<PAGE>
As filed with the Securities and Exchange Commission on May 25, 2000
Registration Statement No. 333- _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
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Massachusetts 04-3039129
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
130 Waverly Street
Cambridge, Massachusetts 02139
617-577-6000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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Joshua S. Boger
Chief Executive Officer
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, Massachusetts 02139
617-577-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Kenneth S. Boger, Esq. Sarah P. Cecil, Esq.
Kirkpatrick & Lockhart Corporate Counsel
75 State Street Vertex Pharmaceuticals Incorporated
Boston, MA 02109 Cambridge, MA 02139
617-951-9000 617-577-6499
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Title Of Each Class Maximum Maximum
Of Securities To Be Amount To Be Offering Aggregate Amount Of
Registered Registered Price Per Unit Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5% Convertible Subordinated
Notes due
March 14, 2007 $175,000,000 (1) 100% $175,000,000 $46,200
Common Stock,
par value $.01 per share 2,170,140 (2) (3) (3) (3)
Rights to purchase Series A
Junior Participating
Preferred Stock (4) (4) (4) (4)
</TABLE>
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(1) Equals the aggregate principal amount of the notes being registered.
(2) Represents the number of shares of common stock that are currently
issuable upon conversion of the notes, based on the initial conversion
price of $80.64 per share (equivalent to 12.4008 shares of common stock
for each $1,000 principal amount of the notes). In addition, pursuant
to Rule 416 under the Securities Act of 1933, the amount to be
registered also includes an indeterminate number of shares of common
stock that may be issued as a result of stock splits, stock dividends
and antidilution provisions.
(3) No additional consideration will be received for the common stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).
(4) No separate consideration will be received for the Rights.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
Subject to completion, dated May 25, 2000
VERTEX PHARMACEUTICALS INCORPORATED
$175,000,000
5% CONVERTIBLE SUBORDINATED NOTES DUE MARCH 14, 2007
2,170,140 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
--------------------------
This prospectus covers resales by selling holders of:
- - our 5% Convertible Subordinated Notes due March 14, 2007; and
- - our common stock into which the notes are convertible.
The notes are convertible, at the option of the holder, at any time on or prior
to maturity into shares of our common stock. The notes are convertible at a
conversion price of $80.64 per share, which is equal to a conversion rate of
12.4008 shares per $1,000 principal amount of notes, subject to adjustment. On
May 23, 2000, the last sale price of our common stock on the Nasdaq National
Market was $63.625 per share.
We will pay interest on the notes on March 14 and September 14 of each year,
beginning September 14, 2000. The notes will mature on March 14, 2007. We may
redeem some or all of the notes at any time before March 17, 2003 at a
redemption price of $1,000 per $1,000 principal amount of notes, plus accrued
and unpaid interest, if any, to the redemption date, if the closing price of our
common stock has exceeded 150% of the conversion price then in effect for at
least 20 trading days within a period of 30 consecutive trading days ending on
the trading day before the date of mailing of the provisional redemption notice.
We will make an additional payment in cash with respect to the notes called for
provisional redemption in an amount equal to $107.14 per $1,000 principal amount
of notes, less the amount of any interest actually paid on the notes before the
call for redemption. We may redeem some or all of the notes at any time after
March 17, 2003 at the redemption prices described in this prospectus.
The notes are unsecured and subordinated to our existing and future senior
indebtedness.
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The selling holders may sell the notes or common stock at any time at market
prices or at privately negotiated prices. Such sales may be made directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions. The selling
holders will be responsible for any commissions or discounts due to brokers or
dealers. The amount of those commissions or discounts cannot be known now
because they will be negotiated at the time of the sales. We will pay all other
offering expenses. We will not receive any of the proceeds from the sale of the
notes or shares by the selling holders.
Our common stock is quoted on the Nasdaq National Market under the symbol
"VRTX." The notes are currently eligible for trading on the PORTAL market.
INVESTING IN THE NOTES OR OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 13 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The date of this prospectus is ______ , 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward Looking Statements...................................6
Summary......................................................7
Risk Factors................................................13
Ratio of Earnings to Fixed Charges..........................23
Use of Proceeds.............................................23
Description of the Notes....................................23
Description of Capital Stock................................45
United States Federal Income Tax Considerations.............48
Selling Holders.............................................50
Plan of Distribution........................................53
Legal Matters...............................................55
Independent Accountants.....................................55
Where You Can Find More Information.........................55
Incorporation of Certain Documents by Reference.............56
</TABLE>
"Vertex," and "Incel" are trademarks of Vertex Pharmaceuticals Incorporated.
"Agenerase" is a trademark of the Glaxo Wellcome Group of companies. "Prozei" is
a trademark of Kissei Pharmaceutical Co., Ltd. Other brands, names and
trademarks contained in this prospectus are the property of their respective
owners.
In this prospectus, "we," "our" and "us" refer to Vertex Pharmaceuticals
Incorporated.
FORWARD-LOOKING STATEMENTS
Our disclosure in this prospectus contains some forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. Such statements may include words such
as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe"
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. In particular, these statements
include, among other things, statements relating to:
- our business strategy;
- our predicted development and commercial timelines;
- the development of our products;
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- the establishment and development of collaborative
partnerships;
- our ability to identify new potential products;
- our ability to achieve commercial acceptance of our products;
- our ability to scale-up our manufacturing capabilities and
facilities;
- our projected capital expenditures; and
- our liquidity.
Any or all of our forward-looking statements in this prospectus may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this prospectus will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any additional disclosures we make in our Form
10-Q, 8-K and 10-K reports to the SEC. Also note that we provide a cautionary
discussion of risks and uncertainties under "Risk Factors" on page 13 of this
prospectus. These are factors that we think could cause our actual results to
differ materially from expected results. Other factors besides those listed
there could also adversely affect us.
SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE NOTES OR THE SHARES OF COMMON STOCK ISSUABLE UPON THEIR
CONVERSION. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
We design, develop and commercialize novel small molecule drugs that address
significant markets with major medical needs, including the treatment of viral
diseases, cancer, autoimmune and inflammatory diseases, and neurological
disorders. Our drug discovery platform integrates advanced biology, chemistry,
biophysics and information technologies in order to increase the speed and
success rate of pharmaceutical research and development. We are distinguished by
our research and development productivity, and we have a broad product pipeline.
We have discovered and advanced eight drug candidates into clinical development,
including one product, the HIV protease inhibitor Agenerase-TM- (amprenavir),
that has reached the market.
We have significant collaborations with Glaxo Wellcome, Aventis, Schering AG
(Germany), Eli Lilly, Kissei, Taisho and Novartis that provide us with financial
support and other valuable
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resources for our research programs, the development of our clinical drug
candidates, and for product marketing and sales. We believe that we are
positioned to commercialize multiple products over the next two to five years,
which we expect will generate increased product revenues and royalty payments.
We have additional research programs underway, and we expect to advance novel
drug candidates directed at hepatitis C and stroke into preclinical studies
within the next 12 to 18 months.
AGENERASE
Our first product, Agenerase, received accelerated approval from the FDA in
April 1999 and was launched in May 1999. Agenerase, which we designed, is
marketed in the United States by Glaxo Wellcome. We co-promote Agenerase in the
United States. Total sales of the drug for the last seven months of 1999 were
$49.7 million, and we received $7.5 million in royalties in 1999 from Glaxo
Wellcome. During the first quarter of 2000, our royalty revenue of $2.6 million
was based on worldwide sales of Agenerase by Glaxo Wellcome of approximately
$17.4 million. More than 10,000 patients are taking Agenerase as part of
combination therapy for the treatment of HIV. We believe that Agenerase is
distinguished from other protease inhibitors by its:
- longer half-life, which allows for convenient twice-daily
dosing;
- ability to be dosed effectively on a full or empty stomach;
and
- lower levels of cross-resistance to other protease inhibitors.
Agenerase has also received regulatory approval in other countries, including
Japan where the drug is sold under the trade name Prozei-TM- by Kissei. Approval
of Agenerase is pending iN other jurisdictions, including the European Union,
where we anticipate approval in 2000 and the drug is being made available
through early access programs.
PRODUCTS IN RESEARCH AND DEVELOPMENT
Agenerase is the first of many Vertex-discovered products that we intend to
commercialize, by ourselves and with partners, in the coming years. The
accompanying chart describes our drug candidates in Phase II clinical trials,
preclinical development and our research programs.
<TABLE>
<CAPTION>
DRUG CLINICAL INDICATIONS COMPANY WITH ESTIMATED U.S. PATIENT
MARKETING RIGHTS (REGION) POPULATION (MILLIONS)
- ---- --------------------- ------------------------ ----------------------
<S> <C> <C> <C>
PHASE II CLINICAL TRIALS
ANTIVIRALS
VX-175 HIV Glaxo Wellcome (Worldwide) 0.9
Vertex co-promote (U.S. &
E.U.)
VX-497 Chronic hepatitis C Vertex (Worldwide) 2.7
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
CANCER
Incel-TM- Multidrug resistant solid Vertex (Worldwide) 0.5 (tumor incidence in
tumor cancers target diseases)
VX-853 Multidrug resistant solid Vertex (Worldwide) 0.5 (tumor incidence in
tumor cancers target diseases)
AUTOIMMUNE AND
INFLAMMATION
VX-740 Rheumatoid arthritis Aventis (Worldwide) 2.1
Vertex co-promote (U.S. &
E.U.)
VX-745 Rheumatoid arthritis Kissei (Japan); 2.1
Vertex (Rest of world)
NEUROLOGICAL
Timcodar Diabetic neuropathy Schering AG (Option) 1.3 (symptomatic)
Vertex co-promote (U.S. &
E.U.)
PRECLINICAL DEVELOPMENT
VX-148 Autoimmune diseases Vertex (Worldwide)
RESEARCH
HCV protease Hepatitis C Eli Lilly (Worldwide) 2.7
Vertex co-promote
(U.S. & E.U.)
HCV helicase Hepatitis C Vertex (Worldwide) 2.7
Caspases Stroke, Taisho (Japan); NA
Cardiovascular disease Vertex (Rest of world)
Kinases Cancer, Novartis (Worldwide) NA
Neurodegenerative diseases
</TABLE>
THE CHEMOGENOMICS OPPORTUNITY
Our drug discovery efforts have historically been directed at single molecular
targets, such as HIV protease, IMPDH, and ICE. Our discovery efforts now are
oriented toward drug design on multiple targets within a gene family in a
parallel fashion. We have termed this research approach chemogenomics, and we
believe it is a more efficient, systematic drug discovery approach. Using highly
specific biophysical and chemical information gained on a single protein target,
we design multiple lead classes of compounds that can be applied toward many
structurally similar targets in the same gene family. These lead compounds can
then be optimized for specificity to a particular target within the gene family,
potentially creating multiple drugs to treat a variety of therapeutic
indications. We have an ongoing program to design and patent comprehensive
medicinal chemistry directed at hundreds of promising biological targets, and
plan to expand this program significantly over the next several years.
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We believe that the chemogenomics approach will position us to identify and
advance drug candidates in a more comprehensive and efficient manner. Based on
our experience in the caspase and kinase protein families, we believe that this
approach enables us to describe most or all of the possible drugs for a given
molecular target. We believe this will enable us to accelerate the discovery of
drugs directed at novel promising targets, generate valuable broad-based
intellectual property and create enhanced opportunities for development
collaborations with corporate partners. To further accelerate this strategy, in
early 2000 we entered into agreements with Incyte Pharmaceuticals and Harvard
Medical School's Institute of Proteomics as part of our initiative to acquire
and access complementary technologies. We anticipate integrating genomic and
proteomic information from these sources, as well as information from other
public and private databases, to further our chemogenomics approach.
STRATEGY
Our strategy is to:
- continue to advance our seven clinical drug candidates through
late-stage clinical development to commercialization;
- utilize our technological and organizational advantages to
drive a strong flow of new products into clinical development;
- maximize the long-term commercial opportunities of our
research and development programs through a series of
strategic collaborative arrangements; and
- license and acquire technologies and products that have the
potential to strengthen our drug discovery platform and
product pipeline.
Our headquarters and main research facilities are at 130 Waverly Street,
Cambridge, Massachusetts 02139, and our telephone number is (617) 577-6000. We
also have a research facility in Oxford, England. Our company was incorporated
under the laws of the Commonwealth of Massachusetts in 1989.
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THE OFFERING
Securities offered...........$175,000,000 principal amount of 5% Convertible
Subordinated Notes due 2007 and the shares of
common stock into which they are convertible.
Maturity of Notes........... March 14, 2007.
Interest.....................5% per annum on the principal amount, payable
semiannually on March 14 and September 14,
beginning on September 14, 2000.
Conversion rights............The notes are convertible, at the option of the
holder, at any time on or prior to maturity into
shares of our common stock at a conversion price of
$80.64 per share, which is equal to a conversion
rate of 12.4008 shares per $1,000 principal amount
of notes. The conversion rate is subject to
adjustment.
Ranking......................The notes are unsecured and subordinated to our
existing and future senior debt, as defined. At
March 31, 2000, we had approximately $6 million of
senior debt outstanding. Because the notes are
subordinated, in the event of bankruptcy,
liquidation, dissolution or acceleration of payment
on the senior debt, holders of the notes will not
receive any payment until holders of the senior
debt have been paid in full. The indenture under
which the notes were issued does not prevent us or
our subsidiaries from incurring additional senior
debt or other obligations.
Provisional redemption.......We may redeem the notes, in whole or in part, at
any time before March 17, 2003, at a redemption
price equal to $1,000 per $1,000 principal amount
of notes to be redeemed plus accrued and unpaid
interest, if any, to the date of redemption if (i)
the closing price of our common stock has exceeded
150% of the conversion price then in effect for at
least 20 trading days within a period of 30
consecutive trading days ending on the trading day
before the date of mailing of the provisional
redemption notice and (ii) the shelf registration
statement covering resales of the notes and the
common stock issuable upon conversion of the notes
is effective and available for use and is expected
to remain effective and available for use for the
30 days following the provisional redemption date.
