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


 





















 


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