebtedness (not described in any of clauses
(i)-(iv) above) existing at the date hereof (including, without
limitation, any existing Indebtedness to Silicon Valley Bank), but only
to the extent set forth on item 4.1 of the attached Disclosure Schedule;
and
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant to ss.4.3.
4.2. LIENS. The Borrower will not create, incur, assume or suffer to
exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to
exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter acquired, except that
the foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges or
levies on property of the Borrower or any of its Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid
without interest or penalty or are being contested in good faith and by
appropriate proceedings which serve as a matter of law to stay any
enforcement thereof and as to which adequate reserves are maintained;
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar Liens arising in the ordinary
course of business for sums not yet due or which are being contested in
good faith and by appropriate proceedings which serve as a matter of law
to stay the enforcement thereof and as to which adequate reserves are
maintained;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors, equipment lessors
and other Persons securing purchase money Indebtedness to the extent
permitted by clause (iv) of ss.4.1; provided that no such Lien will
extend to any property of the Borrower other than the specific items of
equipment financed; or
(vi) other Liens existing at the date hereof (including,
without limitation, any existing Liens in favor of Silicon Valley Bank
to the extent, but only to the extent, that same encumber specific items
of equipment financed by Silicon Valley Bank), but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule.
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<PAGE> 18
Without limitation of the foregoing, the Borrower covenants and agrees
that it will not enter into (and represents and warrants that it is not now a
party to or subject to) any agreement or understanding with any Person other
than the Bank which could prohibit or restrict in any manner the right of the
Borrower to grant Liens on its assets to the Bank, except an existing agreement
with Silicon Valley Bank heretofore disclosed to the Bank.
4.3. GUARANTIES. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, and (ii) guaranties
existing at the date hereof and described on item 4.3 of the attached Disclosure
Schedule.
4.4. DIVIDENDS. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock. Notwithstanding the foregoing, the Borrower may repurchase
unvested shares of the capital stock of former employees of the Borrower,
provided that (1) at the time of each such repurchase there shall be no Default
or Event of Default and no Default or Event of Default shall result from such
repurchase and (2) the aggregate expenditure for such repurchase in any fiscal
year shall not exceed $9,000.
4.5. LOANS AND ADVANCES. The Borrower will not make (and will not
permit any Subsidiary to make) any loans or advances to any Person, including,
without limitation, the Borrower's directors, officers and employees, except
advances to such directors, officers or employees with respect to expenses
incurred by them in the ordinary course of their duties and advances against
salary, all of which loans and advances will not exceed, in the aggregate,
$250,000 outstanding at any one time.
4.6. INVESTMENTS. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase any stock or securities of any
Person (nor will the Borrower permit any of its Subsidiaries to invest in,
purchase or hold any such stock or securities) except: (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof; (ii) other investment grade debt securities;
(iii) mutual funds, the assets of which are primarily invested in items of the
kind described in the foregoing clauses (i) and (ii) of this ss.4.6; (iv)
deposits with or certificates of deposit issued by the Bank and any other
obligations of the Bank or the Bank's parent; (v) deposits in any other bank
organized in the United States having capital in excess of $100,000,000; (vi)
any other Guideline Investments (hereinafter defined); (vii) investments in any
Subsidiaries now existing or hereafter created by the Borrower pursuant to
ss.4.7 below and any DE MINIMIS Investment (hereinafter defined); provided that
in any event the Tangible Net Worth of the Borrower alone (exclusive of its
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<PAGE> 19
investment in Subsidiaries and any debt owed by any Subsidiary to the Borrower
and exclusive of any DE MINIMIS Investments) will not be less than 90% of the
consolidated Tangible Net Worth of the Borrower and Subsidiaries; and (viii) the
Borrower's investment in any "R&D Entity" (hereinafter defined).
4.7. SUBSIDIARIES; ACQUISITIONS. The Borrower will not, without the
prior written consent of the Bank, make any acquisition of all or substantially
all of the stock of any other Person or of all or substantially all of the
assets of any other Person. The Borrower will not become a partner in any
partnership. The Borrower will promptly inform the Bank if it forms any
Subsidiaries.
4.8. MERGER. The Borrower will not, without the prior written consent
of the Bank, merge or consolidate with any Person, or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course; except that
the Borrower may, without being deemed to be in violation of this ss.4.8, (i)
license any of its intellectual property to another Person on commercially
reasonable terms or (ii) transfer any of its intellectual property to a R&D
Entity for reasonable consideration.
4.9. AFFILIATE TRANSACTIONS. The Borrower will not, without prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sate or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except pursuant to the
reasonable requirements of the Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than would be obtained in a comparable
arms'-length transaction with any Person not an affiliate; provided that nothing
in this ss.4.9 shall be deemed to restrict the payment of salary, other similar
payments or the granting of stock options to any officer or director of the
Borrower at a level consistent with the salary, other payments and stock option
grants being paid and made at the date of this letter agreement, nor to prevent
the hiring of additional officers at a salary level and with stock option grants
consistent with industry practice, nor to prevent reasonable periodic increases
in salary and additional stock option grants. For the purposes of this letter
agreement, "affiliate" means any Person which, directly or indirectly, controls
or is controlled by or is under common control with the Borrower; any officer or
director of the Borrower; any Person owning of record or beneficially, directly
or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or
more of any class of capital stock or other equity interest having voting power
(under ordinary circumstances) of any of the other Persons described above; and
any member of the immediate family of any of the foregoing. "Control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of any Person, whether through ownership
of voting equity, by contract or otherwise.
4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its
corporate name or legal structure, nor will the Borrower change its chief
executive offices or principal place of business from the Existing Premises
described in ss.2.1 (j) above except for the contemplated move to the New
Premises, nor will the Borrower keep any Collateral at any location other than
the New Premises without, in each instance, giving the Bank at least 30 days'
prior written notice
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and providing all such financing statements, certificates and other
documentation as the Bank may request in order to maintain the perfection and
priority of the security interests granted or intended to be granted pursuant to
the Security Agreement. The Borrower wilt not change its fiscal year or
materially change its methods of financial reporting unless, in each instance,
prior written notice of such change is given to the Bank and prior to such
change the Borrower enters into amendments to this letter agreement in form and
substance reasonably satisfactory to the Bank in order to preserve unimpaired
the fights of the Bank and the obligations of the Borrower hereunder.
4.11. HAZARDOUS WASTE. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank. with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any potential or known release
or threat of release of any hazardous material or oil at or from any site or
vessel owned, occupied or operated by the Borrower or any Subsidiary of the
Borrower, and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, as long as in any case the Borrower or the Subsidiary
concerned (as the case may be) has obtained and maintains in effect any
necessary governmental permits, licenses and approvals, complies with all
requirements of applicable federal, state and local law relating to such use,
storage or transportation, follows the protective and safety procedures that a
prudent businessperson conducting a business the same as or similar to that of
the Borrower or such Subsidiary (as the case may be) would follow, and disposes
of such materials (not consumed in the ordinary course) only through licensed
providers of hazardous waste removal services.
4.12. NO MARGIN STOCK. No proceeds of any Term Loan shall be used
directly or indirectly to purchase or carry any margin security.
4.13. SUBORDINATED DEBT. The Borrower will not directly or indirectly
make any optional or voluntary prepayment or purchase of Subordinated Debt or
modify, alter or add any provisions with respect to payment of Subordinated
Debt. In any event, the Borrower will not
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<PAGE> 21
make any payment of any principal of or interest on any Subordinated Debt at any
time when there exists, or if there would result therefrom, any Default or Event
of Default hereunder.