Upon any provisional redemption, we will make an
additional payment in cash with respect to the
notes called for redemption in an amount equal to
$107.14 per $1,000 principal amount of notes, less
the amount of any interest actually paid on the
note before the call for redemption. We will be
obligated to make this additional payment on all
notes called for provisional redemption, including
any
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notes converted after the notice date and before
the provisional redemption date.
Optional redemption..........We may redeem all or a portion of the notes on or
after March 17, 2003 at the redemption prices
listed in this prospectus, plus accrued and unpaid
interest.
Change of control............Upon a change of control event, each holder of the
notes may require us to repurchase some or all of
its notes at a purchase price equal to 100% of the
principal amount of the notes plus accrued and
unpaid interest. We may, at our option, instead of
paying the change of control purchase price in
cash, pay it in shares of our common stock valued
at 95% of the average of the closing sales prices
of our common stock for the five trading days
immediately preceding and including the third
trading day prior to the date we are required to
repurchase the notes. We cannot pay the change of
control purchase price in common stock unless we
satisfy the conditions described in the indenture
under which the notes were issued.
Use of proceeds..............We will not receive any of the proceeds from the
sale of securities under this prospectus.
Trading......................The notes are eligible for trading in the PORTAL
market; however, we can provide no assurance as to
the liquidity of, or trading markets for, the
notes. Our common stock is traded on the Nasdaq
National Market under the symbol "VRTX."
Risk factors.................See "Risk Factors" and the other information in
this prospectus for a discussion of the factors you
should carefully consider before deciding to invest
in the notes or our common stock.
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE THE NOTES OR OUR
COMMON STOCK.
THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES WE FACE. OTHERS THAT WE DO
NOT KNOW ABOUT NOW, OR THAT WE DO NOT NOW THINK ARE IMPORTANT, MAY IMPAIR OUR
BUSINESS OR THE TRADING PRICE OF OUR SECURITIES.
WE DO NOT KNOW HOW SUCCESSFUL AGENERASE WILL BE IN THE MARKET.
Agenerase was launched only about a year ago and is currently awaiting marketing
approval by regulatory authorities in a number of major markets, including the
EU. It is too early to predict the extent to which Agenerase 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, other drugs are still in development by our competitors, which may
have more efficacy, fewer side effects, easier administration and/or lower costs
than Agenerase. HIV has been shown to develop resistance to antiviral drugs,
including currently marketed HIV protease inhibitors. We cannot be sure whether
such disease resistance or other factors may limit the efficacy of Agenerase.
Although we co-promote Agenerase in the U.S. and intend to co-promote it in
Europe, most of the marketing and sales efforts are being made by Glaxo
Wellcome, and we will have little control over the success of those efforts.
Glaxo Wellcome has the right to terminate its agreement with us without cause
upon twelve months' notice.
WE DO NOT KNOW WHETHER DEVELOPMENT OF OUR DRUG PIPELINE WILL BE SUCCESSFUL.
The products that we are pursuing will require extensive additional development,
testing and investment, as well as regulatory approvals, prior to
commercialization. We cannot be sure whether our 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 us are
not necessarily predictive of results that will be obtained from large-scale
clinical testing. We cannot be sure that clinical trials of products under
development will demonstrate the safety and efficacy of such products or will
result in a marketable product. In addition, the administration alone or in
combination with other drugs of any product developed by us 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 our 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 our drug candidates other than Agenerase.
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We or our collaborators may encounter difficulties in manufacturing process
development and formulation activities that could result in delays in clinical
trials, regulatory submissions, regulatory approvals, and commercialization of
our products, or cause negative financial and competitive consequences.
DEVELOPMENT PROGRESS MAY BE SLOWED BY CLINICAL TRIAL DELAYS.
The rate of completion of clinical trials of our 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, the level of
compliance by the clinical sites to clinical trial protocols, 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 our company. We cannot be certain that
if clinical trials are completed, we 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.
WE MAY NOT OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY BASIS, OR AT
ALL.
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 our
products, if any are developed and submitted for approval, for a considerable
period of time, to impose costly procedures upon our activities and to provide
competitive advantages to companies more experienced in regulatory affairs that
compete with us. Moreover, even if approval is granted, such approval may entail
limitations on the indicated uses for which a compound may be marketed.
OUR PRODUCTS, EVEN IF APPROVED BY THE FDA OR FOREIGN REGULATORY AUTHORITIES, MAY
NOT BE ACCEPTED BY PHYSICIANS, INSURERS OR PATIENTS.
If any of our products after receiving FDA or other foreign regulatory approval
fails to achieve market acceptance, our ability to become profitable in the
future could be adversely affected. We believe that market acceptance depends on
our ability to provide acceptable evidence of safety, efficacy and
cost-effectiveness, among other factors.
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WE DEPEND ON COLLABORATIVE PARTNERS FOR THE DEVELOPMENT AND COMMERCIALIZATION OF
OUR PRODUCTS.
Our collaborative partners have agreed to fund portions of our research and
development programs and/or to conduct certain research and development relating
to specified products. In exchange, we have given them technology, product and
marketing rights relating to those products. Some of our corporate partners have
rights to control the planning and execution of product development and clinical
programs. The corporate partners may exercise their control rights in ways that
may negatively impact the timing and success of those programs. Our
collaborations are subject to termination rights by the collaborators. If any of
our corporate collaborators were to terminate its relationship with us, it could
have a material adverse effect on our ability to fund related and other programs
and to develop, manufacture and market any products that may have resulted from
the collaboration. We expect to seek additional collaborative arrangements to
develop and commercialize our products in the future. We cannot be certain that
we will be able to establish acceptable collaborative arrangements in the future
or that such collaborative arrangements will be successful. Under certain of
our collaborative agreements, our partners have agreed to provide funding for
only a portion of our research and development activities, and we are
committed to investing our own capital to fund the remainder of the agreed
upon programs. We cannot be sure that we will have adequate financial
resources to satisfy those requirements.
IT IS POSSIBLE THAT WE MAY LOSE OUR TECHNOLOGICAL ADVANTAGE BECAUSE
PHARMACEUTICAL RESEARCH TECHNOLOGIES CHANGE RAPIDLY.
The pharmaceutical research field is characterized by rapid technological
progress and intense competition. Further, we believe 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 we use. It is possible that our competitors could
acquire or develop technologies that would render our technology obsolete or
noncompetitive. We cannot be certain that we will be able to access the same
technologies at an acceptable price, or at all.
OUR COMPETITORS MAY BRING SUPERIOR PRODUCTS TO MARKET OR MAY BRING THEIR
PRODUCTS TO MARKET BEFORE WE DO.
We do not know whether our products in development will be able to compete
effectively with products which are currently on the market or new products that
may be developed by others. There are many other companies developing products
for the same indications that we are pursuing in development. In order to
compete successfully in these areas, we must demonstrate improved safety,
efficacy, ease of manufacturing and market acceptance over competing products
which have received regulatory approval and are currently marketed. Many of our
competitors have substantially greater financial, technical and human resources
than we do. In addition, many of our competitors have significantly greater
experience than we do in conducting preclinical testing and human clinical
trials of new pharmaceutical products, and in obtaining FDA and other regulatory
approvals of products. Accordingly, our competitors may succeed in obtaining
regulatory approval for products more rapidly than we do. If we obtain
regulatory approval and launch commercial sales of our products, we will also
compete with respect to
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manufacturing efficiency and sales and marketing capabilities, areas in which we
currently have limited experience.
THE LOSS OF THE SERVICES OF KEY EMPLOYEES OR THE FAILURE TO HIRE QUALIFIED
EMPLOYEES WOULD NEGATIVELY IMPACT OUR BUSINESS AND FUTURE GROWTH.
Because our products are highly technical in nature, only highly qualified and
trained scientists have the necessary skills to develop our products. Our future
success will depend in large part on the continued services of our key
scientific and management personnel. We face intense competition for these
professionals from our competitors, our collaborative partners and other
companies throughout our industry. Our failure to retain, as well as hire, train
and effectively integrate into our organization, a sufficient number of
qualified scientists and professionals would negatively impact our business and
our ability to grow our business. In addition, the level of funding under
certain of our collaborative agreements depends on the number of Vertex
scientists performing research under those agreements. If we cannot hire and
retain the required personnel, funding received under the agreements may be
reduced.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY SUFFER.
Our ability to commercialize our products, achieve our expansion objectives and
manage our growth effectively depends on a variety of factors. Key factors
include our ability to develop products internally, enter into strategic
partnerships with collaborators, attract and retain skilled employees and
effectively expand our internal organization to accommodate anticipated growth.
If we are unable to manage growth effectively, there could be a material adverse
effect on our business, financial condition and results of operations.
WE DEPEND ON THIRD PARTY MANUFACTURERS.
Our ability to conduct clinical trials and our ability to commercialize our
potential products will depend, in part, on our ability to manufacture our
products on a large scale, either directly or through third parties, at a
competitive cost and in accordance with FDA and other regulatory requirements.
We currently do not have the capacity to manufacture drugs in large-scale
quantities. We depend on third party manufacturers or collaborative partners for
the production of our compounds for preclinical research, clinical trial
purposes and commercial production. If we are not able to obtain contract
manufacturing on commercially reasonable terms, we may not be able to conduct or
complete clinical trials or commercialize our products as planned. We have no
experience in manufacturing pharmaceutical or other products, and we do not know
whether we will be able to develop such capabilities. Some of our current
corporate partners have manufacturing rights with respect to our products under
development. If those partners do not either supply products to us promptly and
on acceptable terms or transfer the manufacturing technology to us, we may not
be able to conduct our development programs and commercialize any resulting
products in a timely and efficient manner.
OUR PATENTS MAY NOT PROTECT OUR PRODUCTS, AND OUR PRODUCTS MAY INFRINGE
THIRD-PARTY PATENTS.
Our success will depend, in significant part, on our ability to obtain and
maintain United States and foreign patent protection for our products, their
uses and our processes to preserve our trade
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secrets and to operate without infringing the proprietary rights of third
parties. We do not know whether any patents will issue from any of our patent
applications or, even if patents issue or have issued, that the issued claims
will provide us 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 law or policy regarding the valid
breadth of claims in biopharmaceutical patents or the effect of prior art on
them. If we are not able to obtain adequate patent protection, our ability to
prevent competitors from making, using and selling competing products will be
limited. Furthermore, our activities may infringe the claims of patents held by
third parties. We are currently contesting a suit filed by Chiron Corporation
claiming infringement of three U.S. patents issued to Chiron. Although we
believe that the ultimate outcome of the action will not have a material impact
on our consolidated financial position, defense and prosecution of patent
claims, including those at issue in the Chiron case, as well as participation in
other inter-party proceedings, can be expensive and time-consuming, even in
those instances in which the outcome is favorable to us. If the outcome of any
such litigation or proceeding were adverse, we 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 our company.
WE EXPECT TO INCUR FUTURE LOSSES AND CANNOT BE CERTAIN THAT WE WILL BECOME A
PROFITABLE COMPANY.
We have incurred significant operating losses each year since our inception and
expect to incur a significant operating loss in 2000. We believe that operating
losses will continue beyond 2000, even if significant royalties are realized on
Agenerase sales, because we are planning to make significant investments in
research and development, and will incur significant selling, general, and
administrative expenses for our other potential products. We expect that losses
will fluctuate from quarter to quarter and year to year, and that such
fluctuations may be substantial. We cannot be certain that we will ever achieve
and sustain profitability.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.
We expect to incur substantial research and development and related supporting
expenses as we design and develop existing and future compounds and undertake
clinical trials of potential drugs resulting from such compounds. We also expect
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. We anticipate that
we will finance these substantial cash needs with:
- Agenerase royalty revenue;
- future product sales to the extent that we market products
directly;
- future payments under our collaborative agreements;
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- existing cash reserves, together with interest earned on those
reserves;
- facilities and equipment financing; and
- additional collaborative agreements.
If funds from these sources are not sufficient to fund our activities, it will
be necessary to raise additional funds through public offerings or private
placements of equity or debt securities or other methods of financing. Any
equity financings could result in dilution to our then existing security
holders. Any debt financing, if available at all, may be on terms which, among
other things, restrict our ability to pay dividends and interest (although we do
not intend to pay dividends for the foreseeable future). If adequate funds are
not available, we may be required to curtail significantly or discontinue one or
more of our research, drug discovery or development programs, including clinical
trials, or attempt to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies or products in research or development. We cannot know whether
additional financing will be available on acceptable terms, if at all.
GOVERNMENT AND PRIVATE INSURANCE PLANS MAY NOT PAY FOR OUR PRODUCTS.
The success of our 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 payers and other organizations. We
cannot always determine in advance the reimbursement status of newly approved
therapeutic products. Even if a product is approved for marketing, we cannot be
sure that adequate reimbursement will be available. Also, future legislation or
regulation relating to the health care industry or third-party coverage and
reimbursement may affect our business. In particular, legislation or regulation
limiting consumers' reimbursement rights could have a material adverse effect on
our company.
OUR SALES AND MARKETING EXPERIENCE IS LIMITED.
We currently have little experience in marketing and selling pharmaceutical
products. We must either develop a marketing and sales force or enter into
arrangements with third parties to market and sell any of our product candidates
which are approved by the FDA. In the territories where we retain marketing and
co-promotion rights, we may not be able to develop successfully our own sales
and marketing force. We do not know whether we will be able to enter into
marketing and sales agreements with others on acceptable terms, if at all. If we
develop our own marketing and sales capability, we may be competing with other
companies that currently have experienced and well-funded marketing and sales
operations. To the extent that our collaborative partners have commercial rights
to our products, any revenues we receive from those products will depend on the
sales and marketing efforts of others, and we do not know how successful those
efforts will be.
