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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 000-19319
VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3039129
(State of incorporation) (I.R.S. Employer Identification No.)
130 WAVERLY STREET
CAMBRIDGE, MASSACHUSETTS 02139-4242
(Address of principal executive offices) (Zip Code)
(617) 577-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __________
As of March 22, 1999 there were outstanding 25,400,241 shares of Common Stock,
$.01 par value per share. The aggregate market value of shares of Common Stock
held by non-affiliates of the registrant, based upon the last sales price for
such stock on that date as reported by The Nasdaq National Stock Market, was
approximately $637,750,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders to be held on May 19, 1999 are incorporated by reference into Part
III.
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The "Company" and "Vertex," as used in this Annual Report on Form 10-K,
refer to Vertex Pharmaceuticals Incorporated, a Massachusetts corporation.
This Annual Report on Form 10-K contains forward-looking statements based
on current management expectations. When used in this Report, the words
"expects," "anticipates," "estimates," "plans," "believes," and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties. Factors that could cause
actual results to differ from these expectations include, but are not limited
to, those discussed in the section of Item 1 entitled "Risk Factors." These
forward-looking statements speak only as of the date of this Report. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in the events, conditions or circumstances on which any such statement is
based.
Vertex is a registered trademark of Vertex Pharmaceuticals Incorporated,
and Incel is a trademark of Vertex Pharmaceuticals Incorporated. Agenerase is a
trademark of the Glaxo Wellcome Group of companies.
PART I
ITEM 1. BUSINESS
Vertex is engaged in the discovery, development and commercialization of
novel, small molecule pharmaceuticals for the treatment of diseases for which
there are currently limited or no effective treatments. The Company is a
leader in the use of structure-based drug design, an approach to drug
discovery that integrates advanced biology, biophysics, chemistry, and
information technologies in a coordinated and simultaneous fashion. The
Company believes that this integrated approach is applicable to therapeutic
targets in a broad range of diseases. Vertex's goal is to create a portfolio
of highly specific, proprietary, small molecule drugs based on its knowledge
of the atomic structure of proteins involved in the control of disease
processes.
Agenerase-TM- for the treatment of HIV infection and AIDS is the Company's
first product to have a New Drug Application filed with the U.S. FDA for
marketing approval. The Company's drug candidates currently in clinical trials
include:
- - Two compounds, Incel-TM- in Phase II, and VX-853, in Phase I/II clinical
studies for treatment of cancer multidrug resistance;
- - VX-497, an inhibitor of the enzyme IMPDH, currently in Phase II studies for
the treatment of psoriasis and hepatitis C virus infection;
- - Timcodar dimesylate, a neurophilin ligand compound in a Phase II study for
the treatment of diabetic neuropathy;
- - VX-740, an inhibitor of the enzyme ICE, that recently completed a Phase I
clinical trial and may be useful in the treatment of inflammatory diseases;
and
- - VX-745, an inhibitor of the enzyme p38 MAP kinase, currently in a Phase I
clinical trial, that may be useful in the treatment of inflammatory and
neurological diseases.
In addition, the Company has research programs aimed at developing orally
available small molecule compounds targeting neurodegenerative disorders and
hepatitis C virus infection.
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STRUCTURE-BASED DRUG DESIGN
Drugs are natural or synthetic compounds that interact with a target
molecule, typically a protein, either to induce or to inhibit that molecule's
function within the human body. Traditionally, pharmaceutical products have
been discovered through screening thousands of compounds in predictive assays
for a chosen disease target. Vertex uses an information-driven drug design
approach that integrates multiple advanced technologies.
Vertex's discovery programs have yielded clinical drug candidates in an
average of 39 months from project initiation, two times faster than the
industry average. Also, Vertex has at least one product candidate in
clinical development from each of its first five research programs. In
contrast, across the pharmaceutical industry an average of just 25% of all
research projects result in a drug entering clinical trials.
The drug discovery process is complex and involves multiple steps and
disciplines. The key steps in the discovery and development of a compound for
human testing (a drug candidate) typically include:
- identification of a drug target;
- development of a relevant biological assay;
- selection of compounds for screening;
- identification of a lead molecule;
- optimization of the lead molecule; and
- preclinical development.
The Company's approach to structure-based design is an integrated approach
combining efforts in biology, biophysics and chemistry in a coordinated and
simultaneous fashion throughout the discovery process. This enables the Company
to capture and apply information generated in one scientific discipline across
an entire project. In addition, Vertex leverages the information base from its
programs to capitalize on emerging therapeutic opportunities as they are
discovered.
Vertex integrates a number of core technologies as part of the Company's
drug discovery platform. These include:
- - FUNCTIONAL GENOMICS. Vertex uses a number of functional genomics
techniques, such as gene knock-out mice, to help guide target selection and
test the potential of its compounds in disease models.
- - BIOPHYSICS. Vertex's crystallography group has solved more than a dozen
structures and more than 200 target/inhibitor complexes in the past eight
years. Vertex scientists have also pioneered innovative nuclear magnetic
resonance (NMR) techniques, including the use of NMR for screening and a
proprietary technology called NMR-SHAPES that can rapidly identify classes
of compounds with appropriate binding properties.
- - CHEMISTRY. Vertex applies combinatorial chemistry techniques together with
a strategy of parallel synthesis to explore the suitability and activity of
a wide range of compounds.
- - COMPUTER-BASED MODELING. Vertex applies advanced, proprietary
computational modeling tools to guide combinatorial and medicinal chemistry
efforts in identifying and optimizing leads.
- - PHARMACOLOGY. At Vertex, pharmacological testing and pharmacokinetic and
pharmacodynamic modeling are used early in the drug discovery process to
improve the likelihood that compounds will possess desirable
characteristics.
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The Company believes that its integrated structure-based approach to drug
discovery and the applicability of this approach to a broad range of protein
targets provides the Company with significant competitive advantages in the
discovery and development of novel therapeutics for a variety of diseases.
CORPORATE STRATEGY
Vertex is concentrating on the discovery and development of drugs for the
treatment of viral diseases, multidrug resistance in cancer, autoimmune
diseases, inflammatory diseases and neurological diseases. The Company's
research and development strategy is to identify therapeutic areas in which
there is (i) an unmet clinical need, (ii) evidence that interaction with known
protein targets will produce a therapeutic effect, and (iii) evidence that the
protein targets will be appropriate for structural analysis using Vertex's
scientific approach.
The Company's business strategy is to develop some products independently
and to form collaborations with pharmaceutical companies in other programs for
which they can provide resources and access to competencies complementary to
Vertex's in-house capabilities. Corporate collaborations with other
pharmaceutical companies allow Vertex to share the inherent risks of drug
development and allocate the Company's internal resources more effectively. The
financial support, as well as the resources in development, marketing and sales,
provided by corporate collaborators has allowed Vertex to focus on expanding its
clinical and discovery pipeline. As Vertex increases its capabilities in
manufacturing, marketing and sales, collaborative agreements will still remain
an important part of the Company's business strategy, allowing the Company to
select from its broad pipeline those products best suited to commercialization
by the Company, while retaining a substantial interest in the commercial success
of partnered projects. In its collaborative agreements, Vertex seeks to
participate, through manufacturing, co-promotion and marketing rights, in
generating significant downstream revenue for each of its products.
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following are the Company's most advanced research and development
programs.
CLINICAL DEVELOPMENT PROGRAMS
AGENERASE-TM-
OVERVIEW
Agenerase-TM- (Glaxo Wellcome's brand name for the compound amprenavir) is
the Company's most advanced product. Agenerase, a second generation HIV
protease inhibitor, is an orally deliverable drug for the treatment of HIV
infection and AIDS. It was developed by Vertex in collaboration with Glaxo
Wellcome plc. and Kissei Pharmaceutical Co., Ltd. Glaxo Wellcome has filed a
New Drug Application for Agenerase with the U.S. Food and Drug Administration in
the United States and has made equivalent filings in Europe, Canada and other
countries. The U.S. FDA has designated Agenerase as a fast-track product, and
FDA review is expected to be completed by mid-April 1999. Upon approval by
regulatory authorities, Glaxo Wellcome will market Agenerase in the United
States and other countries, with co-promotion assistance by the Company. Kissei
is the Company's partner for the development and commercialization of amprenavir
in the Far East.
BACKGROUND
World sales of antiviral drugs for the treatment of AIDS and HIV infection
were an
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estimated $4 billion in 1998. Nevertheless, there remains a significant need
for new therapeutic options for the management of HIV infection. In the United
States and elsewhere, the majority of HIV-infected patients are undiagnosed or
untreated with any antiviral drug. The antiviral drugs currently on the market
have significant limitations, creating a significant market opportunity for
Agenerase. Suboptimal treatment strategies and poor adherence to complex drug
regimens result in the development of drug-resistant virus and need for
subsequent changes in treatment regimens for many patients. Switching antiviral
medications is therefore done on a routine basis, also resulting in the need for
new agents.
HIV protease is a key enzyme involved in the viral replication of HIV.
Agenerase is an HIV protease inhibitor designed by Vertex to effectively block
the replication of HIV and to possess key competitive characteristics. Four
other companies are marketing protease inhibitors approved by the FDA. However,
clinician and patient acceptance of these products may be limited by complex
dosing regimens, which can result in poor patient compliance, and by
dose-limiting side effects.
The Company believes that Agenerase compares favorably with the protease
inhibitors currently on the market in terms of potency, tolerability, dosing
regimen and resistance profile. Agenerase is taken twice daily, without
restrictions regarding dosing with or without food or water. In addition,
clinical studies have shown that Agenerase penetrates the tissues of the central
nervous system, which may be important in preventing the development of
resistance. Agenerase has a unique IN VITRO resistance profile, and preliminary
clinical data have shown that patients previously treated with Agenerase can be
successfully treated with a subsequent protease inhibitor. To date, HIV has been
shown to develop resistance to antiviral drugs, including currently marketed HIV
protease inhibitors. Preliminary data also suggest that Agenerase is less
associated with blood lipid abnormalities than other HIV protease inhibitors.
However, there can be no assurance that disease resistance or other factors will
not limit the efficacy of Agenerase.
In addition to protease inhibitors, there are two other classes of
antiviral drugs currently approved for the treatment of HIV/AIDS. Nucleoside
reverse transcriptase inhibitors, or NRTIs, include AZT, d4T, ddI, ddC, 3TC and
abacavir. Non-nucleoside reverse transcriptase inhibitors, or NNRTIs, include
efavirenz, nevirapine and delavirdine. Both classes of drugs act by inhibiting
reverse transcriptase, a viral enzyme required for replication. The clinical
utility of each of these drugs is limited by significant side effects and by the
development of viral resistance. Clinical studies have demonstrated that
therapies for HIV infection which comprise a combination of three or more drugs
including at least two drug classes ("drug cocktails") are superior in potency
and durability of response to those which do not. Such combinations are
currently accepted as the standard of care for HIV infection.
PROGRAM STATUS
Glaxo Wellcome, the Company's HIV research and development partner, has
filed for U.S. regulatory approval for marketing Agenerase and has made
equivalent regulatory filings in Europe, Canada and other countries. Glaxo
Wellcome is the global leader in sales of HIV therapeutics. To support
Agenerase in the marketplace, Vertex has established a small clinical liaison
force to build relationships with physicians and patient treatment advocates.
The Company will receive a royalty based on Glaxo Wellcome's sales of Agenerase.
Agenerase has already been made available to more than 2,000 patients through an
early access program.
Glaxo Wellcome filed the New Drug Application for Agenerase on October 15,
1998, and the FDA has designated Agenerase for review under the its guidelines
for accelerated approval. Vertex and Glaxo Wellcome are continuing development
activities with respect to Agenerase, including on-going Phase III studies to
support the full approval of the drug, and on-going and planned Phase IV studies
designed to further characterize and expand the utilization of the product.
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There can be no assurance, however, that the New Drug Application will be
approved within the expected time-frame or at all, that full approval will be
granted on the basis of ongoing Phase III studies, or that the Phase IV studies
will commence as planned or will be successful.
In 1995, Kissei completed single dose and multi-dose, placebo-controlled,
Phase I clinical trials. Vertex expects that in 1999 Kissei will initiate a
Phase II/III efficacy trial in HIV-positive patients in Japan. The results of
such trials, together with clinical data from the Glaxo Wellcome trials, could
form the basis for a filing for marketing approval of amprenavir in Japan. There
can be no assurance, however, that these clinical trials will commence or
proceed as currently anticipated.
In collaboration with Glaxo Wellcome, Vertex is also engaged in research to
develop new formulations of amprenavir. In addition, Vertex and Glaxo Wellcome
are continuing to evaluate new lead classes of third generation HIV protease
inhibitors discovered under their HIV research collaboration.
PATENTS
The Company has patents and pending patent applications in the United
States and in certain foreign countries covering intellectual property developed
as part of the Company's HIV research and development program. These include
issued United States patents that cover classes of chemical compounds,
pharmaceutical formulations and/or uses of the same for treating HIV infection
and AIDS. The patents include specific coverage for amprenavir, the Company's
lead drug candidate for treating HIV infection and AIDS, pharmaceutical
formulations containing amprenavir and methods of using of amprenavir to treat
HIV infection or AIDS-related central nervous system disorders. Another issued
United States patent covers processes for preparing synthetic intermediates
useful in the synthesis of a class of compounds that includes amprenavir. The
Company also has a non-exclusive, worldwide license under certain G.D. Searle &
Company patent applications claiming HIV protease inhibitors.
CANCER MULTIDRUG RESISTANCE (MDR) PROGRAM
OVERVIEW
Vertex is developing novel compounds to treat and prevent the occurrence of
drug resistance associated with the failure of cancer chemotherapy. Vertex is
developing Incel-TM- (also referred to as biricodar dicitrate or VX-710), a
compound that blocks major multidrug resistance mechanisms, including
P-glycoprotein, or P-gp, and multidrug resistance associated protein, or MRP.
Incel, an intravenous compound, is intended to be administered in combination
with cancer chemotherapy agents, such as doxorubicin, paclitaxel, vincristine,
etoposide and mitoxantrone. Vertex is conducting Phase II clinical trials of
Incel in five different types of cancer. In addition, Vertex is conducting a
Phase I/II clinical trial of the compound VX-853, an oral MDR inhibitor, in
patients with solid tumors. The Company retains all commercial rights to Incel
worldwide, except for Canada, where BioChem Pharma Inc. has rights under a
collaboration agreement with Vertex.
BACKGROUND
The American Cancer Society estimates that during 1998 more than 1.2
million people in the United States were diagnosed with invasive cancer and more
than 560,000 people in the U.S. died from such cancers. The Company believes
that a significant number of these patients fail to respond or relapse following
chemotherapy because of multidrug resistance, or MDR.
Multidrug resistance is frequently associated with the failure of
chemotherapy. A major contributing factor to MDR is the presence of molecular
pumps, including P-gP and MRP, that function to expel chemotherapeutic agents
from cancer cells, preventing the sustained delivery of
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potent levels of the chemotherapeutic agents required for therapeutic benefit.
As a consequence, such resistant tumor cells cannot be killed efficiently by
anticancer drugs such as doxorubicin, vincristine, etoposide and paclitaxel.
P-gp has been associated with MDR in a variety of cancers including liver
cancer, breast cancer, soft tissue sarcoma, prostate cancer, colon cancer,
pancreatic cancer, acute myelogenous leukemia, multiple myeloma and certain lung
cancers. MRP was recently identified as another drug efflux pump and is also
associated with resistance observed.
No drug has been approved by the FDA specifically for the treatment of MDR,
but several compounds are in advanced clinical studies. Certain agents, such as
dex-verapamil and cyclosporin A, have been shown in preliminary human studies to
have some promise for overcoming clinical resistance to certain commonly used
chemotherapeutic agents. The Company believes these drugs affect only a subset
of the MDR pumps and may have side effects that could limit broad use. Second
generation multidrug reversing agents, such as valspodar, a cyclosporin analog,
are also currently being evaluated by other companies.
PROGRAM STATUS
Vertex's lead compound, Incel, has displayed potent activity IN VITRO as an
inhibitor of MDR for a number of chemotherapeutic agents in a variety of tumor
types. Vertex has completed two Phase I/II studies with Incel in combination
with doxorubicin and with paclitaxel. Vertex also completed a Phase II study of
Incel in combination with doxorubicin in patients with liver cancer. Vertex does
not intend to pursue this indication further at the present time. The Company
is currently conducting five Phase II clinical studies of Incel. Preliminary
results from the Phase II studies indicate that sustained blood levels of Incel
in excess of those necessary to reverse MDR IN VITRO can be achieved.
Pharmacokinetic data of Incel in combination with paclitaxel indicated that the
compound has a dose sparing effect, suggesting that approximately one-half the
dose of paclitaxel can be used when that drug is administered with Incel.
Phase II clinical trials of Incel are currently being conducted in the
following indications:
- - BREAST CANCER. In 1997, the Company initiated a Phase II multi-center trial
to assess the safety and efficacy of the co-administration of Incel and
paclitaxel in patients with metastatic breast cancer. Interim data reported
at the 21st Annual Breast Cancer Symposium in 1998 suggest that Incel may
play a role in restoring the activity of paclitaxel in some patients with
advanced breast cancer whose tumors have previously been resistant to
paclitaxel therapy.
- - SOFT TISSUE SARCOMA. The Company began a Phase II trial in 1997 to study
Incel in combination with doxorubicin in patients with soft tissue sarcoma.
Preliminary results from 11 patients, announced at the 4th Connective Tissue
Oncology Society Meeting in 1998 indicated that treatment with Incel and
doxorubicin was well-tolerated, showed no marked drug interactions, and
indicated that Incel could also play a role in restoring the activity of
doxorubicin in this patient population.
- - OVARIAN CANCER. A study of Incel in combination with paclitaxel in patients
with ovarian cancer began in 1997. This open-label Phase II clinical trial
will evaluate the tolerability, safety, pharmacokinetics and efficacy of the
compound with paclitaxel.
- - PROSTATE CANCER. In 1998, Vertex began a Phase II clinical trial evaluating
the pharmacokinetics and efficacy of Incel in combination with mitoxantrone
and prednisone in patients with advanced hormone-refractory prostate cancer.
This study is the first to examine Incel's activity in an exclusively
chemotherapy-naive patient population.
- - SMALL CELL LUNG CANCER. Also begun in 1998, this is an open-label,
multi-center trial to evaluate the tolerability, pharmacokinetics and
anti-tumor activity of Incel in combination with doxorubicin and vincristine
in patients with progressive disease, who responded to initial
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therapy and subsequently relapsed. This study will try to correlate the
multidrug resistance profile of each patient with any therapeutic response to
Incel.
Preliminary results from some of these studies are expected in 1999. The
results will help to determine the most appropriate regimens and indications for
Phase III clinical development of Incel. However, there can be no assurance that
additional clinical trials will commence or trials currently under way will
proceed as currently anticipated. The clinical efficacy of the suppression of
mechanisms of action of MDR in chemotherapy in the treatment of cancer is
unproven, and, therefore, there can be no assurance that the Company's MDR
compounds in development will improve the efficacy of chemotherapy.
PATENTS
The Company has patents and pending patent applications in the United
States and in certain foreign countries covering intellectual property developed
as part of the Company's MDR research and development program. These include
issued United States patents claiming Incel and structurally related compounds,
VX-853 and structurally related compounds, and other compounds for treating
multidrug resistance.
IMPDH PROGRAM
OVERVIEW
IMPDH is an enzyme that controls the synthesis of certain nucleotides which
are required for RNA and DNA synthesis. Most cell types can use an alternative
pathway if IMPDH is inhibited, but a few cell types, such as lymphocytes and
virus-infected cells, are completely dependent on this enzyme. IMPDH inhibitors
thus selectively block the proliferation of lymphocytes and the replication of
certain viruses, and Vertex believes that IMPDH inhibitors may be useful both in
immunosuppression and as antiviral agents. VX-497 is a novel, orally
administered IMPDH inhibitor designed by Vertex. Vertex is conducting Phase II
clinical trials of VX-497 for the treatment of severe chronic plaque-type
psoriasis and for the treatment of hepatitis C virus ("HCV") infection. The
Company retains all commercial rights to compounds resulting from this program.
BACKGROUND
IMPDH catalyzes a key step in nucleotide biosynthesis. IMPDH inhibition
appears to selectively suppress immune system cells while leaving other cells
unaffected and may play an important role in down regulating inappropriate
immune responses common to a range of human diseases, including multiple
sclerosis, inflammatory bowel disease, psoriasis, rheumatoid arthritis and
systemic lupus erythematosus. IMPDH inhibitors can be used to prevent the
rejection of transplanted organs and may also have anti-viral effects.
The Company is aware of only two IMPDH inhibitors currently on the market
in the United States. Hoffmann-La Roche's mycophenolate mofetil is approved for
use in combination with cyclosporine to prevent acute rejection in kidney and
heart transplantation. Schering-Plough's ribavirin was approved in 1998 for
treatment, in combination with alpha interferon, of Hepatitis C infection. The
Company believes that compound-specific side effects of mycophenolate mofetil
and ribavirin may limit their use for chronic autoimmune disorders.
Psoriasis was selected as the first chronic autoimmune indication for
VX-497 development. There is a sigificant medical need for new therapies for
moderate to severe psoriasis patients. A chemically unrelated IMPDH inhibitor,
mycophenolic acid, was investigated in psoriasis in the 1970's. Despite
clear-cut efficacy, its development was terminated due to toxicity and
tolerability
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problems. It did however, establish proof of the principle of IMPDH inhibition
as a therapeutic approach for psoriasis. In addition to topical and
intralesional medications, moderate to severely afflicted patients are treated
with phototherapy (UVB and PUVA), and systemic drugs such as methotrexate,
retinoids, and cyclosporine. However, these treatments require extensive medical
supervision, and/or have serious toxic side effects.
As an immunosuppressive, VX-497 may block the growth of certain lymphocyte
populations that contribute to the inflammation of the liver in HCV patients.
VX-497 may also have a direct antiviral effect on HCV and other viruses.
Although it has not been possible to test potential drugs against hepatitis C IN
VITRO because an HCV replication model has not been available, studies of VX-497
against related viruses have demonstrated that VX-497 may be a powerful
inhibitor of viral replication.
According to the U.S. Center for Disease Control (CDC) estimates,
approximately 4 million people in the United States are infected with HCV, and
there are estimated to be approximately 170 million chronic carriers of the
virus worldwide. Current treatment options are limited. Various forms of
interferon alpha are the most common treatment used, but provide lasting benefit
in less than 20% of patients. Recent research results indicate that combination
therapy of interferon plus ribavirin may increase the long-term rate of
sustained response to treatment. Still, more than 50% of patients fail
combination ribavirin-interferon therapy, and additional safe and effective
treatments for HCV infection are needed.
PROGRAM STATUS
A Phase I clinical trial investigating the pharmacokinetics and
tolerability of VX-497 in escalating single doses in healthy subjects was
completed in the United Kingdom in early 1998. Data from that study show that
VX-497 is well tolerated and achieves blood levels well above the threshhold
necessary to inhibit IMPDH IN VITRO.
Vertex is now conducting a Phase II clinical trial of VX-497 to determine
the tolerability and pharmacokinetic profile of VX-497 in psoriasis patients.
This is a randomized, blinded dose range-finding study. Preliminary safety and
efficacy of VX-497 are being assessed in the 12-week trial. Vertex is also
conducting a Phase II study of VX-497 for the treatment of HCV infection.
Preliminary safety and efficacy are being assessed in this four-week dose
range-finding monotherapy trial.
Future clinical development of VX-497 in HCV may involve assessment of the
compound in combination with other agents such as interferon alpha. The Company
may also expand clinical development of VX-497 into additional autoimmune,
transplant and antiviral indications in the future. There can be no assurance,
however, that additional clinical trials will commence or that studies currently
under way will proceed as anticipated.
PATENTS
The Company has patents and pending patent applications in the United
States and in certain foreign countries covering intellectual property developed
as part of the Company's IMPDH research and development program. These include
an issued United States patent which covers a class of chemical compounds,
pharmaceutical compositions containing such compounds, and methods of using
those compounds to treat or prevent IMPDH-mediated diseases. The class of
compounds covered by this patent includes VX-497.
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ICE PROGRAM
OVERVIEW
Vertex is conducting research and development on inhibitors of
interleukin-1 beta converting enzyme (ICE) for the treatment of acute and
chronic inflammatory conditions, including rheumatoid arthritis (RA). The
Company is collaborating with Hoechst Marion Roussel (HMR) in the development
of the ICE inhibitor compound VX-740. A Phase I clinical trial of VX-740 in
healthy volunteers was recently completed. Inhibitors of ICE may have
application to a wide range of chronic and acute inflammatory diseases, such
as rheumatoid arthritis, osteoarthritis, inflammatory bowel disease, sepsis,
and pancreatitis.
BACKGROUND
Elevation of interleukin-1 beta (IL-1 beta) levels has been correlated to
a number of acute and chronic inflammatory diseases. There are approximately 2.1
million patients with rheumatoid arthritis in the United States alone. Numerous
companies are seeking to develop drugs to treat these conditions through various
mechanisms. However, although several companies are pursuing ICE as a drug
target, Vertex is not aware of any company with an ICE-inhibiting compound in
clinical development, and there currently are no IL-1 beta inhibitors approved
for marketing.
Inside specialized immune system cells, ICE activates the inflammatory
cytokine protein IL-1 beta and the protein gamma interferon, a key
immunoregulator that modulates antigen presentation, T-cell activation, and cell
adhesion. This triggers a cascade of events that produces inflammation. Vertex
and HMR scientists have designed several classes of small molecule ICE
inhibitors, including VX-740, the development candidate in the collaboration.
Currently, non-steroidal anti-inflammatory drugs and other
anti-inflammatory approaches which provide some symptomatic relief without
altering disease progression, are used extensively in the treatment of RA. A
few disease-modifying anti-rheumatic drugs such as methotrexate have been
available or have been investigated for a number of years, but have toxicities
that limit their long-term use. New biologics such as etanercept (Enbrel) and
infliximab (Remicade) seek to attenuate the anti-inflammatory process by
targeting TNF-alpha. In addition, studies with soluble IL-1 receptor and IL-1
receptor antagonist have shown reduced joint destruction in RA patients.
However, current anticytokine therapies for RA and inflammatory bowel disease
are protein-based and must be injected. The Company believes that an oral
therapy which can alter the course of disease with few side effects would be a
major addition to the RA therapeutic arsenal.
PROGRAM STATUS
The first clinical trial of VX-740 was a study involving 18 healthy
volunteers begun in 1998. This study was designed to test the pharmacokinetics
and tolerability of the compound in a range of single doses. Preliminary
results of this study indicate that the drug was well tolerated. VX-740 has
been shown to be orally active in several animal models of human inflammatory
disease, including models for acute and chronic arthritis. Vertex expects that
a Phase II study of VX-740 for the treatment of rheumatoid arthritis will be the
next step in the development program. However, there can be no assurance that
clinical trials will commence or proceed as currently anticipated.
PATENTS
The Company has patents and pending patent applications in the United
States and in certain foreign countries covering intellectual property developed
as part of the Company's ICE research and development program. These include
issued United States patents covering several
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different classes of compounds useful as inhibitors of ICE, pharmaceutical
compositions containing those compounds and methods of using those compounds to
treat ICE-related diseases. These patents and applications include a series of
patents and applications purchased from Sanofi S.A., in July 1997. The Company
also has a United States patent obtained from Sanofi S.A. that covers DNA
sequences encoding ICE.
NEUROPHILIN LIGAND PROGRAM
OVERVIEW
The goal of the Neurophilin Ligand Program is to discover and develop drugs
useful in the treatment of neurological disorders such as peripheral
neuropathies, including diabetic neuropathy, Parkinson's disease, trauma, and
amyotrophic lateral sclerosis, or ALS. Vertex has used information-driven drug
design to synthesize a library of orally available small molecule compounds that
have the potential to promote recovery of nerve function and nerve growth.
Vertex is engaged in worldwide strategic partnership with Schering AG, Germany
for research, development and commercialization of neurophilin ligands for the
treatment of a variety of neurological disorders. In November 1998, Vertex
started a Phase II clinical trial of timcodar dimesylate (also referred to as
VX-853) in diabetic neuropathy patients. Schering AG has an option to
co-develop timcodar dimesylate with Vertex under the collaboration agreement.
BACKGROUND
Neurodegenerative disorders are among the diseases with the fewest
available effective treatments. Central nervous system disorders such as
Alzheimer's disease, Parkinson's disease and multiple sclerosis affect millions
of patients worldwide, and for some of these there are no approved therapies
that alter the course of disease progression. Peripheral neuropathies encompass
a wide spectrum of clinical syndromes for which treatments of only limited
efficacy are available. Diabetic neuropathy, the indication for Vertex's
ongoing Phase II study of timcodar dimesylate, is the most common identifiable
cause of neuropathy. There are approximately 1.3 million patients with moderate
to severe diabetic neuropathy in the United States.
Effective treatment of both central and peripheral neurological disorders
has long been hampered by the inability to slow, arrest, or reverse nerve damage
or progression. Other companies are developing various neurotrophic factors
(proteins) for these indications, but the Company believes their clinical
utility is likely to be limited. Based on Vertex's extensive research in the
field of immunosuppressive drugs, the Company has been able to generate a large
number of compounds, known as neurophilin ligands, that trigger nerve growth
activity. Extensive IN VITRO and IN VIVO studies conducted with a reference
compound designed by Vertex support the broad potential of Vertex's neurophilin
ligands in the treatment of degenerative central nervous system and peripheral
nervous system diseases. Vertex's clinical neurophilin ligand candidate,
timcodar, has demonstrated potent activity in promoting neurite outgrowth and
functional recovery of nerves in preclinical studies. Vertex researchers are
still seeking to determine the mechanism of action of neurophilin ligands.
PROGRAM STATUS
In October 1998, Vertex started a Phase II clinical trial with timcodar
dimesylate. Approximately 70 patients will be enrolled in the trial, which is
expected to be conducted at eight centers in the United States. This is a
double-blind, placebo controlled trial. Primary objectives will be to evaluate
the safety and tolerability of six different dose regimens of timcodar
administered orally over a 28-day period. Nerve function will also be
monitored. A single-dose Phase I study of four different doses of timcodar in
healthy volunteers was completed in 1998, providing support for Phase II
clinical development in the indication of diabetic neuropathy. IN
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VITRO results have shown timcodar's ability to promote neurite outgrowth, and IN
VIVO results have shown that timcodar can prevent neural dysfunction in a model
of diabetic polyneuropathy.
PATENTS
The Company has patents and pending patent applications in the United
States and in certain foreign countries covering intellectual property developed
as part of the Company's Neurophilin research and development program. These
include issued United States patents covering the use of various classes of
chemical compounds to treat a wide variety of neurological disorders. One of
these patents specifically covers the use of timcodar to treat neurological
disorders.
P38 MAP KINASE PROGRAM
OVERVIEW
Vertex is collaborating with Kissei on the design, development and
commercialization of inhibitors of p38 MAP kinase. The p38 MAP kinase is a human
enzyme involved with the onset and progression of inflammation and programmed
cell death. The objective of Vertex's research collaboration with Kissei is to
identify and extensively evaluate compounds that target p38 MAP kinase to
develop novel, orally active drugs for the treatment of inflammatory diseases,
such as rheumatoid arthritis, asthma, and Crohn's disease, and neurological
diseases such as stroke. In March 1999, the Company initiated a Phase I
clinical trial with VX-745, a novel orally administered investigational drug
targeting p38 MAP kinase.
BACKGROUND
The mitogen-activated protein (MAP) kinases are a family of
structurally-related human enzymes involved in intracellular signaling pathways
that enable cells to respond to their environment. When activated, the p38 MAP
kinase triggers production of the cytokines interleukin-1 (IL-1), interleukin-6
(IL-6) and tumor necrosis factor TNF-alpha. Excess levels of IL-1 and TNF-alpha
are associated with a broad range of acute and chronic inflammatory diseases.
They also play an important role in programmed cell death associated with
ischemia and stroke, and in neurodegenerative diseases such as Alzheimer's and
Parkinson's disease. Vertex is aware of several other companies that are
developing p38 MAP kinase inhibitors.
PROGRAM STATUS
During 1998, Vertex and Kissei selected VX-745 as a lead drug development
candidate targeting p38 MAP kinase. The Company began a Phase I clinical trial
of the compound in healthy volunteers in early 1999. The study, which is being
conducted in Europe, will assess the compound's safety and help to determine the
dose range for subsequent studies. The Phase I randomized, blinded clinical
trial is designed to test the pharmacokinetics and tolerability of
VX-745 in escalating single doses in healthy volunteers. The trial will assess
the ability of different doses of VX-745 to inhibit experimentally induced
TNF-alpha production using specific biochemical assays. Following completion of
the study, Vertex may conduct additional single or multidose trials of VX-745.
VX-745 has been shown to slow disease progression in animal models of
immune-mediated arthritis. However, there can be no assurance that clinical
trials will commence or proceed as currently anticipated.
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PATENTS
The Company has pending patent applications in the United States and in
certain foreign countries covering intellectual property developed as part of
the Company's p38 MAP Kinase research and development program. Certain of the
applications cover a class of chemical compounds that includes VX-745, as well
as VX-745 specifically, compositions comprising those compounds and the use of
those compounds to treat p38-related disorder.
RESEARCH PROGRAMS
HEPATITIS C VIRUS PROGRAMS
The Company is conducting two discovery research programs to develop
compounds to treat hepatitis C. Identified in 1989, the hepatitis C virus (HCV)
causes chronic inflammation in the liver. In a majority of patients, HCV
establishes a chronic infection that can persist for decades and eventually lead
to cirrhosis, liver failure and liver cancer. HCV infection represents a
significant medical problem worldwide for which there is inadequate or no
therapy for a majority of patients. Sources at the CDC have estimated that
approximately 4 million Americans, or more than 1% of the population, may be
infected with HCV, and there are estimated to be more than 100 million chronic
carriers of the virus worldwide. Currently, there is no vaccine available to
prevent hepatitis C infection. The only drugs approved for the treatment of
hepatitis C are interferon alpha and ribavarin. Combination therapy with
interferon alpha and ribavarin is the most successful treatment currently
available, but over 50% of patients still failed to show long-term sustained
response to that combination, and safe and effective treatments for HCV
infection are needed.
HEPATITIS C PROTEASE
The hepatitis C NS3-4A serine protease is a virally encoded enzyme
generally believed to be essential for replication of HCV. Under an agreement
signed during 1997, Vertex and Eli Lilly and Company are collaborating on the
research, development and commercialization of novel, orally active HCV protease
inhibitors for the treatment of hepatitis C infection. This research derives
heavily from detailed structural information about the protease, discovered and
developed by Vertex researchers.
The Company has pending patent applications in the United States and in
certain foreign countries covering intellectual property developed as part of
the Company's Hepatitis C Protease research and development program. Vertex has
an issued United States patent covering an assay useful to evaluate potential
inhibitors of Hepatitis C protease.
HEPATITIS C HELICASE
Vertex is also conducting discovery research to design orally deliverable
drugs to inhibit the hepatitis C virus helicase. The NS3 helicase enzyme is
believed to play an essential role in the infectious cycle of the hepatitis C
virus by aligning viral DNA in its proper configuration for replication.
Therefore, the HCV helicase represents an attractive target for drug discovery.
Researchers from Vertex solved the three-dimensional atomic structure of
the hepatitis C virus NS3 helicase. Vertex is using the structural information
to identify and optimize inhibitors of the enzyme, employing structure-based
techniques, including cluster-based screening, and
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computational, combinatorial, and medicinal chemistry, to design novel small
molecule inhibitors of the HCV helicase for clinical development as new
antiviral drugs to treat HCV infection.
The Company has pending patent applications in the United States covering
intellectual property developed as part of the Company's Hepatitis C Helicase
research and development program. These applications cover Hepatitis C helicase
inhibitors and the X-ray crystal structure of Hepatitis C helicase.
CASPASE INHIBITORS PROGRAM
Vertex is conducting a major multidisciplinary research effort to design of
novel, small molecule inhibitors of apoptosis (programmed cell death) for the
treatment of a variety of pathological conditions including major
neurodegenerative and cardiovascular diseases. In this separate caspase
inhibitor program, Vertex scientists are capitalizing on expertise gained
through the Company's successful design and optimization of inhibitors of ICE
(Caspase-1). Recent highlights include the solution of the caspase-3 structure
by X-ray crystallography and the first description of the caspase-9 gene
knockout mouse, establishing that this enzyme is of particular importance in
neurobiology. With respect to drug discovery, Vertex's caspase research has
resulted in the identification of novel compounds with activity in enzyme
assays, cellular assays, and animal models. The goal of Vertex's caspase
inhibitors program is to discover and develop novel drugs useful for treating
neurodegenerative disorders such as Alzheimer's and Parkinson's disease and for
decreasing the tissue damage in myocardial infarction and stroke.
JNK3 MAP KINASE INHIBITORS PROGRAM
Vertex is currently engaged in a research effort to identify JNK3 MAP
kinase inhibitors. Vertex's studies have been accelerated by the experience
gained in Vertex's p38 MAP kinase program with Kissei. Jun N-terminal kinase
(JNK) is a member of the same group of structurally-related enzymes as p38 MAP
kinase. Recent findings suggest that JNK3 plays an important role in central
nervous system disorders such as epilepsy, stroke and Alzheimer's Disease. JNK3
also has been implicated in Parkinson's disease. Vertex has solved and in 1998
reported in the journal STRUCTURE the X-ray crystal structure of JNK3 complexed
to an analog of the co-factor molecule ATP. Using proprietary structural
information of the JNK3 and other MAP kinase enzymes, Vertex scientists selected
initial compounds for investigation as potential inhibitors. Vertex has
identified several novel classes of JNK3 MAP kinase inhibitors and is currently
using advanced drug discovery technology to move lead compounds toward clinical
candidate status.
CORPORATE COLLABORATIONS
Vertex has entered into corporate collaborations with pharmaceutical
companies that provide financial and other resources, including capabilities in
research, development, manufacturing, and sales and marketing, to support the
Company's research and development programs. At present, the Company has the
following major corporate collaborations.
GLAXO WELLCOME PLC.
Vertex and Glaxo Wellcome are collaborating on the development and
commercialization of Agenerase (amprenavir). Under the collaborative agreement
for research and development of HIV protease inhibitors, which began in December
1993, Glaxo Wellcome agreed to pay Vertex up to $42 million, comprised of a $15
million initial license payment paid in December 1993, $14 million of product
research funding over five years and $13 million of development and
commercialization milestone payments for an initial drug candidate. From the
inception of the agreement in December 1993 through December 31, 1998, Vertex
has recognized as revenue $34 million. The Company has received the full amount
of research funding specified under the agreement. Glaxo Wellcome is
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also obligated to pay to Vertex additional development and commercialization
milestone payments for subsequent drug candidates. In addition, Glaxo Wellcome
is required to bear the costs of development in its territory under the
collaboration. Glaxo Wellcome has exclusive rights to develop and commercialize
Vertex HIV protease inhibitors in all parts of the world except the Far East and
will pay Vertex a royalty on sales. Vertex has retained certain bulk drug
manufacturing rights and certain co-promotion rights in the territories licensed
to Glaxo Wellcome.
Glaxo Wellcome has the right to terminate its agreement with the Company
without cause upon twelve months' notice. Termination by Glaxo Wellcome of the
agreement will relieve Glaxo Wellcome of its obligation to make further
commercialization and development milestone and royalty payments, and will end
any license granted to Glaxo Wellcome by Vertex thereunder, and could have a
material adverse effect on the Company's business and result of operations.
Vertex and Glaxo Wellcome have a non-exclusive, worldwide license under
certain Searle patent applications claiming HIV protease inhibitors to permit
Vertex and Glaxo Wellcome to develop, manufacture and market Agenerase free of
the risk of intellectual property claims by Searle. The terms of the license
require Vertex to pay Searle a royalty on net sales.
KISSEI PHARMACEUTICAL CO., LTD.
AMPRENAVIR
Vertex and Kissei are collaborating on the development of amprenavir,
Vertex's HIV protease inhibitor. Under the collaborative agreement, which began
in April 1993, Kissei agreed to pay to Vertex up to $20 million, comprised of
$9.8 million of product research funding over three years, $7 million of
development and commercialization milestone payments and a $3.2 million equity
investment. From the inception of the agreement in April 1993 through December
31, 1998, $14.6 million has been recognized as revenue. During 1997, the
Company also received $4 million related to reimbursements of certain
development costs. The Company has received the full amount of research funding
specified under the agreement. Kissei has exclusive rights to develop and
commercialize amprenavir in Japan, the People's Republic of China and several
other countries in the Far East and will pay Vertex a royalty on sales. Vertex
is responsible for the manufacture of bulk product for Kissei.
P38 MAP KINASE
In September 1997, the Company and Kissei entered into a collaborative
agreement for the p38 MAP kinase program for the development and
commercialization of novel, orally active drugs for the treatment of
inflammatory and neurological diseases. Under the terms of the agreement,
Kissei agreed to pay the Company up to $22 million, composed of a $4 million
license payment paid in September 1997, $11 million of product research funding
over three years and $7 million of development and commercialization milestone
payments. From the inception of the agreement in September 1997 through
December 31, 1998, $11 million has been recognized as revenue. The Company and
Kissei will collaborate to identify and extensively evaluate compounds that
target p38 MAP kinase. Kissei will have the right to develop and commercialize
these compounds in its licensed territories. Kissei has exclusive rights to p38
MAP kinase compounds in Japan and certain Southeast Asian countries and
semi-exclusive rights in China, Taiwan and South Korea. The Company retains
exclusive marketing rights in the United States, Canada, Europe, and the rest of
the world. In addition, the Company will have the right to supply bulk drug
material to Kissei for sale in its territory, and will receive royalties and
drug supply payments on any product sales. Kissei has the right to terminate
the agreement without cause upon six months' notice.
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BIOCHEM PHARMA INC.
The Company and BioChem are collaborating on the development and
commercialization of Incel, the Company's lead compound in its cancer
multidrug resistance program. Under the collaborative agreement, which began
in May 1996, BioChem agreed to pay the Company up to $4 million comprised of
an initial license payment of $500,000 and development and commercialization
milestone payments. From the inception of the agreement in May 1996 through
December 31, 1998, $0.8 million has been recognized as revenue. BioChem also
agreed to bear certain costs of development of Incel in Canada. BioChem has
exclusive rights to develop and commercialize Incel in Canada. The Company
will supply BioChem's requirements of bulk and finished forms of Incel.
