<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-26872
GELTEX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3136767
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
153 SECOND AVENUE
WALTHAM, MASSACHUSETTS 02451
(Address of principal executive offices) (Zip Code)
781-290-5888
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date:
CLASS OUTSTANDING AT NOVEMBER 9, 1999
----- -------------------------------
Common Stock, $.01 par value 16,886,800
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GELTEX PHARMACEUTICALS, INC.
TABLE OF CONTENTS
PAGE NO
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Balance Sheets as of September 30, 1999 and
December 31, 1998...................................... 3
Condensed Statements of Operations for the three months
ended September 30, 1999 and 1998...................... 4
Condensed Statements of Operations for the nine months
ended September 30, 1999 and 1998...................... 4
Condensed Statements of Comprehensive Loss for the
three months ended September 30, 1999 and 1998......... 5
Condensed Statements of Comprehensive Loss for the
nine months ended September 30, 1999 and 1998.......... 5
Condensed Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998............... 6
Notes to Condensed Financial Statements................. 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
ITEM 3 Quantitative and Qualitative Disclosures About
Market Risk............................................ 10
PART II OTHER INFORMATION
ITEM 4 Exhibits and Reports on Form 8-K........................ 10
SIGNATURE............................................................... 11
EXHIBIT INDEX........................................................... 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GELTEX PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents......................... $ 6,028,577 $ 30,874,900
Marketable securities............................. 56,161,537 74,077,436
Prepaid expenses and other current assets......... 4,207,167 2,708,487
Due from affiliates............................... 10,251,100 10,251,100
Inventory
Work in process................................. 4,035,022 --
Due from Joint Venture............................ 422,048 1,128,124
------------ ------------
Total current assets................................ 81,105,451 119,040,047
Long-term receivables, affiliates................... 443,000 470,000
Long-term receivables............................... -- 32,725
Property and equipment, net......................... 7,640,693 7,899,470
Intangible assets, net.............................. 1,089,624 818,963
Investment in Joint Venture......................... 11,007,119 5,183,580
------------ ------------
$101,285,887 $133,444,785
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses............. $ 839,271 4,848,728
Due to Joint Venture.............................. 1,219,800 1,349,400
Current portion of long-term obligations.......... 1,678,002 2,020,614
------------ ------------
Total current liabilities........................... 3,737,073 8,218,742
Long-term obligations, less current portion......... 3,953,898 5,206,180
Commitments and contingencies....................... -- --
Stockholders' equity:
Common Stock...................................... 168,727 167,924
Additional paid-in capital........................ 187,105,180 186,762,715
Deferred compensation............................. (353,231) (663,722)
Unrealized gain on available-for-sale securities.. (229,838) 264,388
Accumulated deficit............................... (93,095,922) (66,511,442)
------------- -------------
Total stockholders' equity.......................... 93,594,916 120,019,863
------------ ------------
$101,285,887 $133,444,785
============ ============
The accompanying notes are an integral part of the financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Collaborative Joint Venture project reimbursement ............ $ 1,473,053 $ 1,024,257 $ 4,434,648 $ 6,223,076
Contract Revenue ............................................. -- -- 1,751,669 --
----------- ----------- ------------ ------------
Total revenue ................................................... 1,473,053 1,024,257 6,186,317 6,223,076
Costs and expenses:
Research and development ..................................... 6,891,802 7,680,242 20,795,596 19,287,329
Collaborative Joint Venture project costs .................... 1,473,053 1,024,257 4,434,648 6,223,076
----------- ----------- ------------ ------------
Total research and development ............................ 8,364,855 8,704,499 25,230,244 25,510,405
General and administrative ................................... 1,643,793 1,409,311 4,778,253 3,979,731
----------- ----------- ------------ ------------
Total costs and expenses ........................................ 10,008,648 10,113,810 30,008,497 29,490,136
Loss from operations ............................................ (8,535,595) (9,089,553) (23,822,180) (23,267,060)
Interest income, net ............................................ 834,741 1,015,683 3,023,078 2,607,037
Equity in net loss of Joint Venture ............................. (1,726,267) (1,170,433) (5,785,378) (4,094,986)
----------- ----------- ------------ ------------
Net loss ........................................................ $(9,427,121) $(9,244,303) $(26,584,480) $(24,755,009)
=========== =========== ============ ============
Basic and diluted net loss per share ............................ $ (0.56) $ (0.55) $ (1.58) $ (1.54)
=========== =========== ============ ============
Shares used in computing basic and diluted net loss per share ... 16,871,000 16,707,000 16,853,000 16,075,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(9,427,121) $(9,244,303) $(26,584,480) $(24,755,009)
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities held during the period.... (70,019) (218,797) (494,226) (198,977)
----------- ----------- ------------ ------------
Comprehensive loss................................................ $(9,497,140) $(9,463,100) $(27,078,706) $(24,953,986)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1999 1998
------------ -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ............................................................................ $(26,584,480) $ (24,755,009)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .................................................... 1,518,263 940,228
Equity in net loss of Joint Venture .............................................. 5,785,378 4,094,986
Compensation from issuance of stock options ...................................... 472,715 492,337
Changes in operating assets and liabilities:
Prepaid expenses and other current assets .................................... (1,498,680) (887,326)
Due from Joint Venture ....................................................... 706,076 549,035
Long-term receivables ........................................................ 32,725 --
Accounts payable and accrued expenses ........................................ (4,009,457) (1,467,640)
Amount due to Joint Venture .................................................. (129,600) --
Inventory .................................................................... (4,035,022) --
------------ -------------
Net cash used in operating activities ............................................... $(27,742,082) $ (21,033,389)
INVESTING ACTIVITIES
Purchase of marketable securities ................................................... (13,285,855) (214,878,513)
Proceeds from sale and maturities of marketable securities .......................... 30,572,302 147,651,233
Investment in Joint Venture ......................................................... (11,608,917) (5,797,019)
Purchase of intangible assets ....................................................... (512,177) (383,295)
Purchase of property and equipment, net ............................................. (1,017,968) (1,296,607)
------------ -------------
Net cash provided by (used in) investing activities ................................. 4,147,385 (74,704,201)
FINANCING ACTIVITIES
Sale of Common Stock and warrants, net of issuance costs ............................ 343,268 77,529,626
Payments on long-term obligations ................................................... (1,594,894) (1,165,828)
------------ -------------
Net cash provided by (used in) financing activities ................................. (1,251,626) 76,363,798
Decrease in cash and cash equivalents ............................................... (24,846,323) (19,373,792)
Cash and cash equivalents at beginning of period .................................... 30,874,900 26,689,190
------------ -------------
Cash and cash equivalents at end of period .......................................... $ 6,028,577 $ 7,315,398
============ =============
Interest paid ....................................................................... $ 377,951 $ 717,039
</TABLE>
The accompanying notes are an integral part of the financial statements.
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GELTEX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements for the three and
nine months ended September 30, 1999 and 1998 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the accompanying condensed financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for the periods presented. The results of operations for the interim
period ended September 30, 1999 are not necessarily indicative of the results to
be expected for the year ended December 31, 1999.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the fiscal year ended December 31,
1998 included in the Company's Annual Report on Form 10-K (File Number 0-26872)
as filed with the Securities and Exchange Commission.
2. BUSINESS CHANGES
On July 30, 1999, the Company filed a New Drug Application ("NDA") with the
U.S. Food and Drug Administration for Cholestagel(R) (colesevelam
hydrochloride), for the treatment of hypercholesterolemia, a condition
characterized by undersirably high blood cholesterol levels.
