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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-19319
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VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-3039129
(State of incorporation) (I.R.S. Employer Identification No.)
130 WAVERLY STREET 02139-4242
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal
executive offices)
</TABLE>
(617) 577-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _________
As of February 28, 2000 there were outstanding 26,009,481 shares of Common
Stock, $.01 par value per share. The aggregate market value of shares of Common
Stock held by non-affiliates of the registrant, based upon the last sales price
for such stock on that date as reported by The Nasdaq National Stock Market, was
approximately $1,575,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders to be held on May 23, 2000 are incorporated by reference into
Part III.
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The "Company," "Vertex," "we" and "us," as used in this Annual Report on
Form 10-K, refer to Vertex Pharmaceuticals Incorporated, a Massachusetts
corporation.
This Annual Report on Form 10-K contains forward-looking statements based on
current management expectations. When used in this Report, the words "expects,"
"anticipates," "estimates," "plans," "believes," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
risks and uncertainties. Factors that could cause actual results to differ from
these expectations include, but are not limited to, those discussed in the
section of Item 1 entitled "Risk Factors." These forward-looking statements
speak only as of the date of this Report. Vertex expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in Vertex's
expectations with regard thereto or any change in the events, conditions or
circumstances on which any such statement is based.
"Vertex" is a registered trademark of Vertex Pharmaceuticals Incorporated,
and "Incel" is a trademark of Vertex Pharmaceuticals Incorporated. "Agenerase"
is a trademark of the Glaxo Wellcome Group of companies. "Prozei" is a trademark
of Kissei Pharmaceutical Co., Ltd.
PART I
ITEM 1. BUSINESS
BUSINESS
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. We have discovered and advanced nine
drug candidates into clinical development, including one product--the HIV
protease inhibitor Agenerase-TM- (amprenavir)--that has reached the market. We
have a broad product pipeline, with seven drug candidates in Phase II clinical
development.
We have significant collaborations with Glaxo Wellcome, Aventis, Schering AG
(Germany), Eli Lilly, Kissei, and Taisho that provide us with financial support
and other valuable resources for our research programs for the development of
our clinical drug candidates, and for the marketing and sales of our marketed
products. 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 pre-clinical studies within the next 12 to 18 months.
We have extended our technology platform to exploit the opportunities being
generated by the wealth of information emerging from genomics research. By
applying our structure based design techniques and other technologies to
families of related proteins (as opposed to single proteins), we believe that we
can obtain higher levels of drug discovery productivity and valuable
intellectual property. We refer to this approach as "chemogenomics."
AGENERASE
Our first product, Agenerase, received accelerated approval from the FDA in
April 1999 and was launched in May 1999. Agenerase, which was designed by
Vertex, is marketed in the United States by Glaxo Wellcome. We co-promote
Agenerase in the United States and, if approved, will also co-promote Agenerase
in the European Union. 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. More than 10,000 patients
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take 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.
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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 and
our research programs.
<TABLE>
<CAPTION>
COMPANY WITH ESTIMATED U.S. PATIENT
DRUG CLINICAL INDICATIONS 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
CANCER
Incel-TM- Multidrug resistant tumor Vertex (Worldwide) 0.5 (tumor incidence in
cancers target diseases)
VX-853 Multidrug resistant solid Vertex (Worldwide) 0.5 (tumor incidence in
tumor cancers target diseases)
AUTOIMMUNE AND INFLAMMATION
VX-497 Psoriasis Vertex (Worldwide) 0.9 (moderate-to-severe)
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.)
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, Vertex (Worldwide) NA
Neurodegenerative diseases
</TABLE>
We are evaluating second generation compounds in the Company's IMPDH, ICE,
p38, and neurophilin ligand programs, and expect to advance second generation
candidates in each program in the next one to two years.
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COMMERCIAL PRODUCT AND CLINICAL DEVELOPMENT PROGRAMS
We have one product on the market and seven drug candidates in clinical
development to treat viral diseases, cancer, autoimmune and inflammatory
diseases and neurological disorders, as well as a number of earlier stage
research programs.
ANTIVIRAL PROGRAMS
HIV/AIDS
AGENERASE-TM---OVERVIEW
Our first marketed product is Agenerase (amprenavir), an orally deliverable
drug for the treatment of HIV infection and AIDS. A second generation HIV
protease inhibitor, Agenerase was developed by us in collaboration with Glaxo
Wellcome plc. Glaxo Wellcome is marketing Agenerase worldwide except for the Far
East, and we have U.S. and European co-promotion. Agenerase received regulatory
approval in the United States in April 1999, and has also been approved in
Brazil, Mexico, Uruguay, Argentina, Israel, and Switzerland. Agenerase has been
submitted for approval in other markets worldwide, including the European Union
(EU). In Japan, we collaborated with Kissei Pharmaceutical Co., Ltd. in the
development of amprenavir, which is sold by Kissei under the trade name
Prozei-TM-. We receive royalties on sales of amprenavir by Glaxo Wellcome and
Kissei. We also supply amprenavir bulk drug substance to Kissei.
We anticipate market approval in the EU in 2000. To support the use of
Agenerase in the marketplace, we and Glaxo Wellcome have undertaken a broad
Phase IV clinical program aimed at evaluating the drug's use as part of
different combinations in a variety of patient populations.
Kissei received approval for amprenavir under a special fast-track
initiative by the Ministry of Health and Welfare in Japan in September 1999.
Amprenavir's market launch as Prozei followed shortly thereafter. As a condition
of accelerated approval, Kissei is conducting a Phase II/III clinical trial of
amprenavir.
VX-175--OVERVIEW
We first synthesized the compound VX-175 (also referred to as GW433908) as
part of our HIV research and development collaboration with Glaxo Wellcome.
VX-175 is a prodrug of amprenavir that is designed to provide more compact
dosing for patients. A prodrug is an inactive compound that is changed
metabolically by the body to become active against disease. Preclinical studies
showed the prodrug to be highly water-soluble and bioavailable in animals. In a
Phase I study of 16 healthy volunteers completed during 1999, the prodrug
formulation was found to be bioequivalent to amprenavir and also showed
dose-proportionality. A dose-ranging Phase II clinical study to assess
preliminary safety and efficacy and to help determine pharmacokinetics in HIV
patients is now underway to determine the optimal dose of VX-175. We anticipate
that Glaxo Wellcome will begin Phase III trials of VX-175 in 2000. The FDA has
given VX-175 fast track designation. Fast track designation is granted to
products that may provide a significant improvement in the safety or
effectiveness of the treatment for a serious or life-threatening disease. Glaxo
Wellcome is developing the prodrug and has marketing rights in the United
States, Europe and certain countries of the Far East. Kissei has an option to
develop and commercialize the prodrug in Japan. We have an option to co-promote
the prodrug in the United States and the EU, and we will receive royalties on
sales of VX-175, if any. We also retain rights to supply bulk drug substance to
Glaxo Wellcome.
BACKGROUND: HIV/AIDS
Infection with the HIV virus leads to AIDS, a severe, life-threatening
impairment of the immune system. The World Health Organization (WHO) estimates
that approximately 33.6 million persons worldwide, including approximately
920,000 patients in North America, are infected with HIV.
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Protease inhibitors (PIs) are used as part of combination regimens for the
treatment of HIV. Currently, about 66% of the HIV patients receiving drug
treatment in the U.S. take at least one protease inhibitor. The market for HIV
protease inhibitors is highly competitive, with five different PIs vying for a
share of a $1 billion U.S. market. Worldwide sales of HIV protease inhibitors
were an estimated $2.2 billion in 1999, compared to $1.8 billion in 1998. There
are now three classes of antiviral drugs approved for the treatment of HIV
infection and AIDS: nucleoside reverse transcriptase inhibitors (NRTIs), such as
AZT and 3TC, non-nucleoside reverse transcriptase inhibitors (NNRTIs), such as
nevarapine, and protease inhibitors, including Agenerase. In the United States,
more than 10,000 patients take Agenerase as part of combination therapy for the
treatment of HIV infection.
We used our expertise in structure-based drug design to create and develop
Agenerase to address critical unmet needs in the treatment of HIV. We believe
that Agenerase has several advantages over other PIs in the market including:
- The pharmacological half-life in the body of Agenerase is 7 to 9.5 hours,
which is longer than any other currently available protease inhibitor.
- Agenerase absorption is not significantly affected by the presence or
absence of food (although the drug should not be taken with a high fat
meal), and there are no substantial hydration requirements. In practical
clinical terms, this allows the drug to be dosed twice daily regardless of
meal times, without compromising the antiviral activity of the drug.
- Agenerase appears to have less cross-resistance with other PIs, allowing
the drug to be used as a first or a follow-on PI.
Preliminary data have also shown that Agenerase is less associated with high
cholesterol and triglyceride levels, and less associated with syndromes of fat
redistribution than have been reported for other protease inhibitors. Further
study will be required to confirm these preliminary data and to understand more
fully the clinical significance of Agenerase's resistance profile.
HEPATITIS C VIRUS (HCV) INFECTION
VX-497-- OVERVIEW
VX-497 is a novel, orally administered IMPDH inhibitor that we designed.
VX-497 has demonstrated potent biological activity and oral bioavailability in
preclinical and early clinical studies. We are conducting a Phase II clinical
trial of VX-497 for the treatment of hepatitis C virus (HCV) infection. We
retain all commercial rights to VX-497 and any second generation compounds
resulting from our IMPDH research and development program.
In November 1999, we announced preliminary data from a Phase II clinical
trial of VX-497, indicating that VX-497 was well tolerated and appears to reduce
liver inflammation in patients with HCV infection. Preliminary Phase II data
also indicate that the drug was well-tolerated and resulted in reduced levels of
serum alanine aminotransferase, a marker of liver inflammation, in HCV patients
treated for 28 days. We are now conducting a three-month extension study to
further explore the safety and pharmacokinetics of VX-497 as a monotherapy in
patients with HCV, treating a continuing group of patients who were unresponsive
to prior treatment with interferon-alpha. In 2000, we plan to begin a Phase II
study of VX-497 combined with interferon-alpha in treatment-naive patients.
VX-497 is also in Phase II clinical trials for psoriasis.
BACKGROUND: HCV
IMPDH is a cellular enzyme that regulates the production of nucleotides
which are the building blocks of RNA and DNA. Viruses that invade the body
depend on these nucleotides for replication, and depletion of nucleotides may
cripple a virus's ability to replicate and infect new cells. IMPDH catalyzes a
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key step in nucleotide biosynthesis. Most cell types can use an alternative
pathway if IMPDH is inhibited, but a few cell types, such as lymphocytes and
virus-infected cells, are completely dependent on this enzyme. IMPDH inhibitors
thus selectively block the proliferation of lymphocytes and the replication of
certain viruses, and we believe that IMPDH inhibitors may be useful both in
immunosuppression and as antiviral agents.
Data from a Phase I trial in healthy volunteers, completed in early 1998,
show that VX-497 is well-tolerated in single escalating doses and achieves blood
levels well above those necessary to achieve potent inhibition of IMPDH IN
VITRO. As an immunosuppressive, VX-497 may block the activity of certain
lymphocyte populations that result in inflammation of the liver in HCV patients.
VX-497 may also have a direct antiviral effect on HCV and other viruses.
CANCER
MDR PROGRAM--OVERVIEW
We are developing novel compounds to treat and prevent the occurrence of
drug resistance associated with the failure of cancer chemotherapy. We are
developing Incel-TM- (also referred to as biricodar dicitrate or VX-710), a
compound that blocks major multidrug resistance (MDR) mechanisms, including
P-glycoprotein, or P-gp, and multidrug resistance associated protein, or MRP.
Incel, an intravenous compound, is intended to be administered in combination
with cancer chemotherapy agents, such as doxorubicin, paclitaxel, vincristine,
etoposide and mitoxantrone. We are conducting Phase II clinical trials of Incel
in five different types of cancer. In addition, we are conducting a Phase I/II
clinical trial of the compound VX-853, an oral MDR inhibitor, in patients with
solid tumors. We retain all commercial rights to Incel worldwide.
Our development strategy is to evaluate Incel in a broad range of tumor
types in combination with widely used anti-cancer agents. Multiple Phase II
clinical studies have been undertaken in ovarian, breast, small cell lung and
prostate cancers, and in soft tissue sarcoma. Exploratory studies have also been
conducted in liver cancer. The objective of these trials is to assess Incel's
safety and pharmacokinetics and identify the tumor type, drug and dosage
regimens to be studied further in Phase III clinical trials. Incel is being
evaluated in combination with doxorubicin and paclitaxel, two of the most widely
used anti-cancer agents, as well as with mitoxantrone, prednisone and
vincristine. Historical response rates of patients who have failed first-line
chemotherapy (refractory patients) who attempt chemotherapy a second time are
extremely low. Preliminary analysis of response rates using Incel in conjunction
with chemotherapy suggests a potential benefit to combination therapy for
refractory patients.
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There are currently five Phase II studies underway that we expect to
complete in 2000, in ovarian cancer, breast cancer, soft tissue sarcoma,
prostate cancer, and small cell lung cancer, the details of which are described
in the following table:
INCEL-TM- PHASE II CLINICAL DEVELOPMENT SUMMARY
<TABLE>
<CAPTION>
NUMBER OF
PATIENT POPULATION REGIMEN PATIENTS STATUS CLINICAL RESPONSE RATE
- ------------------ ------- -------- ------ ----------------------
<S> <C> <C> <C> <C>
Refractory ovarian Incel/paclitaxel 25 Ongoing 12% (1 CR, 2 PR)
cancer
Refractory breast Incel/paclitaxel 38 Final data analysis 17% (4 PR, 2 MR)
cancer
Refractory soft Incel/doxorubicin 37 Final data analysis 10% (2 PR, 8 SD)
tissue sarcoma
Hormone refractory Incel/mitoxantrone & 40 Final data analysis 27%
prostate cancer prednisone
Small cell lung Incel/doxorubicin/ N/A Ongoing N/A
cancer vincristine
</TABLE>
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PR=partial response; MR=minor response; CR=complete response; SD=stable disease;
N/A=not available
A second compound, VX-853, has been optimized by Vertex for oral
administration. IN VITRO results show that VX-853 potently blocks MDR mediated
by both P-gp and MRP. We are conducting a Phase I/II clinical trial with VX-853
to assess the safety and pharmacokinetics of the compound in combination with
doxorubicin.
BACKGROUND: MDR
The American Cancer Society estimates that during 1999 more than
1.2 million people in the United States were diagnosed with invasive cancer and
more than 560,000 people in the U.S. died from such cancers. A significant
number of these patients failed to respond or relapsed following chemotherapy
because of MDR.
A major contributing factor to MDR is the presence of molecular pumps,
including P-gp and MRP, that expel chemotherapeutic agents from cancer cells,
preventing the sustained delivery of the potent levels of the chemotherapeutic
agents required for therapeutic benefit. As a consequence, these resistant tumor
cells cannot be killed efficiently by anticancer drugs such as doxorubicin,
vincristine, etoposide and paclitaxel. P-gp has been associated with MDR in a
variety of cancers including liver cancer, breast cancer, soft tissue sarcoma,
prostate cancer, colon cancer, pancreatic cancer, acute myelogenous leukemia,
multiple myeloma and certain lung cancers. MRP has been identified as another
drug efflux pump and is also associated with resistance.
No drug has been approved by the FDA specifically for the treatment of MDR,
but several compounds are in advanced clinical studies. Certain agents, such as
dex-verapamil and cyclosporin A, have been shown in preliminary human studies to
have some promise for overcoming clinical resistance to certain commonly used
chemotherapeutic agents. We believe that these drugs affect only a subset of the
MDR pumps and may have side effects that could limit broad use. Second
generation multidrug reversing agents, such as PSC 833 (valspodar), a
cyclosporine derivative, are also currently being evaluated by other companies.
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AUTOIMMUNE AND INFLAMMATORY DISEASES
AUTOIMMUNE DISEASE
VX-497--OVERVIEW
We are conducting a Phase II clinical trial of our IMPDH inhibitor VX-497 in
psoriasis patients, to make a preliminary assessment of its clinical efficacy.
There are approximately 900,000 patients in the U.S. with moderate to severe
psoriasis.
We may expand clinical development of VX-497 into additional autoimmune,
transplant and antiviral indications in the future. We are also continuing
research and development activities to identify second generation IMPDH
inhibitors.
INFLAMMATORY DISEASE
VX-740--OVERVIEW
We are conducting research and development on inhibitors of interleukin-1
beta converting enzyme (ICE) for the treatment of acute and chronic inflammatory
conditions, including rheumatoid arthritis. We are collaborating with Aventis
S.A. in the development of the ICE inhibitor compound VX-740 (which Aventis
calls HMR 3480). Aventis is conducting a Phase II clinical trial of VX-740 in
patients with rheumatoid arthritis. Inhibitors of ICE may have application to a
wide range of chronic and acute inflammatory diseases, such as rheumatoid
arthritis, osteoarthritis, inflammatory bowel disease, atherosclerosis, sepsis,
and pancreatitis. We are also independently conducting research into second
generation ICE inhibitors.
In September 1999, we announced an agreement under which Aventis holds an
exclusive worldwide license to develop, manufacture and market VX-740 in any
indication, as well as an exclusive option for all other compounds discovered
under a previous research collaboration between Vertex and Hoechst Marion
Roussel (HMR). HMR and Rhone-Poulenc Rorer merged to form Aventis in
December 1999. As part of the agreement, Aventis may pay us up to $62 million
for the development of VX-740 in rheumatoid arthritis, the first targeted
indication, and Aventis will pay for all development costs. Aventis is
conducting a Phase II clinical trial of VX-740 in patients with rheumatoid
arthritis which began in September 1999. The primary goal of the study is to
evaluate the safety and pharmacokinetics of multiple doses of VX-740 in
rheumatoid arthritis patients. We anticipate that a larger Phase II study of
VX-740 will be initiated by Aventis in 2000. A Phase I clinical trial of the
compound, completed by Aventis earlier in 1999, showed that the compound was
well-tolerated in humans in a range of single doses. We are continuing research
into second generation ICE inhibitors, as well as other caspase inhibitors.
BACKGROUND: ICE INHIBITORS FOR INFLAMMATORY DISEASE
ICE is an enzyme that controls the release of active Interleukin-1 (IL-1)
beta (one of two forms of Interleukin-1) from white blood cells into the
bloodstream and within tissues. IL-1 beta is a cytokine that mediates a wide
range of immune and inflammatory responses in many cell types. Early in the
inflammatory process, IL-1 beta is released from white blood cells, initiating a
complex cascade of events that results in inflammation and tissue damage.
Elevation of IL-1 beta levels has been correlated to disease state in a number
of acute and chronic inflammatory diseases.
Rheumatoid arthritis is the lead indication of the VX-740 development
program. In patients with rheumatoid arthritis, increased activity of IL-1 beta
is seen in joint tissues during disease flare-ups, and IL-1 beta is known to
activate osteoclasts, a cell type important in bone erosion characteristic of
rheumatoid arthritis. In mice genetically modified to lack the ICE gene,
systemic IL-1 beta levels are sharply reduced, and the mice are resistant to
experimentally induced arthritis. In normal mice in which
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arthritis has been successfully induced, treatment with VX-740 significantly
reduces severity of arthritis compared to control.
There are more than six million patients with rheumatoid arthritis
worldwide, including approximately 2.1 million in the United States. The main
drugs used to treat rheumatoid arthritis are non-steroidal anti-inflammatory
drugs (NSAIDs) such as Motrin (ibuprofen) and Celebrex (celecoxib). These drugs
are palliative--they relieve pain and swelling but do not reverse or prevent the
progression of the disease. Methotrexate is a disease-modifying drug that is
widely used, but its use is limited by side effects that include bone marrow
suppression and liver toxicity. Even when tolerated well, over the long term
many patients become unresponsive to methotrexate. Newer therapies including
Enbrel (etanercept) and Remicade (infliximab) provide a strong rationale for a
new kind of disease modifying therapy that involves inhibition of the cytokine
tumor necrosis factor (TNF) alpha. However, both Enbrel and Remicade are
injectable, and therefore, we believe that an oral cytokine inhibitor such as
VX-740 has significant dosing advantages.
Vertex and Aventis scientists began collaborating in 1993 to discover and
develop orally available inhibitors of ICE. Their design efforts were based on
the three-dimensional atomic structure of ICE, which was solved by Vertex
researchers in 1994. As the result of an extensive, jointly conducted synthesis
and research program, HMV 3480/VX-740 was selected as a development candidate in
1996. HMR 3480/VX-740 is the first caspase inhibitor to be advanced to Phase II
clinical trials.
VX-745--OVERVIEW
We are collaborating with Kissei on the design, development and
commercialization of inhibitors of p38 MAP kinase. During 1999, we started a
Phase II clinical trial with VX-745 in patients with rheumatoid arthritis.
VX-745 is a novel orally administered investigational drug targeting p38 MAP
kinase. The p38 MAP kinase is a human enzyme involved with the onset and
progression of inflammation and apoptosis, or programmed cell death. The enzyme
plays a central role in regulating the cytokines TNF alpha and IL-1 beta. The
objective of our research collaboration with Kissei is to identify and
extensively evaluate compounds that target p38 MAP kinase to develop novel,
orally active drugs for the treatment of inflammatory diseases, such as
rheumatoid arthritis, asthma, and Crohn's disease, and neurological diseases
such as stroke.
During 1998, Vertex and Kissei selected VX-745 as a lead drug development
candidate targeting p38 MAP kinase. We conducted a Phase I clinical trial of the
compound in healthy volunteers in early 1999. Based on the results of that
study, we began an exploratory Phase II trial in rheumatoid arthritis patients
in Europe in October 1999. This trial is a 28-day study designed to test the
tolerability and pharmacokinetics of VX-745 in ten patients with rheumatoid
arthritis. The trial will also assess the pharmacodynamic activity of VX-745,
and clinical disease activity markers will be monitored.