BioChem will make payments to the Company for those materials based on sales
of products by BioChem, which will cover Vertex's cost of supplying materials
and will provide a profit to Vertex. BioChem has the right to terminate the
agreement without cause upon six months' notice. Termination will relieve
BioChem of any further payment obligations and will end any license granted
to BioChem by Vertex under the agreement.
HOECHST MARION ROUSSEL
Vertex and HMR are collaborating on the development of ICE inhibitors as
anti-inflammatory agents. Under the collaborative agreement, which commenced in
September 1993, HMR is obligated to pay to Vertex up to $30.5 million, comprised
of $18.5 million of product research funding over five years and $12 million of
development and commercialization milestone payments. From the inception of the
agreement in September 1993 through December 31, 1998, $21.5 million has been
recognized as revenue. The Company received additional revenue related to
reimbursements for clinical development in 1997. The Company has received the
full amount of research funding specified under the agreement. HMR has exclusive
rights to develop and market drugs resulting from the collaborative effort in
Europe, Africa and the Middle East, and Vertex has exclusive development and
marketing rights in the rest of the world, except the Far East, where Vertex
shares those rights with HMR. HMR is obligated to pay a royalty to Vertex on any
sales made in Europe, and Vertex is obligated to pay a royalty to HMR on any
sales made in the United States or the rest of the Americas. Each party will
have the option to co-promote products in the other party's exclusive territory.
Vertex and HMR will each have rights to develop and market the drugs in Far
Eastern countries including Japan.
ELI LILLY & COMPANY
In June 1997, Vertex and Lilly entered into a collaborative agreement for
the research, development and commercialization of novel, small molecule
compounds to treat hepatitis C infection. Under the terms of the agreement,
Lilly will pay the Company up to $51 million composed of a $3 million up front
payment paid in June 1997, $33 million of product research funding over six
years and $15 million of development and commercialization milestone payments.
From the inception of the agreement in June 1997 through December 31, 1998,
$10.8 million has been recognized as revenue. The Company and Lilly will
jointly manage the research, development, manufacturing and marketing of drug
candidates emerging from the collaboration. The Company will have primary
responsibility for drug design, process development and pre-commercial drug
substance manufacturing, and Lilly will have primary responsibility for
formulation, preclinical and clinical development and global marketing. The
Company has the option to supply 100% of Lilly's commercial drug substance
supply needs. The Company will receive royalties on future product sales, if
any. If the Company exercises its commercial supply option, the Company will
receive drug supply payments in addition to royalties on future product sales,
if any. Lilly has the right to terminate the agreement without cause upon six
months' notice after June 1999.
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SCHERING AG
The Company and Schering AG, Germany are collaborating on the research,
development and commercialization of novel, orally active neurophilin ligand
compounds to promote nerve regeneration for the treatment of a number of
neurological diseases. Under the terms of the agreement, Schering AG will pay
the Company up to $88 million composed of a $6 million upfront license payment
paid in September 1998, $22 million of product research funding over five years
and $60 million of development and commercialization milestone payments. From
the inception of the agreement in August 1998 through December 31, 1998, $10
million has been recognized as revenue. Under terms of the agreement, Vertex
and Schering AG will have an equal role in management of neurophilin ligand
research and product development. In North America, Vertex will have
manufacturing rights, and Vertex and Schering AG will share equally in the
marketing expenses and profits from commercialized compounds. In addition to
having manufacturing rights in North America, the Company retains the option to
manufacture bulk drug substance for sales and marketing in territories outside
Europe, the Middle East and Africa. Schering AG will have the right to
manufacture and market any commercialized compounds in Europe, the Middle East
and Africa, and pay Vertex a royalty on product sales. After December 2000,
Schering AG has the right to terminate without cause upon a six months' written
notice.
ALTUS BIOLOGICS INC.
Altus Biologics Inc. develops, manufactures and markets products based
on a novel and proprietary technology for stabilizing proteins. At December
31, 1998, Vertex owned approximately 70% of the capital stock of Altus. In
February 1999, Vertex restructured its investment in Altus. As part of the
transaction, Vertex provided Altus $3 million of cash and surrendered its
shares of Altus preferred stock in exchange for two new classes of preferred
stock and warrants. The new preferred stock provides Vertex with a minority
ownership position in Altus, and the warrants, which become exercisable upon
certain events, will provide Vertex with significant additional ownership
potential. As a result of the transaction, Altus now operates independently
from Vertex. In addition, Vertex has retained a non-exclusive royalty-free
right to use Altus' technology for discovering, developing and manufacturing
small molecule drugs.
PATENTS AND PROPRIETARY INFORMATION
The Company has rights in certain patents and pending patent applications
that relate to compounds it is developing and methods of using such compounds,
as discussed above. In addition, the Company actively seeks, when appropriate,
protection for its products and proprietary information by means of United
States and foreign patents, trademarks and contractual arrangements. Vertex has
pending applications in the United States, and foreign counterpart applications
in countries it deems appropriate, for all of its most advanced research and
development programs. In addition, the Company relies upon trade secrets and
contractual arrangements to protect certain of its proprietary information and
products.
There can be no assurance that any patents will issue from any of the
Company's patent applications or, even if patents issue or have issued, that the
claims thereof will provide the Company with any significant protection against
competitive products or otherwise be valuable commercially. Legal standards
relating to the validity of patents and the proper scope of their claims in the
biopharmaceutical field are still evolving, and there is no consistent policy
regarding the breadth of claims allowed in biopharmaceutical patents. No
assurance can be given as to the Company's ability to avoid infringing, and thus
having to negotiate a license under, any patents issued to others, or that a
license to such patents would be available on commercially acceptable terms, if
at all. See Item 3, "Legal Proceedings."
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Further, there can be no assurance that any patents issued to or licensed
by the Company will not be infringed by the products of others, which may
require the Company to engage in patent infringement litigation. In addition to
being a party to patent infringement litigation, the Company could be required
to participate in interference proceedings declared by the United States Patent
and Trademark Office. Defense or prosecution of patent infringement litigation,
as well as participation in interference proceedings, can be expensive and time
consuming, even in those instances in which the outcome is favorable to the
Company. If the outcome of any such litigation or proceeding were adverse, the
Company could be subject to significant liabilities to third parties, could be
required to obtain licenses from third parties or could be required to cease
sales of the affected products, any of which could have a material adverse
effect on the Company.
Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of key scientific and technical
personnel. To protect its rights to its proprietary know-how and technology, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements require disclosure
and assignment to the Company of ideas, developments, discoveries and inventions
made by employees, consultants, advisors and collaborators. However, there can
be no assurance that these agreements will effectively prevent disclosure of the
Company's confidential information or will provide meaningful protection for the
Company's confidential information if there is unauthorized use or disclosure.
MANUFACTURING
The Company relies on third party manufacturers and collaborative partners
to produce its compounds for preclinical and clinical purposes and may do so for
commercial production of any compounds that are approved for marketing.
Commercial manufacturing of Agenerase will be done, at least initially, by Glaxo
Wellcome. Vertex retains the option to manufacture a portion of Glaxo
Wellcome's requirements for bulk drug substance. If Vertex were to exercise
that option, it would rely upon one or more contract manufacturers to
manufacture the Agenerase bulk drug substance on its behalf.
The Company has established a quality assurance program, including a set of
standard operating procedures, intended to ensure that third party manufacturers
under contract produce the Company's compounds in accordance with the FDA's
current Good Manufacturing Practices, or cGMP, and other applicable regulations.
The Company believes that all of its existing compounds can be produced
using established manufacturing methods, primarily through standard techniques
of pharmaceutical synthesis. The Company believes that it will be able to
continue to negotiate third party manufacturing arrangements on commercially
reasonable terms and that it will not be necessary for it to develop internal
manufacturing capability in order to successfully commercialize its products.
The Company's objective is to maintain flexibility in deciding whether to
develop internal manufacturing capabilities for certain of its potential
products. However, in the event that the Company is unable to obtain contract
manufacturing, or obtain such manufacturing on commercially reasonable terms, it
may not be able to commercialize its products as planned. The Company has
limited experience in manufacturing pharmaceutical or other products or in
conducting manufacturing testing programs required to obtain FDA and other
regulatory approvals, and there can be no assurance that the Company will
further develop such capabilities successfully.
Since most of the Company's potential products are at an early stage of
development, the Company will need to improve or modify its existing
manufacturing processes and capabilities to produce commercial quantities of
any drug product economically. The Company cannot quantify the time or
expense that may ultimately be required to improve or modify its existing
process technologies, but
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it is possible that such time or expense could be substantial.
The production of Vertex's compounds is based in part on technology that
the Company believes to be proprietary. Vertex may license this technology to
contract manufacturers to enable them to manufacture compounds for the Company.
In addition, a contract manufacturer may develop process technology related to
the manufacture of Vertex's compounds that the manufacturer owns either
independently or jointly with the Company. This would increase the Company's
reliance on such manufacturer or require the Company to obtain a license from
such manufacturer in order to have its products manufactured.
Some of the Company's current corporate partners have certain manufacturing
rights with respect to the Company's products under development, and there can
be no assurance that such corporate partners' rights will not impede the
Company's ability to conduct the development programs and commercialize any
resulting products in accordance with the schedules and in the manner currently
contemplated by the Company.
COMPETITION
The Company is engaged in pharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. There
are many public and private companies, including pharmaceutical companies,
chemical companies and biotechnology companies, engaged in developing products
for the same human therapeutic applications as those targeted by Vertex. In
order for the Company to compete successfully, it must demonstrate improved
safety, efficacy, ease of manufacturing and market acceptance of its products
over those of its competitors who have received regulatory approval and are
currently marketing their drugs. In the field of HIV protease inhibition, Merck
& Co., Inc., Abbott Laboratories, Inc., Hoffmann-La Roche, and Agouron
Pharmaceuticals, Inc. have HIV protease inhibitor drugs that are already on the
market. Many of the Company's competitors have substantially greater financial,
technical and human resources than those of the Company and more experience in
the development of new drugs. See "Risk Factors--Vertex Faces Substantial
Competition."
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics
are subject to extensive regulation by United States and foreign governmental
authorities. In particular, pharmaceutical products are subject to rigorous
preclinical and clinical testing and to other approval requirements by the FDA
in the United States under the Food, Drug and Cosmetic Act and by comparable
agencies in most foreign countries.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to identify potential safety
problems. For certain diseases, animal models exist that are believed to be
predictive of human efficacy. For such diseases, a drug candidate is tested in
an animal model. The results of the studies are submitted to the FDA as a part
of the Investigational New Drug application (IND) which is filed to comply with
FDA regulations prior to commencement of human clinical testing. For other
diseases for which no appropriately predictive animal model exists, no such
results can be filed. For several of the Company's drug candidates, no
appropriately predictive model exists. As a result, no IN VIVO evidence of
efficacy would be available until such compounds progress to human clinical
trials.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the drug into healthy human subjects prior to
introduction into patients, the compound will be tested for safety, dosage
tolerance, absorption, bioavailability, biodistribution, metabolism, excretion,
clinical pharmacology and, if possible, for early information on effectiveness.
Phase II typically involves
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studies in a small sample of the intended patient population to assess the
efficacy of the drug for a specific indication, to determine dose tolerance and
the optimal dose range and to gather additional information relating to safety
and potential adverse effects. Phase III trials are undertaken to further
evaluate clinical safety and efficacy in an expanded patient population at
geographically dispersed study sites, to determine the overall risk-benefit
ratio of the drug and to provide an adequate basis for physician labeling. Each
trial is conducted in accordance with certain standards under protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be evaluated by an
independent Institutional Review Board at the institution at which the study
will be conducted. The Institutional Review Board will consider, among other
things, ethical factors, the safety of human subjects and the possible liability
of the institution.
Data from preclinical testing and clinical trials are submitted to the FDA
in a New Drug Application (NDA) for marketing approval. The process of
completing clinical testing and obtaining FDA approval for a new drug is likely
to take a number of years and require the expenditure of substantial resources.
Preparing an NDA involves considerable data collection, verification, analysis
and expense, and there can be no assurance that approval will be granted on a
timely basis, if at all. The approval process is affected by a number of
factors, including the severity of the disease, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials. The FDA
may deny an NDA if applicable regulatory criteria are not satisfied or may
require additional testing or information. Among the conditions for marketing
approval is the requirement that the prospective manufacturer's quality control
and manufacturing procedures conform to the FDA's cGMP regulations, which must
be followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and effort in
the area of production and quality control to ensure full technical compliance.
Manufacturing establishments, both foreign and domestic, also are subject to
inspections by or under the authority of the FDA and by or under the authority
of other federal, state or local agencies.
Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
safety and will be required to gain approval for the use of a product as a
treatment for clinical indications other than those for which the product was
initially tested. Also, the FDA will require post-marketing reporting to monitor
the side effects of the drug. Results of post-marketing programs may limit or
expand further marketing of the products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process, labeling or manufacturing facilities, an NDA supplement may be required
to be submitted to the FDA.
The Orphan Drug Act provides incentives to drug manufacturers to develop
and manufacture drugs for the treatment of diseases or conditions that affect
fewer than 200,000 individuals in the United States. Orphan drug status can also
be sought for diseases or conditions that affect more than 200,000 individuals
in the United States if the sponsor does not realistically anticipate its
product becoming profitable from sales in the United States. Under the Orphan
Drug Act, a manufacturer of a designated orphan product can seek tax benefits,
and the holder of the first FDA approval of a designated orphan product will be
granted a seven-year period of marketing exclusivity for that product for the
orphan indication. While the marketing exclusivity of an orphan drug would
prevent other sponsors from obtaining approval of the same compound for the same
indication, it would not prevent other types of drugs from being approved for
the same use. The Company may apply for orphan drug status for certain
indications of MDR in cancer.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
sponsor may be granted marketing exclusivity for a period of time following FDA
approval of certain drug applications if FDA approval is received before the
expiration of the patent's original term. This
Page 20
<PAGE>
marketing exclusivity would prevent a third party from obtaining FDA approval
for a similar or identical drug through an Abbreviated New Drug Application,
which is the application form typically used by manufacturers seeking approval
of a generic drug. The statute also allows a patent owner to extend the term of
the patent for a period equal to one-half the period of time elapsed between the
filing of an IND and the filing of the corresponding NDA plus the period of time
between the filing of the NDA and FDA approval. The Company intends to seek the
benefits of this statute, but there can be no assurance that the Company will be
able to obtain any such benefits.
Whether or not FDA approval has been obtained, approval of a drug product
by regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. Historically,
the requirements governing the conduct of clinical trials and product approvals,
and the time required for approval, have varied widely from country to country.
In addition to the statutes and regulations described above, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations.
HUMAN RESOURCES
As of December 31, 1998, Vertex had 304 full-time employees, including 219
in research and development, 38 in support services and 47 in general and
administrative functions, and one part-time employee. Fourteen of these
employees were located at Vertex's new U.K. research and development facility,
opened in 1998. The Company's scientific staff members (103 of whom hold Ph.D.
and/or M.D. degrees) have diversified experience and expertise in molecular and
cell biology, biochemistry, animal pharmacology, synthetic organic chemistry,
protein x-ray crystallography, protein nuclear magnetic resonance spectroscopy,
computational chemistry, biophysical chemistry, medicinal chemistry, clinical
pharmacology and clinical medicine. In addition, the Company's Altus subsidiary
had 30 full-time employees as of December 31, 1998. The Company's employees are
not covered by a collective bargaining agreement, and the Company considers its
relations with its employees to be good.
EXECUTIVE OFFICERS
The names, ages and positions held by the executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Joshua S. Boger, Ph.D. . . . . . . . .47 Chairman, President and Chief
Executive Officer
Richard H. Aldrich . . . . . . . . . .44 Senior Vice President and Chief
Business Officer
Vicki L. Sato, Ph.D. . . . . . . . . .50 Senior Vice President of Research
and Development and Chief
Scientific Officer; Chair of the
Scientific Advisory Board
Iain P. M. Buchanan. . . . . . . . . .45 Vice President of European
Operations; Managing Director of
Vertex Pharmaceuticals (Europe)
Limited
Thomas G. Auchincloss, Jr. . . . . . .37 Vice President of Finance and
Treasurer
</TABLE>
Page 21
<PAGE>
All executive officers are elected by the Board of Directors to serve in
their respective capacities until their successors are elected and qualified or
until their earlier resignation or removal.
Dr. Boger is a founder of the Company and was its President and Chief
Scientific Officer from its inception in 1989 until May 1992, when he became
President and Chief Executive Officer. In 1997, Dr. Boger became Chairman,
President and Chief Executive Officer. Dr. Boger has been a director since the
Company's inception. Prior to founding the Company in 1989, Dr. Boger held the
position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research
Laboratories in Rahway, New Jersey, where he headed both the Department of
Medicinal Chemistry of Immunology & Inflammation and the Department of
Biophysical Chemistry. Dr. Boger is also a Director of Millennium
Pharmaceuticals, Inc. Dr. Boger holds a B.A. in chemistry and philosophy from
Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard
University.
Mr. Aldrich served as Vice President of Business Development of the Company
from June 1989 to May 1992, when he became Vice President and Chief Business
Officer. In December 1993, Mr. Aldrich was promoted to Senior Vice President and
Chief Business Officer. He joined Vertex from Integrated Genetics, where he
headed that company's business development group. Previously, he served as
Program Executive at Biogen, Inc., where he coordinated worldwide commercial
development of several biopharmaceuticals, and as Licensing Manager at Biogen
S.A. in Geneva, Switzerland, where he managed European and Far Eastern
licensing. Mr. Aldrich previously worked at the Boston Consulting Group, an
international management consulting firm. Mr. Aldrich received a B.S. degree
from Boston College and an M.B.A. from the Amos Tuck School of Business,
Dartmouth College.
Dr. Sato joined Vertex in September 1992 as Vice President of Research and
was appointed Senior Vice President of Research and Development in September
1994. Previously, she was Vice President, Research and a member of the
Scientific Board of Biogen, Inc. As research head at Biogen, she directed
research programs in the fields of inflammation, immunology, AIDS therapy and
cardiovascular therapy from early research into advanced product development.
Dr. Sato received an A.B. in biology from Radcliffe College and A.M. and Ph.D.
degrees from Harvard University. Following postdoctoral work in chemistry and
immunology at the University of California at Berkeley and Stanford Medical
School, she was appointed to the faculty of Harvard University in the Department
of Biology. Dr. Sato is also a Director of Mitotix, Inc.
Mr. Buchanan joined the Company in April 1994 from Cilag AG, a subsidiary
of Johnson & Johnson based in Zug, Switzerland, where he served as its Regional
Licensing Director since 1987. He previously held the position of Marketing
Director of Biogen, Inc. in Switzerland. Prior to Biogen, Mr. Buchanan served in
Product Management at Merck Sharp & Dohme (UK) Limited. Mr. Buchanan holds a
B.Sc. from the University of St. Andrews, Scotland.
Mr. Auchincloss joined the Company in October 1994 after serving as an
investment banker at Bear, Stearns & Co. Inc. since 1988, most recently as
Associate Director of the Corporate Finance Department. Prior to Bear Stearns,
Mr. Auchincloss was a financial analyst for PaineWebber, Inc. Mr. Auchincloss
holds a B.S. from Babson College and an M.B.A. from The Wharton School,
University of Pennsylvania.
Page 22
<PAGE>
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. The Scientific Advisory
Board also evaluates the Company's research programs, recommends personnel to
the Company and advises the Company on technological matters. The members of the
Scientific Advisory Board, which is chaired by Dr. Vicki L. Sato, are:
Vicki L. Sato, Ph.D. . . . . . Senior Vice President of Research and
Development and Chief Scientific Officer,
Vertex Pharmaceuticals Incorporated.
Steven J. Burakoff, M.D. . . . Chair, Department of Pediatric Oncology,
Dana-Farber Cancer Institute; Professor
of Pediatrics, Harvard Medical School.
Eugene H. Cordes, Ph.D.. . . . Professor of Pharmacy and Chemistry,
University of Michigan at Ann Arbor.
Jerome E. Groopman, M.D. . . . Chief, Division of Experimental Medicine,
Beth Israel Deaconess Medical Center;
Recanati Chair of Medicine and
Professor of Medicine, Harvard Medical
School.
Stephen C. Harrison, Ph.D. . . Higgins Professor of Biochemistry,
Harvard University; Investigator, Howard
Hughes Medical Institute; Professor of
Biological Chemistry and Molecular
Pharmacology and Professor of Pediatrics,
Harvard Medical School.
Jeremy R. Knowles, D. Phil.. . Dean of the Faculty of Arts and Sciences
and Amory Houghten Professor of Chemistry
and Biochemistry, Harvard University.
Robert T. Schooley, M.D. . . . Tim Gill Professor of Medicine and
Head of Infectious Disease, University of
Colorado Health Sciences Center.
Other than Dr. Sato, none of the members of the Scientific Advisory Board is
employed by the Company, and members may have other commitments to or consulting
or advisory contracts with their employers or other entities that may conflict
or compete with their obligations to the Company. Accordingly, such persons are
expected to devote only a small portion of their time to the Company. In
addition to its Scientific Advisory Board, Vertex has established consulting
relationships with a number of scientific and medical experts who advise the
Company on a project-specific basis.
Page 23
<PAGE>
RISK FACTORS
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements in this Report or
presented elsewhere by Vertex.
Market Acceptance of Agenerase Cannot Yet Be Determined
Agenerase is currently awaiting marketing approval by regulatory
authorities, and it is too early to predict whether the product will be
successful in the market. Four other HIV protease inhibitors are on the market,
as well as a number of other products for the treatment of HIV infection and
AIDS. In addition, numerous other drugs are still in development by the
Company's competitors, which may have more efficacy, fewer side effects, easier
administration and/or lower costs. To date, HIV has been shown to develop
resistance to antiviral drugs, including currently marketed HIV protease
inhibitors. There can be no assurance that such disease resistance or other
factors will not limit the efficacy of Agenerase. Although Vertex will
co-promote Agenerase, most of the marketing effort and all of the sales effort
will be made by Glaxo Wellcome, and Vertex will have little control over the
success of those efforts.
SUCCESSFUL DEVELOPMENT OF PIPELINE CANNOT BE PREDICTED
The products that the Company is pursuing will require extensive additional
development, testing and investment, as well as regulatory approvals, prior to
commercialization. No assurance can be given that the Company's product
development efforts will be successful, that required regulatory approvals will
be obtained or that any products, if introduced, will be commercially
successful. The results of preclinical and initial clinical trials of products
under development by the Company are not necessarily predictive of results that
will be obtained from large-scale clinical testing, and there can be no
assurance that clinical trials of products under development will demonstrate
the safety and efficacy of such products or will result in a marketable product.
The administration alone or in combination with other drugs of any product
developed by the Company may produce undesirable side effects in humans. The
failure to demonstrate adequately the safety and efficacy of a therapeutic drug
under development could delay or prevent regulatory approval of the product and
could have a material adverse effect on the Company. In addition, the FDA may
require additional clinical trials, which could result in increased costs and
significant development delays. Commercial formulation and manufacturing
processes have yet to be developed for the Company's drug candidates other than
Agenerase. The Company or its collaborators may encounter difficulties in their
manufacturing process development and formulation activities that could result
in delays in clinical trials, regulatory submissions and commercialization of
its products, or cause negative financial and competitive consequences.
CLINICAL TRIAL TIMING MAY BE SUBJECT TO DELAYS
The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, the rate of patient accrual. Patient
accrual is a function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the eligibility
criteria for the trial and the availability of clinical trial material. Delays
in planned patient enrollment in clinical trials may result in increased costs,
program delays or both, which could have a material adverse effect on the
Company. There can be no assurance that if clinical trials are completed the
Company will be able to submit an NDA or that any such application will be
reviewed and approved by the FDA in a timely manner, if at all.
Page 24
<PAGE>
VERTEX IS DEPENDENT ON COLLABORATIVE PARTNERS
The Company is engaged in research and development collaborations, pursuant
to which its partners have agreed to fund portions of the Company's research and
development programs and/or to conduct certain research and development relating
to specified products, in exchange for certain technology, product and marketing
rights relating to those products. Some of the Company's current corporate
partners have certain rights to control the planning and execution of product
development and clinical programs, and there can be no assurance that such
corporate partners' rights to control aspects of such programs will not impede
the Company's ability to conduct such programs in accordance with the schedules
and in the manner currently contemplated by the Company for such programs. If
any of the Company's corporate collaborators were to terminate its relationship
with Vertex, it could have a material adverse effect on the Company's ability to
fund related and other programs and to develop, manufacture and market any
products that may have resulted from such collaboration. The Company expects to
seek additional collaborative arrangements to develop and commercialize its
products in the future. There can be no assurance that the Company will be able
to establish acceptable collaborative arrangements in the future or that such
collaborative arrangements will be successful.
THE TECHNOLOGIES USED BY VERTEX ARE RAPIDLY CHANGING
The Company is engaged in pharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. Further,
the Company believes that interest in the application of structure-based drug
design and related technologies may continue and may accelerate as the
technologies become more widely understood. Businesses, academic institutions,
governmental agencies and other public and private research organizations are
conducting research to develop technologies that may compete with those used by
the Company. It is possible that the Company's competitors could acquire or
develop technologies that would render the Company's technology obsolete or
noncompetitive.
VERTEX FACES SUBSTANTIAL COMPETITION
There are many public and private companies, including pharmaceutical
companies, chemical companies and biotechnology companies, engaged in developing
products for the human therapeutic applications targeted by Vertex. The Company
is aware of efforts by others to develop products in each of the areas in which
the Company has products in development. In addition, there can be no assurance
that the Company's products in development will be able to compete effectively
with products which are currently on the market. In order for the Company to
compete successfully in these areas, it must demonstrate improved safety,
efficacy, ease of manufacturing and market acceptance over its competitors, who
have received regulatory approval and are currently marketing. Many of the
Company's competitors have substantially greater financial, technical and human
resources than those of the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in conducting
preclinical testing and human clinical trials of new pharmaceutical products,
and in obtaining FDA and other regulatory approvals of products. Accordingly,
certain of the Company's competitors may succeed in obtaining regulatory
approval for products more rapidly than the Company. If the Company obtains
regulatory approval and commences commercial sales of its products, it will also
compete with respect to manufacturing efficiency and sales and marketing
capabilities, areas in which it currently has no experience.
VERTEX RELIES ON THIRD PARTY MANUFACTURERS
The Company's ability to conduct clinical trials and its ability to
commercialize its potential products will depend, in part, on its ability to
manufacture its products on a large scale, either directly or through third
parties, at a competitive cost and in accordance with FDA and other
Page 25
<PAGE>
regulatory requirements. The Company currently does not have the capacity to
manufacture drugs in large-scale quanties and is dependent on third party
manufacturers or collaborative partners for the production of its compounds for
preclinical research, clinical trial purposes and commercial production. In the
event that the Company is unable to obtain contract manufacturing, or obtain
such manufacturing on commercially reasonable terms, it may not be able to
conduct or complete clinical trials or commercialize its products as planned.
The Company has no experience in manufacturing pharmaceutical or other products,
and there can be no assurance that the Company will successfully develop such
capabilities. Some of the Company's current corporate partners have certain
manufacturing rights with respect to the Company's products under development,
and there can be no assurance that such corporate partners' manufacturing rights
will not impede the Company's ability to conduct the development programs and
commercialize any resulting products in accordance with the schedules and in the
manner currently contemplated by the Company.
THE REGULATORY APPROVAL PROCESS IS SUBJECT TO UNCERTAINTIES
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Satisfaction of these
requirements typically takes several years or longer and may vary substantially
based upon the type, complexity and novelty of the pharmaceutical product. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based on changes in, or
additions to, regulatory policies for drug approval during the period of product
development and regulatory review. The effect of government regulation may be
to delay or prevent the commencement of clinical trials or marketing of Company
products, if any are developed and submitted for approval, for a considerable
period of time, to impose costly procedures upon the Company's activities and to
provide a competitive advantage to larger companies or companies more
experienced in regulatory affairs that compete with the Company. Moreover, even
if approval is granted, such approval may entail limitations on the indicated
uses for which a compound may be marketed.
THE SCOPE OF PATENT PROTECTION IS UNCERTAIN
The Company's success will depend, in part, on its ability to obtain United
States and foreign patent protection for its products and their uses, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. There can be no assurance that patents will issue from
any of the Company's pending or future patent applications. Legal standards
relating to the validity of patents and the proper scope of their claims in the
biopharmaceutical field are still evolving, and there is no consistent law or
policy regarding the valid breadth of claims in biopharmaceutical patents or the
effect of prior art on them. If the Company is unable to obtain adequate patent
protection, its ability to prevent competitors from making, using and selling
competing products will be limited. Furthermore, the Company's activities may
infringe the claims of the patents held by third parties. Defense and
prosecution of patent claims, as well as participation in interference
proceedings, can be expensive and time-consuming, even in those instances in
which the outcome is favorable to the Company. If the outcome of any such
litigation or proceeding were adverse, the Company could be subject to
significant liabilities to third parties, could be required to obtain licenses
from third parties or could be required to cease sales of the affected products,
any of which could have a material adverse effect on the Company.
Page 26
<PAGE>
VERTEX WILL CONTINUE TO HAVE SIGNIFICANT FUTURE CAPITAL NEEDS; AVAILABILITY OF
ADDITIONAL FUNDING IS UNCERTAIN
The Company expects to incur substantial research and development and
related supporting expenses as it designs and develops existing and future
compounds and undertakes clinical trials of potential drugs resulting from such
compounds. The Company also expects to incur substantial administrative and
commercialization expenditures in the future and substantial expenses related to
the filing, prosecution, defense and enforcement of patent and other
intellectual property claims. The Company anticipates that it will finance
these substantial cash needs with Agenerase royalty revenue, its existing cash
reserves, together with interest earned thereon, future payments under its
collaborative agreements, facilities and equipment financing and additional
collaborative agreements. To the extent that funds from these sources are not
sufficient to fund the Company's activities, it will be necessary to raise
additional funds through public offerings or private placements of debt or
equity securities or other methods of financing. Any equity financings could
result in dilution to the Company's then existing stockholders. Any debt
financing, if available at all, may be on terms which, among other things,
restrict the Company's ability to pay dividends (although the Company does not
intend to pay dividends for the foreseeable future). If adequate funds are not
available, the Company may be required to curtail significantly or discontinue
one or more of its research, drug discovery or development programs, including
clinical trials, or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or products in research or development. No
assurance can be given that additional financing will be available on acceptable
terms, if at all.
THIRD PARTY PHARMACEUTICAL REIMBURSEMENT POLICIES MAY AFFECT PRODUCT PRICING
The success of the Company's products in the United States and other
significant markets will depend, in part, upon the extent to which a consumer
will be able to obtain reimbursement for the cost of such products from
government health administration authorities, third-party payors and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products. Even if a product is approved for
marketing, there can be no assurance that adequate reimbursement will be
available. The Company is unable to predict what additional legislation or
regulation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect the legislation or
regulation would have on the Company's business. Failure to obtain reimbursement
could have a material adverse effect on the Company.
THE COMPANY LACKS SALES AND MARKETING EXPERIENCE
The Company currently has little experience in marketing and no experience
selling pharmaceutical products. The Company must either develop a marketing and
sales force or enter into arrangements with third parties to market and sell any
of its product candidates which are approved by the FDA. In the territories
where the Company retains marketing and co-promotion rights, there can be no
assurance that the Company will successfully develop its own sales and marketing
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations. To
the extent that the Company has or enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by the
Company will be dependent on the efforts of others, and there can be no
assurance that such efforts will be successful.
Page 27
<PAGE>
THERE IS A RISK OF PRODUCT LIABILITY
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. The use of the Company's products in clinical trials also exposes the
Company to the possibility of product liability claims and possible adverse
publicity. These risks will increase to the extent the Company's products
receive regulatory approval and are commercialized. There can be no assurance
that the Company will be able to maintain its existing levels of product
liability insurance or be able to obtain or maintain such additional insurance
as it may need in the future on acceptable terms. Nor can there be any assurance
that the Company's existing insurance or any such additional insurance will
provide adequate coverage against potential liabilities.
SHARE PRICE MAY FLUCTUATE BASED ON FACTORS BEYOND VERTEX'S CONTROL
Market prices for securities of companies such as Vertex are highly
volatile, and the market for the securities of such companies, including the
Common Stock of the Company, has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of these
particular companies. Factors such as announcements of results of clinical
trials, technological innovations or new products by Vertex or its competitors,
government regulatory action, public concern as to the safety of products
developed by the Company or others, patent or proprietary rights developments
and market conditions for pharmaceutical and biotechnology stocks, in general,
could have a significant adverse effect on the future market price of the
Company's common stock.
VERTEX HAS ANTI-TAKEOVER PROVISIONS THAT MAY DISCOURAGE CHANGE IN CONTROL
The Company's charter and By-law provisions and the Company's Stockholder
Rights Plan may discourage certain types of transactions involving an actual or
potential change in control of the Company which might be beneficial to the
Company or its stockholders. The Company's charter provides for staggered terms
for the members of the Board of Directors. The Company's By-laws grant the
Directors a right to adjourn annual meetings of stockholders, and certain
provisions of the By-laws may be amended only with an 80% stockholder vote.
Pursuant to the Company's Stockholder Rights Plan, each share of Common Stock
has an associated preferred share purchase right (a "Right"). The Rights will
not trade separately from the Common Stock until, and are exercisable only upon,
the acquisition or the potential acquisition through tender offer by a person or
group of 15% or more of the outstanding Common Stock. Shares of any class or
series of preferred stock may be issued by the Company in the future without
stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any class or series of
preferred stock that may be issued in the future.
ITEM 2. PROPERTIES
The Company leases an aggregate of approximately 134,000 square feet of
laboratory and office space in seven facilities at in Cambridge, Massachusetts.
The leases have expiration dates ranging from December 2000 to 2009. The
Company has the option to extend the lease for the Company's headquarters
facility at 130 Waverly Street, Cambridge, for up to two additional terms,
ending in 2015.
During 1998, Vertex opened a research and development facility in the U.K.
of approximately 7,000 square feet of laboratory and office space located in
Swindon under a lease expiring in August 2000. The Company has the right to
terminate this lease at any time after June 1999. The Company has also leased
approximately 24,000 square feet of laboratory and office
Page 28
<PAGE>
space in Milton Park under a lease expiring in 2013, with a right of early
termination in 2008. Upon completion of construction of the Milton Park
facility, expected by the third quarter of 1999, the Company will consolidate
its U.K. business and research and development activities from Ascot and Swindon
to Milton Park.
The Company believes its facilities are adequate for its current needs. The
Company believes it can obtain additional space on commercially reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against the
Company and Eli Lilly and Company in the United States District Court for the
Northern District of California, alleging infringement by the defendants of
various U.S. patents issued to Chiron. The infringement action relates to
research activities by the defendants in the hepatitis C viral protease field
and the alleged use of inventions claimed by Chiron in connection with that
research and development. Chiron has requested damages in an unspecified
amount, as well as an order permanently enjoining the defendants from unlicensed
use of Chiron inventions. While the final outcome of these actions cannot be
determined, the Company believes that the plaintiff's claims are without merit
and intends to defend the actions vigorously.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market ("Nasdaq")
under the symbol "VRTX." The following table sets forth the high, low and last
sale prices of each quarter for the Common Stock as reported by Nasdaq for the
periods indicated.
<TABLE>
<CAPTION>
1997 High Low Close
- ------------------------------------------------------------------------
<S> <C> <C>
First Quarter $52 3/4 $37 3/4 $40 1/2
Second Quarter 49 3/4 27 5/8 38 1/4
Third Quarter 41 5/8 29 3/8 37 3/4
Fourth Quarter 38 3/8 25 1/4 33
<CAPTION>
1998 High Low Close
- ------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $40 3/8 $31 1/4 $31 15/16
Second Quarter 33 7/8 21 1/2 22 1/2
Third Quarter 27 7/8 14 1/2 23
Fourth Quarter 30 20 29 3/4
</TABLE>
Page 29
<PAGE>
The last sale price of the Common Stock on March 12, 1999, as reported by
Nasdaq, was $26.75 per share. As of March 12, 1999, there were 254 holders of
record of the Common Stock (approximately 7,200 beneficial holders).
The Company has never declared or paid any cash dividends on its Common
Stock and currently expects that future earnings, if any, will be retained for
use in its business.
RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1998 are derived from the Company's
Consolidated Financial Statements. This data should be read in conjunction with
the Company's audited financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Collaborative and other research and
development revenues. . . . . . . . . . . $ 29,055 $ 29,926 $ 13,341 $ 22,081 $ 19,571
Investment income. . . . . . . . . . . . . . 15,343 13,873 5,257 5,453 3,574
-------- -------- -------- -------- --------
Total revenues. . . . . . . . . . . . . . 44,398 43,799 18,598 27,534 23,145
-------- -------- -------- -------- --------
Costs and expenses:
Research and development . . . . . . . . . 58,668 51,624 35,212 41,512 34,761
General and administrative . . . . . . . . 18,135 11,430 7,929 7,069 5,540
License Payment. . . . . . . . . . . . . . . -- -- 15,000 -- --
Interest . . . . . . . . . . . . . . . . . 681 576 462 481 439
-------- -------- -------- -------- --------
Total costs and expenses. . . . . . . . . 77,484 63,630 58,603 49,062 40,740
-------- -------- -------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . $(33,086) $(19,831) $(40,005) $(21,528) $(17,595)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Basic and diluted net loss per common
share. . . . . . . . . . . . . . . . . . . . . $ (1.31) $ (0.82) $ (2.13) $ (1.25) $ (1.11)
Basic and diluted weighted average
number of common shares outstanding. . . . . . 25,299 24,264 18,798 17,231 15,818
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments . . . $245,652 $279,671 $130,359 $86,978 $106,470
Total assets . . . . . . . . . . . . . . . . 266,346 295,604 143,499 98,981 116,175
Obligations under capital leases and debt,
excluding current portion. . . . . . . . . . 7,032 5,905 5,617 4,912 4,729
Accumulated deficit. . . . . . . . . . . . . (149,861) (116,775) (96,944) (56,939) (35,411)
Total stockholders' equity . . . . . . . . . 246,212 276,001 130,826 85,272 105,478
</TABLE>
Page 30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT CAN CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE DESCRIBED. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE BUT ARE NOT
LIMITED TO THOSE DESCRIBED IN THE SECTION ENTITLED "RISK FACTORS." READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH
SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF.
The Company is engaged in the discovery, development and commercialization
of novel, small molecule pharmaceuticals for the treatment of major diseases for
which there are currently limited or no effective treatments. The Company is a
leader in the use of structure-based drug design, an approach to drug discovery
that integrates advanced biology, biophysics, chemistry and information
technologies. The Company is conducting research and development programs to
develop pharmaceuticals for the treatment of viral diseases, multidrug
resistance in cancer, autoimmune and inflammatory diseases and neurodegenerative
disorders.
To date, the Company has not received any material revenues from the sale
of pharmaceutical products. A New Drug Application ("NDA") was submitted in
October 1998 for the Company's lead product, Agenerase-TM- (amprenavir) for the
treatment of HIV infection. Glaxo Wellcome plc ("Glaxo Wellcome"), Vertex's
partner, has also submitted applications for market approval to Canadian and
European regulatory agencies. Assuming the NDA is approved, the Company will
receive a royalty on sales of Agenerase from Glaxo Wellcome. The Company has
incurred operating losses since its inception and expects to incur a loss in
1999. The Company believes that operating losses may continue beyond 1999, even
if significant royalties are realized on Agenerase-TM- sales, because the
Company is planning to make significant investments in research and development
for its other potential products. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997.
The Company's total revenues were $44,398,000 in 1998 as compared to
$43,799,000 in 1997. In 1998, revenues consisted of $27,939,000 under the
Company's collaborative agreements, $15,343,000 in investment income and
$1,116,000 in government grants and other income. Collaborative revenue in 1998
included a $6,000,000 payment from Schering AG, Germany ("Schering AG")
associated with the signing of a collaborative agreement for the Company's
neurophilin ligand program and $4,000,000 of research funding under that
agreement, a $2,000,000 milestone payment from Kissei Pharmaceutical Co., Ltd.
("Kissei") for the acceptance of VX-745 as the lead development candidate for
the Company's p38 MAP kinase program, and a $3,000,000 milestone payment from
Glaxo Wellcome for the NDA filing for Agenerase. Other collaborative revenue in
1998 included $3,738,000 from Kissei, $3,457,000 from Glaxo Wellcome, $5,193,000
from Eli Lilly and Company ("Lilly") and $551,000 from others. Research funding
requirements under the Glaxo Wellcome agreement ended on December 31, 1998,
although Glaxo Wellcome continues to have certain development funding
obligations. In 1997, revenues consisted of $27,703,000 under the Company's
collaborative agreements, $13,873,000 in investment income, and $2,223,000 in
government grants and other income. Revenue from collaborative agreements in
1997 consisted of $3,275,000 from Glaxo Wellcome, $8,660,000 from Hoechst Marion
Roussel ("HMR"), $9,810,000 from Kissei, $5,694,000 from
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<PAGE>
Lilly and $264,000 from others.
Total costs and expenses increased to $77,484,000 in 1998 from $63,630,000
in 1997. Research and development expenses increased to $58,668,000 in 1998
from $51,624,000 in 1997. The Company increased research staffing, including
opening a research site in the U.K., to fully staff a higher number of discovery
programs. In addition, the Company expanded its development infrastructure.
General and administrative expenses increased in 1998 to $18,135,000 from
$11,430,000 in 1997 primarily as a result of headcount growth to handle the
administrative requirements of the Company's growing research and development
operation, legal expenses associated with expansion of the Company's
intellectual property position and marketing expenses associated with the
anticipated launch of Agenerase and the Company's co-promotion preparations.
Interest expense increased in 1998 to $681,000 from $576,000 in 1997 due to
higher levels of equipment financing during 1998.
The Company recorded a net loss of $33,086,000 or $1.31 per share in 1998
compared to a net loss of $19,831,000 or $0.82 per share in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996.