On August 16, 1999, the Company announced that it had entered into a
definitive agreement (the "Merger Agreement") to acquire SunPharm Corporation
("SunPharm"). Under the terms of the Merger Agremeent, which was approved by
each company's board of directors, each share of SunPharm preferred stock
oustanding immediately prior to the effective time of the merger will be
automatically converted into between 0.18338 and 0.21740 shares of the Company's
common stock and each share of SunPharm common stock outstanding immediately
prior to the effective time of the merger will be automatically converted into
between 0.12225 and 0.14493 shares of the Company's common stock, in each case
subject to adjustment as set forth in the Merger Agreement. Based on the
Company's closing stock price of $14.25 on August 13, 1999, the transaction
would be valued at approximately $16.5 million. The transaction is subject to
approval by SunPharm shareholders as well as other customary requirements. The
transaction is expected to be completed in November 1999, and will be accounted
for using the "purchase accounting" method.
In October 1999, the Company completed the purchase of a building and land
adjacent to the Company's new headquarters. The Company obtained financing for
$3.0 million of the $3.2 million purchase price from its principal banking
institution and has pledged $3.0 million of its marketable securities as
collateral for the note. The note bears interest at a 90-day LIBOR rate (5.52%
at September 30, 1999) and is payable on September 30, 2002.
3. RECLASSIFICATION
Certain amounts from the prior year have been reclassified to conform to
the current year presentation.
4. JOINT VENTURE AGREEMENT
In June 1997, the Company entered into a joint venture with Genzyme
Corporation for the final development and commercialization of Renagel(R)
Capsules (the "Joint Venture"). The Company accounts for its investment in the
Joint Venture using the equity method.
Summarized financial information regarding the Joint Venture for the three
and nine months ended September 30, 1999 is as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
Net sales................................. $4,480,728 $12,148,351
Cost of products sold..................... 1,438,323 4,516,124
Loss from operations...................... (3,492,102) (13,122,401)
Net loss.................................. (3,452,534) (11,570,756)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
The Company earned revenue of $1.5 million during the three months ended
September 30, 1999 compared with $1.0 million earned during the three months
ended September 30, 1998. Revenue earned during the nine month periods ended
September 30, 1999 and September 30, 1998 was $6.2 million. Under the terms of
the Collaboration Agreement the Company has entered into with Genzyme
Corporation ("Genzyme") for the commercialization of Renagel(R) (the "Joint
Venture"), the Company and Genzyme are each expected to fund the Joint Venture
in an amount equal to 50% of the budgeted costs and expenses of the project for
the relevant period. Each party that incurs project expenses, either as internal
operating costs or as third party obligations, will be reimbursed by the Joint
Venture for 100% of the costs incurred. In the three month period ended
September 30, 1999, all revenue earned by the Company represents reimbursement
from the Joint Venture for certain Renagel(R) development costs incurred bY the
Company. For the nine month period ended September 30, 1999, $1.7 million of the
total revenue earned represents non-recurring reimbursement by the Company's
Japanese partner for certain Renagel(R) process developmenT and manufacturing
costs incurred by the Company. The remaining $4.4 million of revenue earned in
the nine month period ended September 30, 1999 represents reimbursement from the
Joint Venture for certain Renagel(R) developmenT costs incurred by the Company.
All revenue earned in the three and nine month periods ended September 30, 1998
represents reimbursement from the Joint Venture for certain Renagel(R)
development costs incurred by the Company. The amount of reimbursement revenue
earned by the Company will vary according to the obligations of, and related
expense incurred, by the Company, and is expected to decrease as the Company
completes the development activities for the Joint Venture.
The Company's total operating expenses for the three months ended September
30, 1999 decreased to $10.0 million from $10.1 million during the same period in
1998. The Company's total operating expenses were $30.0 million and $29.5
million for the nine months ended September 30, 1999 and 1998, respectively.
Research and development expenses decreased by $0.3 million to $8.4 million for
the three month period ended September 30, 1999 from $8.7 million for the period
ended September 30, 1998. For the nine months ended September 30, 1999 and 1998,
research and development expenses were $25.2 million and $25.5 million,
respectively. The relatively flat research and development expense is due to the
decrease in the development activities for the Joint Venture offset by an
increase in the costs associated with the Company's other research programs. The
Company expects its research and development expenses to increase in connection
with the continuing development of processes for the manufacture of commercial
quantities of Cholestagel, the expansion of research and development programs,
and with the expected research and development activities associated with the
SunPharm acquisition. General and administrative expenses increased $0.2 million
to $1.6 million for the three months ended September 30, 1999 from $1.4 million
for the same period a year ago. During the nine month period ended September 30,
1999, general and administrative expenses increased to $4.8 million from $4.0
million during the same period in 1998. The increase was due primarily to
increased administrative personnel, professional and consulting fees, and
increased business development expenses.
The Company's equity in the net loss of the Joint Venture with Genzyme
Corporation was $1.7 million and $1.2 million for the three month periods ended
September 30, 1999 and 1998, respectively. For the nine month periods ended
September 30, 1999 and 1998, the Company's equity in the net loss of the Joint
Venture was $5.8 million and $4.1 million, respectively. These costs represent
the Company's portion of the Joint Venture loss for the relevant periods and
reflect the increased costs associated with the commercial launch of Renagel(R).
The CompanY expects that the Joint Venture will continue to operate at a loss at
least through 2000.
Net interest income for the three months ended September 30, 1999 of $0.8
million decreased by $0.2 million from the net interest income of $1.0 million
earned during the three months ended September 30, 1998. For the nine month
periods ended September 30, 1999 and 1998, net interest income was $3.0 million
and $2.6 million, respectively. The decrease in the three month period and the
increase in the nine month period were due primarily to different average cash
balances during the relevant periods.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $62.0 million in cash, cash
equivalents and marketable securities as compared to $105.0 million at December
31, 1998. The Company believes that its existing cash balances and marketable
securities will be sufficient to fund its operations through at least 2001.
On October 21, 1998, the Company entered into a synthetic lease transaction
under which the lessor committed to fund up to an aggregate of $25.0 million for
the purchase and build-out of a new building to serve as the Company's new
headquarters. The synthetic lease is asset-based financing structured to be
treated as an operating lease for accounting purposes. The Company served as
construction agent for the lessor and began to occupy the building on September
24, 1999. At September 30, 1999, the lessor's total accumulated cost for the
land and the build-out of the facility was approximately $20.2 million. The
total costs are projected to approximate $25.0 million. Under the terms of the
synthetic lease, the Company is required to comply with certain financial
covenants which, among other things, require the maintenance of minimum levels
of cash, tangible net worth, liquidity and debt service coverage and prohibits
the payment of dividends. The Company was in compliance with these terms at
September 30, 1999.
In October 1999, the Company completed the purchase of a building and land
adjacent to the Company's new headquarters. The Company obtained financing for
$3.0 million of the $3.2 million purchase price from its principle banking
institution and has pledged $3.0 million of its marketable securities as
collateral for the note. The note bears interest at a 90-day LIBOR rate (5.52%
at September 30, 1999) and is payable on September 30, 2002.
In September 1999, the Company negotiated a $4.0 million lease line to
finance the cost of equipment purchases. The Company will draw down the line
over the next 18 months and will repay the line in 60 equal monthly installments
commencing in March 2001.
The Company has entered into an agreement with its contract manufacturer
for the initial commercial production of bulk inventory for Cholestagel. The
Company will be obligated under the terms of the agreement to pay approximately
352.1 million Austrian schillings (approximately $27.6 million as of September
30, 1999) through 2000. The Company is proceeding with payments to the
manufacturer, and as of September 30, 1999 has paid approximately $4.0 million.
The Company has agreed in principal to the terms of an agreement with its
manufacturer of the raw material for Cholestagel and Renagel. Under the terms of
the agreement, which is expected to be signed in November 1999, the Company will
be obligated to purchase certain minimum quantities of material beginning in
2000. The Company estimates that its minimum purchase obligations during 2000
will be approximately $3.0 million, and that its minimum purchase obligations
during each of the remaining six years of the term of the agreement will be
approximately $2.7 million.