BACKGROUND: P38 INHIBITORS FOR INFLAMMATORY DISEASE
The mitogen-activated protein (MAP) kinases are a family of
structurally-related human enzymes involved in intracellular signaling pathways
that enable cells to respond to their environment. When activated, the p38 MAP
kinase triggers production of the cytokines IL-1, IL-6 and tumor necrosis factor
TNF-alpha. Excess levels of IL-1 and TNF-alpha are associated with a broad range
of acute and chronic inflammatory diseases. They also play an important role in
programmed cell death associated with ischemia and stroke, and in
neurodegenerative diseases such as Alzheimer's and Parkinson's Disease. We are
aware of several other companies that are developing p38 MAP kinase inhibitors.
In addition, there are other drugs, in development or approved, that have
different mechanisms of action for treating rheumatoid arthritis and other
inflammatory diseases.
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NEUROLOGICAL DISEASES
TIMCODAR--OVERVIEW
Timcodar dimesylate (also referred to as VX-853) is a novel, orally
administered drug that may be useful in the treatment of neurological disorders
such as peripheral neuropathies (including diabetic neuropathy), Parkinson's
Disease, trauma, and amyotrophic lateral sclerosis, or ALS. In addition to
timcodar, we are conducting research to discover and develop drugs through our
Neurophilin Ligand Program. We have used an integrated drug design technique to
synthesize a library of orally available small molecule compounds that have the
potential to promote recovery of nerve function and nerve growth. We are engaged
in a worldwide strategic partnership with Schering AG (Germany) for research,
development and commercialization of neurophilin ligands for the treatment of a
variety of neurological disorders. In 1999, we completed a Phase II clinical
trial of timcodar in diabetic neuropathy patients. Schering AG has an option to
co-develop timcodar with us under the collaboration agreement.
During 1999, we announced that orally administered neurophilin compounds
discovered at Vertex, including compounds that do not interact with FKBP-12,
significantly improve outcome in two different preclinical models of Parkinson's
Disease. We also reported for the first time that compounds that do not interact
with FKBP-12 can improve outcomes in animal models of peripheral neuropathies.
In 1999, we completed a Phase II clinical trial with timcodar demonstrating that
the drug was well-tolerated and was orally bioavailable in the range of doses
tested. A single-dose Phase I study of four different doses of timcodar in
healthy volunteers was completed in 1998, providing support for Phase II
clinical development in the indication of diabetic neuropathy. IN VITRO results
have shown timcodar's ability to promote neurite outgrowth, and IN VIVO results
have shown that timcodar can prevent neural dysfunction in a model of diabetic
polyneuropathy.
BACKGROUND: NEUROLOGICAL DISEASES
Neurodegenerative disorders are among the diseases with the fewest available
effective treatments. Central nervous system disorders such as Alzheimer's
Disease, Parkinson's Disease and multiple sclerosis affect millions of patients
worldwide, and for some of these there are no approved therapies that alter the
course of disease progression. Peripheral neuropathies encompass a wide spectrum
of clinical syndromes for which treatments of only limited efficacy are
available. Diabetic neuropathy is the most common identifiable cause of
neuropathy. There are approximately 1.3 million patients with moderate to severe
diabetic neuropathy in the United States.
Effective treatment of both central and peripheral neurological disorders
has long been hampered by the inability to slow, arrest, or reverse nerve damage
or progression. Other companies are developing various neurotrophic factors
(proteins) for these indications, but we believe that their clinical utility is
likely to be limited because of the difficulty of the delivery of protein drugs.
Based on our extensive research in the field of immunosuppressive drugs, we have
been able to generate a large number of compounds, known as neurophilin ligands,
that trigger nerve growth activity. Extensive IN VITRO and IN VIVO studies
conducted with a reference compound designed by Vertex support the broad
potential of our neurophilin ligands in the treatment of degenerative central
nervous system and peripheral nervous system diseases. Our clinical neurophilin
ligand candidate, timcodar, has demonstrated potent activity in accelerating
recovery of nerve function following injury and reversing experimental nerve
damage in preclinical studies. Our researchers are still seeking to determine
the mechanism of action of neurophilin ligands.
BACKGROUND TO DRUG DISCOVERY
Drugs are natural or synthetic compounds that interact with a target
molecule, typically a protein, either to induce or to inhibit that molecule's
function within the human body. Traditionally, pharmaceutical products have been
discovered through screening thousands of compounds in predictive assays for a
chosen disease target.
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The drug discovery process is complex and involves multiple steps and
disciplines. The key steps in the discovery and development of a compound for
human testing (a drug candidate) typically include:
- identification of a drug target;
- development of a relevant biological assay;
- selection of compounds for screening;
- identification of a lead molecule;
- optimization of a lead molecule; and
- preclinical development.
Qualities that are critical to the successful development of an oral small
molecule include sufficient potency, oral bioavailability, adequate
pharmacokinetics, and safety. Failure to achieve any one of these parameters is
a major reason for a molecule failing early in the development process.
OUR INTEGRATED APPROACH TO DRUG DISCOVERY
We use a broad-based, proprietary approach to drug design that integrates
multiple advanced technologies early in the drug design process, to increase the
speed and certainty of drug development. We have consistently shown the ability
of our approach to advance drug candidates directed at biologically complex
targets. We believe that our track record compares favorably with industry
standards. Our drug discovery platform integrates advanced biology, biophysics
chemistry and information technologies in a coordinated and simultaneous fashion
throughout the discovery process. We employ a variety of technologies to
accelerate the drug discovery process and to provide a more certain outcome in
clinical development, including:
FUNCTIONAL GENOMICS. We use a number of functional genomics techniques,
such as gene knock-out mice, to help guide target selection and test the
potential of its compounds in disease models. We also use techniques such as
site-directed mutagenesis to identify critical residues for drug interaction in
the active site of a molecular target.
BIOPHYSICS. A core strength of Vertex is the generation of atomic
structural information on molecular targets using x-ray crystallography and
nuclear magnetic resonance (NMR) spectroscopy to guide design of optimization of
lead classes of drugs. Our scientists have also pioneered innovative NMR
techniques, including a proprietary technology called NMR SHAPES which can
screen molecular subunits for weak affinity to a molecular target. This initial
screening can quickly identify lead classes of molecules for further evaluation.
COMPUTER-BASED MODELING. We apply advanced, proprietary computational
modeling tools to guide early evaluation of compounds. During initial virtual
compound screening ("IN SILICO"), we can evaluate 10(14) compounds in one day to
select 100 or 1,000 compounds for synthesis and traditional screening, and
repeat the cycle on subsequent days based on initial results. By using
proprietary algorithms to sort and filter compounds for specific properties, our
scientists can efficiently focus on compounds that are more likely to be useful
leads.
MEDICINAL AND COMBINATORIAL CHEMISTRY. Medicinal chemistry expertise is a
key part of our drug discovery process. Medicinal chemists visually evaluate
each compound which emerges through IN SILICO screening process and provide
insight into the creation of focused libraries for screening. We use
combinatorial chemistry to design diverse libraries based on promising early
leads.
PHARMACOLOGY. We employ a number of approaches designed to provide
predictive information on the bioavailability and pharmacokinetic profile of
potential compounds at the earliest stages of the drug discovery process. These
approaches, which include IN VITRO metabolism and toxicological studies and IN
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VIVO assessment of leads in predictive animal models, provide greater certainty
that a compound will have properties desired of an oral drug.
RESEARCH PROGRAMS
SINGLE TARGET PROGRAMS
HEPATITIS C VIRUS PROGRAMS
We are conducting two discovery research programs to develop compounds to
treat hepatitis C. Identified in 1989, the hepatitis C virus (HCV) causes
chronic inflammation in the liver. In a majority of patients, HCV establishes a
chronic infection that can persist for decades and eventually lead to cirrhosis,
liver failure and liver cancer. HCV infection represents a significant medical
problem worldwide for which there is inadequate or no therapy for a majority of
patients. Sources at the CDC have estimated that approximately 2.7 million
Americans, or more than 1% of the population, are chronically infected with HCV,
and the WHO estimates that there are more than 170 million chronic carriers of
the virus worldwide. Currently, there is no vaccine available to prevent
hepatitis C infection. The only drugs approved for the treatment of hepatitis C
are interferon alpha and ribavirin. Combination therapy with interferon alpha
and ribavirin is the most successful treatment currently available, but over 50%
of patients still failed to show long-term sustained response to that
combination, and safe and effective treatments for HCV infection are needed.
HEPATITIS C PROTEASE
The hepatitis C NS3-4A serine protease is a virally encoded enzyme generally
believed to be essential for replication of HCV. Under an agreement signed
during 1997, we are collaborating with Eli Lilly and Company on the research,
development and commercialization of novel, orally active HCV protease
inhibitors for the treatment of hepatitis C infection. This research derives
heavily from detailed structural information about the protease, discovered and
developed by our researchers.
HEPATITIS C HELICASE
We are also conducting discovery research to design orally deliverable drugs
to inhibit the hepatitis C virus helicase. The NS3 helicase enzyme is believed
to play an essential role in the infectious cycle of the hepatitis C virus by
aligning viral DNA in its proper configuration for replication. Therefore, the
HCV helicase represents an attractive target for drug discovery.
Researchers from Vertex solved the three-dimensional atomic structure of the
hepatitis C virus NS3 helicase. We are using this structural information to
identify and optimize inhibitors of the enzyme, employing structure-based
techniques, including cluster-based screening, and computational, combinatorial,
and medicinal chemistry, to design novel small molecule inhibitors of the HCV
helicase for clinical development as new antiviral drugs to treat HCV infection.
DISCOVERY OPPORTUNITY: CHEMOGENOMICS
Genomics and related biological approaches are producing a wealth of
information on new molecular targets. New drugs, however, have not emerged at
the same rate as new targets, since the technological and organizational
advances in potential target identification have proceeded much faster
industrywide compared to advances in drug discovery. The number of new targets
now emerging is outpacing the capability of pharmaceutical research and
development groups to discover efficiently drugs based on those targets. We
believe that those companies that can best utilize genomic information will be
the ultimate beneficiaries of the genomics revolution. Vertex is uniquely
positioned to translate genomics information into targeted drug candidates.
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Our approach to drug discovery to date has focused on discrete and unrelated
molecular targets, such as HIV protease, IMPDH, and ICE. We are now engaged in a
discovery approach designed to generate drugs directed at structurally related
molecular targets in protein families. This approach applies our integrated
strategy across a range of molecular targets to pursue rapid and simultaneous
generation of lead compounds.
We believe that our skills in designing drugs based on the atomic structure
of a molecular target's active site will allow us to:
- efficiently design multiple chemical scaffolds that bind to many different
related proteins and
- rapidly identify appropriate chemical side chains for these scaffolds that
will provide specificity for a particular target of interest within a
group of related proteins.
This strategy has already enabled us to describe large numbers of lead
classes of novel chemical compounds directed at the caspase and kinase protein
families, and to describe the interactions of these compounds with a variety of
molecular targets in these families.
We use the term CHEMOGENOMICS to describe this discovery approach.
Chemogenomics is the discovery and description of all possible drug compounds
directed at all possible drug targets. We believe that we will be able to use
our integrated technological approach to describe many, and in some cases, all
of the possible novel chemical classes of compounds and their interactions with
specific molecular targets in protein families of our choosing. We will seek
intellectual property protection for compound classes not previously described
for a given target. We believe that the chemogenomics approach will accelerate
drug discovery directed at important novel targets as well as provide the
company with broad and enabling intellectual property. We also believe that our
chemogenomics strategy will create opportunities for broad corporate
partnerships directed at the discovery of new drugs.
To further accelerate this strategy, on February 28, 2000, we entered into
an agreement with Incyte Pharmaceuticals to gain access to its Lifeseq Gold
database, a comprehensive portfolio of genomic information. We anticipate
integrating such information, as well as information from both public and
private databases, to further our chemogenomics approach.
MULTI-TARGET RESEARCH PROGRAMS
CASPASE INHIBITORS PROGRAM
We are designing novel small molecule inhibitors of selected caspase enzyme
targets to treat a variety of diseases in which apoptosis, or programmed cell
death, plays a role. Our scientists are leveraging the expertise gained through
our successful design and optimization of inhibitors of ICE (caspase-1). In
November 1999, we began collaborating with Taisho Pharmaceutical Co., Ltd. to
discover, develop, and commercialize caspase inhibitors in Japan and certain Far
East markets. We retain exclusive rights to the caspase program in the United
States, Europe and the rest of the world.
All cells have the ability to self-destruct via a tightly-regulated pathway
known as apoptosis in response to certain signals. Apoptosis is an essential
component of numerous biological processes, including tissue remodeling and
immune system regulation. When not properly regulated, apoptosis can have
damaging effects and contribute to a variety of diseases. Caspases are a family
of 11 structurally related human enzymes which play specific roles in apoptosis
and inflammation. Our discovery effort is focused on the design of small
molecules for inhibiting caspase-mediated apoptotic processes, thereby exerting
a protective effect on cells in specific tissues. Potential indications include
tissue damage related to acute conditions such as stroke and myocardial
ischemia, and neurodegenerative disorders such as Alzheimer's Disease and
Parkinson's Disease.
In our caspase inhibitors program, we are implementing our strategy for
exploiting emerging genomic information by targeting large families of
structurally-related proteins for drug discovery. Different
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caspases share similar structural features, and by using parallel structural
approaches combined with new medicinal and computational chemistry tools, our
scientists have been able to make rapid progress in the design and synthesis of
multiple lead classes of compounds. Our scientists have solved the three-
dimensional atomic structures of four caspases, including one caspase from each
of the three caspase subfamilies, and more than 50 enzyme/inhibitor complexes.
Through gene knockout studies, our scientists have been able to gain important
insight into the biological role of different caspases in the activation of
apoptosis in specific cells and tissues. We intend to use this information to
design novel small molecule caspase inhibitors for development and
commercialization in several indications in collaboration with Taisho.
MAP KINASE INHIBITORS PROGRAM
We have undertaken a broad-based drug discovery effort targeting MAP kinase
intracellular signaling pathways. Human mitogen-activated protein (MAP) kinases
form a group of structurally-related enzymes that include extracellular-signal
regulated kinase (ERK), p38 MAP kinase, and Jun N-terminal kinase (JNK). In
response to specific biological and chemical signals, MAP kinases become
activated by specific upstream kinases, called MAP kinase kinases (MKK). The
activated MAP kinases in turn activate other downstream kinases, transcription
factors, and translation factors, resulting in cellular responses including
apoptosis, cell proliferation and cytokine release.
We are currently focused on discovery and development of inhibitors of MAP
kinases, including JNK and ERK, as well as other related kinases. As a
neuronal-specific isoform of JNK, JNK3 is a member of the MAP kinase family and
is implicated as a key mediator of signal transduction pathways central to the
pathogenesis of certain neurological diseases involving apoptosis-driven
neurodegeneration. Recent findings suggest that JNK3 plays an important role in
central nervous system disorders such as epilepsy, stroke and Alzheimer's
Disease. Our scientists are leveraging the expertise gained through our p38 MAP
kinase program. We have identified several novel classes of JNK3 MAP kinase
inhibitors and are currently using advanced drug discovery technology to move
lead compounds toward clinical candidate status.
We are also engaged in the discovery of inhibitors of the enzyme ERK2, which
plays a role in the activation of enzymes and other factors involved in cell
division. We believe that ERK2 inhibitors may have a role in the treatment of
cancer. We are also applying our discovery expertise in the MAP kinase area to
the discovery of inhibitors targeting a wide variety of structurally related
kinases.
CORPORATE COLLABORATIONS
We have entered into corporate collaborations with pharmaceutical companies
that provide financial and other resources, including capabilities in research,
development, manufacturing, and sales and marketing, to support our research and
development programs. At present, we have the following major corporate
collaborations.
GLAXO WELLCOME PLC.
In December 1993, we entered into a collaboration with Glaxo Wellcome
covering the development and commercialization of Agenerase (amprenavir) and its
prodrug, VX-175 (also referred to as GW433908). Glaxo Wellcome has exclusive
rights to develop and commercialize our HIV protease inhibitors in all parts of
the world except the Far East and pays us a royalty on sales. We have retained
certain bulk drug manufacturing rights and certain co-promotion rights in the
territories licensed to Glaxo Wellcome. Under the collaborative agreement, Glaxo
Wellcome agreed to pay us up to $42 million, comprised of a $15 million license
payment paid in December 1993, $14 million of product research funding over five
years and $13 million of development and commercialization milestone payments
for an initial drug candidate. Glaxo Wellcome is also obligated to pay us
additional development and commercialization milestone payments for subsequent
drug candidates, including VX-175. From the inception of the
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agreement in December 1993 through December 31, 1999, we recognized $40 million
as revenue. We have received the full amount of research funding specified under
the agreement. In addition, Glaxo Wellcome is required to bear the costs of
development in its territory under the collaboration. During 1999, we received a
$5 million milestone payment from Glaxo Wellcome for Agenerase marketing
approval in the United States.
Glaxo Wellcome has the right to terminate its agreement with us without
cause upon twelve months' notice. Termination by Glaxo Wellcome of the agreement
will relieve Glaxo Wellcome of its obligation to make further commercialization
and development milestone and royalty payments, and will end any license granted
to Glaxo Wellcome by us.
We and Glaxo Wellcome have a non-exclusive, worldwide license under certain
Searle patent applications claiming HIV protease inhibitors to permit Vertex and
Glaxo Wellcome to develop, manufacture and market Agenerase free of the risk of
intellectual property claims by Searle. The terms of the license require us to
pay Searle a royalty on net sales.
KISSEI PHARMACEUTICAL CO., LTD.
HIV PROTEASE INHIBITORS. In April 1993, we entered into a collaboration
with Kissei covering the development of amprenavir, our HIV protease inhibitor.
Kissei has exclusive rights to develop and commercialize amprenavir in Japan and
will pay us a royalty on sales. Kissei also has an exclusive option to develop
and commercialize the amprenavir prodrug VX-175 in Japan. We are responsible for
the manufacture of bulk product for Kissei. Under the collaborative agreement,
Kissei agreed to pay to us up to $20 million, comprised of $9.8 million of
product research funding over three years, $7 million of development and
commercialization milestone payments and a $3.2 million equity investment. From
the inception of the agreement in April 1993 through December 31, 1999,
$15.6 million has been recognized as revenue. In addition, $4 million has been
recognized related to reimbursements of certain development costs. We have
received the full amount of research funding specified under the agreement.
P38 MAP KINASE. In September 1997, we entered into a collaboration with
Kissei to identify and develop compounds that target p38 MAP kinase, including
VX-745. We will collaborate with Kissei in the development and commercialization
of novel, orally active p38 MAP kinase inhibitors as drugs for the treatment of
inflammatory and neurological diseases. Kissei will have the right to develop
and commercialize these compounds in its licensed territories. Kissei has
exclusive rights to p38 MAP kinase compounds in Japan and certain Southeast
Asian countries and semi-exclusive rights in China, Taiwan and South Korea. We
retain exclusive marketing rights in the United States, Canada, Europe, and the
rest of the world. In addition, we will have the right to supply bulk drug
material to Kissei for sale in its territory, and will receive royalties and
drug supply payments on any product sales. Under the terms of the agreement,
Kissei agreed to pay us up to $22 million, comprised of a $4 million license
payment paid in September 1997, $11 million of product research funding over
three years and $7 million of development and commercialization milestone
payments. Additionally, Kissei agreed to pay certain costs. From the inception
of the agreement in September 1997 through December 31, 1999, $15 million has
been recognized as revenue. Kissei has the right to terminate the agreement
without cause upon six months' notice.
BIOCHEM PHARMA INC.
In May 1996, we entered into a collaboration with BioChem for the
development and commercialization in Canada of Incel, our cancer multidrug
resistance inhibitor. From the inception of the agreement in May 1996 through
December 31, 1998, we recognized $0.8 million as revenue. BioChem also paid
certain costs of development of Incel in Canada. We have received the full
amount of research funding specified under the agreement, and BioChem has no
further license rights with respect to Incel.
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AVENTIS S.A.
In September 1, 1999, we entered into an expanded agreement with HMR
covering the development of HMR 3480/VX-740. HMR and Rhone-Poulenc Rorer merged
to form Aventis in December 1999. Aventis has an exclusive worldwide license to
develop, manufacture and market VX-740, as well as an exclusive option for all
other compounds discovered as part of the research collaboration between Vertex
and HMR that ended in 1997. Aventis will fund the development of VX-740. We may
co-promote the product in the United States and Europe and will receive
royalties on global sales, if any. Under the agreement, Aventis agreed to pay us
$20 million for prior research costs, and $62 million in milestone payments for
successful development by Aventis of VX-740 in rheumatoid arthritis, the first
targeted indication, as well as similar milestone payments for each additional
indication. Aventis has the right to terminate this agreement without cause upon
six months' written notice.
ELI LILLY & COMPANY
In June 1997, we entered into a collaboration with Lilly covering the
development of novel small molecule compounds to treat hepatitis C infection.
Vertex and Lilly will jointly manage the research, development, manufacturing
and marketing of drug candidates emerging from the collaboration. We will have
primary responsibility for drug design, process development and pre-commercial
drug substance manufacturing, and Lilly will have primary responsibility for
formulation, preclinical and clinical development and global marketing. We have
the option to supply 100% of Lilly's commercial drug substance supply needs. We
will receive royalties on future product sales, if any. If we exercise our
commercial supply option, we will receive drug supply payments in addition to
royalties on future product sales, if any. Under the terms of the agreement,
Lilly will pay us up to $51 million, comprised of a $3 million payment paid in
June 1997, $33 million of product research funding over six years and
$15 million of development and commercialization milestone payments. From the
inception of the agreement in June 1997 through December 31, 1999,
$16.2 million has been recognized as revenue. Lilly has the right to terminate
the agreement without cause upon six months' notice.