The Company's total revenues increased to $43,799,000 in 1997 from
$18,598,000 in 1996. In 1997, revenues consisted of $27,703,000 under the
Company's collaborative agreements, $13,873,000 in investment income, and
$2,223,000 in government grants and other income. The principal reasons for the
increase in revenue in 1997 were the commencement of new collaborations with
Lilly on the Company's hepatitis C protease program and with Kissei on the
Company's p38 MAP kinase program, in addition to greater investment income from
higher levels of cash and investments. The 1997 collaborations with Lilly and
Kissei included payments of $3,000,000 and $4,000,000, respectively, and
research funding of $2,694,000 and $1,500,000, respectively. Other collaborative
revenue in 1997 included $4,310,000 from Kissei, $8,660,000 from HMR, which
included a $3,000,000 milestone payment, $3,275,000 from Glaxo Wellcome, and
$264,000 from others. Research funding requirements under the HMR agreement
ended on December 31, 1997, although HMR continues to have certain development
funding obligations. In 1996, revenues consisted of $12,013,000 under the
Company's collaborative agreements, $5,257,000 in investment income and
$1,328,000 in government grants and other income. Revenue from collaborative
agreements consisted of $6,289,000 from Glaxo Wellcome, $4,196,000 from HMR,
$692,000 from Kissei and $836,000 from others.
The Company's total costs and expenses increased to $63,630,000 in 1997
from $58,603,000 in 1996. In 1996, the Company paid $15,000,000 to obtain a
non-exclusive, world-wide license under certain G.D. Searle & Co. ("Searle")
patent applications claiming HIV protease inhibitors. Research and development
expenses increased to $51,624,000 in 1997 from $35,212,000 in 1996 principally
due to the commencement of preclinical development activities for drug
candidates in the ICE and IMPDH programs as well as the continued expansion of
the Company's core scientific staff. In addition, general and administrative
expenses increased to $11,430,000 in 1997 from $7,929,000 in 1996. The increase
in general and administrative expense principally reflects the impact of
personnel additions, an increase in legal expenses related to patent activity
and an increase in marketing activities. Interest expense increased to $576,000
in 1997 from $462,000 in 1996 due to higher levels of equipment lease
financing during the year.
The Company recorded a net loss of $19,831,000 or $0.82 per share in 1997
compared to a net loss of $40,005,000 or $2.13 per share in 1996. The lower
loss per share reflects not only a lower aggregate loss but also an increase in
average common shares outstanding from 18,798,000 in 1996 to 24,264,000 in 1997
due to two Common Stock offerings in August 1996 and March 1997.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been funded principally through strategic
collaborative agreements, public offerings and private placements of the
Company's equity securities, equipment financing, government grants and
investment income. Assuming Agenerase is approved by the FDA, the Company will
begin receiving product royalty revenue in 1999. The Company has been expanding
its operations in order to increase and advance the number of potential products
in its research and development pipeline. Consequently, the Company expects to
incur increased research and development and related supporting expenses and is
likely to continue experiencing losses on a quarterly and annual basis. The
Company also expects to incur substantial administrative and commercialization
expenditures in the future and additional expenses related to the filing,
prosecution, defense and enforcement of patent and other intellectual property
rights.
The Company expects to finance these substantial cash needs with expected
royalty revenue from Agenerase, its existing cash and investments of
approximately $246,000,000 at December 31, 1998, together with investment income
earned thereon, future payments under its existing collaborative agreements, and
facilities and equipment financing. To the extent that funds from these sources
are not sufficient to fund the Company's activities, it will be necessary to
raise additional funds through public offerings or private placements of
securities, or new research collaborations for new or existing projects or other
methods of financing. There can be no assurance that such financing will be
available on acceptable terms, if at all.
The Company's aggregate cash and investments decreased by $34,019,000
during 1998 to $245,652,000 at December 31, 1998. Cash used by operations,
principally to fund research and development activities, was $31,055,000 during
the same period. The Company also expended $7,901,000 during this period to
acquire property and equipment, principally for research equipment and
facilities. During 1998, the Company entered into equipment financing
arrangements in the aggregate amount of $4,085,000 and repaid $2,716,000 of its
lease obligations.
In addition to the expansion of the research and development activities in
the U.S., the Company expanded its U.K. operations to include a research site
during 1998. The Company expects that, in general, research and development as
well as general and administrative expenses will continue to increase as the
Company starts new research projects, advances current clinical and preclinical
candidates, and expands its marketing and business development activities.
During 1998, the Company and Schering AG entered into a collaborative
agreement to research, develop and commercialize novel, orally active
neurophilin ligand compounds to promote nerve regeneration for the treatment of
a number of neurological diseases. Under the terms of the agreement, Schering
AG will pay the Company up to $88,000,000 composed of a $6,000,000 license
payment paid in September 1998, $22,000,000 of product research funding over
five years and potentially $60,000,000 of development and commercialization
milestone payments.
At December 31, 1998, the Company leased approximately 134,000 square feet
of office and research space in the U.S. and 31,000 square feet in the U.K.
These leases have terms ranging from 3 to 10 years. In addition, the Company's
liability for capitalized equipment lease obligations and other equipment
financing totaled approximately $10 million at December 31, 1998.
YEAR 2000
The Company has completed its evaluation of its business critical
information technology systems ("IT Systems") and has determined the actions
necessary in order to ensure that such IT Systems will be able to function
without disruption with respect to the application of dating systems in the Year
2000. The Company has begun to upgrade, replace and test certain of its IT
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<PAGE>
Systems based on the results of that evaluation. Evaluation of embedded systems
in the Company's non-computer equipment ("Non-IT Systems") for Year 2000
compliance is under way but has not been completed.
In addition to risks associated with the Company's own computer systems and
equipment, the Company has relationships with, and is to varying degrees
dependent upon, a number of third parties that provide goods, services and
information to the Company. These include contract manufacturers, suppliers,
licensees and licensors, vendors, research partners and financial institutions,
whose systems and equipment are outside the control of the Company. If certain
of these third parties experience failures in their computer systems or
equipment due to Year 2000 non-compliance, it could affect the Company's ability
to engage in normal business activities. The Company intends to contact its
significant vendors and partners to ascertain their Year 2000 compliance and to
determine the extent to which the Company is vulnerable to their non-compliance,
if any.
The Company expects to complete its internal evaluation and remediation
efforts and its assessment of third party compliance and contingency plans by
mid-1999. However, there can be no assurance that these evaluations and any
required remedial actions will be able to be completed on a timely basis. The
Company believes that its IT Systems and Non-IT Systems are either already Year
2000 compliant or will be so prior to the Year 2000. The Company estimates the
cost of making its IT systems and Non-IT systems Year 2000 complaint will be
approximately $200,000. There can be no assurance, however, that the Company
will not experience unexpected costs in achieving full Year 2000 compliance,
which could result in a material adverse effect on the Company's future results
of operations. The Company believes that it will be able to locate alternate
sources for any critical goods or services provided by non-compliant third
parties, if any. However, the Company may not be able to timely develop or
implement contingency plans to address those business critical systems and third
party relationships which may not be Year 2000 compliant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company owns financial instruments that are sensitive to market risks
as part of its investment portfolio. The investment portfolio is used to
preserve the Company's capital until it is required to fund operations,
including the Company's research and development activities. None of these
market-risk sensitive instruments are held for trading purposes. The Company
does not own derivative financial instruments in its investment portfolio.
INTEREST RATE RISK
The Company invests its cash in a variety of financial instruments,
principally securities issued by the U.S. Government and its agencies,
investment grade corporate and money market instruments. These investments are
denominated in U.S. dollars. These bonds are subject to interest rate risk, and
could decline in value if interest rates fluctuate. The Company's investment
portfolio includes only marketable securities with active secondary or resale
markets to help ensure portfolio liquidity and the Company has implemented
guidelines limiting the duration of investments. Due to the conservative nature
of these instruments, the Company does not believe that it has a material
exposure to interest rate risk.
Page 34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-1 through F-18
of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by this Item is included in
the definitive Proxy Statement for the Company's 1999 Annual Meeting of
Stockholders, to be filed with the Commission on or about April 12, 1999 (the
"1999 Proxy Statement"), under "Election of Directors" and is incorporated
herein by reference. The information regarding executive officers required by
this Item is included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1999 Proxy
Statement under "Executive Compensation" and is incorporated herein by reference
(excluding, however, the "Report on Executive Compensation" and the Performance
Graph contained in the 1999 Proxy Statement, which shall not be deemed
incorporated herein).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1999 Proxy
Statement under "Security Ownership of Certain Beneficial Owners and Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The Financial Statements required to be filed by
Item 8 of this Annual Report on Form 10-K, and filed herewith, are as
follows:
<TABLE>
<CAPTION>
Page Number in
This Form 10-k
--------------
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997. . . . F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . F-7 to F-18
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules have been omitted because they are either
not applicable or the required information is included in the
consolidated financial statements or notes thereto.
(a)(3) EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Articles of Organization filed with the Commonwealth of
Massachusetts on July 31, 1991 (filed as Exhibit 3.1 to the Company's
1997 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
3.2 Articles of Amendment filed with the Commonwealth of Massachusetts on
June 4, 1997 (filed as Exhibit 3.2 to the Company's 1997 Annual Report
on Form 10-K (File No. 0-19319) and incorporated herein by reference).
3.3 Certificate of Vote of Directors Establishing a Series of a Class of
Stock, as filed with the Secretary of the Commonwealth of
Massachusetts on July 31, 1991 (filed as Exhibit 3.3 to the Company's
1997 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
3.4 By-laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-43874) and
incorporated herein by reference).
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<PAGE>
4.1 Specimen stock certificate (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-40966) or
amendments thereto and incorporated herein by reference).
4.2 Stockholder Rights Plan (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-40966) or
amendments thereto and incorporated herein by reference).
4.3 First Amendment to Rights Agreement dated as of February 21, 1997
(filed as Exhibit 4.3 to the Company's 1996 Annual Report on Form 10-K
(File No. 0-19319) and incorporated herein by reference).
10.1 1991 Stock Option Plan, as amended and restated as of May 13, 1993
(filed as Exhibit 28.1 to the Company's Registration Statement on Form
S-8 (No. 33-65742) and incorporated herein by reference).*
10.2 1994 Stock and Option Plan (filed as Exhibit 10.2 to the Company's
1994 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).*
10.3 1996 Stock and Option Plan (filed as Exhibit 10.3 to the Company's
1996 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).*
10.4 Amendment to 1996 Stock and Option Plan adopted December 12, 1997
(filed as Exhibit 10.4 to the Company's 1997 Annual Report on Form
10-K (File No. 0-19319) and incorporated herein by reference).*
10.5 Non-Competition and Stock Repurchase Agreement between the Company and
Joshua Boger, dated April 20, 1989 (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).*
10.6 Form of Employee Stock Purchase Agreement (filed as Exhibit 10.3 to
the Company's Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).*
10.7 Form of Employee Non-Disclosure and Inventions Agreement (filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated
herein by reference).
10.8 Form of Executive Employment Agreement executed by Richard H. Aldrich,
Joshua S. Boger, and Vicki L. Sato (filed as Exhibit 10.6 to the
Company's 1994 Annual Report on Form 10-K (File No. 0-19319) and
incorporated herein by reference).*
10.9 Form of Amendment to Employment Agreement executed by Richard H.
Aldrich, Joshua S. Boger and Vicki L. Sato (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995 (File No. 0-19319) and incorporated herein by reference).
10.10 Series C Convertible Preferred Stock Purchase Agreement between the
Company and the party named therein, dated September 21, 1990 (filed
as Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated
herein by reference).
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<PAGE>
10.11 Stock Purchase Agreement dated November 10, 1994 between the Company
and Biotech Target S.A. (filed as Exhibit 10.12 to the Company's 1994
Annual Report on Form 10-K (File No. 0-19319) and incorporated herein
by reference).
10.12 Lease dated October 1, 1992 between C. Vincent Vappi and the Company
relating to the premises at 40 Allston Street, 618 Putnam Street, 228
Sidney Street, and 240 Sidney Street (filed as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 0-19319) and incorporated herein by reference).
10.13 First Amendment as of March 1, 1995 to the lease between C. Vincent
Vappi and the Company (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
(File No. 0-19319) and incorporated herein by reference).
10.14 Second Amendment as of February 12, 1997 to Lease between C. Vincent
Vappi and the Company (filed as Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (File No.
0-19319) and incorporated herein by reference ).
10.15 Lease dated March 1, 1993, between Fort Washington Realty Trust and
the Company, relating to the premises at 625 Putnam Avenue, Cambridge,
MA (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (File No. 0-19319) and
incorporated herein by reference).
10.16 First Amendment, dated 1 December 1996, to Lease between Fort
Washington Realty Trust and the Company dated 1 March 1993 (filed as
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 (File No. 0-19319) and incorporated herein by
reference).
10.17 Second Amendment, dated 1 February 1998, to Lease between Fort
Washington Realty Trust and the Company dated 1 March 1993 (filed as
Exhibit 10.17 to the Company's 1997 Annual Report on Form 10-K (File
No. 0-19319) and incorporated herein by reference).
10.18 Lease dated March 3, 1995, between Fort Washington Realty Trust and
the Company, relating to the premises at 130 Waverly Street,
Cambridge, MA (filed as Exhibit 10.15 to the Company's 1994 Annual
Report on Form 10-K (File No. 0-19319) and incorporated herein by
reference).
10.19 First Amendment to Lease dated March 3, 1995 between Fort Washington
Realty Trust and the Company (filed as Exhibit 10.15 to the Company's
1995 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
10.20 Second Amendment to Lease and Option Agreement dated June 12, 1997
between Fort Washington Realty Trust and the Company (filed herewith).
10.21 Agreement for Lease of Premises at 88 Milton Park, Abingdon,
Oxfordshire between Milton Park Limited and Vertex Pharmaceuticals
(Europe) Limited and Vertex Pharmaceuticals Incorporated (filed
herewith)
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<PAGE>
10.22 Research and Development Agreement dated April 13, 1993 between the
Company and Kissei Pharmaceutical Co., Ltd. (with certain confidential
information deleted) (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993 (File No.
0-19319) and incorporated herein by reference).
10.23 Research, Development, and License Agreement dated September 8, 1993
between the Company and Roussel Uclaf (with certain confidential
information deleted) (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993 (File No.
0-19319) and incorporated herein by reference).
10.24 Research Agreement and License Agreement, both dated December 16,
1993, between the Company and Burroughs Wellcome Co. (with certain
confidential information deleted) (filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 0-19319) and incorporated herein by reference).
10.25 License Agreement and Supply Agreement, both dated May 9, 1996,
between the Company and BioChem Pharma (International) Inc. (with
certain confidential information deleted) (filed as Exhibit 10.1 to
the Company's Quarterly Report on 10-Q for the quarter ended March 31,
1996 (File No. 0-19319) and incorporated herein by reference).
10.26 Research and Development Agreement between the Company and Eli Lilly
and Company effective June 11, 1997 (filed with certain confidential
information deleted as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference).
10.27 Research and Development Agreement between the Company and Kissei
Pharmaceutical Co. Ltd. effective September 10, 1997 (filed, with
certain confidential information deleted, as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference).
10.28 Research Agreement between the Company and Schering AG dated as of
August 24, 1998 (filed, with certain confidential information deleted,
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, and incorporated herein by
reference).
21 Subsidiaries of the Company (filed as Exhibit 21 to the Company's
1997 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (submitted as an exhibit only in the
electronic format of this Annual Report on Form 10-K submitted to the
Securities and Exchange Commission).
- ------------------
* Compensatory plan or agreement applicable to management and employees.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended December 31, 1998.
Page 39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VERTEX PHARMACEUTICALS INCORPORATED
March 29, 1999 By: /s/ Joshua S. Boger
-----------------------------------------
Joshua S. Boger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Joshua S. Boger Director, Chairman, President March 29, 1999
- ------------------------------- and Chief Executive Officer
Joshua S. Boger (Principal Executive Officer)
/s/ Thomas G. Auchincloss, Jr. Vice President of Finance March 29, 1999
- ------------------------------- and Treasurer
Thomas G. Auchincloss, Jr. (Principal Financial Officer)
/s/ Hans D. Van Houte Controller March 29, 1999
- -------------------------------
Hans D. van Houte
/s/ Barry M. Bloom Director March 24, 1999
- -------------------------------
Barry M. Bloom
/s/ Donald R. Conklin Director March 29, 1999
- -------------------------------
Donald R. Conklin
/s/ Roger W. Brimblecombe Director March 26, 1999
- -------------------------------
Roger W. Brimblecombe
/s/ William W. Helman IV Director March 29, 1999
- -------------------------------
William W. Helman IV
/s/ Bruce I. Sachs Director March 29, 1999
- -------------------------------
Bruce I. Sachs
/s/ Charles A. Sanders Director March 29, 1999
- -------------------------------
Charles A. Sanders
/s/ Elaine S. Ullian Director March 24, 1999
- -------------------------------
Elaine S. Ullian
</TABLE>
Page 40
<PAGE>
EXHIBIT INDEX
10.20 Second Amendment to Lease and Option Agreement dated June 12, 1997
between Fort Washington Realty Trust and the Company (filed herewith).
10.21 Agreement for Lease of Premises at 88 Milton Park, Abingdon,
Oxfordshire between Milton Park Limited and Vertex Pharmaceuticals
(Europe) Limited and Vertex Pharmaceuticals Incorporated (filed
herewith)
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (submitted as an exhibit only in the
electronic format of this Annual Report on Form 10-K submitted to the
Securities and Exchange Commission).
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7 to F-18
</TABLE>
Page F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of Vertex Pharmaceuticals
Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Vertex
Pharmaceuticals Incorporated and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 25, 1999
Page F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
December 31,
----------------------
(DOLLARS IN THOUSANDS) 1998 1997
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $24,169 $71,454
Investments 221,483 208,217
Prepaid expenses and other current assets 3,056 1,952
- -------------------------------------------------------------------------------------------------------------------
Total current assets 248,708 281,623
Restricted cash 2,316 2,316
Property and equipment, net 14,476 11,095
Other assets 846 570
- -------------------------------------------------------------------------------------------------------------------
Total assets $266,346 $295,604
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Obligations under capital lease and debt $2,752 $2,510
Accounts payable 2,808 4,247
Accrued expenses 7,542 6,385
Deferred revenue -- 556
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,102 13,698
Obligations under capital lease and debt,
excluding current portion 7,032 5,905
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 20,134 19,603
Commitments (Note G)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued
Common stock, $.01 par value; 100,000,000 shares authorized;
25,358,559 and 25,215,617 shares issued and outstanding
in 1998 and 1997, respectively 254 252
Additional paid-in capital 395,165 392,372
Accumulated other comprehensive income (loss) 654 152
Accumulated deficit (149,861) (116,775)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 246,212 276,001
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $266,346 $295,604
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
Year Ended December 31,
-----------------------
(In thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Collaborative and other research and development $29,055 $29,926 $ 13,341
Investment income 15,343 13,873 5,257
------ ------ -----
Total revenues 44,398 43,799 18,598
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Research and development 58,668 51,624 35,212
General and administrative 18,135 11,430 7,929
License payment -- -- 15,000
Interest 681 576 462
---- ---- ----
Total costs and expenses 77,484 63,630 58,603
- -------------------------------------------------------------------------------------------------------------------
Net loss $(33,086) $(19,831) $(40,005)
- -------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share $(1.31) $(0.82) $(2.13)
Basic and diluted weighted average number of
common shares outstanding 25,299 24,264 18,798
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
------------------- Paid-in Accumulated Comprehensive Comprehensive Stockholders'
(In thousands) Shares Amount Capital Deficit income (loss) income (loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 17,299 $173 $142,038 $(56,939) $85,272
Net change in unrealized holding gains/
losses on investments $35 $ 35 35
Translation adjustments 14 14 14
Net loss (40,005) (40,005) (40,005)
--------
Comprehensive loss (39,956)
--------
Issuances of common stock:
Public offering of common stock 3,450 34 77,481 77,515
Private placement of common stock 152 2 4,998 5,000
Benefit plans 196 2 2,993 2,995
- ------------------------------------------------------------------------------------------------ -----------
Balance, December 31, 1996 21,097 211 227,510 (96,944) 49 130,826
Net change in unrealized holding gains/
losses on investments 115 115 115
Translation adjustments (12) (12) (12)
Net loss (19,831) (19,831) (19,831)
--------
Comprehensive loss (19,728)
--------
Issuances of common stock:
Public offering of common stock 3,450 34 148,776 148,810
Private placement of common stock 264 3 9,997 10,000
Benefit plans 405 4 6,089 6,093
- ------------------------------------------------------------------------------------------------ -----------
Balance, December 31, 1997 25,216 252 392,372 (116,775) 152 276,001
Net change in unrealized holding gains/
losses on investments 502 502 502
Translation adjustments -- -- --
Net loss (33,086) (33,086) (33,086)
--------
Comprehensive loss $(32,584)
--------
Issuances of common stock:
Benefit plans 143 2 2,793 2,795
- ------------------------------------------------------------------------------------------------ -----------
Balance, December 31, 1998 25,359 $254 $395,165 $(149,861) $ 654 $246,212
- ------------------------------------------------------------------------------------------------ -----------
- ------------------------------------------------------------------------------------------------ -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (33,086) $ (19,831) $(40,005)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 4,520 3,588 3,160
Realized gains/losses on available for sale securities (547) -- --
Changes in assets and liabilities:
Prepaid expenses and other current assets (1,104) (161) (832)
Accounts payable (1,439) 2,856 (1,631)
Accrued expenses 1,157 3,630 (748)
Deferred revenue (556) 556 (197)
--------- --------- --------
Net cash provided (used) by operating activities (31,055) (9,362) (40,253)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investments (507,540) (303,599) (73,035)
Sales and maturities of investments 495,323 191,005 36,150
Expenditures for property and equipment (7,901) (6,020) (3,983)
Other assets (276) (200) 518
--------- --------- --------
Net cash provided (used) by investing activities (20,394) (118,814) (40,350)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of capital lease obligations and debt (2,716) (3,104) (2,187)
Proceeds from equipment sale/leaseback -- 1,179 3,727
Proceeds from debt 4,085 1,813 --
Proceeds from public offerings of common stock -- 148,810 77,515
Proceeds from private placement of common stock -- 10,000 5,000
Proceeds from other issuances of capital stock 2,795 6,093 2,995
--------- --------- --------
Net cash provided (used) by financing activities 4,164 164,791 87,050
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash -- (12) 14
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (47,285) 36,603 6,461
Cash and cash equivalents at beginning of year 71,454 34,851 28,390
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 24,169 $ 71,454 $ 34,851
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page F-6
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Vertex Pharmaceuticals Incorporated ("Vertex" or the "Company") uses a range of
drug discovery technologies to identify, design and develop novel, orally
deliverable compounds that have the potential to treat major human diseases. As
of December 31, 1998, the Company has not received any material revenues from
the sale of pharmaceutical products. The Company's revenues during 1998, 1997
and 1996 principally resulted from research support payments from corporate
partners and investment income. The Company expects to incur an operating loss
in 1999 and potentially beyond 1999, as a result of expenditures for its
research and development programs.
The consolidated financial statements include the accounts of the Company and
the following subsidiaries: Altus Biologics Inc. ("Altus"), Vertex Securities
Corp. and Vertex Pharmaceuticals (Europe) Limited. All material intercompany
transactions are eliminated. Minority interests are carried at cost.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, rapid technological change and
competition, dependence on key personnel, uncertainty of protection of
proprietary technology, clinical trial uncertainty, dependence on collaborative
partners, share price volatility, the possible need to obtain additional
funding, uncertainties relating to pharmaceutical pricing and reimbursement,
limited experience in manufacturing and sales and marketing, potential product
liability and the need for compliance with government regulations.
B. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents, which are money market funds and debt securities, are valued
at cost plus accrued interest. The Company considers all highly liquid
investments with original maturities of three months or less at the date of
purchase to be cash equivalents. Changes in cash and cash equivalents may be
affected by shifts in investment portfolio maturities as well as by actual cash
receipts and disbursements. Financial instruments which potentially subject the
Company to concentration of credit risk consist principally of money market
funds and marketable securities. The Company places these investments in highly
rated financial institutions, and, by policy, limits the amounts of credit
exposure to any one financial institution. These amounts at times may exceed
federally insured limits. The Company has not experienced any losses in such
accounts and does not believe it is exposed to any significant credit risk on
these funds.
INVESTMENTS
Investments consist of marketable securities which are classified as available
for sale. Investments are stated at fair value with unrealized gains and losses
included as a component of accumulated
Page F-7
<PAGE>
other comprehensive income (loss) until realized. The fair value of these
securities is based on quoted market prices. Realized gains and losses are
determined on the specific identification method and are included in investment
income.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the lesser of the lease terms or
the estimated useful lives of the related assets, generally four or five years
for equipment and furniture and three years for purchased software. Leasehold
improvements are amortized over the life of leases. When assets are retired or
otherwise disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or loss is
reflected in income (loss).
REVENUE RECOGNITION
Revenue under research and development arrangements is recognized as earned
under the terms of the respective agreements. License payments are recorded as
revenue when contractual obligations have been met. Product research funding is
recorded as revenue, generally on a quarterly basis, as research effort is
incurred. Deferred revenue arises from payments received which have not yet been
earned under research and development arrangements. The Company recognizes
milestone payments when the milestones are achieved.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future tax
consequences, using current tax rates, of temporary differences between the
financial statement carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net deferred tax asset
if, based on the weighted available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
BASIC AND DILUTED LOSS PER COMMON SHARE
Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based upon
the weighted average number of common shares outstanding during the period plus
additional weighted average common equivalent shares outstanding during the
period when the effect is not anti-dilutive. Common equivalent shares result
from the assumed exercise of outstanding stock options, the proceeds of which
are then assumed to have been used to repurchase outstanding stock using the
treasury stock method. Common equivalent shares have not been included in the
per-share calculations as the effect would be anti-dilutive. Potential common
equivalent shares consist of 5,837,000 stock options outstanding with a weighted
average exercise price of $22.62 as of December 31, 1998.
SEGMENT INFORMATION
The Company is in one business segment, the business of discovery, development
and commercialization of novel, small molecule pharmaceuticals. The Company
follows the requirements of FAS 131 "Disclosures about Segments of an Enterprise
and Related Information."
Page F-8
<PAGE>
C. INVESTMENTS
Investments consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
Cost Fair Value Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents
Cash and money market funds $20,888 $20,888 $43,072 $43,072
Corporate debt securities 3,281 3,281 28,382 28,382
------ ------ ------- -------
Total cash and cash equivalents $24,169 $24,169 $71,454 $71,454
-------- -------- --------- ---------
-------- -------- --------- ---------
Investments
US Government securities
Due within 1 year $18,383 $18,363 $4,719 $4,713
Due within 1 to 5 years 28,734 28,834 40,167 40,200
Due over 5 years 3,048 3,037 --- ---
Corporate debt securities
Due within 1 year 21,684 21,638 71,136 71,165
Due within 1 to 5 years 133,039 133,665 69,771 69,851
Due over 5 years 15,945 15,946 22,276 22,288
-------- -------- --------- ---------
Total Investments $220,833 $221,483 $208,069 $208,217
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
Gross unrealized holding gains and losses at December 31, 1998 were $911,000 and
$261,000, respectively, and at December 31, 1997 were $184,000 and $36,000,
respectively. Gross realized gains and losses for 1998 were $852,000 and
$305,000, respectively. The effect of gross realized gains and losses on the
financial statements for the years 1997 and 1996 was immaterial. Maturities
stated are final maturities, the effective maturities for certain securities may
be shorter in duration.
D. RESTRICTED CASH
In accordance with an operating lease agreement, the Company holds in deposit
approximately $2,316,000 with its bank to collateralize a conditional, stand-by
letter of credit in the name of the landlord. The letter of credit is redeemable
only if the Company defaults on the lease under specific criteria. These funds
are restricted from the Company's use during the lease period, although the
Company is entitled to all interest earned on the funds.
E. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $7,804 $6,983
Furniture and equipment 11,070 4,511
Software 3,276 2,823
Equipment under capital lease 20,471 20,403
- -------------------------------------------------------------------------------------------------------------------
42,621 34,720
Less accumulated depreciation and amortization 28,145 23,625
- -------------------------------------------------------------------------------------------------------------------
$14,476 $11,095
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The net book value of equipment under capital lease was $3,687,000 and
$5,811,000 at December 31, 1998 and 1997, respectively.
Page F-9
<PAGE>
F. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Professional fees $2,134 $1,192
Development contract costs 2,391 2,663
Payroll and benefits 1,239 1,145
Other 1,778 1,385
- -------------------------------------------------------------------------------------------------------------------
$7,542 $6,385
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
G. COMMITMENTS, CAPITAL LEASES AND DEBT OBLIGATIONS
CAPITAL LEASES AND DEBT OBLIGATIONS
At December 31, 1998, long-term capital lease and debt obligations were due as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, Capital leases Debt Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 2,065 $ 947 $ 3,012
2000 1,478 1,027 2,505
2001 1,315 1,114 2,429
2002 89 1,351 1,440
2003 -- 873 873
- -------------------------------------------------------------------------------------------------------------------
Total 4,947 5,312 10,259
Less amount representing interest payments 475 -- 475
- -------------------------------------------------------------------------------------------------------------------
Present value of minimum lease and debt payments 4,472 5,312 9,784
Less current portion 1,805 947 2,752
- -------------------------------------------------------------------------------------------------------------------
$ 2,667 $ 4,365 $ 7,032
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1997 and 1996, the Company financed under capital lease arrangements an
aggregate of $1,179,000 and $3,727,000, respectively, of asset cost under its
master lease agreements. At the end of the lease term, the Company has the right
to either return the equipment to the lessor or purchase the equipment for fair
market value at that time. These agreements have a term of five years and
require that the Company maintain a certain level of cash and investments.
During 1998, the Company financed under a master debt agreement, assets with a
cost of $1,574,000, $1,506,000 and $1,005,000 with interest rates of 7.89%,
8.06% and 8.08%, respectively. During 1997, the Company financed under a master
debt agreement, assets with a cost of $676,000 and $1,137,000 with interest
rates of 8.59% and 8.38%, respectively. The Company has certain equipment with a
net book value of $4,945,000, designated as collateral under these agreements.
These agreements have a term of five years, and require that the Company
maintain a certain level of cash and investments. The carrying value of these
debt obligations approximates fair value.
Interest paid under capital leases and debt was $681,000, $576,000 and $462,000
in 1998, 1997 and 1996, respectively.
COMMITMENTS
The Company leases its facilities and certain equipment under operating leases.
The Company's leases have terms through the year 2009. Noncancelable future
minimum payments are as follows:
Page F-10
<PAGE>
$5,507,000 in 1999, $5,612,000 in 2000, $4,744,000 in 2001, $4,408,000 in 2002,
$4,408,000 in 2003 and $15,813,000 thereafter. Rental expense was $4,358,000,
$3,363,000 and $3,063,000 in 1998, 1997 and 1996, respectively.
The Company has certain license and maintenance contracts that contain future,
committed payments for the support and upgrade of specific software programs
currently used in research. For the years 1999, 2000 and 2001 the amounts
committed under these contracts are $314,000, $343,000 and $376,000,
respectively.
H. INCOME TAXES
The Company's federal statutory income tax rate for 1998, 1997 and 1996 was 34%.
The Company recorded no income tax benefit for 1998, 1997 and 1996 and recorded
a full valuation allowance against net operating losses due to uncertainties
related to realizability of these tax assets.
Deferred tax liabilities and assets are determined based on the difference
between financial statement and tax bases using enacted tax rates in effect for
the year in which the differences are expected to reverse. The components of the
deferred taxes at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Net operating loss $ 57,295 $ 38,434
Tax credits carryforward 10,958 5,829
Property, plant and equipment 1,345 1,211
Other 572 468
--------- --------
Gross deferred tax asset 70,170 45,942
Valuation allowance (70,170) (45,942)
--------- --------
Net deferred tax balance $ -- $ --
--------- --------
--------- --------
</TABLE>
For federal income tax purposes, as of December 31, 1998, the Company has net
operating loss carryforwards of approximately $143,238,000 and $7,624,000 of tax
credits, which may be used to offset future income. These net operating loss
carryforwards expire beginning in 2005, and the tax credit carryforwards begin
to expire in 2004. Approximately $22,935,000 of the net operating loss
carryforwards and $245,000 of the tax credit carryforwards belong to Altus and
can only be used to offset future income of Altus. A valuation allowance has
been established for the full amount of the deferred tax asset since it is more
likely than not that the deferred tax asset will not be realized.
The amount of tax credits and net operating loss carryforwards that the Company
may utilize in any one year is limited in accordance with Internal Revenue Code
ss.382. This limitation arises whenever a cumulative change in ownership in
excess of 50% occurs. A change of ownership has occurred which will limit the
amount of net operating loss and tax credits available prior to the change.
There may also be further changes of ownership subsequent to 1998 which may also
limit the amount of net operating loss and tax credit utilization in a
subsequent year.
I. COMMON AND PREFERRED STOCK
Page F-11
<PAGE>
COMMON STOCK
In June 1997, Eli Lilly and Company ("Lilly") purchased 263,922 shares of the
Company's common stock for $10,000,000. In March 1997, the Company completed a
public offering of 3,450,000 shares of its common stock at a price of $45.50 per
share with net proceeds to the Company of approximately $148,810,000. In August
1996, the Company completed a public offering of 3,450,000 shares of its Common
Stock at a price of $24 per share with net proceeds to the Company of
approximately $77,515,000. In June 1996, Glaxo Wellcome purchased 151,792 shares
of the Company's Common Stock for approximately $5,000,000.
During 1997, the Company increased the authorized number of shares of Common
Stock by 50,000,000 shares to 100,000,000 shares. At December 31, 1998,
7,862,000 shares of the Company's Common Stock were reserved for exercise of
Common Stock options granted or to be granted under its 1991 Stock Option Plan,
1994 Stock and Option Plan, and 1996 Stock and Option Plan, 48,000 shares were
reserved for exercise of certain other options granted in 1991, 88,000 shares of
Common Stock were reserved for issuance under the Company's 401(k) Plan, and
76,000 shares of Common Stock were reserved for issuance under the Company's
Employee Stock Purchase Plan.
STOCK OPTION PLANS
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock-based compensation plans. However, pro forma disclosures as if the
Company adopted the cost recognition requirements under FASB Statement No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") in 1998, 1997 and 1996
are presented below. Compensation expense of $91,000 and $66,000 was recognized
during 1998 and 1997, respectively. No compensation expense was recognized for
these plans in 1996.
The Company has the 1991 Stock Option Plan (the "1991 Plan") and 1994 Stock and
Option Plan (the "1994 Plan") and 1996 Stock and Option Plan (the "1996 Plan").
Under the 1994 Plan and the 1996 Plan, stock rights, which are either (i)
incentive stock options when Internal Revenue Code requirements are met, (ii)
non-qualified stock options ("NQSOs"), or (iii) award shares of Common Stock or
the opportunity to make a direct purchase of shares of Common Stock ("Stock
Awards"), may be granted to employees (including officers and directors who are
employees), consultants, advisors and non-employee directors (NQSOs and stock
awards only). Incentive stock options granted under the Plans may not be granted
at a price less than the fair market value of the Common Stock on the date of
grant. Non-qualified stock options may be granted at an exercise price
established by the Compensation Committee of the Board of Directors, which may
be less than, equal to or greater than the fair value of the Common Stock on the
date of grant. Vesting periods, generally four or five years, are determined by
the Compensation Committee. Incentive stock options granted under the Plans must
expire not more than ten years from the date of grant. At December 31, 1998, the
Company had 2,074,000 shares of common stock available for future grant under
its stock option plans.
Page F-12
<PAGE>
Stock option activity for the years ended December 31, 1998, 1997 and 1996 is as
follows (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 4,702 $22.03 4,033 $18.98 3,196 $14.63
Granted 1,341 $24.57 1,257 $29.78 1,056 $31.11
Exercised (78) $14.89 (375) $13.97 (139) $12.96
Canceled (128) $25.90 (213) $23.99 (80) $16.11
----- ----- ----
Outstanding at end
of year 5,837 $22.62 4,702 $22.03 4,033 $18.98
----- ----- -----
Options exercisable
at year-end 2,758 $18.76 1,944 $16.50 1,625 $13.92
----- ----- -----
Weighted average fair
value of options granted
during the year $11.68 $13.94 $15.04
------ ------ ------
------ ------ ------
</TABLE>
The fair value of each option granted during 1998, 1997 and 1996 was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: (1) expected life of 5.11 years for the
1998 grants, 5.18 years for the 1997 grants and 5.41 years for the 1996 grants
(2) expected volatility of 46.5% for the 1998 grants, 44.7% for the 1997 grants
and 42% for the 1996 grants (3) risk-free interest rate of 4.86% for the 1998
grants, 5.5% for the 1997 grants and 6.30% for the 1996 grants and (4) no
dividend yield.
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$6.48 - $15.00 1,152 4.94 $11.88 1,021 $11.82
$15.13 - $19.00 1,273 6.08 $17.43 984 $17.03
$19.87 - $27.25 1,219 9.68 $24.03 63 $22.54
$27.34 - $30.50 982 8.92 $27.48 231 $27.62
$33.19 - $49.13 1,211 8.17 $32.94 459 $32.97
----- ------
$ 6.48 - $49.13 5,837 7.52 $22.62 2,758 $18.76
----- ------
----- ------
</TABLE>
Page F-13
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan, substantially all permanent
employees may, through payroll withholdings, purchase shares of the Company's
Common Stock at a price of 85% of the lesser of fair market value at the
beginning or end of each six-month withholding period. During 1998, 38,170
shares of Common Stock at a price of $22.66 per share were issued to employees
under the plan. During 1997, 26,213 shares were issued at an average price of
$28.00 per share. During 1996, 32,296 shares of Common Stock at an average price
of $19.21 per share were issued to employees under the plan. Had the Company
adopted SFAS 123, the weighted average fair value of each purchase right granted
during 1998, 1997 and 1996 would have been $7.65, $9.16 and $5.76, respectively.
The fair value was estimated at the beginning of the withholding period using
the Black-Scholes option-pricing model with the following weighted average
assumptions: (1) expected life of one half year for all years (2) expected
volatility of 52%, 51% and 41% for 1998, 1997 and 1996, respectively (3)
risk-free interest rate of 4.70% for 1998, 5.43% for 1997 and 5.50% for 1996 and
(4) no dividend yield.
PRO FORMA DISCLOSURES
Had compensation cost for the Company's 1998, 1997 and 1996 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's net loss and net loss per share for 1998, 1997 and 1996 would
approximate the pro forma amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net loss As reported $(33,086) $(19,831) $(40,005)
Pro forma $(41,542) $(25,154) $(42,025)
Basic and diluted loss per share As reported $ (1.31) $(0.82) $(2.13)
Pro forma $ (1.64) $(1.04) $(2.24)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts since SFAS 123 does not apply to awards prior to 1995 and
additional awards in future years are anticipated.
RIGHTS
Each holder of a share of outstanding Common Stock also holds one share purchase
right (a "Right") for each share of Common Stock. Each Right entitles the holder
to purchase from the Company one one-hundredth of a share of Series A junior
participating preferred stock, $.01 par value (the "Junior Preferred Shares"),
of the Company at a price of $270 per one one-hundredth of a Junior Preferred
Share (the "Purchase Price"). The Rights are not exercisable until the earlier
of acquisition by a person or group of 15% or more of the outstanding Common
Stock (an "Acquiring Person") or the announcement of an intention to make or
commencement of a tender offer or exchange offer the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of the
outstanding Common Stock. In the event that any person or group becomes an
Acquiring Person, each holder of a Right other than the Acquiring Person will
thereafter have the right to receive upon exercise that number of shares of
Common Stock having a market value of two times the Purchase Price and, in the
event that the Company is acquired in a business combination transaction or 50%
or more of its assets are sold, each holder of a Right will thereafter have the
right to receive upon exercise that number of shares of Common Stock of the
acquiring company which at the time of the transaction will have a market value
of two times the Purchase Price. Under certain specified circumstances, the
Board of Directors of the
Page F-14
<PAGE>
Company may cause the Rights (other than Rights owned by such person or group)
to be exchanged, in whole or in part, for Common Stock or Junior Preferred
Shares, at an exchange rate of one share of Common Stock per Right or one
one-hundredth of a Junior Preferred Share per Right. At any time prior to the
acquisition by a person or group of beneficial ownership of 15% or more of the
outstanding Common Stock, the Board of Directors of the Company may redeem the
Rights in whole at a price of $.01 per Right.
J. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
The Company and Schering AG, Germany ("Schering AG") are collaborating on the
research, development and commercialization of novel, orally active neurophilin
ligand compounds to promote nerve regeneration for the treatment of a number of
neurological diseases. Under the terms of the agreement, Schering AG agreed to
pay the Company up to $88,000,000 composed of a $6,000,000 license payment paid
in September 1998, $22,000,000 of product research funding over five years and
$60,000,000 of development and commercialization milestone payments. From the
inception of the agreement in August 1998 through December 31, 1998, $10,000,000
has been recognized as revenue. Under terms of the agreement, Vertex and
Schering AG will have an equal role in management of neurophilin ligand research
and product development. In North America, Vertex will have manufacturing
rights, and Vertex and Schering AG will share equally in the marketing expenses
and profits from commercialized compounds. In addition to having manufacturing
rights in North America, the Company retains the option to manufacture bulk drug
substance for sales and marketing in territories outside Europe, the Middle East
and Africa. Schering AG will have the right to manufacture and market any
commercialized compounds in Europe, the Middle East and Africa, and pay Vertex a
royalty on product sales, if any. After December 2000, Schering AG has the right
to terminate without cause upon a six months' written notice. Revenues earned
from Schering AG under the neurophilin ligand agreement were $10,000,000 in
1998.
The Company and Kissei Pharmaceutical Co., Ltd. ("Kissei") are collaborating to
design inhibitors of p38 MAP kinase and to develop them as novel, orally active
drugs for the treatment of inflammatory and neurological diseases. Under the
terms of the agreement, Kissei agreed to pay the Company up to $22,000,000
composed of a $4,000,000 license payment, $11,000,000 of product research
funding over three years and $7,000,000 of development and commercialization
milestone payments. From the inception of the agreement in September 1997
through December 31, 1998, $11,000,000 has been recognized as revenue. Kissei
will have the right to develop and commercialize these compounds in its licensed
territories. Kissei has exclusive rights to p38 MAP kinase compounds in Japan
and certain Southeast Asian countries and semi-exclusive rights in China, Taiwan
and South Korea. The Company retains exclusive marketing rights in the United
States, Canada, Europe and the rest of the world. In addition, the Company will
have the right to supply bulk drug material to Kissei for sale in its territory
and will receive royalties and drug supply payments on future product sales, if
any. Kissei has the right to terminate the agreement without cause upon six
months' notice. Revenues earned from Kissei under the p38 MAP kinase agreement
were $5,521,000 and $5,500,000 in 1998 and 1997, respectively.