In August 1999, the Company entered into a Letter of Intent with a
manufacturer to provide certain tableting, packaging and labeling services to
the Company with respect to Renagel. Under the terms of the Letter of Intent,
GelTex has made minimum purchase commitments, which are expected to commence in
2000 and will be in the amount of approximately $4.0 million a year. The minimum
purchase costs are costs associated with the Renagel Joint Venture with Genzyme
Corporation and will be borne equally by the Company and Genzyme. The Letter of
Intent is expected to be superseded by a definitive Manufacturing Agreement to
be entered into between the manufacturer and the Renagel Joint Venture by the
end of 1999.
YEAR 2000
The Year 2000 problem is a result of software programs being written using
two digits rather than four to define the applicable year. The Company
recognizes the risk that its information technology ("IT") systems and other
systems such as telephones, building access control systems and heating and
ventilation equipment ("embedded systems") may have date-sensitive software or
embedded chips that may recognize a date using "00" as the year 1900 rather than
the year 2000. This error could result in system failure or miscalculations
causing disruptions to the Company's research and development, financial,
administration and communication operations. The Company also has business
relationships with third parties that are themselves reliant on IT and embedded
systems to conduct their businesses. The Company recognizes the need to ensure
its operations will not be adversely impacted by Year 2000 software and hardware
failure both internally and from third parties with which the Company has an
important relationship.
In 1998, the Company developed a plan to ensure that its systems would be
Year 2000 compliant. The plan consists of four phases: (1)
assessment--identifying all IT systems that use date functions and assessing
Year 2000 functionality and compliance, (2) remediation-- reprogramming or
replacing inventoried items to ensure Year 2000 compliance, (3) testing--
testing the code modifications or new inventory with other associated systems,
including date testing and quality assurance to ensure successful
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<PAGE> 10
operation in the post-1999 environment, and (4) implementation--returning all
remediated and successfully tested items back into normal operation. This plan
encompasses IT and embedded systems, as well as third party exposure.
The Company's State of Readiness
As of September 30, 1999, the Company had completed all four phases of the
plan for its IT and embedded systems and has concluded that its IT and embedded
systems are Year 2000 compliant. The cost of remediating non-compliant embedded
systems was funded from available cash.
Third Parties and Their Exposure to Year 2000
The Company has continued formal communications with all significant third
parties, primarily, clinical trial sites, contract research organizations and
contract manufacturers. The Company has requested and has received from a
majority of these third parties, written statements regarding their knowledge of
and plans for being Year 2000 compliant. The Company has one direct system
interface with a third party and has received verification that the system
interface is Year 2000 compliant.
Contingency Plans
The Company has not yet developed a comprehensive contingency plan to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent are unable to achieve Year 2000 readiness.
However, the Company's Year 2000 compliance program is ongoing and its scope,
including the development of contingency plans for the most reasonably likely
worst case scenario, will continue to be evaluated.
Risks
The Company's management believes it has an effective plan in place to
mitigate the risks of the Year 2000 issue in a timely manner. However, the
inability of a third party upon which the Company is dependent to complete its
Year 2000 compliance program in a timely manner, as well as disruptions in the
general economy resulting from the Year 2000 issue could have a material adverse
impact on the Company's results of operations, liquidity or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks were reported in the Notes to the Financial Statements for the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. There
have been no material changes in these risks since the end of the year.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See the Exhibit Index on page 14 hereto.
(b) Reports on Form 8-K.
None.
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GELTEX PHARMACEUTICALS, INC.
FORM 10-Q
SEPTEMBER 30, 1999
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GELTEX PHARMACEUTICALS, INC.
DATE: NOVEMBER 12, 1999 BY: /s/ Paul J. Mellett, Jr.
----------------------------------
Paul J. Mellett, Jr.
Duly Authorized Officer and
Principal Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
4.1 Letter Agreement between GelTex Pharmaceuticals, Inc. and
Fleet National Bank dated October 4, 1999.
4.2 Promissory Note between GelTex Pharmaceuticals, Inc. and Fleet
National Bank dated October 4, 1999.
10.1# Amendment to Promissory Note in favor of the Company executed
by Dr. Douglas Reed on December 1, 1998.
10.2# Amendment to Promissory Note in favor of the Company executed
by Dr. Douglas Reed on December 31, 1998.
27.1 Financial Data Schedule
- ---------------------
# Identifies a management contract or compensatory plan or arrangement in
which an executive officer or director of the Company participates.
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<PAGE> 1
EXHIBIT 4.1
GELTEX PHARMACEUTICALS, INC.
153 Second Avenue
Waltham, MA 02154
October 4, 1999
Fleet National Bank
One Federal Street
Boston, MA 02110
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 the Term Loans (hereinafter defined)
which have heretofore been made by the Bank to the Borrower, with respect to
Revolving Loans (hereinafter defined) which may be made by the Bank to the
Borrower and with respect to letters of credit which may hereafter be issued by
the Bank for the account of 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 original principal amount Amended and Restated Facility One Term Note
(the "Facility One Term Note") dated as of May 21, 1997 made by the Borrower and
payable to the order of the Bank, (ii) that certain $3,000,000 original
principal amount promissory note dated October 31, 1997 (the "Facility Two Term
Note") made by the Borrower and payable to the order of the Bank, (iii) that
certain $3,000,000 face principal amount revolving promissory note of even date
herewith (the "Revolving Note") made by the Borrower and payable to the order of
the Bank, (iv) that certain Security Agreement (Equipment) dated as of May 21,
1997 (the "Security Agreement") given by the Borrower to the Bank, (v) that
certain Account Pledge Agreement of even date herewith (the "Pledge Agreement")
from the Borrower to the Bank, and (vi) that certain Notice and Control
Agreement (the "Notice") among the Borrower, the Bank and Fleet National Bank,
as Financial Intermediary. This letter agreement amends and restates in its
entirety, and supersedes, that certain letter agreement dated May 21, 1997, as
amended (as so amended, the "Prior Loan Agreement") between the Borrower and the
Bank.
1.2. REVOLVING LOANS; REVOLVING NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing
<PAGE> 2
arrangements pursuant to ss.5.2 or ss.6.5; provided, however, that the aggregate
principal amount of Revolving Loans outstanding shall at no time exceed the
Maximum Revolving Amount (hereinafter defined). Within such limit, and subject
to the terms and conditions hereof, the Borrower may obtain Revolving Loans,
repay Revolving Loans and obtain Revolving Loans again on one or more occasions.
The Revolving Loans shall be evidenced by the Revolving Note. The Borrower
hereby irrevocably authorizes the Bank to make or cause to be made, on a
schedule attached to the Revolving Note or on the books of the Bank, at or
following the time of making each Revolving Loan and of receiving any payment of
principal, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the Revolving Loans. The amount so noted
shall constitute presumptive evidence as to the amount owed by the Borrower with
respect to principal of the Revolving 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 Revolving Note.
1.3. REPAYMENT; RENEWAL OF REVOLVING LOAN FACILITY. The Borrower shall
repay in full all Revolving Loans and all interest thereon upon the first to
occur of: (i) the Expiration Date, or (ii) an acceleration under ss.5.2(a)
following an Event of Default. The Borrower may prepay, at any time, without
penalty or premium, the whole or any portion of any Floating Rate Revolving
Loan; provided that on the date of such prepayment the Borrower pays all
interest on the Revolving Loan (or portion thereof) so prepaid accrued to the
date of such prepayment. Subject to ss.1.12, the Borrower may prepay the whole
or any portion of any LIBOR Revolving Loan; provided that (i) the Borrower gives
the Bank not less than two (2) Business Days' prior written notice of its intent
so to prepay, (ii) the Borrower pays all interest on each LIBOR Revolving Loan
(or portion thereof) so prepaid accrued to the date of such prepayment, (iii)
any voluntary prepayment with respect to a LIBOR Revolving Loan shall be in a
principal amount which is $100,000 or an integral multiple of $100,000 (provided
that, in any event, no LIBOR Revolving Loan will remain outstanding in a
principal amount of less than $1,000,000), and (iv) if the Borrower for any
reason makes any prepayment of a LIBOR Revolving Loan prior to the last day of
the Interest Period applicable thereto, the Borrower shall forthwith pay all
amounts owing to the Bank pursuant to the provisions of ss.1.12 with respect to
such LIBOR Revolving Loan.
