Exhibit 10.1

EXCHANGE AGREEMENT

 

This Exchange Agreement (this “Agreement”) is made as of the later of the dates
set forth opposite the parties’ signatures (the “Agreement Date”) by and between
Vertex Pharmaceuticals Incorporated, a Massachusetts corporation (the
“Company”), and Akanthos Arbitrage Master Fund, L.P., a Cayman Islands exempted
limited partnership (the “Investor”).

 

WHEREAS:  The Company originally issued $345,000,000 in aggregate principal
amount of 5% Convertible Subordinated Notes due 2007 (the “Notes”);

 

WHEREAS:  The Investor is the holder of the Notes described in Section 2(b) (the
“Exchange Notes”); and

 

WHEREAS:  The Investor has indicated to the Company its desire to exchange the
Exchange Notes for Common Stock of the Company (the “Common Stock”) and, after
negotiation between the parties hereto, such parties have agreed to affect such
exchange on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements herein contained and other valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the parties hereto agree as follows:

Section 1.               Agreement to Exchange Securities

(A)           EXCHANGE OF SECURITIES.  ON THE TERMS AND SUBJECT TO THE
CONDITIONS SET FORTH HEREIN, THE INVESTOR AGREES TO TRANSFER, OR CAUSE TO BE
TRANSFERRED, TO THE COMPANY ALL OF ITS RIGHT, TITLE AND INTEREST IN AND TO THE
EXCHANGE NOTES ON THE FOLLOWING BASIS: IN EXCHANGE FOR THE EXCHANGE NOTES, A
NUMBER OF SHARES OF FREELY TRADABLE COMMON STOCK (THE “EXCHANGED SHARES”) EQUAL
TO (I) 99% OF THE PRINCIPAL AMOUNT OF THE EXCHANGE NOTES PLUS 100% OF THE
ACCRUED AND UNPAID INTEREST ON THE EXCHANGE NOTES, DIVIDED BY (II) THE
DETERMINATION PRICE.

(B)           DETERMINATION PRICE.  THE DETERMINATION PRICE SHALL BE EQUAL TO
93% OF THE LESSER OF (I) THE ARITHMETIC AVERAGE OF THE CLOSING BID PRICES OF THE
COMMON STOCK ON THE AGREEMENT DATE AND FOR THE 9 CONSECUTIVE TRADING DAYS
IMMEDIATELY PRECEDING THE AGREEMENT DATE, AND (II) THE CLOSING BID PRICE OF THE
COMMON STOCK ON THE AGREEMENT DATE.

(C)           FRACTIONAL SHARES.  IN LIEU OF ISSUING FRACTIONAL SHARES, THE
COMPANY SHALL ISSUE THE HIGHEST WHOLE NUMBER OF EXCHANGED SHARES ACCORDING TO
THE FORMULA SET FORTH IN SECTION 1.1(A) PLUS CASH IN AN AMOUNT EQUAL TO THE
FRACTION OF AN EXCHANGED SHARE TO WHICH THE INVESTOR WOULD OTHERWISE BE ENTITLED
MULTIPLIED BY THE DETERMINATION PRICE.

(D)           CLOSING.  THE COMPLETION OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT (THE “CLOSING”) SHALL TAKE PLACE AS SOON AS PRACTICAL AND, IN ANY
EVENT, NO LATER THAN SEPTEMBER 9, 2005, OR SUCH OTHER DATE AS IS AGREED UPON BY
THE PARTIES (THE “CLOSING DATE”), AS FOLLOWS:

(i)            The Investor shall deliver or cause to be delivered the Exchange
Notes to the Company or the Company’s agent in such manner as shall be
acceptable to the Company and effective to convey all right, title and interest
of the Investor in the Exchange Notes

 

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to the Company against delivery of the Exchanged Shares by the Company through
the Depositary Trust Company to Morgan Stanley & Co, DTC # 050, FFC: Akanthos
Arbitrage Fund, Acct: 38C5591.

 

(ii)           The Company shall pay the Investor by wire transfer of
immediately available funds an amount equal to the cash value of any fractional
Exchanged Share, determined in accordance with the provisions of Section 1(c).

 

SECTION 2.               REPRESENTATIONS AND WARRANTIES

(A)           MUTUAL REPRESENTATIONS AND WARRANTIES.  EACH PARTY HERETO HEREBY
MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES TO THE OTHER PARTY HERETO AS
FOLLOWS:

(I)            IT IS A CORPORATION OR OTHER ENTITY DULY ORGANIZED, VALIDLY
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF ITS JURISDICTION OF
ORGANIZATION.