The Company and Lilly are collaborating on designing inhibitors of the hepatitis
C protease enzyme and developing them as novel drugs to treat hepatitis C
infection. Under the terms of the agreement, Lilly agreed to pay the Company up
to $51,000,000 composed of a $3,000,000 payment paid in June 1997, $33,000,000
of product research funding over six years and $15,000,000 of development and
commercialization milestone payments. From the inception of the agreement in
June 1997 through December 31, 1998, $10,829,000 has been recognized as revenue.
The Company has the option to supply 100 percent of Lilly's commercial drug
substance supply needs. The Company will receive royalties on future product
sales, if any. If the Company exercises its commercial supply option, the
Company will receive drug supply payments in addition to royalties on future
product sales, if any. Lilly has the right to terminate the agreement
Page F-15
<PAGE>
without cause upon six months' notice after June 1999. In connection with this
collaboration, Lilly purchased 263,922 shares of the Company's common stock for
$10,000,000. Revenues earned from Lilly were $5,193,000 and $5,694,000 in 1998
and 1997, respectively.
The Company and BioChem Pharma ("BioChem") are collaborating on the development
and commercialization in Canada of Incel-TM- (VX-710), Vertex's lead multidrug
resistance reversal agent. Under the development agreement, BioChem agreed to
pay Vertex up to $4,000,000 comprised of an initial licensing fee of $500,000
and development and commercialization milestones payments. From the inception of
the agreement in May 1996 through the year ended December 31, 1998, $750,000 has
been recognized as license and research revenue. BioChem has agreed to fund
certain development activities for Incel in Canada, including Phase II clinical
trials in two different cancer indications which are currently underway. Vertex
has agreed to supply BioChem's clinical and commercial drug supply needs.
BioChem has agreed to pay Vertex a portion of its net sales, which will cover
Vertex's cost of supplying material and will provide a profit to Vertex. BioChem
has the right to terminate the agreement without cause upon six months' notice.
Termination will relieve BioChem of any further payment obligations and will end
any license granted to BioChem by Vertex under the agreement. Revenues earned
from BioChem were $56,000, $251,000 and $577,000 in 1998, 1997 and 1996,
respectively.
The Company and Glaxo Wellcome are collaborating on the development and
commercialization of compounds in connection with the Company's HIV Program.
Under the collaborative agreement, Glaxo Wellcome agreed to pay the Company up
to $42,000,000 comprised of a $15,000,000 initial license payment paid in 1993,
$14,000,000 of product research funding over five years and $13,000,000 of
development and commercialization milestone payments. From the inception of the
agreement in December 1993 through the year ended December 31, 1998, $34,000,000
has been recognized as revenue. Research funding under this agreement ended on
December 31, 1998. Glaxo Wellcome is also obligated to pay to the Company
additional development and commercialization milestone payments for subsequent
drug candidates. In addition, Glaxo Wellcome agreed to bear all costs of
development in its territory of drug candidates under the collaboration. Under
the agreement, Glaxo Wellcome is also required to pay Vertex a royalty on sales,
if any. Glaxo Wellcome has the right to terminate the license arrangements
without cause upon twelve months' notice given at any time. Termination by Glaxo
Wellcome of the license arrangements under the agreement will relieve it of its
obligation to make further commercialization and development milestone and
royalty payments and will end any license granted to Glaxo Wellcome by Vertex
thereunder. Revenues earned from Glaxo Wellcome were $6,457,000, $3,275,000 and
$6,289,000 for 1998, 1997 and 1996, respectively.
In June 1996, the Company and Glaxo Wellcome obtained a worldwide, non-exclusive
license under certain G.D. Searle & Co. ("Searle") patent applications in the
area of HIV protease inhibition. Vertex paid $15,000,000 and Glaxo Wellcome paid
$10,000,000 to Searle for the license. The Company also agreed to pay Searle a
royalty on sales of Agenerase (amprenavir), if any.
The Company and Hoechst Marion Roussel ("HMR") are collaborating on the
development of interleukin-1 beta converting enzyme inhibitor. Under the
collaborative agreement, HMR agreed to pay the Company up to $30,500,000,
comprised of $18,500,000 of product research funding over five years and
$12,000,000 of development and commercialization milestone payments. From the
inception of the agreement in September 1993 through the year ended December 31,
1998, $21,500,000 has been recognized as revenue. Revenues earned under the HMR
agreement were $460,000, $8,660,000 and $4,196,000 in 1998, 1997 and 1996,
respectively. Research funding under this agreement ended on December 31, 1997.
The Company and Kissei are collaborating on the development and
commercialization of amprenavir, the drug candidate from the Company's HIV
Program. Under the collaborative
Page F-16
<PAGE>
agreement, Kissei agreed to pay the Company up to $20,000,000, comprised of
$9,800,000 of product research funding through 1995, $7,000,000 of development
milestone and territory option payments and a $3,200,000 equity investment. From
the inception of the agreement in April 1993 through the year ended December 31,
1998, $14,642,000 has been recognized as revenue. During 1997, the Company also
received $4,000,000 related to reimbursements of certain development costs.
Under the collaboration, Kissei is also required to pay Vertex a royalty on
sales, if any. Revenues earned under this Kissei agreement were $217,000,
$4,310,000 and $692,000 in 1998, 1997 and 1996, respectively. Research funding
under this agreement ended on December 31, 1995.
K. EMPLOYEE BENEFITS
The Company has a 401(k) retirement plan in which substantially all of its
permanent employees are eligible to participate. Participants may contribute up
to 15% of their annual compensation to the plan, subject to statutory
limitations. For 1998, the Company declared discretionary matching contributions
to the plan in the aggregate amount of $672,000, payable in the form of shares
of the Company's Common Stock. Of these shares, 19,419 were issued as of
December 31, 1998 with the remaining 7,195 issuable in 1999. For 1997, the
Company declared discretionary matching contributions to the plan in the
aggregate amount of $482,000, payable in the form of shares of the Company's
Common Stock. Of these shares, 6,458 were issued as of December 31, 1997 with
the remaining 7,113 issued in 1998. For 1996, the Company declared discretionary
matching contributions to the plan in the aggregate amount of $426,000, payable
in the form of shares of the Company's Common Stock. Of these shares, 7,013 were
issued as of December 31, 1996 with the remaining 5,278 issued in 1997.
L. RELATED PARTY
A sibling of the Company's President is a partner in the law firm representing
the Company to which $333,000, $394,000 and $472,000 in legal fees were paid in
1998, 1997 and 1996, respectively.
M. LEGAL PROCEEDINGS
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against the Company
and Lilly in the United States District Court for the Northern District of
California, alleging infringement by the defendants of various U.S. patents
issued to Chiron. The infringement action relates to research activities by the
defendants in the hepatitis C viral protease field and the alleged use of
inventions claimed by Chiron in connection with that research and development.
Chiron has requested damages in an unspecified amount, as well as an order
permanently enjoining the defendants from unlicensed use of Chiron inventions.
While the final outcome of these actions cannot be determined, the Company
believes that the plaintiff's claims are without merit and intends to defend the
actions vigorously.
N. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which
requires that all components of comprehensive income and total comprehensive
income be reported and that changes be shown in a financial statement displayed
with the same prominence as other financial statements. The Company has
disclosed this information in its statement of stockholders' equity and consists
of the following (in thousands):
Page F-17
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Cumulative Unrealized Other
Translation gain/(loss) on comprehensive
Adjustment investments income (loss)
<S> <C> <C> <C>
Balance as of December 31, 1996 $ 16 $ 33 $ 49
Foreign currency translation adjustment (12) -- (12)
Unrealized holding gains arising during
the period -- 115 115
------ -------- ---------
Balance as of December 31, 1997 4 148 152
Foreign currency translation adjustment -- -- --
Unrealized gains/(losses) on securities:
Unrealized holding gains arising during
the period -- 1,049 1,049
Less: reclassification adjustment for gains
Included in net loss (547) (547)
------ -------- ---------
Balance as of December 31, 1998 $ 4 $ 650 $ 654
------ -------- ---------
</TABLE>
O. SUBSEQUENT EVENTS
ALTUS BIOLOGICS, INC.
Altus develops, manufactures and markets products based on a novel and
proprietary technology for stabilizing proteins. At December 31, 1998, Vertex
owned approximately 70% of the capital stock of Altus. On February 5, 1999,
Vertex restructured its investment in Altus. As part of the transaction, Vertex
provided Altus $3,000,000 of cash and surrendered its shares of Altus preferred
stock in exchange for two new classes of preferred stock and warrants. The new
preferred stock provides Vertex with a minority equity ownership position in
Altus, and the warrants become exercisable upon certain events. As a result of
the transaction, Altus operates independently from Vertex as a minority-owned
subsidiary. In addition, Vertex has retained a non-exclusive royalty-free right
to use Altus' technology for discovering, developing and manufacturing small
molecule drugs.
P. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1998
Total revenues $ 7,169 $ 7,152 $ 18,417 $ 11,660 $ 44,398
Total expenses 15,583 16,954 20,690 24,257 77,484
Net loss (8,414) (9,802) (2,273) (12,597) (33,086)
Basic and diluted earnings per share
(0.33) (0.39) (0.09) (0.50) (1.31)
1997
Total revenues $ 6,918 $ 12,155 $ 13,547 $ 11,179 $ 43,799
Total expenses 12,684 13,567 19,403 17,976 63,630
Net loss (5,766) (1,412) (5,856) (6,797) (19,831)
Basic and diluted earnings per share (0.26) (0.06) (0.23) (0.27) (0.82)
</TABLE>
Page F-18
<PAGE>
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE is made by and between David E. Clem and
David M. Roby, Trustees of Fort Washington Realty Trust under Declaration of
Trust dated June 19, 1995 and recorded with the Middlesex County (South
District) Registry of Deeds in Book 25422, Page 360 (the "Landlord") and Vertex
Pharmaceuticals Incorporated (the "Tenant").
Reference is hereby made to that certain lease (the "Lease") dated March 3,
1995, by and between Landlord's predecessor, Fort Washington Limited Partnership
and Tenant with respect to a portion of the property (the "Premises") located at
40 Erie Street, Cambridge, Massachusetts, (the "Building") as more particularly
described in the Lease as amended by a First Amendment to Lease (the "First
Amendment").
WHEREAS, the Tenant has requested, and the Landlord has agreed, to further
amend the Lease to add additional space to the Premises upon the terms and
conditions set forth in this Second Amendment to Lease.
WHEREAS, Landlord and Tenant desire to amend and modify the terms of the
Lease to incorporate the additional space and to ratify and confirm the terms of
the Lease as amended by the First Amendment as more particularly set forth
below.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Landlord and Tenant agree as follows:
1. Upon occupancy by Tenant, the definition of the Premises set forth in
the Lease shall be amended to include the addition of 41,132 r.s.f. of space
(the "Additional Space") in the Building currently leased to Millennium
Pharmaceuticals, Inc. ("Millennium"). See EXHIBIT A annexed hereto for the
layout of the Additional Space.
2. Tenant shall take occupancy of the Additional Space beginning on the
later of (i) the date upon which Millennium vacates the Additional Space, or
(ii) March 19, 1999, and continuing for a period of ten (10) years from the date
upon which Tenant occupies the Additional Space (the "Additional Space Term").
On or after March 19, 1999, if necessary, Landlord shall use best efforts to
expedite Millennium's departure from the Additional Space, including filing an
eviction proceeding. Landlord warrants and represents that according to the
terms of its lease with Millennium that the lease expires on March 18, 1999 as
to the Premises and the associated parking spaces. As to the Premises and the
associated parking spaces, Landlord hereby agrees that Landlord will not extend
or renew the term of Millennium's lease or waive any failure by Millennium to
vacate. Landlord shall not be held liable for any loss or damage incurred by
Tenant as a result of a hold-over by Millennium. Landlord represents that in
addition to other sums for holding over, Millennium must pay a holdover premium
equal to the greater of (a) twice the then fair market rent as reasonably
determined by Landlord, or (b) the total of the Fixed Rent, Additional Rent (as
those terms are defined in the Millennium lease) and all other payments then
payable under the Millennium lease. Landlord agrees that it shall not waive the
payment to Landlord of any such holdover premium by Millennium.
<PAGE>
2
Provided that tenant has exercised in each instance its options to extend
the Lease Term for the original Premises: (a) Tenant shall have two (2) options
to extend the Additional Space Term (the "Additional Space Options") for
successive periods of five (5) years each (the "Additional Space Extension
Periods"), subject to and on the terms set forth herein. Tenant may only
exercise the Additional Space Options with respect to the entire Additional
Space. If Tenant shall desire to exercise any Additional Space Option, it shall
give Landlord a notice (the "Additional Space Inquiry Notice") of such desire
not later than fifteen (15) months prior to the expiration of the Additional
Space Term of this Lease or the preceding Additional Space Extension Period, as
the case may be. Thereafter, the Fair Market Rent (as defined in Subsection (c)
below) for the applicable Additional Space Extension Period shall be determined
in accordance with Subsection (d) below. After the applicable Fair Market Rent
has been so determined, Tenant shall exercise each Additional Space Option by
giving Landlord notice (the "additional Space Exercise Notice") of its election
to do so not later than twelve (12) months prior the expiration of the
Additional Space Term of this Lease, or the preceding Additional Space Extension
Period, as the case may be. If Tenant fails to timely give either the
additional Space Inquiry Notice of the Additional Space Exercise Notice to
Landlord with respect to any Additional Space Option, Tenant shall be
conclusively deemed to have waived such Additional Space Option hereunder.
(b) Notwithstanding any contrary provision of this Lease, each Additional Space
Option and any exercise by Tenant thereof shall be void and of no force or
effect unless on the dates Tenant gives Landlord its Additional Space Inquiry
Notice and Additional Space Exercise Notice for each Additional Space Option and
on the date of commencement of each Additional Space Extension Period (i) this
Lease is in full force and effect, (ii) there is no Event of Default of Tenant
under this Lease, and (iii) Tenant has not assigned or subleased (or agreed to
assign or sublease) more than fifty percent (50%) of the rentable floor area
then comprising the Additional Space.
(c) All of the terms, provisions, covenants, and conditions of this Lease
shall continue to apply during each Additional Space Extension Period, except
that the Additional Space Annual Fixed Rent Rate during each Additional Space
Extension Period (the "Extension Rent") shall be equal to the fair market rent
for the Additional Space determined as of the date twelve (12) months prior to
expiration of the Additional Space Term or the preceding Additional Space
Extension Period, as the case may be, in accordance with the procedure set forth
in Subsection (d) below (the "Fair Market Rent").
(d) The Fair Market Rent for each Additional Space Extension Period shall
be determined as follows: Within five (5) days after Tenant gives landlord its
Additional Space Inquiry Notice with respect to any Additional Space Option,
Landlord shall give Tenant notice of Landlord's determination of the Fair Market
Rent for the applicable Additional Space Extension Period. Within ten (10) days
after Tenant receives such notice, Tenant shall notify Landlord of its agreement
with or objection to Landlord's determination of the Fair Market Rent, whereupon
the Fair Market Rent shall be determined by arbitration conducted in the manner
set forth below. If Tenant does not notify Landlord within such ten (10) day
period of Tenant's agreement with or objection to Landlord's determination of
the Fair Market Rent, then the Fair Market Rent of the applicable Additional
Space Extension Period shall be deemed to be
<PAGE>
3
Landlord's determination of the Fair Market Rent as set forth in the notice from
Landlord described in this section.
(e) If Tenant notifies Landlord of Tenant's objection to Landlord's
determination of Fair Market Rent under the preceding subsection, such notice
shall also set forth a request for arbitration and Tenant's appointment of a
commercial real estate broker having at least ten (10) years experience in the
commercial leasing market in the City of Cambridge, Massachusetts (an
"Arbitrator"). Within five (5) days thereafter, Landlord shall by notice to
Tenant appoint a second Arbitrator. Each Arbitrator shall be advised to
determine the Fair Market Rent for the applicable Additional Space Extension
Period within thirty (30) days after Landlord's appointment of the second
Arbitrator. On or before the expiration of such thirty (30) days period, the
two Arbitrators shall confer to compare their respective determinations of the
Fair Market Rent. If the difference between the amounts so determined by the
two Arbitrators is less than or equal to ten percent (10%) of the lower said
amounts then the final determination of the Fair Market Rent shall be equal to
the average of said amounts. If such difference between said amounts is greater
than ten percent (10%), then the two arbitrators within ten (10) days thereafter
shall appoint a third Arbitrator (the "Third Arbitrator"), who shall be
instructed to determine the Fair Market Rent for the applicable Additional Space
Extension Period within ten (10) days after his appointment by selecting one of
the amounts determined by the other two Arbitrators. Each party shall bear the
cost of the Arbitrator selected by such party. The cost of the Third
Arbitrator, if any, shall be shared equally by Landlord and Tenant.
3. Tenant shall accept the Additional Space in "as is" condition. Tenant
acknowledges that Landlord has made, in anticipation of Tenant's future
occupancy, for the benefit of Tenant at Landlord's sole cost and expense,
certain improvements to the Additional Space as outlined in EXHIBIT B. Landlord
agrees to consult with Tenant prior to agreeing to any changes requested by
Millennium to the Additional Space.
4. Upon execution of this Second Amendment to Lease, section 4.1(d) of the
Lease will be stricken in its entirety and be null and void and of no further
force and effect.
5. Upon occupancy by Tenant of the Additional Space, Tenant shall pay to
Landlord Annual Fixed Rent for the Additional Space in the amount of
$1,460,186.00 (the "Additional Space Annual Fixed Rent Rate"), payable in equal
monthly installments of $121,682.17 in advance on the first day of each calendar
month; and for any portion of a calendar month at the beginning or end of the
Term, at that rate payable in advance for such portion.
6. Article 4.1(b) shall be renumbered as 4.1(b)(1) and the following
shall be added to the Lease as Article 4.1(b)(2):
(b) (2) Adjustment for CPI - Additional Space. (a) On December 31, 2000
(the "First Adjustment Date"), the Additional Space Annual Fixed Rent Rate shall
be increased by multiplying said rate by the lesser of (i) a fraction, the
numerator of which shall be the Price Index (as hereinafter defined) most
recently established prior to the First adjustment Date, and the denominator of
which shall be the Base Price Index (as hereinafter defined), or (ii) one
hundred four percent (104%) per year, compounded annually over the period of
time beginning
<PAGE>
4
April 1, 1997 through the First Adjustment Date. (b) On December 31, 2005 (the
"Second Adjustment Date"), the Additional Space Annual Fixed Rent Rate (as
adjusted) shall be increased by multiplying said rate by the lesser of (i) a
fraction, the numerator of which shall be the Price Index (as hereinafter
defined) most recently established prior to the Second Adjustment Date, and the
denominator of which shall be the Base Price Index (as hereinafter defined), or
(ii) one hundred four percent (104%) per years, compounded annually over the
five (5) years of the Additional Space Term of this Lease. As used herein, the
term "Price Index" shall mean and refer to the "Consumer Price Index for Urban
Wage Earners and Clerical Workers, for the Boston Massachusetts area, All Items
(1982-84=100)" published by the Bureau of Labor Statistics of the United States
Department of Labor or successor or substitute index appropriately adjusted, and
the term "Base Price Index" shall mean and refer to the Price Index most
recently established prior to the Commencement Date. In the event of the Price
Index (or a successor or substitute index) shall not be published for the City
of Boston, Massachusetts area or for the months indicated above, the
corresponding index for the United States City Average (and if this is not
available, a reliable governmental or other nonpartisan publication evaluating
similar or equivalent information as used in the Price Index) shall be used. In
the even the Price Index ceases to use the 1982-84 average of 100 as the basis
of calculation, or if a substantial change is made in the terms or numbers of
items contained in the Price Index, then the Price Index shall be adjusted to
the figure that would have been arrived at had the manner of computing the Price
Index in effect at the date of this Lease not been changed.
7. Upon commencement of the Additional Space Term, the Tenant's
Proportionate Fraction as set forth in the Lease will be amended to 100%.
8. The provisions of Paragraph 10.11 of the Lease shall include reference
to the Additional Space Annual Fixed Rent Rate in determining the "Security
Deposit Amount" as the same may be adjusted. Upon commencement of the
Additional Space Term, the Tenant shall increase the Security Deposit Amount by
an amount equal to one (1) year Additional Space Annual Fixed Rent plus
additional amounts, if any, as set forth in paragraph 10.11 as amended. The
Security Deposit Amount shall be adjusted as provided in Section 10.11 by
including the Additional Space Annual Fixed Rent Rate and other rental amounts
due with respect to the Additional Space, as the same may be adjusted in
accordance with Section 4.1(b), Section 4.1(c), Section 10.12, Section 10.13 and
Section 10.14 of the Lease as amended. The additional Security Deposit Amount
may be in the form of a Letter of Credit in the form of Exhibit L to the Lease
and must be delivered on the commencement of the Additional Space Term.
9. Upon Tenant's reasonable request and subject to availability on the lot
upon which the Building is situated, Landlord shall provide additional surface
parking spaces to Tenant on a tenancy-at-will basis for an additional charge of
$75.00 per space per month.
10. Landlord acknowledges that Tenant presently intends to reconfigure the
Additional Space upon taking occupancy. The process for such reconfiguration of
the Additional Space shall be in accordance with paragraph 3.3 of the Lease.
However, Tenant shall be under no obligation to reconfigure the Additional
Space.
11. Exhibit I of the Lease is hereby replaced with the Exhibit "I"
attached hereto.
<PAGE>
5
All capitalized terms used herein shall have the same meaning as set forth
in the Lease.
Except as otherwise expressly set forth herein, all other terms of the
Lease shall apply to the Additional Space, are hereby ratified and confirmed and
shall remain unchanged and in full force and effect.
<PAGE>
6
Executed this 13th day of June, 1997.
LANDLORD:
By: /s/
-------------------------------------------
David E. Clem, Trustee as aforesaid and not
individually
By: /s/
-------------------------------------------
David M. Roby, Trustee as aforesaid and not
individually
TENANT:
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/
-------------------------------------------
Name: Richard H. Aldrich
Title: Senior Vice President
<PAGE>
[PLANS]
<PAGE>
Exhibit 10.21
DATED 4TH NOVEMBER 1998
-----------------------
MILTON PARK LIMITED
and
VERTEX PHARMACEUTICALS (EUROPE) LIMITED
and
VERTEX PHARMACEUTICALS INCORPORATED
AGREEMENT FOR LEASE
-------------------
of premises at 88 Milton Park
Abingdon Oxfordshire
<PAGE>
INDEX
Clause
1. Definitions and Interpretation
2. The Landlord's Works
3. Inspections
4. Practical Completion
5. The Lease
6. Right to Determine
7. Alienation
8. No Demise
9. No Restrictions
10. Defects And Duty of Care Agreements
11. No Merger
12. Adjudication
13. Service of Notice
14. Title and Matters to which The Premises are Subject
15. General Conditions
16. Guarantee
17. Acknowledgements
18. Termination
19. Entire Contract
20. Jurisdiction
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First Schedule
Approved Drawings and Specifications
Planning Permission
Annexure A the Lease
Annexure B1 Architect's Warranty
Annexure B2 Civil and Structural Engineer's Warranty
Annexure B3 Construction Manager's Warranty
Annexure B4 Mechanical and Electrical Engineer's Warranty
Annexure B5 Insurance Policy
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THIS AGREEMENT is made the 4th, day of November 1998
BETWEEN
(1) MILTON PARK LIMITED (Company No. 1772924) whose registered office is at
Nations House 103 Wigmore Street London W1H 9AB ("the Landlord")
(2) VERTEX PHARMACEUTICALS (EUROPE) LIMITED (Company No.2907620)
whose registered office is at 5 Cheapside Court Buckhurst Road Ascot
Berkshire SL-5 7RF("the Tenant")
(3) VERTEX PHARMACEUTICALS INCORPORATED of 130 Waverly Street Cambridge
Massachusetts USA ("the Guarantor") and whose address for service in the
United Kingdom is at 88 Milton Park Abingdon Oxfordshire
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement unless the context otherwise requires the terms defined
in this clause shall for all purposes hereof have the meaning specified
"Approved Drawings" the plans listed in and forming a part of the
First Schedule
"Architect" Nicholas Hare Architects of 3 Barnsbury
Square London N1 1JL or such other architect
as the Landlord may from time to time appoint
in their place for the purposes of the
Landlord's Works
"Certificate of the written statement of practical completion
Practical Completion" of the Landlord's Works (other
than the Post Completion Works and the
Optional Works) to be issued by the
Construction Manager in accordance with the
provisions of clause 4 hereof and in this
Agreement the expression
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"Practically Completed" and "Practical
Completion" shall be interpreted accordingly
"Completion Date" the fifth working day immediately following
the Practical Completion Date
"Consents" all approvals consents licences and
permissions necessary for the construction
completion and retention of the Landlord's
Works and including (without prejudice to the
generality of the foregoing) planning
permissions and Building Regulation approvals
"Construction Manager" Glanville Projects Limited of Porterswood
House Porterswood St. Albans Hertfordshire
AL3 6PD or such other person as the
Landlord may appoint in their place for the
purposes of the Landlord's Works
"Defects Period" 36 calendar months from the Practical
Completion Date (which period shall also be
the Defects Period for the purposes of Clause
4(4) of the Lease)
"First Anniversary" the first anniversary of the date of issue of
the Certificate of Practical Completion
"General Conditions" the Standard Conditions of Sale (Third
Edition)
"Insurance Policy" an insurance policy in respect of latent
defects in the Premises to be procured by the
Landlord at its cost in the form annexed
hereto under Annexure B5 subject to such
minor amendments as the insurers may require
provided that any amendments shall not affect
the
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amount of the insurance cover the risks
insured or the amount of the excess
"Landlord's Estate" the land at Milton Park Abingdon Oxfordshire
known as Milton Park shown for the purpose of
identification only edged red on Plan 2
"Landlord's Solicitors" Pitmans of 47 Castle Street Reading RGI 7SR
(DX40102 Reading (Castle Street)) (Ref:
JCB\Milton)
"Landlord's Works" the construction of the Premises and the
ancillary service areas car parking and
landscaping in accordance with the Approved
Drawings and Specifications
"Lease" the Lease in the form of the draft annexed as
Annexure A
"Mechanical and Electrical Peter Brett Associates of 16 Westcote Road
Engineers" Reading Berkshire RG 30 2DE or such other
persons as the Landlord may appoint in their
place
"Optional Works" the installation of an external spiral fire
escape forming part of the Landlord's Works
as more particularly described in the Third
Schedule hereto
"Plan 1" the plan so numbered annexed to this
Agreement
"Plan 2" the plan so numbered annexed to this
Agreement
"Planning Permission" detailed planning permission dated 14 April
1997 and including the approval of reserved
matters
"Post Completion Works" those works forming part of the Landlord's
Works as set out in the Second Schedule
hereto
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"Practical Completion Date" the date upon which the Landlord's Works
(other than the Post Completion Works and the
Optional Works) are practically completed as
stated in the Certificate of Practical
Completion
"Premises" the premises shown edged red on Plan I to be
known as 88 Milton Park Abingdon Oxfordshire
"Professional Team" the Architect the Civil and Structural
Engineer the Mechanical and Electrical
Engineer and the Construction Manager
"Regulations" the Construction (Design and Management)
Regulations 1994
"Rent Commencement Date" the date immediately following the expiration
of the Rent Free Period
"Rent Free Period" a period of six months from the Completion
Date
"Site Inspections" inspection of the Landlord's Works which are
to be carried out on dates to be agreed
between the parties which shall be no more
frequently than once every 10 working days
(the first of which is to take place on the
[ ] day of [ ]) and shall be
conducted in accordance with the provisions
of Clause 4
"Specifications" the specifications listed in and forming a
part of the First Schedule
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"Civil and Structural
Engineer" Glanville Consultants of Porterswood House
Porterswood St. Albans Hertfordshire AL3 6PQ
or such other civil and structural engineer
from time to time appointed by the Landlord
in their place for the purpose of the
Landlord's Works
"Surveyor" means Mike Taylor of Ridge and Partners
Midland House Westway Oxford or failing him
Peter Blockley Chartered Architect Toll
Cottage Dorking Road Walton on the Hill
Tadworth Surrey KT20 7MY
"Target Date 6th November 1998
"Tenant's Solicitors" means Cameron McKenna Mitre House 160
Aldersgate Street London EC1A 4DD
(Ref.NMH/MIT4.68A/042741.0010)
"Tenant's Surveyor" means Ronald Jenkins Chartered Building
Surveyor 27a Leopold Road Wimbledon London
SW19 7BB
"working days" means any day from Monday to Friday
(inclusive) other than Christmas Day Good
Friday and any statutory bank or public
holiday
1.2 In this Agreement the following expressions shall for all purposes hereof
have the meanings attached to them in the Lease unless the context
otherwise requires:
1.2.1 Conduits
1.2.2 Permitted Use
1.2.3 the Principal Rent
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1.3 Words importing the singular include the plural and vice versa and words
importing one gender include any other gender
1.4 Reference to a numbered schedule paragraph or clause shall where the
context so requires be a reference to the schedule paragraph or clause of
this Agreement so numbered
1.5 The clause or paragraph headings in this Agreement are for the
convenience of the parties and shall not affect its interpretation
1.6 Where two or more persons are included in the expression "the Landlord"
"the Tenant" or "the Guarantor" the agreements by or with the Landlord
the Tenant or the Guarantor shall be deemed to be entered into by or with
such persons jointly and severally
1.7 Interest as defined in the Lease shall accrue on a daily basis in respect
of any sums due under this Agreement but which shall remain unpaid for a
period exceeding fourteen days and any such interest shall be paid from
the date when any such sums became due until payment thereof (as well as
before any judgment)
1.8 References to "the Landlord" do not include any successors in title of
the Landlord to the Premises in respect of any of the obligations
contained herein relating to the carrying out of the Landlord's Works
(save in the case of any successor in title of the Landlord who expressly
assumes such obligations) but otherwise do include the Landlord's
successors in title to the Premises
1.9 References to any Statute Statutory Instrument Regulation or Order shall
be construed as references to those provisions at the date of
commencement of the Landlord's Works and to any provision enacted in
substitution therefor to the extent that such variations or substitution
are applicable to the subject matter of this Agreement
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2. THE LANDLORD'S WORKS
2.1 The Landlord shall at its sole cost use all reasonable endeavours to
complete the Landlord's Works (apart from the Post Completion Works and
Optional Works) and procure the issue of the Certificate of Practical
Completion by the Target Date
2.2 The Landlord will at its sole cost procure the commencement carrying out
and completion of the execution of the Landlord's Works (other than the
Optional Works unless the Tenant shall serve notice under clause 2.11
hereof requiring the Optional Works to be carried out)
2.3 Without prejudice to the generality of the foregoing the Landlord further
agrees:
2.3.1 to procure that the Landlord's Works shall be carried out in conformity
with the Approved Drawings the Specifications the Consents (to the extent
that the same are obtained and remaining valid and unrevoked) and the
requirements of all competent and public authorities and to obtain as
soon as practicable any required consents and permissions for the
Landlord's Works which have not already been obtained; and
2.3.2 to procure that the Landlord's Works will be carried out in a good and
workmanlike manner using good quality materials of their several kinds
and in accordance with the Regulations
2.4 The Landlord shall be entitled to substitute for the materials specified
in the Specifications materials of similar quality and suitability and of
substantially the same appearance (insofar as they shall be visible after
incorporation into the Landlord's Works)
2.5 The Landlord may make or permit any minor variation to the Approved
Drawings or the Specifications insofar as the same does not materially
affect the quality of the Landlord's Works or the beneficial occupation
and use of the Premises for the Permitted Use
2.6 The Landlord shall procure that none of the following materials are
specified for use in the Landlord's Works:
2.6.1 high alumina cement or concrete whether in structural elements or
otherwise
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2.6.2 wood wool slabs in permanent shuttering form or in structural elements
2.6.3 calcium chloride in any admixtures
2.6.4 any aggregates for use in concrete which do not comply with British
Standard 8110:1985 or any aggregates for use in reinforced concrete
which do not comply with British Standards 882:1983 or such other British
Standards in respect of each as may be in force at the date of
specification
2.6.5 asbestos or any asbestos containing products as defined in the Asbestos
Regulations 1969 or any statutory modification or re-enactment thereof in
force at the date of specification
2.6.6 formaldehyde foam or material known to release formaldehyde in quantities
which the Health & Safety Executive have at the date of specification
certified as hazardous
2.6.7 calcium silicate bricks or tiles any slip bricks any crocodolite any
vermiculite plaster
2.6.8 any material generally known within the construction industry at the date
of specification to be deleterious to health and safety.
2.7 The Landlord shall at its sole cost enter into any agreement relating to
the Premises including any wayleave and/or similar easement or facility
as may be required in order to secure electricity gas water drainage
telecommunication and other such services and supplies for the benefit of
the Premises
2.8 Until completion of the Lease the Landlord shall at the cost of the
Landlord insure or procure that the Landlord's Works are kept insured in
the full reinstatement value for the usual contractor's risks
2.9 The Landlord shall provide the Tenant's Surveyor with copies of any
additional detail to the Specifications and the Approved Drawings as soon
as practicable after the additional details have been designed and if
revisions are necessary to update the Specifications and/or the Approved
Drawings and the Landlord shall take due cognisance of all
representations made by
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or on behalf of the Tenant in respect of such revisions if the
representations are made within 5 working days of the date the Tenant's
Surveyor receives details of the relevant revisions (excluding the day
of receipt)
2.10
2.10.1 In respect of the Landlord's Works the Landlord is the only client
(as defined in and for the purposes of the Regulations)
2.10.2 The Landlord shall deliver to the Tenant as soon as it is prepared a
copy of the Health and Safety file which complies with the requirements
of the Regulations
2.10.3 The Landlord shall forthwith either make a declaration to the Executive
(as defined in the Regulations) that the Landlord is the only client or
procure that its Agent appointed pursuant to Regulation 4(l) makes a
declaration to the Executive in either case in accordance with
Regulation 4(4) and if requested to do so by the Tenant the Landlord
shall supply to the Tenant a copy of the applicable declaration and of
the Executive's notice in response
2.11 If the Tenant shall request the Landlord in writing prior to date
provided in the Lease for the first review of the rent the Landlord
shall at its own expense carry out the Optional Works within a
reasonable period of time after receipt of such notice to the
reasonable satisfaction of the Tenant
2.12 The Landlord shall carry out the Post Completion Works within a
reasonable period after the date of this Agreement having regard to the
nature of such works to the reasonable satisfaction of the Tenant
3. INSPECTIONS
3.1 The Tenant and its professional team shall entirely at their own risk
be at liberty (by prior appointment on reasonable notice) to enter upon
the Premises for the purpose of viewing the state and progress of the
Landlord's Works and to inspect and view the materials and
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workmanship thereof PROVIDED ALWAYS that the following conditions shall
be observed in respect of every such entry on the Premises:
3.1.1 The Tenant and its professional team shall be at liberty to visit the
Premises at any reasonable time of the day but on the occasion of any
such visit they shall jointly and immediately report their presence on
the Premises to the Construction Manager or his appointed
representatives:
3.1.2 The Tenant and its professional team shall comply with all safety
requirements imposed by the Construction Manager (or his appointed
representative); and
3.1.3 The Tenant and its professional team shall not interfere with or
interrupt the progress of the Landlord's Works nor give or attempt to
give instructions to any trade contractor or any member of the
Professional Team;
3.2.1 The Tenant or its representative and the Construction Manager or his
appointed representative shall attend the Site Inspections
3.2.2 The Construction Manager shall prepare minutes of each Site Inspection
to record the condition of the Premises and shall use reasonable
endeavours to submit the same to the Tenant within 3 working days of
the Site Inspection
3.2.3 The Tenant shall make representations in writing regarding the
condition of the Landlord's Works to the Construction Manager with a
copy to the Landlord within 5 working days of each Site Inspection
3.2.4 The parties shall use their best endeavours to agree on any additional
works required arising from the Tenant's representations but if such
agreement is not made within 5 working days of the date of receipt of
the Tenant's representations by the Construction Manager the matter
shall be referred to the Surveyor for his determination who shall
determine the matter in accordance with clause 12
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3.2.5 In the event that the Tenant does not make a representation in
accordance with clause 3.2.3 regarding any aspect of the Landlord's
Works completed at the date of a relevant Site Inspection the Tenant
shall not be entitled to make any further representation with regard to
such matters pursuant to the provisions of clause 4.3
4 PRACTICAL COMPLETION
4.1 The Landlord shall give to the Tenant and the Tenant's Surveyor at
least three working days notice of the date the Construction Manager
intends to inspect that part of the Landlord's Works to be carried out
prior to Practical Completion for the purposes of issuing a Certificate
of Practical Completion (and as much notice as reasonably practicable
of any adjournment thereof) and the Tenant and its professional team
shall be entitled to attend every such inspection
4.2 The Tenant and its professional team shall be entitled to make
representations to the Construction Manager during such inspection and
the Landlord shall instruct the Construction Manager to have due and
proper professional regard to the same
4.3 If the Tenant's Surveyor reasonably considers that subject to clause
4.6 the Landlord's Works have not been completed in accordance with
this Agreement sufficient for the Construction Manager to issue a
Certificate of Practical Completion he shall within 5 working days
after his inspection notify the Construction Manager in writing of his
reasons and state what further works are required
4.4 Subject to clause 4.5 the Landlord shall carry out such further works
as soon as possible and shall notify the Tenant's Surveyor when such
further works have been completed whereupon the Tenant's Surveyor shall
within 5 working days re-inspect the Premises and if necessary the
procedure set out in this clause shall be repeated as often as
necessary until subject to clause 4.6 the Landlord's Works are
completed in accordance with this Agreement sufficient to entitle
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the Construction Manager to issue a Certificate of Practical Completion
and the Construction Manager shall not issue such certificate until
such time as such further works notified by the Tenant's Surveyor have
been completed
4.5 If the Landlord disputes a notice from the Tenant's Surveyor under
clause 4.4 stating further works which are required the dispute shall
be determined by the Surveyor who shall determine the matter in
accordance with clause 12
4.6 For the purposes of this Clause 4 the Tenant shall not be entitled to
object to the issue of the Certificate of Practical Completion on the
grounds of one or more of the following being outstanding:
4.6.1 The Post-Completion Works or the Optional Works
4.6.2 Snagging items which are agreed by the Landlord and the Tenant or
determined by the Surveyor
4.6.3 Soft landscaping
4.6.4 Works which are not reasonably required to enable the Tenant to gain
access to the Premises and beneficially occupy the Premises for the
purposes permitted by the Lease as agreed by the Landlord and the
Tenant or determined by the Surveyor PROVIDED THAT the Landlord shall
procure completion of all such matters to the reasonable satisfaction
of the Tenant's Surveyor as soon as reasonably practicable (or in
accordance with such other timetable in relation to the Post Completion
Works and the Optional Works as is provided for by this Agreement)
4.7 In the event that the Surveyor upholds an objection of the Landlord
pursuant to Clause 4.5 then the other provisions of this Agreement
(including in particular the definition of Completion Date and Rent
Commencement Date) shall be interpreted as if the Certificate of
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Practical Completion had been issued on the date on which the Tenant
objected to its issue without justification
4.8 The Landlord shall deliver to the Tenant free of charge a set of "as
built" drawings and all manuals and guarantees in respect of the
Landlord's Works as soon as reasonably practicable following Practical
Completion
5. THE LEASE
5.1 On the Completion Date the Landlord will grant or will procure the
grant of and the Tenant will accept the Lease of the Premises
5.2 The Lease and the Counterpart thereof shall be prepared by the
Landlord's Solicitors and the properly executed Counterpart shall be
delivered to the Landlord's Solicitors on completion
5.3 The Lease shall be completed at the offices of the Landlord's
Solicitors on or before 2.00 pm on the Completion Date
5.4 The Principal Rent reserved by the Lease shall be paid from the Rent
Commencement Date but all other rents and sums payable under the Leases
shall be paid with effect from the Completion Date
5.5 The Landlord shall grant the Lease with full title guarantee
6. RIGHT TO DETERMINE
If the Practical Completion Date has not occurred on or before the 1st
February 1999 the Tenant shall have the right to terminate this
Agreement by serving notice in writing to that effect on the Landlord
at any time prior to the date on which the Landlord's Works (other than
the Post Completion Works and the Optional Works) are practically
completed for the purposes of this Agreement and in the event of
service of such notice this Agreement shall cease and determine on the
date of service of such notice by the Tenant but without prejudice to
the rights and liabilities of the parties which have accrued up to that
date
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7. ALIENATION
The Tenant shall not assign or part with its interest under this
Agreement or any part thereof or otherwise dispose of the same or any
part thereof and the Tenant named herein shall personally accept the
Lease and execute a counterpart thereof provided that if the Practical
Completion Date has not occurred on or before the 1st February 1999 the
Tenant may assign its interest under this Agreement with the prior
consent of the Landlord which shall not be unreasonably withheld or
delayed and provided further that the Tenant may assign the benefit of
this Agreement to any person to whom the Lease (when granted) is
assigned
8. NO DEMISE
Until the actual grant of the Lease this Agreement shall not operate or
be deemed to operate as a demise of the Premises nor (save as otherwise
provided by this Agreement) shall the Tenant have or be entitled to any
estate right title or interest in the Premises or any part thereof
9. NO RESTRICTIONS
Nothing herein contained or implied shall impose or be deemed to impose
any restriction on the use of any other part of the Landlord's Estate
not comprised in this Agreement nor give to the Tenant the benefit of
or the right to enforce any covenant agreement condition or stipulation
entered into by any purchaser or lessee or tenant of the Landlord in
respect of property not comprised in this Agreement or to prevent or
restrict in any way the development of the Landlord's Estate not
comprised in this Agreement
10. DEFECTS AND WARRANTY AGREEMENTS
10.1 The Landlord will procure that all defects arising in the Landlord's
Works prior to the expiry of the Defects Period are made good at the
Landlord's cost to comply with the provisions of clause 2.3 hereof
PROVIDED THAT notice of the said defects has been given in writing to
the Landlord by the Tenant not less than 10 working days before the
expiry of the Defects Period
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and provided that the Tenant affords all access necessary for the same
but the Landlord shall not be liable to compensate the Tenant in
respect of any reasonably necessary disturbance or disruption caused
thereby to the Tenant's business carried on at the Premises but shall
reinstate any damage caused to the Premises or the Tenant's property as
soon as practicable and to the reasonable satisfaction of the Tenant
10.2 The Landlord shall make good any such defects as aforesaid notified to
it in writing during the period from the date hereof until the First
Anniversary as soon as practicable after the First Anniversary (save
for defects which require urgent attention which shall be remedied as
soon as practicable after written notification to the Landlord) and
after the First Anniversary all defects shall be remedied as soon as
practicable after written notification to the Landlord (provided such
notification is made before the end of the Defects Period) all such
defects being remedied to the reasonable satisfaction of the Tenant
10.3 Following the remedying of any defects in accordance with the preceding
provisions of this clause it is expressly agreed that in the event of
any claim by the Tenant arising out of the design or workmanship of the
Landlord's Works the Tenant shall rely upon the enforcement against the
Professional Team of the rights conferred upon the Tenant by the
warranty agreements referred to in Clause 10.4 of this Agreement and
upon the Insurance Policy
10.4 The Landlord shall procure from the Professional Team and shall deliver
to the Tenant as soon as practicable after the Completion Date warranty
agreements executed by such parties in the forms annexed to this
Agreement and for this purpose the relevant form of warranty agreement
is that at Annexure B 1 (in the case of the Architect) Annexure B2 (in
the case of the Civil and Structural Engineer) Annexure B3 (in the case
of the Construction Manager) and Annexure B4 (in the case of the
Mechanical and Electrical Engineer)
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10.5 The Landlord shall procure the issue of the Insurance Policy with a
minimum level of cover of not less than the full re-building cost of
the Landlord's Works (including all fees and expenses) and shall comply
with the provisions of clause 4(5) of the Lease as if the Lease had
been completed on the date of this Agreement
11. NO MERGER
This Agreement shall remain in force as to any of the stipulations and
obligations hereof which shall not have been performed and remain to be
performed notwithstanding the grant of the Lease SAVE THAT it is hereby
expressly agreed that the Landlord shall have no continuing liability
to the Tenant or to any other person for the design and construction of
the Landlord's Works after the completion of the remedying of defects
in accordance with clause 10
12. ADJUDICATION
Where under the terms of this Agreement a matter is referred to the
determination of the Surveyor the following provisions shall apply:-
12.1 The Surveyor shall act as an expert and not as an arbitrator
12.2 The Surveyor must afford each party the opportunity within reasonable
time limits to make representations to inform each party of the
representations of the other and allow each party to make submissions
to him on the representations of the other party
12.3 The fees and expenses of the Surveyor including the costs of his
nomination are to be borne as the Surveyor shall in his discretion
determine (and otherwise equally between the Landlord and the Tenant)
and unless the parties otherwise agree they shall each bear their own
costs relating to the determination of the issue by the Surveyor unless
the Surveyor shall in his discretion otherwise determine
12.4 The determination by the Surveyor shall be issued as soon as possible
and is to be conclusive and binding upon the parties save in the case
of manifest error
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13. SERVICE OF NOTICES
The provisions of clause 5(2) of the Lease shall apply in relation to
notices served pursuant to this Agreement as if the same were set out
herein
14. TITLE AND MATTERS TO WHICH THE PREMISES ARE SUBJECT
14.1 The Landlord shall deduce its title to grant the Lease to the Tenant in
accordance with Section 110 of the Land Registration Act 1925 and the
Tenant having received office copies of the said title dated 20th
August 1998 shall be deemed to accept the Lease subject to all matters
contained or referred to in the said office copies and shall not raise
any objection or requisition in relation thereto
14.2 The Premises are let subject to:
14.2.1 all matters registered and capable of registration (whether or not so
registered prior to the date of this Agreement) by any Local or other
Competent Authority
14.2.2 all orders directions notices charges restrictions conditions
agreements schemes resolutions requirements or other matters arising
under any of the Town and Country Planning Acts
14.2.3 all overriding interests as defined by the Land Registration Act 1925
as amended (whether or not the Premises are registered)
14.2.4 all matters revealed by the documentation referred to in clause 14.1
above so far as the same are still subsisting and affect the Premises
and the Tenant or the Tenant's Solicitors having been supplied with
copies of such matters or with such information as the Landlord has
concerned the same the Tenant acknowledges that it has entered into
this Agreement with full knowledge and notice thereof and shall raise
no objection requisition or enquiry in respect of such matters
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15. THE GENERAL CONDITIONS
The General Conditions are incorporated in this Agreement to the extent
that they are not varied by or inconsistent with the terms hereof and
subject to the following amendments
15.1.1 General Conditions 1.1.1 (b) and (f) are deleted and all references
in the General Conditions to the "contract" and the "Agreement" shall
be deemed to be references to this Agreement
15.1.2 where General Conditions impose on the Landlord a duty to inform the
Tenant (including but not limited to General Conditions 3.1.33.3.2(b)
and 3.3.2 (c)) that obligation is to be construed as an obligation to
inform the Tenant as soon as practicable after the information in
question has come to the attention of the Landlord.