The Bank may, at its sole discretion, renew the revolving financing
arrangements described in this letter agreement by extending the Expiration Date
in a writing signed by the Bank and accepted by the Borrower. Neither the
inclusion in this letter agreement or elsewhere of covenants relating to periods
of time after the Expiration Date, nor any other provision hereof, nor any
action (except a written extension pursuant to the immediately preceding
sentence), non-action or course of dealing on the part of the Bank will be
deemed an extension of, or agreement on the part of the Bank to extend, the
Expiration Date.
1.4. INTEREST RATE FOR REVOLVING LOANS. Except as otherwise provided below,
interest on the Revolving 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, with a change in such rate of interest to become
effective on each day when a change in the Prime Rate is
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effective. Subject to the conditions set forth herein, the Borrower may elect
that any Revolving Loan to be made under ss.1.2 will be made as a LIBOR
Revolving Loan. Such election shall be made by the Borrower giving to the Bank a
written notice received by the Bank within the time period and containing the
information described in the next following sentence (a "LIBOR Revolving
Borrowing Notice"). The LIBOR Revolving 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, must state that a LIBOR
Revolving Loan is being requested and state the amount of the LIBOR Revolving
Loan requested (which shall be $100,000 or an integral multiple of $100,000 in
excess of $1,000,000), 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 any Interest Period with respect to
a LIBOR Revolving Loan if such Interest Period would end after the Expiration
Date. Any LIBOR Revolving 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 obtain or maintain any requested LIBOR
Revolving 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 Revolving Loan. Each LIBOR Revolving
Loan shall be due and payable in full (if not required to be repaid earlier
pursuant to the terms of this letter agreement) on the last day of the Interest
Period applicable thereto. The principal amount of each LIBOR Revolving Loan so
repaid may be reborrowed as a new LIBOR Revolving Loan to the extent and on the
terms and conditions contained in this letter agreement by delivery to the Bank
of a new LIBOR Revolving Borrowing Notice conforming to the requirements set
forth above in this ss.1.4 (and any LIBOR Revolving Loan not repaid and not so
reborrowed as a new LIBOR Revolving Loan will be deemed to have been reborrowed
as a Floating Rate Revolving Loan). Notwithstanding any other provision of this
letter agreement, the Bank need not make any LIBOR Revolving Loan at any time
when there exists any Default or Event of Default. In no event will more than
five Interest Periods be in effect at any one time.
Any request for a LIBOR Revolving 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.
The Bank may, in the future, at the Borrower's request provide to the
Borrower with respect to the Revolving Loans caps, collars, swaps and
interest-rate protection products, on such terms and for such periods as may be
agreed upon by the Bank and the Borrower at the time such facilities are
provided.
1.5. FACILITY ONE TERM LOANS; FACILITY ONE TERM NOTE. Pursuant to ss.1.2 of
the Prior Loan Agreement, the Bank has heretofore made a series of term loans
(the "Facility One Term Loans") to the Borrower. At the date hereof, the
aggregate outstanding principal amount of the Facility One Term Loans is
$2,980,140. The Facility One Term Loans are evidenced by the
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Facility One Term Note. The Borrower hereby irrevocably authorizes the Bank to
make or cause to be made, on a schedule attached to the Facility One Term Note
or on the books of the Bank, at or following the time of receiving any payment
of principal of the Facility One Term Loans, an appropriate notation reflecting
such transaction and the then aggregate unpaid principal balance of the Facility
One 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 One
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 One Term Note.
1.6. PRINCIPAL REPAYMENT OF FACILITY ONE TERM LOANS. The Borrower shall
repay principal of the Facility One Term Loans in 11 equal consecutive quarterly
installments, each in the amount of $248,345.06, payable on the last day of each
calendar quarter, commencing December 31, 1999 and continuing on the last day of
each calendar quarter thereafter through and including June 30, 2002, followed
by a 12th and final payment due on September 30, 2002 in an amount equal to the
then outstanding principal balance of all Facility One Term Loans and all
interest then accrued but unpaid thereon. The Borrower may prepay, at any time,
without penalty or premium, the whole or any portion of any Facility One Term
Loan which is a Floating Rate Term Loan; provided that on the date of any such
prepayment the Borrower pays all interest on said Facility One Term Loan (or
portion thereof) so prepaid accrued to the date of such prepayment. Subject to
ss.1.12, the Borrower may prepay the whole or any portion of any Facility One
Term Loan which is a LIBOR Term Loan; provided that (i) the Borrower gives the
Bank not less than two (2) Business Days' prior written notice of its intent so
to prepay, (ii) the Borrower pays all interest on said Facility One Term Loan
(or portion thereof) so prepaid accrued to the date of such prepayment, (iii)
any voluntary prepayment with respect to a Facility One Term Loan which is a
LIBOR Term Loan shall be in a principal amount which is $100,000 or an integral
multiple of $100,000 (provided that, in any event, no Facility One Term Loan
which is a LIBOR Term Loan will remain outstanding in a principal amount of less
than $1,000,000), and (iv) if the Borrower for any reason makes any prepayment
of a Facility One Term Loan which is a LIBOR Term Loan prior to the last day of
the Interest Period applicable thereto, the Borrower shall forthwith pay all
amounts owing to the Bank pursuant to the provisions of ss.1.12 with respect to
such Facility One Term Loan. Any partial prepayment of principal of the Facility
One Term Loans will be applied to installments of principal of the Facility One
Term Loans thereafter coming due in inverse order of normal maturity. Amounts
repaid or prepaid with respect to the Facility One Term Loans are not available
for reborrowing.
1.7. FACILITY TWO TERM LOANS; FACILITY TWO TERM NOTE. Pursuant to ss.1.5A
of the Prior Loan Agreement, the Bank has heretofore made a series of term loans
(the "Facility Two Term Loans") to the Borrower. At the date hereof, the
aggregate outstanding principal amount of the Facility Two Term Loans is
$2,375,142. The Facility Two Term Loans are 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 receiving any payment of principal of the
Facility Two Term Loans, an appropriate notation reflecting such transaction and
the then aggregate unpaid principal balance of the Facility Two Term Loans. The
amount so noted shall constitute presumptive
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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 not,
however, affect any obligation of the Borrower or any right of the Bank
hereunder or under the Facility Two Term Note.
1.8. PRINCIPAL REPAYMENT OF FACILITY TWO TERM LOANS. The Borrower shall
repay principal of the Facility Two Terms in 11 equal consecutive quarterly
installments, each in the amount of $107,142.86, payable on the last day of each
calendar quarter, commencing December 31, 1999 and continuing on the last day of
each calendar quarter thereafter through and including June 30, 2002, followed
by a 12th 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. The Borrower may prepay, at any time,
without penalty or premium, the whole or any portion of any Facility Two Term
Loan which is a Floating Rate Term Loan; provided that on the date of any such
prepayment the Borrower pays all interest on said Facility Two Term Loan (or
portion thereof) so prepaid accrued to the date of such prepayment. Subject to
ss.1.12, the Borrower may prepay the whole or any portion of any Facility Two
Term Loan which is a LIBOR Term Loan; provided that (i) the Borrower gives the
Bank not less than two (2) Business Days' prior written notice of its intent so
to prepay, (ii) the Borrower pays all interest on said Facility Two Term Loan
(or portion thereof) so prepaid accrued to the date of such prepayment, (iii)
any voluntary prepayment with respect to a Facility Two Term Loan which is a
LIBOR Term Loan shall be in a principal amount which is $100,000 or an integral
multiple of $100,000 (provided that, in any event, no Facility Two Term Loan
which is a LIBOR Term Loan will remain outstanding in a principal amount of less
than $1,000,000) and (iv) if the Borrower for any reason makes any prepayment of
a Facility Two Term Loan which is a LIBOR Term Loan prior to the last day of the
Interest Period applicable thereto, the Borrower shall forthwith pay all amounts
owing to the Bank pursuant to the provisions of ss.1.12 with respect to such
Facility Two Term Loan. 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 repaid
or prepaid with respect to the Facility Two Term Loans are not available for
reborrowing.