V. DEFAULT AND REMEDIES
5.1. EVENTS OF DEFAULT. The occurrence of any one of the following
events shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Term Note on or before the date when due and such failure to pay
shall continue uncured for 5 days after the relevant due date; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Term Loan shall at any time prove to have been incorrect in any material respect
when made; or
(c) The Borrower shall default in the performance or observance of
any agreement or obligation under any of ss.3.1, 3.3 (first sentence only),
3.6, 3.7, 3.8 or 3.9 or any provision of Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after written notice thereof shall have been
given to the Borrower; or
(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured beyond
the expiration of any applicable notice and/or grace period, if any, with
respect to any Subordinated Debt of the Borrower or with respect to any
instrument evidencing, guaranteeing or otherwise relating to any such
Subordinated Debt, or any such Subordinated Debt shall have been declared to be
due and payable prior to its stated maturity; or
(g) Any default shall exist and remain unwaived or uncured beyond
the expiration of any applicable notice and/or grace period, if any, with
respect to (i) any Indebtedness now or hereafter owed by the Borrower to Silicon
Valley Bank in any amount or (ii) any other Indebtedness of the Borrower or any
Subsidiary of the Borrower in excess of $500,000 in aggregate principal amount,
or with respect to any instrument evidencing, guaranteeing, securing or
otherwise relating to any such Indebtedness now or hereafter owed to Silicon
Valley Bank in any amount or any such other Indebtedness in excess of $500,000
in aggregate principal amount shall have been declared to be due and payable
prior to its stated maturity; or
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<PAGE> 22
(h) The Borrower shall be dissolved, or the Borrower or any
Subsidiary of the Borrower shall become insolvent or bankrupt or shall cease
paying its debts as they mature or shall make an assignment for the benefit of
creditors, or a trustee, receiver or liquidator shall be appointed for the
Borrower or any Subsidiary of the Borrower or for a substantial part of the
property of the Borrower or any such Subsidiary, or bankruptcy, reorganization,
arrangement, insolvency or similar proceedings shall be instituted by or against
the Borrower or any such Subsidiary under the laws of any jurisdiction (except
for an involuntary proceeding filed against the Borrower or any Subsidiary of
the Borrower which is dismissed within 60 days following the institution
thereof); or
(i) Any attachment, execution or similar process for an amount in
excess of $100,000 shall be issued or levied against any property of the
Borrower or any Subsidiary and such attachment, execution or similar process
shall not be paid, stayed, released, vacated or fully bonded within 10 days
after its issue or levy; or
(j) Any final uninsured judgment in excess of $100,000 shall be
entered against the Borrower or any Subsidiary of the Borrower by any court of
competent jurisdiction and shall not be paid or stayed within 30 days after
entry thereof; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to
meet its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which,
in each case, in the reasonable opinion of the Bank may have a material adverse
effect upon the financial condition of the Borrower or any such Subsidiary; or
(l) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(m) The security interest and liens of the Bank in and on any of the
Collateral covered or intended to be covered by the Security Agreement shall for
any reason (other than written release by the Bank) not be fully perfected liens
and security interests; or
(n) If, at any time, more than 50% of any class of voting stock of
the Borrower shall be held, of record and/or beneficially, by any Person or by
any "group" (as defined in the Securities Exchange Act of 1934, as amended, and
the regulations thereunder); or
(o) If, for any reason, Mark Skaletsky is not serving as an
executive officer of the Borrower actively involved in the Borrower's
management, unless replaced as such executive officer by another individual
reasonably satisfactory to the Bank.
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<PAGE> 23
5.2. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event
of Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Term Note then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the arrangements for Term Loans provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Security
Agreement, under the Term Note and under each and any other agreement with the
Bank; and exercise all other rights and remedies which the Bank may have under
applicable law.
5.3. SET-OFF. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As security for the
Obligations, the Borrower grants to the Bank a security interest with respect to
all its deposits and all securities or other property in the possession of the
Bank or any affiliate of the Bank from time to time, and, upon the occurrence of
any Event of Default, the Bank may exercise all rights and remedies of a secured
party under the Uniform Commercial Code.
VI. MISCELLANEOUS
6.1. COSTS AND EXPENSES. The Borrower agrees to pay, on demand and
delivery of a Bank Certificate therefor, all costs and expenses (including,
without limitation, reasonable legal fees) of the Bank in connection with the
preparation, execution and delivery of this letter agreement, the Security
Agreement, the Term Note and all other instruments and documents to be delivered
in connection with any Term Loan and any amendments or modifications of any of
the foregoing, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the
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<PAGE> 24
Security Agreement, the Term Note and all other instruments and documents
delivered or to be delivered hereunder or in connection herewith, all whether or
not legal action is instituted. In addition, the Borrower shall be obligated to
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this letter agreement, the
Security Agreement, the Term Note and all other instruments and documents to be
delivered in connection with any Obligation. Any fees, expenses or other charges
which the Bank is entitled to receive from the Borrower under this Section shall
bear interest from that date which is 30 days after the date of any demand
therefor until the date when paid at a rate per annum equal to 2% per annum the
highest per annum rate otherwise payable under the Term Note (but in no event in
excess of the maximum rate permitted by then applicable law).
6.2. OTHER AGREEMENTS. The provisions of this letter agreement are
not in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.3. FEES. In respect of the facility for Term Loans established
herein, the Borrower is this day paying to the Bank a non-refundable commitment
fee of $25,000. This fee is in addition to any and all other fees and charges
which may now or hereafter become payable with respect to any other credit
facilities or services which may now or hereafter be provided by the Bank to or
on behalf of the Borrower and/or any of its Subsidiaries.
6.4. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
GelTex Pharmaceuticals, Inc.
303 Bear Hill Road
Waltham, MA 02154
Attention: Mark Skaletsky, President
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<PAGE> 25
If to the Bank:
Fleet National Bank
High Technology Group
75 State Street
Boston, MA 02109
Attention: Kimberly Martone, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid.
6.5. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participations in this letter agreement, the Term Loans and/or the Term Note.
The Borrower may terminate this letter agreement and the financing arrangements
made herein by giving written notice of such termination to the Bank provided
that no such termination will release or waive any of the Bank's rights or
remedies or any of the Borrower's obligations under this letter agreement or any
of the other Loan Documents unless and until the Borrower has paid in full the
Term Loans and all interest thereon and all fees and charges payable in
connection therewith.
6.6. CONSENT TO JURISDICTION. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the Term
Note. The Borrower irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this ss.6.6 or as otherwise permitted by
law.
The Borrower hereby consents to process being served in any suit, action
or proceeding of the nature referred to in the preceding paragraph of this
ss.6.6 either (i) by mailing a copy thereof by registered or certified mail,
postage prepaid, return receipt requested, to it at its address set forth in
ss.6.4 (as such address may be changed from time to time pursuant to said
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<PAGE> 26
ss.6.4) or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.4 (as such address may be changed from time to time pursuant to said
ss.6.4).
6.7. SEVERABILITY. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
6.8. GOVERNING LAW. This letter agreement and the Term Note shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
VII. DEFINED TERMS
7.1. DEFINITIONS. In addition to terms defined elsewhere in this
letter agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Bank Certificate" - A certificate signed by an officer of the Bank
setting forth any additional amount required to be paid by the Borrower to the
Bank pursuant to ss. 1.4, ss. 1.7, ss. 1.8 or ss.6.1 of this letter agreement,
which certificate shall be submitted by the Bank to the Borrower in connection
with each demand made at any time by the Bank upon the Borrower with respect to
any such additional amount, and each such certificate shall, save for manifest
error, constitute presumptive evidence of the additional amount required to be
paid by the Borrower to the Bank upon each demand. A claim by the Bank for all
or any part of any additional amount required to be paid by the Borrower may be
made before and/or after the end of the Interest Period to which such claim
relates or during which such claim has arisen and before and/or after any
payment hereunder to which such claim relates. Each Bank Certificate shall set
forth in reasonable detail the basis for and the calculation of the claim to
which it relates.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank; provided however
that if the applicable provision relates to a LIBOR Loan, then the term
"Business Day" shall not include any day on which dealings are not carried on in
the London interbank market or on which banks are not open for business in
London.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible
Net Worth of the Borrower and Subsidiaries then existing, PLUS (ii) the
principal amount of Subordinated Debt of the Borrower then outstanding (nothing
contained herein being deemed to authorize the incurrence of any such
Subordinated Debt).
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<PAGE> 27
"Cash-Equivalents" - Each of the following: (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof and entitled to the full faith and credit of the
United States of America, (ii) demand deposits with the Bank or with any other
commercial bank chartered by the United States or by any state and having
undivided capital and surplus of not less than $1,000,000,000, or (iii)
interests in mutual funds, substantially all of the assets of which shall be
governmental obligations of the type described in clause (i) of this sentence.
"COF Interest Rate" - A rate of interest per annum which is offered to
the Borrower with respect to its outstanding Term Loans pursuant to the second
paragraph of ss. 1.4 and which is accepted by the Borrower as described therein.
"COF Loan" - The aggregate principal amounts of all Term Loans which
bear interest at a COF Interest Rate.
"COF Rate" - A fixed rate of interest per annum determined by the Bank
as described in the second paragraph of ss. 1.4.
"Collateral" - All property now or hereafter owned by the Borrower or in
which the Borrower now or hereafter has any interest which is now or hereafter
described as "Collateral" in the Security Agreement. The "Collateral" shall not
be deemed to include any Leasehold Improvements.
"DE MINIMIS Investment" - Any investment by the Borrower in the capital
stock or other equity interest of another Person made for strategic reasons
relating to the Borrower's biotechnology business; provided that (i) the
Borrower will in no event own more than 25% of the outstanding capital stock or
other equity interest of such Person, (ii) the total amount so invested by the
Borrower in any one such other Person will not exceed $50,000; and (iii) the
aggregate of all DE MINIMIS Investments will not exceed $250,000.
"Default" - Any event or circumstance which, with the passage of time or
the giving of notice or both, could become an Event of Default.