SCHERING AG (GERMANY)
In August 1998, we entered into a collaboration with Schering AG covering
the research, development and commercialization of novel, orally active
neurophilin ligand compounds to promote nerve regeneration for the treatment of
a number of neurological diseases. Vertex and Schering AG will have an equal
role in management of neurophilin ligand research and product development. In
North America, we will have manufacturing rights, and we will share equally with
Schering AG in the marketing expenses and profits from commercialized compounds.
In addition to having manufacturing rights in North America, we retain the
option to manufacture bulk drug substance for sales and marketing in territories
outside Europe, the Middle East and Africa. Schering AG will have the right to
manufacture and market any commercialized compounds in Europe, the Middle East
and Africa, and pay us a royalty on product sales. Under the terms of the
agreement, Schering AG will pay us up to $88 million, comprised of $6 million
paid upon signing in September 1998, $22 million of product research funding
over five years and $60 million of development and commercialization milestone
payments. From the inception of the agreement in August 1998 through
December 31, 1999, $14 million has been recognized as revenue. After
December 2000, Schering AG has the right to terminate without cause upon six
months' written notice.
TAISHO PHARMACEUTICAL CO., LTD.
In November 1999, we entered into a collaboration with Taisho covering the
discovery, development, and commercialization of caspase inhibitors for the
treatment of cerebrovascular, cardiovascular and neurodegenerative diseases.
Taisho will have an option to obtain marketing rights in Japan and certain Far
East markets for any compounds arising from the collaboration. Under the
agreement, Taisho agreed to pay us up to $43 million comprised of research
funding, milestone payments, including $4.5 million for
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prior research costs. These amounts are based on the development of two
compounds. We will also receive royalties on future product sales, if any. In
addition, Taisho will also pay for certain costs of developing compounds that
emerge from the caspase research program. From inception of the agreement in
November 1999 through December 31, 1999, $3.9 million has been recognized as
revenue.
INTELLECTUAL PROPERTY
We vigorously pursue patents to protect our intellectual property. As of
February 25, 2000, we have 69 issued U.S. patents and have 108 pending U.S.
patent applications covering proprietary technologies and intellectual property
within our discovery and development programs, as well as foreign counterparts
in many other countries.
We actively seek, when appropriate, protection for our products and
proprietary information by means of United States and foreign patents,
trademarks and contractual arrangements. In addition, we rely upon trade secrets
and contractual arrangements to protect certain of our proprietary information
and products. In addition to patents and pending patent applications that relate
to potential drug targets, compounds we are developing to modulate those
targets, and methods of using such compounds, we have several pending patent
applications directed to proprietary elements of our drug discovery platform.
These include patent applications on our SHAPES approach to NMR-based screening
and on the use of a protein or a mutant of that protein to design inhibitors of
other related proteins. We have also filed patent applications related to the
three-dimensional atomic structures of targets of interest, the use of those
structures to design drugs, classes of compounds that bind to a target of
interest, and the interactions required between a compound and a target of
interest.
Much of our technology and many of our processes depend upon the knowledge,
experience and skills of key scientific and technical personnel. To protect our
rights to our proprietary know-how and technology, we require all employees,
consultants, advisors and collaborators to enter into confidentiality agreements
that prohibit the disclosure of confidential information to anyone outside
Vertex. These agreements require disclosure and assignment to Vertex of ideas,
developments, discoveries and inventions made by employees, consultants,
advisors and collaborators.
PATENTS AND PENDING APPLICATIONS
We have issued patents and pending applications in the United States, and in
foreign countries we deem appropriate, covering intellectual property developed
as part of each of our most advanced research, development and commercialized
programs. These include:
- issued United States patents that cover classes of chemical compounds,
pharmaceutical formulations and/or uses of the same for treating HIV
infection and AIDS. The patents include specific coverage for amprenavir,
pharmaceutical formulations containing amprenavir and methods of using of
amprenavir to treat HIV infection or AIDS-related central nervous system
disorders. Another issued United States patent covers processes for
preparing synthetic intermediates useful in the synthesis of a class of
compounds that includes amprenavir. We have a non-exclusive, worldwide
license under certain Searle patent applications claiming HIV protease
inhibitors. We also have applications pending in the United States and
other countries claiming VX-175 and related compounds.
- an issued United States patent which covers a class of chemical compounds,
pharmaceutical compositions containing such compounds, and methods of
using those compounds to treat or prevent IMPDH-mediated diseases. The
class of compounds covered by this patent includes VX-497.
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- issued United States patents claiming Incel and structurally related
compounds, VX-853 and structurally related compounds, and other compounds
for treating multidrug resistance, as part of our MDR research and
development program.
- issued United States patents covering the active metabolite of VX-740,
several different classes of compounds useful as inhibitors of ICE,
pharmaceutical compositions containing those compounds and methods of
using those compounds to treat ICE-related diseases. We have also received
a Notice of Allowance in an application claiming VX-740. These patents and
applications also include a series of patents and applications purchased
from Sanofi S.A., in July 1997. We also have a United States patent
obtained from Sanofi S.A. that covers DNA sequences encoding ICE.
- an issued patent that covers a class of chemical compounds that includes
VX-745, as well as applications claiming VX-745 specifically, compositions
comprising those compounds and the use of those compounds to treat
p38-related disorders, as part of our p38 MAP kinase research and
development program.
- issued United States patents covering various classes of chemical
compounds and their use to treat a wide variety of neurological disorders.
One of these patents specifically covers the use of timcodar to treat
neurological disorders, as part of our neurophilin research and
development program.
- an issued United States patent covering an assay useful to evaluate
potential inhibitors of hepatitis C protease. Other applications cover
hepatitis C protease and hepatitis C helicase inhibitors and the X-ray
crystal structures of hepatitis C protease and hepatitis C helicase,
including the use of those structures to develop hepatitis C protease
inhibitors and hepatitis C helicase inhibitors, respectively.
- filed applications claiming classes of caspase inhibitors and a caspase
target discovered under our caspase inhibitors program.
- filed applications claiming inhibitors of JNK and ERK, in addition to p38
MAP kinase, as part of our kinase research programs.
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
uncertain. We also cannot be sure that we will be able to avoid infringing, and
thus having to negotiate a license under, any patents issued to others, or that
a license to such patents would be available on commercially acceptable terms,
if at all. (See "Risk Factors--Our patents may not protect our products, and our
products may infringe third-party patents".)
MANUFACTURING
We rely on third party manufacturers and collaborative partners to produce
our compounds for preclinical and clinical purposes and may do so for commercial
production of any compounds that are approved for marketing. Commercial
manufacturing of Agenerase is being done by Glaxo Wellcome. We retain the option
to manufacture a portion of Glaxo Wellcome's requirements for bulk drug
substance for Agenerase and its prodrug. If we were to exercise that option, we
would rely upon one or more contract manufacturers to manufacture the bulk drug
substance on our behalf.
We have established a quality assurance program, including a set of standard
operating procedures, intended to ensure that third party manufacturers under
contract produce our compounds in accordance with the FDA's current Good
Manufacturing Practices, or cGMP, and other applicable regulations.
We believe that all of our existing compounds can be produced using
established manufacturing methods, primarily through standard techniques of
pharmaceutical synthesis. We believe that we will be able to continue to
negotiate third party manufacturing arrangements on commercially reasonable
terms
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and that it will not be necessary for us to develop internal manufacturing
capability in order to successfully commercialize our products. Our objective is
to maintain flexibility in deciding whether to develop internal manufacturing
capabilities for certain of its potential products. However, in the event that
we are unable to obtain contract manufacturing, or obtain such manufacturing on
commercially reasonable terms, we may not be able to commercialize our products
as planned. We have limited experience in manufacturing pharmaceutical or other
products or in conducting manufacturing testing programs required to obtain FDA
and other regulatory approvals, and there can be no assurance that we will
further develop such capabilities successfully.
Since most of our potential products are at an early stage of development,
we will need to improve or modify our existing manufacturing processes and
capabilities to produce commercial quantities of any drug product economically.
We cannot quantify the time or expense that may ultimately be required to
improve or modify our existing process technologies, but it is possible that
such time or expense could be substantial.
The production of our compounds is based in part on technology that we
believe to be proprietary. We may license this technology to contract
manufacturers to enable them to manufacture compounds for us. In addition, a
contract manufacturer may develop process technology related to the manufacture
of our compounds that the manufacturer owns either independently or jointly with
us. This would increase our reliance on such manufacturer or require us to
obtain a license from such manufacturer in order to have our products
manufactured.
COMPETITION
We are engaged in biopharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. There
are many public and private companies, including pharmaceutical companies,
chemical companies and biotechnology companies, engaged in developing products
for the same human therapeutic applications as those that we are targeting. In
order for us to compete successfully, we must demonstrate improved safety,
efficacy, ease of manufacturing and market acceptance of our products over those
of our competitors who have received regulatory approval and are currently
marketing their drugs. In the field of HIV protease inhibition, Merck &
Co., Inc., Abbott Laboratories, Inc., Hoffmann-La Roche, and Warner Lambert have
other HIV protease inhibitor drugs on the market. Many of our competitors have
substantially greater financial, technical and human resources than ours and
more experience in the development of new drugs.
GOVERNMENT REGULATION
Our development, manufacture and potential sale of therapeutics are subject
to extensive regulation by United States and foreign governmental authorities.
In particular, pharmaceutical products are subject to rigorous preclinical and
clinical testing and to other approval requirements by the FDA in the United
States under the Food, Drug and Cosmetic Act and by comparable agencies in most
foreign countries.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to identify potential safety
problems. For certain diseases, animal models exist that are believed to be
predictive of human efficacy. For such diseases, a drug candidate is tested in
an animal model. The results of the studies are submitted to the FDA as a part
of the Investigational New Drug application (IND) which is filed to comply with
FDA regulations prior to commencement of human clinical testing in the U.S. For
diseases for which no appropriately predictive animal model exists, no such
results can be filed. For several of our drug candidates, no appropriately
predictive model exists. As a result, no IN VIVO evidence of efficacy would be
available until such compounds progress to human clinical trials.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, which frequently begins with the initial
introduction of the drug into healthy human subjects prior to introduction into
patients, the compound will be tested for safety, dosage tolerance, absorption,
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bioavailability, biodistribution, metabolism, excretion, clinical pharmacology
and, if possible, for early information on effectiveness. Phase II typically
involves studies in a small sample of the intended patient population to assess
the efficacy and duration of the drug for a specific indication, to determine
dose tolerance and the optimal dose range and to gather additional information
relating to safety and potential adverse effects. Phase III trials are
undertaken to further evaluate clinical safety and efficacy in an expanded
patient population at geographically dispersed study sites, to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis for
physician labeling. Each trial is conducted in accordance with certain standards
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be evaluated by an independent Institutional Review Board at the
institution at which the study will be conducted. The Institutional Review Board
will consider, among other things, ethical factors, the safety of human subjects
and the possible liability of the institution.
Data from preclinical testing and clinical trials are submitted to the FDA
in a New Drug Application (NDA) for marketing approval. The process of
completing clinical testing and obtaining FDA approval for a new drug is likely
to take a number of years and require the expenditure of substantial resources.
Preparing an NDA involves considerable data collection, verification, analysis
and expense, and there can be no assurance that approval will be granted on a
timely basis, if at all. The approval process is affected by a number of
factors, including the severity of the disease, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials. The FDA
may deny an NDA if applicable regulatory criteria are not satisfied or may
require additional testing or information. Among the conditions for marketing
approval is the requirement that the prospective manufacturer's quality control
and manufacturing procedures conform to the FDA's cGMP regulations, which must
be followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and effort in
the area of production and quality control to ensure full technical compliance.
Manufacturing establishments, both foreign and domestic, also are subject to
inspections by or under the authority of the FDA and by or under the authority
of other federal, state or local agencies.
Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
safety and will be required to gain approval for the use of a product as a
treatment for clinical indications other than those for which the product was
initially tested. Also, the FDA will require post-marketing reporting to monitor
the side effects of the drug. Results of post-marketing programs may limit or
expand further marketing of the products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process, labeling or manufacturing facilities, an NDA supplement may be required
to be submitted to the FDA.
The Orphan Drug Act provides incentives to drug manufacturers to develop and
manufacture drugs for the treatment of diseases or conditions that affect fewer
than 200,000 individuals in the United States. Orphan drug status can also be
sought for diseases or conditions that affect more than 200,000 individuals in
the United States if the sponsor does not realistically anticipate its product
becoming profitable from sales in the United States. Under the Orphan Drug Act,
a manufacturer of a designated orphan product can seek tax benefits, and the
holder of the first FDA approval of a designated orphan product will be granted
a seven-year period of marketing exclusivity for that product for the orphan
indication. While the marketing exclusivity of an orphan drug would prevent
other sponsors from obtaining approval of the same compound for the same
indication, it would not prevent other types of drugs from being approved for
the same use. We may apply for orphan drug status for certain indications of MDR
in cancer.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
sponsor may be granted marketing exclusivity for a period of time following FDA
approval of certain drug applications if FDA approval is received before the
expiration of the patent's original term. This marketing exclusivity would
prevent a third party from obtaining FDA approval for a similar or identical
drug through an Abbreviated New Drug Application, which is the application form
typically used by manufacturers seeking
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approval of a generic drug. The statute also allows a patent owner to extend the
term of the patent for a period equal to one-half the period of time elapsed
between the filing of an IND and the filing of the corresponding NDA plus the
period of time between the filing of the NDA and FDA approval. We intend to seek
the benefits of this statute, but there can be no assurance that we will be able
to obtain any such benefits.
Whether or not FDA approval has been obtained, approval of a drug product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. Historically,
the requirements governing the conduct of clinical trials and product approvals,
and the time required for approval, have varied widely from country to country.
In addition to the statutes and regulations described above, we are also
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations.
EMPLOYEES
As of December 31, 1999, we had 353 full-time employees, including 240 in
research and development, 53 in support services and 60 in general and
administrative functions. 31 of these employees were located at our U.K.
research and development facility. Our scientific staff members (132 of whom
hold Ph.D. and/or M.D. degrees) have diversified experience and expertise in
molecular and cell biology, biochemistry, animal pharmacology, synthetic organic
chemistry, protein x-ray crystallography, protein nuclear magnetic resonance
spectroscopy, computational chemistry, biophysical chemistry, medicinal
chemistry, clinical pharmacology and clinical medicine. Our employees are not
covered by a collective bargaining agreement, and we consider our relations with
our employees to be good.
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions held by our executive officers and directors
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Joshua S. Boger, Ph.D..................... 48 Chairman, President and Chief Executive
Officer
Richard H. Aldrich........................ 45 Senior Vice President and Chief Business
Officer
Vicki L. Sato, Ph.D....................... 51 Senior Vice President of Research and
Development and Chief Scientific Officer;
Chair of the Scientific Advisory Board
John J. Alam, M.D......................... 38 Vice President of Clinical Development
Iain P. M. Buchanan....................... 46 Vice President of European Operations;
Managing Director of Vertex
Pharmaceuticals (Europe) Limited
Thomas G. Auchincloss, Jr................. 38 Vice President of Finance and Treasurer
Barry M. Bloom............................ 70 Director
Roger W. Brimblecombe, Ph.D., D.Sc........ 69 Director
Donald R. Conklin......................... 62 Director
Charles A. Sanders, M.D................... 67 Director
Elaine S. Ullian.......................... 51 Director
Bruce I. Sachs............................ 40 Director
</TABLE>
All executive officers are elected by the Board of Directors to serve in
their respective capacities until their successors are elected and qualified or
until their earlier resignation or removal.
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Dr. Boger is a founder of Vertex and was our President and Chief Scientific
Officer from our inception in 1989 until May 1992, when he became President and
Chief Executive Officer. In 1997, Dr. Boger became Chairman, President and Chief
Executive Officer. Dr. Boger has been a director since Vertex's inception. Prior
to founding Vertex in 1989, Dr. Boger held the position of Senior Director of
Basic Chemistry at Merck Sharp & Dohme Research Laboratories in Rahway, New
Jersey, where he headed both the Department of Medicinal Chemistry of
Immunology & Inflammation and the Department of Biophysical Chemistry.
Dr. Boger is also a Director of Millennium Pharmaceuticals, Inc. Dr. Boger holds
a B.A. in chemistry and philosophy from Wesleyan University and M.S. and Ph.D.
degrees in chemistry from Harvard University.
Mr. Aldrich served as Vice President of Business Development of Vertex from
June 1989 to May 1992, when he became Vice President and Chief Business Officer.
In December 1993, Mr. Aldrich was promoted to Senior Vice President and Chief
Business Officer. He joined Vertex from Integrated Genetics, where he headed
that company's business development group. Previously, he served as Program
Executive at Biogen, Inc., where he coordinated worldwide commercial development
of several biopharmaceuticals, and as Licensing Manager at Biogen S.A. in
Geneva, Switzerland, where he managed European and Far Eastern licensing.
Mr. Aldrich previously worked at the Boston Consulting Group, an international
management consulting firm. Mr. Aldrich received a B.S. degree from Boston
College and an M.B.A. from the Amos Tuck School of Business, Dartmouth College.
Dr. Sato joined Vertex in September 1992 as Vice President of Research and
was appointed Senior Vice President of Research and Development in
September 1994. Previously, she was Vice President, Research and a member of the
Scientific Board of Biogen, Inc. As research head at Biogen, she directed
research programs in the fields of inflammation, immunology, AIDS therapy and
cardiovascular therapy from early research into advanced product development.
Dr. Sato received an A.B. in biology from Radcliffe College and A.M. and Ph.D.
degrees from Harvard University. Following postdoctoral work in chemistry and
immunology at the University of California at Berkeley and Stanford Medical
School, she was appointed to the faculty of Harvard University in the Department
of Biology. Dr. Sato is also a Director of Mitotix, Inc.
Dr. Alam has served as Vice President of Clinical Development since joining
Vertex in October 1997. Dr. Alam came to Vertex from Biogen, Inc., where he held
a variety of positions from 1991-1997, including Director of Medical Research
and Program Executive for Avonex (beta interferon). Prior to joining Biogen,
Dr. Alam was a Research Fellow at the Dana Farber Cancer Institute and had
completed an internal medicine residency at Brigham and Women's Hospital in
Boston. Dr. Alam holds an M.D. from Northwestern University Medical School and a
B.S. in Chemical Engineering from the Massachusetts Institute of Technology.
Mr. Buchanan joined Vertex in April 1994 from Cilag AG, a subsidiary of
Johnson & Johnson based in Zug, Switzerland, where he served as its Regional
Licensing Director since 1987. He previously held the position of Marketing
Director of Biogen, Inc. in Switzerland. Prior to Biogen, Mr. Buchanan served in
Product Management at Merck Sharp & Dohme (UK) Limited. Mr. Buchanan holds a
B.Sc. from the University of St. Andrews, Scotland.
Mr. Auchincloss joined Vertex in October 1994 after serving as an investment
banker at Bear, Stearns & Co. Inc. since 1988, most recently as Associate
Director of the Corporate Finance Department. Prior to Bear Stearns,
Mr. Auchincloss was a financial analyst for PaineWebber, Inc. Mr. Auchincloss
holds a B.S. from Babson College and an M.B.A. from The Wharton School,
University of Pennsylvania.
Dr. Bloom has served as our director since 1994. He was formerly with Pfizer
Inc. as Executive Vice President of Research and Development from 1992 to 1993,
and as Vice President from 1990 to 1992, and a director since 1973. He also
serves as a director of Catalytica Pharmaceuticals, Cubist Pharmaceuticals Inc.,
Incyte Genomics Inc., Neurogen Corporation and MICROBIA, Inc.
23
<PAGE>
Dr. Brimblecombe has served as our director since 1993. He has served as
Chairman of Vanguard Medica Ltd. since 1991 and of Core Group plc since 1997. He
also served as Non-Executive Chairman of Oxford Asymmetry International plc
since 1997. From 1979 to 1990, he held various Vice Presidential posts in
SmithKline & French Laboratories research and development organization. He also
serves as a director of Ontogeny, Inc. and several other companies located in
the United Kingdom.
Mr. Conklin has served as our director since 1994. He served as Vice
President of Schering Plough from 1986 to 1996 and subsequently retired at the
end of 1996. He also serves as a director of AlfaCell Inc. and
BioTransplant Inc.
Dr. Sanders has served as our director since 1996. He retired in 1994 as
Chief Executive Officer and in 1995 as Chairman of Glaxo Inc. From 1990 to 1995,
he served as a member of the board of Glaxo plc. From 1981 to 1989, Dr. Sanders
held a number of positions at the Squibb Corporation, including that of Vice
Chairman. Has served on the boards of Merrill Lynch, Reynolds Metals and Morton
International Inc. He is currently a director of Biopure Corporation, Genentech,
Inc., Kendle International Inc., Magainin Pharmaceuticals Inc., Pharmacopeia
Inc., Scios, Inc., Staffmark Inc., Trimeris Inc.
Ms. Ullian has served as our director since 1997. Since 1996, she has served
as President and Chief Executive Officer of Boston Medical Center. From 1994 to
1996, she served as President and Chief Executive Officer of Boston University
Medical Center Hospital. From 1987 to 1994, Ms. Ullian served President and
Chief Executive Officer of Faulkner Hospital. She also serves as a director of
Hologics Inc.