1.9. INTEREST RATE FOR TERM LOANS. Except as otherwise provided below in
this ss.1.9, interest on each of the 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 Floating
Rate Term Loan will be converted to a LIBOR Term Loan and/or that any LIBOR Term
Loan will be continued at the expiration of the Interest Period applicable
thereto as a new LIBOR Term 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 "LIBOR Conversion/Continuation Notice"). The LIBOR
Conversion/Continuation 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 Term Loan requested (which shall be $1,000,000
or an integral multiple of $100,000 in excess of $1,000,000), must identify the
particular Term Loan or Loans so to be
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<PAGE> 6
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
all or any portion of any installment of a Term Loan included in a LIBOR Term
Loan if the Interest Period applicable thereto would continue after the due date
of such installment. Any LIBOR Conversion/Continuation 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 Term 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 Term Loan. At the expiration of each
Interest Period applicable to a LIBOR Term Loan, the principal amount of such
LIBOR Term Loan may be continued as a new LIBOR Term Loan to the extent and on
the terms and conditions contained in this letter agreement by delivery to the
Bank of a new LIBOR Conversion/Continuation Notice conforming to the
requirements set forth above in this ss.1.9 (and any LIBOR Term Loan not repaid
and not so continued as a new LIBOR Term Loan will be deemed to have been
converted into a Floating Rate Term Loan). Notwithstanding any other provision
of this letter agreement, the Bank need not make any LIBOR Term Loan nor allow
any conversion of a Floating Rate Term Loan to a LIBOR Term Loan at any time
when there exists any Default or Event of Default. In no event will more than
five Interest Periods be in effect at any one time.
Any election to convert all or any portion of the Term Loans to a LIBOR
Term 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.
The Bank may, in the future, at the Borrower's request provide to the
Borrower caps, collars, swaps and interest-rate protection products, on such
terms and for such periods as may be agreed upon by the Bank and the Borrower at
the time such facilities are provided.
1.10. INTEREST PAYMENTS ON ALL LOANS. The Borrower will pay interest on the
principal amount of the Loans outstanding from time to time, from the date
hereof until payment of the Loans and the Notes in full and the termination of
this letter agreement. Interest on Floating Rate Loans 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 on each Loan shall also be payable on the date of payment of the such
Loan 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 LIBOR Interest
Rate applicable thereto. Notwithstanding the foregoing, however, after any Event
of Default has occurred and for so long as same is continuing, interest on the
Loans will accrue and be payable 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 Prime Rate in
effect from time to time. All interest payable hereunder and/or under any Note
will be calculated on the basis of a 360-day year for the actual number of days
elapsed.
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1.11. 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
LIBOR 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) reserve-adjusted LIBOR will not, in the reasonable
determination of the Bank, adequately and fairly reflect the cost to
the Bank of funding 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.
1.12. PREPAYMENT OF LIBOR LOANS. The following provisions of this ss.1.12
shall be effective only with respect to LIBOR Loans: If, due to acceleration of
any Note or due to voluntary prepayment or mandatory repayment or 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 if for
any reason any LIBOR Loan is converted to a Floating Rate Loan prior to the
expiration of the relevant Interest Period, the Borrower shall, upon demand and
receipt of a Bank Certificate from the Bank with respect thereto, pay forthwith
to the Bank a yield maintenance fee in an amount computed as follows: The
current rate for United States Treasury securities (bills on a discounted basis
shall be converted to a bond equivalent) with a maturity date closest to the
last day of the Interest Period applicable to the affected LIBOR Loan shall be
subtracted from the "cost of funds" component (i.e., reserve-adjusted LIBOR) of
the fixed rate in effect at the date of such repayment, prepayment or
conversion. If the result is zero or a negative number, there shall be no yield
maintenance fee. If the result is a positive number, then the resulting
percentage shall be multiplied by the amount of the principal balance being so
repaid, prepaid or converted. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the relevant Interest Period. Said
amount shall be reduced to present value calculated by using the number of days
remaining in the relevant Interest Period and by using the above-referenced
United States Treasury securities rate as the discount rate.
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<PAGE> 8
The resulting amount shall be the yield maintenance fee due to the Bank upon
repayment, prepayment or conversion of the applicable LIBOR Loan. Any
acceleration of a LIBOR Loan due to an Event of Default will give rise to a
yield maintenance fee calculated with the respect to such LIBOR Loan on the date
of such acceleration in the same manner as though the Borrower had exercised a
right of prepayment at that date, such yield maintenance fee being due and
payable at that date.
1.13. 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 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 LIBOR Loan or the Bank's agreement to make LIBOR
Loans, or shall change the basis of taxation of payments to the Bank
of the principal of or interest on any LIBOR Loan or any other amounts
due under this letter agreement in respect of the LIBOR Loans or the
Bank's agreement to make LIBOR 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 LIBOR Loans
or the Bank's agreement to make LIBOR Loans
and the result of any of the foregoing is to increase the cost to the Bank
of making or maintaining any LIBOR Loan or to reduce the amount of any sum
received or receivable by the Bank under this letter agreement or under any
Note with respect to any LIBOR 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
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<PAGE> 9
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 with respect to any Loan (whether
or not then subject to any LIBOR Interest Rate) or any letter of credit
and/or with respect to the Bank's agreements hereunder to make Loans and/or
issue letters of credit to a level below that which the Bank could have
achieved (taking into consideration the Bank's policies with 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 terminate all outstanding letters of
credit, terminate this letter agreement and repay all 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.1.12, 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.1.13 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.1.13.
1.14. 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 converted into
Floating Rate Loans (with the Borrower to be responsible for any amount payable
under ss.1.12 as a consequence of such conversion) at the last day on which such
LIBOR Loans may
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legally remain outstanding. Except as provided above in this ss.1.14, the
Borrower will have no right to convert any LIBOR Loan to a Floating Rate Loan
prior to the end of the Interest Period applicable to such LIBOR Loan.
1.15. ADVANCES AND PAYMENTS. The proceeds of the Revolving Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank or otherwise as the Borrower may direct. The proceeds of each
Revolving Loan will be used by the Borrower for working capital and other
general corporate purposes.
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 letter agreement and/or any Note and/or with respect to
any letter of credit; 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 any Note or with respect to any
letter of credit.
Whenever any payment to be made to the Bank hereunder or under any Note or
with respect to any letter of credit 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 any Note and/or with respect to any
letter of credit 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 any Note
and/or with respect to any letter of credit shall be made to the Bank, in lawful
currency of the United States in immediately available funds, at its office at
One Federal Street, Boston, MA 02110 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, any Note and/or any of
the other Loan Documents and/or with respect to any letter of credit, next to
interest then accrued on account of any Loans or letter of credit obligations
and only thereafter to principal of the Loans and letter of credit reimbursement
obligations, being applied in such order as the Borrower may designate (and,
failing such designation, being applied first against the letter of credit
reimbursement obligations, next against the Revolving Loans and thereafter
against installments of the Term Loans in inverse order of normal maturity).