"Earnings Available" - The consolidated Net Income (or consolidated Net
Loss) of the Borrower and Subsidiaries for any period, PLUS, without
duplication of any item, (i) all federal and state income taxes (but not taxes
in the nature of an AD VALOREM property tax or a sales or excise tax) paid or
accrued with respect to such period, (ii) all interest on any Indebtedness
(whether senior debt or subordinated debt) paid or accrued by the Borrower
and/or any of its Subsidiaries for such period and actually deducted on the
consolidated books of the Borrower for the purposes of computation of
consolidated Net Income (or consolidated Net Loss) for the period involved, and
(iii) the amount of the provision for depreciation and/or amortization actually
deducted on the consolidated books of the Borrower for the purposes of
computation of consolidated Net Income (or consolidated Net Loss) for the period
involved, but MINUS all cash taxes paid during such period by the Borrower
and/or any of its Subsidiaries.
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<PAGE> 28
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Eurocurrency Liabilities"- Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as in effect from time to time, or in any successor regulation
relating to the liabilities described in said Regulation D.
"Eurodollar Interest Rate" - For any Interest Period, an interest rate
per annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:
LIBOR
*EIR = ----------- + 1.75
[1.00 - RR]
Where EIR = Eurodollar Interest Rate
LIBOR = See definition of LIBOR
RR = Reserve Rate
*EIR and each component thereof to be rounded upwards to the
next higher 1/8th of 1%
"Event of Default" - As defined in ss.5.1.
"Existing Premises" - As defined in Subsection 2.1(j).
"FDIC" - The Federal Deposit Insurance Corporation or any successor
thereto.
"Fixed Interest Rate" - As to any LIBOR Loan, the applicable Eurodollar
Interest Rate; and as to the COF Loan, the applicable COF Interest Rate.
"Fixed Rate Loan" - All or any portion of any Term Loan which bears
interest at a Fixed Interest Rate.
"Floating Rate" - As defined in ss. 1.4.
"Floating Rate Loan" - All or any portion of any Term Loan which bears
interest at a rate calculated with reference to the Prime Rate.
"Guideline Investments" - Investments made by the Borrower which are
"Eligible Investments" as described in the Borrower's investment guidelines set
forth in item 7.1 of the attached Disclosure Schedule and which meet the
maturity requirements set forth in said investment guidelines.
"Impositions" - All present and future taxes, levies, duties,
impositions, deductions, charges and withholdings applicable to the Bank with
respect to any Fixed Rate Loan, excluding,
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<PAGE> 29
however, any taxes imposed directly on the Bank's income and any franchise taxes
imposed on it by the jurisdiction under the laws of which the Bank is organized
or any political subdivision thereof.
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally accepted
accounting principles would be included as liabilities upon such Person's
balance sheet at the date as of which Indebtedness, is to be determined, and
shall also include guaranties, endorsements (other than for collection in the
ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Interest Payment Date" - As to each LIBOR Loan, the last day of
Interest Period applicable to such LIBOR Loan.
"Interest Period" - As to each LIBOR Loan, the period commencing with
the date of the making of such LIBOR Loan and ending three months thereafter;
provided that (A) any such Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day occurs in a new calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day, (B) any
such Interest Period which begins on a day for which there is no numerically
corresponding day in the calendar month during which such Interest Period is to
end shall end on the last Business Day of such calendar month, and (c) no
Interest Period may be selected as to any principal amount of any Term Loan if
such Interest Period would end after the regularly-scheduled due date of such
principal amount.
"Leasehold Improvements" - All fixtures, equipment, improvements and
appurtenances so attached to or built into the New Premises such that same are
integrated with and incorporated into the real estate and cannot readily be
removed, including, without limitation, heating, ventilation and air
conditioning systems, laboratory hoods and laboratory benches.
"LIBOR" - With respect to each Interest Period for a LIBOR Loan, that
rate per annum (rounded upward, if necessary, to the nearest 1/8th of 1%) at
which deposits in United States Dollars are offered to the Bank, for delivery on
the first day of the applicable Interest Period, in the London interbank market
at 10:00 a.m. London time two Business Days prior to the first day of the
applicable Interest Period for a term equal to the term of the LIBOR Loan
requested for such Interest Period and in an amount substantially equal to the
principal amount of the relevant LIBOR Loan. The Bank shall give prompt notice
to the Borrower of LIBOR as determined for each LIBOR Loan and such notice shall
be conclusive and binding, absent manifest error.
"LIBOR Loan" - All or any portion of a Term Loan which bears interest at
a Eurodollar Interest Rate.
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<PAGE> 30
"Loan Documents" - Each of this letter agreement, the Term Note, the
Security Agreement and each other instrument, document or agreement evidencing,
securing, guaranteeing or relating in any way to any of the Term Loans, all
whether now existing or hereafter arising or entered into.
"London" - The City of London in England.
"Net Income" (or "Net Loss") - The book net income (or book net loss, as
the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, Cash-Equivalents, readily-marketable securities and Receivables (less an
allowance for bad debt consistent with the Borrower's prior experience).
"New Premises" - As defined in Subsection 2.1(j).
"Obligations" - All Indebtedness, covenants, agreements, liabilities and
obligations, now existing or hereafter arising, made by the Borrower with or for
the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" - An individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Prime Rate" - That rate of interest per annum announced by the Bank,
from time to time, as being its prime rate, it being understood that such rate
is merely a reference rate, not necessarily the lowest, which serves as the
basis upon which effective rates of interest are calculated for obligations
making reference thereto.
"Qualifying Costs" - Any and all costs associated with the construction
and build-out of the Borrower's New Premises incurred by the Borrower after
December 1, 1996, including, without limitation, architectural and engineering
costs, construction costs, equipment purchase and installation costs, design
costs, furniture costs and fixture costs; provided that, as to any equipment the
cost of which is to be included within Qualifying Costs, (i) each item of such
equipment has been delivered to the New Premises, (ii) the Borrower has paid in
full for each item of such equipment and holds title to same, free of all
interests and claims of any other Person (other than the security interest of
the Bank and other than the interest of the Borrower's landlord in Leasehold
Improvements), and (iii) the Borrower has a fully perfected first security
interest in all of such equipment, other than Leasehold Improvements.
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<PAGE> 31
"R&D Entity" - Any corporation or other entity created by the Borrower
(alone or with a third party) to which the Borrower contributes any of its
intellectual property in return for an equity investment in such corporation or
other entity; provided that the Borrower does not guaranty, and is not otherwise
liable as a matter of law for, any Indebtedness incurred by such corporation or
other entity.
"Readily-Marketable Securities" - Such securities as are publicly traded
on the New York Stock Exchange, the American Stock Exchange or in the NASDAQ
National Market System.
"Receivables" - As to any Person, all of such Person's present and
future accounts receivable for goods sold or for services rendered.
"Reserve Rate" - The aggregate rate, expressed as a decimal, at which
the Bank would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) against Eurocurrency
Liabilities, as well as any other reserve required of the Bank with respect to
the LIBOR Loans. The Eurodollar Interest Rate shall be adjusted automatically
on and as of the effective date of any change in the Reserve Rate.
"SEC" - The Securities and Exchange Commission or any successor thereto.
"Subordinated Debt" - Any Indebtedness of the Borrower which is
expressly subordinated, pursuant to a subordination agreement in form and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any Person
(excluding (i) the total intangible assets of such Person, (ii) any minority
interests in Subsidiaries and (iii) any assets representing amounts due from any
officer or employee of such Person or from any Subsidiary of such Person) minus
the total liabilities of such Person. Total intangible assets shall be deemed to
include, but shall not be limited to, the excess of cost over book value of
acquired businesses accounted for by the purchase method, formulae, trademarks,
trade names, patents, patent rights and deferred expenses (including, but not
limited to, unamortized debt discount and expense, organizational expense,
capitalized software costs and experimental and development expenses).
"Total Liabilities" - All Indebtedness of the Borrower and/or any
Subsidiary of the Borrower (secured or unsecured, senior or subordinated) which
would properly be included in
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<PAGE> 32
liabilities shown on a balance sheet of the Borrower prepared in accordance with
generally accepted accounting principles.
"Unencumbered Cash Balance" - At any time, the total of all cash,
Cash-Equivalents, Readily-Marketable Securities and Guideline Investments of the
Borrower which are not subject to any pledge, lien, encumbrance or other
restriction; provided that corporate debt of the type described in paragraph III
(7) of the Borrower's investment guidelines set forth in item 7.1 of the
attached Disclosure Schedule will not be included within "Unencumbered Cash
Balance" unless the Bank, in its sole discretion, approves each item of such
corporate debt.
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
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<PAGE> 33
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
GELTEX PHARMACEUTICALS, INC.