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WE MAY INCUR PRODUCT LIABILITY EXPENSES.
Our business will expose us to potential product liability risks that arise from
the testing, manufacturing and sales of our products. In addition to direct
expenditures for damages, settlement and defense costs, there is the possibility
of adverse publicity as a result of product liability claims. These risks will
increase as our products receive regulatory approval and are commercialized. We
do not know whether we will be able to maintain our existing levels of product
liability insurance or be able to obtain or maintain any additional insurance we
may need in the future on acceptable terms. Nor can we be sure that our existing
insurance or any such additional insurance will provide adequate coverage
against potential liabilities.
SOME OF OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS, WHICH COULD SUBJECT US TO
SIGNIFICANT LIABILITY.
Our research and development activities may from time to time involve the
controlled use of hazardous materials, including hazardous chemicals and
radioactive materials. Accordingly, we are subject to federal, state and local
laws governing the use, handling and disposal of these materials. Although we
believe that our safety procedures for handling and disposing of hazardous
materials comply with regulatory requirements, we cannot completely eliminate
the risk that accidental contamination or injury from these materials could
expose us to significant liability.
EVENTS WITH RESPECT TO OUR SHARE CAPITAL COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE.
Sales of substantial amounts of our common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. As of March 31, 2000, we had 26,171,877 shares of common stock
outstanding, excluding shares reserved for issuance upon the exercise of
outstanding stock options, employee stock purchase and 401(k) plans. As of that
date, we had granted stock options to purchase 6,285,637 shares of our common
stock at a weighted average exercise price of approximately $24.11 per share
(subject to adjustment in certain circumstances). Of this total, 3,203,464 were
exercisable at an average exercise price of approximately $21.37 per share. The
shares of our common stock that may be issued under the options are either
currently registered with the SEC, or will be registered with the SEC before the
shares are purchased by the holders of the options.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT MAY DISCOURAGE A CHANGE OF
CONTROL.
Our corporate charter and by-law provisions and stockholder rights plan may
discourage certain types of transactions involving an actual or potential change
of control of Vertex which might be beneficial to the company or its
securityholders. Our charter provides for staggered terms for the members of the
Board of Directors. Our 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 our stockholder rights plan, each
share of common stock has
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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. We may issue shares of any
class or series of preferred stock in the future without stockholder approval
and upon such terms as our 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.
ADOPTION OF SAB 101 MAY INCREASE OUR REPORTED NET LOSSES.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance related
to revenue recognition and disclosure. We plan to adopt SAB 101 in the second
quarter of 2000, and we are currently determining what impact this will have on
our financial statements. This impact could be material to net financial
results.
OUR STOCK PRICE MAY FLUCTUATE BASED ON FACTORS BEYOND OUR CONTROL.
Market prices for securities of companies such as Vertex are highly volatile.
Within the last 12 months our common stock has traded between $19.38 and $90.38.
The market for our stock, like that of other companies in the biotechnology
field, has from time to time experienced significant price and volume
fluctuations that are unrelated to our operating performance. Fluctuations in
the trading price of our common stock will affect the trading price of the
notes. The future market price of our securities could be significantly and
adversely affected by factors such as:
- announcements of results of clinical trials;
- technological innovations or the introduction of new products
by our competitors;
- government regulatory action;
- public concern as to the safety of products developed by
others;
- patent or proprietary rights; and
- developments and market conditions for pharmaceutical and
biotechnology stocks, in general.
OUR OUTSTANDING INDEBTEDNESS HAS INCREASED SUBSTANTIALLY WITH THE ISSUANCE OF
THE NOTES.
As of March 31, 2000, we had approximately $181.0 million in long-term debt,
including $175 million from the sale of the notes. This increased indebtedness
may impact us by:
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- significantly increasing our interest expense and related debt
service costs;
- making it more difficult to obtain additional financing; and
- constraining our ability to react quickly in an unfavorable
economic climate.
WE MAY NOT GENERATE SUFFICIENT CASH FLOW TO PAY INTEREST ON THE NOTES.
We may not generate sufficient cash flow to satisfy the annual debt service
payments on the notes. This may require us to use a portion of the proceeds from
the sale of the notes to pay interest on the notes or borrow additional funds or
sell additional equity to meet our debt service obligations. If we are unable to
satisfy our debt service requirements, substantial liquidity problems could
result, which would negatively impact our future prospects.
THE NOTES ARE SUBORDINATED TO ANY EXISTING AND FUTURE SENIOR DEBT.
The notes are contractually subordinated in right of payment to our existing and
future senior debt. As of March 31, 2000, we had approximately $6 million of
senior debt. The indenture under which the notes were issued does not limit the
creation of additional senior debt (or any other indebtedness). In connection
with the expansion of our facilities, we expect that we may significantly
increase our senior debt in the near future. Any significant additional senior
debt incurred may materially adversely impact our ability to service our debt,
including the notes. Due to subordination provisions contained in the indenture
under which the notes have been issued and other agreements relating to our
senior debt, in the event of our insolvency, funds which we would otherwise use
to pay the holders of the notes will be used to pay the holders of senior debt
to the extent necessary to pay the senior debt in full. As a result of these
payments, our general creditors may recover less, ratably, than the holders of
our senior debt and such general creditors may recover more, ratably, than the
holders of our notes or our other subordinated indebtedness. In addition, the
holders of our senior debt may, under certain circumstances, restrict or
prohibit us from making payments on the notes.
OUR ABILITY TO REPURCHASE NOTES, IF REQUIRED, MAY BE LIMITED.
In certain circumstances involving a change of control, each holder of the notes
may require us to repurchase some or all of the holder's notes. We cannot assure
you that we will have sufficient financial resources at such time or would be
able to arrange financing to pay the repurchase price of the notes. Our ability
to repurchase the notes in such event may be limited by law, the indenture, by
the terms of other agreements relating to our senior debt and as such
indebtedness and agreements may be entered into, replaced, supplemented or
amended from time to time. We may be required to refinance our senior debt in
order to make such payments.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT BE SUSTAINED.
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Although the notes are eligible for trading in the PORTAL market, we cannot
predict whether an active trading market for the notes will be sustained. If an
active market for the notes is not sustained, the trading price of the notes
could fall. Whether or not the notes will trade at lower prices depends on many
factors, including:
- prevailing interest rates and the markets for similar
securities;
- general economic conditions; and
- our financial condition, historic financial performance and
future prospects.
ANY RATING OF THE NOTES MAY CAUSE THEIR TRADING PRICE TO FALL.
The notes are not currently rated. If the rating agencies rate the notes, they
may assign a lower rating than expected by investors. Rating agencies may also
lower ratings on the notes in the future. If the rating agencies assign a lower
than expected rating or reduce their ratings in the future, the trading price of
the notes could decline.
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RATIO OF EARNINGS TO FIXED CHARGES
We present below the ratio of our earnings to our fixed charges. Earnings
consist of net loss from operations, income (loss) in equity affiliate and
fixed charges. Fixed charges consist of interest expense and that portion of
rental expense we believe to be representative of interest.
<TABLE>
<CAPTION>
Year ended Three Months
December 31, Ended March 31
--------------------------------------------------------- --------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges (1) (1) (1) (1) (1) (1)
</TABLE>
(1) For the years ended December 31, 1995, 1996, 1997, 1998, and 1999 and for
the three months ended March 31, 2000, earnings were insufficient to cover
fixed charges by $21.5 million, $40.0 million, $19.8 million, $33.1
million, $41.0 million, and $16.2 million, respectively. For this reason,
no ratios are provided.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the notes or of our
common stock by the selling holders.
DESCRIPTION OF THE NOTES
The notes were issued under an indenture between us and State Street Bank and
Trust Company, as trustee, dated March 14, 2000. Copies of the form of
indenture, notes and registration rights agreement will be made available to
prospective investors in the notes upon request to us, and a copy of the
indenture is filed with the SEC as an exhibit to the registration statement
for the notes and shares of common stock into which the notes may be
converted.
We have summarized portions of the indenture below. This summary is not
complete. We urge you to read the indenture because it defines your rights as a
holder of the notes. Terms not defined in this description have the meanings
given them in the indenture. In this section, "Vertex", "we", "our" and "us"
each refers only to Vertex Pharmaceuticals Incorporated and not to any existing
or future subsidiary.
GENERAL
The notes are unsecured, subordinated obligations of Vertex and are convertible
into our common stock as described under "Conversion Rights" below. The notes
were issued in an aggregate principal amount of $175,000,000 and will mature on
March 14, 2007.
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The notes bear interest at the rate of 5% per year from the date of issuance of
the notes, or from the most recent date to which interest had been paid or
provided for, subject to adjustment upon the occurrence of a Reset Transaction.
See "Interest Rate Adjustments" below. Interest is payable semi-annually on
March 14 and September 14 of each year, commencing September 14, 2000, to
holders of record at the close of business on the preceding March 1 and
September 1, respectively. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months. In the event of the maturity, conversion,
purchase by us at the option of the holder or redemption of a note, interest
will cease to accrue on the note under the terms of and subject to the
conditions of the indenture.
Principal will be payable, and notes may be presented for conversion,
registration of transfer and exchange, without service charge, at our office or
agency in New York City, which is initially the office or agency of the trustee
in New York, New York. See "Form, Denomination and Registration."
The indenture does not contain any financial covenants or any restrictions on
the payment of dividends, the incurrence of Senior Debt or other indebtedness,
or the issuance or repurchase of securities by us. The indenture contains no
covenants or other provisions to protect holders of the notes in the event of a
highly leveraged transaction or a change in control, except to the extent
described under "Change of Control Permits Purchase of Notes at the Option of
the Holder" below.
INTEREST RATE ADJUSTMENTS
If a Reset Transaction occurs, the interest rate will be adjusted to equal the
Adjusted Interest Rate from the effective date of such Reset Transaction to, but
not including, the effective date of any succeeding Reset Transaction.
A "Reset Transaction" means:
- a merger, consolidation or statutory share exchange to which
the entity that is the issuer of the common stock into which
the notes are then to be convertible is a party;
- a sale of all or substantially all the assets of that entity;
- a recapitalization of that common stock; or
- a distribution described in clause (4) of the fourth paragraph
under "Conversion Rights" below,
after the effective date of which transaction or distribution the notes would be
convertible into:
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- shares of an entity the common stock of which had a dividend
yield for the four fiscal quarters of such entity immediately
preceding the public announcement of the transaction or
distribution that was more than 2.5% higher than the dividend
yield on our common stock (or other common stock then issuable
upon conversion of the notes) for the four fiscal quarters
preceding the public announcement of the transaction or
distribution; or
- shares of an entity that announces a dividend policy prior to
the effective date of the transaction or distribution which
policy, if implemented, would result in a dividend yield on
that entity's common stock for the next four fiscal quarters
that would result in such a 2.5% increase.
The "Adjusted Interest Rate" with respect to any Reset Transaction will be the
rate per year that is the arithmetic average of the rates quoted by two dealers
engaged in the trading of convertible securities selected by us or our successor
as the rate at which interest should accrue so that the fair market value,
expressed in dollars, of a note immediately after the later of:
- the public announcement of the Reset Transaction; or
- the public announcement of a change in dividend policy in
connection with the Reset Transaction,
will equal the average Trading Price of a note for the 20 trading days preceding
the date of public announcement of the Reset Transaction. However, the Adjusted
Interest Rate will not be less than 5% per year.
For purposes of the definition of Reset Transaction, the dividend yield on any
security for any period means the dividends paid or proposed to be paid pursuant
to an announced dividend policy on the security for that period divided by, if
with respect to dividends paid on that security, the average Closing Price (as
defined in the indenture) of the security during that period and, if with
respect to dividends proposed to be paid on the security, the Closing Price of
such security on the effective date of the related Reset Transaction.
The "Trading Price" of a security on any date of determination means:
- the closing sale price (or, if no closing sale price
is reported, the last reported sale price) of a
security (regular way) on the New York Stock Exchange
("NYSE") on that date;
- if that security is not listed on the NYSE on that
date, the closing sale price as reported in the
composite transactions for the principal U.S.
securities exchange on which that security is listed;
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- if that security is not so listed on a U.S. national
or regional securities exchange, the closing sale
price as reported by the Nasdaq National Market;
- if that security is not so reported, the last price
quoted by Interactive Data Corporation for that
security or, if Interactive Data Corporation is not
quoting such price, a similar quotation service
selected by us;
- if that security is not so quoted, the average of the
mid-point of the last bid and ask prices for that
security from at least two dealers recognized as
market-makers for that security; or
- if that security is not so quoted, the average of the
last bid and ask prices for that security from a
dealer engaged in the trading of convertible
securities.
SUBORDINATION
The notes are unsecured obligations and are subordinated in right of payment, as
provided in the indenture, to the prior payment in full of all our existing and
future Senior Debt.
As of March 31, 2000, we had approximately $6 million of Senior Debt
outstanding. The indenture does not restrict the incurrence by us or our
subsidiaries of indebtedness or other obligations.
The term "Senior Debt" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
termination payment with respect to or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, our
Indebtedness, whether outstanding on the date of the indenture or subsequently
created, incurred, assumed, guaranteed or in effect guaranteed by us (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), except for
- any Indebtedness that by its terms expressly provides
that such Indebtedness shall not be senior in right
of payment to the notes or expressly provides that
such Indebtedness is equal with or junior to the
notes, and
- any Indebtedness between or among us and/or any of
our subsidiaries, a majority of the voting stock of
which we directly or indirectly own, or any of our
affiliates.