1.16. LETTERS OF CREDIT. At the Borrower's request, the Bank may, from time
to time, in its sole discretion issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Revolving Bank Liabilities will in no event
exceed $3,000,000. Any such letter of credit will be issued for such fee and
upon such terms and conditions as may be agreed to by the Bank and the Borrower
at the time of issuance. The Borrower hereby authorizes the Bank, without
further request from the Borrower, to cause the Borrower's liability to the Bank
for reimbursement of funds drawn under
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<PAGE> 11
any such letter of credit to be repaid from the proceeds of a Revolving Loan to
be made hereunder. The Borrower hereby irrevocably requests that such Revolving
Loans be made.
1.17. CONDITIONS TO ADVANCE. Prior to the making of the initial Revolving
Loan hereunder or the issuance of any letter of credit hereunder, the Borrower
shall deliver to the Bank duly executed copies of this letter agreement, the
Pledge Agreement, the Notice, the Revolving 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 Revolving Loan or letter of credit
issuance (including the initial Revolving Loan or letter of credit issuance) is
subject to the further conditions precedent that on the date on which such
Revolving Loan is made or such letter of credit is issued (and after giving
effect thereto):
(a) All statements, representations and warranties of the Borrower made in
this letter agreement shall continue to be correct in all material respects as
of the date of such Revolving Loan or issuance of such letter of credit, as the
case may be.
(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 date of such Revolving Loan or issuance of such letter
of credit, as the case may be.
(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.
(d) No 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 Revolving Loan or for the issuance of
a letter of credit, and each acceptance by the Borrower of the proceeds of any
Revolving Loan or delivery of a letter of credit, will be deemed a
representation and warranty by the Borrower that at the date of such Revolving
Loan or letter of credit issuance, as the case may be, and after giving effect
thereto, all of the conditions set forth in the foregoing clauses (a)-(d) of
this ss.1.17 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 Revolving Loans and/or issue letters of
credit hereunder, the Borrower warrants and represents to the Bank as follows:
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<PAGE> 12
(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 liens contemplated by the Pledge 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,
except as disclosed on said item 2.1(a) of the attached Disclosure Schedule.
(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 2.1(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 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.
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<PAGE> 13
(e) There are no actions, suits or proceedings filed against the Borrower
or any Subsidiary of the Borrower, nor (to the knowledge of the Borrower) any
investigations pending against the Borrower or any Subsidiary of the Borrower,
nor (to the knowledge of the Borrower) any actions, suits, proceedings or
investigations threatened by or against the Borrower or any Subsidiary of 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 or any Subsidiary of the Borrower.
(f) Neither the Borrower nor any Subsidiary of the Borrower is in
violation of any term of its charter or by-laws as now in effect. To the best
knowledge of the Borrower, neither the Borrower nor any Subsidiary of the
Borrower is 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 (and has caused each of its Subsidiaries to
file) all federal, foreign, state and local tax returns, reports and estimates
required to be filed by the Borrower and/or by any such Subsidiary. To the best
knowledge of the Borrower, all such filed returns, reports and estimates are
proper and accurate and the Borrower or the relevant Subsidiary 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 (and each Subsidiary of 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 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,
1998 and the management-generated statements of the Borrower as at June 30,
1999, each 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
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<PAGE> 14
notes thereto that could materially affect the financial condition of the
Borrower. Since December 31, 1998, 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 153 Second
Avenue, Waltham, MA 02154. All of the books and records of the Borrower are
located at said address. Except as described on item 2.1(j) of the attached
Disclosure Schedule, no assets of the Borrower are located at any address other
than at the above address.
(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.
(n) The Borrower has reviewed the software and hardware which it uses in
its business for "Year 2000" compliance and has determined that such software
and hardware will continue to function in the manner intended without
interruption of service or other difficulty resulting from the "Year 2000
problem". The Borrower will, at the request of the Bank, provide such reports
and such other information as the Bank may reasonably request in order to
evidence such Year 2000 compliance.
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 any Revolving Loan or any Term Loan or any
of the other Obligations shall be outstanding or any letter of credit issued
hereunder shall be outstanding:
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<PAGE> 15
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 with (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, 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 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
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<PAGE> 16
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 its primary operating accounts
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
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.
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<PAGE> 17
(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 ss.ss.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
"management letter" prepared by such accountants.
(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 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.
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<PAGE> 18
(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 of the Borrower (commencing with its results as at June 30, 1999), a
consolidated Capital Base of not less than $60,000,000.
3.8. LIQUIDITY. The Borrower will maintain, as at the end of each fiscal
quarter of the Borrower (commencing with its results as at June 30, 1999), 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 its results
as at June 30, 1999), 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 $50,000,000.
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 its 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 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.
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<PAGE> 19
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 any Revolving Loan or any Term Loan or any
of the other Obligations shall be outstanding or any letter of credit issued
hereunder 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 Notes and any Indebtedness in respect of
letters of credit issued by the Bank;
(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 ss.ss.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;
(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.
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<PAGE> 20
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 (including, without limitation, any trustee process
affecting any account maintained by the Borrower with the Bank), 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.
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,
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<PAGE> 21
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 (i)
existing officer loans described in item 4.5 of the attached Disclosure Schedule
and (ii) future advances to 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 future 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 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
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<PAGE> 22
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, sale 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 premises described in the first
sentence of ss.2.1(j), without, in each instance, giving the Bank at least 30
days' prior written notice 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 and/or the Pledge
Agreement. The Borrower will 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 rights of the Bank
and the obligations of the Borrower hereunder.
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<PAGE> 23
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 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 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:
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<PAGE> 24
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note or any Term Note on or before the date when due
and such failure to pay shall continue for 5 days after the relevant due date;
or the Borrower shall fail to pay when due any amount owed to the Bank with
respect to any letter of credit now or hereafter issued by the Bank 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 Loan
or letter of credit 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.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
(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
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<PAGE> 25
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 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 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, the Pledge 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 liens of the Bank in and on any of the Collateral covered or
intended to be covered by the Security Agreement or the Pledge Agreement shall
for any reason (other than written release by the Bank) not be fully perfected
liens; 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.
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 each of the Notes then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement,
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<PAGE> 26
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 revolving financing arrangements provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Pledge
Agreement, under the Revolving Note, under each 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 also 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. ANY AND ALL
RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE
BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
5.4. LETTERS OF CREDIT. Without limitation of any other right or remedy of
the Bank, (i) if an Event of Default shall have occurred and the Bank shall have
accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.
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
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<PAGE> 27
agreement, the Pledge Agreement, the Revolving Note and all other instruments
and documents to be delivered in connection with any Loan or letter of credit
issued hereunder 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 Pledge Agreement, the Revolving Note, the Term Notes,
the Security Agreement 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 Pledge Agreement,
the Revolving Note, the Term Notes, the Security Agreement 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
any of the Notes (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 within arrangements for Revolving Loans, the
Borrower is this day paying to the Bank a non-refundable facility fee of
$15,000. 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.
153 Second Avenue
Waltham, MA 02154
Attention: Paul Mellett, Chief Financial Officer
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<PAGE> 28
If to the Bank:
Fleet National Bank
High Technology Division
Mail Code: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Kimberly A. Martone, Senior 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, any of the Loans, any of the Notes and/or any letters
of credit issued hereunder. Without limitation of the foregoing generality,
(i) The Bank may at any time pledge all or any portion of its rights
under the Loan Documents (including any portion of any Note) to any of the
12 Federal Reserve Banks organized under Section 4 of the Federal Reserve
Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall
release the Bank from its obligations under any of the Loan Documents.
(ii) The Bank shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to the Borrower, to
grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in any or all of the Loans held by
the Bank hereunder. In the event of any such grant by the Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower, the Bank shall remain responsible for the performance of its
obligations hereunder and the Borrower shall continue to deal solely and
directly with the Bank in connection with the Bank's rights and obligations
hereunder. The Bank may furnish any information concerning the Borrower in
its possession from time to time to prospective assignees and Participants;
provided that the Bank shall require any such prospective assignee or
Participant to agree in writing to maintain the confidentiality of such
information to the same extent as the Bank would be required to maintain
such confidentiality.
