Exhibit 10.3

 

Exchange Agreement

 

This Exchange Agreement (this “Agreement”), dated as of September 8, 2005, is
entered into between Vertex Pharmaceuticals Incorporated (the “Company”) and
Quattro Fund, Ltd., Quattro Multi-Strategy Master Fund, LP, Partners Group
Alternative Strategies PCC Limited, Red Delta Cell and Institutional Benchmark
Series (Master Feeder) Limited in Respect of Electra Series (collectively,
“Quattro”).

 

Recitals: 1.  Quattro wishes to exchange a total of $5,311,000 par value  of 5%
Convertible Subordinated Notes due 2007 (the “Notes”) issued by the Company. 
2.  Quattro and the Company have agreed that it is in their mutual interest to
exchange the Notes for shares of the common stock of the Company (the “Stock”). 
3.  In consideration of the premises and the agreements and representations
contained herein, the parties hereto agree as follows:

 

A. Agreement to Exchange Securities

 (1) EXCHANGE OF SECURITIES.  ON THE TERMS AND SUBJECT TO THE CONDITIONS SET
FORTH HEREIN, THE QUATTRO AGREES TO TRANSFER, OR CAUSE TO BE TRANSFERRED, TO THE
COMPANY ALL OF ITS RIGHT, TITLE AND INTEREST IN AND TO THE NOTES DESCRIBED IN
SECTION C(8) (THE “EXCHANGE NOTES”) IN EXCHANGE FOR A NUMBER OF SHARES OF STOCK
(THE “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 THROUGH AND
INCLUDING THE DATE HEREOF, DIVIDED BY (II) THE DETERMINATION PRICE.

(2)  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 for the 10 consecutive trading days ending on and including the date
hereof, and (ii) the closing bid price of the Common Stock on the date hereof.
“Trading day” shall mean any day on which the Common Stock is traded for any
period on the Nasdaq National Market.

 

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

(4) 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 Quattro 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 Quattro in
the Exchange Notes to the Company against delivery of the Shares by the Company
through the Depositary Trust Company to the broker accounts listed on Exhibit A.
The Shares shall be issued to the Quattro entities pro rata based on the par
value of the Notes exchanged by each such entity.

 

(II) THE COMPANY SHALL PAY THE QUATTRO BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE
FUNDS AN AMOUNT EQUAL TO THE CASH VALUE OF ANY FRACTIONAL SHARE, DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION A(3).

 

(5) THE COMPANY SHALL BE ENTITLED TO DEDUCT AND WITHHOLD FROM THIS CONSIDERATION
SUCH AMOUNT AS MAY BE REQUIRED TO BE DEDUCTED AND WITHHELD WITH RESPECT TO THE
MAKING OF SUCH PAYMENT UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR
UNDER ANY PROVISION OF STATE, LOCAL OR FOREIGN LAW.

 

 B.  Company Representations and Warranties.

 

The Company represents and warrants to Quattro that:

 

(1) upon issuance, the Shares are validly issued, fully paid, nonassessable and
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 Quattro;

 

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(2) the Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 3(a)(9) of the Securities Act (as defined below) and
that the reliance of the Company on such exemption is predicated in part on
Quattro’s representations set forth herein;

 

(3) the issuance and delivery of the Shares to Quattro does not violate: (a) the
Company’s charter documents; (b) any agreement to which the Company is a party,
including any indenture; or (c) any  federal or state statute, rule or
regulation applicable to it;

 

(4) the Company is duly organized and validly existing under the laws of the
jurisdiction of its formation and has the requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement;

 

(5) this Agreement has been duly executed and delivered by the Company and
constitutes a valid and legally binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws and court decisions affecting the enforcement of
creditors’ right generally or by equitable principles relating to enforceability
(regardless of whether considered in a proceeding at law or in equity) and

 

(6) no representation or warranty contained herein or information appearing in
any writing furnished to Quattro contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.

 

C.  Quattro Representations and Warranties.

 

Quattro, on behalf of each of the Quattro entities,  represents and warrants:

 

(1) Each of the Quattro entities (a) is a limited partnership, corporation,
partnership or limited liability company duly organized and validly existing
under the laws of the jurisdiction of its formation and (b) has the requisite
partnership corporate or limited liability company, as the case may be, power
and authority to execute, deliver and perform its obligations under this
Agreement.