The term "Indebtedness" means, with respect to any person:
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1. all indebtedness, obligations and other liabilities (contingent or
otherwise) of that person for borrowed money (including obligations in
respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or
advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or other
instruments for the payment of money, or incurred in connection with
the acquisition of any property, services or assets (whether or not the
recourse of the lender is to the whole of the assets of such person or
to only a portion thereof), other than any account payable or other
accrued current liability or obligation to trade creditors incurred in
the ordinary course of business in connection with the obtaining of
materials or services;
2. all reimbursement obligations and other liabilities (contingent or
otherwise) of that person with respect to letters of credit, bank
guarantees, bankers' acceptances, surety bonds, performance bonds or
other guaranty of contractual performance;
3. all obligations and liabilities (contingent or otherwise) in respect
of (A) leases of such person required, in conformity with generally
accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such person, and (B) any
lease or related documents (including a purchase agreement) in
connection with the lease of real property which provides that such
person is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual
value of the leased property to the landlord and the obligations of
such person under such lease or related document to purchase or to
cause a third party to purchase the leased property;
4. all obligations of such person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or
other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement;
5. all direct or indirect guaranties or similar agreements by that
person in respect of, and obligations or liabilities (contingent or
otherwise) of that person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations
or liabilities of another person of the kind described in clauses (1)
through (4);
6. any indebtedness or other obligations described in clauses (1)
through (4) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such person, regardless
of whether the indebtedness or other obligation secured thereby shall
have been assumed by such person; and
7. any and all deferrals, renewals, extensions, refinancings,
replacements, restatements and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (1) through (6).
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Any Senior Debt will continue to be Senior Debt and will be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any of its terms.
The indenture provides that in the event of any payment or distribution of our
assets upon our dissolution, winding up, liquidation or reorganization, the
holders of our Senior Debt shall first be paid in respect of all Senior Debt in
full in cash or other payment satisfactory to the holders of Senior Debt before
we make any payments of principal of, or premium, if any, and interest
(including liquidated damages, if any) on the notes. In addition, if the notes
are accelerated because of an event of default, the holders of any Senior Debt
would be entitled to payment in full in cash or other payment satisfactory to
the holders of Senior Debt of all obligations in respect of Senior Debt before
the holders of the notes are entitled to receive any payment or distribution.
Under the indenture, we must promptly notify holders of Senior Debt if payment
of the notes is accelerated because of an event of default.
The indenture further provides if any default by us has occurred and is
continuing in the payment of principal of, premium, if any, or interest on, rent
or other payment obligations in respect of, any Senior Debt, then no payment
shall be made on account of principal of, premium, if any, or interest on the
notes (including any liquidated damages), until all such payments due in respect
of that Senior Debt have been paid in full in cash or other payment satisfactory
to the holders of that Senior Debt.
During the continuance of any event of default with respect to any Designated
Senior Debt (other than a default in payment of the principal of or premium, if
any, or interest on, rent or other payment obligations in respect of any
Designated Senior Debt), permitting the holders thereof to accelerate the
maturity thereof (or, in the case of any lease, permitting the landlord either
to terminate the lease or to require us to make an irrevocable offer to
terminate the lease following an event of default thereunder), no payment may be
made by us, directly or indirectly, with respect to principal of or premium, if
any, or interest on the notes (including any liquidated damages, if any) for 179
days following written notice to us, from any holder, representative or trustee
under any agreement pursuant to which that Designated Senior Debt may have been
issued, that such an event of default has occurred and is continuing, unless
such event of default has been cured or waived or that Designated Senior Debt
has been paid in full in cash or other payment satisfactory to the holders of
that Designated Senior Debt. However, if the maturity of that Designated Senior
Debt is accelerated (or, in the case of a lease, as a result of such events of
default, the landlord under the lease has given us notice of its intention to
terminate the lease or to require us to make an irrevocable offer to terminate
the lease following an event of default thereunder), no payment may be made on
the notes until that Designated Senior Debt has been paid in full in cash or
other payment satisfactory to the holders of that Designated Senior Debt or such
acceleration (or termination, in the case of the lease) has been cured or
waived.
The term "Designated Senior Debt" means our Senior Debt which, at the date of
determination, has an aggregate amount outstanding of, or under which, at the
date of determination, the holders thereof are committed to lend up to, at least
$20 million and is specifically designated in the instrument evidencing or
governing that Senior Debt as "Designated Senior Debt" for purposes
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of the indenture. However, the instrument may place limitations and conditions
on the right of that Senior Debt to exercise the rights of Designated Senior
Debt. Borrowings under the Credit Agreement, dated December 21, 1999, by and
among Vertex and Fleet Bank, N.A. will constitute Designated Senior Debt. At
March 31, 2000, we had no Designated Senior Debt outstanding.
By reason of these subordination provisions, in the event of insolvency, funds
which we would otherwise use to pay the holders of notes will be used to pay the
holders of Senior Debt to the extent necessary to pay Senior Debt in full in
cash or other payment satisfactory to the holders of Senior Debt. As a result of
these payments, our general creditors may recover less, ratably, than holders of
Senior Debt and such general creditors may recover more, ratably, than holders
of notes.
The notes will be effectively subordinated to all existing and future
liabilities of our subsidiaries. Any right we have to receive assets of any of
our existing and future subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the holders of the notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent that we are ourselves
recognized as a creditor of that subsidiary, in which case our claims would
still be subordinate to any security interests in the assets of that subsidiary
and any indebtedness of that subsidiary senior to that held by us. There are no
restrictions in the indenture on the ability of our subsidiaries to incur
Indebtedness or other liabilities. As of March 31, 2000, our existing
subsidiaries had no indebtedness outstanding.
We are obligated to pay reasonable compensation to the trustee and to indemnify
the trustee against any losses, liabilities or expenses incurred by it in
connection with its duties relating to the notes. The trustee's claims for such
payments will be senior to those of holders of the notes in respect of all funds
collected or held by the trustee.
CONVERSION RIGHTS
The holders of notes may, at any time prior to the close of business on the
final maturity date of the notes, convert any outstanding notes (or portions
thereof) into our common stock, initially at a conversion price of $80.64 per
share, subject to adjustment as described below. Holders may convert notes only
in denominations of $1,000 and whole multiples of $1,000. Except as described
below, no adjustment will be made on conversion of any notes for interest
accrued thereon or dividends paid on any common stock.
If notes are converted after a record date for an interest payment but prior to
the next interest payment date, those notes, other than notes called for
redemption, must be accompanied by funds equal to the interest payable on the
next interest payment date on the principal amount so converted. No payment will
be required from a holder if we exercise our right to redeem such notes on a
redemption date that is an interest payment date. We will not issue fractional
shares of common stock upon conversion of notes and instead will pay a cash
adjustment based upon the market price of our common stock on the last business
day before the date of the conversion. In the case of notes called for
redemption, conversion rights will expire at the close of business on
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the second business day preceding the date fixed for redemption, unless we
default in payment of the redemption price.
A holder may exercise the right of conversion by delivering the note to be
converted to the specified office of a conversion agent, with a completed notice
of conversion, together with any funds that may be required as described in the
preceding paragraph. The conversion date will be the date on which the notes,
the notice of conversion and any required funds have been so delivered. A holder
delivering a note for conversion will not be required to pay any taxes or duties
relating to the issuance or delivery of the common stock for such conversion,
but will be required to pay any tax or duty which may be payable relating to any
transfer involved in the issuance or delivery of the common stock in a name
other than the holder of the note. Certificates representing shares of common
stock will be issued or delivered only after all applicable taxes and duties, if
any, payable by the holder have been paid. If any note is converted within two
years after its original issuance, the common stock issuable upon conversion
will not be issued or delivered in a name other than that of the holder of the
note unless the applicable restrictions on transfer have been satisfied.
The initial conversion price will be adjusted for certain events, including:
1. the issuance of our common stock as a dividend or distribution on
our common stock;
2. certain subdivisions and combinations of our common stock;
3. the issuance to all holders of our common stock of certain rights or
warrants to purchase our common stock (or securities convertible into
our common stock) at less than (or having a conversion price per share
less than) the current market price of our common stock;
4. the dividend or other distribution to all holders of our common
stock of shares of our capital stock (other than common stock) or
evidences of our indebtedness or our assets (including securities, but
excluding those rights and warrants referred to above and dividends and
distributions in connection with a reclassification, change,
consolidation, merger, combination, sale or conveyance resulting in a
change in the conversion consideration pursuant to the second
succeeding paragraph or dividends or distributions paid exclusively in
cash);
5. dividends or other distributions consisting exclusively of cash to
all holders of our common stock to the extent that such distributions,
combined together with (A) all other such all-cash distributions made
within the preceding 12 months for which no adjustment has been made
plus (B) any cash and the fair market value of other consideration paid
for any tender or exchange offers by us or any of our subsidiaries for
our common stock concluded within the preceding 12 months for which no
adjustment has been made, exceeds 10% of our market capitalization on
the record date for such distribution; market capitalization is the
product of the then current market price of our common stock times the
number of shares of our common stock then outstanding; and
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6. payments to holders of our common stock pursuant to a tender or
exchange offer made by us or any of our subsidiaries to the extent that
the same involves aggregate consideration that, together with (A) any
cash and the fair market value of any other consideration paid in any
other tender or exchange offer by us or any of our subsidiaries for our
common stock expiring within the 12 months preceding such tender or
exchange offer for which no adjustment has been made plus (B) the
aggregate amount of any all-cash distributions referred to in clause
(5) above to all holders of our common stock within 12 months preceding
the expiration of such tender or exchange offer for which no
adjustments have been made, exceeds 10% of our market capitalization on
the expiration of such tender or exchange offer.
No adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% in the conversion price then in effect at
such time. Any adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment. Except as
stated above, the conversion price will not be adjusted for the issuance of our
common stock or any securities convertible into or exchangeable for our common
stock or carrying the right to purchase any of the foregoing.
In the case of:
- any recapitalization, reclassification or change of
our common stock (other than changes resulting from a
subdivision or combination),
- a consolidation, merger or combination involving us,
- a sale, conveyance or lease to another corporation of
all or substantially all of our property and assets,
or
- any statutory share exchange,
in each case as a result of which holders of our common stock are entitled to
receive stock, other securities, other property or assets (including cash or any
combination thereof) with respect to or in exchange for our common stock, the
holders of the notes then outstanding will be entitled thereafter to convert
those notes into the kind and amount of shares of stock, other securities or
other property or assets (including cash or any combination thereof) which they
would have owned or been entitled to receive upon such recapitalization,
reclassification, change, consolidation, merger, combination, sale, conveyance
or statutory share exchange had such notes been converted into our common stock
immediately prior to such recapitalization, reclassification, change,
consolidation, merger, combination, sale, conveyance or statutory share
exchange. We may not become a party to any such transaction unless its terms are
consistent with the foregoing.
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If a taxable distribution to holders of our common stock or other transaction
occurs which results in any adjustment of the conversion price, the holders of
notes may, in certain circumstances, be deemed to have received a distribution
subject to U.S. income tax as a dividend. In certain other circumstances, the
absence of an adjustment may result in a taxable dividend to the holders of
common stock. See "United States Federal Income Tax Considerations."
We may from time to time, to the extent permitted by law, reduce the conversion
price of the notes by any amount for any period of at least 20 days. In that
case we will give at least 15 days' notice of such decrease. We may make such
reductions in the conversion price, in addition to those set forth above, as our
board of directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for income tax
purposes.
PROVISIONAL REDEMPTION
We may redeem the notes, in whole or in part, at any time prior to March 17,
2003, at a redemption price equal to $1,000 per $1,000 principal amount of notes
to be redeemed plus accrued and unpaid interest, if any, to the provisional
redemption date if:
- the closing price of our common stock has exceeded 150% of the
conversion price then in effect (as determined based on the
then effective Conversion Rate) for at least 20 trading days
within a period of 30 consecutive trading days ending on the
trading day prior to the date of mailing of the provisional
redemption notice (which date shall be at least 20 but not
more than 60 days prior to the provisional redemption date);
and
- the shelf registration statement covering resales of the notes
and the common stock issuable upon conversion of the notes is
effective and available for use and is expected to remain
effective for the 30 days following the provisional redemption
date.
Upon any provisional redemption, we will make an additional payment in cash with
respect to the notes called for redemption to holders on the notice date in an
amount equal to $107.14 per $1,000 principal amount of notes, less the amount of
any interest actually paid on the notes prior to the notice date. We will be
obligated to make this additional payment on all notes called for provisional
redemption, including any notes converted after the notice date and before the
provisional redemption date.
REDEMPTION OF NOTES AT OUR OPTION
There is no sinking fund for the notes. On and after March 17, 2003, we will be
entitled to redeem some or all of the notes on at least 20 but not more than 60
days' notice, at the redemption prices set out below, together with accrued and
unpaid interest to, but excluding, the date fixed for redemption. However, if a
redemption date is an interest payment date, the semi-
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annual payment of interest becoming due on such date shall be payable to the
holder of record as of the relevant record date and the redemption price shall
not include such interest payment.
The table below shows redemption prices of a note per $1,000 principal amount if
redeemed during the periods described below.
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
March 17, 2003 through March 13, 2004................... 102.857%
March 14, 2004 through March 13, 2005................... 102.143%
March 14, 2005 through March 13, 2006................... 101.429%
Thereafter.............................................. 100.714%
</TABLE>
If we do not redeem all of the notes, the trustee will select the notes to be
redeemed in principal amounts of $1,000 or whole multiples of $1,000 by lot, on
a pro rata basis or in accordance with any other method the trustee considers
fair and appropriate. If any notes are to be redeemed in part only, a new note
or notes in principal amount equal to the unredeemed principal portion thereof
will be issued. If a portion of a holder's notes is selected for partial
redemption and the holder converts a portion of its notes, the converted portion
will be deemed to be taken from the portion selected for redemption.