Mr. Sachs has served as our director since 1998. He currently serves as a
General Partner at Charles River Ventures. From 1998 to 1999, he served as
Executive Vice President and General Manager of Ascend Communications, Inc. From
1997 until 1998, Mr. Sachs served as President and CEO of Stratus Computer, Inc.
From 1995 to 1997, he served as Executive Vice President and General Manager of
the Internet Telecom Business Group at Bay Networks, Inc. From 1993 to 1995, he
served as Chief Executive Officer at Xylogics, Inc. Mr. Sachs also serves as a
director of Media 100 Inc.
SCIENTIFIC ADVISORY BOARD
Vertex's Scientific Advisory Board consists of individuals with demonstrated
expertise in various fields who advise us concerning long-term scientific
planning, research and development. The Scientific Advisory
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<PAGE>
Board also evaluates our research programs, recommends personnel to us and
advises us on technological matters. The members of the Scientific Advisory
Board, which is chaired by Dr. Vicki L. Sato, are:
<TABLE>
<S> <C>
Vicki L. Sato, Ph.D........... Senior Vice President of Research and Development and Chief
Scientific Officer, Vertex Pharmaceuticals Incorporated.
Steven J. Burakoff, M.D....... Chair, Department of Pediatric Oncology, Dana-Farber Cancer
Institute; Margaret M. Dyson Professor of Pediatrics,
Harvard Medical School.
Eugene H. Cordes, Ph.D........ Professor of Pharmacy and Chemistry, University of Michigan
at Ann Arbor.
Jerome E. Groopman, M.D....... Chief, Division of Experimental Medicine, Beth Israel
Deaconess Medical Center; Recanati Chair of Medicine and
Professor of Medicine, Harvard Medical School.
Stephen C. Harrison, Ph.D..... Higgins Professor of Biochemistry, Harvard University;
Investigator, Howard Hughes Medical Institute; Professor of
Biological Chemistry and Molecular Pharmacology and
Professor of Pediatrics, Harvard Medical School.
Jeremy R. Knowles, D. Phil.... Dean of the Faculty of Arts and Sciences and Amory Houghton
Professor of Chemistry and Biochemistry, Harvard University.
Robert T. Schooley, M.D....... Tim Gill Professor of Medicine and Head of Infectious
Disease, University of Colorado Health Sciences Center.
</TABLE>
Other than Dr. Sato, none of the members of the Scientific Advisory Board is
employed by Vertex, and members may have other commitments to or consulting or
advisory contracts with their employers or other entities that may conflict or
compete with their obligations to us. Accordingly, such persons are expected to
devote only a small portion of their time to us. In addition to our Scientific
Advisory Board, we have established consulting relationships with a number of
scientific and medical experts who advise us on a project-specific basis.
RISK FACTORS
WE DO NOT KNOW HOW SUCCESSFUL AGENERASE WILL BE IN THE MARKET.
Agenerase was launched less than 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
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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. 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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<PAGE>
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.
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 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.
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<PAGE>
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 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
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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;
- 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 securityholders.
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 payors 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
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products will depend on the sales and marketing efforts of others, and we do not
know how successful those efforts will be.
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 December 31, 1999, we had 25,685,364 shares of common stock
outstanding, excluding shares reserved for issuance upon the exercise of
outstanding stock options, employee stock purchase and 401(k) plans. We have
granted stock options to purchase 6,744,000 shares of our common stock at a
weighted average exercise price of approximately $23.50 per share (subject to
adjustment in certain circumstances). Of this total, 3,440,000 are currently
exercisable at an average exercise price of approximately $20.57 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 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 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance related
to revenue recognition and disclosure. We plan to
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adopt SAB 101 in the first quarter of 2000, and we are currently determining
what impact this will have on our financial statements. We cannot be certain
that our adoption of SAB 101 will not materially increase our reported net
losses in the quarter ended March 31, 2000.
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 $82.56. 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.
ITEM 2. PROPERTIES
PROPERTIES
We lease an aggregate of approximately 179,000 square feet of laboratory and
office space in seven facilities in Cambridge, Massachusetts. The leases have
expiration dates ranging from December 2000 to 2009. We have the option to
extend the lease for our headquarters facility at 130 Waverly Street, Cambridge,
for up to two additional terms, ending in 2015 with respect to one portion of
the building, and in 2019 for the other portion of the building. We have also
entered into an agreement to lease an additional 192,000 square feet of
laboratory and office space presently under construction adjacent to our
headquarters. That lease will expire in 2010 with the option to extend the lease
for up to two additional terms, ending in 2030.
We lease approximately 21,000 square feet of laboratory and office space in
Milton Park, Abingdon, England, under a lease expiring in 2013, with a right of
early termination in 2008, for our U.K. business and research and development
activities.
We believe our facilities are adequate for our current needs. We believe we
can obtain additional space on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against Vertex and
Eli Lilly and Company in the United States District Court for the Northern
District of California, alleging infringement by the defendants of three U.S.
patents issued to Chiron. The infringement action relates to research activities
by the defendants in the hepatitis C viral protease field and the alleged use of
inventions claimed by Chiron in connection with that research. Chiron has
requested damages in an unspecified amount, as well as an order permanently
enjoining the defendants from unlicensed use of the claimed Chiron inventions.
During 1999, Chiron requested and was granted a reexamination by the U.S. Patent
and Trademark Office of all three of the patents in suit. Chiron also requested
and, over the opposition of Vertex and Lilly, was granted a stay in the
infrignement lawsuit, pending the outcome of the patent reexamination. While the
length of the stay, the outcome of the reexamination, the effect of that outcome
on the lawsuit and the final outcome of the
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lawsuit cannot be determined, Vertex maintains that the plaintiff's claims are
without merit and intends to defend the lawsuit, if and when it resumes,
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the Nasdaq National Market ("Nasdaq") under the
symbol "VRTX." The following table sets forth the high, low and last sale prices
of each quarter for the common stock as reported on the Nasdaq:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998: HIGH LOW CLOSE
- ----------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
First quarter............................................... $40 3/8 $31 1/4 $31 15/16
Second quarter.............................................. 33 7/8 21 1/2 22 1/2
Third quarter............................................... 27 7/8 14 1/2 23
Fourth quarter.............................................. 30 20 29 3/4
YEAR ENDED DECEMBER 31, 1999:
- ------------------------------------------------------------
First quarter............................................... $32 1/2 $22 1/2 $25 1/4
Second quarter.............................................. 26 3/8 19 3/8 24 1/8
Third quarter............................................... 34 13/16 22 1/8 31 1/16
Fourth quarter.............................................. 37 1/4 23 3/8 35
YEAR ENDED DECEMBER 31, 2000:
- ------------------------------------------------------------
First quarter (through March 3, 2000)....................... $82 9/16 $32 1/2 --
</TABLE>
The last sale price of the common stock on February 28, 2000, as reported by
Nasdaq, was $62.00 per share. As of February 28, 2000, there were 213 holders of
record of the common stock (approximately 6,500 beneficial holders).
Vertex has never declared or paid any cash dividends on its Common Stock and
currently expects that future earnings, if any, will be retained for use in its
business.
RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1999 are derived from our Consolidated
Financial Statements. This data should be read in
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conjunction with our audited financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Royalties and product sales..................... $ 8,053 -- -- -- --
Collaborative and other research and development
revenues...................................... 42,507 $ 29,055 $ 29,926 $ 13,341 $ 22,081
Investment income............................... 11,088 15,343 13,873 5,257 5,453
--------- -------- -------- -------- --------
Total revenues............................ 61,648 44,398 43,799 18,598 27,534
--------- -------- -------- -------- --------
Costs and expenses:
Royalties and product costs................... 2,925 -- -- -- --
Research and development...................... 72,180 58,668 51,624 35,212 41,512
General and administrative.................... 26,131 18,135 11,430 7,929 7,069
License payment............................... -- -- -- 15,000 --
Loss in equity affiliate...................... 724 -- -- -- --
Interest...................................... 654 681 576 462 481
--------- -------- -------- -------- --------
Total costs and expenses.................. 102,614 77,484 63,630 58,603 49,062
--------- -------- -------- -------- --------
Net loss........................................ $ (40,966) $(33,086) $(19,831) $(40,005) $(21,528)
========= ======== ======== ======== ========
Basic and diluted net loss per common share... $ (1.61) $ (1.31) $ (0.82) $ (2.13) $ (1.25)
Basic and diluted weighted average number of
common shares outstanding..................... 25,518 25,299 24,264 18,798 17,231
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and
investments........................... $ 187,802 $ 245,652 $ 279,671 $130,359 $ 86,978
Total assets............................ 232,445 266,346 295,604 143,499 98,981
Obligations under capital leases and
debt, excluding current portion....... 4,693 7,032 5,905 5,617 4,912
Accumulated deficit..................... (190,827) (149,861) (116,775) (96,944) (56,939)
Total stockholders' equity.............. 209,234 246,212 276,001 130,826 85,272
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES THAT CAN CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE DESCRIBED. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE
BUT ARE NOT LIMITED TO THOSE DESCRIBED IN THE SECTION ENTITLED "RISK FACTORS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO OBLIGATION
TO PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF.
We discover, develop and market small molecule drugs that address major
medical needs. We have seven drug candidates in clinical development to treat
viral diseases, inflammation, cancer, autoimmune
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diseases and neurological disorders. We have created our pipeline using a
proprietary approach, information-driven drug design, that integrates multiple
technologies in biology, chemistry and biophysics aimed at increasing the speed
and success rate of drug discovery.
Our first approved product is Agenerase-TM- (amprenavir), an HIV protease
inhibitor, which we co-promote with Glaxo Wellcome plc ("Glaxo Wellcome"). We
earned a royalty from Glaxo Wellcome from sales of Agenerase in 1999. Agenerase
received U.S. Food and Drug Administration ("FDA") approval through an expedited
review process for the treatment of HIV infection. Agenerase has also received
approval in other countries, including Japan where the drug is sold under the
trade name Prozei-TM-. Approval of Agenerase is pending in other countries,
including the European Union, where the drug is being made available through
early access programs.
We have incurred operating losses since our inception and expect to incur a
loss in 2000. We believe that operating losses will continue beyond 2000, even
if significant royalties are realized on Agenerase sales, as we are planning to
make significant investments in research and development for our other potential
products. We expect that losses will fluctuate from year to year and that such
fluctuations may be substantial.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
The net loss for 1999 was $40,966,000 or $1.61 per share compared to
$33,086,000 or $1.31 per share in 1998.
Our total revenues increased to $61,648,000 in 1999 from $44,398,000 in
1998. In 1999, royalty and product sales revenue was $8,053,000, collaborative
and other research and development revenue was $42,507,000, and investment
income was $11,088,000. Revenue in 1998 consisted of $29,055,000 in
collaborative and other research and development and $15,343,000 in investment
income.
Royalties and product sales consist of Agenerase royalty revenue of
$7,461,000 from Glaxo Wellcome as well as initial sales of commercial drug
substance to Kissei in Japan. Agenerase royalty revenue from Glaxo Wellcome was
recognized for the first time in 1999 and is based upon worldwide net sales of
Agenerase as provided by Glaxo Wellcome. These sales reflect prescriptions as
well as initial trade stocking which is expected to be consistent with demand.
The growth in collaborative and other research and development revenue in
1999, as compared with 1998, is largely due to new collaborative agreements and
larger milestone payments during the year. In April of 1999, we earned a
$5,000,000 milestone payment from Glaxo Wellcome for U.S. FDA approval of
Agenerase. We recorded $15,000,000 in collaborative revenue from Aventis S.A.
("Aventis"), formerly Hoechst Marion Roussel Deutschland GmbH, in October of
1999, upon entering into an expanded agreement covering the development of
VX-740, an orally active inhibitor of interleukin-1 beta converting enzyme
(ICE). This consisted of a $10,000,000 payment for prior research costs and a
$5,000,000 milestone payment for entering Phase II clinical trials. In
November 1999, we agreed with Taisho Pharmaceutical Co., Ltd. of Japan to
collaborate to discover, develop and commercialize caspase inhibitors for the
treatment of cerebrovascular, cardiovascular and neurodegenerative diseases. In
connection with this contract, we recognized $3,000,000 for prior research costs
and approximately $900,000 in product research funding. Included in 1998
collaborative and other research and development revenue is a $6,000,000 payment
from Schering A.G. earned in connection with the signing of a new collaborative
agreement for our neurophilins ligand program and a $3,000,000 milestone payment
from Glaxo Wellcome for the NDA filing for Agenerase. Research funding decreased
from all collaborative partners, by approximately $1,380,000 in 1999 primarily
because the research funding requirements under the Glaxo Wellcome agreement
ended on December 31, 1998.
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<PAGE>
Interest income decreased in 1999 compared with 1998 due to a lower level of
cash and investments throughout the year as well as lower yields earned on
investment securities.
Total costs and expenses increased to $102,614,000 in 1999 from $77,484,000
in 1998. Royalties and product costs of $2,925,000 in 1999 consist of royalty
payments to G.D. Searle & Co. ("Searle") and the cost of commercial drug
substance sold to Kissei. Under the terms of the 1996 license agreement between
Glaxo Wellcome, Searle and us, we agreed to pay Searle a royalty on the sales of
Agenerase.
Research and development expenses increased to $72,180,000 in 1999 from
$58,668,000 in 1998 principally due to the continued expansion of our research
and development operations. Our UK subsidiary expanded from a business
development operation to include scientific research and development staff in
the second half of 1998. Related to our expansion were increases in facilities
expenses, lab supplies and increased equipment depreciation. Additionally, there
was an increase in development expenses due to the commencement of clinical
trials in the second half of 1998 and the increase in other development
activities associated with our IMPDH inhibitor, VX-497, for psoriasis and
hepatitis C, our neurophilins drug candidate, timcodar, for diabetic neuropathy,
and our p38 MAP kinase inhibitor, VX-745, for inflammatory diseases. We
anticipate research and development expenses to continue to increase as
personnel are added and additional research and development activities are
expanded to accommodate our existing collaborations and additional commitments
we may undertake in the future.
Sales, general and administrative expenses increased to $26,131,000 in 1999
from $18,135,000 in 1998 primarily as a result of increased personnel and
professional expenses associated with the marketing of Agenerase-TM- and related
corporate advertising activities. Legal and patent expenses increased as we
continue to protect our intellectual property and contest a suit filed by Chiron
Corporation ("Chiron") claiming infringement of three U.S. patents issued to
Chiron. While the final outcome of the litigation with Chiron cannot be
determined, we believe, based on information currently available, that the
ultimate outcome of the action will not have a material impact on our
consolidated financial position. We expect sales, general and administrative
expenses to continue to increase as we continue to grow and enter our first full
year of Agenerase sales.
In February 1999, we restructured our investment in Altus Biologics
("Altus"), which was a wholly owned subsidiary. As part of the transaction, we
provided Altus $3,000,000 of cash and surrendered our shares in Altus preferred
stock in exchange for two new classes of preferred stock and warrants. Altus now
operates independently from us. At December 31, 1999, we had a 29.5% equity
investment in Altus of approximately $2,276,000. For the year ending
December 31, 1999, we recorded $724,000 as our share of Altus' losses. Altus is
expected to incur additional losses in 2000 and we will record our proportionate
share of losses against the investment balance.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
The net loss for 1998 was $33,086,000 or $1.31 per share compared to
$19,831,000 or $0.82 per share in 1997.
Our total revenues were $44,398,000 in 1998 as compared to $43,799,000 in
1997. In 1998, revenues consisted of $27,939,000 under our collaborative
agreements, $15,343,000 in investment income and $1,116,000 in government grants
and other income. Collaborative revenue in 1998 included a $6,000,000 payment
from Schering AG associated with the signing of a collaborative agreement for
our neurophilin ligand program and $4,000,000 of research funding from Schering
AG, a $2,000,000 milestone payment from Kissei for the acceptance of VX-745 as
the lead development candidate for our p38 MAP kinase program, and a $3,000,000
milestone payment from Glaxo Wellcome for the NDA filing of Agenerase-TM-. Other
collaborative revenue in 1998 included $3,738,000 from Kissei, $3,457,000 from
Glaxo Wellcome, $5,193,000 from Eli Lilly and Company ("Lilly") and $551,000
from others. In 1997, revenues consisted of $27,703,000 under our collaborative
agreements, $13,873,000 in investment income, and $2,223,000 in government
grants and other income. Revenue from collaborative agreements in 1997 consisted
of
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<PAGE>
$3,275,000 from Glaxo Wellcome, $8,660,000 from HMR, $9,810,000 from Kissei,
$5,694,000 from Lilly and $264,000 from others.
Total costs and expenses increased to $77,484,000 in 1998 from $63,630,000
in 1997. Research and development expenses increased to $58,668,000 in 1998 from
$51,624,000 in 1997. We increased research staffing, including opening a
research site in the U.K., to fully staff a higher number of discovery programs.
In addition, we expanded our development infrastructure. General and
administrative expenses increased in 1998 to $18,135,000 from $11,430,000 in
1997 primarily as a result of headcount growth to handle the administrative
requirements of our growing research and development operation, legal expenses
associated with expansion of our intellectual property position and marketing
expenses associated with the anticipated launch of Agenerase-TM- and our
co-promotion preparations. Interest expense increased in 1998 to $681,000 from
$576,000 in 1997 due to higher levels equipment financing during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our operations have been funded principally through strategic collaborative
agreements, public offerings and private placements of our equity securities,
equipment financing, government grants and investment income. With the approval
and launch of Agenerase, we began receiving product royalty revenues in 1999. We
have continued to increase and advance the products in our research and
development pipeline. Consequently, we expect to incur increased research and
development and related supporting expenses and are likely to continue
experiencing losses on a quarterly and annual basis as we continue to develop
existing and future compounds and to conduct clinical trials of potential drugs.
We also expect to incur substantial administrative and commercialization
expenditures in the future and additional expenses related to the filing,
prosecution, defense and enforcement of patent and other intellectual property
rights.
We expect to finance these substantial cash needs with royalties from the
sales of Agenerase, our existing cash and investments of approximately
$187,802,000 at December 31, 1999 and investment income earned thereon, future
payments under our existing and new collaborative agreements, facilities and
equipment financing and to the extent available, by raising additional funds
through public offerings or private placements of securities or other methods of
financing. There can be no assurance that such financing will be available on
acceptable terms, if at all. In December of 1999, we obtained a $20,000,000 line
of credit. The purpose of the line of credit is to fund equipment and leasehold
improvement expenditures in connection with the expansion of facilities. No
amounts were outstanding as of December 31, 1999. We believe that our existing
cash and investments should be sufficient to meet our anticipated requirements
for at least the next two years.
Our aggregate cash and investments decreased in 1999 by $57,850,000 to
$187,802,000 at December 31, 1999. Cash used by operations in 1999, principally
to fund research and development activities, was $31,806,000. Property and
equipment expenditures were $16,210,000 in 1999, $7,901,000 in 1998 and
$6,020,000 in 1997. The expenditures were principally for research equipment and
leasehold improvements to new and existing facilities. In 1999, we entered in
new operating lease agreements for additional space and facilities in the U.S.
In connection with the new leases, we were required to provide security deposits
in the form of stand-by letters of credit in the amount of $7,472,000, which is
reflected in the increase of restricted cash. We intend to make significant
investments in equipment and leasehold improvements in the future to support
research and development activities. At December 31, 1999, we leased
approximately 179,000 square feet of office and research space in the U.S. and
21,000 square feet in the U.K. We have also entered into an agreement to lease
an additional 192,000 square feet of new facilities presently under
construction. The leases have expiration dates ranging from December 2000 to
2009--subject to extension for additional terms ending in 2015. In addition, our
liability for capitalized equipment lease obligations and other equipment
financing totaled approximately $7,059,000 at December 31, 1999. During 1999, we
repaid $2,725,000 of our lease obligations.
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During 1999, we entered into two new collaborative agreements. In
September 1999, we entered into an expanded agreement with Aventis covering the
development of VX-740, an orally active inhibitor of interleukin-1 beta
converting enzyme (ICE). Under the terms of the agreement Aventis agreed to pay
us $20,000,000 for prior research costs, up to $62,000,000 of development and
commercialization milestone payments, and royalties on sales, if any.
In November 1999, we entered into an agreement with Taisho Pharmaceutical
Co., LTD ("Taisho") to collaborate on the discovery, development and
commercialization of caspase inhibitors for the treatment of cerebrovascular,
cardiovascular and neurdegenerative diseases. Under the agreement, Taisho agreed
to pay us up to $43,000,000 in pre-commercial payments, comprised of research
funding, milestone payments and $4,500,000 in payments for prior research costs.
These amounts are based on the development of two compounds. In addition, Taisho
will also pay for certain of the costs of developing compounds that emerge from
the caspase research program.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") which is effective no later than the quarter ending March 31, 2000.
SAB 101 clarifies the Securities and Exchange Commission's views related to
revenue recognition and disclosure. We will adopt SAB 101 in the first quarter
of 2000 and are presently determining the effect it will have on our financial
statements, although the amount could be material to net financial results.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The effective
date of this statement was deferred to fiscal years beginning after June 15,
2000. This statement requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair value. The Company does not expect the
adoption of this statement to have a material impact on its financial
statements.
YEAR 2000
Beginning in late 1998, we conducted a program to address the impact of the
Year 2000 on the processing of date sensitive information by our computer
systems and software ("IT Systems"), embedded systems in our non-computer
equipment ("Non-IT Systems") and relationships with certain third parties.
In the first stage of the program, we determined which IT Systems, Non-IT
Systems and third party relationships were critical to our business.
Assessment, testing, and remediation of our critical IT Systems and Non-IT
Systems for Year 2000 compliance were completed by mid-November, 1999. Some
non-critical Non-IT Systems were non-compliant and, because of the age of those
systems or other factors, could not be made compliant. We formulated contingency
plans for each of those systems.