15.q1.3 General Conditions 2.2 2.3 4.2 4.3.2 5.2.2. (c) (d) (f) and (g)
5.2.3 5.2.5 5.2.6 6.1 6.2 6.7(a) and 6.7(b) are deleted
16. GUARANTEE
16.1 The Guarantor guarantees to the Landlord the due performance by the
Tenant of the Tenant's obligations under this Agreement
16.2 If at any time before completion of the Lease the Tenant goes into
liquidation or has a petition presented for its winding up or has an
administrative receiver or administrator appointed or in either case
has a receiver appointed or enters into a composition with its
creditors then and in any such case the Landlord may at any time before
completion of the Lease by notice in writing served on the Tenant's
Solicitors invoke the provisions of clause 16.3
16.3 Immediately upon service of notice pursuant to clause 16.2 (but without
prejudice to any preexisting right of action of any party in respect of
any breach by any other party of its obligations under this
agreement):-
(a) the rights of the Tenant under this agreement shall cease and
determine absolutely and the Tenant shall be released from any
further liability under this agreement; and
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(b) this agreement shall from that date have effect as if the
obligation to accept the Lease and the other obligations on the
part of the Tenant contained in this agreement were primary
obligations of the Guarantor and the Guarantor shall accept the
Lease in place of the Tenant and shall otherwise be bound to the
Landlord accordingly
17. ACKNOWLEDGEMENTS
17.1 The Tenant hereby admits and acknowledges as follows:
17.1.1 It has inspected the Approved Drawings and the Specifications and will
prior to the Practical Completion Date inspect the Premises;
17.1.2 It has obtained advice and information with regard to the Premises
independently of the Landlord;
17.1.3 It has seen and accepts the quality and colour of the proposed finishes
to the external and internal parts of the Premises
17.1.4 It has not been induced to enter into this Agreement by or in reliance
upon any statement either oral or in writing made by or on behalf of
the Landlord other than the Landlord's Solicitors' written replies to
written enquiries made by the Tenant's Solicitors prior to the date
hereof and the Tenant accepts that if any such statement has been made
other than as aforesaid it was not made as a condition warranty or
representation for the purpose of inducing the Tenant to enter into
this Agreement
18. TERMINATION
18.1 For the purposes of this clause an "event of default" shall occur if
there shall prior to the Completion Date be any breach of the
agreements covenants or other obligations of the Tenant under this
Agreement which (if capable of remedy) shall not be remedied by the
Tenant within such reasonable period as the Landlord shall stipulate in
writing
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18.2 Upon the occurrence of an event of default the Landlord in addition to
and without prejudice to any other rights and remedies may prior to
the Completion Date rescind this Agreement forthwith by giving written
notice to the Tenant to that effect and the Tenant's interest hereunder
shall cease
19. ENTIRE CONTRACT
This Agreement constitutes the entire contract between the parties
20. JURISDICTION
This Agreement shall be governed in accordance with English Law and the
parties hereby agree to submit to the jurisdiction of the Courts of
England
IN WITNESS whereof the parties hereto have executed this Agreement
under seal
22
<PAGE>
FIRST SCHEDULE
SPECIFICATIONS AND PLANS OF LANDLORD'S WORKS ATTACHED HERETO
23
<PAGE>
SECOND SCHEDULE
POST COMPLETION WORKS
24
<PAGE>
THIRD SCHEDULE
OPTIONAL WORKS
25
<PAGE>
EXECUTED and delivered as a Deed )
by MILTON PARK LIMITED )
acting by:- )
Director /S/
Director/Secretary /S/
EXECUTED and delivered as a Deed )
by VERTEX PHARMACEUTICALS )
(EUROPE) LIMITED )
acting by:- )
Director
Director/Secretary
EXECUTED and delivered )
as a DEED by VERTEX )
PHARMACEUTICALS INCORPORATED)
acting by: )
26
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
GENERAL
Building 88 is a two storey building comprising c. 2,300 sq m. The building
forms part of a development of three similar buildings orientated in an 'H'
shape around a central courtyard. Building 88 has a third storey which has been
designed to accommodate plant, both in an enclosed central area and on open
'balconies' at both ends of the building. The building has two entrance areas
both forming a core containing a stair and lift to the first floor, fitted
separate male, female and disabled toilet areas, riser cupboards and doors into
the 'shell workspace' area.
The core areas will be finished to a normal developer's specification including
plastered and painted walls, carpeted first floor landings and stairs, non slip
ceramic tiles to ground floor entrance with plasterboard ceilings and feature
lighting. Perimeter radiators provide space heating. With the exception of the
first floor disabled WC and ground floor shower next to lift 4 and staircase 7
described at 10 below, WC areas have fully tiled walls, suspended ceilings, non
slip ceramic tiled floors and are fitted with usual sanitary provision.
The remaining 'workspace' area on both ground and first floors are finished as a
basic shell with no floor or ceiling finishes, untreated blockwork walls and
unfinished cladding panels. No electrical, gas, water or heating distribution
will be made in these areas with only such services as are necessary for life
safety or protection of the building fabric.
The thermal performance of the external building envelope will comply in all
respects with the Building Regulations for England and Wales, Part L, 1995.
All building work will comply with the relevant British Standards, BS Codes of
Practice, Public Utility Regulations and Bye Laws. Mechanical and Electrical
installations will comply to the design codes of CIBSE. Health and Safety files
and 0 & M Manuals are provided on practical completion.
All works are being undertaken in accordance with the following drawings:
Architects Drawings:
406(-)002R, 003W, 004T, 005M, 008E, 009C, 011E, 012D, 013B, 015J, 016J, 017D,
021F.
Services Drawings:
WB864/E100/, 401-1, 401-2, 402-1, 402-2, 403-1, 403-2, 404-1, 404-2, 405-1,
405-2, 405-3, 406-1, 406-2, 406-3.
1241/M13A, 14A, 15A, 16A, 17B, 18B.
Peter Brett Associates Drawing:
9422/ME/50OF and H
1. FOUNDATIONS
Mass concrete trench fill and pad foundations on vibro-compacted sub-grade,
designed in accordance with the recommendations of the site investigation
report Np 31095/10 dated June 1997.
1
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
2. STRUCTURAL FRAME
Steel frame with intumescent paint or boarding to achieve as required fire
protection.
Hot rolled structural steel trusses, shot blasted and zinc phosphate primed
finish supporting cold rolled galvanised steel purlins.
3. GROUND FLOOR SLAB
In-situ mesh reinforced concrete slab on granular sub-base to core
areas, wide bay fibre reinforced concrete slab and granular sub-base to
office areas designed for uniformly distributed load of 20kN/mTO THE POWER
OF 2 (4001b per sq ft). Insulation 'U' value is to be 0.45W/m2 or
better
4. EXTERNAL WALLS
Masonry-cavity wall with 'Red Bank Gobelin' or similar external facing
brick skin, 160mm cavity with 75mm rockwool partial cavity fill and 140mm
non-load bearing dense blockwork.
Insulation 'U' Value is to be 0.45W/mTO THE POWER OF 2 DEG.C or better.
Precast reconstituted stone lintels above first floor windows.
Aluminium Pvf2 coated BS 18B 25 Dark Grey RAL 7037 Light Grey flat
composite Luxalon cladding panels in window bays and Kingspan cladding
panels fixed horizontally with proprietary fittings at the plant room and
gable ends.
5. UPPER FLOORS
Precast concrete floor slabs to first floor offices 260mm deep, designed
for uniformly distributed load of 6kN/mTO THE POWER OF 2 (120lb/sq ft).
Precast concrete floor slabs to plant rooms 150mm deep, designed for
uniformly distributed load of 5.OkN/mTO THE POWER OF 2.
6. ROOF
Aluminium mill finish standing seam Kalzip roof cladding with 170mm
insulation, vapour barrier and steel liner tray, to achieve 'U' value of
0.45W/mTO THE POWER OF 2. Concealed aluminium gutters and exposed
downpipes.
Precast concrete floor planks to flat roof areas 150mm deep with screed to
falls and Sarnafil single ply inverted flat roof system.
7. GLAZING
Double glazed polyester powder coated, colour Dark Grey BS 18B 25
externally and White RAL 9016 internally, thermally broken Hunter Douglas
aluminium windows with approximately 50% top hung opening lights. Polyester
powder coated aluminium doors and external fire exit doors.
2
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
All ground floor windows to south and west elevations and first floor
windows to west elevations to have external aluminium Kingfisher sun
louvres.
Full height glazing to front entrance area.
Glazed rebated entrance doors, letter box and conduit for entry control.
8. INTERNAL WALLS
Blockwork generally to underside of floors or roof structure, with a
plaster finish to core areas. No plaster or other finish to other
'workspace' areas.
Block to WC cubicles.
9. STAIRCASES
Precast concrete staircases to front entrances.
Polyester powder coated balustrading and maple handrail to front staircases
and landing.
Ladder access to plant rooms.
Galvanised mild steel painted external spiral fire escape stair to east and
west elevation. Galvanised mild steel-painted external spiral fire escape
stair to south elevation to be procured and fitted at a later date--see
Agreement for Lease.
10. INTERNAL FITTINGS
DOORS
Internal entrance doors to be solid core maple veneered with vision panels,
with maple linings and architraves.
All other doors off entrance areas to be solid core maple veneered flush
doors, maple linings and architraves.
Toilet cubicle doors to be maple with maple linings and architraves. Riser
duct doors to be painted MDF.
The female toilet doors will be hung on the jamb nearest the basins.
DOOR FURNITURE
Pull handles and kick/push plates to be stainless steel and other
ironmongery satin anodised aluminium by Newman Tonks.
JOINERY
Maple skirtings to entrance areas. No skirtings anywhere else in building.
All window boards to be omitted as agreed with Vertex.
3
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
TOILETS
Toilet areas to have white china sanitaryware, laminate panels to concealed
WC and urinal cisterns, solid acrylic resin vanity units to wash hand
basins, toilet roll holders, mirrors, coat hooks and fused spur outlets for
hand dryers.
At Vertex's request, the first floor disabled WC and the ground floor
shower located next to lift 4 and stair 7 shown on the general arrangement
drawings will be left as a shell, i.e. no wall, floor, ceiling or sanitary
fitting or finishes will be included. Drainage services will be left capped
off. No radiators will be installed. Pipework to radiators will be capped
off. No mechanical ventilation provision shall be made.
11. INTERNAL FINISHES
WALLS
Front entrance, staircase and landing areas to be plastered and finished
with emulsion paint finish.
All other 'workspace' areas to be fairfaced blockwork.
With the exception of the first floor disabled WC and the ground floor
shower next to lift 4 and staircase 7 described at 10 above, toilet walls
to be plastered and have full height Langley ceramic tiles.
FLOORS
Staircase and landing areas to have Escopallas Excell carpet tiles
antistatic to IBM Standard for general office use with nosings to staircase
tread.
Cleaners room to be sand/cement screed with sheet vinyl flooring.
VVith the exception of the first floor disabled WC and the ground floor
shower next to lift 4 and staircase 7 described at 10 above, toilet areas
to be sand/cement screed with slip resistant 300 x 300mm Langley ceramic
tiling.
Front entrances to have non-slip Langley ceramic tiling with
aluminium/polypropylene entrance matting.
'Workspace' areas to be powerfloat concrete on ground floor and concrete
planks on first floor. First floor planks to receive a coloured dust
sealer.
Plant room floors and lift motor room will receive and application of three
coats of "Watco Octaseal" paint.
CEILINGS
Entrance, staircase and landing areas generally to have Gyproc MF
plasterboard ceiling.
4
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
With the exception of the first floor disabled WC and the ground floor
shower next to lift 4 and staircase 7 described at 10 above, toilet areas
to have exposed narrow grid Armstrong Microlux Dune suspended ceiling with
600 x 600mm moisture resisting tiles.
No other ceiling finishes in the building.
12. LIFT
2 No Eight person Schindler 100 Series hydraulic passenger lifts.
Lift car door and returns are finished in stainless steel. Full height
carpet tiles to side walls, half height carpet with tinted mirror to rear
wall and handrail below. Carpet tiles to floor. Concealed lighting to
ceiling.
A flush telephone wall cabinet (no telephone or cabling) will be provided.
13. ELECTRICAL INSTALLATION
The incoming electrical supply will be provided by the local electricity
supply authority, and will be delivered and metered at low voltage, maximum
anticipated load allowance of 290 KVA.
Separate cable risers shall be provided, 1 per each building core.
Electrical riser to be fitted out with lighting and small power
distribution system for first floor only. Data/communication risers to
provide space for tenant fit out.
LIGHTING
Emergency lighting, based on integral or remote battery units shall be
provided to all relevant escape route areas in accordance with BS5266 and
as required by the local authority.
Lighting installation shall comprise of the following areas and the
artificial average illumination level will be:
i. Entrance: 200-300 Lux; wall mounted low energy Marlin luminaires.
ii. Staircases and landing areas: 150 Lux; Marlin recessed low energy
compact fluorescent luminaires.
iii. Toilets (with the exception of the first floor disabled WC and the
ground floor next to lift 4 and staircase 7 described at 10 above):
150 Lux; low energy recessed compact fluorescent Marlin luminaires
to cubicles and circulation areas, low voltage Marlin downlighters
or pelmet lighting over the vanity units.
iv. Plant rooms etc: 200-250 Lux; linear fluorescent luminaires with
metal reflectors or compact fluorescent bulkhead luminaires surface
linked.
5
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
V. Unoccupied 'workspace' areas: Minimum numbers of fluorescent batten
tubes to be installed to provide minimum lighting to render building
safe (as agreed with Vertex).
POWER DISTRIBUTION
Single and double outlet switched 13 amp socket outlets shall be positioned
within the core areas and plantrooms to provide for routine maintenance,
cleaning and general services. No other small power distribution.
Emergency lighting, based on integral or remotely battery units shall be
provided to all relevant escape route areas in accordance with BS5266 and
as required by the local authority.
FIRE ALARM
A "break glass" fire alarm installation and automatic smoke detection
system shall be provided to all core and workspace areas of the building
designed in accordance with BS5839, protection category L2. The alarm and
detection system shall have the facility to be extended to accommodate
tenant requirements. Fire alarm sounders are provided to give coverage to
the whole of the building based on an open plan basis.
LIGHTING PROTECTION
The building shall be provided with its own lightning protection system
designed in accordance with BS6651.
ACCESS SYSTEM PROVISION
An access conduit system shall be provided from the external doors in the
entrance areas to above the suspended ceiling for the installation of a
security system by a future tenant.
14. HEATING, PLUMBING AND VENTILATION
GAS - GENERAL
2 No low pressure gas connections shall be provided from the local supply
authority mains to the gas meter enclosure. Both gas mains rise to serve
two gas fired low pressure hot water (LPHW) 'Ideal CXD 70' boilers at roof
level in the plant room which provide hot water distribution (see below)
and shall be provided to comply with local gas board regulations.
WATER - GENERAL
2 No dedicated 35 mm dia water connections will be provided from the local
supply authority mains to 2 No cold water storage tanks in the plant room.
COLD WATER DISTRIBUTION
6
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
Cold water distribution within the 2 core areas of toilet/cleaners
accommodation is provided from the storage tanks. Cold water connected to
all sanitary fittings in both core areas. Overflow pipes to toilets
discharge onto floor where a gully is provided.
HOT WATER DISTRIBUTION
The building shall be provided with four gas fired boilers in the plant
room (as described above) capable of serving hot water to all appropriate
sanitary fittings in the core areas. Two hot water systems will be provided
with each system comprising of two gas fired boiler units, pressurisation
set, primary and secondary pipework and hot. water treatment equipment
located within the dedicated plant room.
SPACE HEATING
Dedicated LPHW pipework distribution systems comprising weather compensated
circuits shall be provided to be capable of serving a network of perimeter
radiators to the core areas.
VENTILATION
With the exception of the first floor disabled WC and ground floor shower
next to lift 4 and staircase 7 described at 10 below, toilet extract
ventilation will be provided to serve the initial cores by central extract
fan units in the plantroom. Supply air shall be introduced from the
adjacent circulation areas. Toilet areas shall be maintained at a negative
pressure with respect to surrounding areas to control migration of odours
etc.
Ventilation to the roof plant rooms shall be provided to meet local
authority requirements via louvres in the external walls.
GENERAL
The sanitary and plumbing systems to serve the toilet and cleaner
accommodation shall be designed in accordance with current Codes of
Practice and to suit requirements of local authority.
15. INCOMING SERVICES
Services to be installed to the buildings as follows:
FOUL AND SURFACE WATER SEWERS - Connected to existing main drainage system.
Electricity - Cables to be laid to existing Southern Electric low voltage
system. 2 No 145 KVA supplies.
GAS - Pipes to be laid to British Gas main supply. 2 No @ 378 kwh.
BT, MERCURY AND COMTEL - Ducts to be installed for BT, Mercury
Communications and Comtel.
7
<PAGE>
88 MILTON PARK OUTLINE SPECIFICATION
VERTEX LANDLORD'S WORKS
- --------------------------------------------------------------------------------
WATER SUPPLY - Pipework to be laid to existing Thames Water mains supply. 2
No 35mm supplies with meters are provided.
16. EXTERNAL LIGHTING
Lighting to pedestrian access, car parking, utility and amenity space with
low level bollards and 5m columns with amenity luminaire, Thom Johanna or
similar with 150W high pressure lamp in a decorative housing with a dished
reflector above, to achieve average illuminance of 5 - 7 Lux.
17. CAR PARKING
A total of 270 car parking spaces to be provided. Loading - heavy delivery
vehicles and cars. Finish -concrete block paving roads and bituminous
macadam spaces with block paving corner demarkation, precast concrete kerbs
generally.
Access roads to the development to be finished with bituminous macadam
wearing course.
8
<PAGE>
VALE
OF WHITE HORSE
Planning & Engineering Department
TOWN AND COUNTRY PLANNING ACT 1990
NOTICE OF PERMISSION
To: Lansdown Estates Group Ltd
c/o Granville Projects
80 Milton Park
Abingdon
Oxon OX14 4RY
Application No: MIL/59/122
Proposal: Demolition of 88 Milton Park and erection of proposed
B1/or B8 development.
Address: 88 Milton Park
Milton
Abingdon
Oxon
OX14 4RY
DATE OF DECISION: 14th April 1997
The Vale of White Horse District Council, in pursuance of powers under the
Above Act hereby PERMIT the above development to be carried out in
accordance with the application and accompanying plans submitted by you,
subject to compliance with the conditions specified hereunder.
1. THE DEVELOPMENT TO WHICH THIS PERMISSION RELATES SHALL BE BEGUN WITHIN A
PERIOD OF FIVE YEARS FROM THE DATE OF THIS PERMISSION.
2. THE DEVELOPMENT SHALL BE LANDSCAPED IN ACCORDANCE WITH A SCHEME WHICH SHALL
BE SUBMITTED TO AND APPROVED IN WRITING BY THE DISTRICT PLANNING AUTHORITY
BEFORE THE DEVELOPMENT COMMENCES AND SHALL ENSURE:
a) THE RETENTION OF SELECTED EXISTING TREES AND SHRUBS ON THE SITE,
b) THE PROTECTION 0F THE SELECTED EXISTING TREES AND SHRUBS ON THE SITE
DURING THE DEVELOPMENT OF THE SITE;
c) THE CARRYING OUT OF ANY EARTH MOVING OPERATIONS CONCURRENTLY WITH THE
CARRYING OUT OF THE BUILDING AND OTHER WORKS;
d) COMPLETION OF THE SCHEME DURING THE PLANTING SEASON NEXT FOLLOWING
THE COMPLETION OF THE BUILDING(S), OR SUCH OTHER DATE AS MAY BE
AGREED IN WRITING WITH THE DISTRICT PLANNING, AUTHORITY;
<PAGE>
e) THE MAINTENANCE OF THE LANDSCAPED AREAS FOR A PERIOD OF FIVE YEARS OR
UNTIL ESTABLISHED, WHICHEVER MAY BE LONGER. ANY TREES OR SHRUBS
REMOVED, OR WHICH IN THE OPINION OF THE DISTRICT PLANNING AUTHORITY,
ARE DYING, BEING SEVERELY DAMAGED OR BECOMING SERIOUSLY DISEASED
WITHIN FIVE YEARS OF PLANTING, SHALL BE REPLACED BY TREES OR SHRUBS
OF SIMILAR SIZE AND SPECIES TO THOSE ORIGINALLY REQUIRED TO BE
PLANTED.
3. PRIOR TO THE FIRST USE OF ANY BUILDING, THE CAR PARKING AREA SHOWN ON THE
APPROVED PLAN REFERENCE (406/002E) SHALL BE CONSTRUCTED, DRAINED, LAID AND
MARKED OUT IN ACCORDANCE WITH THE SPECIFICATION OF OXFORDSHIRE COUNTY
COUNCIL OR SUCH WORKS. THEREAFTER THE AREA SHALL BE KEPT PERMANENTLY FREE OF
ANY OBSTRUCTION TO SUCH USE.
The reasons for the Council's decision to grant permission for the
development subject to compliance with the conditions hereinbefore
specified are:
1. TO COMPLY WITH THE REQUIREMENTS OF SECTION.91 OF THE TOWN & COUNTRY PLANNING
ACT, 1990.
2. TO ENSURE THE IMPLEMENTATION OF A SATISFACTORY SCHEME OF LANDSCAPING WHICH
WILL IN DUE COURSE IMPROVE THE ENVIRONMENTAL QUALITY OF THE DEVELOPMENT AND
SOFTEN ITS IMPACT ON THE AREA.
3. IN THE INTEREST OF HIGHWAY SAFETY.
/s/
CHIEF PLANNING AND ENGINEERING OFFICER,
<PAGE>
WARRANTY AGREEMENT CoWa/P&T
<TABLE>
<CAPTION>
<S> <C>
(IN SCOTLAND LEAVE BLANK THIS AGREEMENT
FOR APPLICABLE DATE SEE is made the day of 199
CLAUSE ON PAGE 4) ----------- -----------------
BETWEEN:
(insert name of (1) NICHOLAS HARE ARCHITECTS
the Consultant) -----------------------------------------------------------------------------------
of/whose registered office is situated at 3 Barnsbury Square,
-----------------------------------------
London N1 IJL ("the Firm"), and
-----------------------------------------------------------------
(insert name of
the Purchaser/the Tenant) (2) -----------------------------------------------------------------------------------
whose registered office is situated at
-------------------------------------------
-----------------------------------------------------------------------------------
(delete as appropriate) ("the Tenant" which term shall include all permitted assignees
under this Agreement).
WHEREAS:
(delete as appropriate) A. The Tenant has entered into an agreement to lease with
-----------------------------------------------------------------------------------
MILTON PARK LTD
-------------------------------------------------------- ("the Client") relating to
-----------------------------------------------------------------------------------
(insert description of
the premises) -----------------------------------------------------------------------------------
------------------------------------------------------------------ ("the Premises")
(insert -----------------------------------------------------------------------------------
description of
the development) at 86-88 MILTON PARK, ABINGDON, OXON
-----------------------------------------------------------------------------------
(insert address
of the development) --------------------------------------------------------------- "the Development").]
(delete as appropriate) ["The Premises" are also referred to as "the Development" in this Agreement.]
insert date B. By a contract ("the Appointment") dated --------------------------------------------
or appointment the Client has appointed the Firm as [architects] in connection with the
(delete/complete Development.
as appropriate)
C. The Client has entered or may enter into a contract ("the Building Contract") with
(insert name or
building contractor VARIOUS TRADE CONTRACTORS TO BE
or a building ------------------------------------------------------------------------------------
contractor to be SELECTED BY THE CLIENT
selected by the ------------------------------------------------------------------------------------
Client)
------------------------------------------------------------------------------------
for the construction of the Development.
</TABLE>
<PAGE>
NOW IN CONSIDERATION OF THE PAYMENT OF ONE POUND
(L1) BY THE PURCHASER/THE TENANT TO THE FIRM
(RECEIPT OF WHICH THE FIRM ACKNOWLEDGES) IT IS
HEREBY AGREED as follows:
<TABLE>
<S> <C>
(delete as appropriate 1. The Firm warrants that it has exercised
to reflect terms of the and will continue to exercise reasonable skill
appointment) [and care] [care and diligence] in the
performance of its services to the Client
under the Appointment. In the event of any
breach of this warranty:
(a) subject to paragraphs (b) and (c) of this
clause, the Firm shall be liable for the
reasonable costs of repair renewal and/or
reinstatement of any part or parts of the
Development to the extent that
- the Tenant incurs such costs and/or
- the Tenant is or becomes liable either
directly or by way of financial
contribution for such costs.
The Firm shall not be liable for other
losses incurred by the Tenant.
(b) the Firm's liability for costs under
this Agreement shall be limited to that
proportion of such costs which it would
be just and equitable to require the Firm
to pay having regard to the extent of the
Firm's responsibility for the same and on
the basis that
---------------------------
(insert the names GLANVILLE AND ASSOCIATES
of other intended ------------------------------------------
warrantors) GLANVILLE PROJECTS
------------------------------------------
PETER BRETT ASSOCIATES
------------------------------------------
MACGREGOR SMITH
------------------------------------------
shall
--------------------------------------
be deemed to have provided contractual
undertakings on terms no less onerous
than this Clause 1 to the Tenant in
respect of the performance of their
services in connection with the
Development and shall be deemed to have
paid to the Tenant such proportion which
it would be just and equitable for them
to pay having regard to the extent of
their responsibility;
(c) the Firm shall be entitled in any action
or proceedings by the Tenant to rely on
any limitation in the Appointment and to
raise the equivalent rights in defence of
liability as it would have against the
Client under the Appointment;
(d) the obligations of the Firm under or
pursuant to this Clause I shall not be
released or diminished by the appointment
of any person by the Tenant to carry out
any independent enquiry into any relevant
matter.
(delete where 2. [Without prejudice to the generality of Clause 1,
the Firm is the Firm further warrants that it has exercised
the quantity and will continue to exercise reasonable skill
surveyor) and care to see that, unless authorised by the
Client in writing or, where such authorisation
is given orally, confirmed by the Firm to the
Client in writing, none of the following has
been or will be specified by the Firm for use
in the construction of those parts of the
Development to which the Appointment relates:
(a) high alumina cement in structural
elements:
(b) wood wool slabs in permanent formwork to
concrete:
(c) calcium chloride in admixtures for use in
reinforced concrete:
(d) asbestos products:
(e) naturally occurring aggregates for use in
reinforced concrete which do not comply
with British Standard 882: 1983 and/or
naturally occurring aggregates for use in
concrete which do not comply with British
Standard 8110: 1985.
(further
specific
materials
may be added
by agreement) In the event of any breach of this
warranty the provisions of Clauses 1a,
b, c and d shall apply.]
<PAGE>
3. The Firm acknowledges that the Client has
paid all fees and expenses properly due and
owing to the Firm under the Appointment up to
the date of this Agreement.
4. The Tenant has no authority to issue any
direction or instruction to the Firm in relation
to the Appointment.
5. The copyright in all drawings, reports,
models, specifications, bills of quantities,
calculations and other documents and information
prepared by or on behalf of the Firm in
connection with the Development (together
referred to in this Clause 5 as "the Documents")
shall remain vested in the Firm but, subject
to the Firm having received payment of any fees
agreed as properly due under the Appointment.
The Tenant and its appointee shall have a
licence to copy and use the Documents
and to reproduce the designs and content of them
for any purpose related to the Premises
including, but without limitation, the
construction, completion, maintenance,
letting, promotion, advertisement,
reinstatement, refurbishment and repair of the
Premises. Such licence shall enable the Tenant
and its appointee to copy and use the Documents
for the extension of the Premises but such use
shall not include a licence to reproduce the
designs contained in them for any extension of
the Premises. The Firm shall not be liable for
any use by the Tenant or its appointee of any of
the Documents for any purpose other than that
for which the same were prepared by or on
behalf of the Firm.
6. The Firm shall maintain professional indemnity
insurance in an amount of not less than
(insert amount) ONE AND A HALF MILLION POUNDS (L1,500,000) for
any one occurrence or series of occurrences
arising out of any one event for a period
(insert period) of years from the date of practical completion
of the Premises under the Building Contract,
provided always that such insurance is
available at commercially reasonable rates.
The Firm shall immediately inform the Tenant
if such insurance ceases to be available at
commercially reasonable rates in order that
the Firm and the Tenant can discuss means of
best protecting the respective positions of
the Tenant and the Firm in the absence of such
insurance. As and when it is reasonably
requested to do so by the Tenant or its
appointee the Firm shall produce for
inspection documentary evidence that its
professional indemnity insurance is being
maintained.
(insert number [7 This Agreement may be assigned ONCE by the
of times) Tenant by way of absolute legal assignment to
another person taking an assignment of the
Purchaser's/the Tenant's interest in the
(delete if under Premises without the consent of the Client or
Scots law) the Firm being required and such assignment
shall be effective upon written notice thereof
being given to the Firm. No further assignment
shall be permitted.]
8 Any notice to be given by the Firm hereunder
shall be deemed to be duly given if it is
delivered by hand at or sent by registered
post or recorded delivery to the Tenant at its
registered office and any notice given by the
Tenant hereunder shall be deemed to be duly
given if it is addressed to "The Senior
Partner"/"The Managing Director" and delivered
by hand at or sent by registered post or
recorded delivery to the above-mentioned
address of the Firm or to the principal
business address of the Firm for the time
being and, in the case of any such notices,
the same shall if sent by registered post or
recorded delivery be deemed to have been
received forty eight hours after being posted.
9 No action of proceedings for any breach of
(complete as this Agreement shall be commenced against the
appropriate) Firm after the expiry of years from the
date of practical completion of the Premises
under the Building Contract.
<PAGE>
(delete if under [10 The construction validity and performance of
Scots law) this Agreement shall be governed by English law
and the parties agree to submit to the non-exclusive
jurisdiction of the English Courts.]
(alternatives, [AS WITNESS the hands of the parties the day and
delete as year first before written.
appropriate)
Signed by or on behalf of the Firm
-------------------
(for agreement in the presence of:
executed under hand --------------------------------
and NOT as a deed)
Signed by or on behalf of the Tenant
-------------------
in the presence of:
-------------------------------]
</TABLE>
<PAGE>
WARRANTY AGREEMENT CoWa/P&T
<TABLE>
<CAPTION>
<S> <C>
(IN SCOTLAND LEAVE BLANK THIS AGREEMENT
FOR APPLICABLE DATE SEE is made the day of 199
CLAUSE ON PAGE 4) ----------- -----------------
BETWEEN:
(insert name of (1) GLANVILLE AND ASSOCIATES
the Consultant) -----------------------------------------------------------------------------------
of/whose registered office is situated at PORTERSWOOD HOUSE, PORTERSWOOD,
-----------------------------------------
ST. ALBANS, HERTS AL3 6PQ ("the Firm"), and
-----------------------------------------------------------------
(insert name of
the Purchaser/the Tenant) (2) -----------------------------------------------------------------------------------
whose registered office is situated at
-------------------------------------------
-----------------------------------------------------------------------------------
(delete as appropriate) ("the Tenant" which term shall include all permitted assignees
under this Agreement).
WHEREAS:
(delete as appropriate) A. The Tenant has entered into an agreement to lease with
-----------------------------------------------------------------------------------
MILTON PARK LTD
-------------------------------------------------------- ("the Client") relating to
-----------------------------------------------------------------------------------
(insert description of
the premises) -----------------------------------------------------------------------------------
------------------------------------------------------------------ ("the Premises")
(insert -----------------------------------------------------------------------------------
description of
the development) at 86-88 MILTON PARK, ABINGDON, OXON
-----------------------------------------------------------------------------------
(insert address
of the development) --------------------------------------------------------------- "the Development").]
(delete as appropriate) ["The Premises" are also referred to as "the Development" in this Agreement.]
insert date B. By a contract ("the Appointment") dated --------------------------------------------
or appointment the Client has appointed the Firm as [architects] in connection with the
(delete/complete Development.
as appropriate)
C. The Client has entered or may enter into a contract ("the Building Contract") with
(insert name or
building contractor VARIOUS TRADE CONTRACTORS TO BE
or a building ------------------------------------------------------------------------------------
contractor to be SELECTED BY THE CLIENT
selected by the ------------------------------------------------------------------------------------
Client)
------------------------------------------------------------------------------------
for the construction of the Development.
</TABLE>
<PAGE>
NOW IN CONSIDERATION OF THE PAYMENT OF ONE POUND
(L1) BY THE PURCHASER/THE TENANT TO THE FIRM
(RECEIPT OF WHICH THE FIRM ACKNOWLEDGES) IT IS
HEREBY AGREED as follows:
<TABLE>
<S> <C>
(delete as appropriate 1. The Firm warrants that it has exercised
to reflect terms of the and will continue to exercise reasonable skill
appointment) [and care] [care and diligence] in the
performance of its services to the Client
under the Appointment. In the event of any
breach of this warranty:
(a) subject to paragraphs (b) and (c) of this
clause, the Firm shall be liable for the
reasonable costs of repair renewal and/or
reinstatement of any part or parts of the
Development to the extent that
- the Tenant incurs such costs and/or
- the Tenant is or becomes liable either
directly or by way of financial
contribution for such costs.
The Firm shall not be liable for other
losses incurred by the Tenant.
(b) the Firm's liability for costs under
this Agreement shall be limited to that
proportion of such costs which it would
be just and equitable to require the Firm
to pay having regard to the extent of the
Firm's responsibility for the same and on
the basis that
(insert the names
of other intended GLANVILLE PROJECTS
warrantors) ------------------------------------------
NICHOLAS HARE ARCHITECTS
------------------------------------------
PETER BRETT ASSOCIATES
------------------------------------------
MACGREGOR SMITH
------------------------------------------
shall
--------------------------------------
be deemed to have provided contractual
undertakings on terms no less onerous
than this Clause 1 to the Tenant in
respect of the performance of their
services in connection with the
Development and shall be deemed to have
paid to the Tenant such proportion which
it would be just and equitable for them
to pay having regard to the extent of
their responsibility;
(c) the Firm shall be entitled in any action
or proceedings by the Tenant to rely on
any limitation in the Appointment and to
raise the equivalent rights in defence of
liability as it would have against the
Client under the Appointment;
(d) the obligations of the Firm under or
pursuant to this Clause I shall not be
released or diminished by the appointment
of any person by the Tenant to carry out
any independent enquiry into any relevant
matter.
(delete where 2. [Without prejudice to the generality of Clause 1,
the Firm is the Firm further warrants that it has exercised
the quantity and will continue to exercise reasonable skill
surveyor) and care to see that, unless authorised by the
Client in writing or, where such authorisation
is given orally, confirmed by the Firm to the
Client in writing, none of the following has
been or will be specified by the Firm for use
in the construction of those parts of the
Development to which the Appointment relates:
(a) high alumina cement in structural
elements:
(b) wood wool slabs in permanent formwork to
concrete:
(c) calcium chloride in admixtures for use in
reinforced concrete:
(d) asbestos products:
(e) naturally occurring aggregates for use in
reinforced concrete which do not comply
with British Standard 882: 1983 and/or
naturally occurring aggregates for use in
concrete which do not comply with British
Standard 8110: 1985.
(further
specific
materials
may be added
by agreement) In the event of any breach of this
warranty the provisions of Clauses 1a,
b, c and d shall apply.]
<PAGE>
3. The Firm acknowledges that the Client has
paid all fees and expenses properly due and
owing to the Firm under the Appointment up to
the date of this Agreement.
4. The Tenant has no authority to issue any
direction or instruction to the Firm in relation
to the Appointment.
5. The copyright in all drawings, reports,
models, specifications, bills of quantities,
calculations and other documents and information
prepared by or on behalf of the Firm in
connection with the Development (together
referred to in this Clause 5 as "the Documents")
shall remain vested in the Firm but, subject
to the Firm having received payment of any fees
agreed as properly due under the Appointment.
The Tenant and its appointee shall have a
licence to copy and use the Documents
and to reproduce the designs and content of them
for any purpose related to the Premises
including, but without limitation, the
construction, completion, maintenance,
letting, promotion, advertisement,
reinstatement, refurbishment and repair of the
Premises. Such licence shall enable the Tenant
and its appointee to copy and use the Documents
for the extension of the Premises but such use
shall not include a licence to reproduce the
designs contained in them for any extension of
the Premises. The Firm shall not be liable for
any use by the Tenant or its appointee of any of
the Documents for any purpose other than that
for which the same were prepared by or on
behalf of the Firm.
6. The Firm shall maintain professional indemnity
insurance in an amount of not less than
(insert amount) ONE AND A HALF MILLION Pounds (L1,500,000) for
any one occurrence or series of occurrences
arising out of any one event for a period
(insert period) of years from the date of practical completion
of the Premises under the Building Contract,
provided always that such insurance is
available at commercially reasonable rates.
The Firm shall immediately inform the Tenant
if such insurance ceases to be available at
commercially reasonable rates in order that
the Firm and the Tenant can discuss means of
best protecting the respective positions of
the Tenant and the Firm in the absence of such
insurance. As and when it is reasonably
requested to do so by the Tenant or its
appointee the Firm shall produce for
inspection documentary evidence that its
professional indemnity insurance is being
maintained.