(II)           (X) IT HAS FULL POWER AND AUTHORITY TO ENTER INTO THIS AGREEMENT
AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, AND (Y) THE PERSON WHO
HAS EXECUTED THIS AGREEMENT IS DULY AUTHORIZED TO DO SO AND THEREBY BIND THE
PARTY ON WHOSE BEHALF HE OR SHE IS PURPORTING TO SIGN.

(III)          THIS AGREEMENT IS ITS VALID AND BINDING AGREEMENT, ENFORCEABLE
AGAINST IT IN ACCORDANCE WITH ITS TERMS, SUBJECT TO BANKRUPTCY AND SIMILAR LAWS
AND TO EQUITABLE PRINCIPLES.

(IV)          NEITHER THE EXECUTION AND DELIVERY OF THIS AGREEMENT, NOR THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY, WILL VIOLATE, RESULT IN A
BREACH OF ANY OF THE TERMS OR PROVISIONS OF, CONSTITUTE A DEFAULT UNDER,
ACCELERATE ANY OBLIGATIONS UNDER, OR CONFLICT WITH (X) ITS CERTIFICATE OF
INCORPORATION OR BYLAWS (OR OTHER ORGANIZATIONAL DOCUMENTS) OR ANY AGREEMENT,
INDENTURE OR OTHER INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ITS
PROPERTIES ARE BOUND, (Y) ANY JUDGMENT, DECREE, ORDER OR AWARD OF ANY COURT,
GOVERNMENTAL BODY OR ARBITRATOR TO WHICH IT IS SUBJECT, OR (Z) ANY LAW, RULE OR
REGULATION APPLICABLE TO IT.

(V)           IT HAS NOT, DIRECTLY OR INDIRECTLY, PAID ANY COMMISSION OR OTHER
REMUNERATION TO ANY PERSON FOR SOLICITING THE EXCHANGE OF THE EXCHANGE NOTES FOR
EXCHANGED SHARES AS CONTEMPLATED BY THIS AGREEMENT.

(B)           REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.  THE INVESTOR
HEREBY REPRESENTS AND WARRANTS TO THE COMPANY THAT IT

(I) IS THE SOLE LEGAL AND BENEFICIAL OWNER OF THE EXCHANGE NOTES, AND, UPON THE
CLOSING, THE COMPANY WILL ACQUIRE THE EXCHANGE NOTES FREE AND CLEAR OF ANY
LIENS, ENCUMBRANCES, PLEDGES, SECURITY INTERESTS OR OTHER RESTRICTIONS OR CLAIMS
OF THIRD PARTIES, OTHER THAN ANY OF THE FOREGOING CREATED BY THE COMPANY;

(II) IS NOT AN AFFILIATE OF THE COMPANY;

(III) HOLDS THE FOLLOWING EXCHANGE NOTES THAT WERE ACQUIRED BEFORE SEPTEMBER 1,
2005 IN THE PUBLIC MARKET AND ARE FREE OF RESTRICTIVE LEGEND: $11,518,000
PRINCIPAL AMOUNT OF  NOTES (CUSIP: 92532F AD 2);

 

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(iv) has had such opportunity as it has deemed adequate to obtain from
representatives of  the Company such information as is necessary to permit it to
evaluate the merits and risks of an investment in the Exchanged Shares;

 

(v) has sufficient experience in business, financial and investment matters to
be able to evaluate the risks involved in the acquisition of the Exchanged
Shares issued in respect of the Exchange Notes and to make an informed
investment decision with respect to such acquisition; and

 

(vi) on September 8, 2005, it (a) did not and will not, directly or indirectly,
issue, offer, sell, agree to issue, offer or sell, solicit offers to purchase,
grant any call option, warrant or other right to purchase, purchase any put
option or other right to sell, pledge, borrow, assign or otherwise dispose of
any Relevant Security (as defined below), and (b) did not and will not, directly
or indirectly, establish or increase any “put equivalent position” or liquidate
or decrease any “call equivalent position” with respect to any Relevant Security
(in each case within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and the rules and regulations promulgated
thereunder) with respect to any Relevant Security, or otherwise enter into any
swap, derivative or other transaction or arrangement that transfers to another,
in whole or in part, any economic consequence of ownership of a Relevant
Security, whether or not such transaction is to be settled by delivery of
Relevant Securities, other securities, cash or other consideration.    As used
herein, the term “Relevant Security” means the Common Stock, any other equity
security of the Company and any security convertible into, or exercisable or
exchangeable for, the Common Stock or any other such equity security.