By: /s/ Mark Skaletsky
-----------------------------
Name: Mark Skaletsky
Title: President and CEO
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Kimberly Martone
------------------------
Its Vice President
By: /s/ Olapeu Onipede
------------------------
Its Vice President
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<PAGE> 34
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified
Item 2.1(b) 5% Stockholders
Item 2.1(i) Liabilities not shown on financial statements
Item 2.1(j) Collateral locations; record owner of each location
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 7.1 Investment Guidelines
<PAGE> 35
DISCLOSURE SCHEDULE
SECTION 2.1(a)
No jurisdictions other than Delaware and Massachusetts
SECTION 2.1(b)
Persons known to Borrower to hold more than 5% of the outstanding shares of
Borrower's capital stock:
- - The Equitable Companies Incorporated(1)
- - Domain Partners II, L.P.(2)
- - West Highland Capital, Inc.(3)
- - Abingworth Bioventures SICAV
- - Jesse Treu(2)
- ----------
(1) Includes shares held by The Equitable Life Assurance Society of the United
States ("ELAS") and Alliance Capital Management L.P. ("ACM"). ELAS and ACM
are subsidiaries of The Equitable Companies Incorporated. This information
is based on a Schedule 13G dated February 6, 1997 filed with the Securities
and Exchange Commission for the aforementioned entities.
(2) One Palmer Square Associates II, L.P. is the General Partner of Domain
Partners II, L.P. James Blair, Brian Dovey, Richard Schneider and Jesse Treu
are the General Partners of One Palmer Square Associates II, L.P. and share
voting and investment control over the shares, all of which are held in the
name of Domain Partners II, L.P.
(3) Includes shares held by West Highland Capital, Inc. ("WHC"), Estero
Partners, LLC ("EP"), West Highland Partners, L.P.("WHP") and Buttonwood
Partners, L.P. ("BP"). Lang H. Gerhard is the sole director and executive
officer of WHC and the sole manager of EP. WHC, EP and Mr. Gerhard are the
general partners of WHP and BP which are investment limited partnerships,
and have voting and dispositive authority over shares held by WHP and BP.
WHC has voting and dispositive authority over shares held by its various
investment advisory clients. This information is based on a Schedule 13D
dated January 9, 1997 filed with the Securities and Exchange Commission for
the aforementioned entities and person.
(4) This information is based on Schedule 13G dated February 8, 1996 filed with
the Securities and Exchange Commission.
SECTION 2.1(i)
In connection with the execution, on April 21, 1997, of a contract manufacturing
agreement for the manufacture of RenaGel(R) phosphate binder, the Borrower
became subject to the following liabilities not disclosed in the Company's
financial statements as at December 31, 1996:
- - The Borrower is required to fund capital equipment costs of approximately
$6.0 million and may be obligated to pay up to $3.75 million in additional
equipment costs in the event that the Borrower requires the manufacturer to
increase capacity and implement certain manufacturing changes.
- - The Borrower is obligated to make a one-time $1.5 million royalty payment to
a third party for a license to certain process development technology
developed by the third party under contract to the Borrower.
<PAGE> 36
SECTION 2.1(j)
No assets of the Borrower are currently located at any address other than the
Existing Premises and the New Premises. Upon the purchase of certain equipment
discussed in Section 2.1(i) above, such equipment (owned by the Borrower) will
be located at the contract manufacturer's facility.
The record owner of the New Premises is as follows:
Nine Fourth Avenue LLC, a Massachusetts limited liability company with an
address c/o J.F. White Properties, Inc., Suite 500, One Gateway Center, Newton,
Massachusetts 02158.
SECTION 4.1
As of March 31, 1997, the Borrower had the following short term obligations:
- - Comdisco Equipment Lease $ 18,396.07
- - H&Q Guaranty Finance Personal Property Lease $119,353.97
- - Silicon Valley Bank Equipment Line $162,653.92
and a long term obligation to Silicon Valley Bank in the amount of $319,393.27.
In addition, the Borrower has approximately $755,000 available on a $1 million
line of credit with Silicon Valley Bank.
SECTION 4.2
Silicon Valley Bank has a lien on all equipment purchased with financing
provided by the bank.
SECTION 4.3
The Borrower has not issued any guaranties as of the date hereof.
2
<PAGE> 37
ITEM 7.1
III. INVESTMENT RESTRICTIONS
Investments shall be made in the context of the following investment
guidelines:
ELIGIBLE INVESTMENTS
1. Direct obligations of the U.S. Treasury, including bills, notes, and
bonds.
2. Obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government.
3. Bank obligations, including certificates of deposit, bank notes, and
bankers acceptances. Investments in these securities is limited to
banks whose long term debt is rated "A" or higher by Moody's, or
Standard & Poor's and short term obligations are rated "P1" or
higher by Moody's or "A1" or higher by Standard & Poor's.
4. Corporate obligations, including intermediate term notes rated "A"
or higher by Moody's or Standard & Poor's and Commercial Paper rated
"P1" or higher by Moody's, or "A1" or higher by Standard & Poor's.
5. Repurchase agreements collateralized at a minimum of 102% with U.S.
Treasury securities or other securities rated "AAA" or equivalent
that would be permitted by this policy.
6. Money market funds over $1 billion in assets, with an historically
constant dollar net asset value, consisting of acceptable securities
as stated above are appropriate for investing, as long as the fund's
manager has been in business over five years, has name recognition,
and has performance that is easily tracked.
7. U.S. and dollar denominated International corporate debt of all
types is acceptable as long as the issuer meets credit rating and
marketability guidelines.
8. Derivative instruments are ineligible as investments. This would
cover all investments where the value is based on an underlying
variable causing the coupon and/or the maturity value to be unknown
for the life of the security, at the time of purchase.
IV. MATURITIES
The maximum maturity of individual securities in the portfolio may not exceed
twenty-four (24) months.
The average maturity of the portfolio may not exceed twelve (12) months.
<PAGE> 1
EXHIBIT 4.6
PROMISSORY NOTE
$3,000,000.00 Boston, Massachusetts
October 31, 1997
FOR VALUE RECEIVED, the undersigned GelTex Pharmaceuticals, Inc., a
Delaware corporation (the "Borrower") hereby promises to pay to the order of
FLEET NATIONAL BANK (the "Bank") the principal amount of Three Million and
00/100 ($3,000,000.00) Dollars or such portion thereof as may be advanced by the
Bank pursuant to ss.1.5A of that certain letter agreement dated May 21, 1997
between the Bank and the Borrower, as amended (as so amended, the "Letter
Agreement") and remains outstanding from time to time hereunder ("Principal"),
with interest, at the rate hereinafter set forth, on the daily balance of all
unpaid Principal, from the date hereof until payment in full of all Principal
and interest hereunder.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the Prime Rate, as in effect from time to time (but in no event in excess of the
maximum rate permitted by then applicable law), with a change in the aforesaid
rate of interest to become effective on the same day on which any change in the
Prime Rate is effective; provided, however, that (A) if a Eurodollar Interest
Rate (as defined in the Letter Agreement) shall have become applicable to all or
any portion of the outstanding Principal for any Interest Period (as defined in
the Letter Agreement), then interest on such Principal or portion thereof shall
accrue at said applicable Eurodollar Interest Rate for such Interest Period and
shall be payable on the Interest Payment Date (as defined in the Letter
Agreement) applicable to such Interest Period, and (B) if a COF Interest Rate
(as defined in the Letter Agreement) shall have become applicable to the
outstanding Principal, then interest on the outstanding Principal shall accrue
at said COF Interest Rate and shall be paid on the first day of each month.
Overdue Principal and, to the extent permitted by law, overdue interest shall
bear interest at a fluctuating rate per annum which at all times shall be equal
to the sum of (i) four (4%) percent per annum plus (ii) the per annum rate
otherwise payable under this note with respect to the Principal which is overdue
(or as to which such interest is overdue) (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means the variable rate of interest per
annum designated by the Bank from time to time as its prime rate, it being
understood that such rate is merely a reference rate and does not necessarily
represent the lowest or best rate being charged to any customer. If the entire
amount of any required Principal and/or interest is not paid within ten (10)
days after the same is due, the Borrower shall pay to the Bank a late fee equal
to five percent (5%) of the required payment, provided that such late fee shall
be reduced to three percent (3%) of any required Principal and interest that is
not paid within fifteen (15) days of the date it is due if this note is secured
by a mortgage on an owner-occupied residence of 1-4 units.
<PAGE> 2
All outstanding Principal shall be repaid by the Borrower to the Bank in 17
equal consecutive quarterly installments (each in an amount equal to 1/28th of
the total Principal outstanding at the close of business on April 1, 1998), such
installments to commence June 30, 1998 and to continue thereafter on the last
Business Day (as defined in the Letter Agreement) of each calendar quarter
through and including June 28, 2002, plus an 18th and final payment due on
September 30, 2002 in an amount equal to all then remaining Principal and all
interest accrued but unpaid thereon.