We also contacted third parties that provide goods, services and information
that were deemed critical to our business. Based on our review of the responses
and Year 2000 website statements of those entities, we assessed our Year 2000
compliance. We formulated contingency plans for the services provided by third
parties that were found to be non-compliant, or where we were unable to
determine whether a third party was compliant. However, it has not proven
necessary to implement any of the contingency plans, since there have been no
significant Year 2000 disruptions to the goods, services and information
provided by critical third parties.
We used both internal and external resources to conduct our Year 2000
program. The total costs, both out-of pocket and internal, of our Year 2000
program were not material. Other IT Systems projects were not significantly
deferred as a result of our Year 2000 program, because we were able to integrate
much of
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<PAGE>
our Year 2000 assessment and remediation efforts into our routine maintenance
and upgrade programs. We funded the Year 2000 costs through available cash and
have no remaining costs.
We have not to date experienced any significant problems with our own IT and
Non-IT Systems or third party relationships as a result of the January 1, 2000
date change. There has been no material adverse effect on our results of
operations as a result of Year 2000 computer problems or the assessment,
testing, and remediation program.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Vertex owns financial instruments that are sensitive to market risks as part
of its investment portfolio. The investment portfolio is used to preserve
Vertex's capital until it is required to fund operations, including Vertex's
research and development activities. None of these market-risk sensitive
instruments are held for trading purposes. Vertex does not own derivative
financial instruments in its investment portfolio.
INTEREST RATE RISK
Vertex invests its cash in a variety of financial instruments, principally
securities issued by the U.S. government and its agencies, investment grade
corporate and money market instruments. These investments are denominated in
U.S. dollars. These bonds are subject to interest rate risk, and could decline
in value if interest rates fluctuate. Vertex's investment portfolio includes
only marketable securities with active secondary or resale markets to help
ensure portfolio liquidity and Vertex has implemented guidelines limiting the
duration of investments. Due to the conservative nature of these instruments,
Vertex does not believe that it has a material exposure to interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-1 through F-21 of
this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by this Item is included in the
definitive Proxy Statement for Vertex's 2000 Annual Meeting of Stockholders, to
be filed with the Commission on or about April 11, 2000 (the "2000 Proxy
Statement"), under "Election of Directors" and is incorporated herein by
reference. The information regarding executive officers required by this Item is
included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 2000 Proxy
Statement under "Executive Compensation" and is incorporated herein by reference
(excluding, however, the "Report on Executive Compensation" and the Performance
Graph contained in the 2000 Proxy Statement, which shall not be deemed
incorporated herein).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 2000 Proxy
Statement under "Security Ownership of Certain Beneficial Owners and Management"
and is incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The Financial Statements required to be filed by
Item 8 of this Annual Report on Form 10-K, and filed herewith, are as
follows:
<TABLE>
<CAPTION>
PAGE NUMBER
IN
THIS FORM
10-K
-----------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998........................................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997............................ F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997............................ F-6
Notes to Consolidated Financial Statements.................. F-7 to F-21
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules have been omitted because they are either
not applicable or the required information is included in the consolidated
financial statements or notes thereto.
39
<PAGE>
(a)(3) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Restated Articles of Organization filed with the
Commonwealth of Massachusetts on July 31, 1991 (filed as
Exhibit 3.1 to Vertex's 1997 Annual Report on Form 10-K
(File No. 0-19319) and incorporated herein by reference).
3.2 Articles of Amendment filed with the Commonwealth of
Massachusetts on June 4, 1997 (filed as Exhibit 3.2 to
Vertex's 1997 Annual Report on Form 10-K (File No. 0-19319)
and incorporated herein by reference).
3.3 Certificate of Vote of Directors Establishing a Series of a
Class of Stock, as filed with the Secretary of the
Commonwealth of Massachusetts on July 31, 1991 (filed as
Exhibit 3.3 to Vertex's 1997 Annual Report on Form 10-K
(File No. 0-19319) and incorporated herein by reference).
3.4 By-laws of Vertex (filed as Exhibit 3.2 to Vertex's
Registration Statement on Form S-1 (Registration No.
33-43874) and incorporated herein by reference).
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Vertex's
Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).
4.2 Stockholder Rights Plan (filed as Exhibit 4.2 to Vertex's
Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).
4.3 First Amendment to Rights Agreement dated as of February 21,
1997 (filed as Exhibit 4.3 to Vertex's 1996 Annual Report on
Form 10-K (File No. 0-19319) and incorporated herein by
reference).
10.1 1991 Stock Option Plan, as amended and restated as of
September 14, 1999 (filed herewith).*
10.2 1994 Stock and Option Plan, as amended and restated as of
September 14, 1999 (filed herewith).*
10.3 1996 Stock and Option Plan, as amended and restated as of
September 14, 1999 (filed herewith).*
10.4 Non-Competition and Stock Repurchase Agreement between
Vertex and Joshua Boger, dated April 20, 1989 (filed as
Exhibit 10.2 to Vertex's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and
incorporated herein by reference).*
10.5 Form of Employee Stock Purchase Agreement (filed as Exhibit
10.3 to Vertex's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and
incorporated herein by reference).*
10.6 Form of Employee Non-Disclosure and Inventions Agreement
(filed as Exhibit 10.4 to Vertex's Registration Statement on
Form S-1 (Registration No. 33-40966) or amendments thereto
and incorporated herein by reference).
10.7 Form of Executive Employment Agreement executed by Richard
H. Aldrich, Joshua S. Boger, and Vicki L. Sato (filed as
Exhibit 10.6 to Vertex's 1994 Annual Report on Form 10-K
(File No. 0-19319) and incorporated herein by reference).*
10.8 Form of Amendment to Employment Agreement executed by
Richard H. Aldrich, Joshua S. Boger and Vicki L. Sato (filed
as Exhibit 10.1 to Vertex's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 (File No. 0-19319) and
incorporated herein by reference).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.9 Lease dated October 1, 1992 between C. Vincent Vappi and
Vertex relating to the premises at 40 Allston Street, 618
Putnam Street, 228 Sidney Street, and 240 Sidney Street
(filed as Exhibit 10.14 to Vertex's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 0-19319)
and incorporated herein by reference).
10.10 First Amendment as of March 1, 1995 to the lease between C.
Vincent Vappi and Vertex (filed as Exhibit 10.2 to Vertex's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 (File No. 0-19319) and incorporated herein by
reference).
10.11 Second Amendment as of February 12, 1997 to Lease between C.
Vincent Vappi and Vertex (filed as Exhibit 10.14 to Vertex's
Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 0-19319) and incorporated herein by
reference).
10.12 Lease dated March 1, 1993, between Fort Washington Realty
Trust and Vertex, relating to the premises at 625 Putnam
Avenue, Cambridge, MA (filed as Exhibit 10.10 to Vertex's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 0-19319) and incorporated herein by
reference).
10.13 First Amendment, dated 1 December 1996, to Lease between
Fort Washington Realty Trust and Vertex dated 1 March 1993
(filed as Exhibit 10.16 to Vertex's Annual Report on Form
10-K for the year ended December 31, 1996 (File No. 0-19319)
and incorporated herein by reference).
10.14 Second Amendment, dated 1 February 1998, to Lease between
Fort Washington Realty Trust and Vertex dated 1 March 1993
(filed as Exhibit 10.17 to Vertex's 1997 Annual Report on
Form 10-K (File No. 0-19319) and incorporated herein by
reference).
10.15 Lease dated March 3, 1995, between Fort Washington Realty
Trust and Vertex, relating to the premises at 130 Waverly
Street, Cambridge, MA (filed as Exhibit 10.15 to Vertex's
1994 Annual Report on Form 10-K (File No. 0-19319) and
incorporated herein by reference).
10.16 First Amendment to Lease dated March 3, 1995 between Fort
Washington Realty Trust and Vertex (filed as Exhibit 10.15
to Vertex's 1995 Annual Report on Form 10-K (File No.
0-19319) and incorporated herein by reference).
10.17 Second Amendment to Lease and Option Agreement dated June
12, 1997 between Fort Washington Realty Trust and Vertex
(filed herewith).
10.18 Agreement for Lease of Premises at 88 Milton Park, Abingdon,
Oxfordshire between Milton Park Limited and Vertex
Pharmaceuticals (Europe) Limited and Vertex Pharmaceuticals
Incorporated (filed herewith)
10.19 Lease by and between Trustees of Fort Washington Realty
Trust, Landlord, and the Company as Tenant, executed
September 17, 1999 (filed as Exhibit 10.27 to Vertex's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, with certain confidential information
deleted (File No. 0-19319), and incorporated herein by
reference).
10.20 Research and Development Agreement dated April 13, 1993
between Vertex and Kissei Pharmaceutical Co., Ltd. (with
certain confidential information deleted) (filed as Exhibit
10.1 to Vertex's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993 (File No. 0-19319) and
incorporated herein by reference).
10.21 Research Agreement and License Agreement, both dated
December 16, 1993, between Vertex and Burroughs Wellcome Co.
(with certain confidential information deleted) (filed as
Exhibit 10.16 to Vertex's Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 0-19319) and
incorporated herein by reference).
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.22 License Agreement and Supply Agreement, both dated May 9,
1996, between Vertex and BioChem Pharma (International) Inc.
(with certain confidential information deleted) (filed as
Exhibit 10.1 to Vertex's Quarterly Report on 10-Q for the
quarter ended March 31, 1996 (File No. 0-19319) and
incorporated herein by reference).
10.23 Research and Development Agreement between Vertex and Eli
Lilly and Company effective June 11, 1997 (filed with
certain confidential information deleted as Exhibit 10.1 to
Vertex's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, and incorporated herein by reference).
10.24 Research and Development Agreement between Vertex and Kissei
Pharmaceutical Co. Ltd. effective September 10, 1997 (filed,
with certain confidential information deleted, as Exhibit
10.1 to Vertex's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, and incorporated herein by
reference).
10.25 Research Agreement between Vertex and Schering AG dated as
of August 24, 1998 (filed, with certain confidential
information deleted, as Exhibit 10.1 to Vertex's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, and incorporated herein by reference).
10.26 License, Development and Commercialization Agreement between
the Company and Hoechst Marion Roussel Deutschland GmbH
dated September 1, 1999 (filed as Exhibit 10.27 to Vertex's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, with certain confidential information
deleted (File No. 0-19319), and incorporated herein by
reference).
10.27 Collaboration and Option Agreement between Vertex and Taisho
Pharmaceutical Co., Ltd. dated November 30, 1999 (with
certain confidential information deleted) (filed herewith).
10.28 Credit Agreement between Vertex and Fleet National Bank
(filed herewith).
21 Subsidiaries of Vertex (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (submitted as an exhibit only in the
electronic format of this Annual Report on Form 10-K
submitted to the Securities and Exchange Commission).
</TABLE>
- ------------------------
* Compensatory plan or agreement applicable to management and employees.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Vertex during the
quarter ended December 31, 1999.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/ JOSHUA S. BOGER
-----------------------------------------
Joshua S. Boger
February 29, 1999 PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Director, Chairman,
/s/ JOSHUA S. BOGER President and Chief
------------------------------------------- Executive Officer February 29, 1999
Joshua S. Boger (Principal Executive
Officer)
Vice President of Finance
/s/ THOMAS G. AUCHINCLOSS, JR. and Treasurer (Principal
------------------------------------------- Financial and Accounting February 29, 1999
Thomas G. Auchincloss, Jr. Officer)
/s/ BARRY M. BLOOM
------------------------------------------- Director February 29, 1999
Barry M. Bloom
/s/ ROGER W. BRIMBLECOMBE
------------------------------------------- Director February 29, 1999
Roger W. Brimblecombe
/s/ DONALD R. CONKLIN
------------------------------------------- Director February 29, 1999
Donald R. Conklin
/s/ BRUCE I. SACHS
------------------------------------------- Director February 29, 1999
Bruce I. Sachs
/s/ CHARLES A. SANDERS
------------------------------------------- Director February 29, 1999
Charles A. Sanders
/s/ ELAINE S. ULLIAN
------------------------------------------- Director February 29, 1999
Elaine S. Ullian
</TABLE>
43
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
10.1 1991 Stock Option Plan, as amended and restated as of
September 14, 1999 (filed herewith).
10.2 1994 Stock and Option Plan, as amended and restated as of
September 14, 1999 (filed herewith).
10.3 1996 Stock and Option Plan, as amended and restated as of
September 14, 1999 (filed herewith).
10.27 Collaboration and Option Agreement between Vertex and Taisho
Pharmaceutical Co., Ltd. dated November 30, 1999 (with
certain confidential information deleted) (filed herewith).
10.28 Credit Agreement between Vertex and Fleet National Bank
(with certain confidential information deleted) (filed
herewith).
21 Subsidiaries of Vertex (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (submitted as an exhibit only in the
electronic format of this Annual Report on Form 10-K
submitted to the Securities and Exchange Commission).
</TABLE>
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7 to F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Vertex Pharmaceuticals
Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Vertex
Pharmaceuticals Incorporated and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2000, except as to the information
in Note R for which the date is
February 28, 2000
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 31,548 $ 24,169
Investments............................................. 156,254 221,483
Accounts receivable..................................... 5,956 1,462
Prepaid expenses........................................ 1,439 1,594
--------- ---------
Total current assets................................ 195,197 248,708
Restricted cash........................................... 9,788 2,316
Property and equipment, net............................... 24,480 14,476
Investment in equity affiliate............................ 2,276 --
Other assets.............................................. 704 846
--------- ---------
Total assets........................................ $ 232,445 $ 266,346
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 2,979 $ 2,808
Accrued expenses........................................ 11,173 7,542
Deferred revenue........................................ 2,000 --
Obligations under capital lease and debt................ 2,366 2,752
--------- ---------
Total current liabilities........................... 18,518 13,102
Obligations under capital lease and debt, excluding
current portion......................................... 4,693 7,032
--------- ---------
Total liabilities................................... 23,211 20,134
--------- ---------
Commitments (Note I)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued
Common stock, $.01 par value; 100,000,000 shares
authorized; 25,685,364 and 25,358,559 shares issued
and outstanding in 1999 and 1998, respectively........ 257 254
Additional paid-in capital.............................. 400,888 395,332
Deferred compensation................................... (114) (167)
Accumulated other comprehensive income (loss)........... (970) 654
Accumulated deficit..................................... (190,827) (149,861)
--------- ---------
Total stockholders' equity.......................... 209,234 246,212
--------- ---------
Total liabilities and stockholders' equity.......... $ 232,445 $ 266,346
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
1
CONSOLIDATED STATEMENTS OF OPERATIONS
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Royalties and product sales............................... $ 8,053 -- --
Collaborative and other research and development.......... 42,507 $ 29,055 $ 29,926
Investment income......................................... 11,088 15,343 13,873
-------- -------- --------
Total revenues.............................................. 61,648 44,398 43,799
Costs and expenses:
Royalties and product costs............................... 2,925 -- --
Research and development.................................. 72,180 58,668 51,624
Sales, general and administrative......................... 26,131 18,135 11,430
Loss in equity affiliate.................................. 724 -- --
Interest.................................................. 654 681 576
-------- -------- --------
Total costs and expenses................................ 102,614 77,484 63,630
======== ======== ========
Net loss.................................................... $(40,966) $(33,086) $(19,831)
======== ======== ========
Basic and diluted loss per common share..................... $ (1.61) $ (1.31) $ (0.82)
Basic and diluted weighted average number of common shares
outstanding............................................... 25,518 25,299 24,264
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT INCOME (LOSS)
-------- -------- ---------- ------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.................... 21,097 $211 $227,557 $ (47) $ (96,944) $ 49
Net change in unrealized holding gains/losses
on investments.............................. 115
Translation adjustments....................... (12)
Net loss...................................... (19,831)
Comprehensive loss............................
Issuances of common stock:
Public offering of common stock............. 3,450 34 148,776
Private placement of common stock........... 264 3 9,997
Benefit plans............................... 405 4 6,115
Equity compensation for services rendered..... 44 (82)
Amortization of deferred compensation......... 12
------- ---- -------- ----- --------- -------
Balance, December 31, 1997.................... 25,216 252 392,489 (117) (116,775) 152
Net change in unrealized holding gains/losses
on investments.............................. 502
Translation adjustments
Net loss...................................... (33,086)
Comprehensive loss............................
Issuances of common stock:
Benefit plans............................... 143 2 2,784
Equity compensation for services rendered..... 59 (82)
Amortization of deferred compensation......... 32
------- ---- -------- ----- --------- -------
Balance, December 31, 1998.................... 25,359 254 395,332 (167) (149,861) 654
Net change in unrealized holding gains/losses
on investments.............................. (1,672)
Translation adjustments....................... 48
Net loss...................................... (40,966)
Comprehensive loss............................
Issuances of common stock:
Benefit plans............................... 326 3 5,497
Equity compensation for services rendered..... 59
Amortization of deferred compensation......... 53
------- ---- -------- ----- --------- -------
Balance, December 31, 1999.................... 25,685 $257 $400,888 $(114) $(190,827) $ (970)
======= ==== ======== ===== ========= =======
<CAPTION>
COMPREHENSIVE TOTAL
INCOME STOCKHOLDERS'
(LOSS) EQUITY
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Balance, December 31, 1996.................... $130,826
Net change in unrealized holding gains/losses
on investments.............................. $ 115 115
Translation adjustments....................... (12) (12)
Net loss...................................... (19,831) (19,831)
--------
Comprehensive loss............................ (19,728)
========
Issuances of common stock:
Public offering of common stock............. 148,810
Private placement of common stock........... 10,000
Benefit plans............................... 6,119
Equity compensation for services rendered..... (38)
Amortization of deferred compensation......... 12
--------
Balance, December 31, 1997.................... 276,001
Net change in unrealized holding gains/losses
on investments.............................. 502 502
Translation adjustments
Net loss...................................... (33,086) (33,086)
--------
Comprehensive loss............................ (32,584)
========
Issuances of common stock:
Benefit plans............................... 2,786
Equity compensation for services rendered..... (23)
Amortization of deferred compensation......... 32
--------
Balance, December 31, 1998.................... 246,212
Net change in unrealized holding gains/losses
on investments.............................. (1,672) (1,672)
Translation adjustments....................... 48 48
Net loss...................................... (40,966) (40,966)
--------
Comprehensive loss............................ (42,590)
========
Issuances of common stock:
Benefit plans............................... 5,500
Equity compensation for services rendered..... 59
Amortization of deferred compensation......... 53
--------
Balance, December 31, 1999.................... $209,234
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
VERTEX PHARMACEUTICALS INCORPORATED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (40,966) $ (33,086) $ (19,831)
Adjustment to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 6,206 4,520 3,588
Amortization of deferred compensation................... 53 32 12
Equity compensation for services rendered............... 59 59 44
Realized (gains)/losses on investments.................. 655 (547) --
Loss in equity affiliate................................ 724 -- --
Changes in assets and liabilities:
Accounts receivable..................................... (4,494) -- --
Prepaid expenses........................................ 155 (1,104) (161)
Accounts payable........................................ 171 (1,439) 2,856
Accrued expenses........................................ 3,631 1,157 3,630
Deferred revenue........................................ 2,000 (556) 556
--------- --------- ---------
Net cash (used) by operating activities............... (31,806) (30,964) (9,306)
========= ========= =========
Cash flows from investing activities:
Purchases of investments.................................. (365,970) (507,540) (303,599)
Sales and maturities of investments....................... 428,872 495,323 191,005
Expenditures for property and equipment................... (16,210) (7,901) (6,020)
Restricted cash........................................... (7,472) -- --
Investment in equity affiliate............................ (3,000) -- --
Other assets.............................................. 142 (276) (200)
--------- --------- ---------
Net cash provided (used) by investing activities...... 36,362 (20,394) (118,814)
========= ========= =========
Cash flows from financing activities:
Repayment of capital lease obligations and debt........... (2,725) (2,716) (3,104)
Proceeds from equipment sale/leaseback.................... -- -- 1,179
Proceeds from debt........................................ -- 4,085 1,813
Proceeds from public offerings of common stock............ -- -- 148,810
Proceeds from private placement of common stock........... -- -- 10,000
Proceeds from other issuances of capital stock............ 5,500 2,704 6,037
--------- --------- ---------
Net cash provided by financing activities............. 2,775 4,073 164,735
--------- --------- ---------
Effect of exchange rates on cash.......................... 48 -- (12)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 7,379 (47,285) 36,603
Cash and cash equivalents at beginning of year.............. 24,169 71,454 34,851
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 31,548 $ 24,169 $ 71,454
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Vertex Pharmaceuticals Incorporated ("Vertex" or the "Company") uses a range
of drug discovery technologies to discover, develop and market small molecule
drugs that address major medical needs. The Company is headquartered in
Cambridge, Massachusetts and operates primarily in the U.S. Vertex also has a
research facility in the U.K. The Company has seven drug candidates in clinical
development. The Company's first product, the HIV protease inhibitor
Agenerase-TM- (amprenavir), received accelerated approval from the U.S. Food and
Drug Administration and was launched in May 1999. Agenerase is marketed in the
U.S. by Glaxo Wellcome plc ("Glaxo Wellcome") and is co-promoted in the U.S. by
Vertex. The Company expects to incur operating losses over the next two years
and possibly longer, as a result of expenditures for its research and
development programs.
The consolidated financial statements include the accounts of the Company
and the following subsidiaries: Vertex Securities Corp., Vertex Pharmaceuticals
(Europe) Limited and Altus Biologics, Inc. ("Altus"), until January, 1999. All
material intercompany transactions are eliminated. The Company restructured its
majority ownership investment in Altus during 1999. As a result of the
transaction, Vertex accounts for its investment in Altus under the equity
method.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, rapid technological change and
competition, dependence on key personnel, uncertainty of protection of
proprietary technology, clinical trial uncertainty, dependence on collaborative
partners, share price volatility, the possible need to obtain additional
funding, uncertainties relating to pharmaceutical pricing and reimbursement,
limited experience in manufacturing, sales and marketing, potential product
liability and the need for compliance with government regulations.
B. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
RECLASSIFICATION IN THE PREPARATION OF FINANCIAL STATEMENTS
Certain reclassifications have been made to prior year data to conform to
the current presentation.
CASH AND CASH EQUIVALENTS
Cash equivalents, which are money market funds and debt securities, are
valued at cost plus accrued interest. The Company considers all highly liquid
investments with original maturities of three months or less at the date of
purchase to be cash equivalents. Changes in cash and cash equivalents may be
affected by shifts in investment portfolio maturities as well as by actual cash
receipts and disbursements.
INVESTMENTS
Investments consist of marketable securities, which are classified as
available for sale. Investments are stated at fair value with unrealized gains
and losses included as a component of accumulated other comprehensive income
(loss) until realized. The fair value of these securities is based on quoted
market
F-7
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. ACCOUNTING POLICIES (CONTINUED)
prices. Realized gains and losses are determined on the specific identification
method and are included in investment income.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of money market funds and
marketable securities. The Company places these investments in highly rated
financial institutions, and, by policy, limits the amounts of credit exposure to
any one financial institution. These amounts at times may exceed federally
insured limits. The Company has not experienced any losses in such accounts and
does not believe it is exposed to any significant credit risk on these funds.
Two collaborative partners represented approximately 52% and 29%,
respectively, of the Company's accounts receivable balance at December 31, 1999,
which potentially exposes the Company to a concentration of credit risk. At
December 31, 1998, three collaborative partners represented approximately 14%,
14% and 15%, respectively, of the Company's accounts receivable balance.
Management believes that credit risks associated with these partners are not
significant.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the lesser of the lease terms
or the estimated useful lives of the related assets, generally four or five
years for equipment and furniture and three years for computers and purchased
software. Leasehold improvements are amortized over the life of the leases. When
assets are retired or otherwise disposed of, the assets and related allowances
for depreciation and amortization are eliminated from the accounts and any
resulting gain or loss is reflected in income (loss).
STOCK-BASED COMPENSATION
In accounting for its stock-based compensation plans, the Company applies
Accounting Principles Board Opinion No. 25 ("APB 25") and related
interpretations for all awards granted to employees. Under APB 25, when the
exercise price of options granted to employees under these plans equals the
market price of the common stock on the date of grant, no compensation cost is
required. When the exercise price of options granted to employees under these
plans is less than the market price of the common stock on the date of grant,
compensation costs are expensed over the vesting period. For stock options
granted to nonemployees, the Company recognizes compensation costs in accordance
with the requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that
companies recognize compensation expense for grants of stock, stock options and
other equity instruments based on fair value.
REVENUE RECOGNITION
Revenue under research and development arrangements is recognized as earned
under the terms of the respective agreements. License payments are recorded as
revenue when payment is assured and contractual obligations have been met.
Product research funding is recorded as revenue, generally on a quarterly basis,
as research effort is incurred. Deferred revenue arises from payments received
that have not yet been earned under research and development arrangements. The
Company recognizes milestone payments when the milestones are achieved. Royalty
revenue is recognized based on net sales
F-8
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. ACCOUNTING POLICIES (CONTINUED)
of licensed products in licensed territories, as provided by the collaborative
partner. Product sales revenue is recorded upon shipment.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred.
ADVERTISING
All advertising costs are expensed as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future
tax consequences, using current tax rates, of temporary differences between the
financial statement carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net deferred tax asset
if, based on the weighted available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
BASIC AND DILUTED LOSS PER COMMON SHARE
Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based upon
the weighted average number of common shares outstanding during the period plus
additional weighted average common equivalent shares outstanding during the
period when the effect is not anti-dilutive. Common equivalent shares result
from the assumed exercise of outstanding stock options, the proceeds of which
are then assumed to have been used to repurchase outstanding stock using the
treasury stock method. Common equivalent shares have not been included in the
net loss per share calculations as the effect would be anti-dilutive. Potential
common equivalent shares consist of 6,744,000 stock options outstanding with a
weighted average exercise price of $23.50 as of December 31, 1999.
SEGMENT INFORMATION
The Company is in one business segment under the management approach, the
business of discovery, development and marketing of small molecule drugs that
address major medical needs.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") which is effective no later than the quarter ending March 31, 2000.
SAB 101 clarifies the Securities and Exchange Commission's views regarding
recognition of revenue. The Company will adopt SAB 101 in the first quarter of
2000 and is presently determining the effect it will have on the financial
statements, although the amount could be material to net financial results.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The effective
date of this statement was deferred to fiscal years beginning after June 15,
2000. This statement requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position and the
measurement of
F-9
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. ACCOUNTING POLICIES (CONTINUED)
those instruments at fair value. The Company does not expect the adoption of
this statement to have a material impact on its financial statements.
C. INVESTMENTS
Investments consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents
Cash and money market funds....................... $ 27,339 $ 27,339 $ 20,888 $ 20,888
Corporate debt securities......................... 4,209 4,209 3,281 3,281
-------- -------- -------- --------
Total cash and cash equivalents..................... $ 31,548 $ 31,548 $ 24,169 $ 24,169
======== ======== ======== ========
Investments
US government securities
Due within 1 year............................... $ 12,318 $ 12,292 $ 18,383 $ 18,363
Due within 1 to 5 years......................... 18,054 17,702 28,734 28,834
Due over 5 years................................ -- -- 3,048 3,037
Corporate debt securities
Due within 1 year............................... 71,807 71,788 21,684 21,638
Due within 1 to 5 years......................... 31,647 31,304 133,039 133,665
Due over 5 years................................ 23,450 23,168 15,945 15,946
-------- -------- -------- --------
Total Investments................................... $157,276 $156,254 $220,833 $221,483
======== ======== ======== ========
</TABLE>
Gross unrealized holding gains and losses at December 31, 1999 were
approximately $112,000 and $1,134,000, respectively, and at December 31, 1998
were $911,000 and $261,000, respectively. Gross realized gains and losses for
1999 were $106,000 and $761,000, respectively. Gross realized gains and losses
for 1998 were $852,000 and $305,000, respectively. The effect of gross realized
gains and losses on the financial statements for 1997 was immaterial. Maturities
stated are effective maturities.
D. RESTRICTED CASH
In accordance with operating lease agreements, at December 31, 1999 and 1998
the Company held in deposit approximately $9,788,000 and $2,316,000,
respectively, with its bank to collateralize conditional, stand-by letters of
credit in the name of the landlord. In 1999, the Company entered into new
operating leases for additional space and facilities. In connection with these
leases the Company was required to provide security deposits in the form of
stand-by letters of credit. The letters of credit are redeemable only if the
Company defaults on the leases under specific criteria. These funds are
restricted from the Company's use during the lease period, although the Company
is entitled to all interest earned on the funds.
F-10
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Leasehold improvements.................................... $15,851 $ 7,804
Furniture and equipment................................... 15,215 9,847
Computers................................................. 3,190 1,223
Software.................................................. 4,053 3,276
Equipment under capital lease............................. 20,522 20,471
------- -------
58,831 42,621
Less accumulated depreciation and amortization............ 34,351 28,145
------- -------
$24,480 $14,476
======= =======
</TABLE>
The net book value of equipment under capital lease was $2,018,000 and
$3,687,000 at December 31, 1999 and 1998, respectively.
Financial information relating to the Company's operations by geographic
area was as follows (in thousands):
<TABLE>
<CAPTION>
LONG-LIVED ASSETS
-------------------
1999 1998
-------- --------
<S> <C> <C>
United States............................................. $51,903 $41,712
United Kingdom............................................ 6,928 909
------- -------
Consolidated.............................................. $58,831 $42,621
======= =======
</TABLE>
F. INVESTMENT IN AFFILIATE
In February 1999, Vertex restructured its investment in Altus, which was a
wholly owned subsidiary, so that Altus operates independently from Vertex. As
part of the transaction, Vertex provided Altus $3,000,000 of cash and
surrendered its shares in Altus preferred stock in exchange for two new classes
of preferred stock and warrants. At December 31, 1999, Vertex had a 29.5% equity
investment in Altus of approximately $2,276,000. For the year ending
December 31, 1999, Vertex recorded $724,000 as its share of Altus' losses.
G. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Professional fees.......................................... $ 3,005 $2,134
Development contract costs................................. 3,331 2,391
Payroll and benefits....................................... 1,822 1,239
Other...................................................... 3,015 1,778
------- ------
$11,173 $7,542
======= ======
</TABLE>
F-11
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. CAPITAL LEASES AND DEBT OBLIGATIONS
At December 31, 1999, long-term capital lease and debt obligations were due
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CAPITAL LEASES DEBT TOTAL
- ----------------------- -------------- -------- --------
<S> <C> <C> <C>
2000........................................... $1,492 $1,027 $2,519
2001........................................... 1,335 1,114 2,449
2002........................................... 89 1,351 1,440
2003........................................... -- 873 873
------ ------ ------
Total...................................... 2,916 4,365 7,281
Less amount representing interest payments..... 222 -- 222
------ ------ ------
Present value of minimum lease and debt
payments..................................... 2,694 4,365 7,059
Less current portion........................... 1,339 1,027 2,366
------ ------ ------
$1,355 $3,338 $4,693
====== ====== ======
</TABLE>
During 1997, the Company financed under capital lease arrangements an
aggregate of $1,179,000 of asset cost under master lease agreements. At the end
of the lease term, the Company has the right to either return the equipment to
the lessor or purchase the equipment for fair market value at that time. These
agreements have a term of five years and require that the Company maintain a
certain level of cash and investments.
During 1998, the Company financed under a master debt agreement, assets with
a cost of $1,574,000, $1,506,000 and $1,005,000 with interest rates of 7.89%,
8.06% and 8.08%, respectively. During 1997, the Company financed under a master
debt agreement assets with a cost of $676,000 and $1,137,000 with the interest
rates of 8.59% and 8.38%, respectively. The Company has certain equipment with a
net book value of $3,765,000 designated as collateral under these agreements at
December 31, 1999. These agreements have a term of five years, and require that
the Company maintain a certain level of cash and investments. The carrying value
of these debt obligations approximates fair value.
In December 1999, the Company obtained a line of credit allowing for
borrowings in aggregate of up to $20,000,000 for equipment and leasehold
improvement expenditures. As of December 31, 1999, no amounts were outstanding
and $20,000,000 was available under the line of credit.
Interest paid under capital leases and debt was $654,000, $681,000 and
$576,000 in 1999, 1998 and 1997, respectively.
I. COMMITMENTS
The Company leases its facilities and certain equipment under operating
leases. The Company's leases have terms through the year 2009. In 1999, the
Company entered into new operating lease commitments for additional space and
facilities in the U.S.
F-12
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. COMMITMENTS (CONTINUED)
At December 31, 1999, future minimum commitments under leases with
non-cancelable terms of more than one year are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR OPERATING LEASES
- ---- ----------------
<S> <C>
2000........................................................ $ 7,502
2001........................................................ $ 11,975
2002........................................................ $ 11,258
2003........................................................ $ 11,258
2004........................................................ $ 10,840
Thereafter.................................................. $ 50,714
--------
Total....................................................... $103,547
========
</TABLE>
Rental expense was $6,235,000, $4,358,000 and $3,363,000 in 1999, 1998 and
1997, respectively.
The Company has certain license and maintenance contracts that contain
future, committed payments for the support and upgrade of specific software
programs currently used in research. For the years 2000 and 2001 the amounts
committed under these contracts are $811,000 and $766,000, respectively.
J. INCOME TAXES
The Company's federal statutory income tax rate for 1999, 1998 and 1997 was
34%. The Company recorded no income tax benefit for 1999, 1998 and 1997 and
recorded a full valuation allowance against net operating losses due to
uncertainties related to realizability of these tax assets.
Deferred tax liabilities and assets are determined based on the difference
between financial statement and tax bases using enacted tax rates in effect for
the year in which the differences are expected to reverse. The components of the
deferred taxes at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating loss........................................ $66,001 $57,295
Tax credits carryforward.................................. 13,464 10,958
Property, plant and equipment............................. 676 1,345
Other..................................................... 411 572
------- -------
Gross deferred tax asset.................................. 80,552 70,170
Valuation allowance....................................... (80,552) (70,170)
------- -------
Net deferred tax balance.................................. $ -- $ --
======= =======
</TABLE>
For federal income tax purposes, as of December 31, 1999, the Company has
net operating loss carryforwards of approximately $162,776,000 and $9,331,000 of
tax credits, which may be used to offset future income. These net operating loss
carryforwards expire beginning in 2005, and the tax credit carryforwards begin
to expire in 2004. The 1999 deferred tax asset has been adjusted in connection
with the restructuring of the Company's investment in Altus. A valuation
allowance has been established for the full amount of the deferred tax asset
since it is more likely than not that the deferred tax asset will not be
realized.
F-13
<PAGE>
J. INCOME TAXES (CONTINUED)
The amount of tax credits and net operating loss carryforwards that the
Company may utilize in any one year is limited in accordance with Internal
Revenue Code Section382. This limitation arises whenever a cumulative change in
ownership in excess of 50% occurs. A change of ownership has occurred which will
limit the amount of net operating loss and tax credits available prior to the
change. There may also be further changes of ownership subsequent to 1999, which
may also limit the amount of net operating loss and tax credit utilization in a
subsequent year.
K. COMMON AND PREFERRED STOCK
COMMON STOCK
In March 1997, the Company completed a public offering of 3,450,000 shares
of its common stock at a price of $45.50 per share with net proceeds to the
Company of approximately $148,810,000. In June 1997, Eli Lilly and Company
("Lilly") purchased 263,922 shares of the Company's common stock for
$10,000,000.
During 1997, the Company increased the authorized number of shares of common
stock by 50,000,000 shares to 100,000,000 shares. In May 1999, the shareholders
approved an amendment to the Company's 1996 Stock and Option Plan and the
Employee Stock Purchase Plan authorizing the addition of 1,250,000 and 200,000
shares to the plans, respectively. At December 31, 1999, 8,873,000 shares of the
Company's common stock were reserved for exercise of common stock options
granted or to be granted under its 1991 Stock Option Plan, 1994 Stock and Option
Plan, and 1996 Stock and Option Plan; 43,000 shares were reserved for exercise
of certain other options granted in 1991; approximately 57,000 shares of common
stock were reserved for issuance under the Company's 401(k) Plan, and
approximately 224,000 shares of common stock were reserved for issuance under
the Company's Employee Stock Purchase Plan.
STOCK OPTION PLANS
The Company has a 1991 Stock Option Plan (the "1991 Plan"), a 1994 Stock and
Option Plan (the "1994 Plan") and a 1996 Stock and Option Plan (the "1996
Plan"). Under the 1994 Plan and the 1996 Plan, stock rights, which are either
(i) incentive stock options when Internal Revenue Code requirements are met,
(ii) non-qualified stock options ("NQSOs"), or (iii) award shares of common
stock or the opportunity to make a direct purchase of shares of common stock
("Stock Awards"), may be granted to employees (including officers and directors
who are employees), consultants, advisors and non-employee directors (NQSOs and
stock awards only). Stock options granted under the 1996 Plan may not be granted
at a price less than the fair market value of the common stock on the date of
grant. Vesting periods, generally four or five years, are determined by the
Compensation Committee. Incentive stock options granted under the Plans must
expire not more than ten years from the date of grant. At December 31, 1999, the
Company had 2,173,000 shares of common stock available for future grant under
its stock option plans.
The Company issued options to purchase 20,000 shares of common stock in 1998
and 1997, at exercise prices below the fair market value of the common stock on
the date of grant. The Company recorded an increase to additional paid in
capital and a corresponding charge to deferred compensation to recognize the
aggregate difference between the exercise price and the fair market value of the
common stock in the amount of $82,000 and $82,000 for 1998 and 1997,
respectively. Deferred compensation is being amortized over the option vesting
period. Amortization of deferred compensation expense of $53,000, $32,000 and
$12,000 was recognized during 1999, 1998 and 1997, respectively.
F-14
<PAGE>
K. COMMON AND PREFERRED STOCK (CONTINUED)
Compensation cost recognized in connection with the issuance of stock
options to nonemployees was $59,000, $59,000 and $44,000 in 1999, 1998 and 1997,
respectively.
Stock option activity for the years ended December 31, 1999, 1998 and 1997
is as follows (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 5,837 $22.62 4,702 $22.03 4,033 $18.98
Granted..................................... 1,315 $25.99 1,341 $24.57 1,257 $29.78
Exercised................................... (244) $15.24 (78) $14.89 (375) $13.97
Canceled.................................... (164) $27.17 (128) $25.90 (213) $23.99
----- ----- -----
Outstanding at end of year.................. 6,744 $23.50 5,837 $22.62 4,702 $22.03
===== ===== =====
Options exercisable at year-end............. 3,440 $20.57 2,758 $18.76 1,944 $16.50
===== ===== =====
Weighted average fair value of options
granted during the year................... $13.05 $11.68 $13.94
</TABLE>
The fair value of each option granted during 1999, 1998 and 1997 was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected life (years)................................. 5.5 5.11 5.18
Expected volatility................................... 45% 46.5% 44.7%
Risk free interest rate............................... 6.20% 4.86% 5.5%
Dividend yield........................................ 0 0 0
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
EXERCISE PRICES ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 7.25-$15.75.......................... 1,535 3.96 $13.33 1,527 $13.32
$15.88-$26.22.......................... 2,445 8.50 $22.80 726 $19.63
$26.31-$27.34.......................... 1,438 8.36 $27.27 456 $27.29
$27.37-$48.81.......................... 1,317 7.31 $32.35 726 $32.38
$49.13-$49.13.......................... 9 7.45 $49.13 5 $49.13
----- ---- ------ ----- ------
$ 7.25-$49.13.......................... 6,744 7.20 $23.50 3,440 $20.57
===== ==== ====== ===== ======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan, substantially all
permanent employees may, through payroll withholdings, purchase shares of the
Company's common stock at a price of 85% of the
F-15
<PAGE>
K. COMMON AND PREFERRED STOCK (CONTINUED)
lesser of fair market value at the beginning or end of each six-month
withholding period. During 1999, 1998 and 1997 the following was issued under
the plan:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Number of shares.................................... 51,529 38,170 26,213
Average price paid.................................. $19.37 $22.66 $28.00
</TABLE>
Had the Company adopted SFAS 123, the weighted average fair value of each
purchase right granted during 1999, 1998 and 1997 would have been $6.63, $7.65
and $9.16, respectively. The fair value was estimated at the beginning of the
withholding period using the Black-Scholes option-pricing model with the
following weighted average assumptions: (1) expected life of one half year for
all years (2) expected volatility of 45%, 52% and 51% for 1999, 1998 and 1997,
respectively (3) risk-free interest rate of 5.72%, 4.70% and 5.43% for 1999,
1998 and 1997, respectively, and (4) no dividend yield.
PRO FORMA DISCLOSURES
Had compensation cost for the Company's grants for stock-based compensation
plans been determined consistent with SFAS 123, the Company's net loss and net
loss per share would approximate the pro forma amounts below (in thousands
except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net Loss.......................................... As reported $(40,966) $(33,086) $(19,831)
Pro forma $(52,997) $(41,542) $(25,154)
Basic and diluted loss per share.................. As reported $ (1.61) $ (1.31) $ (0.82)
Pro forma $ (2.08) $ (1.64) $ (1.04)
</TABLE>
RIGHTS
Each holder of a share of outstanding Common Stock also holds one share
purchase right (a "Right") for each share of Common Stock. Each Right entitles
the holder to purchase from the Company one one-hundredth of a share of
Series A junior participating preferred stock, $.01 par value (the "Junior
Preferred Shares"), of the Company at a price of $270 per one one-hundredth of a
Junior Preferred Share (the "Purchase Price"). The Rights are not exercisable
until the earlier of acquisition by a person or group of 15% or more of the
outstanding Common Stock (an "Acquiring Person") or the announcement of an
intention to make or commencement of a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Common Stock. In the event that any
person or group becomes an Acquiring Person, each holder of a Right other than
the Acquiring Person will thereafter have the right to receive upon exercise
that number of shares of Common Stock having a market value of two times the
Purchase Price and, in the event that the Company is acquired in a business
combination transaction or 50% or more of its assets are sold, each holder of a
Right will thereafter have the right to receive upon exercise that number of
shares of Common Stock of the acquiring company which at the time of the
transaction will have a market value of two times the Purchase Price. Under
certain specified circumstances, the Board of Directors of the Company may cause
the Rights (other than Rights owned by such person or group) to be exchanged, in
whole or in part, for Common Stock or Junior Preferred Shares, at an exchange
rate of one share of Common Stock per Right or one one-hundredth of a Junior
Preferred Share per Right. At any time prior to the acquisition by a person or
group of beneficial ownership of 15% or more of the outstanding Common Stock,
the Board of Directors of the Company may redeem the Rights in whole at a price
of $.01 per Right.
F-16
<PAGE>
L. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
In November 1999, the Company and Taisho Pharmaceutical Co., LTD ("Taisho")
entered into an agreement to collaborate on the discovery, development and
commercialization of caspase inhibitors for the treatment of cerebrovascular,
cardiovascular and neurdegenerative diseases. Under the agreement, Taisho agreed
to pay the Company up to $43,000,000 in pre-commercial payments, comprised of
research funding, milestone payments and $4,500,000 for prior research costs.