CHANGE OF CONTROL PERMITS PURCHASE OF NOTES AT THE OPTION OF THE HOLDER
If a Change of Control occurs, each holder of notes will have the right to
require us to repurchase some or all of that holder's notes not previously
called for redemption, or any portion of those notes that is equal to $1,000 or
a whole multiple of $1,000, on the date that is 45 days after the date we give
notice at a repurchase price equal to 100% of the principal amount of the notes
to be repurchased, together with interest accrued and unpaid to, but excluding,
the repurchase date.
Instead of paying the repurchase price in cash, we may pay the repurchase price
in common stock. The number of shares of common stock a holder will receive will
equal the repurchase price divided by 95% of the average of the closing sales
prices of our common stock for the five trading days immediately preceding and
including the third trading day prior to the repurchase date. However, we may
not pay in common stock unless we satisfy certain conditions prior to the
repurchase date as provided in the indenture.
Within 30 days after the occurrence of a Change of Control, we are required to
give notice to all holders of notes, as provided in the indenture, of the
occurrence of the Change of Control and of their resulting repurchase right. We
must also deliver a copy of our notice to the trustee. To exercise the
repurchase right, a holder of notes must deliver prior to or on the 30th day
after the date of our notice irrevocable written notice to the trustee of the
holder's exercise of its repurchase right, together with the notes with respect
to which the right is being exercised.
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A "Change of Control" will be deemed to have occurred at such time after the
original issuance of the notes when the following has occurred:
- the acquisition by any person, including any syndicate or
group deemed to be a "person" under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or
series of transactions of shares of our capital stock
entitling that person to exercise 50% or more of the total
voting power of all shares of our capital stock entitled to
vote generally in elections of directors, other than any
acquisition by us, any of our subsidiaries or any of our
employee benefit plans;
- our consolidation or merger with or into any other person, any
merger of another person into us, or any conveyance, transfer,
sale, lease or other disposition of all or substantially all
of our properties and assets to another person, other than:
any transaction (A) that does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of our capital stock and (B) pursuant to
which holders of our capital stock immediately prior to the
transaction are entitled to exercise, directly or indirectly,
50% or more of the total voting power of all shares of our
capital stock entitled to vote generally in the election of
directors of the continuing or surviving person immediately
after the transaction; or any merger solely for the purpose of
changing our jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares
of common stock solely into shares of common stock of the
surviving entity;
- during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted our board of
directors (together with any new directors whose election to
our board of directors, or whose nomination for election by
our stockholders, was approved by a vote of a majority of the
directors then still in office who were either directors at
the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason
to constitute a majority of our board of directors then in
office; or
- our stockholders pass a resolution approving a plan of
liquidation or dissolution.
The beneficial owner shall be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. The term "person" includes any
syndicate or group which would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
Rule 13e-4 under the Exchange Act, as amended, requires the dissemination of
certain information to security holders if an issuer tender offer occurs and may
apply if the repurchase option becomes available to holders of the notes. We
will comply with this rule to the extent applicable at that time.
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We may, to the extent permitted by applicable law, at any time purchase the
notes in the open market or by tender at any price or by private agreement. Any
note so purchased by us may, to the extent permitted by applicable law, be
reissued or resold or may be surrendered to the trustee for cancellation. Any
notes surrendered to the trustee may not be reissued or resold and will be
canceled promptly.
The foregoing provisions would not necessarily protect holders of the notes if
highly leveraged or other transactions involving us occur that may adversely
affect holders.
Our ability to repurchase notes upon the occurrence of a Change of Control is
subject to important limitations. The occurrence of a Change of Control could
cause an event of default under, or be prohibited or limited by, the terms of
existing or future Senior Debt. As a result, any repurchase of the notes would,
absent a waiver, be prohibited under the subordination provisions of the
indenture until the Senior Debt is paid in full. Further, we cannot assure you
that we would have the financial resources, or would be able to arrange
financing, to pay the repurchase price for all the notes that might be delivered
by holders of notes seeking to exercise the repurchase right. Any failure by us
to repurchase the notes when required following a Change of Control would result
in an event of default under the indenture, whether or not such repurchase is
permitted by the subordination provisions of the indenture. Any such default
may, in turn, cause a default under existing or future Senior Debt. See
"Subordination" above.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of notes, consolidate with, merge
into or transfer all or substantially all of our assets to any corporation,
limited liability company, partnership or trust organized under the laws of the
United States or any of its political subdivisions provided that:
- the surviving entity assumes all our obligations under the
indenture and the notes;
- at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and
- an officers' certificate and an opinion of counsel, each
stating that the consolidation, merger or transfer complies
with the provisions of the indenture, have been delivered to
the trustee.
INFORMATION REQUIREMENT
We have agreed that, during any period in which we are not subject to the
reporting requirements of the Securities Exchange Act of 1934, we will make
available to holders of the notes, or beneficial owners of interests therein, or
any prospective purchaser of the notes, the information
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required by Rule 144A(d)(4) to be made available in connection with the sale of
notes or beneficial interests in the notes.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
1. our failure to pay when due the principal of or premium, if
any, on any of the notes at maturity, upon redemption or exercise of a
repurchase right or otherwise, whether or not such payment is
prohibited by the subordination provisions of the indenture;
2. our failure to pay an installment of interest (including
liquidated damages, if any) on any of the notes for 30 days after the
date when due, whether or not such payment is prohibited by the
subordination provisions of the indenture;
3. our failure to deliver shares of common stock, together with
cash instead of fractional shares, when those shares of common stock or
cash instead of fractional shares, are required to be delivered
following conversion of a note, and that failure continues for 10 days;
4. our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture for a period of 60
days after written notice of such failure, requiring us to remedy the
same, shall have been given to us by the trustee or to us and the
trustee by the holders of at least 25% in aggregate principal amount of
the notes then outstanding;
5. our failure to make any payment by the end of the applicable
grace period, if any, after the maturity of any Indebtedness for
borrowed money in an amount in excess of $5 million, or there is an
acceleration of Indebtedness for borrowed money in an amount in excess
of $5 million because of a default with respect to such Indebtedness
without such Indebtedness having been discharged or such acceleration
having been cured, waived, rescinded or annulled, in either case, for a
period of 30 days after written notice to us by the trustee or to us
and the trustee by holders of at least 25% in aggregate principal
amount of the notes then outstanding; and
6. certain events of our bankruptcy, insolvency or
reorganization.
If an event of default specified in clause (6) above occurs and is continuing,
then the principal of all the notes and the interest thereon shall automatically
become immediately due and payable. If an event of default shall occur and be
continuing, other than with respect to clause (6) above, the trustee or the
holders of at least 25% in aggregate principal amount of the notes then
outstanding may declare the notes due and payable at their principal amount
together with accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of notes by
appropriate judicial proceedings. Such declaration may be rescinded and
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annulled with the written consent of the holders of a majority in aggregate
principal amount of the notes then outstanding subject to the provisions of the
indenture.
The holders of a majority in aggregate principal amount of notes at the time
outstanding through their written consent, or the holders of a majority in
aggregate principal amount of notes then outstanding represented at a meeting at
which a quorum is present by a written resolution, may waive any existing
default or event of default and its consequences except any default or event of
default:
- in any payment on the notes;
- in respect of the conversion rights of the notes; or
- in respect of the covenants or provisions in the indenture
that may not be modified or amended without the consent of the
holder of each note affected as described in "Modification,
Waiver and Meetings" below.
Holders of a majority in aggregate principal amount of the notes then
outstanding through their written consent, or the holders of a majority in
aggregate principal amount of the notes then outstanding represented at a
meeting at which a quorum is present by a written resolution, may direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred upon the trustee, subject
to the provisions of the indenture. The indenture contains a provision entitling
the trustee, subject to the duty of the trustee during a default to act with the
required standard of care, to be indemnified by the holders of notes before
proceeding to exercise any right or power under the indenture at the request of
such holders. The rights of holders of the notes to pursue remedies with respect
to the indenture and the notes are subject to a number of additional
requirements set forth in the indenture.
The right of any holder:
- to receive payment of principal, premium, if any, the Change
of Control purchase price or interest in respect of the notes
held by that holder on or after the respective due dates
expressed in the notes;
- to convert those notes; or
- to bring suit for the enforcement of any such payment on or
after the respective due dates expressed in the notes, and the
right to convert;
will not be impaired or affected without that holder's consent.
The indenture provides that the trustee shall, within 90 days of the occurrence
of a default, give to the registered holders of the notes notice of all uncured
defaults known to it, but the trustee shall be protected in withholding such
notice if it, in good faith, determines that the withholding
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of such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the notes when due or in the payment of any redemption or
repurchase obligation.
We are required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture. In addition, we are required
to file with the trustee a written notice of the occurrence of any default or
event of default within five business days of our becoming aware of the
occurrence of any default or event of default.
MODIFICATION, WAIVER AND MEETINGS
The indenture contains provisions for convening meetings of the holders of notes
to consider matters affecting their interests.
The indenture (including the terms and conditions of the notes) may be modified
or amended by us and the trustee, without the consent of the holder of any note,
for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of
notes;
- surrendering any right or power conferred upon us;
- providing for conversion rights of holders of notes if any
reclassification or change of our common stock or any
consolidation, merger or sale of all or substantially all of
our assets occurs;
- providing for the assumption of our obligations to the holders
of notes in the case of a merger, consolidation, conveyance,
transfer or lease;
- reducing the conversion price, provided that the reduction
will not adversely affect the interests of holders of notes in
any material respect;
- complying with the requirements of the SEC in order to effect
or maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended;
- making any changes or modifications to the indenture necessary
in connection with the registration of the notes under the
Securities Act as contemplated by the registration rights
agreement, provided that this action does not adversely affect
the interests of the holders of the notes in any material
respect;
- curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture, provided that
such modification or amendment does not, in the good faith
opinion of our board of directors and the trustee, adversely
affect the interests of the holders of the notes in any
material respect; or
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- adding or modifying any other provisions which we and the
trustee may deem necessary or desirable and which will not
adversely affect the interests of the holders of notes in any
material respect.
Modifications and amendments to the indenture or to the terms and conditions of
the notes may also be made, and noncompliance by us with any provision of the
indenture or the notes may be waived, either:
- with the written consent of the holders of at least a majority
in aggregate principal amount of the notes at the time
outstanding; or
- by the adoption of a resolution at a meeting of holders at
which a quorum is present by at least a majority in aggregate
principal amount of the notes represented at such meeting.
However, no such modification, amendment or waiver may, without the written
consent or the affirmative vote of the holder of each note affected:
- - change the maturity of the principal of or any installment of interest
on any note (including any payment of liquidated damages);
- - reduce the principal amount of, or any premium, if any, on any note;
- - reduce the interest rate or interest (including any liquidated damages)
on any note;
- - change the currency of payment of principal of, premium, if any, or
interest on any note;
- - impair the right to institute suit for the enforcement of any payment
on or with respect to, or the conversion of, any note;
- - modify our obligations to maintain an office or agency in New York
City;
- - except as otherwise permitted or contemplated by provisions of the
indenture concerning specified reclassifications or corporate
reorganizations, adversely affect the conversion rights of holders of
the notes;
- - adversely affect the repurchase option of holders upon a Change of
Control;
- - modify the subordination provisions of the notes in a manner adverse to
the holders of notes;
- - reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to waive any
past default; or
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- - reduce the percentage in aggregate principal amount of notes
outstanding required for the adoption of a resolution or the quorum
required at any meeting of holders of notes at which a resolution is
adopted.
The quorum at any meeting called to adopt a resolution will be persons holding
or representing a majority in aggregate principal amount of the notes at the
time outstanding.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding, subject to certain conditions, if:
- all outstanding notes will become due and payable at their
scheduled maturity within one year; or
- all outstanding notes are scheduled for redemption within one
year,
and, in either case, we have deposited with the trustee an amount sufficient to
pay and discharge all outstanding notes on the date of their scheduled maturity
or the scheduled date of redemption.
FORM, DENOMINATION AND REGISTRATION
The notes are issued in fully registered form, without coupons, in denominations
of $1,000 principal amount and whole multiples of $1,000.
GLOBAL NOTES: BOOK-ENTRY FORM. The notes were offered only to qualified
institutional buyers as defined in Rule 144A under the Securities Act ("QIBs").
Except as provided below, the notes are and will continue to be evidenced by one
or more global notes deposited with the trustee as custodian for The Depository
Trust Company, New York, New York ("DTC"), and registered in the name of Cede &
Co. as DTC's nominee. Record ownership of the global notes may be transferred,
in whole or in part, only to another nominee of DTC or to a successor of DTC or
its nominee, except as set forth below.
A QIB may hold its interests in a global note directly through DTC if such QIB
is a participant in DTC, or indirectly through organizations which are direct
DTC participants. Transfers between direct DTC participants will be effected in
the ordinary way in accordance with DTC's rules and will be settled in same-day
funds. QIBs may also beneficially own interests in the global notes held by DTC
through certain banks, brokers, dealers, trust companies and other parties that
clear through or maintain a custodial relationship with a direct DTC
participant, either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of the global
notes, Cede & Co. for all purposes will be considered the sole holder of the
global notes. Except as provided below, owners of beneficial interests in the
global notes will not be entitled to have certificates
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registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form, and will not be considered holders
thereof. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
a beneficial interest in the global notes to such persons may be limited.