The Borrower may at any time and from time to time prepay all or any
portion of any Facility Two Term Loan (as defined in the Letter Agreement), but,
as to Fixed Rate Loans (as defined in the Letter Agreement), only at the times
and in the manner, and (under certain circumstances) with the additional
payments, provided for in the Letter Agreement. Any prepayment of Principal, in
whole or in part, will be without premium or penalty (but, in the case of Fixed
Rate Loans, may require payment of additional amounts, as provided for in the
Letter Agreement). Each Principal prepayment shall be accompanied by payment of
all interest on the prepaid amount accrued but unpaid to the date of payment.
Any partial prepayment of Principal will be applied against Principal
installments in inverse order of normal maturity.
Payments of both Principal and interest shall be made, in lawful money of
the United States in immediately available funds, at the office of the Bank
located at 75 State Street, Boston, Massachusetts 02109, or at such other
address as the Bank may from time to time designate.
The undersigned Borrower irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to this note or on the books of the Bank, at
or following the time of making any Facility Two Term Loan and of receiving any
payment of Principal, an appropriate notation reflecting such transaction
(including date, amount and maturity) and the then aggregate unpaid balance of
Principal. Failure of the Bank to make any such notation shall not, however,
affect any obligation of the Borrower hereunder or under the Letter Agreement.
The unpaid Principal amount of this note, as recorded by the Bank from time to
time on such schedule or on such books, shall constitute presumptive evidence of
the aggregate unpaid principal amount of the Facility Two Term Loans.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
the Bank in enforcing this note and any collateral or security therefor, all
whether or not litigation is commenced.
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<PAGE> 3
This note is the Facility Two Term Note referred to in the Letter
Agreement. This note is subject to prepayment as set forth in the Letter
Agreement. The maturity of this note may be accelerated upon the occurrence of
an Event of Default, as provided in the Letter Agreement.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED ON THIS NOTE OR ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED DOCUMENTS OR OUT OF
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PERSON. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ACCEPT THIS NOTE AND TO MAKE THE FACILITY TWO TERM LOANS AS CONTEMPLATED
IN THE LETTER AGREEMENT.
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE SEAL GELTEX PHARMACEUTICALS, INC.
ATTEST:
/s/ Elizabeth A. Grammer By: /s/ Paul J. Mellett, Jr.
- ----------------------------- -----------------------------
Secretary Name: Paul J. Mellett
Title: Chief Financial Officer
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<PAGE> 1
EXHIBIT 4.7
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement ("this Agreement") is made as of October
31, 1997 between GelTex Pharmaceuticals Inc., a Delaware corporation (the
"Borrower") and Fleet National Bank (the "Bank"). For good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank act and agree as follows:
1. Reference is made to: (i) that certain letter agreement dated May 21,
1997 (the "Letter Agreement") between the Borrower and the Bank; (ii) that
certain $5,000,000 face principal amount promissory note dated May 21, 1997 (the
"Facility One Term Note") made by the Borrower and payable to the order of the
Bank; (iii) that certain Security Agreement (Equipment) dated May 21, 1997 (the
"Security Agreement") given by the Borrower to the Bank; and (iv) that certain
$3,000,000 face principal amount promissory note of even date herewith (the
"Facility Two Term Note") made by the Borrower and payable to the order of the
Bank. The Letter Agreement, the Security Agreement, the Facility One Term Note
and the Facility Two Term Note are hereinafter collectively referred to as the
"Financing Documents".
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By deleting from clause (i) of Section 1.1 of the Letter Agreement the
words "Term Note" and by substituting in their stead the following:
"Facility One Term Note"
b. By deleting the period at the end of Section 1.1 of the Letter
Agreement and by substituting in its stead the following:
",and (iii) that certain $3,000,000 face principal amount promissory
note (the `Facility Two Term Note') dated October 31, 1997 issued by
the Borrower pursuant to ss.1.5A below and payable to the order of the
Bank."
c. By deleting in its entirety the caption to Section 1.2 of the Letter
Agreement and by substituting in its stead the following:
"FACILITY ONE TERM LOANS; FACILITY ONE TERM NOTE."
d. By deleting from the first sentence of Section 1.2 of the Letter
Agreement the words "Term Loans" and by substituting in their stead the
following:
"Facility One Term Loans"
e. By providing that, in each of Sections 1.2, 1.3, 1.4 and 1.5 of the
Letter Agreement, (i) all references to a "Term Loan" or to the "Term Loans"
will be deemed to refer to a Facility One Term Loan or to the Facility One Term
Loans, respectively, (ii) all references to
<PAGE> 2
the "Term Note" will be deemed to refer to the Facility One Term Note and (iii)
all references to a "COF Loan" will be deemed to refer to the Facility One COF
Loan.
f. By inserting into the second sentence of the first paragraph of
Section 1.4 of the Letter Agreement, immediately before the words "Floating Rate
Loan", the following:
"Facility One Term Loan which is a"
g. By inserting into the second sentence of the first paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "and/or that
any", the following:
"Facility One Term Loan which is a"
h. By deleting from each of the third, fourth, sixth and seventh
sentences of the first paragraph of Section 1.4 of the Letter Agreement the
words "Fixed Rate Borrowing Notice" and by substituting in their stead the
following:
"Facility One Fixed Rate Borrowing Notice"
i. By deleting from the sixth sentence of the first paragraph of Section
1.4 of the Letter Agreement the words "any requested LIBOR Loan" and by
substituting in their stead the following:
"any Facility One Term Loan requested as a LIBOR Loan"
j. By deleting from the seventh sentence of the first paragraph of
Section 1.4 of the Letter Agreement the words "applicable to a LIBOR Loan" and
by substituting in their stead the following:
"applicable to a Facility One Term Loan which is a LIBOR Loan"
k. By deleting from the seventh sentence of the first paragraph of
Section 1.4 of the Letter Agreement the words "any LIBOR Loan not repaid" and by
substituting in their stead the following:
"any Facility One Term Loan which is a LIBOR Loan not repaid"
l. By deleting from each of the second, sixth and seventh sentences of
the second paragraph of Section 1.4 of the Letter Agreement the words "Fixed
Rate Period" and by substituting in their stead the following:
"Facility One Fixed Rate Period"
m. By inserting into the third sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "proposed COF
Interest Rate", the following:
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<PAGE> 3
"for the purpose of the Facility One Term Loans"
n. By inserting into the sixth sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "proposed COF
Interest Rate", the following:
"for the purposes of the Facility One Term Loans"
o. By inserting into the proviso contained in the seventh sentence of the
second paragraph of Section 1.4 of the Letter Agreement, immediately after the
words "the COF Interest Rate", the following:
"for the purposes of the Facility One Term Loans"
p. By inserting into the ninth sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "proposed COF
Interest Rate", the following:
"for the purposes of the Facility One Term Loans"
q. By inserting into the eleventh sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "proposed COF
Interest Rate", the following:
"for the purposes of the Facility One Term Loans"
r. By inserting into the twelfth sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "proposed COF
Interest Rate", in both places where same appear, the following:
"for the purposes of the Facility One Term Loans"
s. By inserting into the thirteenth sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "proposed COF
Interest Rate", the following:
"for the purposes of the Facility One Term Loans"
t. By inserting into the second sentence of Section 1.5 of the Letter
Agreement, immediately after the words "Interest on", the following:
"any Facility One Term Loans which are"
u. By inserting into the third sentence of Section 1.5 of the Letter
Agreement, immediately after the words "Interest on each", the following"
"Facility One Term Loan which is a"
v. By inserting into the sixth sentence of Section 1.5 of the Letter
Agreement, immediately before the words "LIBOR Loan", the following:
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<PAGE> 4
"Facility One Term Loan which is a"
w. By inserting into Article I of the Letter Agreement, immediately after
Section 1.5 thereof, the following:
"1.5A. FACILITY TWO TERM LOANS; FACILITY TWO TERM NOTE. In addition to
the foregoing, the Bank may make one or more loans (the `Facility Two
Term Loans') to the Borrower, in an aggregate principal amount up to
$3,000,000, in order to finance capital equipment (the `RenaGel
Equipment') to be owned by RenaGel LLC (a limited liability company
which is 50% owned by the Borrower) and used by RenaGel LLC or by the
Borrower or by The Dow Chemical Company, as a contract manufacturer
for RenaGel LLC. A Facility Two Term Loan shall be made, no more than
once per calendar month, in such amount as may be requested by the
Borrower; provided that (i) no Facility Two Term Loan will be made
after March 31, 1998; (ii) the aggregate original principal amounts of
all Facility Two Term Loans will not exceed $3,000,000; (iii) no
Facility Two Term Loan will be in an amount in excess of 50% of the
invoiced actual costs of the tangible property constituting the items
of RenaGel Equipment with respect to which such Facility Two Term Loan
is made (excluding taxes, duties and other `soft' costs, except that
shipping and installation charges for equipment may be included in
such `actual costs' to the extent supported by invoices satisfactory
to the Bank); and (iv) the RenaGel Equipment with respect to which
each Facility Two Term Loan is made will be limited to those items of
RenaGel Equipment acquired by the Borrower within 30 days prior to the
date of the proposed Facility Two Term Loan and which were not
previously financed by any other Facility Two Term Loan. Prior to the
making of each Facility Two Term Loan, and as a precondition thereto,
the Borrower will provide the Bank with: (i) invoices supporting the
costs and purchase dates of the relevant items of RenaGel Equipment;
(ii) such evidence as the Bank may require showing that such items of
RenaGel Equipment have been installed at the premises of The Dow
Chemical Company, the contract manufacturer for RenaGel LLC, in
Midland, MI, have become fully operational, have been paid for and are
owned by the Borrower or RenaGel LLC free of all liens and interests
of any other Person (except the interest of The Dow Chemical Company,
as lessee under the Equipment Lease heretofore entered into between
the Borrower and The Dow Chemical Company); and (iii) evidence
satisfactory to the Bank that the RenaGel Equipment is fully insured
against casualty loss. The Facility Two Term Loans will be evidenced
by the Facility Two Term Note. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule
attached to the Facility Two Term Note or on the books of the Bank, at
or following the time of making each Facility Two Term Loan and of
receiving any payment of principal, an appropriate notation reflecting
such transaction and the then aggregate
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<PAGE> 5
unpaid principal balance of the Facility Two Term Loans. The amount so
noted shall constitute presumptive evidence as to the amount owed by
the Borrower with respect to principal of the Facility Two Term Loans.