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<PAGE> 29
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 all
Loans and all interest thereon and all fees and charges payable in connection
therewith and all letters of credit issued hereunder have been terminated.
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 any of the
Notes. 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 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 Notes shall be governed
by, and construed and enforced in accordance with, the laws of The Commonwealth
of Massachusetts.
6.9. REPLACEMENT NOTE. Upon receipt of an affidavit of an officer of the
Bank as to the loss, theft, destruction or mutilation of any Note or of any
other Loan Document which is not of public record and, in the case of any such
mutilation, upon surrender and cancellation of the relevant Note or other Loan
Document, the Borrower will issue, in lieu thereof, a replacement Note or other
Loan Document in the same principal amount (as to any Note) and in any event of
like tenor.
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<PAGE> 30
6.10. USURY. All agreements between the Borrower and the Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of any Note or otherwise, shall the amount
paid or agreed to be paid to the Bank for the use or the forbearance of the
Indebtedness represented by any Note exceed the maximum permissible under
applicable law. In this regard, it is expressly agreed that it is the intent of
the Borrower and the Bank, in the execution, delivery and acceptance of the
Notes, to contract in strict compliance with the laws of The Commonwealth of
Massachusetts. If, under any circumstances whatsoever, performance or
fulfillment of any provision of any of the Notes or any of the other Loan
Documents at the time such provision is to be performed or fulfilled shall
involve exceeding the limit of validity prescribed by applicable law, then the
obligation so to be performed or fulfilled shall be reduced automatically to the
limits of such validity, and if under any circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced by the Notes and not to the payment
of interest. The provisions of this ss.6.10 shall control every other provision
of this letter agreement and of each Note.
6.11. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT, ANY NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ENTER
INTO THIS LETTER AGREEMENT AND TO MAKE LOANS AS CONTEMPLATED HEREIN.
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:
"Aggregate Revolving Bank Liabilities" - At any time, the sum of (i) the
principal amount of all Revolving Loans then outstanding, PLUS (ii) all then
undrawn amounts of letters of credit issued by the Bank for the account of the
Borrower, PLUS (iii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"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.1.9, ss.1.12, ss.1.13 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
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<PAGE> 31
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 another
day on which banks in Boston, Massachusetts are authorized or directed to close;
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).
"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.
"Collateral" - All of the "Collateral", as defined in the Pledge Agreement
and/or the Security Agreement, whether now existing and owned by the Borrower or
hereafter arising or acquired.
"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" - As determined for any period, the consolidated Net
Income (or consolidated Net Loss, expressed as a negative number) of the
Borrower and Subsidiaries for such 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
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<PAGE> 32
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, as
the case may be) 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, as the case may be) for the period involved, but minus
all cash taxes paid during such period by the Borrower and/or any of its
Subsidiaries.
"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.
"Event of Default" - As defined in ss.5.1.
"Expiration Date" - September 30, 2002, unless extended by the Bank, which
extension may be given or withheld by the Bank in its sole discretion.
"Facility One Term Loans" - As defined in ss.1.5.
"Facility One Term Note" - As defined in ss.1.1.
"Facility Two Term Loans" - As defined in ss.1.7.
"Facility Two Term Note" - As defined in ss.1.1.
"Floating Rate" - As defined in ss.1.4.
"Floating Rate Loan" - Any Loan which is a Floating Rate Revolving Loan or
a Floating Rate Term Loan.
"Floating Rate Revolving Loan" - Any Revolving Loan which bears interest at
a rate calculated with reference to the Prime Rate.
"Floating Rate Term 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.
- 32 -
<PAGE> 33
"Impositions" - All present and future taxes, levies, duties, impositions,
deductions, charges and withholdings applicable to the Bank with respect to any
LIBOR Loan, excluding, 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, (C) no Interest
Period may be selected as to all or any portion of any installment of principal
of any Term Loan if such Interest Period would end after the regularly-scheduled
due date of such installment of principal, and (D) no Interest Period may be
selected as to any Revolving Loan which would end after the Expiration Date.
"LIBOR" - With respect to each Interest Period for a LIBOR Loan, that rate
per annum (rounded upward, if necessary, to the nearest 1/32nd of one percent)
which represents the offered rate for deposits in U.S. Dollars, for a period of
time comparable to such Interest Period, which appears on the Telerate page 3750
as of 11:00 a.m. (London time) on that day that is two (2) London Banking Days
preceding the first day of such Interest Period; provided, however, that if the
rate described above does not appear on the Telerate System on any applicable
interest determination date, LIBOR for such Interest Period shall be the rate
(rounded upwards as described above, if necessary) for deposits in dollars for a
period substantially equal to such Interest Period shown on the Reuters Page
"LIBO" (or such other page as may replace the LIBO Page on that service for the
purpose of displaying such rates), as of 11:00 a.m. (London Time), on that day
that is two (2) London Banking Days prior to the beginning of such Interest
Period. "London Banking Day" shall mean any date on which commercial banks are
open for business in London. If both the Telerate and Reuters systems are
unavailable, then LIBOR for any Interest
- 33 -
<PAGE> 34
Period will be determined on the basis of the offered rates for deposits in U.S.
Dollars for a period of time comparable to such Interest Period which are
offered by four major banks in the London interbank market at approximately
11:00 a.m., London time, on that day that is two (2) London Banking Days
preceding the first day of such Interest Period, as selected by the Bank. The
principal London office of each of four major London banks will be requested to
provide a quotation of its U.S. Dollar deposit offered rate. If at least two
such quotations are provided, the rate for that date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S. Dollars to leading European banks for a period of time comparable to
such Interest Period offered by major banks in New York City at approximately
11:00 a.m., New York City time, on that day that is two London Banking Days
preceding the first day of such Interest Period. In the event that the Bank is
unable to obtain any such quotation as provided above, it will be deemed that
LIBOR for the proposed Interest Period cannot be determined. The Bank shall give
prompt notice to the Borrower of LIBOR as determined for each LIBOR Loan and
such notice shall be deemed conclusively correct, absent manifest error.
"LIBOR Interest Rate" - For any Interest Period, an interest rate per
annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:
*LIR = LIBOR + 1.55
-----------
[1.00 - RR]
Where LIR = LIBOR Interest Rate
LIBOR = See definition of LIBOR
RR = Reserve Rate
*LIR to be rounded upwards to the next
higher 1/32nd of 1%
The LIBOR Interest Rate will be adjusted during any Interest Period to reflect
any change in the Reserve Rate during such Interest Period.
"LIBOR Loan" - Any Loan which is a LIBOR Revolving Loan or a LIBOR Term
Loan.
"LIBOR Revolving Loan" - Any Revolving Loan which bears interest at a LIBOR
Interest Rate.
"LIBOR Term Loan" - All or any portion of a Term Loan which bears interest
at a LIBOR Interest Rate.
"Loan" - Any Revolving Loan or any Term Loan.
"Loan Documents" - Each of this letter agreement, the Revolving Note, the
Term Notes, the Pledge Agreement, the Notice, the Security Agreement and each
other instrument, document
- 34 -
<PAGE> 35
or agreement evidencing, securing, guaranteeing or relating in any way to any of
the Loans or to any letters of credit issued hereunder, all whether now existing
or hereafter arising or entered into.
"London" - The City of London in England.
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) $3,000,000 exceeds (y) the sum of (i) all
then undrawn amounts of letters of credit issued by the Bank for the account of
the Borrower PLUS (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"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).
"Notes" - Collectively, the Revolving Note and the Term Notes.
"Notice" - As defined in ss.1.1.
"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.
"Pledge Agreement" - As defined in ss.1.1.