(insert number [7 This Agreement may be assigned ONCE by the
of times) Tenant by way of absolute legal assignment to
another person taking an assignment of the
Purchaser's/the Tenant's interest in the
(delete if under Premises without the consent of the Client or
Scots law) the Firm being required and such assignment
shall be effective upon written notice thereof
being given to the Firm. No further assignment
shall be permitted.]
8 Any notice to be given by the Firm hereunder
shall be deemed to be duly given if it is
delivered by hand at or sent by registered
post or recorded delivery to the Tenant at its
registered office and any notice given by the
Tenant hereunder shall be deemed to be duly
given if it is addressed to "The Senior
Partner"/"The Managing Director" and delivered
by hand at or sent by registered post or
recorded delivery to the above-mentioned
address of the Firm or to the principal
business address of the Firm for the time
being and, in the case of any such notices,
the same shall if sent by registered post or
recorded delivery be deemed to have been
received forty eight hours after being posted.
9 No action of proceedings for any breach of
(complete as this Agreement shall be commenced against the
appropriate) Firm after the expiry of years from the
date of practical completion of the Premises
under the Building Contract.
<PAGE>
(delete if under [10 The construction validity and performance of
Scots law) this Agreement shall be governed by English law
and the parties agree to submit to the non-exclusive
jurisdiction of the English Courts.]
(alternatives, [AS WITNESS the hands of the parties the day and
delete as year first before written.
appropriate)
Signed by or on behalf of the Firm
-------------------
(for agreement in the presence of:
executed under hand --------------------------------
and NOT as a deed)
Signed by or on behalf of the Tenant
-------------------
in the presence of:
-------------------------------]
</TABLE>
<PAGE>
LATENT DEFECTS PROPOSAL
Unit 88 Milton Park
<TABLE>
<CAPTION>
INSURED VALUES:
<S> <C> <C> <C>
Items 1/4 - Building (pound)2,035,000
Item 5 - Disturbance Costs @ 2.5% (pound) 50,000
---------
(pound)2,085,000
Item 6 - Rent 12 months @(pound)300,000 p.a. (pound) 300,000
---------
(pound)2,385,000
---------
PREMIUM:
Items 1/5 - Building/Disturbance Costs (pound)18,648.24
Deposit (pound) 2,236.00
Item 6 - Rent (pound) 2,246.40
---------
(pound)23,130.64
---------
</TABLE>
NOTES:
Single Premium
12 Years Cover
Building Cover Deductible (pound)20,000
Annual Inflation Cover (Building, only) - 5%
All Premiums inclusive of Insurance Premium Tax at 4%
(Rate may change prior to cover commencing)
<PAGE>
COMMERCIAL UNION ASSURANCE COMPANY plc
LATENT DEFECTS POLICY
The Insurers agree (subject to the terms definitions exclusions and conditions
of this policy) that if after payment of the premium DAMAGE (as within defined)
shall be discovered then the Insurers will pay to the Insured the value of the
Property Insured at the time of the discovery of the DAMAGE or the amount of
such DAMAGE or at the Insurers' option reinstate or repair such property or any
part of it or remedy any defect therein to prevent DAMAGE
Provided that the liability of the Insurers under this policy shall not exceed
i in the whole the total sum insured or in respect of any item its sum
insured at the time of the discovery of the DAMAGE
ii the sum insured remaining after deduction for any other DAMAGE unless the
Insurers shall have agreed to reinstate any such sum insured
This policy incorporates the Schedule Specification and Endorsements which shall
be read together as one contract. Words and expressions to which specific
meaning is given in any part of this policy shall have the same meaning wherever
they appear
<PAGE>
THE SCHEDULE
AGENCY MEPC Insurance Management Limited
BRANCH & AGENT NO. 959 800093UP Policy No.
THE INSURERS: Commercial Union Assurance Company plc
THE INSURED:
ADDRESS
THE PROPERTY INSURED As detailed in the attached Specification
TOTAL SPECIFICATION SUM INSURED (pound)
DEDUCTIBLE:
In respect of
1 Item No. 4 the first(pound) ) Subject to maximum
) policy deductible each
2 Item No. 6 the first(pound) ) incident of DAMAGE
) being(pound)
3 All other items the first(pound) )
THE SUM INSURED BY THIS POLICY (pound)
being 100% of the total Specification sum insured
PERIOD OF INSURANCE:
1 For Item 4a From
to
2 For Items 4b and 4c From
to
3 For all other items From
to
PREMIUM(Pound) less deposit of(pound) =(pound)
(inclusive of(pound) Insurance Premium Tax)
BRANCH ADDRESS: 82 Pall Mall, London, SWIY 5HF
2
<PAGE>
THE PROPERTY INSURED
The building situate
<TABLE>
<CAPTION>
ITEM NO. SUM INSURED
<S> <C>
1. The building excluding property as described in item (pound))
numbers 2 & 3 occupied as )
)
2 Landlord's fixtures and fittings and permanently )
installed services forming part of the building (pound))
)
3 Roads, pavements, car parks, lighting, walls, gates )
fences and landscaping of the area adjacent to )
the building but only to the extent of the )
Insured's liability therefore (pound))
)
4 Costs incurred in repairing DAMAGE to the Property )
Insured discovered during the period of insurance )
applicable to this item (pound))
)
a in respect of roofs with less than 6% pitch )
from the horizontal (pound))
)
b in respect of that part of the Waterproofing )
Envelope below ground level (pound))
)
c in respect of other parts of the Waterproof )
Envelope (pound))
5 Costs necessarily and reasonably incurred
with the consent of the Insurers for dismantling, moving,
removing, returning and re-erecting property not
forming part of the building to enable repairs or
rebuilding to proceed (pound)
6 Months rent (pound)
--------
(pound)
--------
--------
</TABLE>
MEMO
Payment of any claim under Items Nos 2, 3, 5 and 6 is conditional upon payment
being made or liability admitted for a claim under Item Nos 1 or 4
MEMO - WAIVER OF RIGHTS OF REDRESS
Notwithstanding Claims Condition 6 the Insurers hereby agree not to pursue any
subrogated rights of redress they may accrue against the Lansdown Estates
Group's design team and construction managers otherwise than in respect of
fraud or fraudulent acts.
-3-
<PAGE>
DEFINITION
The word DAMAGE, in capital letters, shall mean
1 destruction of or physical damage to
2. threat of imminent collapse of
any portion of the Property Insured for which a Certificate of Practical
Completion has been received by the Insurers and for which they have
formally confirmed cover directly caused by
a a defect existing prior to the commencement of the Period of Insurance
but remaining undiscovered at that date
i in the design or construction of elements essential to the
stability and strength of the Property Insured or in the
materials used in the construction of such elements
ii in the external walls and roofing of the Property Insured
iii in respect of Item No. 4 of the Specification only - in the
design or construction of the Waterproofing Envelope, i.e. the
roof, skylights, external walls, cladding, windows, doors and
lowest floor or in the materials used in the construction of the
Waterproofing Envelope
b subsidence landslip or ground heave of the land on which the Property
stands
-4-
<PAGE>
EXCLUSIONS
This policy does not cover
1 DAMAGE discovered after the relevant period of insurance
2 DAMAGE due to arising from
a. wear and tear
b. inadequate maintenance of the Property Insured
c. abnormal use or overloading of the Property Insured beyond its design
capacity
d. normal settlement or bedding down
e. normal shrinkage or expansion of materials used in the construction of
the Property Insured
f. change in colour texture or any ageing process of the Property Insured
g. faulty or inadequate weatherproofing except as insured by Item No 4 of
the Specification
3. loss or destruction or damage due to or arising from fire, lightning,
explosion, earthquake, storm, flood, escape of water from any tank
apparatus or pipe whether caused by DAMAGE insured hereby or otherwise
4. the cost of any work for which any contractor is responsible under the
defects liability provisions contained in any contract for works after
issue of Certificate of Practical Completion or date of hand over whichever
is applicable
5. consequential or economic loss of any kind or description except loss of
rent when such loss is included in the cover under this policy
6. any property more specifically insured by or on behalf of the Insured
<PAGE>
7. loss or destruction or damage caused by pollution or contamination but this
shall not exclude destruction of or damage to the Property Insured, not
otherwise excluded, caused by
a. pollution or contamination which itself results from DAMAGE
b. DAMAGE which itself results from pollution or contamination
8. loss or destruction or damage occasioned by war invasion act of foreign
enemy hostilities (whether war be declared or not) civil war rebellion
revolution insurrection military or usurped power nationalisation
confiscation requisition seizure or destruction by the government or any
public authority
9. loss or destruction of or damage to any property whatsoever or any loss or
expense whatsoever resulting or arising therefrom or any consequential loss
directly or indirectly caused by or contributed to by or arising from
a ionising radiations or contamination by radioactivity from any
nuclear fuel or from any nuclear waste from the combustion of nuclear
fuel
b the radioactive toxic explosive or other hazardous properties of any
explosive nuclear assembly or nuclear component thereof
10. loss or destruction or damage due to or arising from pressure waves caused
by aircraft or other aerial devices travelling at sonic or supersonic
speeds
<PAGE>
GENERAL PROVISIONS
1 CONDITION OF AVERAGE (UNDERINSURANCE)
The sum insured by each item of this policy other than those applying
solely to fees or removal of debris is declared to be separately subject to
Average
Whenever a sum insured is declared to be subject to Average if such sum
shall at the discovery of any DAMAGE be less than the value of the property
covered within such sum insured the amount payable by the Insurers in
respect of such DAMAGE shall be proportionately reduced
2 DEDUCTIBLES
This policy does not cover the amounts of the deductibles stated in the
Schedule in respect of each and every loss as ascertained after the
application of all other terms and conditions of the policy including any
condition of Average
3 ASSIGNMENT
This policy is assignable to any party acquiring an Insurable Interest in
the Property Insured subject to prior notification being received by the
Insurers and admitted by them in writing
<PAGE>
GENERAL CONDITIONS
1 POLICY VOIDABLE
This policy shall be voidable in the event of misrepresentation
misdescription or non disclosure in any material particular
2 RESTRICTIVE AGREEMENTS
The Insured shall not enter into any agreement lease or contract with any
party which would limit modify or curtail the fights of the Insurers
against third parties without their consent
3 ALTERATION
This policy shall be avoided if there be any alteration modification change
of use or addition to the Property Insured whereby the risk of DAMAGE is
increased unless admitted by the Insurers in writing
4. REASONABLE PRECAUTIONS
The Insured shall take all reasonable precautions to prevent DAMAGE
5 JURISDICTION
This policy shall be construed in accordance with English Scottish or
Northern Ireland law and shall be subject to the exclusive jurisdiction of
the appropriate Court of England and Wales Scotland or Northern Ireland and
any arbitration hereunder should be held in the United Kingdom of Great
Britain and Northern Ireland
The Insurers shall not be liable to the Insured for exemplary or punitive
damages in any circumstances whatsoever
<PAGE>
CLAIMS CONDITIONS
1 ACTION BY INSURED
A On discovery of DAMAGE the Insured shall
i notify the Insurers immediately
ii carry out and permit to be taken any action which may be
reasonably practicable to prevent further DAMAGE
iii deliver to the Insurers at the Insured's expense
a full information in writing of the property destroyed or
damaged and the amount of the DAMAGE
b details of any other insurances on any property hereby
insured
within 30 days after discovery of the DAMAGE and
c all such proofs and information relating to the claim as may
reasonably be required
d if demanded a statutory declaration of the truth of the
claim and of any matters connected with it
B No claim under this policy shall be payable unless the terms of this
condition have been complied with
2 FRAUD
If a claim is fraudulent in any respect or if fraudulent means are used by
the Insured or anyone acting on his behalf to obtain any benefit under the
policy or if any DAMAGE is caused by the wilful act or with the connivance
of the Insured all benefit under the policy shall be forfeited
3 REINSTATEMENT
If any property is to be reinstated or replaced by the Insurers the Insured
shall at his own expense provide all such plans documents books and
information as may reasonably be required. The Insurers shall not be bound
to reinstate exactly but only as circumstances permit and in a reasonably
sufficient manner and shall not in any case be bound to expend in respect
of any one of the items insured more than its sum insured
<PAGE>
4 INSURERS RIGHTS FOLLOWING CLAIM
On the discovery of DAMAGE in respect of which a claim is made the Insurers
and any person authorised by the Insurers may without thereby incurring any
liability or diminishing any of the Insurers rights under this policy enter
the premises where such DAMAGE has occurred
No property may be abandoned to the Insurers
5 CONTRIBUTION AND AVERAGE
If at the time of discovery of any DAMAGE there is any other insurance
effected by or on behalf of the Insured covering any of the property
destroyed or damaged the liability of the Insurers hereunder shall be
limited to its rateable proportion of such DAMAGE
If any such other insurance shall be subject to any Average
(underinsurance) condition this policy if not already subject to any such
condition of Average shall be subject to Average in like manner
If any such other insurance is subject to any provision whereby it is
excluded from ranking concurrently with this policy either in whole or in
part or from contributing rateably the liability of the Insurers under this
policy shall be limited to that proportion of the DAMAGE which the sum
insured under this policy bears to the value of the property
6 SUBROGATION
Any claimant under this policy shall at the request and expense of the
Insurers take and permit to be taken all necessary steps for enforcing
rights against any other party in the name of the Insured before or after
any payment is made by the Insurers
7 ARBITRATION
If any difference arises as to the amount to be paid under this policy
(liability being otherwise admitted) such difference shall be referred to
an arbitrator to be appointed by the parties in accordance with statutory
provisions. Where any difference is by this condition to be referred to
arbitration the making of an award shall be a condition precedent to any
right of action against the Insurers
<PAGE>
CLAUSES
1 RENT
Any insurance hereby on rent applies only if the said building or any part
thereof is unfit for occupation in consequence of DAMAGE and then the
amount payable shall not exceed such proportion of the sum insured on rent
as the period necessary for reinstatement bears to the term of rent insured
2 FEES
The insurance by Items Nos 1 to 4 includes an amount in respect of
Architect Surveyors' Legal and Consulting Engineers' Fees necessarily and
reasonably incurred in the reinstatement or repair of Property Insured
consequent upon its destruction or damage but not for preparing any claim,
it being understood that the amount payable under any item shall not exceed
in total its sum insured
3. REMOVAL OF DEBRIS
The insurance by Items Nos 1 to 4 extends to include costs and expenses
necessarily incurred by the Insured with the consent of the Insurers in
a removing debris
b dismantling and/or demolishing
c shoring up or propping
of the portion or portions of the Property Insured destroyed or damaged by
any peril hereby insured against
The liability of the Insurers under this memo and the policy in respect of
any item shall in no case exceed the sum insured thereby
The Insurers will not pay for any costs or expenses:
i incurred in removing debris except from the site of such property
destroyed or damaged and the area immediately adjacent to such site
ii arising from pollution or contamination of property not insured by
this policy
<PAGE>
4 INDEXATION OF SUM INSURED AND DEDUCTIBLE
The sum insured by each of Item Nos 1, 2, 3, 4 and 5 of the Specification
and the amount(s) of the Deductible(s) will each be separately increased by
5% compound on each anniversary of the commencement of the period of
insurance. For the purpose of any loss settlement the sum insured as
adjusted in accordance with the foregoing provisions shall be regarded as
the sum insured at the time of the discovery of the DAMAGE
5 REINSTATEMENT (85% AVERAGE)
Subject to the following Special Conditions in the event of DAMAGE the
basis upon which the amount payable in respect of Items Nos 1 to 4 is to be
calculated shall be the reinstatement of the property destroyed or damaged
For the purpose "reinstatement" means
a the rebuilding or replacement of property destroyed which, provided
the liability of the Insurers is not increased, may be carried out
i in any manner suitable to the requirements of the Insured
ii upon another site
b the repair or restoration of property damaged
c the remedy of any defect to prevent DAMAGE
in any case to a condition equivalent to or substantially the same as but
not better or more extensive than its condition when new except as
necessary to remedy such defect
SPECIAL CONDITIONS
1 The liability of the Insurers for the repair or restoration of property
damaged in part only shall not exceed the amount which would have been
payable had such property been wholly destroyed
2 If at the time of reinstatement the sum representing 85% of the cost which
would have been incurred in reinstating the whole of the property covered
by any item subject to this memorandum exceeds its sum insured at the time
of the discovery of any DAMAGE, the liability of the Insurers shall not
exceed that proportion of the amount of the DAMAGE which the said sum
insured shall bear to the sum representing the total cost of reinstating
the whole of such property at that time
<PAGE>
3 No payment beyond the amount which would have been made payable in the
absence of this memorandum shall be made
a unless reinstatement commences and proceeds without unreasonable delay
b until the cost of reinstatement shall have been actually incurred
c if the property insured at the time of its loss destruction or damage
shall be insured by any other insurance effected by or on behalf of
the Insured which is not upon the same basis of reinstatement
4 All the terms and conditions of the policy shall apply
a in respect of any claim payable under the provisions of this memo
except in so far as they are varied hereby
b where claims are payable as if this memo had not been incorporated
6 PUBLIC AUTHORITIES
Subject to the following Special Conditions the insurance by Items Nos 1 to
4 of this policy extends to include such additional cost of reinstatement
of the destroyed or damaged property thereby insured as may be incurred
solely by reason of the necessity to comply with Building or other
Regulations under or framed in pursuance of any Act of Parliament or with
Bye-Laws of any Public Authority excluding
a the cost incurred in complying with any of the aforesaid Regulations
or Bye-Laws:
i in respect of the discovery OF DAMAGE occurring prior to the
granting of this extension
ii in respect of loss destruction or damage not insured by the
policy
iii under which notice has been served upon the Insured prior to the
discovery of the DAMAGE
iv in respect of undamaged property or undamaged portions of
property other than foundations of that portion of the property
destroyed or damaged
b the additional cost that would have been required to make good the
property lost destroyed or damaged to a condition equal to its
condition when new had the necessity to comply with any of the
aforesaid Regulations or Bye-Laws not arisen
c the amount of any charge or assessment arising out of capital
appreciation which may be payable in respect of the property or by the
owner thereof by
<PAGE>
SPECIAL CONDITIONS
1 The work of reinstatement must be commenced and carried out without
unreasonable delay after the discovery of the DAMAGE and may be carried out
upon another site (if the aforesaid Regulations or Bye-Laws so necessitate)
subject to the liability of the Insurers under this extension not being
thereby increased
2 If the liability of the Insurers under any item of the policy apart from
this extension shall be reduced by the application of any of the terms and
conditions of the policy then the liability of the Insurers under this
extension in respect of any such itern shall be reduced in like proportion
3 The total amount recoverable under any item of the policy shall not exceed
its sum insured
4 All the terms and conditions of the policy except in so far as they are
varied hereby shall apply as if they had been incorporated herein
5 Interim payments will be available following sectional completion of
reinstatement work.
<PAGE>
GLANVILLE PROJECTS
Corinthian Court, 80 Milton Park Abingdon, Oxford OX14 4RY
Telephone: 01235 821010 Fax:01235 835492
e-mail: [email protected]
Our Ref: MS/AMB/GP706
13th October 1998
Milton Park Limited
Corinthian Court
80 Milton Park
Abingdon
Oxon OX14 4RY
FOR THE ATTENTION OF HUGH RICHARDS
Dear Hugh
86 - 88 MILTON PARK, ABINGDON
As discussed, please see the proposed roller shutter door details as follows:
o Dimension of 3985 mm x 3500 mm
o Heavy Duty
o Profile HR116 double-skinned
o Smooth Aluminium Finish
o Colour RAL 7032 'Pebble' (finish both sides in a tough top grade paint)
o Electrically operated
o 3 Phase supply
o ZAK System
o Safety edge
For further detailed specification, please see the manufacture's brochure.
Delivery/installation is eight weeks from finalised details being agreed and
order being placed.
If you require any further information please do not hesitate to contact me.
Yours sincerely
/s/Mark Sperring
- ---------------------
MARK SPERRING
CONSTRUCTION MANAGER
<PAGE>
ESTATE REGULATIONS
These regulations are imposed by the Landlord and affect the whole of the
Estate
1. No open storage of materials or pallets shall be permitted on the
Premises.
2. All rubbish and waste materials shall be placed in proper receptacles in an
area designated by the Landlord and not be allowed to accumulate. No waste
materials shall be burnt within the Estate.
3. No smoke or fumes or noxious smells shall be emitted from the Premises so
as to cause in the opinion of the Landlord or its surveyors annoyance or
interference with the proper enjoyment of adjoining premises of the
Landlord or its tenants or of the premises adjoining or near the Estate.
4. The Tenant must not use industrial machinery engines and equipment so as to
cause excessive noise dust or nuisance. Any excess which in the opinion of
the Landlord's Surveyor is causing annoyance to adjoining tenants of the
Landlord or to the occupiers in the vicinity shall be abated immediately
upon notice.
5. No mechanically operated vehicles, cycles, hand trucks or trailers shall be
parked or left unattended outside areas properly reserved for such parking
or in such manner as to obstruct roadways into or on the Estate nor so as
to prevent ingress and egress of fire fighting equipment round the
curtilage of a building or buildings erected thereon and not to cause any
obstruction on any of the common parts of the Estate by parking vehicles or
leaving goods thereon.
6. The Tenant must secure all buildings comprised in the Premises by locking
all windows and doors therein for the purpose of ensuring proper security
and to reduce the risk of the spread of fire.
7. The Tenant must not load or off-load vehicles except within the curtilage
of the Premises.
8. The Tenant must not store inflammable materials, explosive substances or
liquids except in proper containers or receptacles properly labelled and
signed all in accordance with the regulations of all competent authorities
and to the satisfaction of the Landlord's insurers and in any event not
abutting any boundary fences or other adjoining property of the Landlord.
9. Any external lighting within the curtilage of the Premises is to be
maintained in good condition and fully operate during night time working
hours.
10. Traffic Regulations as shown by road signs must be observed including
parking and speed limits.
<PAGE>
11. Care and consideration must be given to pedestrians and others using Estate
roads.
12. All vehicles on the Estate are at the owner's risk and the Landlord will
not be liable for damage or theft or any other hazard.
13. The Tenant shall at all times insofar as it lies within its power take all
such steps as are necessary to ensure that all vehicles (except private
cars and light vans with a carrying capacity of less than 15 cwt.) shall
when leaving the Estate (a) by the Potash Lane entrance under all
circumstances turn Southwards away from the village of Milton and (b) by
the Harwell Lane entrance under no circumstances tum northwards towards
the village of Sutton Courtenay. Such vehicles shall at no time travel
over any part of those sections of Potash Lane and Harwell Lane which
run between the two entrances to the Estate and the villages of Milton
and Sutton Courtenay respectively likewise the Tenant shall take all
such steps as are necessary to ensure that all such vehicles when
returning to the Estate shall under no circumstances travel over any
part of the above mentioned sections of Potash Lane and Harwell Lane.
14. Animals must be kept under proper control.
15. The playing of games is prohibited on the roadways and other areas and in
the interests of safety boating, swimming and paddling in the lakes is also
prohibited
16. The Tenant is to ensure that employees familiarise themselves with the
procedure in case of fire and the use of fire telephone and fire
appliances.
17. If any fire appliance or other safety equipment provided by the Landlord is
used or found to have been damaged this fact must be reported to the
Landlord's Security Officer at the Information Building.
18. All goods brought into the Estate area at the owner's risk.
19. Personnel must confine themselves to their own employer's premises and
areas of common use on the Estate.
20. No vehicle of any description shall be driven on or over any roads on the
Estate by any person who does not at the relevant time possess a valid
licence entitling him to drive that class of vehicle on a public highway.
<PAGE>
[VERTEX LETTERHEAD]
November 2, 1998
MILTON PARK LIMITED
CORINTHIAN COURT
80 MILTON PARK
ABINGDON
OXFORDSHIRE
OX14 RY
Re: PROPOSED AGREEMENT FOR LEASE AND LEASE (THE "TRANSACTION DOCUMENTS")
BETWEEN MILTON PARK LIMITED (THE "LANDLORD"), VERTEX PHARMACEUTICALS
(EUROPE) LIMITED (THE "TENANT") AND VERTEX PHARMACEUTICALS
INCORPORATED (THE "COMPANY") FOR UNIT 88. THE FORUM MILTON PARK
ABINGDON OXFORDSHIRE (THE "PREMISES")
Dear Sirs:
The undersigned has acted as counsel to the Company in connection with its
guarantee of the obligations of Vertex Pharmaceuticals (Europe) Limited under
the Transaction Documents.
I have reviewed the Transaction Documents, the Restated Articles of
Organization of the Company and the By-Laws of the Company. I have also examined
such other documents and records and have performed such investigation as to
matters of fact and law as I have deemed necessary or appropriate for the
purpose of this opinion. With respect to certain matters of fact, I have relied
upon representations of the officers of the Company.
In my examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to me as originals, the conformity with
the original documents of all documents submitted to me as copies or facsimiles,
and the authenticity and completeness of the originals of such latter documents.
I have assumed the due authorization and execution by the Landlord and Tenant of
the Transaction Documents. I have assumed (without independent verification)
that the Landlord has full power and authority to enter into, execute and
deliver the Transaction Documents and perform its obligations thereunder and the
conditions thereof in accordance with their terms.
I am member of the bar of the Commonwealth of Massachusetts and I
express no opinion as to any matters insofar as any laws other than the laws
of the Commonwealth of Massachusetts may apply. This opinion is given subject
further to the qualification that enforcement of the Transaction Documents
may be affected by events or changes in the law of the Commonwealth of
Massachusetts occurring after the date of this opinion, and I disclaim any
obligation to advise you of any such events or changes in the law which might
affect any matters or opinions set forth herein.
<PAGE>
Milton Park Limited
November 2, 1998
Page 2
Based upon the foregoing, and subject the qualifications and exceptions
herein contained, I am of the opinion that:
1. The Company is a corporation duly organized and existing, under the laws of
the Commonwealth of Massachusetts and has the corporate power to carry on
its business as it is now being conducted and to own its property and other
assets.
2. The Company has the corporate power and legal capacity to enter into,
execute and deliver the Transaction Documents and to perform all its
obligations under the Transaction Documents.
3. The execution and delivery of the Transaction Documents by the Company has
been duly authorized by all necessary corporate action of the Company.
4. Execution of the Transaction Documents by Richard H. Aldrich, Senior Vice
President and Chief Business Officer of the Company, on behalf of the
Company, will constitute and operate as due execution thereof.
5. When the Transaction Documents are duly executed and delivered by the
Company, they will be legally binding and enforceable against the Company
in the Commonwealth of Massachusetts in accordance with their terms,
subject to the qualifications in paragraph 14 below. The performance by the
Company of its obligations under the Transaction Documents will not result
in the creation or imposition of any lien, charge, security or encumbrance
upon any of its assets or properties under the law of the Commonwealth of
Massachusetts.
6. The execution, delivery of the Transaction Documents by the Company and
performance of the Company's obligations thereunder will not result in any
breach of or default under any provisions of Massachusetts law or under any
decree of any Massachusetts governmental authority, agency or court or, to
my actual knowledge, under any instrument or under any deed or contract to
which the Company is a party at the date hereof or which at the date hereof
binds any of the Company's property or other assets.
7. No taxes of the Commonwealth of Massachusetts are imposed by withholding or
otherwise on any payment which may become due from the Company under the
Transaction Documents.
8. Every consent, authorization, license or approval of, or registration with
or declaration to, any governmental or public bodies or authorities or
courts required by the Company in connection with the execution, delivery,
validity, admissibility in evidence or, subject to the qualifications set
forth in paragraph 14 below,
the enforceability of the Transaction Documents or the performance by the
Company of its obligations under the Transaction Documents including
(without limitation) all payments which may become due from the Company in
accordance with the provisions of the Transaction Documents have been
obtained or made and are in full force and effect.
<PAGE>
Milton Park Limited
November 2, 1998
Page 3
9. Neither the Company, nor any of its assets, is entitled to immunity on the
grounds of sovereignty or otherwise from any legal action or proceeding.
10. It is not necessary to ensure the legality, validity, admissibility in
evidence or, subject to the qualifications set forth in paragraph 14 below,
enforceability of the Transaction Documents that it or any other instrument
be notarized, filed, recorded, registered or enrolled in any court, public
office or elsewhere in the Commonwealth of Massachusetts or that any stamp,
registration or similar tax or charge be paid in the Commonwealth of
Massachusetts on or in relation to the Transaction Documents.
11. The Company has the legal capacity to contract to be bound by the choice of
English law in the Transaction Documents and to submit irrevocably to the
jurisdiction of the English Courts under the terms of the Lease, and such a
choice of law and submission to jurisdiction and the irrevocable agreement
by the Company to accept service of process by leaving documents at the
registered office of the Tenant will be recognized as valid under the law
of the Commonwealth of Massachusetts.
12. Any final judgment against the Company for a sum of money or order for
specific performance of the Company's obligations under the Transaction
Documents issued by a court of the Commonwealth of Massachusetts will be
enforceable against the Company under the law of the Commonwealth of
Massachusetts, subject to the qualifications set forth in paragraph 14
below.
13. At the date of this letter, to my actual knowledge, without having made any
search or investigation of the records of any court, governmental agency or
other body, no litigation, arbitration or other legal proceedings have been
commenced before and no judgment or award has been given or made by any
court, tribunal or government agency involving the Company which would (if
adversely determined) be likely to have a materially adverse effect on the
Company's ability to observe and perform its obligations under the
Transaction Documents or which in any way disputes or calls into question
the power or authority of the Company to enter into and perform any such
obligations.
14. My opinions in paragraphs 5, 8, 10 and 12 with regard to the enforceability
of the Transaction Documents are subject to the qualifications that such
enforceability may be limited by (i) any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws relating
to or affecting the rights or remedies of creditors generally which may be
in effect from time to time, (ii) general principles of equity (regardless
of whether considered in a proceeding in equity or at law) (iii) duties and
standards imposed on creditors and parties to contracts, from time to time,
including, without limitation, requirements of good faith, reasonableness,
fair dealing and diligence, and (iv) and by equitable principles of
general application (regardless of whether such equitable principles are
considered in an action at law or in equity), including concepts of
materiality, and by possible limitations on certain remedial provisions
contained therein. The aforesaid opinions as to enforceability of the
Transaction Documents are also subject to the qualification that certain
provisions contained in the Transaction Documents may not be enforceable,
but (subject to the limitations set forth in the
<PAGE>
Milton Park Limited
November 2, 1998
Page 4
foregoing clauses (i) and (ii)) such unenforceability will not render the
Transaction Documents invalid as a whole or substantially interfere with
realization of the principal benefits provided thereby. Further, I express
no opinion as to the validity or enforceability of any provision in the
Transaction Documents (i) relating to the rights of the Landlord to
collect any payment which is in the nature of or could be construed to be a
penalty, (ii) that may be deemed or construed to waive any constitutional
or statutory right of the Company that may not lawfully be waived, (iii)
relating to submission by the Borrower to the jurisdiction of English
courts to the extent that a court has discretion to assume or decline such
jurisdiction, (iv) relating to the severability of any provision of the
Transaction Documents, (v) purporting to relieve parties of the
consequences of their own negligence or misconduct, or (vi) granting
indemnity to the extent that public policy considerations or court
decisions may limit the rights of Landlord to obtain indemnification.
This opinion is given solely in relation to the matters referred to herein
and for your benefit and for the benefit or your successors in title and assigns
to the Premises referred to in the Transaction Documents. It may not be quoted,
passed to or relied upon by any other person or for any other purpose.
Very truly yours,
/s/Sarah P. Cecil
-------------------
Sarah P. Cecil
Corporate Attorney
<PAGE>
Vertex Pharmaceuticals (Europe) Milton Park Limited
Ltd Corinthian Court, 80 Milton Park
5 Cheapside Court Abingdon, Oxfordshire OX14 4RY
Buckhurst Road
Ascot Berks SL5 7RF
Telephone (01235)865555
Fax (01235) 865560
www.miltonpark.co.uk
Dear Sirs
4th November 1998
UNIT 88 MILTON PARK ABINGDON OXFORDSHIRE ("THE PROPERTY")
We are writing to approve in principle your proposed works at the Property as
set out on the attached specification and drawings. Our approval is in principle
only at this stage and final approval to your works will only be given by way of
our formal Licence for Alterations. The following terms must be complied with.
1. Prior to any work commencing at the Property, detailed plans and
specification of your final proposal for your works are supplied to us and
we have given our approval, which is not to be unreasonably withheld or
delayed, to such proposals.
2. Prior to any work commencing at the Property, a formal Licence for the
carrying out of the works is entered into by you and by Vertex
Pharmaceuticals Incorporated in such form as we shall reasonably require.
3. You will not commence the carrying out of the works. until you have
received all necessary planning and other necessary consents, and that all
works shall comply with building regulations and all other appropriate
regulations or codes of practice.
4. You will give prior notice to us of the date of commencement of your works.
5. If commenced the works shall be carried out to a professional standard with
good quality materials and to our reasonable satisfaction.
6. Any variation to the proposed works shall require our prior consent which
shall not be unreasonably withheld or delayed.
7. The work and all associated contractors vehicles, plant, materials and
personnel shall not interfere with or cause nuisance to any neighbouring
property or occupier.
8. Notwithstanding the provisions and without prejudice to the Agreement for
Lease and Lease due to be entered into between us, that any damage caused
to property owned by Milton Park Limited (including hard and soft
landscaping areas) in carrying out the works shall be made good as soon as
is practicable after such damage is caused.
9. Where practicable, all contractors vehicles, plant and materials shall be
located in the car park area to the north of the Property.
<PAGE>
10. [????????] to be entered into between us.
11. That a full height (ground floor slab to underside of first floor concrete
plank) high density block wall (or similar) shall be built along the line
of the cladding panels and glazing panels in the area marked "Animal Cage
Room" on the plan attached, and adequately tied into the structure of the
Property so as to provide additional security against a break in to this
part of the Property.
Please acknowledge receipt of this letter by signing and returned the enclosed
duplicate.
Yours faithfully
/s/
- ---------------------------------
FOR AND ON BEHALF OF MILTON PARK LTD
- ---------------------------------
signed by Vertex Pharmaceuticals (Europe) Ltd in acceptance of the terms of this
letter.
<PAGE>
[CHART]
<PAGE>
[CHART]
<PAGE>
GENERAL SPACE ALLOCATION (24,000 sf )
60-70% Laboratories
20-25% Offices
10-15% Other
LABORATORY REQUIREMENTS
CHEMISTRY LABORATORY (3000 sf)
100% outside fresh air system with no recirculation
72-80 lnft of bench space with reagent shelves above and base cabinets below
Bench tops to be made of epoxy resin or chemical resistant material
3-4 stainless steel sinks in each lab
Fume cupboards to be 2 m wide at face with face velocities of 75-100 lfpm
with sufficient make-up air systems to support this operation. 24 fume
cupboards total.
40 lnft of bench space along walls or other areas for HPLC's and similar
equipment
Central (house) nitrogen line on each hood and bench
Central (house) nitrogen line on each equipment bench
Compressed air to each module, with drops at equipment benches
Central vacuum to each bench/hood
Deionized water outlet at each sink
Electrical requirements: approx 240-260 amps per lab with 2 circuits/bench,
2 circuits/fume cupboard, 8 general circuits per room
Eye-wash safety shower combination unit
CHEMICAL & SOLVENT STORAGE ROOM (500 sf)
100% exhaust
Non-flammable chemicals to be stored via compatibility class in cabinets and
shelves
Localized extraction system for stored chemicals
Flammable chemicals to be stored in flammable storage cabinet that meet local
fire codes
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT
OF 88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND
APPROVAL FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO
PROCEED WITH, GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
BIOLOGY LABORATORY (3000 sf)
Air supply 70% exhaust/30% recirculated
120 lnft bench space (epoxy) per lab with reagent shelves above and
base cabinets below
1-2 chemical fume cupboards, galvanized ductwork. Fume hood 1-2m wide
at face with face velocity of 80-90 lf pm
Central (house) nitrogen line (high pressure) on each equipment bench
Deionized water outlet in each sink
Electrical requirements: 2 circuits/bench, 1 circuit/fume cupboard,
4-208/30/30a circuits, 6-8 general circuits throughout
3-4 stainless steel sinks
Eye wash safety shower combination unit
COMMON EQUIPMENT SPACE (2000 sf)
Up to 70% recirculated air
80 lnft bench space with base cabinets and reagent shelves
Special electrical requirements based on equipment
- 208 v 20 amp circuits
- 208 v 30 amp circuits
- 110 dedicated circuits (amperage varying from 20-60)
Emergency power outlets on each bank of outlets, if available
Approximately 30-35% of space for common equipment. Number of
outlets, emergency circuits, other needs to be determined. Equipment
includes freezers, refrigerators, centrifuges, shakers,
spectrophotometers, scintillation counters, gamma counters,
lyophilizers.
COLD ROOM (150 sf)
Approximate size 12' x 12'
1 or 2 walk-in cold rooms, prefabricated unit with condensers
independent of main building system.
+4(degree)C cold room
House Nitrogen hook-up (100PSI)
10 lnft of bench space
02 level alarm
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT
OF 88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND
APPROVAL FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO
PROCEED WITH GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
ANIMAL PHARMACOLOGY LAB (3000 sf)
ANIMAL ROOM
100% exhaust with humidity controlled to 45 to 58%
Climate controlled room to be maintained between 68%--72 (degree) F,
with failure alarm
Sheet vinyl flooring with coved edges, sealed on all ends for all
associated rooms.
Diurnal light cycle timer
Separate exhaust system, with emergency power, to provide 50 lfpm for
each animal housing unit, with loss of ventilation alarm
10-12 animal cage housing units with 100 cfm exhaust per unit (1800
cfm total)
Task lighting for benches to be used during dark cycles
Two surgery rooms to be physically isolated from main room with bench
top and sink with foot-controlled system. Counter to be 10-15
lnft.
Cage wash area to have stainless counter and sink, with small cage
washing machine.
Supply storage room (150 sf)
Deionized water to be made available for washer. Outlet at sink also.
Smaller "dirty animal cage room for isolation work, size as noted on
plans.
All areas to be in compliance with Home Office requirements
PHARMACOLOGY LAB
Similar in design and specification to Biology Lab
DARKROOM (200 sf)
Sheet vinyl flooring, sealed on ends
Spiral door 36" diameter, removable
110 dedicated circuit 20 amp
Developer hard piped to drain, with back flow preventer and chemical
recovery (Hg) unit
Wall to have pass-through for film developer
Safe-light for darkroom use
Stainless steel sink 3 foot, separate drain from developer
Safebin storage for films
12 lnft bench acid resistant, w/base cabinets and reagent shelves
Paint to be non-glare and dark to avoid light reflection.
Low bench (30"D x 4'W x 29"H ) for Land Camera (Polaroid MP-4)
RADIOISOTOPE LAB (400 sf)
Dedicated 100% exhaust fume cupboard (-1m) with charcoal filter unit
(75-90 lfpm)
Dedicated electrical outlets (20 amp circuit) for fume cupboard
Refrigerator and freezer (under counter) with emergency power
Emergency power for fume cupboard
20 lnft bench with stainless steel top
Three (3) foot stainless steel sink, w/deionized water
110 v 20 amp dedicated outlets
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT
OF 88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND APPROVAL
FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO PROCEED WITH
GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
SPECIALIZED INSTRUMENT ROOMS
NMR Suite
NMR Room/Suite specifications to be determined pending choice of
equipment and requirements for magnetic field.
PROTEIN NMR 400
Space requirements (25' x2O')
2-110 V dedicated outlet
208V/30/20 amp circuit
Nitrogen (high pressure 50-90 psi)
Vibration platform
12 foot ceiling clearance
COMPUTER MODELING
Standard office space, approx 500 sf, for graphics computers. Final
specifications TBD pending choice of equipment
CRYSTALLOGRAPHY LAB
Space requirements (500 sf)
Generator 208 V, 30 amp single phase
Rotating Anode 208 V, 50 amp three phase & 115 V, 15A, single phase
Cold water (40 psi)
Auxiliary space for chiller and pumps.
Reinforced floor 100-150 lbs/sf
Task lighting over each generator
Helium line (1/2" line)
House nitrogen line
Liquid nitrogen insulated lines from central bulk tank
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT
OF 88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND APPROVAL
FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO PROCEED WITH
GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
CENTRAL STORAGE AND SATELLITE STORAGE
CENTRAL STOCKROOM/STORAGE AREA
All general lab supplies and other small laboratory items
HAZARDOUS WASTE ROOM
Specifications and final contents to be determined
RADIOACTIVE WASTE STORAGE ROOM
Specifications to be determined per review of guidelines
CENTRAL GAS CYLINDERS STORAGE AREA
Gas cylinder racks
Centralized C02 gas manifold
BULK NITROGEN STORAGE AREA
400-600 gallon liquid nitrogen storage tank located in enclosed area
outside loading dock
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT
OF 88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND APPROVAL
FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO PROCEED WITH
GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
CENTRAL FACILITIES
MECHANICAL ROOM / PLANT SPACE
House vacuum delivered to all laboratories 22 to 28 in/Hg capacity, TBD
Deionized water system with regeneration tanks, etc. Capacity TBD
Outlets at all laboratory sinks, glasswash sinks, glass
washers, equipment room sinks, isotope room, darkroom, and
specialty equipment rooms where needed.
Central fire system
Electrical requirements (estimated) (19-28
watts/sf)
2-3 watts/sf in labs
1-2 watts/sf in offices
10-15 watts/sf for lab and lab support power. Could be higher
based on specialized equipment rooms requirements.
6-8 watts/sf for HVAC
Connected Load vs. Demand Load to be determined
Primary electrical supply upwards of 750-1000 kVA
Chillers for building air conditioning (size TBD)
Cooling towers as required
Distribution system for helium to crystallography and to analytical
laboratories
Distribution system for C02 to tissue culture/immunology laboratories
Connection to existing Bulk nitrogen tank for central nitrogen
distribution system to all laboratories.