These amounts are based on the development of two compounds. Vertex received and
recognized $3,000,000 in the fourth quarter of 1999 for prior research costs and
will receive $1,500,000 in November 2000. In addition, Taisho will also pay for
certain costs of developing compounds that emerge from the caspase research
program. From the inception of the agreement in November 1999 through
December 1999, $3,900,000 has been recognized as revenue. Taisho will have an
option to obtain marketing rights in Japan and certain Far East markets for any
compounds arising from the collaboration.
In September 1999, the Company and Aventis S.A. ("Aventis"), formerly
Hoechst Marion Roussel Deutschland GmbH ("HMR"), entered into an expanded
agreement covering the development of VX-740, an orally active inhibitor of
interleukin-1 beta converting enzyme ("ICE"). Under the agreement, Aventis
agreed to pay the Company $20,000,000 for prior research costs, and up to
$62,000,000 in milestone payments for successful development by Aventis of
VX-740 in rheumatoid arthritis, the first targeted indication, as well as
similar milestones for each additional indication. Vertex received $10,000,000
in the fourth quarter of 1999 for prior research costs and will receive
$10,000,000 in the second quarter of 2000. Aventis has an exclusive worldwide
license to develop, manufacture and market VX-740, as well as an exclusive
option for all other compounds discovered as part of the research collaboration
between the Company and HMR that ended in 1997 under which the Company received
research funding. Aventis will fund the development of VX-740. Vertex may
co-promote the product in the U.S. and Europe and will receive royalties on
global sales, if any. Aventis may terminate this agreement without cause upon
six months' written notice. Revenues earned under the 1999 agreement were
$15,000,000. Revenues earned under the previous agreement were $120,000,
$460,000 and $8,660,000 in 1999, 1998 and 1997, respectively.
The Company and Schering AG, Germany ("Schering AG") are collaborating on
the research, development and commercialization of novel, orally active
neurophilin ligand compounds to promote nerve regeneration for the treatment of
a number of neurological diseases. Under the terms of the agreement, Schering AG
agreed to pay the Company up to $88,000,000 comprised of $6,000,000 paid upon
signing in September 1998, $22,000,000 of product research funding over five
years and $60,000,000 of development and commercialization milestone payments.
From the inception of the agreement in August 1998 through December 31, 1999,
$14,000,000 has been recognized as revenue. Under terms of the agreement, Vertex
and Schering AG will have an equal role in management of neurophilin ligand
research and product development. In North America, Vertex will have
manufacturing rights, and Vertex and Schering AG will share equally in the
marketing expenses and profits from commercialized compounds. In addition to
having manufacturing rights in North America, the Company retains the option to
manufacture bulk drug substance for sales and marketing in territories outside
Europe, the Middle East and Africa. Schering AG will have the right to
manufacture and market any commercialized compounds in Europe, the Middle East
and Africa, and pay Vertex a royalty on product sales, if any. After
December 2000, Schering AG has the right to terminate without cause upon a six
months' written notice. Revenues earned from Schering AG under the neurophilin
ligand agreement were $4,000,000 and $10,000,000 in 1999 and 1998, respectively.
The Company and Kissei Pharmaceutical Co., Ltd. ("Kissei") are collaborating
to design inhibitors of p38 MAP kinase and to develop them as novel, orally
active drugs for the treatment of inflammatory and neurological diseases. Under
the terms of the agreement, Kissei agreed to pay the Company up to
F-17
<PAGE>
L. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
$22,000,000 composed of a $4,000,000 license payment, $11,000,000 of product
research funding over three years and $7,000,000 of development and
commercialization milestone payments. From the inception of the agreement in
September 1997 through December 31, 1999, $15,000,000 has been recognized as
revenue. Kissei will have the right to develop and commercialize these compounds
in its licensed territories. Kissei has exclusive rights to p38 MAP kinase
compounds in Japan and certain Southeast Asian countries and semi-exclusive
rights in China, Taiwan and South Korea. The Company retains exclusive marketing
rights in the United States, Canada, Europe and the rest of the world. In
addition, the Company will have the right to supply bulk drug material to Kissei
for sale in its territory and will receive royalties and drug supply payments on
future product sales, if any. Kissei has the right to terminate the agreement
without cause upon six months' notice. Additionally, Kissei agreed to pay
certain development costs. Revenues earned from Kissei under the p38 MAP kinase
agreement were $6,286,000, $5,521,000 and $5,500,000 in 1999, 1998 and 1997,
respectively.
The Company and Eli Lilly and Company ("Lilly") are collaborating on
designing inhibitors of the hepatitis C protease enzyme and developing them as
novel drugs to treat hepatitis C infection. Under the terms of the agreement,
Lilly agreed to pay the Company up to $51,000,000 composed of a $3,000,000
payment paid in June 1997, $33,000,000 of product research funding over six
years and $15,000,000 of development and commercialization milestone payments.
From the inception of the agreement in June 1997 through December 31, 1999,
$16,209,000 has been recognized as revenue. The Company has the option to supply
100 percent of Lilly's commercial drug substance supply needs. The Company will
receive royalties on future product sales, if any. If the Company exercises its
commercial supply option, the Company will receive drug supply payments in
addition to royalties on future product sales, if any. Lilly has the right to
terminate the agreement without cause upon six months' notice. In connection
with this collaboration, Lilly purchased 263,922 shares of the Company's common
stock for $10,000,000 in June 1997. Revenues earned from Lilly were $5,452,000,
$5,193,000 and $5,694,000 in 1999, 1998 and 1997, respectively.
The Company and BioChem Pharma ("BioChem") collaborated on the development
and commercialization in Canada of Incel-TM- (VX-710), Vertex's lead multidrug
resistance reversal agent. Under the development agreement, BioChem agreed to
pay Vertex an initial licensing fee of $500,000 and development and
commercialization milestone payments. From the inception of the agreement in
May 1996 through the year ended December 31, 1999, $750,000 has been recognized
as license and research revenue. BioChem also funded certain development
activities for Incel in Canada. The Company has received the full amount of
research funding specified under the agreement and BioChem has no further
license rights with respect to Incel. No revenues were earned from BioChem in
1999. Revenues earned from BioChem were $56,000 and $251,000 in 1998 and 1997,
respectively.
The Company and Glaxo Wellcome are collaborating on the development and
commercialization of Agenerase (amprenavir) and its prodrug VX-175. Under the
collaborative agreement, for research and development of HIV protease
inhibitors, Glaxo Wellcome agreed to pay the Company up to $42,000,000 comprised
of a $15,000,000 license payment paid in 1993, $14,000,000 of product research
funding over five years and $13,000,000 of development and commercialization
milestone payments for an initial drug candidate. Glaxo Wellcome is also
obligated to pay additional development and commercialization milestone payments
for subsequent drug candidates, including VX-175. From the inception of the
agreement in December 1993 through the year ended December 31, 1999, $40,000,000
has been recognized as revenue. Research funding under this agreement ended on
December 31, 1998. In addition, Glaxo Wellcome is required to bear the costs of
development in its territory of drug candidates under the collaboration. Glaxo
Wellcome has exclusive rights to develop and commercialize Vertex HIV protease
inhibitors in all parts of the world except the Far East and will pay Vertex a
royalty on sales. The Company has retained certain bulk drug manufacturing
rights and certain
F-18
<PAGE>
L. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
co-promotion rights in territories licensed to Glaxo Wellcome. Glaxo Wellcome
has the right to terminate its arrangement without cause upon twelve months'
notice given at any time. Termination by Glaxo Wellcome of the agreement will
relieve it of its obligation to make further commercialization and development
milestone and royalty payments and will end any license granted to Glaxo
Wellcome by Vertex thereunder. In 1999, the Company began earning a royalty from
Glaxo Wellcome from sales of Agenerase. Revenues and royalties earned from Glaxo
Wellcome were $13,927,000, $6,457,000 and $3,275,000 for 1999, 1998 and 1997,
respectively.
In June 1996, the Company and Glaxo Wellcome obtained a worldwide,
non-exclusive license under certain G.D. Searle & Co. ("Searle") patent
applications in the area of HIV protease inhibition. Vertex paid $15,000,000 and
Glaxo Wellcome paid $10,000,000 to Searle for the license. Based on sales of
Agenerase in 1999, the Company also began to pay Searle a royalty.
The Company and Kissei are collaborating on the development and
commercialization of amprenavir. Under the collaborative agreement, Kissei
agreed to pay the Company up to $20,000,000, comprised of $9,800,000 of product
research funding through 1995, $7,000,000 of development milestone and territory
option payments and a $3,200,000 equity investment. From the inception of the
agreement in April 1993 through the year ended December 31, 1999, $15,642,000
has been recognized as revenue. During 1997, the Company also received
$4,000,000 related to reimbursements of certain development costs. The Company
has received the full amount of research funding specified under the agreement.
Under the collaboration, Kissei has exclusive rights to develop and
commercialize amprenavir in Japan and will pay Vertex a royalty on sales, if
any. Vertex is responsible for the manufacture of bulk product for Kissei.
Kissei also has an exclusive option to develop and commercialize the amprenavir
prodrug VX-175 in Japan. Revenues earned under this Kissei agreement were
$1,000,000, $217,000 and $4,310,000 in 1999, 1998 and 1997, respectively.
M. EMPLOYEE BENEFITS
The Company has a 401(k)-retirement plan in which substantially all of its
permanent employees are eligible to participate. Participants may contribute up
to 15% of their annual compensation to the plan, subject to statutory
limitations. For 1999, the Company declared discretionary matching contributions
to the plan in the aggregate amount of $866,000, payable in the form of shares
of the Company's common stock. Of these shares, 23,854 were issued as of
December 31, 1999 with approximately 6,700 issuable in 2000. For 1998, the
Company declared discretionary matching contributions to the plan in the
aggregate amount of $672,000, payable in the form of shares of the Company's
common stock. Of these shares, 19,419 were issued as of December 31, 1998 with
the remaining 7,195 issued in 1999. For 1997, the Company declared discretionary
matching contributions to the plan in the aggregate amount of $482,000, payable
in the form of shares of the Company's common stock. Of these shares, 6,458 were
issued as of December 31, 1997 with the remaining 7,113 issued in 1998.
N. RELATED PARTY
A sibling of the Company's Chairman and Chief Executive Officer is a partner
in the law firm representing the Company to which $480,000, $333,000 and
$394,000 in legal fees were paid in 1999, 1998 and 1997, respectively.
O. LEGAL PROCEEDINGS
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against Vertex and
Eli Lilly and Company in the United States District Court for the Northern
District of California, alleging
F-19
<PAGE>
O. LEGAL PROCEEDINGS (CONTINUED)
infringement by the defendants of three U.S. patents issued to Chiron. The
infringement action relates to research activities by the defendants in the
hepatitis C viral protease field and the alleged use of inventions claimed by
Chiron in connection with that research. Chiron has requested damages in an
unspecified amount, as well as an order permanently enjoining the defendants
from unlicensed use of the claimed Chiron inventions. During 1999, Chiron
requested and was granted a reexamination by the U.S. Patent and Trademark
Office of all three of the patents in suit. Chiron also requested and, over the
opposition of Vertex and Lilly, was granted a stay in the infringement lawsuit,
pending the outcome of the patent reexamination. While the length of the stay,
the outcome of the reexamination, the effect of that outcome on the lawsuit and
the final outcome of the lawsuit cannot be determined, Vertex maintains that the
plaintiff's claims are without merit and intends to defend the lawsuit, if and
when it resumes, vigorously.
P. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) consists of the following (in
thousands):
<TABLE>
<CAPTION>
ACCUMULATED
CUMULATIVE UNREALIZED OTHER
TRANSLATION GAIN/(LOSS) ON COMPREHENSIVE
ADJUSTMENT INVESTMENTS INCOME (LOSS)
----------- -------------- -------------
<S> <C> <C> <C>
Balance as of December 31, 1997........................ $ 4 $ 148 $ 152
Unrealized gains/(losses) on securities:
Unrealized holding gains arising during the period... -- 1,049 1,049
Less: reclassification adjustment for gains
Included in net loss............................... (547) (547)
---- ------- ------
Balance as of December 31, 1998........................ 4 650 654
Foreign currency translation adjustment................ 48 48
Unrealized gains/(losses) on securities:
Unrealized holding gains arising during the period... (1,672) (1,672)
---- ------- ------
Balance as of December 31, 1999........................ $ 52 $(1,022) $ (970)
==== ======= ======
</TABLE>
Q. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
1999
Total revenues............................. $ 7,129 $ 15,328 $ 9,561 $ 29,630 $ 61,648
Total expenses............................. 24,683 26,169 23,847 27,915 102,614
Net loss................................... (17,554) (10,841) (14,286) 1,715 (40,966)
Basic earnings per share................... (.69) (.43) (.56) .07 (1.61)
Diluted earnings per share................. (.69) (.43) (.56) .06 (1.61)
1998
Total revenues............................. $ 7,169 $ 7,152 $ 18,417 $ 11,660 $ 44,398
Total expenses............................. 15,583 16,954 20,690 24,257 77,484
Net loss................................... (8,414) (9,802) (2,273) (12, 597) (33,086)
Basic and diluted earnings per share....... (0.33) (0.39) (0.09) (0.50) (1.31)
</TABLE>
F-20
<PAGE>
R. SUBSEQUENT EVENT
On February 28, 2000, the Company entered into an agreement with Incyte
Pharmaceuticals, Inc. to gain access to one of Incyte's databases of genomic
information. Under the agreement, Vertex must make certain payments, including
milestone payments and royalties on sales of products developed with Incyte
technology, if any.
F-21
<PAGE>
EXHIBIT 10.1
VERTEX PHARMACEUTICALS INCORPORATED
1991 STOCK OPTION PLAN
As amended and restated as of September 14, 1999
1. PURPOSE OF PLAN.
The purpose of this 1991 Stock Option Plan (the "Plan") is to promote
the interests of Vertex Pharmaceuticals Incorporated, a Massachusetts
corporation (the "Company," including for the purposes of this paragraph any
affiliated companies), by providing a method whereby employees of the Company,
and others providing material assistance to the Company, may be given
compensation or additional compensation for their efforts on behalf of or
assistance to the Company, and to aid the Company in attracting and retaining
capable personnel.
2. SCOPE AND DURATION OF THE PLAN.
Options granted under this Plan may contain such terms as will qualify
the options as incentive stock options ("ISOs") within the meaning of Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or in the
form of non-statutory stock options ("NSOs"). Unless otherwise indicated,
references in this Plan to "options" include ISOs and NSOs. Subject to
adjustment as provided in Section 11 hereof, the maximum number and kind of
shares of the Company's capital stock with respect to which options may be
granted under this Plan shall be 2,000,000 shares of Common Stock, $.01 par
value per share ("Common Stock"). Until termination of this Plan, the Company
shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan. Such shares may be authorized and unissued shares or
shares held in the Company's treasury.
There shall become available for subsequent grants under this Plan any
shares of Common Stock underlying an option which cease for any reason to be
subject to purchase under such option. No ISO shall be granted under this Plan
more than 10 years after adoption of the Plan by the Board of Directors.
3. ADMINISTRATION OF PLAN.
The Compensation Committee or any successor thereto (the "Committee")
appointed by the Company's Board of Directors shall administer this Plan. The
Committee shall have full power and authority to: (i) designate the employees
and other persons to whom options shall be granted; (ii) designate options or
any portion thereof as ISOs; (iii) determine the number of shares of Common
Stock for which options may be granted and the option price or prices; (iv)
determine the other terms and provisions of option agreements (which need not be
identical) including, but not limited to, provisions concerning the time or
times when and the extent to which the options may be exercised and the nature
and duration of restrictions as to transferability or constituting substantial
risks of forfeiture, provided that with respect to ISOs such time or times shall
not occur before approval of this Plan by the stockholders of the Company in the
manner provided under Section 15 below; (v) amend or modify any option, with the
consent of the holder thereof; (vi) accelerate the right of an optionee to
exercise in whole or in part any previously granted option; and (vii) interpret
the provisions and supervise the administration of this Plan.
Options may be granted singly or in combination. The Committee shall
have the authority to grant in its discretion to the holder of an outstanding
option in exchange for the surrender and
<PAGE>
cancellation of such option, a new option in the same or a different form and
containing such terms as the Committee may deem appropriate, including without
limitation a price which is different (either higher or lower) than any price
provided in the option so surrendered and cancelled.
In connection with the grant of an NSO, the Committee may in its
discretion, concurrently or after grant of the NSO, grant or agree to grant a
tax offset bonus to the optionee to offset in whole or in part the tax liability
of the optionee realized upon exercise of the NSO.
All decisions and selections made by the Committee pursuant to the
provisions of this Plan shall be made by a majority of its members. Any decision
reduced to writing and signed by all of the members of the Committee who are
authorized to make such decision shall be as fully effective as if it had been
made by a majority at a duly held meeting of the Committee.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all persons who
receive grants of options, and all other interested persons. No member or agent
of the Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to this Plan or grants hereunder.
Each member of the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including counsel fees) reasonably incurred
by such member or liability (including any sum paid in settlement of a claim
with the approval of the Company) arising out of any act or omission to act in
connection with this Plan unless arising out of such member's own fraud or bad
faith. Such indemnification shall be in addition to any rights of
indemnification the members of the Committee may have as directors or otherwise
under the by-laws of the Company, or any agreement, vote of stockholders or
disinterested directors, or otherwise.
4. DESIGNATION OF PARTICIPANTS.
Options may be granted only to employees, including officers who are
employees, of the Company or any parent or subsidiary of the Company, and other
individuals, including consultants, who are determined by the Committee to
contribute, or have the potential to contribute, materially to the success of
the Company or any parent or subsidiary, provided that ISOs shall be granted
only to persons who are employees of the Company or any parent or subsidiary of
the Company.
5. OPTION PRICE.
(a) The purchase price of each share of Common Stock subject to an
option or any portion thereof which has been designated as an ISO shall not be
less than 100% (or 110%, if at the time of grant the optionee owns or under
Section 424(d) of the Code is deemed to own more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation) of the fair market value of such share on the date the option is
granted, determined without regard to any restriction other than a restriction
which, by its terms, will never lapse. The purchase price of each share of
Common Stock subject to an NSO shall be such price as the Committee shall
determine in its sole discretion.
(b) The fair market value of a share of Common Stock on a particular
date shall be the mean between the highest and lowest quoted selling prices on
such date (the "valuation date") on the securities market where the Common Stock
of the Company is traded, or if there were no sales on the valuation date, on
the next preceding date within a reasonable period (as determined in the sole
discretion of the Committee) on which there were sales. In the event that there
were no sales
-2-
<PAGE>
in such a market within a reasonable period, the fair market value shall be as
determined in good faith by the Board of Directors in its sole discretion.
6. TERM AND EXERCISE OF OPTIONS.
(a) The term of each ISO granted under this Plan shall be not more than
ten years from the date of grant, or five years from the date of grant if at the
time of grant the optionee owns (or under Section 424(d) of the Code is deemed
to own) more than 10% of the total combined voting power of all classes of stock
of the Company or any parent or subsidiary corporation. The term of each NSO
granted under this Plan shall be such period of time as the Committee shall
determine in its sole discretion.
(b) An option shall be exercisable at such time or times as shall be
determined by the Committee. An option may be exercised only by written notice
of intent to exercise such option with respect to a specified number of shares
of Common Stock and payment to the Company of the amount of the option price for
the number of shares of Common Stock as to which such notice applies. Payment
for such shares shall be paid at the time of purchase (i) in cash, (ii) with
shares of Common Stock that have been held for at least six months, to be valued
at the fair market value thereof on the date of such exercise, determined as
provided in Section 5(b), (iii) by any other means, including the promissory
note of the holder of the option, which the Committee determines to be
consistent with the purpose of this Plan and applicable law, or (iv) a
combination of the foregoing. Upon receipt of payment, the Company shall deliver
to the person exercising such option a certificate or certificates for such
shares. It shall be a condition of the Company's obligation to issue Common
Stock upon exercise of an option that the person exercising the option pay, or
make provision satisfactory to the Company for the payment of, any taxes which
the Company is obligated to collect with respect to the transfer of Common Stock
upon such exercise or (in the case of an ISO) with respect to the disposition of
such Common Stock.
The Committee may establish a program through which optionees can
borrow funds with which to purchase Common Stock pursuant to exercise of an
option.
(c) The proceeds of the sale of Common Stock subject to options are to
be added to the general funds of the Company and used for its general corporate
purposes.
7. INCENTIVE STOCK OPTIONS. [Intentionally omitted.]
8. TRANSFER OF OPTIONS.
An option or portion thereof designated as an ISO shall not be
transferable by an optionee otherwise than by will or the laws of descent and
distribution, and shall be exercisable during his lifetime only by him. An NSO
shall not be transferable by an optionee otherwise than by will or the laws of
descent and distribution, or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder, except as otherwise provided by the Committee.
Notwithstanding the foregoing, the designation of a beneficiary of an option by
an optionee shall not be deemed a transfer prohibited by this Section.
9. TERMINATION OF EMPLOYMENT.
(a) If the employment of an optionee terminates for any reason other
than for cause or by reason of death, or disability (as may be determined by the
Committee under Section 9(c) below), the optionee may for a period of three
months after the date of termination of employment (unless a longer period is
allowed by the Committee) exercise options held by the optionee to the extent he
or she was entitled to exercise such options on the date when his or her
employment
-3-
<PAGE>
terminated. In no event, however, may such optionee exercise an option at a time
when the option would not be exercisable had the optionee remained an employee.
For purposes of this Section 9, an optionee's employment will not be considered
terminated (i) if the Committee in the exercise of its discretion shall so
determine in the case of sick leave or other bona fide leave of absence approved
by the Company or any parent or subsidiary company or (ii) in the case of a
transfer by such optionee to the employment of an affiliated company of the
employing company.