 

(C)           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  THE COMPANY HEREBY
REPRESENTS AND WARRANTS TO THE INVESTOR THAT UPON ISSUANCE, THE EXCHANGED SHARES
WILL BE DULY AND VALIDLY AUTHORIZED AND ISSUED, FULLY PAID AND NONASSESSABLE,
AND THAT THE INVESTOR WILL ACQUIRE SUCH COMMON STOCK FREE AND CLEAR OF ANY
LIENS, ENCUMBRANCES, PLEDGES, SECURITY INTERESTS OR OTHER RESTRICTIONS OR CLAIMS
OF THIRD PARTIES, OTHER THAN ANY OF THE FOREGOING CREATED BY THE INVESTOR.  THE
COMPANY REPRESENTS AND WARRANTS TO THE INVESTOR THAT THE EXCHANGED SHARES TO BE
ISSUED IN EXCHANGE FOR THE EXCHANGE NOTES SHALL BE ISSUED PURSUANT TO A VALID
EXEMPTION FROM REGISTRATION UNDER SECTION 3(A)(9) OF THE SECURITIES ACT OF 1933,
AS AMENDED, IN ORDER TO MAKE THEM FREELY SALABLE INTO THE PUBLIC MARKET IN THE
HANDS OF THE INVESTOR.

(D)           SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  ALL REPRESENTATIONS,
WARRANTIES AND AGREEMENTS OF EACH PARTY HERETO SHALL SURVIVE THE CLOSING.

SECTION 3.               MISCELLANEOUS

(A)           FURTHER ASSURANCES.  EACH PARTY HERETO SHALL PROPERLY EXECUTE AND
DELIVER SUCH FURTHER AGREEMENTS AND INSTRUMENTS, AND TAKE SUCH FURTHER ACTIONS,
AS THE OTHER PARTY MAY REASONABLY REQUEST IN ORDER TO CARRY OUT THE PURPOSES AND
INTENT OF THIS AGREEMENT.

(B)           EXCLUSIVITY.  THE COMPANY HEREBY AGREES THAT CONCURRENTLY WITH THE
CLOSING AND FOR A 90 DAY PERIOD BEGINNING ON THE CLOSING DATE, THE COMPANY WILL
NOT ENGAGE IN ANY TRANSACTION OR TRANSACTIONS THAT WOULD RESULT IN THE EXCHANGE
OF NOTES WITH AN AGGREGATE PRINCIPAL AMOUNT IN EXCESS OF $40,450,000 (INCLUDING
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, WHICH SHALL NOT EXCEED SUCH
AMOUNT).

(C)           CONFIDENTIALITY.  THE PARTIES HERETO AGREE TO KEEP CONFIDENTIAL
AND TO NOT DISCLOSE THE TERMS, PROVISIONS, OR EXISTENCE OF THIS AGREEMENT,
EXCEPT AS THE PARTIES REASONABLY BELIEVE SUCH DISCLOSURE IS REQUIRED BY
APPLICABLE LAW, PROVIDED, HOWEVER, THAT THE COMPANY SHALL BE ENTITLED, WITHOUT
THE PRIOR APPROVAL OF THE INVESTOR, TO MAKE ANY PRESS RELEASE OR OTHER PUBLIC
DISCLOSURE WITH RESPECT TO SUCH TRANSACTIONS AS IS REQUIRED BY APPLICABLE LAW
AND REGULATIONS, INCLUDING THE EXCHANGE ACT AND THE RULES

 

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AND REGULATIONS PROMULGATED THEREUNDER, INCLUDING THE PUBLIC FILING OF THIS
AGREEMENT (ALTHOUGH THE INVESTOR SHALL BE CONSULTED BY THE COMPANY IN CONNECTION
WITH ANY SUCH PRESS RELEASE OR OTHER PUBLIC DISCLOSURE PRIOR TO ITS RELEASE AND
SHALL BE PROVIDED WITH A COPY THEREOF).