Failure of the Bank to make any such notation shall not, however,
affect any obligation of the Borrower or any right of the Bank
hereunder or under the Facility Two Term Note.
1.5B. PRINCIPAL REPAYMENT OF FACILITY TWO TERM LOANS. The Borrower
shall repay principal of the Facility Two Term Loans in 17 equal
consecutive quarterly installments, commencing on June 30, 1998 and
continuing on the last Business Day of each calendar quarter
thereafter through and including June 28, 2002 (each such quarterly
installment to be in an amount equal to 1/28th of the aggregate
principal amount of the Facility Two Term Loans outstanding on April
1, 1998, plus an 18th and final payment due on September 30, 2002 in
an amount equal to the then outstanding principal balance of all
Facility Two Term Loans and all interest then accrued but unpaid
thereon. Except as set forth in ss.1.7 below, the Borrower may prepay,
at any time or from time to time, without premium or penalty, the
whole or any portion of the Facility Two Term Loans; provided that
each such principal prepayment shall be accompanied by payment of all
interest under the Facility Two Term Note accrued but unpaid to the
date of payment. Any partial prepayment of principal of the Facility
Two Term Loans will be applied to installments of principal of the
Facility Two Term Loans thereafter coming due, in inverse order of
normal maturity. Amounts paid or prepaid on the Facility Two Term
Loans will not be available for reborrowing.
1.5C. INTEREST RATE. Except as otherwise provided below in this
ss.1.5C, interest on the Facility Two Term Loans will be payable at
the Floating Rate, with a change in such rate of interest to become
effective on each day when a change in the Prime Rate becomes
effective. Subject to the conditions set forth herein, the Borrower
may elect that all or any portion of any Facility Two Term Loan to be
made under ss.1.5A will be made as a LIBOR Loan, that all or any
portion of any Facility Two Term Loan which is a Floating Rate Loan
(but not all or any portion of the Facility Two COF Loan, if any) will
be converted to a LIBOR Loan and/or that any Facility Two Term Loan
which is a LIBOR Loan will be continued at the expiration of the
Interest Period applicable thereto as a new LIBOR Loan. Such election
shall be made by the Borrower giving to the Bank a written or
telephonic notice received by the Bank within the time period and
containing the information described in the next following sentence (a
`Facility Two Fixed Rate Borrowing Notice'). The Facility Two Fixed
Rate Borrowing Notice must be received by the Bank no later than 10:00
a.m. (Boston time) on that day which is two Business Days prior to the
date of the proposed borrowing, conversion or continuation, as the
case may be, and must specify the amount of the LIBOR Loan requested
(which shall be
-5-
<PAGE> 6
$500,000 or an integral multiple thereof), must identify the
particular Facility Two Term Loan or Loans so to be made, converted or
continued, as the case may be, and must specify the proposed
commencement date of the relevant Interest Period. Notwithstanding
anything provided elsewhere in this letter agreement, the Borrower may
not elect to have any installment of a Facility Two Term Loan included
in a LIBOR Loan if the Interest Period applicable thereto would
continue after the due date of such installment. Any Facility Two
Fixed Rate Borrowing Notice shall, upon receipt by the Bank, become
irrevocable and binding on the Borrower, and the Borrower shall, upon
demand and receipt of a Bank Certificate with respect thereto,
forthwith indemnify the Bank against any loss or expense incurred by
the Bank as a result of any failure by the Borrower to borrow any
Facility Two Term Loan requested as a LIBOR Loan, including, without
limitation, any loss or expense incurred by reason of the liquidation
or redeployment of deposits or other funds acquired by the Bank to
fund or maintain such LIBOR Loan. At the expiration of each Interest
Period applicable to a Facility Two Term Loan which is a LIBOR Loan,
the principal amount of such LIBOR Loan may be continued as a new
LIBOR Loan to the extent and on the terms and conditions contained in
this letter agreement by delivery to the Bank of a new Facility Two
Fixed Rate Borrowing Notice conforming to the requirements set forth
above in this ss.1.5C (and any Facility Two Term Loan which is a LIBOR
Loan not repaid and not so continued as a new LIBOR Loan will be
deemed (subject to the provisions of the next following paragraph) to
have been converted into a Floating Rate Loan). Notwithstanding any
other provision of this letter agreement, the Bank need not make any
such LIBOR Loan or allow any conversion of a Floating Rate Loan to
such a LIBOR Loan at any time when there exists any Default or Event
of Default.
On March 31, 1998, the Borrower may convert to a Facility Two COF Loan
all (but not less than all) of the Facility Two Terms Loans then
outstanding. If the Borrower desires such conversion to a Facility Two
COF Loan, it will notify the Bank of same not less than two Business
Days prior to the proposed conversion and will request that the Bank
offer with respect to such Facility Two Term Loans a rate of interest
which shall be fixed (subject to adjustment as provided in this letter
agreement) for the period commencing on the date of such conversion
and ending on the final maturity date applicable to such Facility Two
Term Loans (the `Facility Two Fixed Rate Period'). Following such
request for a fixed rate, the Bank will endeavor to offer a proposed
COF Interest Rate for the purposes of the Facility Two Term Loans at a
rate determined as provided below and under conditions determined by
the Bank in its sole discretion. The Borrower may elect to accept such
offer in the manner and within the time period specified in such
offer. Any such election shall be irrevocable on the part of the
Borrower. Upon such election, the interest rate payable with respect
to the outstanding Facility Two Term Loans shall be fixed (subject to
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<PAGE> 7
adjustment as provided in this letter agreement) for the Facility Two
Fixed Rate Period and at the rate communicated by the Bank as its
proposed COF Interest Rate for the purposes of the Facility Two Term
Loans. Any proposed COF Interest Rate offered under this Section will
be a rate per annum equal to the sum of (i) 1.75% per annum plus (ii)
the COF Rate for the applicable Facility Two Fixed Rate Period
(expressed as a per annum rate); provided, however, that the COF
Interest Rate for the purposes of the Facility Two Term Loans shall in
no event exceed the maximum rate permitted by applicable law. The COF
Rate shall be determined by the Bank in its discretion for the
purposes of any proposed COF Interest Rate offered under this Section.
The Bank may base the COF Rate for the purpose of computing the
proposed COF Interest Rate for the purposes of the Facility Two Term
Loans on any (or any combination of) recognized sources of available
funding for transactions of this type, including, but not limited to,
the interbank market, the domestic and European certificate of deposit
market and sales of commercial paper. The COF Rate for the purposes of
this computation shall in any event include adjustments for the costs
of maintaining reserves, insurance (including, without limitation,
assessments by the FDIC), taxes, hedging and other costs which may be
incurred by the Bank with respect to the applicable source or sources
of funding, all as determined by the Bank in its discretion. The
source or sources of funding utilized for the computation of the
proposed rate shall be selected by the Bank at its sole discretion for
offering to the Borrower, and the Borrower shall not have any claim
against the Bank with respect to computation of any proposed COF
Interest Rate for the purposes of the Facility Two Term Loans. If the
Borrower is dissatisfied with any proposed COF Interest Rate for the
purposes of the Facility Two Term Loans, the Borrower's sole remedy
with respect thereto shall be not to accept such proposed COF Interest
Rate for the purposes of the Facility Two Term Loans within the
applicable time period, and thus to cause interest on the Facility Two
Term Loans to be payable at the Floating Rate (subject to the
Borrower's ability set forth elsewhere herein to obtain LIBOR Loans).