Stand-by generator to be sized appropriately (possibly located near
new substation)
UPS for NMR and computer equipment, sized for 100 amps for 5 minutes
Air compressor size TBD
Hot water boilers
Hot water system, size TBD
Central building security system
Central telecommunications distribution room
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT
OF 88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND APPROVAL
FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO PROCEED WITH
GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
ADMINISTRATIVE OFFICES
Offices for administrative functions in Research and Business
Development
Administration support area to be open cubicle arrangement
File Storage Room
Copier Room
Telecommunications Room
Mail Room
Conference Rooms as space allows, throughout laboratory and offices
spaces
LABORATORY OFFICES AND WORK SPACES
R & D WORK SPACE
Staff Scientist space as offices where it can be accommodated
Multi-discipline partition area for remaining staff
General interaction areas throughout as allowed
GENERAL SPACE
LECTURE HALL (FIRST FLOOR OF OFFICE SPACE)
Capable of accommodating 50-80 people
Projection room as required
Room darkening system to eliminate window light as determined
LUNCH ROOM
Space with small kitchen for 20-30 people
No food service option, but small food prep area for employees
RECEPTION
Main entrance for employees and frequent visitors on ground floor
Reception located on first floor adjacent to core area
Main security entrance
EMPLOYEE ENTRANCE
Back of building near rear core
Card access or other secured access system
THESE REQUIREMENT DESCRIPTIONS AND SPECIFICATIONS ARE PRELIMINARY AND NOT ALL
INCLUSIVE OF THE FINAL DESIGN SPECIFICATIONS TO BE INCLUDED IN VERTEX FIT-OUT OF
88 MILTON PARK. THIS DOCUMENT IS INTENDED FOR CONCEPTUAL REVIEW AND APPROVAL
FROM MILTON PARK LIMITED IN ORDER FOR VERTEX TO OBTAIN APPROVAL TO PROCEED WITH
GENERAL FIT-OUT PLAN OF 88 MILTON PARK.
<PAGE>
VALE OF WHITE HORSE
Planning & Engineering Department
BUILDING REGULATIONS
BUILDING ACT 1984 Building Regulation Number: 98/0010 l/OTHN1
NOTICE OF PASSING OF BUILDING PLANS
APPLICANT: MILTON PARK LTD
C/O GLANVILLE AND ASSOCIATES
CORINTHIAN COURT
80 MILTON PARK
ABINGDON OX14 4RY
PROPOSAL: ERECTION OF THREE NEW UNITS 86,87 AND 88
LOCATION: SITE OF
88 MILTON PARK
MILTON
ABINGDON
OXON
OX14 4RY
Plans were deposited with this Local Authority on the 24.03.1998 as in
accordance with the Building Regulation 1991 Regulation 11 (1) (b) under plan
reference number.
Notice is hereby given pursuant to the Building I Act 1984 Section 16 that the
said plans were passed on
Date: 11.09.1998 /s/
------------------------------------
Chief Planning & Engineering Officer
If the proposed work is not commenced within 3 years of the deposit of the
plans, the council may give notice that the said plans shall no longer have
effect, in accordance with the Building Act 1984 Section 32.
Notice is required of commencement and other appropriate stages of work.
This Notice is valid only for the purposes of the Building Regulations 1991
and does not constitute an approval for any other Statutory requirement
whatsoever.
Proposed work within the meaning of Town and Country Planning Acts for which
express planning permission is necessary, may not proceed until such permission
is obtained
<PAGE>
NOTICE OF COMMENCE AND COMPLETION OF CERTAIN STAGES OF WORK
14.(1) A person who proposes to carry out building work shall not commence
that work unless. (a) he has given the local authority notice that he
intends to commence work; and (b) at least two days have elapsed since
the end of the day on which he gave the notice.
(2) A person carrying out building work shall not.
(a) cover up any excavation for a foundation, any damp-proof course or any
concrete or other material laid over a site; or
(b) cover up in any way drain or sewer to which these regulations apply,
unless he has given the local authority notice that he intends to
commence that work, and at least one day has elapsed since the end of
the day on which he gave the notice.
(3) A person who has laid, haunched or covered any drain or sewer in
respect of which part H of the schedule 1 (drainage and waste disposal)
imposes a requirement shall give notice to that effect to the local
authority not more than five days after the completion of the work.
(4) A person carrying out building work shall, not more than five days
after that work has been completed, give the local authority, notice to
that effect.
(5) Where a building is being erected, and that building (or any part of
it) is to be occupied before completion, the person carrying out that
work shall give the local authority at least five days notice before
the building or any part of it is occupied.
(6) Where a person fails to comply with paragraphs (1) to (3), he shall
comply within a reasonable time with any notice given by local
authority requiring him to cut into, lay open or pull down so much of
the work as prevents them from ascertaining whether these regulations
have been complied with.
(7) If the local authority have given notice specifying the manner in which
any work contravenes the requirements in these Regulations, a person
who has carried out any further work to secure compliance with these
regulations shall within a reasonable time after completion of such
further work give notice to the local authority of its completion.
(8) In this regulation "day" means any period of 24 hours commencing at
midnight and excludes any Saturday, Sunday, Bank holiday or public
holiday.
<PAGE>
VALE OF WHITE HORSE
PLANNING & ENGINEERING DEPARTMENT
TOWN AND COUNTRY PLANNING ACT 1990
NOTICE OF PERMISSION
To: Lansdown Estates Group Ltd
c/o Granville Projects
80 Milton Park
Abingdon Oxon OX14 4RY
Application No: MIL/59/122
Proposal: Demolition of 88 Milton Park, and erection of proposed
B1/or B8 development.
Address: 88 Milton Park
Milton
Abingdon
Oxon
OX14 4RY
DATE OF DECISION: 14th April 1997
The Vale of White Horse District Council, in pursuance of powers under the
Above Act, hereby PERMIT the above development to be carried out in accordance
with the application and accompanying plans submitted by you, subject to
compliance with the conditions specified hereunder.
1. THE DEVELOPMENT TO WHICH THIS PERMISSION RELATES SHALL BE
BEGUN WITHIN A PERIOD OF FIVE YEARS FROM THE DATE OF THIS
PERMISSION.
2. THE DEVELOPMENT SHALL BE LANDSCAPED IN ACCORDANCE WITH A
SCHEME WHICH SHALL BE SUBMITTED TO AND APPROVED IN WRITING BY
THE DISTRICT PLANNING AUTHORITY BEFORE THE DEVELOPMENT
COMMENCES AND SHALL ENSURE:
a) THE RETENTION OF SELECTED EXISTING TREES AND SHRUBS ON
THE SITE;
b) THE PROTECTION OF THE SELECTED EXISTING TREES AND
SHRUBS ON THE SITE DURING THE DEVELOPMENT OF THE
SITE;
c) THE CARRYING OUT OF ANY EARTH MOVING OPERATIONS
CONCURRENTLY WITH THE CARRYING OUT OF THE BUILDING
AND OTHER WORKS;
d) COMPLETION OF THE SCHEME DURING THE PLANTING
SEASON NEXT FOLLOWING THE COMPLETION OF THE
BUILDING(S), OR SUCH OTHER DATE AS MAY BE
AGREED IN WRITING WITH THE DISTRICT PLANNING
AUTHORITY;
[GRAPHIC OMITTED]
<PAGE>
E) THE MAINTENANCE OF THE LANDSCAPED AREAS FOR
A PERIOD OF FIVE YEARS OR UNTIL ESTABLISHED,
WHICHEVER MAY BE LONGER. ANY TREES OR SHRUBS
REMOVED, OR WHICH IN THE OPINION OF THE
DISTRICT PLANNING AUTHORITY, ARE DYING,
BEING SEVERELY DAMAGED OR BECOMING
SERIOUSLY DISEASED WITHIN FIVE YEARS OF
PLANTING, SHALL BE REPLACED BY TREES OR
SHRUBS OF SIMILAR SIZE AND SPECIES TO THOSE
ORIGINALLY REQUIRED TO BE PLANTED.
3. PRIOR TO THE FIRST USE OF ANY BUILDING, THE CAR PARKING AREA
SHOWN ON THE APPROVED PLAN REFERENCE (406/002E) SHALL BE
CONSTRUCTED, DRAINED, LAID AND MARKED OUT IN ACCORDANCE WITH
THE SPECIFICATION OF OXFORDSHIRE COUNTY COUNCIL FOR SUCH
WORKS. THEREAFTER THE AREA SHALL BE KEPT PERMANENTLY FREE
OF ANY OBSTRUCTION TO SUCH USE.
The reasons for the Council's decision to grant permission for
the development subject to compliance with the conditions
hereinbefore specified are:
1. TO COMPLY WITH THE REQUIREMENTS OF SECTION 91 OF THE TOWN &
COUNTRY PLANNING ACT, 1990.
2. TO ENSURE THE IMPLEMENTS OF A SATISFACTORY SCHEME OF
LANDSCAPING WHICH WILL IN DUE COURSE IMPROVE THE ENVIRONMENTAL
QUALITY OF THE DEVELOPMENT AND SOFTEN ITS IMPACT ON THE AREA.
3. IN THE INTEREST OF HIGHWAY SAFETY
/S/
------------------------------------------
Chief Planning and Engineering officer
<PAGE>
[GRAPHIC OMMITTED]
<PAGE>
MILTON PARK SUMMARY OF INSURANCE
GUARDIAN POLICY 5OU009645
PERIOD 1.10.98 TO 30.9.99
GENERAL NOTE
The policy operates following insured damage to "buildings" where
responsibility for repair/reinstatement rests solely with Milton Park Limited
INSURED
Milton Park Limited
PROPERTY INSURED
BUILDINGS, INCLUDING:
-Landlords Fixtures and Fittings
-Small outside buildings extensions annexes gangways loading bays
service area yards car parks roads pavements walls gates fences street
furniture and landscaping
-Professional Fees
-Debris removal costs
-Services - mains, cabling drains etc, and accessories, extending to the
perimeter of the premises or to the public mains
-Metered water
LOSS RENT - 3 YEARS, INCLUDING:
-Rent Receivable
-Monies payable for accommodation and services
-Automatic cover for rent increases during insurance year
<PAGE>
INSURED DAMAGE
Fire
Lightning
Explosion
Aircraft
Riot & Civil Commotion
Malicious Damage
Earthquake or Subterranean Fire
Storm, Tempest or Flood, EXCLUDING
damage by frost
damage to fences, gates and moveable property in the open
Burst Pipes
Impact
Sprinkler Installation Leakage
Theft (other than normally insurable under tenants policies)
Subsidence, landslip or heave, EXCLUDING
normal settlement or bedding down of new structures
settlement or movement of made-up ground
coastal or river erosion
damage occurring, whilst the property is in course of erection
or undergoing demolition,structural alteration or repair
damage attributable solely to change in water table level
Accidental Damage, EXCLUDING
breakage of plate glass in shop fronts
faulty or defective design materials
inherent vice or latent defect
gradual deterioration or wear and tear
faulty or defective workmanship
corrosion, rust wet rot, dry rot, vermin, diseases, marring
or scratching joint leakage or failure of welds
cracking, fracturing collapse or overheating of boilers
economisers and similar plant
mechanical or electrical breakdown or derangement
pollution or contamination
disappearance or unexplained loss
collapse or cracking
<PAGE>
Terrorism
Limited cover (pound)100,000 available under Sun Alliance
policy.
Full cover placed with Pool Reinsurance Co. Limited at an
additional premium
POLICY EXCESS (Buildings cover only)
<TABLE>
<S> <C> <C>
1. Malicious Damage, Storm, Tempest, Flood, Burst Pipes,
Accidental Damage (pound)100
2. Vacant Properties - Damage as in 2 and Theft (pound)250
3. Impact by vehicles owned by or under control
of insured (pound)100
4. All other Damage NIL
</TABLE>
<PAGE>
MAIN POLICY CLAUSES
Average - requirement to insure for full value
Reinstatement - basis of cover is cost of reinstating
damage
Day One Basis - reinstatement cost of buildings assessed at
each annual renewal of policy ("Declared
Value")--policy sum insured extends to 150%
of Declared Value to cover inflation
Non-Invalidation - policy cover not prejudiced by increase in
risk occurring without authority or
knowledge of Insured (i.e. tenants actions)
Other Interests - automatically noted (where required)
Public Authorities - additional cost of reinstatement included to
comply with building regulations
Workmen - policy not prejudiced by routine works
being carried out to buildings
Unoccupancy - Insurer requires notice of a building being
unoccupied for more than three months
(satisfied by quarterly declaration to
insurer)
Subrogation Waiver - Insurer agrees to waive these rights
against legitimate occupier
Extinguishment Expenses - costs legitimately incurred in fire
fighting (e.g. recharging fire
extinguishers)
Theft of Keys - expenses incurred to replace locks etc.
Prevention Of Access
(Rent Cover) - Interruption of use following Damage at
nearby property
General Exclusions - Nuclear risk, Sonic Bank, War
<PAGE>
MILTON PARK,LIMITED
INSURANCE 1.10.98 TO 30.9.99
<TABLE>
<S> <C> <C> <C>
TENANT Vertex Pharmaceuticals (Europe) Limited
PROPERTY MILTON PARK - UNIT 88
INSURER Guardian Insurance Ltd.
POLICY NO. 917F632007
SCOPE OF COVER Commercial "All Risks"
(Physical Loss or Damage)
POLICY EXCESSES Fire, Aircraft, Explosion, Earthquake,
Riot & Civil Commotion, Impact and Terrorism Nil Excess
Subsidence, Landslip or Heave (pound)1,000 Excess
All Other Losses (e.g. Malicious Damage,
Storm, Flood and Burst Pipes) (pound)100 Excess
RENEWAL DATE 30th September 1999
INSURED VALUE Building - (pound)TBA
Loss Rent -(pound)300,000 p.a. (Period Covered - 3 years)
</TABLE>
The building value represents the cost of rebuilding as at 1st October 1997 and
is inclusive of professional fees and site clearance costs. The policy cover is
placed with the benefit of the Day One Basis inflation protection scheme
providing for increased building costs that may be encountered during a period
of reinstatement.
<TABLE>
<S> <C> <C> <C>
PREMIUM RATE Inclusive of (pound) TBA Terrorism deposit
</TABLE>
Insurance Premium Tax at the current rate is included
PREMIUM (pound) TBA
NB: In the event of an incident occurring which may give rise to a claim under
these insurance arrangements it is imperative that immediate notification be
made by telephone to the Estate Office on 01235 865555. Full written details of
the incident together with repair estimates should follow as soon as
practicable thereafter.
<PAGE>
Arlington Business Park Tel+44 (0) 1734 642000
Theale Fax+44 (0) 1734 642287
Reading, RG7 4SD DX 4053 Reading 1
United Kingdom
The Directors
Lansdown Estates Group Limited
Corinthian Court
80 Milton Park
Abingdon
OXON
OX 14 4RY
15 November 1996
Dear Sirs
ACCOUNTANTS REPORT TO LANSDOWN ESTATES GROUP LIMITED (THE COMPANY) ON THE
STATEMENT OF SERVICE CHARGES FOR MILTON PARK, ABINGDON
In accordance with the terms of engagement with the company in respect of the
above named property, we have examined the attached Statement of Service
Charges prepared by the company for the year ended 30 September 1996. In our
opinion, the Statement is in agreement with the books and records in respect of
the above named property maintained by the company.
Yours faithfully
KPMG
CHARTERED ACCOUNTANTS
<PAGE>
LANSDOWN ESTATES GROUP LTD
EXPENDITURE RELATING TO TENANTS' SERVICES
FOR THE YEAR ENDED 30 SEPTEMBER 1996
<TABLE>
<CAPTION>
Financed from Monies Financed from the Total Expenditures
collected in the year the Sinking Fund
(pound) (pound) (pound)
<S> <C> <C> <C>
Estate Road 197,382 22,573 219,955
Drainage 139,776 39,465 179,241
Electrical 83,840 7,160 91,000
Landscaping 105,815 24,489 130,304
Telecom - Ducting 2,965 2,965
Security 50,770 47,737 98,507
Estate Staff 94,727 94,727
Estate Premises - Rent and Rates 10,949 10,949
Estate Premises - Office Costs 18,589 18,589
Estate Vehicles and Equipment - Running Costs 1,143 1,143
Estate Vehicles and Equipment - Depreciation 11,033 11,033
Insurance 16,896 16,896
-------- ------- ------
733,885 141,424 875,309
Management Fee 73,388 73,388
--------- -------- -------
807,273 141,424 948,697
--------- --------- -------
--------- --------- -------
</TABLE>
Accounting Policy
The above record of expenditure is derived from the accounting records of the
company and the expenditure is allocated in accordance with the accruals
concept as required by standard accounting practice.
<PAGE>
LANDSDOWN ESTATES GROUP LIMITED
EXPENDITURE RELATING TO TENANTS' SERVICES
FOR THE YEAR ENDED 30 SEPTEMBER 1995
<TABLE>
<S> <C> <C>
(pound)
(1) Estate Road 190,438
(2) Drainage 166,466
(3) Electrical 82,969
(4) Landscaping 136,912
(5) Telecom-Ducting 2,965
(6) Security 85,396
(7) Estate Staff 99,449
(8) Estate Premises - Rent and Rates 11,691
(9) Estate Premises - Office Costs 33,516
(10) Estate Vehicles and Equipment - Running Cost 1,826
(11) Estate Vehicles and Equipment - Depreciation 12,123
(12) INSURANCE 25,328
-------
849,079
MANAGEMENT FEE 84,907
TOTAL 933,986
</TABLE>
ACCOUNTING POLICY
The above record of expenditure is derived from the accounting records of the
company and the expenditure is allocated in accordance with the accruals concept
as required by standard accounting practice.
<PAGE>
Arlington Business Park Tel+44 (0) 118 964 2000
Theale Fax+44 (0) 118 964 2222
Reading, RG7 4SO DX 4053 Reading 1
United Kingdom
The Directors
Lansdown Estates Group Limited
Corinthian Court
80 Milton Park
Abingdon
Oxon OX14 4RY
21 November 1997
Dear Sirs
ACCOUNTANTS REPORT TO LANSDOWN ESTATES GROUP LIMITED (THE COMPANY) ON THE
STATEMENT OF SERVICE CHARGES FOR MILTON PARK, ABINGDON
In accordance with our terms of engagement with the company in respect of the
above named property, we have examined the attached Statement of Service
Charges prepared by the company for the year ended 30 September 1997. In our
opinion, the Statement is in agreement with the books and records in respect of
the above named property maintained by the company.
Yours faithfully
KPMG
<PAGE>
LANSDOWN ESTATES GROUP LTD
EXPENDITURE RELATING TO TENANTS' SERVICES
FOR THE YEAR ENDED 30 SEPTEMBER 1997
<TABLE>
<CAPTION>
Financed from the Monies Financed from the Total Expenditure
collected in the year Sinking Fund
pound) (pound) (pound)
<S> <C> <C> <C>
Estate Road 187.774 44.828 232.602
Drainage 148.225 9.125 157.350
Electrical 83.272 83,272
Landscaping 114.891 28.984 143.875
Telecom - Ducting 2.964 2,964
Security 55.809 18.327 74.136
Estate Staff 83.652 83.652
Estate Premises - Rent and Rates 9.960 9.960
Estate Premises - Office Costs 17.137 17.137
Estate Vehicles and
Equipment - Running Costs 1.809 1.809
Estate Vehicles and Equipment
- Depreciation 5.586 5.586
Insurance 7.738 7.738
--------- --------- -------
718.817 101.264 820,081
Management Fee 71.881 71.881
--------- --------- -------
790.698 1 101.264 891.962
--------- --------- -------
--------- --------- -------
</TABLE>
ACCOUNTING POLICY
The above record of expenditure is derived from the accounting records of the
company and the expenditures allocated in accordance with the accruals concept
as required by standard accounting practice.
<PAGE>
Exhibit 3
DATED 1998
MILTON PARK LIMITED (1)
and
VERTEX PHARMACEUTICALS (EUROPE) LIMITED (2)
and
VERTEX PHARMACEUTICALS INCORPORATED (3)
LEASE
of
88 Milton Park Abingdon
Oxfordshire
<PAGE>
THIS LEASE is made on the Lease Date BETWEEN (1) the Landlord (2) the Tenant and
(3) the Guarantor
PARTICULARS DEFINITIONS AND INTERPRETATION
PARTICULARS
A. "Lease Date" is 1998
B. "Landlord" is MILTON PARK LIMITED whose registered office is at Nations
House 103 Wiginore Street London W1H 9AB (Company Registration Number
1772924)
C. "Tenant"is VERTEX PHARMACEUTICALS (EUROPE) LIMITED whose registered
office is at 5 Cheapside Court Buckhurst Road Ascot Berkshire SL5 1RF
(Company Registration Number 2907620)
D. "Guarantor" is VERTEX PHARMACEUTICALS INCORPORATED of 130 Waverly
Street Cambridge Massachussets, USA
E. "Premises" are more particularly described in Part 1 of the schedule to
this Lease and shortly known as 88 Milton Park Abingdon Oxfordshire
F. "Centre" means that part of the Estate to be known as the Forum
comprising buildings 86/88 Milton Park shown edged green on Plan 1
G. "Estate" is the Landlord's estate of which the Premises form part known
as Milton Park Abingdon Oxfordshire shown verged red on Plan 2 together
with such additional land or excluding such land of lesser area (but
including the Premises and the land over which it enjoys rights granted
by this Lease) as the Landlord may from time to time specify and
together with all buildings fixtures or structures whatsoever from time
to time thereon
H "Rent Commencement Date" is 1998
I. "Term Date" is the usual quarter day next before the Lease Date
J. "Term " is 15 years calculated from the Term Date
K. "Principal Rent" for the period commencing on the Rent Commencement
Date and ending immediately before the first Review Date is Three
hundred thousand pounds ((pound)300,000.00) per annum and for the
period commencing on the first Review Date and thereafter until the
next following Review Date is the Review Rent per annum fixed in
accordance with clause 6
L. "Permitted Use" is use within Class B1 or Class B8 of the Schedule to
the Town and Country Planning (Use, Classes) Order 1987
M. "Estate Service Rent" is the fair and proper proportion applicable to
the Premises from time to time of the Estate Service Expenditure for
any relevant Service Period
1
<PAGE>
N. "'Centre Service Rent" is the fair and proper proportion applicable to
the Premises from time to time of the Centre Services Expenditure for
any relevant Service Period
0. "Provisional Sum" in relation to each Service Period means an amount
calculated by the Landlord's managing agents acting as experts and not
arbitrators as their reasonable and proper estimate of the likely
Estate Service Rent and Centre Service Rent for the relevant Service
Period
P. "Regulations" are the regulations made by the Landlord in its
reasonable and proper discretion applicable to the Estate a copy of
which in their form current at the date of this Lease has been given to
the Tenant
Q. "Reversionary Obligations" are the covenants declarations and other
matters affecting the Premises contained or referred to in the
Landlord's freehold reversionary title number BK 102078 as at 20th
August 1998
R. "Agreement for Lease" means the Agreement dated 1998 between
the Landlord (1) the Tenant (2) and the Guarantor (3) pursuant to
which this Lease is granted
S "Defects Period" means the period of the term terminating on
DEFINITIONS AND INTERPRETATION
1. The following expressions and those contained in the particulars have
the meanings specified
(a) "Adjoining Premises" means any land or buildings adjoining or
near to the Premises and comprised in the Estate
(b) "Conduits" means pipes sewers drains mains ducts and all other
conducting media and ancillary equipment
(c) "Centre Services" means the provision and carrying out by or
on behalf of the Landlord of the services set out in Section A
of Part IV of the Schedule hereto
(d) "Centre Services Expenditure" means all expenditure reasonably
incurred by the Landlord or which the Landlord anticipates is
likely reasonably to be incurred in providing all or any of
the Centre Services and the matters specified in Section B of
Part IV of the Schedule including the reasonable and proper
cost of employing managing agents (whether or not the
Landlord's or employers) and caretakers in relation to the
Centre but excluding any expenditure on any part of the Centre
for which any other tenant shall be responsible and exclusing
also any costs of recovering outstanding sums from any tenant
(e) "Enactment" means any Act of Parliament and all subordinate
legislation made under such Acts
(f) "Estate Services" means the provision and carrying out by or
on behalf of the Landlord of the Services set out in Section A
of Part V of the Schedule hereto
2
<PAGE>
(g) "Estate Service Expenditure" means all expepditure reasonably
incurred by the Landlord or which the Landlord anticipates is
likely reasonably to be incurred in providing all or any of
the Estate Services and the matters specified in Section B of
Part V of the Schedule including the reasonable and proper
cost of employing managing agents (whether or not the
Landlord's own employees) and caretakers in relation to the
Estate but excluding any expenditure on any part of the Estate
for which any other tenant shall be responsible and excluding
also any costs of recovering outstanding sums from any tenant
(h) "Ineligible Use for Value Added Tax Purposes" means a use by
the Tenant of the Premises which has the effect that a supply
of the Premises by the Landlord to the Tenant is not a taxable
supply notwithstanding that the Landlord may have made an
election to waive the exemption from Value Added Tax pursuant
to Schedule 10 to the Value Added Tax Act 1994
(i) "Value Added Tax" means Value Added Tax or any similar tax
chargeable instead of or in addition thereto as provided by
statute
(j) "Insurers" means the insurance office or underwriters with
whom the Premises are insured
(k) "Insured Risks" means:
(i) loss damage or destruction whether total or partial
caused by fire lightning explosion aircraft and
articles dropped therefrom storm flood burst pipes
impact riot civil commotion malicious damage and
other perils against which the Landlord from time to
time reasonably thinks fit to insure except for such
exclusions and limitations as may be imposed by the
Insurers
(ii) property owners liability; and
(iii) loss of three years Principal Rent Estate Service
Rent and Service Centre Rent
(l) "Insurance Rent" means in respect of any period for which the
same is required to be calculated an amount equal to the
aggregate of the total premium for insuring the Premises and a
fair and proper proportion of the cost of insuring the common
parts of the Centre against the Insured Risks and the
reasonable and proper cost of an annual insurance valuation of
the Premises where carried out
(m) "Interest" means interest during the period from the date on
which the relevant payment is due to the date of payment (both
before and after any judgement) calculated on a daily basis at
the rate of four per centurn (4%) per annurn above the base
rate for the time being of Barclays Bank plc or of some other
UK clearing bank nominated in writing from time to time by the
Landlord
(n) "Plan 1" and "Plan 2" means the plans so numbered and annexed
to this Lease
3
<PAGE>
(o) "Public Authority" means the Secretary of State and any
government department public local or any other competent
authority oT-institution and any court of law or any of them
or any of their duly authorised officers
(p) "Review Date" means the day of and every fifth
anniversary of that date during the Term
(q) "Current Rent" means the Principal Rent payable under this
Lease immediately before the Review Date
(r) "Market Rent" means the yearly rent which might reasonably be
expected to be payable on a letting of the Premises on the
assumption that the same is fit for its intended use and is as
described in Part VI of the Schedule hereto at the Review Date
in the open market between willing parties with vacant
possession without fine or premium for the Term calculated
from the Review Date but otherwise on the terms of this Lease
(other than the actual amount of Principal Rent but including
the same rent review provisions) on the assumptions that all
covenants on the part of the Tenant in it have been complied
with that the Tenant and any hypothetical lessee and their
successors in title is and will remain registered for Value
Added Tax purposes and able fully to recover all or any Value
Added Tax which may become payable on supplies made by the
Landlord under this Lease and that any rent free or rent
concessionary period in each case given or allowed for a
tenant's fitting out period has expired and disregarding any
effect on rent of the fact that the Tenant or any undertenant
has been in occupation of the Premises or any part of them any
goodwill attached to the Premises by reason of the business
then carried on at them by the Tenant or any undertenant and
any effect on rent attributable to the existence of any
alteration or improvement to the Premises carried out during
or prior to the commencement of the Term by the Tenant or any
undertenant or their respective predecessors in title
(otherwise than pursuant to an obligation to the Landlord or
its predecessors in title excepting any such as may be
required in order to comply with any Enactment)
(s) "Review Rent" means the higher of the Current Rent and 74 per
cent of the Market Rent
(t) "Surveyor" means an independent chartered surveyor having not
less than ten years practice in the United Kingdom next before
the date of his appointment and recent substantial experience
in the sale letting and valuation of premises of similar
character and quality to those of the Premises and who is a
partner or director of a leading firm or company of chartere d
surveyors having specialist market and valuation knowledge of
such premises
(2) Singular words include the plural and vice versa and the
masculine gender includes the neuter gender and vice versa and
each includes the feminine gender
(3) The expressions "Landlord" "Tenant" and "the Guarantor"
wherever the context so admits include their respective
successors in title and where two or more persons comprise the
"Tenant" or "the Guarantor" such persons covenant with the
Landlord jointly and severally
4
<PAGE>
(4) The Landlord and/or the Tenant by covenanting not to do or omit any act
or thing also covenants not to permit or suffer it to be done or
omitted
(5) References in this Lease to:
(a) any consent licence or approval of the Landlord or words to
similar effect mean a consent licence or other approval in
writing signed by or on behalf of the Landlord
(b) the Premises (except in clause 3(10)) shall be construed as
extending to any part of the Premises
(c) a specific Enactment includes every statutory modification
consolidation and re-enactment and statutory extension of it
for the time being in force (except any reference to the Town
and Country Planning (Use Classes)Order 1987)
(d) any rent (whether or not defined in the Particulars or in
clause 1(1)) and other amounts which may be or become payable
to the Landlord under this Lease are exclusive of all Value
Added Tax which may be or become chargeable on the relevant
supply by the Landlord
(6) This Lease shall be governed by and construed in all respects in
accordance with the law of England and the Tenant and the Guarantor
submit to the non-exclusive jurisdiction of the English Courts and
agree that any process may be served on them by leaving a copy of the
relevant documents at the registered office of the Tenant
DEMISE AND RENTS
2. The Landlord with full title guarantee DEMISES the Premises to the
Tenant for the Term TOGETHER WITH the rights set out in Part III of the
Schedule and EXCEPT and RESERVED as provided in Part II of the Schedule
YIELDING and PAYING:
(1) FIRST yearly and proportionately for any part of a year the
Principal Rent payable by equal quarterly payments in advance
on the usual quarter days in each year without deduction the
first payment or a proportionate part for the period
commencing on the Rent Commencement Date (calculated on an
annual basis) to be made on the that date
(2) SECONDLY with effect from the day of as additional
yearly rent the Estate Service Rent (including the Provisional
Sum on account)payable in accordance with clause 7
(3) THIRDLY with effect from the day of as additional
yearly rent the Centre Service Rent (including the Provisional
Sum on account)payable in accordance with clause 7
(4) FOURTHLY as additional rent Interest payable on demand on any
sum of whatsoever nature due from the Tenant to the Landlord
(whether as rent or
5
<PAGE>
otherwise) which shall not be received by the Landlord within
fourteen days after the sum is due
(5) FIFTHLY with effect from the day of as additional
yearly rent the Insurance Rent payable without deduction
within 21 days of demand
(6) SIXTHLY any Value Added Tax from time to time payable by the
Tenant under this Lease
TENANT'S COVENANTS
3. The Tenant covenants with the Landlord throughout the Term:
PAYMENT OF RENTS
(1) (a) To pay the rents reserved by this Lease on the days and in the
manner set out in clause 2
(b) To pay in addition to the rents and other amounts which may be
or become payable by the Tenant to the Landlord under this
Lease all Value Added Tax which may be or become chargeable on
the relevant supply by the Landlord to the Tenant (subject to
receipt of an appropriate Value Added Tax invoice)
PAYMENT OF OUTGOINGS
(2) To pay all existing and future rates taxes duties charges and other
outgoings whatsoever whether recurring non-recurring usual or novel
which are now or at any time during the Term shall be payable by the
owner landlord tenant or occupier in respect of the Premises excluding
all sums payable by the Landlord in respect of the grant of this Lease
or of any dealing with the reversion to this Lease or of the Landlord's
receipt of income
PAYMENT OF COST OF NOTICES CONSENTS ETC
(3) To pay all costs charges and expenses (including counsel's solicitors'
and surveyors' fees)incurred by the Landlord in and incidental to:
(a) the preparation and service of a notice under Section 146 Law
of Property Act 1925 or in or in reasonable contemplation of
any proceedings under Section 146 or 147 of that Act
notwithstanding that forfeiture is avoided otherwise than by
relief granted by the court and
(b) every step taken during or within 6 months after the
expiration of the Term and in reasonable contemplation of or
in connection with or with the actual service of all notices
and schedules of dilapidations relating to the Tenant's
obligations and
(c) to the extent that such costs charges and expenses are
reasonable and proper every application for consent or licence
or approval under this Lease (save where any consent licence
or approval is unreasonably withheld or delayed)
6
<PAGE>
REPAIR DECORATION AND GENERAL CONDITION
(4) To repair and renew (where necessary in the context of repair) and keep
the Premises in good and substantial repair and condition and clean and
tidy and in good decorative order in conformity with the principles of
good estate management (damage by any Insured Risk excepted save to the
extent that the payment of the insurance money has been refused by
reason of any act or default of the Tenant or of any undertenant or of
any licensee of the Tenant or any undertenant or of any person at the
Premises with the consent of the Tenant or any undertenant) Provided
that the obligations of the Tenant as to the repair of the Premises
shall not extend to any matter for which the Landlord is responsible
under Clause 4(4)
STRUCTURAL AND OTHER ALTERATIONS AND SIGNS
(5) (a) Not to erect any new buildings or structures on the Premises
(b) Not to make any alteration or addition to the Premises or any
part thereof except with the Landlord's prior written consent
(which will not be unreasonably withheld or delayed) and (if
the consent is given) to carry the work out in a good and
workmanlike manner to the reasonable satisfaction of the
Landlord and in accordance with the reasonable requirements of
the Landlord Provided that the Tenant may install alter or
remove internal demountable partitioning and carry out any
other internal non-structural works without requiring the
consent of the Landlord provided details of such internal
non-structural works are provided to the Landlord within 3
months of carrying out the same
(c) Not to attach or exhibit in or on the Premises (including the
windows) any sign or other material which is visible from the
outside nor to erect its corporate sign on the -signboard
provided by the Landlord without the Landlord's consent (such
consent not to be unreasonably withheld or delayed)
(d) At the expiration of the Term (unless either the Landlord
shall have notified the Tenant to the contrary not less than
three months before the expiration of the Term or the Landlord
and the Tenant shall have otherwise agreed) to reinstate all
alterations carried out by the Tenant and any undertenant or
other occupier during the Term and to make good the Premises
to the reasonable satisfaction of the Landlord
COMPLIANCE WITH ENACTMENTS
(6) (a) To comply with all Enactments and with the requirements of
every Public Authority in respect of the Premises and their
use and any permitted work being carried out to them and not
to do or omit anything by which the Landlord may become liable
to make any payment to do anything under any Enactment or
requirement of a Public Authority
(b) Forthwith on receipt of any communication or proposal from any
Public Authority relating to the Premises to send the Landlord
a copy of it
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LANDLORD'S RIGHT TO ENTER FOR VARIOUS PURPOSES
(7) To permit the Landlord and all others properly authorised by it at
reasonable times on reasonable prior notice (except in an emergency) to
enter and remain on the Premises with or without equipment for all
reasonable and proper purposes authorised by and in conformity with the
provisions of the Lease and to allow the Landlord to affix (but not so
as to interfere materially with the Tenant's use and enjoyment of the
Premises) relevant notices to the Premises relating to the letting of
the Premises at the expiry of the Term and the sale of the Landlord's
reversionary interest in the Premises
COMPLIANCE WITH NOTICES RELATING TO REPAIR AND CONDITION
(8) IF within two months after service of a notice from the Landlord to
remedy any breach of covenant relating to the state of repair or
condition of the Premises (or earlier in the case of emergency) the
Tenant shall not have commenced and be proceeding expeditiously with
the remedial work or if in the Landlord's reasonable opinion the Tenant
is unlikely to have completed or has not completed the relevant work
within a reasonable time after service of the notice to permit the
Landlord to enter the Premises to remedy the breach and to pay the
Landlord the cost of doing so and all expenses incurred (including
solicitors costs and surveyors fees) within seven days of demand use
(9) (a) Subject to the provisions of sub-clause (b) hereof not to use
the Premises or any tenant's chattels in them
(i) for any purpose (and not to do anything in or to the
Premises) which may be or become or cause a nuisance
disturbance obstruction or damage to any person or
property
(ii) for any dangerous noxious noisy illegal or offensive
trade business or activity or for residential
purposes
(iii) (without prejudice to the preceding paragraphs of
this sub-clause) except for the Permitted Use
(b) Not to use more than 300 sq m of the Premises for the purposes
of conducting scientific experiments on live animals ("the
Experiments") provided that such use shall be subject to the
Tenant strictly complying with the following conditions:
(i) it shall before commencing the Experiments obtain all
necessary consents and shall in the course of the
Experiments comply with all relevant Enactments and
regulations
(ii) it shall not publicise or promote (whether orally or
in writing) the fact that the Experiments are
conducted at the Premises
(iii) subject to the Landlord's prior written approval
(such approval not to be unreasonably withheld or
delayed) it shall make suitable provision in relation
to the protection of the animals personnel and the
Premises
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(iv) it shall limit the Experiments conducted in the
Premises to those related to medical research
(v) it shall only use mice and rats in the Experiments
(vi) it shall cease forthwith upon written notice from
the Landlord to conduct the Experiments if in the
Landlord's reasonable opinion:
(1) the Experiments are having the effect of
materially diminishing the rental or
capital value of the Premises or any other
premises on the Estate
(2) the Experiments are materially impeding the
letting of any nearby building on the
Estate
(3) the Experiments are causing the Landlord to
take significant management action as
a result of or in reasonable anticipation
of the actions of third parties due to the
carrying on of the Experiments at the
Premises
(4) the carrying out of the Experiments at the
Premises are materially and adversely
damaging the reputation of the Landlord or
its employees or the Estate
ALIENATION
(10) Not to:
(a) assign mortgage or charge or in any other manner part with
possession of any part of the Premises (as distinct from the
whole) save as specifically permitted herein;
(b) assign underlet or otherwise part with or share possession of
the whole of the Premises or underlet any part except in
accordance with clauses 3(10)(c) and 3(10)(d)
(c) assign the whole of the Premises except:
(i) to a person which before the assignment shall have
(if reasonably required by the Landlord) procured a
covenant with the Landlord by a reasonably
acceptable guarantor or guarantors to guarantee the
observance and performance of the Tenant's covenants
in this Lease in the terms set out in Part VII of
the Schedule
(ii) to an assignee which is able to recover 80 per cent
or more of its input Value Added Tax
(iii) without obtaining the Landlord's consent which shall
not be unreasonably withheld or delayed subject:
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(A) to the prior satisfaction of the condition
in sub-clause 3(1 0)(c)(i) and
(B) the Tenant having first entered into an
authorised guarantee agreement with the
Landlord complying with the provisions of
section 16 of the Landlord and Tenant
(Covenants) Act 1995 and containing those
provisions mentioned in section 16.5(a) to
(c) (inclusive) of THAT ACT;
(d) underlet the whole of the premises or part thereof:
(i) without obtaining the Landlord's approval of the form
and content of the underlease (which shall not be
unreasonably withheld or delayed) and a covenant by
the undertenant with the Landlord to observe and
perform throughout the term of the underlease those
of the Tenant's covenants (in the case of an
underletting -of part so far as they apply to the
part being underlet) under this Lease so far as they
relate to the premises being underlet (other than to
pay rent) which will be included in the underlease on
the part of the undertenant; nor without prejudice to
the generality of the foregoing;
(ii) without reserving as a yearly rent payable by equal
quarterly instalments in advance on the usual quarter
days the open market rack rental value of the
premises being underlet except on a basis by which
the principal rent reserved by the underlease shall
be reviewed not less frequently then once in every
five years of the term sub-demised to the greater
of:
(A) the rent payable under the underlease
immediately before the relevant review; and
(B) the open market rack rental value of the
premises demised. by the underlease on the
date of review
(iv) in consideration of a fine or premium;
(v) without taking from the undertenant covenants with
the Tenant (which the Tenant shall enforce) not to
assign the premises being underlet without the
Landlord's consent which shall not be unreasonably
withheld or delayed and not to underlet the whole or
part of them or otherwise deal with them by sharing
or parting with possession or charging them save in a
manner otherwise permitted by this Lease;
(vi) except on a basis providing for the exclusion of
sections 24 to 28 inclusive Landlord and Tenant Act
1954 in relation to the underlease in pursuance of an
Order duly made under Section 38(4)(a) of that Act
before the grant of the underlease
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(vii) except for a term which will end no later (but may
end earlier) than the day before the contractual
expiry of the Term
(viii) on the basis that there shall be no more than four
occupants of the Premises (including the Tenant) at
any one time
nor without obtaining the Landlord's consent (which subject to
the satisfaction of the above conditions) shall not be
unreasonably withheld or delayed;
(e) agree any variation of any under lease without the landlord's
consent (which shall not be unreasonably withheld or delayed);
(f) effect any transaction which this clause allows subject to the
Landlord's consent more than three months after the date of
the consent unless it otherwise provides;
(g) assign the whole of the Premises or underlet the whole or part
of the Premises to a person who in the reasonable opinion of
the Landlord will use the Premises for an Ineligible Use for
Value Added Tax Purposes
(h) Within twenty-eight days after any assignment or other
devolution of this Lease to give notice of it in duplicate to
the Landlord with a copy of the instrument (including any
relevant probate letters of administration or assent)
(i) The Tenant and/or any undertenant may share
occupation of the Premises with a company which is a
member of the same group as the Tenant or the
undertenant (within the meaning of Section 42 of the
Landlord and Tenant Act 1954) for so long as both
companies remain members of that group and provided
that:
(i) no relationship of landlord and tenant is
created between the two companies and no
security of tenure is conferred upon the
occupier; and
(ii) within fourteen days of the commencement of
the sharing the Tenant gives to the Landlord
notice of the company sharing occupation and
the address of its registered office
INSURANCE AND FIRE FIGHTING EQUIPMENT
(11) (a) Not to do or omit anything by which the insurance policy
relating to the Premises becomes void or voidable (insofar as
the Tenant has been made aware of the terms of the relevant
insurance policy)
(b) To comply with all requirements and reasonable recommendations
of the Insurers made known to the Tenant and to provide and
maintain unobstructed appropriate operational fire fighting
equipment on the Premises and not to obstruct the means of
escape in case of emergency from or to the Premises
NOT TO OBSTRUCT OR OVERLOAD
(12) Not to obstruct:
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(a) or damage or use any area leading to the Premises in a way
which causes nuisance or damage
(b) or discharge any deleterious matter into any Conduits serving
the Premises and to keep them clear and functioning properly
(c) stop-up or darken the windows and other openings of the
Premises
(d) any notice erected by the Landlord under clause 3(7) nor to
overload or cause undue strain to the Premises or to any
structure surrounding or located within (but excluded from)
the Premises or to any Conduits
PRESERVATION OF EASEMENTS
(13) (a) Not to give any acknowledgement that any rights of light and
other easements belonging to the Premises are enjoyed by the
consent of any third party
(b) Not to do or omit anything which might subject the Premises to
the creation of any new easement and to give notice to the
Landlord forthwith of any encroachment known to the Tenant
which might have that effect
DEFECTIVE PREMISES
(14) Immediately upon becoming aware of the same to give notice to the
Landlord of any defect in the Premises which might give rise to:
(a) an obligation on the Landlord to do or refrain from doing
anything in relation to the Premises; or
(b) any duty of care or the need to discharge such duty imposed by
the Defective Premises Act 1972 or otherwise and at all times
to display and maintain all notices which the Landlord may
from time to time reasonably require to be displayed at the
Premises in relation to their state of repair and condition
YIELD UP
(15) At the expiration or sooner determination of the Term:
(a) to remove all tenant's fixtures and chattels and to yield up
the Premises in the STATE of repair condition decorative order
and layout required by this Lease and
(b) In the event that at the date of such expiration or sooner
determination the Tenant is or has been engaged in carrying
out any Experiments to comply with all Enactments and
regulations regarding all decommissioning of laboratories and
(c) To leave all mechanical and electrical installations forming
part of or left in the Premises in working order and
maintained in accordance with manufacturers recommendations
COVENANTS
(16) To observe and perform the Reversionary Obligations and Regulations
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VALUE ADDED TAX: TO INFORM AND INDEMNIFY
(17) (a) The Tenant shall notify the Landlord in writing within thirty
(30) days of ceasing to use the Premises for an Ineligible Use
for Value Added Tax purposes if the Premises were at the most
recent time of supply so used or of starting to use the
Premises for an Ineligible Use for Value Added Tax Purposes if
the Premises were at the most recent time of supply not so
used
(b) Within thirty (30) days of receiving a request in writing from
the Landlord to provide the Landlord with evidence that H M
Customs and Excise has agreed that the Tenant is has been or
will be using the Premises for an Ineligible Use for Value
Added Tax Purposes or such other information as the Landlord
may reasonably require to enable the Landlord to assess
whether the Tenant is has been or will be using the Premises
for an Ineligible Use for Value Added Tax Purposes
(c) Within seven (7) days of receiving any notice in writing from
the Landlord which contains a statement of the Landlord's
understanding as to whether or not the Tenant will on the date
stated in the notice be using the Premises for an Ineligible
Use for Value Added Tax Purposes to notify the Landlord
whether or not that understanding is correct
(d) To maintain suitable records to ensure that the Tenant is able
to comply with its obligations in this clause 3(17)
(e) Notwithstanding the provisions of clauses 3(9) and 3(10) of
this Lease not to use the Premises for an Ineligible Use for
Value Added Tax Purposes
(f) To indemnify and keep the Landlord indemnified on an after-tax
basis from and against all actions claims costs demands
expenses Value Added Tax liabilities and losses (whether
arising before or after the beginning of the Term) arising
from any breach of the covenants on the Tenant's part
contained in sub-clauses (a) (b) (c) (d) or (e) of this clause
3(17) and for this purpose the Landlord's losses shall be
deemed to include any Value Added Tax on supplies made to the
Landlord which the Landlord would be unable to recover (by way
of credit or repayment) or which has been recovered but which
the Landlord is liable to repay
LANDLORD'S COVENANTS
4. The Landlord covenants with the Tenant:
QUIET ENJOYMENT
(1) That if the Tenant observes and performs its covenants
contained in this Lease the Tenant may peaceably and quietly
hold and enjoy the Premises without any lawful interruption by
the Landlord or any person rightfully claiming through under
or in trust for it or by title paramount
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MAINTENANCE AND REPAIR
(2) Save for any reason or circumstances beyond the Landlord's
control (for which it shall not be liable but which control it
shall use all reasonable endeavours to restore) and save to
the extent that the same are maintainable at the public
expense to take all steps necessary and consistent with the
principles of good estate management to maintain repair and
keep in good and substantial repair and condition such of the
Conduits roadways and other facilities as are referred to in
Parts IV and V of the Schedule and save as aforesaid to
provide at all times the Centre Services and the Estate
Services
INSURANCE
(3) (a) to keep the Premises insured against the Insured Risks and (in
relation to the risks described in clause 1 (k)(i)) in the
full rebuilding cost (but not necessarily the facsimile
reinstatement cost) of the Premises and to use all reasonable
endeavours to procure that such insurance contains a waiver of
subrogation rights against the Tenant and tenant's
non-invalidation clause
(b) on request to supply the Tenant with suitable evidence of such
insurance by way of a Schedule of insurance details including
an accurate summary of the risks against which the insurance
is effected and details of all excesses and exclusions
(c) if and whenever during the Term the Premises are damaged or
destroyed by an Insured Risk (save to the extent that the
payment of the insurance monies is refused by reason of any
act or default of the Tenant or of any undertenant or of any
licensee of the Tenant or any undertenant or of any person at
the Premises with the consent of the Tenant or any
undertenant) the Landlord will with all convenient speed take
the necessary steps to obtain any requisite planning
permissions and consents and if they are obtained to lay out
all monies received in respect of such insurance (except sums
in respect of public liability and loss of rents) in and
towards replacing (but not necessarily in facsimile
reinstatement) the damaged or destroyed parts as soon as
reasonably practicable and will make up any deficiency out of
its own money PROVIDED ALWAYS THAT the Landlord shall not be
liable to do so if it is unable (having used all reasonable
endeavours) to obtain every planning permission and consent
necessary to execute the relevant work in which event the
Landlord shall be entitled to retain all the insurance monies
received.