(D)           NOTICES.  ALL NOTICES, REQUESTS, DEMANDS AND OTHER COMMUNICATIONS
HEREUNDER SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN IF DELIVERED PERSONALLY,
BY FACSIMILE TRANSMISSION (WITH SUBSEQUENT LETTER CONFIRMATION BY MAIL), BY
OVERNIGHT COURIER OR TWO DAYS AFTER BEING MAILED BY CERTIFIED OR REGISTERED
MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE PARTIES, THEIR
SUCCESSORS IN INTEREST OR THEIR ASSIGNEES AT THE FOLLOWING ADDRESSES, OR AT SUCH
OTHER ADDRESSES AS THE PARTIES MAY DESIGNATE BY WRITTEN NOTICE IN THE MANNER
AFORESAID:

If to the Investor:                                                   Akanthos
Arbitrage Master Fund, L.P.
c/o Akanthos Capital Management, LLC
21700 Oxnard Street, Suite 1520
Woodland Hills, California 91367
Facsimile: 818-883-8271

 

If to the Company:                                             Vertex
Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, Massachusetts 02139
Attention: The Office of General Counsel
Facsimile: 617-444-6483

 

(E)           ASSIGNABILITY AND PARTIES IN INTEREST. THIS AGREEMENT SHALL NOT BE
ASSIGNABLE BY ANY OF THE PARTIES HERETO WITHOUT THE CONSENT OF THE OTHER PARTY
HERETO.  THIS AGREEMENT SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE
PARTIES AND THEIR RESPECTIVE PERMITTED SUCCESSORS AND ASSIGNS.

(F)            GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAW, AND NOT THE LAW
PERTAINING TO CONFLICTS OF LAW, OF THE STATE OF NEW YORK.

(G)           COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN SEVERAL
COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF WHICH SHALL
CONSTITUTE ONE AND THE SAME INSTRUMENT.

(H)           COMPLETE AGREEMENT.  THIS AGREEMENT IS AN INTEGRATED AGREEMENT
CONTAINING THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT MATTER HEREOF AND SHALL SUPERSEDE ALL PREVIOUS AND ALL CONTEMPORANEOUS
ORAL OR WRITTEN NEGOTIATIONS, COMMITMENTS OR UNDERSTANDINGS.

(I)            MODIFICATIONS, AMENDMENTS AND WAIVER.  THIS AGREEMENT MAY BE
MODIFIED, AMENDED OTHERWISE SUPPLEMENTED OR TERMINATED ONLY BY A WRITING SIGNED
BY THE PARTY AGAINST WHOM IT IS SOUGHT TO BE ENFORCED.  NO WAIVER OF ANY RIGHT
OR POWER HEREUNDER SHALL BE DEEMED EFFECTIVE UNLESS AND UNTIL A WRITING WAIVING
SUCH RIGHT OR POWER IS EXECUTED BY THE PARTY WAIVING SUCH RIGHT OR POWER.

(J)            NO THIRD PARTY BENEFICIARIES. THERE ARE NO THIRD PARTY
BENEFICIARIES UNDER THIS AGREEMENT OR INTENDED BY ANY PARTY HERETO.

(K)           EXPENSES.  EACH PARTY HERETO SHALL BEAR ITS OWN COSTS AND
EXPENSES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES, INCURRED IN CONNECTION
WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

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(L)            CONTRACT INTERPRETATION AND CONSTRUCTION OF AGREEMENT.  THIS
AGREEMENT IS THE JOINT DRAFTING PRODUCT OF THE COMPANY AND THE INVESTOR, AND
EACH PROVISION HAS BEEN SUBJECT TO NEGOTIATION AND AGREEMENT WITH THE ADVICE OF
COUNSEL AND SHALL NOT BE CONSTRUED FOR OR AGAINST EITHER PARTY AS THE DRAFTER
THEREOF.

 

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                IN WITNESS WHEREOF, each of the Company and the Investor have
caused this Agreement to be signed by their respective duly authorized officers
as of the date first written above.

 

 

Vertex Pharmaceuticals Incorporated

 

 

 

Date: September 8, 2005

By:

/s/ JOSHUA S. BOGER

 

 

Joshua S. Boger, Chief Executive Officer

 

 

 

 

 

 

 

Akanthos Arbitrage Master Fund, L.P.

 

 

 

 

By:

Akanthos Capital Management, LLC,

 

 

its general partner

 

 

 

Date: September 8, 2005

By:

/s/ MICHAEL KAO

 

 

Name:

Michael Kao

 

 

Title:

Managing Member

 

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