We will wire, through the facilities of the trustee, principal, premium, if any,
and interest payments on the global notes to Cede & Co., the nominee for DTC, as
the registered owner of the global notes. Vertex, the trustee and any paying
agent will have no responsibility or liability for paying amounts due on the
global notes to owners of beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal of and
premium, if any, and interest on the global notes, to credit participants'
accounts on the payment date in amounts proportionate to their respective
beneficial interests in the notes represented by the global notes, as shown on
the records of DTC, unless DTC believes that it will not receive payment on the
payment date. Payments by DTC participants to owners of beneficial interests in
notes represented by the global notes held through DTC participants will be the
responsibility of DTC participants, as is now the case with securities held for
the accounts of customers registered in "street name."
If you would like to convert your notes into common stock pursuant to the terms
of the notes, you should contact your broker or other direct or indirect DTC
participant to obtain information on procedures, including proper forms and
cut-off times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and other banks, your ability to pledge your
interest in the notes represented by global notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate.
Neither Vertex nor the trustee (nor any registrar, paying agent or conversion
agent under the indenture) will have any responsibility for the performance by
DTC or direct or indirect DTC participants of their obligations under the rules
and procedures governing their operations. DTC has advised us that it will take
any action permitted to be taken by a holder of notes, including, without
limitation, the presentation of notes for conversion as described below, only at
the direction of one or more direct DTC participants to whose account with DTC
interests in the global notes are credited and only for the principal amount of
the notes for which directions have been given.
DTC has advised us as follows: DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for DTC participants and to
facilitate the clearance and settlement of securities transactions between DTC
participants through electronic book-entry changes to the accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants
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include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations such as the initial
purchasers of the notes. Certain DTC participants or their representatives,
together with other entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust companies that
clear through, or maintain a custodial relationship with, a participant, either
directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among DTC participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause notes to be issued in definitive form in
exchange for the global notes. None of Vertex, the trustee or any of their
respective agents will have any responsibility for the performance by DTC,
direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to, or payments made on account of, beneficial
ownership interests in global notes.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
CERTIFICATED NOTES. The notes represented by a global note will be exchangeable
for notes in definitive form of like tenor as that global note in denominations
of $1,000 and in any greater amount that is an integral multiple of $1,000 if:
- DTC notifies us in writing that it is unwilling or unable
to continue as depositary for that global note or if at any
time DTC ceases to be a clearing agency registered under
the Exchange Act and a successor depositary is not
appointed by us within 90 days;
- we, at our option, notify the trustee in writing that we
elect to issue the notes in definitive form in exchange for
all or any part of the notes represented by the global
notes; or
- there is, or continues to be, an event of default and the
registrar has received a request from DTC for the issuance
of definitive notes in exchange for the global notes.
Any note that is exchangeable pursuant to the preceding sentence is exchangeable
for notes registered in the names which DTC will instruct the Trustee. It is
expected that DTC's instructions may be based upon directions received by DTC
from its participants with respect to ownership of beneficial interests in that
global note. Subject to the foregoing, a global note is not exchangeable except
for a global note or global notes of the same aggregate denominations to be
registered in the name of DTC or its nominee.
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RESTRICTIONS ON TRANSFER; LEGENDS. Prior to resale under this prospectus,
certificates evidencing the notes will bear a restrictive legend as described in
the indenture.
NOTICES
Except as otherwise provided in the indenture, notices to holders of notes will
be given by mail to the addresses of holders of the notes as they appear in the
note register.
GOVERNING LAW
The indenture, the notes and the registration rights agreement will be governed
by, and construed in accordance with, the law of the State of New York.
INFORMATION REGARDING THE TRUSTEE
State Street Bank and Trust Company, as trustee under the indenture, has been
appointed by us as paying agent, conversion agent, registrar and custodian with
regard to the notes. Equiserve Limited Partnership is the transfer agent and
registrar for our common stock. The trustee or its affiliates may from time to
time in the future provide banking and other services to us in the ordinary
course of their business.
REGISTRATION RIGHTS OF HOLDERS OF THE NOTES
When we issued the notes, we entered into a registration rights agreement with
the initial purchasers of the notes. As required under that agreement, we have
filed with the SEC, at our expense, a shelf registration statement covering
resales by holders of all notes and the common stock issuable upon conversion of
the notes. Under the terms of the registration rights agreement, we have agreed
to use our best efforts to:
- cause such registration statement to become effective as
promptly as is practicable, but in no event later than 150
days after the earliest date of original issuance of any of
the notes (August 12, 2000); and
- keep the registration statement effective until the date
that is two years after the last date of original issuance
of any of the notes (March 14, 2002) (or, if earlier, until
the date when the holders of the notes and the common stock
issuable upon conversion of the notes are able to sell all
such securities immediately without restriction pursuant to
the volume limitation provisions of Rule 144 under the
Securities Act or any successor rule thereto or otherwise).
We have also agreed to provide to each registered holder copies of this
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain
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other actions as are required to permit unrestricted resales of the notes and
the common stock issuable upon conversion of the notes. A holder who sells those
securities pursuant to the shelf registration statement generally will be
required to be named as a selling stockholder in this prospectus or a supplement
to this prospectus and to deliver a prospectus to purchasers and will be bound
by the provisions of the registration rights agreement, which are applicable to
that holder (including certain indemnification provisions).
Each holder must notify us not later than three business days prior to any
proposed sale by that holder pursuant to the shelf registration statement. This
notice will be effective for five business days. We may suspend the holder's use
of the prospectus for a reasonable period not to exceed 45 days (60 days under
certain circumstances relating to a proposed or pending material business
transaction, the disclosure of which would impede our ability to consummate such
transaction) in any 90-day period, and not to exceed an aggregate of 90 days in
any 12-month period, if we, in our reasonable judgment, believe we may possess
material non-public information the disclosure of which would have a material
adverse effect on us and our subsidiaries taken as a whole. Each holder, by its
acceptance of a note, agrees to hold any communication by us in response to a
notice of a proposed sale in confidence.
If,
- on the 91st day following the earliest date of original
issuance of any of the notes (June 13, 2000), the shelf
registration statement has not been filed with the SEC; or
- on the 151st day following the earliest date of original
issuance of any of the notes (August 13, 2000), the shelf
registration statement is not declared effective; or
- the registration statement shall cease to be effective or fail
to be usable without being succeeded within five business days
by a post-effective amendment or a report filed with the SEC
pursuant to the Exchange Act that cures the failure of the
registration statement to be effective or usable; or
- on the 45th or 60th day, as the case may be, of any period
that the prospectus has been suspended as described in the
preceding paragraph, such suspension has not been terminated
(each, a "registration default"),
additional interest as liquidated damages will accrue on the notes, from and
including the day following the registration default to but excluding the day on
which the registration default has been cured. Liquidated damages will be paid
semi-annually in arrears, with the first semi-annual payment due on the first
interest payment date, as applicable, following the date on which such
liquidated damages begin to accrue, and will accrue at a rate per year equal to:
- an additional 0.25% of the principal amount to and
including the 90th day following such registration default;
and
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- an additional 0.5% of the principal amount from and after
the 91st day following such registration default.
In no event will liquidated damages accrue at a rate per year exceeding 0.5%. If
a holder has converted some or all of its notes into common stock, the holder
will be entitled to receive equivalent amounts based on the principal amount of
the notes converted.
We agreed to distribute a questionnaire to each holder to obtain certain
information regarding the holder for inclusion in this prospectus. Holders are
required to complete and deliver the questionnaire within 20 business days after
receipt of the questionnaire so that they may be named as selling stockholders
in this prospectus at the time of effectiveness. A holder will not be entitled
to liquidated damages unless it has provided all information requested by the
questionnaire prior to the deadline.
The specific provisions relating to the registration described above are
contained in the registration rights agreement between Vertex and the initial
purchasers of the notes, which is available to holders upon request to us, and a
copy of which has been filed with the SEC.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock,
$.01 par value, and 1,000,000 shares of preferred stock, $.01 par value.
COMMON STOCK
As of March 31, 2000, there were 26,171,877 shares of common stock outstanding
held by approximately 220 stockholders of record.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding preferred stock. Upon the liquidation, dissolution or winding up
of Vertex, the holders of common stock are entitled to receive ratably the net
assets of Vertex available after the payment of all debts and other liabilities
and subject to any prior rights of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of common stock are, and the shares offered by Vertex in
this offering, when issued and paid for, will be, fully paid and nonassessable.
The rights, preferences and privileges of holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which we may designate and issue in the future.
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PREFERRED STOCK
Our Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of our common stock and the likelihood that
such holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change in control.
We have no present plan to issue any shares of Preferred Stock.
OPTIONS
As of March 31, 2000, there were outstanding options for the purchase of
6,285,637 shares of our common stock at exercise prices ranging from $7.75 per
share to $62.81 per share. Options for the purchase of 3,203,464 shares were
exercisable as of that date.
STOCKHOLDER RIGHTS PLAN
Pursuant to our Stockholder Rights Plan, each share of common stock has an
associated preferred share purchase right (a "Right"). Each Right entitles the
holder to purchase from Vertex one one-hundredth of a share of Series A Junior
Participating Preferred Stock, $.01 par value (the "Junior Preferred Shares"),
of Vertex at a price of $270 per one one-hundredth of a Junior Preferred Share,
subject to adjustment (the "Purchase Price"). The Rights are not exercisable
until after acquisition by a person or group of 15% or more of the outstanding
common stock (an "Acquiring Person") or after 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 (the earlier of such dates being called the
"Distribution Date"). Until a Right is exercised, the holder thereof will have
no rights as a stockholder of Vertex. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the common stock.
In the event that any person or group becomes an Acquiring Person, each holder
of a Right, other than Rights beneficially owned by 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 Vertex 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.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding common
stock, our Board of Directors may cause the Rights (other than Rights owned by
such person or group) to be exchanged, in whole or
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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, our Board of Directors
may redeem the Rights in whole at a price of $.01 per Right.
The Rights have certain anti-takeover effects, in that they will cause
substantial dilution to a person or group that attempts to acquire a significant
interest in Vertex on terms not approved by the Board of Directors.
CERTAIN PROVISIONS OF CHARTER AND BY-LAWS
Our corporate charter and by-law provisions and stockholder rights plan may
discourage certain types of transactions involving an actual or potential change
in control of Vertex which might be beneficial to the company or its
stockholders. Our charter provides for staggered terms for the members of the
Board of Directors. Our 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is EquiServe Limited
Partnership. The Transfer Agent's address is P.O. Box 8040, Boston, MA
02266-8040, and its telephone number is 781-575-3120.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax
considerations to a U.S. Holder relating to the purchase, ownership and
disposition of the notes and common stock into which the notes may be converted.
This discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations, and judicial decisions and
administrative interpretations thereunder, as of the date hereof, all of which
are subject to change, possibly with retroactive effect. There can be no
assurance that the Internal Revenue Service (the "IRS") will not challenge one
or more of the tax results described herein, and we have not obtained, nor do we
intend to obtain, a ruling from the IRS with respect to the U.S. federal tax
consequences of acquiring or holding notes or common stock.
This discussion does not purport to address all tax considerations that may be
important to a particular U.S. Holder in light of the U.S. Holder's particular
circumstances (such as the alternative minimum tax provisions of the Code), or
to certain categories of investors (such as certain financial institutions,
tax-exempt organizations, dealers in securities, persons who hold notes or
common stock as part of a hedge, conversion or constructive sale transaction, or
straddle or other risk reduction transaction or persons who are not U.S.
Holders) that may be subject to special rules. This discussion is limited to
U.S. Holders of notes who hold the notes and any common stock into which the
notes are converted as capital assets and who purchased the notes in this
offering at the initial offering price. This discussion also does not address
the tax consequences arising under the laws of any foreign, state or local
jurisdiction.
PERSONS CONSIDERING THE PURCHASE OF A NOTE SHOULD CONSULT THEIR OWN TAX ADVISORS
AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING, CONVERTING
OR OTHERWISE DISPOSING OF THE NOTES AND COMMON STOCK, INCLUDING THE EFFECT AND
APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS. PERSONS THAT ARE NOT UNITED
STATES PERSONS (WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE CODE) THAT ARE
CONSIDERING THE PURCHASE OF A NOTE SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES,
INCLUDING THE POTENTIAL APPLICATION OF THE UNITED STATES WITHHOLDING TAXES.
For purposes of this discussion, the term "U.S. Holder" means a beneficial owner
of a note or common stock that is for U.S. federal income tax purposes:
a natural person who is a citizen or resident of the United
States,
a corporation or partnership created or organized in or under
the laws of the United States or any state thereof, or
an estate or trust that is a United States person (within the
meaning of section 7701(a)(30) of the Code).
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TAX CONSEQUENCES TO U.S. HOLDERS
We believe that the notes and the common stock into which the notes will be
converted will be treated as described below. The description below assumes, and
we believe, that the likelihood of our making certain payments (other than
principal and stated interest) with respect to the notes is remote, and also
that the possibility of an additional payment in connection with a provisional
redemption does not result in the notes being treated as "contingent payment
debt instruments." Persons that are considering the purchase of a note should
consult their own tax advisors as to the foregoing.
PAYMENTS OF INTEREST. Payments of stated interest on a note will be includable
in the income of a U.S. Holder as ordinary income at the time it accrues or is
received in accordance with the U.S. Holder's method of accounting for federal
income tax purposes. The notes will not be treated as bearing original issue
discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF NOTES. Upon the sale, exchange or retirement of
a note, a U.S. Holder will recognize taxable gain or loss equal to the
difference between such holder's adjusted tax basis in the note and the amount
realized on the sale, exchange or retirement (including any additional payment
received upon a provisional redemption but excluding amounts representing
interest not previously included in income). A U.S. Holder's adjusted tax basis
in a note will generally equal the cost of the note to such holder. In general,
gain or loss realized on the sale, exchange or retirement of a note will be
capital gain or loss.
