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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