 

(2) The execution, delivery and performance by it of this Agreement and the
transactions contemplated hereby (a) have been duly authorized by all necessary
partnership, corporate or limited liability company, as the case may be, action,
of each Quattro entity, (b) do not contravene the terms of each of such entities
organizational documents, or any amendment thereof, and (c) do not violate,
conflict with or result in any breach or contravention of, or the creation of
any lien under any agreement to which any of the Quattro entities is a party; or
(c) any  federal or state statute, rule or regulation applicable to any of the
Quattro entities.

 

(3) This Agreement has been duly executed and delivered by it and constitutes
its valid and legally binding obligation, enforceable against each of the
Quattro entities in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws and court decisions affecting
the enforcement of creditors’ rights generally or by equitable principles
relating to enforceability (regardless of whether considered in a proceeding at
law or in equity).

 

(4) Each of the Quattro entities understands that the Shares will not be
registered at the time of their issuance under the Securities Act for the reason
that the sale provided for in this Agreement is exempt pursuant to Section
3(a)(9) of the Securities Act and that the reliance of the Company on such
exemption is predicated in part on its representations set forth herein.

 

(5) Each of the Quattro entities believes that it has received all the
information it considers necessary or appropriate for deciding whether to make
an investment in the Shares.  It has  reviewed all of the Company’s registration
statements, proxy statement, periodic filings and other reports filed with the
Securities and Exchange Commission, including the Company’s Annual Report to
Stockholder on Form 10-K for the year ended December 31, 2004, and the Company’s
Quarterly Report on Form 10-Q for the period ended June 30, 2005.

 

(6) Each of the Quattro entities owns all right, title and interest in and to
its Notes, free and clear of any liens, encumbrances, charges or other security
interests and when transferred to the Company pursuant to the terms of this
Agreement, the Company shall have valid title to the 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. None
of the Quattro entities used a broker, finder or financial advisor in connection
with the transactions contemplated by this Agreement.

 

(7) Each of the Quattro entities, individually or collectively, is not an
“affiliate” of the Company as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).

 

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(8) The Quattro entities collectively hold the following Exchange Notes that
were acquired before September 1, 2005 in the public market and are free of
restrictive legend: $5,311,000 principal amount of  Notes (CUSIP: 92532F AD 2).

 

(9) Each of the Quattro entities 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
Shares.

 

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

 

(11) On September 8, 2005, none of the Quattro entities (a) did or will,
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 or
will, 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
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 Stock, any other equity security of the Company and any
security convertible into, or exercisable or exchangeable for, the Stock or any
other such equity security.

 

 

D. Miscellaneous

 

(1) Exclusivity. For a period beginning on the Closing Date and extending for 30
days following the closing of the transaction, the Company shall not engage in
any transaction or transactions that would result in the exchange of the Notes
with an aggregate principal amount in excess of $40,450,000 (including the
transaction set forth herein).

 

(2) Governing Law. This Agreement shall be governed by the laws of the State of
New York without giving effect to the conflict of law rules contained therein.

 

(3) 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.

 

(4) 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 Quattro:

Facsimile:

 

If to the Company:

Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, Massachusetts 02139

Attention: The Office of General Counsel

Facsimile: 617-444-6483

 

(5) 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.

 

(6) 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.

 

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(7) 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.

 

(8) 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.

 

(9) No Third Party Beneficiaries. There are no third party beneficiaries under
this Agreement or intended by any party hereto.

 

(10) 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.

 

(11) Contract Interpretation and Construction of Agreement.  This Agreement is
the joint drafting product of the Company and Quattro, 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.

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date hereof.

 

 

Quattro Fund Ltd.

 

Vertex Pharmaceuticals Incorporated

Quattro Multi Strategy Master Fund LP

 

 

 

Partners Group Alternative Strategies, PCC

 

 

 

Limited, Red Delta Cell

 

 

 

Institutional Benchmark Services (Master

 

 

 

Feeder) Limited in Respect of Electra Series)

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/  GREGG RIINA

 

By:

/s/  JOSHUA S. BOGER

Name:

Gregg Riina

 

Name:

Joshua S. Boger

Title:

Authorized Person

 

Title:

Chief Executive Officer

 

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