Prospective investors should consult their tax advisers regarding the treatment
of capital gains (which may be taxed at lower rates than ordinary income for
taxpayers who are individuals, trust or estates and have held their notes for
more than one year) and losses (the deductibility of which is subject to
limitations).
CONVERSION OF NOTES. A U.S. Holder's conversion of a note into common stock will
generally not be a taxable event, except for (i) any cash received instead of a
fractional share of common stock, as described below, and (ii) any cash received
as an additional payment following conversion of a note after receiving notice
of a provisional redemption, to the extent described below. The receipt of cash
in lieu of a fractional share of common stock should generally result in capital
gain or loss (measured by the difference between the cash received for the
fractional share interest and the U.S. Holder's tax basis in the fractional
share interest), the taxation of which is described above in "Sale, Exchange or
Retirement of Notes." Although the treatment of the cash payment that we will be
required to make in connection with a provisional redemption is unclear, it is
likely that you will be required to recognize gain, if any, that you realize to
the extent not in excess of such cash payment. Any gain so recognized will
generally be capital gain. A U.S. Holder's basis in the common stock received on
conversion of a note generally will be the same as the U.S. Holder's basis in
the note at the time of conversion, increased by the amount of gain, if any,
recognized as a result of the additional payment in connection with a
provisional redemption, and reduced by the amount of such additional payment and
by any tax basis allocable to a fractional share. The holding period for the
common stock received on conversion will include the holding period of the note
converted. If we repurchase a note in exchange for
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common stock after a Change of Control, although the matter is not entirely
clear, such exchange should be treated in the same manner as a conversion of the
note as described in this paragraph (except with respect to any common stock
received that is attributable to accrued interest on the notes).
OWNERSHIP AND DISPOSITION OF COMMON STOCK. Dividends, if any, paid on the common
stock generally will be includable in the income of a U.S. Holder as ordinary
income to the extent of the U.S. Holder's ratable share of our current or
accumulated earnings and profits. Upon the sale or exchange of common stock, a
U.S. Holder generally will recognize capital gain or capital loss equal to the
difference between the amount realized on such sale or exchange and the holder's
adjusted tax basis in such shares. Prospective investors should consult their
tax advisers regarding the treatment of capital gains (which may be taxed at
lower rates than ordinary income for taxpayers who are individuals, trust or
estates and have held their common stock for more than one year) and losses (the
deductibility of which is subject to limitations).
ADJUSTMENT OF CONVERSION PRICE. If at the time we make a distribution to
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (for example, distributions of evidence of
indebtedness or assets, but generally not stock dividends or rights to subscribe
for common stock) and, pursuant to the anti-dilution provisions of the
Indenture, the Conversion Price of the notes is reduced, such reduction may be
deemed to represent the payment of a taxable dividend to the U.S. Holders of
notes in a corresponding amount. If the Conversion Price is reduced at our
discretion or in certain other circumstances, such reduction also may be deemed
to represent the payment of a taxable dividend to U.S. Holders of notes in a
corresponding amount. Moreover, in certain other circumstances, the absence of
such an adjustment to the Conversion Price of the notes may result in a taxable
dividend to the holders of common stock.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Information reporting will apply to payments of interest or dividends made by us
on, or the proceeds of the sale or other disposition of, the notes or shares of
common stock with respect to certain noncorporate U.S. Holders, and backup
withholding at a rate of 31% may apply unless the recipient of such payment
supplies a taxpayer identification number, certified under penalties of perjury,
as well as certain other information or otherwise establishes an exemption from
backup withholding. Any amount withheld under the backup withholding rules is
allowable as a credit against the U.S. Holder's federal income tax, provided
that the required information is provided to the IRS.
SELLING HOLDERS
The notes were originally issued by us and sold by Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Bear, Stearns & Co. Inc., Credit Suisse First Boston
Corporation, FleetBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation as the initial purchasers in transactions exempt from the
registration requirements of the Securities Act to persons
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reasonably believed by the initial purchasers to be qualified institutional
buyers. Selling holders, including their transferees, pledgees or donees or
their successors, may from time to time offer and sell any or all of the notes
and the common stock into which the notes are convertible pursuant to this
prospectus. The selling holders may offer all, some or none of the notes or
common stock into which the notes are convertible.
The table below sets forth information, as of May 22, 2000, with respect to the
selling holders and the principal amounts of notes and amounts of common stock
beneficially owned by each selling holder that may be offered under this
prospectus. The information is based on information provided by or on behalf of
the selling holders. The selling holders identified below may have sold,
transferred or otherwise disposed of all or a portion of their notes or common
stock since the date on which they provided the information regarding their
notes or common stock in transactions exempt from the registration requirements
of the Securities Act.
Because the selling holders may offer all or some portion of the notes or the
common stock, we cannot estimate the amount of the notes or our common stock
that will be held by the selling holders upon completion of any sales.
No selling holder named in the table below beneficially owns one percent or more
of our common stock, assuming conversion of a selling holder's notes. None of
the selling holders has had any material relationship with us or our affiliates
within the past three years, except that Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co. Incorporated, Credit Suisse First Boston
Corporation, FleetBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation acted as initial purchasers of the notes.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK ISSUABLE
PRINCIPAL AMOUNT OF NOTES UPON CONVERSION OF THE
BENEFICIALLY OWNED NOTES THAT MAY BE
NAME OF SECURITY HOLDER AND OFFERED(1) OFFERED
- ----------------------- ------------------------- ----------------------
<S> <C> <C>
American Masters Fund "AG
Absolute Return Series"
Limited $ 1,000,000 12,400
Angelo, Gordon & Co., L.P. $ 500,000 6,200
Bear, Stearns & Co. Inc. $ 500,000 6,200
The Common Fund F/A/O
Absolute Return Fund $ 300,000 3,720
Deutsche Bank Securities $ 4,900,000 60,763
</TABLE>
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<TABLE>
<S> <C> <C>
First Albany Corporation $ 111,000 1,376
Helix Convertible
Opportunities Fund Ltd $ 910,000 11,284
Helix Convertible
Opportunities, L.P. $ 1,790,000 22,197
KBC Financial Products $ 5,000,000 62,004
Lazard Freres & Cie Paris(2) $ 1,500,000 18,601
MichaelAngelo, L.P. $ 1,750,000 21,701
Morgan Stanley & Co. $ 10,000,000 124,008
Quattro Fund Ltd $ 500,000 6,200
Raphael II, Ltd. $ 1,000,000 12,400
RCG Multi-Strategy Account,
L.P. $ 750,000 9,300
SG Cowen Securities $ 10,000,000 124,008
UBS Warburg LLC $ 3,500,000 43,402
White River Securities LLC $ 500,000 6,200
All other holders $130,489,000 1,618,167
Total $175,000,000
</TABLE>
(1) The number of securities beneficially owned is determined under the rules
of the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under those rules, beneficial ownership
includes any securities as to which the individual has sole or shared
voting power or investment power and also any securities which the
individual has the right to acquire within 60 days after May 22, 2000
through the exercise of any stock option or other right. The inclusion in
the table of securities, however, does not constitute an admission that the
selling holders are direct or indirect beneficial owners of those
securities. The selling holders have sole voting power and investment power
with respect to all securities of capital stock listed as owned by the
selling holders.
(2) Lazard Freres & Cie Paris will own 7,360 shares of Common Stock after
completion of the offering. These shares are not part of this offering.
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PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees, pledgees
or donees or their successors, may sell the notes and our common stock into
which the notes are convertible directly to purchasers or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions from the selling holders or the purchasers. These
discounts, concessions or commissions as to any particular underwriter,
broker-dealer or agent may be in excess of those customary in the types of
transactions involved.
The notes and common stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market prices, at varying prices determined at the time of sale,
or at negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on
which the notes or our common stock may be listed or quoted at
the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems
or in the over-the-counter market;
- through the writing of options, whether the options are listed
on an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and common stock, the selling holders
may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the notes or common
stock in the course of hedging the positions they assume. The selling holders
may also sell the notes or common stock short and deliver these securities to
close out their short positions, or loan or pledge the notes or common stock to
broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock offered by them will be the purchase price of the notes or common
stock less discounts and commissions, if any. Each of the selling holders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of notes or common stock
to be made directly or through agents. We will not receive any of the proceeds
from this offering.
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Our common stock is quoted on the Nasdaq National Market under the symbol
"VRTX." The notes are currently eligible for trading on the PORTAL market.
However, we do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable, the
notes and common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the notes
and common stock may not be sold unless they have been registered or qualified
for sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock may be "underwriters"
within the meaning of Section 2(11) of the Securities Act. Any discounts,
commissions, concessions or profit they earn on any resale of the shares may be
underwriting discounts and commissions under the Securities Act. Selling holders
who are "underwriters" within the meaning of Section 2(11) of the Securities Act
will be subject to the prospectus delivery requirements of the Securities Act.
The selling holders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule
144 or Rule 144A rather than pursuant to this prospectus. A selling holder may
not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.
To the extent required, the specific notes or shares of our common stock to be
sold, the names of the selling holders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part.
We entered into a registration rights agreement for the benefit of holders of
the notes to register their notes and our common stock under applicable federal
and state securities laws under specific circumstances and at specific times.
The registration rights agreement provides for cross-indemnification of the
selling holders and us and our respective directors, officers and controlling
persons against specific liabilities in connection with the offer and sale of
the notes and our common stock, including liabilities under the Securities Act.
We will pay substantially all of the expenses incurred by the selling holders of
incident to the offering and sale of the notes and our common stock. We estimate
that our total expenses of the offering of the notes and common stock will be
approximately $118,700.
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<PAGE>
LEGAL MATTERS
Kirkpatrick & Lockhart LLP will pass upon the legality of the issuance of the
notes and the shares of common stock issuable upon the conversion of the notes,
on our behalf. Kenneth S. Boger, a partner of Kirkpatrick & Lockhart LLP is an
Assistant Clerk of Vertex and a brother of Joshua Boger, Ph.D., our Chairman of
the Board and Chief Executive Officer. Kirkpatrick & Lockhart LLP provides
significant legal services to Vertex. Mr. Boger and one of his partners are
co-trustees of a trust for the benefit of Dr. Boger's children which owns common
stock of Vertex. Mr. Boger also owns common stock of Vertex.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for Vertex Pharmaceuticals Incorporated for the year
ended December 31, 1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
With respect to the unaudited financial information of Vertex Pharmaceuticals
Incorporated for the three-month periods ended March 31, 2000 and 1999,
incorporated by reference in this Prospectus, PricewaterhouseCoopers LLP
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report dated April 28, 2000 incorporated by reference herein, states that they
did not audit and they do not express an opinion on that unaudited information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Act.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the Securities
Exchange Act of 1934, as amended, under which we file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
Copies of the reports, proxy statements and other information may be examined
without charge at the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549, and the
Securities and Exchange Commission's Regional offices located at 500 West
Madison Street, Suite 1400, Chicago IL 60661, and 7 World Trade Center, 13th
Floor, New York, NY 10048 or on the Internet at www.sec.gov. Copies of all or a
portion of such materials can be obtained from the Public Reference Section of
the Securities and Exchange Commission upon payment of prescribed fees. Please
call the Securities and Exchange Commission at 800-SEC-0330 for further
information about the Public Reference Room. These reports, proxy statements and
other information may also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W. Washington, D.C. 20006.
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<PAGE>
We have agreed that if, at any time that the notes or the common stock issuable
upon conversion of the notes are "restricted securities" within the meaning of
the Securities Exchange Act of 1933 and we are not subject to the information
reporting requirements of the Securities Exchange Act of 1934, we will furnish
to holders of the notes and such common stock and to prospective purchasers
designated by them the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act of 1933 to permit compliance with Rule 144A
in connection with resales of the notes and such common stock.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information that we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus. Information contained in this prospectus and information
that we file with the SEC in the future and incorporate by reference in this
prospectus automatically updates and supersedes previously filed information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, prior to the sale of all the notes and shares of our
common stock covered by this prospectus.
- - Our Annual Report on Form 10-K for the year ended December 31, 1999
(Commission File No. 000-19319);
- - Our Current Report on Form 8-K dated March 3, 2000, filed with the SEC
on March 27, 2000 (Commission File No. 000-19319);
- - Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
(Commission File No. 000-19319)
You may request, orally or in writing, a copy of these documents, which
will be provided to you at no cost, by contacting:
Corporate Communications
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, MA 02139
Telephone: (617) 577-6000
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the registration of the securities being registered hereby, all
of which will be borne by Vertex Pharmaceuticals Incorporated (except any
underwriting discounts and commissions and expenses incurred by the selling
stockholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the selling stockholders in disposing of the shares). All
amounts shown are estimates except the Securities and Exchange Commission
registration fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC registration fee.....................................$ 46,200
Nasdaq listing fee.......................................$ 17,500
Legal fees and expenses..................................$ 25,000
Accounting fees and expenses.............................$ 15,000
Printing fees............................................$ 10,000
Miscellaneous expenses...................................$ 5,000
Total expenses...........................................$ 118,700
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Part D of Article 6 of the Restated Articles of Organization of the Registrant
provides that no director of the Registrant shall be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as a director. Such paragraph provides further, however, that to the extent
provided by applicable law it will not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 61 or 62 of the Massachusetts Business Corporation Law, or (iv) for any
transactions from which the director derived an improper personal benefit.