Notwithstanding the foregoing provisions hereof, the Bank need not
offer a proposed COF Interest Rate for the purposes of the Facility
Two Term Loans for any period of time with respect to which the Bank,
in its sole discretion, determines that there are no recognized
sources of funding available to it for such time period or principal
amount or that the cost of funds with respect thereto would be
unreasonably high or if there then exists any Default or Event of
Default. Further, the Borrower may not convert into a Facility Two COF
Loan any LIBOR Loan prior to the end of the Interest Period applicable
to such LIBOR Loan.
Any request for a Fixed Rate Loan with respect to Facility Two Term
Loans and any election to convert all or any portion of the Facility
Two Term Loans to a Fixed Rate Loan may be made on behalf of the
Borrower only by a duly authorized officer; provided, however, that
the Bank may
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<PAGE> 8
conclusively rely upon any written or facsimile communication received
from any individual whom the Bank believes in good faith to be such a
duly authorized officer.
1.5D. INTEREST PAYMENTS. The Borrower will pay interest on the
principal amount of the Facility Two Term Loans outstanding from time
to time, from the date hereof until payment of the Facility Two Term
Loans and the Facility Two Term Note in full and the termination of
this letter agreement. Interest on any Facility Two Term Loans which
are Floating Rate Loans and the Facility Two COF Loan (if any) will be
payable monthly in arrears on the first day of each month. Interest on
each Facility Two Term Loan which is a LIBOR Loan will be payable in
arrears on the applicable Interest Payment Date. In any event,
interest shall also be payable on the date of payment of the Facility
Two Term Loans in full. Interest on Floating Rate Loans shall be
payable at the Floating Rate. The rate of interest payable on any
Facility Two Term Loan which is a LIBOR Loan will be the Eurodollar
Interest Rate applicable thereto. Interest on the Facility Two COF
Loan will be payable at the applicable COF Interest Rate. In any
event, overdue principal of any Facility Two Term Loan and, to the
extent permitted by law, overdue interest on any Facility Two Term
Loan shall bear interest at a rate per annum which at all times shall
be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the
rate otherwise applicable to such overdue principal (or to the
principal amount as to which such interest is overdue) pursuant to the
Facility Two Term Note and this letter agreement, payable on demand.
All interest payable hereunder and/or under the Facility Two Term Note
will be calculated on the basis of a 360-day year for the actual
number of days elapsed."
x. By deleting from Section 1.7 of the Letter Agreement the words "the
Term Note" and by substituting in their stead the following:
"any Term Note"
y. By deleting from Section 1.7 of the Letter Agreement the words "the
COF Loan" and by substituting in their stead the following:
"any COF Loan"
z. By deleting from Section 1.8 of the Letter Agreement, in each place
where same appear, the words "the Term Note" and by substituting in their stead
the following:
"any Term Note"
aa. By deleting from clause (ii) of Section 1.8 of the Letter Agreement
the words "the facility for Term Loans" and by substituting in their stead the
following:
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<PAGE> 9
"both facilities for Term Loans"
bb. By deleting from the second sentence of Section 1.10 of the Letter
Agreement the words "each Term Loan" and by substituting in their stead the
following:
"each Facility One Term Loan"
cc. By adding to the first paragraph of Section 1.10 of the Letter
Agreement, at the end of such paragraph, the following:
"The proceeds of each Facility Two Term Loan will be used by the
Borrower solely to fund costs of acquisition of RenaGel Equipment (as
defined above)."
dd. By deleting from the first sentence of the second paragraph of Section
1.10 of the Letter Agreement the words "the Term Note" and by substituting in
their stead the following:
"any Term Note"
ee. By deleting from the second sentence of the second paragraph of
Section 1.10 of the Letter Agreement the words "the Term Note" and by
substituting in their stead the following:
"any Term Note"
ff. By deleting from the third paragraph of Section 1.10 of the Letter
Agreement the words "the Term Note", in each place where same appear, and by
substituting in their stead, in each such place, the following:
"any Term Note"
gg. By deleting from Section 3.9 of the Letter Agreement the amount
"$20,000,000" and by substituting in its stead the following:
"$23,000,000"
hh. By deleting from clause (i) of Section 4.1 of the Letter Agreement the
words "the Term Note" and by substituting in their stead the following:
"the Term Notes"
ii. By deleting from clause (a) of Section 5.1 of the Letter Agreement the
words "the Term Note" and by substituting in their stead the following:
"any Term Note"
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<PAGE> 10
jj. By deleting from clause (a) of Section 5.2 of the Letter Agreement the
words "the Term Note" and by substituting in their stead the following:
"each Term Note"
kk. By deleting from clause (c) of Section 5.2 of the Letter Agreement the
words "the Term Note" and by substituting in their stead the following:
"each Term Note"
ll. By deleting from the first sentence of Section 6.1 of the Letter
Agreement, in both places where same appear, the words "the Term Note" and by
substituting in their stead, in both such places, the following:
"the Term Notes"
mm. By deleting from the second sentence of Section 6.1 of the Letter
Agreement the words "the Term Note" and by substituting in their stead the
following:
"the Term Notes"
nn. By deleting from the last sentence of Section 6.1 of the Letter
Agreement the words "the Term Note" and by substituting in their stead the
following:
"any Term Note"
oo. By deleting in its entirety Section 6.3 of the Letter Agreement and by
substituting in its stead the following:
"6.3. FACILITY FEES. With respect to the facility for Facility One
Term Loans established herein, the Borrower has paid to the Bank a
non-refundable commitment fee of $25,000. In addition, on or about
October 31, 1997 the Borrower is paying to the Bank, in respect of the
within facility for Facility Two Term Loans, a further non-refundable
commitment fee of $7,500. Fees described in this Section are in
addition to any balances and fees required by the Bank or any of its
affiliates in connection with any other services now or hereafter made
available to the Borrower."
pp. By changing the Borrower's notice address, pursuant to Section 6.4 of
the Letter Agreement, to the following:
"GelTex Pharmaceuticals, Inc.
Nine Fourth Avenue
Waltham, MA 02154
Attention: Paul Mellett, Chief Financial Officer"
-10-
<PAGE> 11
qq. By deleting from the third sentence of Section 6.5 of the Letter
Agreement the words "the Term Note" and by substituting in their stead the
following:
"any Term Note"
rr. By deleting from the first sentence of Section 6.6 of the Letter
Agreement the words "the Term Note" and by substituting in their stead the
following:
"any of the Term Notes"
ss. By deleting from Section 6.8 of the Letter Agreement the words "the
Term Note" and by substituting in their stead the following:
"the Term Notes"
tt. By deleting from the definition of "Bank Certificate" appearing in
Section 7.1 of the Letter Agreement the words "ss.1.4, ss.1.7, ss.1.8 or ss.6.1
of this letter agreement" and by substituting in their stead the following:
"ss.1.4, ss.1.5C, ss.1.7, ss.1.8 or ss.6.1 of this letter agreement"
uu. By deleting in its entirety the definition of "COF Interest Rate"
appearing in Section 7.1 of the Letter Agreement and by substituting in its
stead the following:
"`COF Interest Rate' - A rate of interest per annum which is (i)
offered by the Bank to the Borrower with respect to its outstanding
Facility One Term Loans pursuant to the second paragraph of ss.1.4 and
accepted by the Borrower as described therein or (iii) offered by the
Bank to the Borrower with respect to its outstanding Facility Two Term
Loans pursuant to the second paragraph of ss.1.5C and accepted by the
Borrower as described therein."
vv. By deleting in its entirety the definition of "COF Loan" appearing in
Section 7.1 of the Letter Agreement and by substituting in its stead the
following:
"`COF Loan' - Any Term Loan which bears interest at a COF Interest
Rate. A COF Loan may be either a Facility One COF Loan or a Facility
Two COF Loan."
ww. By deleting the period at the end of the definition of "COF Rate"
appearing in Section 7.1 of the Letter Agreement and by substituting in its
stead the following:
"or as described in the second paragraph of ss.1.5C."
-11-
<PAGE> 12
xx. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Existing Premises", the following:
"`Facility One COF Loan' - Any COF Loan which has become effective
with respect to the Facility One Term Loans pursuant to the second
paragraph of ss.1.4.
`Facility Two COF Loan' - Any COF Loan which has become effective with
respect to the Facility Two Term Loans pursuant to the second
paragraph of ss.1.5C.
`Facility One Term Loan' - Any loan made pursuant to ss.1.2.
`Facility Two Term Loan' - Any loan made pursuant to ss.1.5A.
`Facility One Term Note' - As defined in ss.1.1.