"Prime Rate" - That variable rate of interest per annum designated by the
Bank, from time to time, as being 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.
"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
- 35 -
<PAGE> 36
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 on 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 LIBOR Loans. The LIBOR
Interest Rate shall be adjusted automatically on and as of the effective date of
any change in the Reserve Rate.
"Revolving Loans" - As defined in ss.1.2.
"Revolving Note" - As defined in ss.1.1.
"SEC" - The Securities and Exchange Commission or any successor thereto.
"Security Agreement" - As defined in ss.1.1.
"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).
- 36 -
<PAGE> 37
"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.
"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 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.
7.2. MODIFICATIONS TO FACILITY ONE TERM NOTE AND FACILITY TWO TERM NOTE.
Each of the Facility One Term Note and the Facility Two Term Note is deemed
modified as follows:
(i) All references in each of the Facility One Term Note and the
Facility Two Term Note to a "Eurodollar Interest Rate" will be deemed to
refer to the LIBOR Interest Rate, as determined pursuant to ss.7.1 above.
(ii) All references in each of the Facility One Term Note and the
Facility Two Term Note to a "COF Interest Rate" are deemed deleted.
(iii) All references in each of the Facility One Term Note and the
Facility Two Term Note to "Fixed Rate Loans" will be deemed to refer to
LIBOR Term Loans, as defined in ss.7.1 above.
(iv) All references in the second, fourth, sixth, eighth and ninth
grammatical paragraphs of each of the Facility One Term Note and the
Facility Two Term Note to a "Letter Agreement" will be deemed to refer to
this letter agreement.
- 37 -
<PAGE> 38
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/ Paul J. Mellett
-------------------------------
Name: Paul J. Mellett
Title: Chief Financial Officer
Accepted and agreed:
FLEET NATIONAL BANK
By /s/ Kimberly A. Martone
-------------------------------
Name: Kimberly A. Martone
Title: Senior Vice President
<PAGE> 39
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries,
Partnerships and Joint Ventures
Item 2.1(b) 5% Stockholders
Item 2.1(i) Liabilities not shown on financial statements
Item 2.1(j) Locations of Borrower's assets
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 4.5 Existing officer loans
Item 7.1 Investment Guidelines
<PAGE> 1
EXHIBIT 4.2
PROMISSORY NOTE
$3,000,000.00 Boston, Massachusetts
October 4, 1999
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.1.2 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 (except as
described in the next sentence) 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 if all or any portion of outstanding Principal is
represented by a LIBOR Revolving Loan (as defined in the Letter Agreement) for
any Interest Period (as defined in the Letter Agreement), then interest for such
Interest Period on such LIBOR Revolving Loan shall be payable at the applicable
LIBOR Interest Rate (determined as provided in the Letter Agreement) on the
Interest Payment Date (as defined in the Letter Agreement) applicable to such
Interest Period. After the occurrence and during the continuance of any Event of
Default (as defined in the Letter Agreement), interest will accrue and be
payable under this note 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 (but in no event excessive of the maximum
rate permitted by then applicable law). As used herein, "Prime Rate" means that
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.
All outstanding Principal and all interest accrued thereon shall be due and
payable in full on the first to occur of: (i) an acceleration under ss.5.2 of
the Letter Agreement or (ii) September 30, 2002. The Borrower may at any time
and from time to time prepay all or any portion of said
<PAGE> 2
Principal, without premium or penalty, but, as to LIBOR Revolving Loans, only at
the times and in the manner, and with the yield maintenance fee (if any),
provided for in the Letter Agreement. Under certain circumstances set forth in
the Letter Agreement, prepayments of Principal may be required.
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 One Federal Street, Boston, Massachusetts 02110, 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 Revolving Loan (as defined in the Letter
Agreement) and of receiving any payment of Principal, an appropriate notation
reflecting such transaction 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 Revolving 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
all 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 Revolving Note referred to in the Letter Agreement. This
note is secured by, and is entitled to the benefits of, the Security Agreement
(as defined in the Letter Agreement). This note is subject to prepayment (with a
yield maintenance fee consequent thereon in certain cases, as more fully
described in the Letter Agreement) 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
- 2 -
<PAGE> 3
INDUCEMENT FOR THE BANK TO ACCEPT THIS NOTE AND TO MAKE 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
- ---------------------------- --------------------
Secretary Name: Paul J. Mellett
Title: Chief Financial Officer
- 3 -
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO PROMISSORY NOTE
----------------------------
THIS AMENDMENT dated at of October 29, 1999, (the "Amendment") is made by
and between Dr. Douglas Reed (the "Borrower") and GelTex Pharmaceuticals, Inc.,
a Delaware corporation (the "Lender") and amends the Promissory Note in the
amount of $100,000 executed in Waltham, Massachusetts and dated December 1,
1998.
R E C I T A L S
WHEREAS, Dr. Douglas Reed and GelTex Pharmaceuticals, Inc. are parties to
that certain Promissory Note dated December 1, 1998;
WHEREAS, Dr. Douglas Reed and GelTex Pharmaceuticals, Inc. desire to amend
the Promissory Note to extend the Maturity Date of said note;
NOW, THEREFORE, the parties mutually agree as follows:
The Maturity Date of this Promissory Note shall be the earlier of (i)
fifteen days following the closing date of the Borrower's sale of the property
located at 3021 E. Thackeray Place, Salt Lake City, Utah or (ii) March 31, 2000.
Executed as a sealed instrument as of the day and year first above written.
BORROWER:
/s/ Douglas Reed
- ----------------------------
Douglas Reed
LENDER:
GELTEX PHARMACEUTICALS, INC.
By:
/s/ Paul J. Mellett, Jr.
- ---------------------------
Paul J. Mellett, Jr., Vice President
Finance and Administration
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO PROMISSORY NOTE
----------------------------
THIS AMENDMENT dated at of October 29, 1999, (the "Amendment") is made by
and between Dr. Douglas Reed (the "Borrower") and GelTex Pharmaceuticals, Inc.,
a Delaware corporation (the "Lender") and amends the Promissory Note in the
amount of $150,000 executed in Waltham, Massachusetts and dated December 31,
1998.
R E C I T A L S
WHEREAS, Dr. Douglas Reed and GelTex Pharmaceuticals, Inc. are parties to
that certain Promissory Note dated December 31, 1998;
WHEREAS, Dr. Douglas Reed and GelTex Pharmaceuticals, Inc. desire to amend
the Promissory Note to extend the Maturity Date of said note;
NOW, THEREFORE, the parties mutually agree as follows:
The Maturity Date of this Promissory Note shall be the earlier of (i)
fifteen days following the closing date of the Borrower's sale of the property
located at 3021 E. Thackeray Place, Salt Lake City, Utah or (ii) March 31, 2000.
Executed as a sealed instrument as of the day and year first above written.
BORROWER:
/s/ Douglas Reed
- -------------------------------
Douglas Reed
LENDER:
GELTEX PHARMACEUTICALS, INC.
By:
/s/ Paul J. Mellett, Jr.
- -------------------------------
Paul J. Mellett, Jr., Vice President
Finance and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 6,028,577
<SECURITIES> 56,161,537
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,035,022
<CURRENT-ASSETS> 81,105,451
<PP&E> 12,337,853
<DEPRECIATION> 4,697,160
<TOTAL-ASSETS> 101,285,887
<CURRENT-LIABILITIES> 3,737,073
<BONDS> 0
0
0
<COMMON> 168,727
<OTHER-SE> 93,426,189
<TOTAL-LIABILITY-AND-EQUITY> 101,285,887
<SALES> 0
<TOTAL-REVENUES> 6,186,317
<CGS> 0
<TOTAL-COSTS> 30,008,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 377,951
<INCOME-PRETAX> (26,584,480)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,584,480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,584,480)
<EPS-BASIC> (1.58)
<EPS-DILUTED> (1.58)
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