Article V of the Registrant's By-laws provides that the Registrant shall
indemnify each of its directors and officers (including persons who serve at the
Registrant's request as a director, officer, or trustee of another organization
in which the Registrant has any interest, direct or indirect, as a stockholder,
creditor, or otherwise or who serve at the Registrant's request in any capacity
with respect to any employee benefit plan) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise, or as fines
and penalties, and counsel fees reasonably incurred by such director or officer
in connection with the defense or disposition of any action, suit, or other
proceeding, whether civil or criminal, in which such director or officer may be
involved or with which such person may be threatened, while in office or
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<PAGE>
thereafter, by reason of such person's being or having been such a director,
officer, or trustee, except with respect to any matter as to which such director
or officer shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that such director's or officer's action was
in the best interest of the Registrant or, to the extent that such matter
relates to service with respect to an employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan.
As to any matter disposed of by a compromise payment by any such person,
pursuant to a consent decree or otherwise, Article V of the Registrant's Bylaws
provided that no indemnification shall be provided to such person for such
payment or for any other expenses unless such compromise has been approved as in
the best interests of the Registrant, after notice that it involves such
indemnification (i) by a disinterested majority of the directors then in office
or (ii) by a majority of the disinterested directors then in office provided
there has been obtained an opinion in writing of independent legal counsel to
the effect that such director or officer appeared to have acted in good faith in
the reasonable belief that such person's action as in the best interest of the
Registrant, or (iii) by the holders of a majority of the outstanding stock at
the time entitled to vote for directors, voting as a single class, exclusive of
any stock owned by any interested director or officer.
Article V of the Registrant's By-laws provides that expenses, including counsel
fees, reasonably incurred by any director or officer in connection with the
defense or disposition of any such action, suit or other proceeding may be paid
from time to time by the Registrant at the discretion of a majority of the
disinterested directors then in office, in advance of the final disposition
thereof, upon receipt of an undertaking by such director or officer to repay the
Registrant the amounts so paid if it is ultimately determined that
indemnification for such expenses is not authorized under Article V of the
Bylaws, which undertaking may be accepted by the Registrant without reference to
the financial ability of such director or officer to make repayment.
Article V of the Registrant's By-laws gives the Board of Directors of the
Registrant the power to authorize the purchase and maintenance of insurance, in
such amounts as the Board of Directors may from time to time deem appropriate,
on behalf of any person who is or was a director, officer, or agent of the
Registrant, or who is or was serving at the request of the Registrant as a
director, officer or agent of another organization in which the Registrant has
any interest, direct or indirect, as a shareholder, creditor or otherwise, or
with respect to any employee benefit plan, against any liability incurred by
such person in any such capacity, or arising out of such person's status as such
agent, whether or not such person is entitled to indemnification by the
Registrant pursuant to Article V of otherwise and whether or not the Registrant
would have the power to indemnify the person against such liability.
Section 13(b)(1 1/2) of the Massachusetts Business Corporation Law, Chapter 156B
of the General Laws of Massachusetts (the 'MBCL') authorizes the provisions,
described above, contained in Part D Article 6 of the Restated Articles of
Organization of the Registrant.
Section 67 of the MBCL authorizes the provisions, described above, contained in
Article V of the By-laws of the Registrant.
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<PAGE>
Section 65 of the MBCL provides that performance by a director, officer, or
incorporator of his duties in good faith and in a manner he reasonably believes
to be in the best interest of the corporation, and with such care as an
ordinarily prudent person in a like position would use under similar
circumstances, shall be a complete defense to any claim asserted against him,
whether under Sections 60 to 64, inclusive, or otherwise, except as expressly
provided by statute, by reason of his being or having been a director, officer,
or incorporator of the corporation.
ITEM 16. EXHIBITS
Exhibit
Number Description
4.1 Indenture dated as of March 14, 2000 between the Registrant and State
Street Bank and Trust Company, including therein the forms of the notes
(filed as Exhibit 4.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (SEC File No. 000-19319) and incorporated
herein by reference).
4.2 Registration Rights Agreement dated as of March 14, 2000 among the
Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Bear, Stearns & Co., Inc., Credit Suisse First Boston Corporation,
FleetBoston Robertson Stephens Inc. and SG Cowen Securities Corporation
(filed as Exhibit 4.2 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (SEC File No. 000-19319) and incorporated
herein by reference).
5.1 Opinion of Kirkpatrick & Lockhart LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Kirkpatrick & Lockhart LLP, included in Exhibit 5.1 filed
herewith.
24.1 Power of Attorney (See page 63 of this Registration Statement).
25 Form T-1. Statement of Eligibility under the Trust Indenture Act of
State Street Bank and Trust Company.
99 Awareness Letter of PricewaterhouseCoopers LLP.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
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(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included is a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any liability
under the Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at the time shall
be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the indemnification provisions described herein, or otherwise, the
Registrant has been advised that in the opinion of
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<PAGE>
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under Subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on
May 24, 2000.
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/ Joshua S. Boger
-------------------------------------
Joshua S. Boger
President and Chief Executive Officer
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<PAGE>
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of Vertex Pharmaceuticals
Incorporated, hereby severally constitute and appoint Joshua S. Boger, Richard
H. Aldrich and Thomas G. Auchincloss, Jr., and each of them singly, our true and
lawful attorneys with full power to any of them, and to each of them singly, to
sign for us and in our names in the capacities indicated below the Registration
Statement on Form S-3 filed herewith and any and all pre-effective and
post-effective amendments to said Registration Statement and generally to do all
such things in our name and behalf in our capacities as officers and directors
to enable Vertex Pharmaceuticals Incorporated to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ JOSHUA S. BOGER Director, President and May 24, 2000
- ------------------------------ Chief Executive Officer
Joshua S. Boger (Principal Executive Officer)
/S/ THOMAS G. AUCHINCLOSS, JR. Vice President of Finance May 24, 2000
- ------------------------------ and Treasurer
Thomas G. Auchincloss, Jr. (Principal Financial and
Accounting Officer)
/S/ BARRY M. BLOOM Director May 24, 2000
- ------------------------------
Barry M. Bloom
/S/ ROGER W. BRIMBLECOMBE Director May 24, 2000
- ------------------------------
Roger W. Brimblecombe
/S/ DONALD R. CONKLIN Director May 24, 2000
- ------------------------------
Donald R. Conklin
/S/ BRUCE I. SACHS Director May 22, 2000
- ------------------------------
Bruce I. Sachs
/S/ CHARLES A. SANDERS Director May 24, 2000
- ------------------------------
Charles A. Sanders
/S/ ELAINE S. ULLIAN Director May 24, 2000
- ------------------------------
Elaine S. Ullian
</TABLE>
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
4.1 Indenture dated as of March 14, 2000 between the Registrant and State
Street Bank and Trust Company, including therein the forms of the notes
(filed as Exhibit 4.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (SEC File No. 000-19319) and incorporated
herein by reference).
4.2 Registration Rights Agreement dated as of March 14, 2000 among the
Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Bear, Stearns & Co., Inc., Credit Suisse First Boston Corporation,
FleetBoston Robertson Stephens Inc. and SG Cowen Securities Corporation
(filed as Exhibit 4.2 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (SEC File No. 000-19319) and incorporated
herein by reference).
5.1 Opinion of Kirkpatrick & Lockhart LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Kirkpatrick & Lockhart LLP, included in Exhibit 5.1 filed
herewith.
24.1 Power of Attorney (See page 63 of this Registration Statement).
25 Form T-1. Statement of Eligibility under the Trust Indenture Act of
State Street Bank and Trust Company.
99 Awareness Letter of PricewaterhouseCoopers LLP.
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<PAGE>
EXHIBIT 5.1
[Letterhead of Kirkpatrick & Lockhart LLP appears here]
May 25, 2000
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, Massachusetts 02139-4211
Ladies and Gentlemen:
We have acted as your legal counsel in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of a Registration Statement on Form S-3 (the "Registration
Statement"), pursuant to which Vertex Pharmaceuticals Incorporated, a
Massachusetts corporation (the "Company"), is registering under the
Securities Act of 1933, as amended, (i) $175,000,000 aggregate principal
amount of the Company's 5% Convertible Subordinated Notes due March 14, 2007
(the "Notes") and (ii) such indeterminable number of shares of the Company's
common stock, $.01 par value per share, as may be required for issuance upon
conversion of the Notes (the "Conversion Shares") for resale to the public.
The Notes and Conversion Shares, if and when sold, will be sold by certain
security holders of the Company. This opinion is being rendered in connection
with the filing of the Registration Statement. All capitalized terms used
herein shall have the respective meanings given to them in the Registration
Statement.
We have examined the Registration Statement, the Restated Articles of
Organization of the Company, as amended to date, and such other documents and
records of the Company as we have deemed necessary for purposes of this opinion.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.
The opinions expressed in this letter are limited to the laws of the
Commonwealth of Massachusetts and the federal laws of the United States of
America. We are not opining on, and we assume no responsibility with respect
to, the applicability to or effect on any of the matters covered herein of
the laws of any other jurisdiction. Except as expressly set forth in this
letter, we are also not opining on specialized laws that are not customarily
covered in opinion letters of this kind, such as tax, insolvency, antitrust,
pension, employee benefit, environmental, intellectual property, banking,
insurance, labor, health and safety laws. No opinion is expressed herein with
respect to the
<PAGE>
Vertex Pharmaceuticals Incorporated
May 25, 2000
Page 2
qualification of the Notes and Conversion Shares under the securities or blue
sky laws of any state or any foreign jurisdiction.
Based on the foregoing, and subject to the foregoing and the additional
qualifications and other matters set forth below, it is our opinion that:
(i) The Notes have been duly and validly authorized and issued and are
binding obligations of the Company; and
(ii) The Conversion Shares have been duly and validly authorized and,
when issued upon conversion of the Notes in accordance with the terms of such
Notes, will be validly issued, fully paid and non-assessable.
We are furnishing this letter to you solely in connection with the
offer and sale of the Notes or the Conversion Shares while the Registration
Statement is in effect. You may not rely on this letter in any other
connection, and it may not be furnished to or relied upon by any other person
for any purpose, without our specific prior written consent.
The foregoing opinions are rendered as of the date of this letter,
except as otherwise indicated. We assume no obligation to update or supplement
any of such opinions to reflect any changes of law or fact that may occur.
We hereby consent to the reference to this firm under the heading
"Legal Matters" in the Prospectus which is part of the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated February 16, 2000, except as to the
information in Note R for which the date is February 28, 2000, relating to the
financial statements, which appear in Vertex Pharmaceuticals Incorporated's
Annual Report on Form 10-K for the year ended December 31, 1999. We also consent
to the reference to us under the heading "Independent Accountants" in such
Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 24, 2000
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 Franklin Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
(NAME OF ISSUER)
VERTEX PHARMACEUTICALS INCORPORATED
MASSACHUSETTS 04-3039129
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
130 WAVERLY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
CONVERTIBLE SUBORDINATED NOTES
(TITLE OF INDENTURE SECURITIES)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange Commission as Exhibit 1
to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to commence
business was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration Statement of
Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 23rd day of May, 2000.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Andrew M. Sinasky
------------------------------
NAME ANDREW M. SINASKY
TITLE ASSISTANT VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by VERTEX
PHARMACEUTICALS INC. of its CONVERTIBLE SUBORDINATED NOTES, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: ANDREW M. SINASKY
_______________________
NAME ANDREW M. SINASKY
TITLE ASSISTANT VICE PRESIDENT
DATED: MAY 23, 2000
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<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business DECEMBER 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ......................................... 2,922,127
Interest-bearing balances .................................................................. 16,902,058
Securities .......................................................................................... 14,692,727
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ........................................................ 13,319,510
Loans and lease financing receivables:
Loans and leases, net of unearned income ............ ........... 4,801,770
Allowance for loan and lease losses ............................. 48,021
Allocated transfer risk reserve.................................. 0
Loans and leases, net of unearned income and allowances ................................... 4,753,749
Assets held in trading accounts .................................................................... 1,643,584
Premises and fixed assets .......................................................................... 532,542
Other real estate owned ............................................................................ 0
Investments in unconsolidated subsidiaries ......................................................... 527
Customers' liability to this bank on acceptances outstanding ....................................... 127,283
Intangible assets .................................................................................. 219,272
Other assets ....................................................................................... 1,112,818
Total assets ....................................................................................... 56,226,197
============
LIABILITIES
Deposits:
In domestic offices ....................................................................... 10,909,616
Noninterest-bearing .............................. 8,992,474
Interest-bearing ................................. 1,917,142
In foreign offices and Edge subsidiary .................................................... 23,406,386
Noninterest-bearing .............................. 34,806
Interest-bearing ................................. 23,371,580
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ....................................................... 15,243,285
Demand notes issued to the U.S. Treasury ........................................................... 1,000,000
Trading liabilities ............................................................... 1,129,038
Other borrowed money ............................................................................... 2,727
Subordinated notes and debentures .................................................................. 0
Bank's liability on acceptances executed and outstanding ........................................... 127,283
Other liabilities .................................................................................. 1,398,313
Total liabilities .................................................................................. 53,216,648
EQUITY CAPITAL
Perpetual preferred stock and related surplus ...................................................... 0
Common stock ....................................................................................... 29,931
Surplus ............................................................................................ 495,993
Undivided profits and capital reserves/Net unrealized holding gains (losses) ....................... 2,541,108
Net unrealized holding gains (losses) on available-for-sale securities............. (47,977)
Cumulative foreign currency translation adjustments ............................................... (9,506)
Total equity capital ............................................................................... 3,009,549
Total liabilities and equity capital ............................................................... 56,226,197
-----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
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<PAGE>
EXHIBIT 99
May 24, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated April 28, 2000 on our review of
interim financial information of Vertex Pharmaceuticals Incorporated (the
"Company") for the period ended March 31, 2000 and included in the Company's
quarterly report on Form 10-Q for the quarter then ended is incorporated by
reference in its registration statement on Form S-3 dated May 24, 2000.
Yours very truly,
PricewaterhouseCoopers LLP