DEFECTS
(4) (a) The Landlord shall subject to the provisions of sub-clause (b)
hereof as soon as reasonably practicable make good or procure
the making good at its own expense of all defects (but not any
defect which is due to normal condensation natural shrinkage
or drying out) in the Premises which are directly attributable
to defective design workmanship supervision or materials or
defective supervision of the construction of the Premises or
defective preparation of the site on which the Premises are
constructed which appear and are notified to it in writing by
the Tenant at any time
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<PAGE>
before the expiration of the Defects Period PROVIDED THAT the
Tenant shall afford to the Landlord all reasonable access to
the Premises and areas affected by such defects subject to the
Landlord causing as little inconvenience to the occupier of
such areas as may in all the circumstances be practicable and
making good all damage to any property of the Tenant or the
Premises caused during such entry to the reasonable
satisfaction of the Tenant and for the avoidance of doubt and
without prejudice to the generality of the foregoing the
Landlord shall not be required to procure the making good of
any defect which is attributable to the carrying out of any
fitting out or other works by the Tenant or to the effect of
any such works or to the use and occupation of the Premises by
the Tenant PROVIDED THAT if during the carrying out of any
fitting out or other works by the Tenant the Tenant shall
discover a defect which would have been required to be
remedied by the Landlord under the provisions of this clause
if it had been discovered by some other means or remained
latent the fact that the same shall have been discovered as a
result of the carrying out of any fitting out or other works
by the Tenant shall not exclude any liability which the
Landlord would have had if the defect had been discovered by
some other means or presented itself under any other
circumstances
(b) The Landlord shall make good any such defects as aforesaid
notified to it in writing during the period from the date
hereof until as soon as practicable
after (save for defects which require
urgent attention which shall be remedied as soon as
practicable after written notification to the Landlord) and
after all defects shall be remedied as soon as practicable
after written notification to the Landlord (provided such
notification is made before the end of the Defects Period) all
such defects being remedied to the reasonable satisfaction of
the Tenant
DEFECTS INSURANCE
(5) (a) The Landlord shall as soon as reasonably practicable procure
for the Tenant's benefit at the Landlord's own cost a Defects
Insurance Policy ("the Defects Insurance Policy") in the form
of the attached draft (subject to such minor amendments as the
insurers may require provided that any amendments shall not
affect the amount of the insurance cover the risks insured or
the amount of the excess) in the joint names of the Landlord
and the Tenant issued by the Commercial Union Assurance
Company plc or some other reputable insurance company and
shall then provide the Tenant with true copy of the proposed
Defects Insurance Policy
(b) Notwithstanding that the Defects Insurance Policy shall be in
the joint names of the Landlord and the Tenant the Tenant
shall be entitled to any proceeds of the Defects Insurance
Policy in respect of its liability under its covenants
contained in this Lease in priority to the Landlord and the
Landlord will direct the insurers accordingly in the event of
a claim and take such action as may be necessary and/or
appropriate to ensure that monies payable under the Defects
Insurance Policy are paid to and received
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by the Tenant as soon as practicable after the occurrence of
any claim under the Defects Insurance Policy arising
AGREEMENTS AND DECLARATIONS
5. IT IS AGREED AND DECLARED THAT:
(1) Without prejudice to any other remedies and powers contained
in this Lease or otherwise available to the Landlord if
(a) the whole or part of the rents shall be unpaid for
twenty-one days after becoming payable (in the case
of the Principal Rent whether formally demanded or
not); or
(b) any of the Tenant's covenants in this Lease are not
performed or observed; or
(c) the Tenant (or if more than one person any one of
them being a company) is the subject of a petition
for its winding up; or enters into liquidation
whether voluntary (except for reconstruction or
amalgamation of a solvent company) or compulsorily;
or has a provisional liquidator or a receiver
(including an administrative receiver) appointed; or
is the subject of an administration order or a
petition for one or of a voluntary arrangement or a
proposal for one under Part I Insolvency Act 1986; or
is unable to pay its debts within the meaning of
section 123 Insolvency Act 1986 or is otherwise
insolvent; or having been registered with unlimited
liability it acquires limited liability; or
(d) the Tenant (or if more than one person any one of
them being an individual) is the subject of a
bankruptcy petition or bankruptcy order or of any
application or order or appointment under Section 253
or Section 273 or Section 286 Insolvency Act 1986; or
otherwise becomes bankrupt or insolvent; or
(e) the Tenant enters into or makes any proposal to enter
into any arrangement or composition for the benefit
of his creditors
then the Landlord may at any time thereafter (and
notwithstanding the waiver of any previous right of
re-entry) re-enter the Premises whereupon this Lease
shall absolutely determine but without prejudice to
any Landlord's rights of action in respect of any
antecedent breach of the Tenant's covenants in
this Lease
(2) In addition to any other mode of service any notice required
or authorised to be given under this Lease shall be validly
served if served in accordance with Section 196 Law of
Property Act 1925 as amended by the Recorded Delivery Service
Act 1962 and any such notice shall be deemed (whether or not
it is actually the case) to be a notice required to be served
for the purposes of such Section
(3) If and whenever during the Term the Premises or the means of
access thereto and/or therefrom on the Centre or the Estate or
any of them are damaged or destroyed by any of the Insured
Risks so that the Premises or any part of them are unfit for
occupation or use
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or access thereto is prevented then (save to the extent that
payment of the insurance money is refused by reason of any act
or default of the Tenant or of any undertenant or of any
licensee of the Tenant or any undertenant or of any person at
the Premises with the consent of the Tenant or any
undertenant) the Principal Rent the Estate Service Rent and
the Centre Service Rent or a fair proportion thereof according
to the nature and extent of the damage sustained shall cease
to be payable until the Premises or the affected part shall
have been rebuilt or reinstated so that the Premises are made
wholly fit for occupation or use (or as the case may be access
to and from the Premises is restored) the amount of such
proportion and the period during which the rents shall cease
to be payable to be determined by the Surveyor acting as an
expert and not as an arbitrator and in conformity with similar
arrangements as to his appointment as apply to a Surveyor
appointed under clause 6.
(4) In the event that the Premises or the means of access thereto and/or
therefrom on the Centre or the Estate are so damaged or destroyed by
any of the Insured Risks so as to render the Premises or any part
thereof unfit for occupation or use (and the policy of insurance
effected by the Landlord shall not have been vitiated or payment of the
policy monies refused in whole or in part in consequence of any act or
default of the Tenant or of any under tenant or of any licensee of the
Tenant or any undertenant or of any person at the Premises with the
consent of the Tenant or any undertenant) and the Landlord has despite
using all reasonable endeavours been unable to complete the
reinstatement of the Premises or the means of access within 30 months
from the date of the damage or destruction then either party (but in
the case of the Landlord only where it has used such reasonable
endeavours aforesaid and the damage prevents the use of the whole (or
substantially the whole) of the Premises) may prior to the completion
of such reinstatement terminate this Lease by giving fourteen days
written notice to the other and upon the expiry of such notice this
Lease shall absolutely cease and determine but without prejudice to the
rights of any party in respect of any prior breach of the covenants and
conditions contained herein
(5) Nothing in this Lease shall impose upon the Tenant any obligation to
make good or remediate any form of contamination to the Premises the
Centre the Estate or any other land and premises unless the
contamination in question is caused directly by the Tenant its
undertenants or other occupiers of the Premises in their use of the
Premises
RENT REVIEW
6.1 The Market Rent may be agreed in writing at any time between the
Landlord and the Tenant
6.2 If the Landlord and the Tenant shall not have agreed the Market Rent by
the date three months immediately before the relevant Review Date
either party may in its discretion require the Market Rent to be
assessed by the Surveyor in the following manner:
(a) the Surveyor shall be appointed to assess the Market Rent by
the Landlord and the Tenant or (if they fail to agree the
appointment) by or on behalf of the President for the time
being the Royal Institution of Chartered Surveyors on the
application of either the Landlord or the Tenant
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(b) the surveyor shall act as an expert and not as an arbitrator
(and shall give the Landlord and the Tenant the opportunity to
make written representations to him in such manner as he may
direct but shall make the determination in accordance with his
own opinion)
6.3 If the Surveyor shall die delay or become incapable of acting or
unwilling to act or if for any other reason the President or the person
acting on his behalf shall in his absolute discretion think fit the
President may by writing discharge the Surveyor and appoint another in
his place
6.4 The cost of the reference to the Surveyor shall be apportioned between
the Landlord and the Tenant as the Surveyor shall in his discretion
determine whose decision shall be final and binding on the Landlord and
the Tenant
6.5 When the Market Rent as at the relevant Review Date has been
ascertained in accordance with this Lease memoranda of the Review Rent
shall be signed by or on behalf of the Landlord and the Tenant (at
their own cost) and annexed to this Lease and its counterpart
6.6 If the Market Rent has not been ascertained by the relevant Review Date
the Tenant will continue to pay the Current Rent and when the Market
Rent is ascertained the Tenant will on the quarter day immediately
following the date on which the Market Rent is ascertained pay the
Landlord any amount which the Review Rent for the period commencing on
the relevant Review Date and ending on such quarter day exceeds the
Current Rate plus Interest (but calculated at the relevant base rate)
on the excess from time to time from the Review Date calculated by
reference to the relevant quarter day on which the appropriate
proportion of the excess became payable
7. ESTATE SERVICE RENT AND CENTRE SERVICE RENT
7.1 For the purposes of this Lease:
(a) "Account Date" means 30 September in every year of the Term or
such other date as the Landlord may from time to time nominate
by notice in writing to the Tenant
(b) "Service Period" means the period:
(i) from the Account Date; and thereafter to (and
including) the first
(ii) between two consecutive Account Dates (excluding the
first and including the second); thereafter
(iii) commencing immediately after the last Account Date of
the Term and ending on the expiration of the Term
7.2 The Landlord shall as soon as convenient after each Account Date
prepare an account showing the Estate Service Expenditure and the
Centre Service Expenditure for the year ended on that Account Date and
containing a fair summary of the expenditure referred to and upon the
account being certified by the Landlord's managing agents it shall be
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conclusive evidence for the purposes of this Lease of all matters of
fact referred to except in case of manifest error
7.3 The Tenant shall pay the Landlord on account of Estate Service Rent and
Centre Service Rent the Provisional Sum in relation to each Service
Period the first payment (being a proportionate sum in respect of the
period commencing on and ending immediately before the
quarter day next after the Lease Date ) to be made on the Lease Date
and the subsequent payments to be made by equal instalments in advance
on the usual quarter days
7.4 If the Estate Service Rent or the Centre Service Rent for any Service
Period:
(a) exceeds the Provisional Sum for that Service Period the excess
shall be due to the Landlord within 14 days of demand; or
(b) is less than the Provisional Sum for that Service Period the
overpayment shall be credited to the Tenant against subsequent
payments on account of the Estate Service Expenditure or the
Centre Service Expenditure (as the case may be) until the
overpayment is balanced or until the expiry of the Term when a
cash repayment will be made to the Tenant
7.5 Any omission by the Landlord to include in the Estate Service
Expenditure or Centre Service Expenditure a sum expended or liability
incurred in the relevant Service Period shall not preclude it from
including such sum or the amount of such liability in any subsequent
period
7.6 Any sum accounted for as part of the Estate Service Expenditure shall
not be accounted for as part of the Centre Service Expenditure and vice
versa
7.7 The provisions of this clause 7 shall continue to apply notwithstanding
the expiration or sooner determination of the Term but only for the
purposes of calculations and payment of the Estate Service Rent and the
Centre Service Rent for the period down to such expiration or sooner
determination
8. RIGHT TO DETERMINE
The Tenant may subject to it having given not less than 12 months
notice in writing ("the Break Notice") to the Landlord determine the
Term on the 10th anniversary of the Term Date ("the Break Date")
PROVIDED ALWAYS the Tenant's right to determine shall be further
subject to the following:
(a) the Tenant yielding up the Premises with full vacant
possession on the Break Date
(b) the Tenant having materially complied with all its covenants
and obligations under this Lease at the Break Date
(c) The Tenant shall pay to the Landlord a sum equivalent to the
Principal Rent the Estate Service Rent the Centre Service Rent
and the Insurance Rent calculated for a period of 12 months
(such calculation to be based on the amount of such rents for
the year ending on the Break Date) and such sum (estimated in
the case of the
19
<PAGE>
Estate Service Rent the Centre Service Rent and the Insurance
Rent (where relevant) and balanced by the appropriate payment
when the precise sums due are known) is received by means of
cleared funds into the account of the Landlord no later than
one day before the Break Date
9. GUARANTOR'S COVENANTS
At the request of the Tenant and in consideration of the grant of this
lease made at its request the Guarantor enters with the covenants set
out in Part VII of the Schedule
THE SCHEDULE
PART I
("THE PREMISES)
The land and buildings and appurtenances thereto known as 88 Milton Park
Abingdon Oxfordshire shown edged red on Plan I
PART II
EXCEPT AND RESERVED to the Landlord (and all other persons authorised by the
Landlord or having like rights) the free and uninterrupted rights:
(1) to the passage and running of water soil gas electricity telephone and
other services or supply to and from any Adjoining Premises through the
Conduits in or under the Premises
(2) for the Landlord to enter the Premises for the purposes mentioned in
and subject to the provisions of this Lease
(3) of light air and protection now or after the date of this Lease enjoyed
by any Adjoining Premises
(4) at any time hereafter to alter rebuild make connections to or demolish
any building on any Adjoining Premises in such manner as the person
exercising the right shall think fit notwithstanding the same may
obstruct affect or interfere with (but in each case not materially) the
amenity of or the passage of light and air to the Premises or have an
insubstantial effect on the means of access to them
PROVIDED THAT if the Landlord exercises any of the above rights by
carrying out work on the Premises it shall forthwith make good any
damage caused to the reasonable satisfaction of the Tenant and shall
use all reasonable endeavours to minimise any disruption or
inconvenience to the Tenant and other occupiers of the Premises
PART III
TOGETHER WITH the benefit of the rights -
(1) to the passage and running of water soil gas electricity telephone and
other services or supply to and from the Premises through the Conduits
in or under the Adjoining Premises
20
<PAGE>
(2) of support and protection as is now enjoyed from the Adjoining,
Premises
(3) now set out in the Property register of the Landlord"s title at H M
Land Registry as may be relevant
(4) at convenient times and upon reasonable notice (except in emergency) to
enter the Adjoining Premises of the Landlord (as at the date hereof) if
it shall be necessary to do so in order to view the state and condition
of the Premises and to make good all damage caused
(5) (in common with the Landlord and all other persons having a like right)
to pass and repass to and from the Premises at all times and for all
purposes connected with the Permitted Use (but not otherwise) over and
along those parts of the Estate which are designed and intended for
those purposes including (without prejudice to the generality of the
foregoing) the Estate roads
(6) to the exclusive use of the car parking areas shown edged and hatched
yellow on Plan 1 for the purpose of parking private cars and light
commercial vehicles and not for any other purpose (save for gaining
access to and from the Premises) and to use such other 39 additional
car parking spaces for such purposes as aforesaid within the car
parking area serving the Centre as the Landlord may from time to time
reasonably designate
(7) subject to the Landlord's prior written consent (such consent not to be
unreasonably withheld) to install the corporate sign of the Tenant on
the signboard provided by the Landlord
PART IV
SECTION A
(CENTRE SERVICES)
(a) Repairing resurfacing cleaning lighting maintaining and (where
necessary) renewing replacing and improving the estate roads within the
Centre and the forecourts car parking areas loading bays landscaped
areas boundary walls fences hedges gates entrances and signs now or at
any time during the Term constructed on the Centre including any drains
sewers pipes cables gutters inspection chambers or any other services
or fittings relating thereto over in or under the Centre which in each
case are not the responsibility of any individual tenant or occupier to
maintain
(b) Retaining and providing the services of all staff necessary for the
efficient maintenance and management of the Centre together with any
working accommodation for such staff
(c) Maintaining security services in respect of the Centre which are
sufficient in the Landlord's reasonable opinion
(d) Compliance by the Landlord with every notice regulation or order of any
competent local or other authority in relation to the Centre or its
appurtenances
(e) Effecting and maintaining in force an insurance policy or policies
against any and every liability of the Landlord for injury to or death
of any person (including every agent servant
21
<PAGE>
and workman of the Landlord) and damage to or destruction of the
property of any such person arising out of the maintenance of the
Centre
(f) Carrying out all other work or providing services of any kind
whatsoever which the Landlord may from time to time reasonably consider
necessary or desirable and which are in accordance with the principles
of good estate management of the Centre
Section B
(a) all reasonable and proper fees charges expenses and commissions
incurred in the administration and management of the Centre or payable
to any solicitor accountant surveyor valuer agent or architect or any
of them whom the Landlord may from time to time employ in connection
with the management or maintenance of the Centre including the cost of
preparing or causing to be prepared statements of said costs charges
and expenses and auditing the same but excluding any fees charges
expenses and commission paid for the collection of rent from the
tenants of and the letting or reletting of any premises on the Centre
(b) a charge equivalent to ten per centum of the aggregate costs expenses
and outgoings referred to in Section A of this part of this Schedule
such sum to be in respect of the general administration and supervision
costs of the Landlord relating to or in connection with the matters
specified or referred to in Section A of this part of this Schedule or
any of them
(c) such reasonable and proper sum as the Landlord shall in its reasonable
discretion think fit as being a reasonable provision for expenditure
likely to be incurred in the future in connection with the matters
mentioned in Section A of this part of this Schedule
PART V
SECTION A
(ESTATE SERVICES)
(a) Repairing resurfacing cleaning lighting maintaining and (where
necessary) renewing replacing and improving the estate roads serving
the Estate and the forecourts car parking areas loading bays landscaped
areas boundary walls fences hedges gates entrances and signs now or at
any time during the Term constructed on the Estate including any drains
sewers pipes cables gutters inspection chambers or any other services
or fittings relating thereto over in or under the Estate which in each
case are not the responsibility of any individual tenant or occupier to
maintain
(b) Retaining and providing the services of all staff necessary for the
efficient maintenance and management of the Estate together with any
working accommodation for such staff
(c) Maintaining security services in respect of the Estate which are
sufficient in the Landlord's reasonable opinion
(d) The maintenance replacement renewal and improvement of the sewerage
pumping station and drainage and sewerage system serving the Estate
22
<PAGE>
(e) Compliance by the Landlord with every notice regulation or order of any
competent local or other authority in relation to the Estate or its
appurtenances
(f) Effecting and maintaining in force an insurance policy or policies
against any and every liability of the Landlord for injury to or death
of any person (including every agent servant and workman of the
Landlord) and damage to or destruction of the property of any such
person arising out of the maintenance of the Estate
(g) Carrying out all other work or providing services of any kind
whatsoever which the Landlord may from time to time reasonably consider
necessary or desirable and which are in accordance with the principles
of good estate management of the Estate
Section B
(a) all reasonable and proper fees charges expenses and
commissions incurred in the administration and management of
the Estate or payable to any solicitor accountant surveyor
valuer agent or architect or any of them whom the Landlord may
from time to time employ in connection with the management or
maintenance of the Estate including the cost of preparing or
causing to be prepared statements of said costs charges and
expenses and auditing the same but excluding any fees charges
expenses and commission paid for the collection of rent from
the tenants of and the letting or reletting of any premises on
the Estate
(b) a charge equivalent to ten per centum of the aggregate costs
expenses and outgoings referred to in Section A of this part
of this Schedule such sum to be in respect of the general
administration and supervision costs of the Landlord relating
to or in connection with the matters specified or referred to
in Section A of this part of this Schedule or any of them
(c) such reasonable and proper sum as the Landlord shall in its
reasonable discretion think fit as being a reasonable
provision for expenditure likely to be incurred in the future
in connection with the matters mentioned in Section A of this
part of this Schedule
PART VI
(SPECIFICATION AND PLANS FOR NOTIONAL OFFICE BUILDING
FOR RENT REVIEW PURPOSES)
See annexure
23
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
EXPLANATORY NOTE:
The purpose of this specification is to describe the premises to be valued on
rent review as outlined in the lease.
Broadly "the Centre" and the external parts of "the Premises" (as described in
the lease) are as outlined in the Agreement for Lease. However, it is assumed
for rent review that the Premises have been fitted out on both ground and first
floors as comfort cooled open plan offices. Both core areas are fitted to the
developer's specification, as outlined in the Agreement for Lease.
GENERAL
Building 88 is a two storey building comprising C 2,300 sq m. The building
forms part of a development of three similar buildings orientated in an 'H'
shape around a central courtyard. Building 88 has a third storey which has been
designed to accommodate plant, both in an enclosed central area and on open
'balconies' at both ends of the building. The building has two entrance areas
both forming a core containing a stair and lift to the first floor, fitted
separate male, female and disabled toilet areas, riser cupboards and doors into
the comfort cooled open plan office areas.
The core areas will be finished to a normal developers specification including
plastered and painted walls, carpeted first floor landing and stairs, non-slip
ceramic tile finish to ground floor entrance with plasterboard ceilings and
feature lighting. Perimeter radiators provide space heating and WC areas have
fully tiled walls, non slip ceramic tiles floors and are fitted with usual
sanitary provision.
The ground and first floors of the building are finished as high quality
comfort cooled open plan offices. There is a raised computer floor, suspended
ceiling with Cat II lighting, antistatic carpets throughout, floor sockets and
air cooling system with associated filtered fresh air ventilation. All plant
serving the premises is housed within the third storey plant room area.
The thermal performance of the external building envelope will comply in all
respects with the Building Regulations for England and Wales, Part L, 1995.
1 FOUNDATIONS
Mass concrete trench fill and pad foundations on vibro-compacted
sub-grade, designed in accordance with the recommendations of the site
investigation report No 31095/01 dated June 1997.
2 STRUCTURAL FRAME
Steel frame with intumescent paint or boarding to achieve as required
fire protection.
Hot rolled structural steel trusses, shot blasted and zinc phosphate
primed finish supporting cold rolled galvanised steel purlins.
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
3 GROUND FLOOR SLAB
In-situ mesh reinforced concrete slab on granular sub-base to core
areas, wide bay reinforced concrete slab and granular sub-base to
office areas designed for uniformly distributed load of 20kN/mTO THE
POWER OF2 (400lb per sq ft). Insulation 'U' value is to be 0.45W/mTO
THE POWER OF2 or better.
4 EXTERNAL WALLS
Masonry-cavity wall with 'Red Bank Gobelin' or similar external facing
brick skin, 160mm cavity with 75mm rockwool partial cavity fill, and
140mm non-load bearing dense blockwork.
Insulation 'U' Value is to be 0.45W/mTO THE POWER OF2 or better.
Precast reconstituted stone lintels above first floor windows.
Aluminium Pvf2 coated BS 18B 25 Dark Grey RAL 7037 Light Grey flat
composite Luxalon cladding panels in window bays and Kingspan cladding
panels fixed horizontally with proprietary fixings at the plant room
and gable ends.
5 UPPER FLOORS
Precast concrete floor slabs to first floor 260mm deep, designed for
uniformly distributed load of 6kN/mTO THE POWER OF2 (120 lbs/sq ft).
Precast concrete floor slabs to plant rooms 150mm deep, designed for
uniformly distributed load of 5.0KN/mTO THE POWER OF2.
6 ROOF
Aluminum mill finish standing seam Kalzip roof cladding with 170mm
insulation, vapour barrier and steel liner tray, to achieve 'U' value
of 0.45W/mTO THE POWER OF2. Concealed aluminium gutters and exposed
downpipes.
Precast concrete floor planks to flat roof areas 150mm deep with screed
to falls and Sarnafil single ply inverted flat roof system.
7 GLAZING
Double glazed polyester powder coated, colour Dark Grey BS 18 B 25
external and white RAL 9016 internal, thermally broken Hunter Douglas
aluminium windows with approximately 50% top hung opening lights.
Polyester powder coated aluminium doors and external fire exit doors.
All ground floor windows to south and west elevations and first floor
windows to west elevations to have external aluminium Kingfisher sun
louvres.
Glazed rebated entrance doors, letter box and conduit for entry
control.
2
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
8 INTERNAL WALLS
Blockwork generally to underside of floors or roof structure, with a
plaster finish to core areas.
Blockwork to W.C cubicles.
9 STAIRCASES
Precast concrete staircases to front entrances.
Mild steel painted balustrading and maple handrail to front staircases
and landing.
Ladder access to plant rooms.
Glavanised mild steel painted external spiral fire escape stair to east
and west elevation. Galvanised mild steel painted external spiral fire
escape stair to south elevation.
10 INTERNAL FITTINGS
DOORS
Internal entrance doors to be solid core maple veneered with vision
panels, with maple linings and architraves.
All other doors off entrance areas to be solid core maple veneered
flush doors, maple linings and architraves.
Toilet cubicle doors to be maple with maple linings and architraves.
Riser duct doors to be painted MDF.
DOOR FURNITURE
Pull handles and kick/push plates to be stainless steel, and other
ironmongery satin anodised aluminium by Newman Tonks.
JOINERY
Skirtings to entrance and office to be maple areas. Window boards to
office areas to be maple.
TOILETS
Toilet areas to have white china sanitaryware, laminate panels to
concealed WC and urinal cisterns, solid acrylic resin vanity units to
wash hand basins, toilet roll holders, mirrors, coat hooks and fused
spur outlets for hand dryers.
3
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
11 INTERNAL FINISHES
WALLS
Front entrance, staircase, landing and office areas to be plastered and
finished with emulsion paint finish.
Toilet walls to be plastered and have full height Langley ceramic
tiles.
FLOORS
Staircase, landing and office areas to have Escopallas Excell carpet
tiles anti-static to IBM Standard for general office use with nosings
to staircase tread.
Cleaners room to be sand/cement screed with sheet vinyl flooring.
Toilet areas to be sand/cement screed with slip resistant 300 x 300mm
Langley ceramic tiling.
Front entrance to have non-slip Langley ceramic tile finish with
matwell and aluminum/polypropylene entrance matting.
CEILINGS
Entrance, staircase and landing areas generally to have Gyproc MF
plasterboard ceiling.
Toilet areas to have exposed narrow grid Armstrong Microlux Dune
suspended ceiling with 600 x 600mm moisture resisting tiles.
Office areas to have exposed narrow grid Armstrong Microlux Dune
suspended ceiling with 600 x 600 tiles.
12 LIFT
2 No Eight person Schindler 100 hydraulic passenger lift.
Lift car door and returns are finished in stainless steel. Full height
carpet tiles to side walls, half height carpet with tinted mirror to
rear wall and handrail below. Carpet tiles to floor. Concealed lighting
to ceiling.
13 ELECTRICAL INSTALLATION
The incoming electrical supply will be provided by the local
electricity supply authority, and will be delivered and metered at low
voltage, maximum anticipated load allowance of 290 KVA.
4
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
Separate cable risers shall be provided 1 per each building core.
Electrical risers to be fitted out with lighting and small power
distribution systems for first floor only. Data/communication risers to
be provide space for tenant fit out.
13.1 LIGHTING
Emergency lighting, based on integral or remote battery units shall be
provided to all relevant escape route areas in accordance with BS5266
and as required by the local authority.
Lighting installation shall comprise of the following areas and the
artificial average illumination level will be:-
i) Entrance:- 200-300 Lux; wall mounted low energy Marlin
luminaires.
ii) Staircases and landing areas:- 150 Lux; Marlin recessed low
energy compact fluorescent luminaires.
iii) Toilets:- 150 Lux; low energy recessed compact fluorescent
Marlin luminaires to cubicles and circulation areas, low
voltage Marlin downlighters or pelmet lighting over the vanity
units.
iv) Plant rooms :- 200-250 Lux; linear fluorescent luminaires
with metal reflectors or compact fluorescent bulkhead
luminaires surface fixed.
v) Open plan office : 400 Lux; recessed modular fluorescent
luminaires in 600 x 600mm modules with 2 x 40W 2L lamps (mains
frequency) and LG3 Cat 2 louvre within full accessible
suspended ceiling. Facility for automatic lighting control
system.
13.2 POWER DISTRIBUTION
Single and double outlet switched 13 amp socket outlets shall be
positioned within the core areas and plantrooms to provide for routine
maintenance, cleaning and general services.
13.3 FIRE ALARM
A "break glass" fire alarm installation and automatic smoke detection
system shall be provided to all core and office areas of the building
designed in accordance with BS5839, protection category L2. The alarm
and detection system shall have the facility to be extended to
accommodate tenant requirements. Fire alarm sounders are provided to
give coverage to the whole of the building based on an open plan basis.
13.4 LIGHTNING PROTECTION
The building shall be provided with its own lightning protection system
designed in accordance with BS6651.
5
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
13.5 ACCESS SYSTEM PROVISION
An access conduit system shall be provided from external doors to above
suspended ceiling to all external doors for the installation of a
security system by a future tenant.
14 HEATING, PLUMBING AND VENTILATION
14.1 GAS - GENERAL
2 No low pressure 65mm dia. gas connections shall be provided from the
local supply authority mains to the gas meter enclosures. Both gas
mains rising to serve two gas fired low pressure hot water (LPHW)
'Ideal CXD 70' boilers at roof level in the plant room which provide
hot water distribution (14.4 below) and space heating (14.6 below) and
shall be provided to comply with local gas board regulations.
14.2 WATER - GENERAL
2 No dedicated 35 mm dia. water connection will be provided from the
local supply authority mains to 2 No cold water storage tanks in the
plant room.
14.3 COLD WATER DISTRIBUTION
Cold water distribution within the 2 core areas of toilet/cleaners
accommodation is provided from the storage tanks. Cold water connected
to all sanitary fittings in both core areas.
14.4 HOT WATER DISTRIBUTION
The building shall be provided with four gas fired boilers in the plant
room (as in 14.1 above) capable of serving hot water to all appropriate
sanitary fittings in both core areas and space heating requirements in
all areas. Two hot water systems will be provided with each system
comprising of two gas fired boiler units, pressurisation set, primary
and secondary pipework and hot water treatment equipment located within
the dedicated plant room.
14.5 COOLING
Ceiling mounted localised cooling units with individual condenser
plant mounted externally on flat roof areas. Each cooling unit will
have a wall mounted over-ride controller for manual on/off and
temperature adjustment.
14.6 HEATING
Heating will be provided by gas fired boilers (as at 14.1 above)
feeding pressed steel perimeter panel radiators in all areas.
14.7 VENTILATION
Fresh air will be provided to all open plan office areas by means of
roof mounted packaged air handling units containing filters, heating
and cooling elements and a fan.
6
<PAGE>
88 MILTON PARK HYPOTHETICAL OFFICE SPECIFICATION
VERTEX [FOR RENT REVIEW PURPOSES]
- --------------------------------------------------------------------------------
The filtered fresh air then being delivered at room temperature to the
space from ceiling mounted grills.
Toilet/cleaners extract ventilation will be provided to serve the cores
by central extract fan units in the plantroom. Supply air shall be
introduced from the adjacent circulation areas. Toilet and cleaners
areas shall be maintained at a negative pressure with respect to
surrounding areas to control migration of odours etc.
Ventilation to the roof plant rooms shall be provided to meet local
authority requirements via louvres in the external walls.
14.8 General
The sanitary and plumbing systems to serve the toilet and cleaner
accommodation shall be designed in accordance with current Codes of
Practice and to suit requirements of local authority.
1 INCOMING SERVICES
Services to be installed to the buildings as follows:-
FOUL AND SURFACE WATER SEWERS - Connected to existing main drainage
system.
ELECTRICITY - Cables to be laid to existing SEB low voltage system.
GAS - Pipes to be laid to British Gas main supply.
BT, MERCURY AND COMTEL - Ducts to be installed for BT, Mercury
Communications and Comtel.
WATER SUPPLY - Pipework to be laid to existing Thames Water mains
supply.
2 EXTERNAL LIGHTING
Lighting to pedestrian access, car parking, utility and amenity space
with low level bollards and 5m columns with amenity luminaires, Thorn
Johanna or similar with 150W high pressure SON lamp in a decorative
housing with a dished reflector above, to achieve average illuminance
of 3-5 Lux.
<PAGE>
PART VII
GUARANTEE PROVISIONS
(1). The Guarantor guarantees to the Landlord the due and punctual payment
and performance by the Tenant of all the tenant's obligations and
liabilities under this Lease and shall indemnify the Landlord against
all losses damages costs and expenses arising or incurred by the
Landlord as a result of the non-payment or non-performance of those
obligations or liabilities
(2). The obligations of the Guarantor under this Lease:-
(a) constitute a direct primary and unconditional liability to pay on
demand to the Landlord any sum which the Tenant is liable to pay under
this Lease and to perform on demand by the Landlord any obligation of
the Tenant under this Lease without the need for any recourse on the
part of the Landlord against the Tenant;
2.(b) will not be affected by:
2.(b)1 any time or indulgence granted to the Tenant by the Landlord;
2.(b)2 any legal limitation disability or other circumstances relating to the
Tenant or any irregularity unenforceability or invalidity of any
obligations of the Tenant under this Lease;
2.(b)3 any licence or consent granted to the Tenant or any variation in the
terms of this Lease save as provided in Section 18 of the Landlord and
tenant (Covenants) Act 1995;
2.(b)4 the release of one or more of the parties defined as the Guarantor (if
more than one); or
2.(b)5 any other act omission matter event or thing whereby (but for this
provision) the Guarantor would be exonerated in whole or in part from
the guarantee other than a release by deed given by the Landlord.
(3) So long as this guarantee remains in force the Guarantor shall not:-
3.(a) in the event of any bankruptcy liquidation rehabilitation, moratorium
or other insolvency proceedings relating to the Tenant claim or prove
as creditor in competition with the Landlord; or
3.(b) be entitled to claim or participate in any security held by the
Landlord in respect of the obligations of the Tenant under this Lease;
or
3.(c) exercise any right of set-off against the Tenant
(4). If:-
24
<PAGE>
4.(a) the Tenant (being a company) enters into liquidation and the liquidator
disclaims this Lease; or
4.(b) the Tenant (being a company) is dissolved and the Crown disclaims this
Lease; or
4.(c) the Tenant (being an individual) becomes bankrupt and
the trustee in bankruptcy disclaims this Lease; or
4.(d) this Lease is forfeited
then within six months after the disclaimer or forfeiture the
Landlord may require the Guarantor by notice to accept a lease of
the Premises for a term equivalent to the residue which would have
remained of the Term if there had been no disclaimer or forfeiture at
the same rents and subject to the same covenants and conditions
(including those as to the review of rent) as are reserved by and
contained in this Lease
(5). The new lease and the rights and liabilities under it shall take effect
as from the date of the disclaimer or forfeiture and the Guarantor
shall be liable for all payments due under the new lease as from the
date of disclaimer or forfeiture as if the new lease had been granted
on the date of disclaimer or forfeiture.
(6). The Guarantor or his personal representatives shall pay the Landlord's
costs of and accept the new lease and shall execute and deliver to the
Landlord a counterpart of it.
(7). If the Landlord does not require the Guarantor to take a lease of the
Premises the Guarantor shall pay to the Landlord on demand a sum equal
to the rents that would have been payable under this Lease but for the
disclaimer or forfeiture in respect of the period from the date of the
disclaimer or forfeiture until the date which is six months after the
date of the disclaimer or forfeiture or the date on which the Premises
have been re-let by the Landlord whichever first occurs
EXECUTED as a DEED )
by MILTON PARK LIMITED )
acting by:- )
Director
Secretary
25
<PAGE>
EXECUTED as a DEED )
by VERTEX PHARMACEUTICALS )
(EUROPE) LIMITED acting by:- )
Director
Secretary
EXECUTED AS A DEED )
by VERTEX PHARMACEUTICALS )
INCORPORATED acting by:- )
26
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Vertex Pharmaceuticals Incorporated on Form S-8 (File Nos. 33-48030,
33-48348, 33-65742, 33-93224, 33-12325, 333-27011 and 333-56179) of our report
dated February 25, 1999 on our audits of the consolidated financial
statements of Vertex Pharmaceuticals Incorporated, as of December 31, 1998
and 1997, and for years ended December 31, 1998, 1997 and 1996, which report
is included in this annual report on Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S YEAR END REPORT ON FORM 10-K, FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 24,169
<SECURITIES> 221,483
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 248,708
<PP&E> 42,621
<DEPRECIATION> (28,145)
<TOTAL-ASSETS> 266,346
<CURRENT-LIABILITIES> 13,102
<BONDS> 0
0
0
<COMMON> 254
<OTHER-SE> 245,958
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 44,398
<CGS> 0
<TOTAL-COSTS> 76,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 681
<INCOME-PRETAX> (33,086)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,086)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,086)
<EPS-PRIMARY> (1.31)
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</TABLE>