`Facility Two Term Note' - As defined in ss.1.1."
yy. By deleting from the definition of "Fixed Interest Rate" appearing in
Section 7.1 of the Letter Agreement the words "the COF Loan" and by substituting
in their stead the following:
"any COF Loan"
zz. By deleting from the definition of "Loan Documents" appearing in
Section 7.1 of the Letter Agreement, the words "the Term Note" and by
substituting in their stead the following:
"the Facility One Term Note, the Facility Two Term Note,"
aaa. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Tangible Net Worth", the following:
"`Term Loans' - Collectively, the Facility One Term Loans and the
Facility Two Term Loans.
"`Term Notes' - Collectively, the Facility One Term Note and the
Facility Two Term Note."
3. The Facility One Term Note is hereby modified: (i) by providing that
all references therein to a "Term Loan" or to the "Term Loans" will be deemed to
apply, respectively, to any Facility One Term Loan or to the Facility One Term
Loans (as described in the Letter Agreement, as amended by this Agreement), and
(ii) by deleting the words "the Term Note" appearing in the eighth paragraph of
the text of the Facility One Term Note and by substituting in their stead the
words "the Facility One Term Note".
-12-
<PAGE> 13
4. Wherever in any Financing Document, or in any certificate or opinion
to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.
5. Simultaneously with the execution and delivery of this Agreement, the
Borrower is executing and delivering to the Bank the Facility Two Term Note. The
Facility Two Term Note is a $3,000,000 promissory note of the Borrower,
substantially in the form attached hereto as Exhibit 1. Wherever in any of the
Financing Documents or in any certificate or opinion to be delivered in
connection therewith, reference is made to a "Term Note" or the "Term Notes",
from and after the date hereof same will be deemed to include both the Facility
One Term Note and the Facility Two Term Note. Wherever in any of the Financing
Documents or in any certificate or opinion to be delivered in connection
therewith, reference is made to a "Term Loan" or to the "Term Loans", from and
after the date hereof same will be deemed to include both the Facility One Term
Loans and the Facility Two Term Loans.
6. In order to induce the Bank to enter into this Agreement, the Borrower
further represents and warrants as follows:
a. The execution, delivery and performance of this Agreement and the
Facility Two Term Note have been duly authorized by the Borrower by all
necessary corporate and other action, will not require the consent of any third
party and will not conflict with, violate the provisions of, or cause a default
or constitute an event which, with the passage of time or the giving of notice
or both, could cause a default on the part of the Borrower under its charter
documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance (except in favor of the Bank) on any property or
assets of the Borrower.
b. The Borrower has duly executed and delivered each of this Agreement
and the Facility Two Term Note.
c. Each of this Agreement and the Facility Two Term Note is the legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its respective terms.
d. The statements, representations and warranties made in the Letter
Agreement and/or in the Security Agreement continue to be correct as of the date
hereof; except as amended, updated and/or supplemented by the attached
Supplemental Disclosure Schedule.
e. The covenants and agreements of the Borrower contained in the Letter
Agreement and/or in the Security Agreement have been complied with on and as of
the date hereof.
f. No event which constitutes or which, with notice or lapse of time, or
both, could constitute, an Event of Default (as defined in the Letter Agreement)
has occurred and is continuing.
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<PAGE> 14
g. No material adverse change has occurred in the financial condition of
the Borrower (other than continuing losses from operations as heretofore
disclosed to the Bank) from that disclosed in the quarterly financial statements
of the Borrower dated June 30, 1997, heretofore furnished to the Bank.
7. Except as expressly affected hereby, the Letter Agreement and each of
the other Financing Documents remains in full force and effect as heretofore.
8. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.
Executed, as an instrument under seal, as of the day and year first above
written.
GELTEX PHARMACEUTICALS, INC.
By: /s/ Paul J. Mellett, Jr.
----------------------------------
Name: Paul J. Mellett, Jr.
Title: Chief Financial Officer
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Kimberly Martone
-------------------------------
Name: Kimberly Martone
Title: Vice President
-14-
<PAGE> 15
SUPPLEMENTAL DISCLOSURE SCHEDULE
(Note: This Supplemental Disclosure Schedule is intended to update, but not
replace the disclosure schedule attached to the Letter Agreement dated May
21, 1997. Items not referenced in this supplement remain unchanged from the
original disclosure schedule)
SECTION 2.1(a)
In June 1997, the Borrower formed RenaGel, Inc., a Delaware corporation and
wholly-owned subsidiary of Borrower. In June 1997, the Borrower formed RenaGel
LLC, a Delaware limited liability company which is being used as the vehicle for
a 50-50 joint venture between the Borrower and Genzyme Corporation.
SECTION 2.1(b)
Persons known to Borrower to hold more than 5% of the outstanding shares of
Borrower's capital stock:
- - The Equitable Companies Incorporated(1)
- - West Highland Capital, Inc.(2)
- - Abingworth Bioventures SICAV(3)
- ----------------
(1) Includes shares held by The Equitable Life Assurance Society of the United
States ("ELAS") and Alliance Capital Management L.P. ("ACM"). ELAS and
ACM are subsidiaries of The Equitable Companies Incorporated. This
information is based on a Schedule 13G dated February 6, 1997 filed with
the Securities and Exchange Commission for the aforementioned entities.
(2) Includes shares held by West Highland Capital, Inc. ("WHC"), Estero
Partners, LLC ("EP"), West Highland Partners, L.P.("WHP") and Buttonwood
Partners, L.P. ("BP"). Lang H. Gerhard is the sole director and executive
officer of WHC and the sole manager of EP. WHC, EP and Mr. Gerhard are the
general partners of WHP and BP which are investment limited partnerships,
and have voting and dispositive authority over shares held by WHP and BP.
WHC has voting and dispositive authority over shares held by its various
investment advisory clients. This information is based on a Schedule 13D
dated January 9, 1997 filed with the Securities and Exchange Commission for
the aforementioned entities and person.
(3) This information is based on a Schedule 13G dated February 8, 1996 filed
with the Securities and Exchange Commission.
SECTION 2.1(i)
The Borrower references the unaudited financial statements of the Borrower for
the period ended September 30, 1997, heretofore delivered to the Bank, and the
liabilities referenced in such financial statements.
Reference is made to the attached lists of Exhibits filed with the Securities
and Exchange Commission after December 31, 1996, as disclosure of the material
transactions entered into by the Borrower since December 31, 1996.
<PAGE> 16
SECTION 2.1(j)
As of the date of this Supplemental Disclosure Schedule, the principal place of
business and chief executive offices of the Borrower are located at Nine Fourth
Avenue, Waltham, Massachusetts 02154. No assets of the Borrower are currently
located at any address other than the Existing Premises and the New Premises (as
such terms are defined in the Letter Agreement dated May 21, 1997). The
equipment to be purchased with the funds to be delivered under the Facility Two
Term Loans is expected to be held at facilities of The Dow Chemical Company in
Midland, Michigan.
The record owner of the New Premises is as follows:
Nine Fourth Avenue LLC, a Massachusetts limited liability company with an
address c/o J.F. White Properties, Inc., Suite 500, One Gateway Center, Newton,
Massachusetts 02158.
SECTION 3.1
The Borrower intends to dissolve RenaGel, Inc., its wholly-owned subsidiary, on
or before December 31, 1998. The sole asset of RenaGel, Inc. is a one percent
(1%) ownership interest in RenaGel LLC. In connection with the dissolution, this
ownership interest will be assigned to the Borrower.
SECTION 3.2.
Pursuant to the terms of a Sublease Agreement currently being negotiated by the
Borrower, certain equipment located at 303 Bear Hill Road, Waltham,
Massachusetts will be insured by the Borrower's sublessee. The equipment to be
purchased with the funds to be delivered under the Facility Two Term Loans will
be insured by The Dow Chemical Company, with the cost thereof to be borne by
RenaGel LLC.
2
<PAGE> 17
SECTION 4.1
As of June 30, 1997, the Borrower had the following short term obligations,
other than those obligations Borrower has to the Bank:
- - Comdisco Equipment Lease $ 1,382.65
- - Silicon Valley Bank Equipment Line $213,871.43
and a long term obligation to Silicon Valley Bank in the amount of $179,626.62.
In addition, the Borrower has approximately $755,000 available on a $1 million
line of credit with Silicon Valley Bank.
SECTION 4.2
Silicon Valley Bank has a lien on all equipment purchased with financing
provided by Silicon Valley Bank.
SECTION 4.3
The Borrower has not issued any guaranties as of the date hereof.
SECTION 4.7
See disclosure set forth under Section 2.1(a) regarding the formation of
subsidiaries.
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-3 No. 333-45151) and
related Prospectus of GelTex Pharmaceuticals, Inc. and to the incorporation by
reference therein of (i) our report dated February 9, 1998, with respect to the
financial statements of Geltex Pharmaceuticals, Inc. included in its Current
Report on Form 8-K/A dated March 16, 1998, filed with the Securities and
Exchange Commission and (ii) our report dated February 21, 1997, with respect to
the financial statements of GelTex Pharmaceuticals, Inc. included in its Form
10-K for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
March 16, 1998