(b) If an optionee dies at a time when he or she is entitled to
exercise an option, then at any time or times within one year after death,
such option may be exercised, as to all or any of the shares which the
optionee was entitled to purchase immediately prior to his death, by the
optionee's executor or administrator or the person or persons to whom the
option is transferred by will or the applicable laws of descent and
distribution. In no event, however, may any option be exercised after the
expiration of such option by its terms, except as the Committee may otherwise
allow for a period up to one year after such optionee's death.
(c) If an optionee becomes disabled at a time when he or she is
entitled to exercise an option, then at any time or times within one year after
the date of such disability, he or she may exercise such option as to all or any
of the shares which he or she was entitled to purchase under such option
immediately prior to his or her disability. In no event, however, may any option
be exercised after the expiration of such option by its terms. The Committee
shall have authority to determine whether or not an optionee has become disabled
(as such term may be used in the Code); and its determination shall be binding
on all concerned.
(d) If termination of employment of an optionee shall be for cause or
in violation of an agreement by the optionee to remain in the employ of the
Company or any parent or subsidiary company, the options held by such optionee
shall terminate forthwith. If an optionee shall breach in a material respect an
agreement to refrain from competition with the Company or any parent or
subsidiary company, or to refrain from solicitation of the Company's customers,
suppliers or employees of the Company or any parent or subsidiary company, the
options, and any shares of Common Stock issued pursuant to the exercise of
options, held by such optionee shall at the option of the Company be forfeited
by the optionee and deemed not to be outstanding.
10. RIGHTS OF STOCKHOLDERS.
The holders of options shall not be or have any of the rights or
privileges of stockholders of the Company in respect of any shares of Common
Stock purchasable upon the exercise of any option until such option shall have
been validly exercised.
11. ADJUSTMENTS.
Notwithstanding any other provision of this Plan, the Committee may at
any time make or provide for such adjustments to this Plan, to the number and
class of shares available hereunder or to any outstanding options, as it shall
deem appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of distributions to holders of Common Stock of other
than a normal cash dividend, changes in the outstanding Common Stock by reason
of stock dividends, split-ups, recapitalizations, mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations, liquidations
and the like. In the event of any general offer to holders of Common Stock
relating to the acquisition of their shares, the Committee may make such
adjustment as it deems equitable in respect of outstanding options, including in
the Committee's discretion revision of outstanding options, so that they may be
exercisable for the consideration payable in the acquisition transaction. Any
such determination by the Committee shall be conclusive.
-4-
<PAGE>
12. AMENDMENTS OR TERMINATION.
The Company's Board of Directors or the Committee may amend, alter, or
discontinue this Plan, except that no amendment or alteration requiring
stockholder approval pursuant to the Code's provisions with respect to ISOs
shall be made without the approval of the Company's stockholders.
13. FOREIGN NATIONALS.
The Committee may in order to fulfill the purposes of this Plan modify
grants to participants who are foreign nationals or employed outside the United
States to accommodate differences in applicable law, tax policy, or custom.
14. GOVERNING LAW.
This Plan shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Massachusetts to the extent that such laws,
as applicable to the Plan, are not superseded by or inconsistent with Federal
law.
15. EFFECTIVE DATE.
This Plan is effective as of May 24, 1991, the date of its adoption by
the Company's Board of Directors and Shareholders.
16. CONSOLIDATIONS OR MERGERS. In the event of a consolidation or
merger in which the Company is not the surviving corporation or which results in
the acquisition of substantially all the Company's outstanding stock by a single
person or entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of substantially all the Company's assets
(any of the foregoing, an "Acquisition"), all then outstanding Options shall
terminate unless assumed pursuant to clause (i) below; provided, that either (i)
the Committee shall provide for the surviving or acquiring entity or an
affiliate thereof to assume the outstanding Options or grant replacement options
in lieu thereof, any such replacement to be upon an equitable basis as
determined by the Committee, or (ii) if there is no such assumption or
substitution, all outstanding Options shall become immediately and fully
exercisable immediately prior to the Acquisition, notwithstanding any
restrictions or vesting conditions set forth therein.
rev.11/18/99/SPC
-5-
<PAGE>
EXHIBIT 10.2
VERTEX PHARMACEUTICALS INCORPORATED
1994 STOCK AND OPTION PLAN
(as amended as of September 14, 1999 and restated)
1. DEFINITIONS
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Vertex Pharmaceuticals Incorporated 1994 Stock
and Option Plan, have the following meanings:
AFFILIATE means a corporation which, for purposes of Section 424 of the Code, is
a parent or subsidiary of the Company, direct or indirect.
BOARD OF DIRECTORS means the Board of Directors of the Company.
CODE means the United States Internal Revenue Code of 1986, as amended.
COMMITTEE means the Compensation Committee of the Board of Directors or any
successor thereto appointed by the Board of Directors pursuant to Section 4
hereof to administer this Plan.
COMMON STOCK means shares of the Company's common stock, $.01 par value.
COMPANY means Vertex Pharmaceuticals Incorporated, a Massachusetts corporation.
DISABILITY or DISABLED means permanent and total disability as defined in
Section 22(e)(3) of the Code.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
FAIR MARKET VALUE of a Share of Common Stock on a particular date shall be the
mean between the highest and lowest quoted selling prices on such date (the
"valuation date") on the securities market where the Common Stock of the Company
is traded, or if there were no sales on the valuation date, on the next
preceding date within a reasonable period (as determined in the sole discretion
of the Committee) on which there were sales. In the event that there were no
sales in such a market within a reasonable period, the fair market value shall
be as determined in good faith by the Committee in its sole discretion. The Fair
Market Value as determined in this paragraph shall be rounded down to the next
lower whole cent if the foregoing calculation results in a number including
fractional cents.
ISO means an option intended to qualify as an incentive stock option under Code
Section 422(b).
KEY EMPLOYEE means an employee of the Company or of an Affiliate (including,
without limitation, an employee who is also serving as an officer or director of
the Company or of an Affiliate), designated by the Committee to be eligible to
be granted one or more Stock Rights under the Plan.
NQSO means an option which is not intended to qualify as an ISO.
NON-EMPLOYEE DIRECTOR means a member of the Board of Directors who is not an
employee of the Company or any Affiliate.
<PAGE>
OPTION means an ISO or NQSO granted under the Plan.
PARTICIPANT means a Key Employee, Non-Employee Director, consultant or
advisor of the Company to whom one or more Stock Rights are granted under the
Plan. As used herein, "Participant" shall include "Participant's Survivors"
and a Participant's permitted transferees where the context requires.
PARTICIPANT'S SURVIVORS means a deceased Participant's legal representatives
and/or any person or persons who acquires the Participant's rights to a Stock
Right by will or by the laws of descent or distribution.
PLAN means this Vertex Pharmaceuticals Incorporated 1994 Stock and Option Plan,
as amended from time to time.
SHARES means shares of the Common Stock as to which Stock Rights have been or
may be granted under the Plan or any shares of capital stock into which the
Shares are changed or for which they are exchanged within the provisions of
Section 3 of the Plan. The Shares issued upon exercise of Stock Rights granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both.
STOCK AGREEMENT means an agreement between the Company and a Participant
executed and delivered pursuant to the Plan, in such form as the Committee shall
approve.
STOCK AWARD means an award of Shares or the opportunity to make a direct
purchase of Shares of the Company granted under the Plan.
STOCK RIGHT means a right to Shares of the Company granted pursuant to the Plan
as an ISO, an NQSO or a Stock Award.
2. PURPOSES OF THE PLAN
The Plan is intended to encourage ownership of Shares by Key Employees,
Non-Employee Directors and certain consultants and advisors to the Company in
order to attract such persons, to induce them to work for the benefit of the
Company or of an Affiliate and to provide additional incentive for them to
promote the success of the Company or of an Affiliate. The Plan provides for the
granting of Stock Rights to Key Employees, Non-Employee Directors, consultants
and advisors of the Company.
3. SHARES SUBJECT TO THE PLAN
The number of Shares subject to this Plan as to which Stock Rights may be
granted from time to time shall be 2,000,000 plus the number of shares of Common
Stock previously reserved for the granting of options under the Vertex
Pharmaceuticals Incorporated 1991 Stock Option Plan but not granted thereunder,
or the equivalent of such number of Shares after the Committee, in its sole
discretion, has interpreted the effect of any stock split, stock dividend,
combination, recapitalization or similar transaction in accordance with Section
17 of this Plan.
If an Option granted hereunder or any option granted under the 1991 Stock
Option Plan ceases to be "outstanding", in whole or in part, or if the Company
shall reacquire any Shares issued pursuant to Stock Awards, the Shares which
were subject to such Option and any Shares so reacquired by the Company shall
also be available for the granting of other Stock Rights under the Plan. Any
Stock Right shall be treated as "outstanding" until such Stock Right is
exercised in full,
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or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Stock Agreement, without having been exercised in
full.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee is authorized to:
a. Interpret the provisions of the Plan or of any Option, Stock Award or
Stock Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees,
Non-Employee Directors, consultants and advisors of the Company and its
Affiliates shall be granted Stock Rights;
c. Determine the number of Shares and exercise price for which a Stock
Right or Stock Rights shall be granted;
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted; and
e. In its discretion, accelerate the date of exercise of any installment
of any Stock Right; provided that the Committee shall not, without the
consent of the Option holder, accelerate the exercise date of any
installment of any Option granted to any Key Employee as an ISO (and
not previously converted into an NQSO pursuant to Section 20) if such
acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in Section 6.2.3.
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Code Section 422 of those Options which are designated as ISOs and
shall be in compliance with any applicable provisions of Rule 16b-3 under the
Exchange Act. Subject to the foregoing, the interpretation and construction by
the Committee of any provisions of the Plan or of any Stock Right granted under
it shall be final.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all Participants, and
all other interested persons. No member or agent of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to this Plan or grants hereunder. Each member of the
Committee shall be indemnified and held harmless by the Company against any cost
or expense (including counsel fees) reasonably incurred by him or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with this Plan
unless arising out of such member's own fraud or bad faith. Such indemnification
shall be in addition to any rights of indemnification the members of the
Committee may have as directors or otherwise under the by-laws of the Company,
or any agreement, vote of stockholders or disinterested directors, or otherwise.
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5. ELIGIBILITY FOR PARTICIPATION
The Committee shall, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee,
Non-Employee Director, consultant or advisor of the Company or of an Affiliate
at the time a Stock Right is granted. Notwithstanding the foregoing, the
Committee may authorize the grant of a Stock Right to a person not then an
employee, Non-Employee Director, consultant or advisor of the Company or of an
Affiliate; PROVIDED, HOWEVER, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of execution of the Stock Agreement evidencing such Stock
Right. The granting of any Stock Right to any individual shall neither entitle
that individual to, nor disqualify him or her from, participation in other
grants of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS
6.1 GENERAL. Each Option shall be set forth in writing in a Stock
Agreement, duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. The Committee may provide that
Options be granted subject to such conditions as the Committee may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto, PROVIDED,
HOWEVER, that the option price per share of the Shares covered by each Option
shall not be less than the par value per share of the Common Stock. Each Stock
Agreement shall state the number of Shares to which it pertains, the date or
dates on which it first is exercisable and the date after which it may no longer
be exercised. Option rights may accrue or become exercisable in installments
over a period of time, or upon the achievement of certain conditions or the
attainment of stated goals or events. Exercise of any Option may be conditioned
upon the Participant's execution of a Share purchase agreement in form
satisfactory to the Committee providing for certain protections for the Company
and its other shareholders, including requirements that the Participant's or the
Participant's Survivors' right to sell or transfer the Shares may be restricted,
and the Participant or the Participant's Survivors may be required to execute
letters of investment intent and to acknowledge that the Shares will bear
legends noting any applicable restrictions.
6.2 ISOS. ISOs shall be issued only to Key Employees. In addition to the
minimum standards set forth in Section 6.1, ISOs shall be subject to the
following terms and conditions, with such additional restrictions or changes as
the Committee determines are appropriate but not in conflict with Code Section
422 and relevant regulations and rulings of the Internal Revenue Service:
6.2.1 ISO Option Price: The Option price per Share of the Shares
subject to an ISO shall not be less than one hundred percent (100%) of the Fair
Market Value per share of the Common Stock on the date of grant of the ISO;
provided, however that the Option price per share of the Shares subject to an
ISO granted to a Participant who owns, directly or by reason of the applicable
attribution rules in Code Section 424(d), more than ten percent (10%) of the
total combined voting power of all classes of share capital of the Company or an
Affiliate, shall not be less than one hundred ten percent (110%) of the said
Fair Market Value on the date of grant.
6.2.2 Term of ISO: Each ISO shall expire not more than ten (10)
years from the date of grant; provided, however, that an ISO granted to a
Participant who owns, directly or by reason of the applicable attribution rules
in Code Section 424(d), more than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an Affiliate, shall
expire not more than five (5) years from the date of grant.
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6.2.3 Limitation on Grant of ISOs: No ISOs shall be granted after
December 8, 2004, the date which is ten (10) years from the earlier of the date
of the adoption of this Plan and the date of the approval of the Plan by the
shareholders of the Company.
6.3 LIMITATION ON NUMBER OF OPTIONS GRANTED. Notwithstanding anything in
this Plan to the contrary, no Participant shall be granted Options in any
calendar year for the purchase of more than 200,000 Shares (subject to
adjustment pursuant to Section 17 to the extent consistent with Section 162(m)
of the Code).
7. TERMS AND CONDITIONS OF STOCK AWARDS
Each Stock Award shall be set forth in a Stock Agreement, duly executed
by the Company and, to the extent required by law or requested by the Company,
by the Participant. The Stock Agreement shall be in the form approved by the
Committee, with such changes and modifications to such form as the Committee, in
its discretion, shall approve with respect to any particular Participant or
Participants. The Stock Agreement shall contain terms and conditions which the
Committee determines to be appropriate and in the best interest of the Company;
PROVIDED, HOWEVER, that the purchase price per share of the Shares covered by
each Stock Award shall not be less than the par value per Share. Each Stock
Agreement shall state the number of Shares to which the Stock Award pertains,
the date prior to which the Stock Award must be exercised by the Participant,
and the terms of any right of the Company to reacquire the Shares subject to the
Stock Award, including the time and events upon which such rights shall accrue
and the purchase price therefor, and any restrictions on the transferability of
such Shares.
8. EXERCISE OF STOCK RIGHTS AND ISSUANCE OF SHARES
A Stock Right (or any part or installment thereof) shall be exercised by
giving written notice to the Company, together with provision for payment of the
full purchase price in accordance with this Section for the Shares as to which
such Stock Right is being exercised, and upon compliance with any other
condition(s) set forth in the Stock Agreement. Such written notice shall be
signed by the person exercising the Stock Right, shall state the number of
Shares with respect to which the Stock Right is being exercised and shall
contain any representation required by the Plan or the Stock Agreement.
Payment of the purchase price for the Shares as to which such Stock Right
is being exercised shall be made (a) in United States dollars in cash or by
check acceptable to the Committee, or (b) at the discretion of the Committee,
(i) through delivery of shares of Common Stock (which, in the case of shares
acquired from the Company, have been held by the Participant for at least six
(6) months) not subject to any restriction under any plan and having a fair
market value equal as of the date of exercise to the cash exercise price of the
Stock Right, determined in good faith by the Committee, or (ii) in accordance
with a cashless exercise program established with a securities brokerage firm,
and approved by the Company, or (iii) by any other means, including a promissory
note of the Participant, which the Committee determines to be consistent with
the purpose of this Plan and applicable law, or (iv) by any combination of the
foregoing. Notwithstanding the foregoing, the Committee shall accept only such
payment on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then as soon as is reasonably practicable deliver the
Shares as to which such Stock Right was exercised to the Participant (or to the
Participant's Survivors, as the case may be). It is expressly understood that
the delivery of the Shares may be delayed by the Company in order to comply with
any law or regulation which requires the Company to take any action with respect
to the Shares prior to their issuance. The Shares shall, upon delivery, be fully
paid, non-assessable Shares.
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9. RIGHTS AS A SHAREHOLDER
No Participant to whom a Stock Right has been granted shall have rights
as a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise thereof and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
10. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS
ISOs and, except as otherwise provided by the Committee, NQSOs and Stock
Awards shall not be transferable by the Participant other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act or the rules thereunder, PROVIDED, HOWEVER, that the designation of
a beneficiary of a Stock Right by a Participant shall not be deemed a transfer
prohibited by this Section. Except as provided in the preceding sentence or as
otherwise permitted under an NQSO or Stock Award Stock Agreement, a Stock Right
shall be exercisable, during the Participant's lifetime, only by such
Participant (or by his or her legal representative) and shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
any Stock Right or of any rights granted thereunder contrary to the provisions
of this Plan, or the levy of any attachment or similar process upon a Stock
Right, shall be null and void.
11. EFFECT OF TERMINATION OF SERVICE
11.1 Except as otherwise provided in the pertinent Stock Agreement or as
otherwise provided in Sections 12, 13 or 14, if a Participant ceases to be an
employee, director, consultant or advisor with the Company and its Affiliates
(for any reason other than termination "for cause", Disability, or death) (a
"Termination of Service") before the Participant has exercised all Stock Rights,
the Participant may exercise any Stock Right granted to him or her to the extent
that the Stock Right is exercisable on the date of such Termination of Service,
but only within the originally prescribed term of the Stock Right.
11.2 The provisions of this Section, and not the provisions of Section 13
or 14, shall apply to a Participant who subsequently becomes disabled or dies
after the Termination of Service; provided, however, that in the case of a
Participant's death within three (3) months after the Termination of Service,
the Participant's Survivors may exercise the Stock Right within one (1) year
after the date of the Participant's death, but in no event after the date of
expiration of the term of the Stock Right.
11.3 Notwithstanding anything herein to the contrary, if subsequent to a
Participant's Termination of Service, but prior to the exercise of a Stock
Right, the Committee determines that, either prior or subsequent to the
Participant's Termination of Service, the Participant engaged in conduct which
would constitute "cause" (as defined in Section 12), then such Participant shall
forthwith cease to have any right to exercise any Stock Right.
11.4 Absence from work with the Company or an Affiliate because of
temporary disability or a leave of absence for any purpose, shall not, during
the period of any such absence in accordance with Company policies, be deemed,
by virtue of such absence alone, a Termination of Service, except as the
Committee may otherwise expressly provide.
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11.5 A change of employment or other service within or among the Company
and its Affiliates shall not be deemed a Termination of Service, so long as the
Participant continues to be an employee, director, consultant or advisor of the
Company or any Affiliate.
12. EFFECT OF TERMINATION OF SERVICE FOR "CAUSE"
Except as otherwise provided in the pertinent Stock Agreement, in the
event of a Termination of Service of a Participant "for cause" all outstanding
and unexercised Stock Rights as of the date the Participant is notified his or
her service is terminated "for cause" will immediately be forfeited.
For purposes of this Section 12, "cause" shall include (and is not
limited to) dishonesty with respect to the Company and its Affiliates,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, conduct substantially
prejudicial to the business of the Company or any Affiliate, and termination
by the Participant in violation of an agreement by the Participant to remain
in the employ of the Company of an Affiliate. The determination of the
Committee as to the existence of cause will be conclusive on the Participant
and the Company. "Cause" is not limited to events which have occurred prior
to a Participant's Termination of Service, nor is it necessary that the
Committee's finding of "cause" occur prior to termination. If the Committee
determines, subsequent to a Participant's Termination of Service but prior to
the exercise of a Stock Right, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which would
constitute "cause," then the right to exercise any Stock Right shall be
forfeited. Any definition in an agreement between a Participant and the
Company or an Affiliate which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such termination shall
supersede the definition in this Plan with respect to that Participant.
13. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY
Except as otherwise provided in the pertinent Stock Agreement, in the
event of a termination of service with the Company and its Affiliates by reason
of Disability, the Disabled Participant may exercise any Stock Right granted to
him or her to the extent exercisable but not exercised on the date of
Disability. A Disabled Participant may exercise such rights only within a period
of not more than one (1) year after the date that the Participant became
Disabled or, if earlier, within the originally prescribed term of the Stock
Right.
The Committee shall make the determination both of whether Disability has
occurred and of the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Committee, the cost of which examination shall be paid for by
the Company.
14. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT
Except as otherwise provided in the pertinent Stock Agreement, in the
event of death of a Participant while the Participant is an employee, director,
consultant or advisor of the Company or of an Affiliate, any Stock Rights
granted to such Participant may be exercised by the Participant's Survivors to
the extent exercisable but not exercised on the date of death. Any such Stock
Right must be exercised within one (1) year after the date of death of the
Participant, but in no event after the date of expiration of the term of the
Stock Right.
15. PURCHASE FOR INVESTMENT
Unless the offering and sale of the Shares to be issued upon the
particular exercise of an Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force
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or hereafter amended (the "1933 Act"), the Company shall be under no obligation
to issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
a. The person(s) who exercise such Stock Right shall warrant to the
Company, at the time of such exercise or receipt, as the case may be,
that such person(s) are acquiring such Shares for their own respective
accounts, for investment, and not with a view to, or for sale in
connection with, the distribution of any such Shares, in which event
the person(s) acquiring such Shares shall be bound by the provisions of
the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken
for investment and they may not be sold or otherwise
transferred by any person, including a pledgee, unless (1)
either (a) a Registration Statement with respect to such
shares shall be effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an opinion of
counsel satisfactory to it that an exemption from registration
under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws.
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
16. DISSOLUTION OR LIQUIDATION OF THE COMPANY
Upon the dissolution or liquidation of the Company (other than in
connection with a transaction subject to the provisions of Section 17.2), all
Stock Rights granted under this Plan which as of such date shall not have been
exercised will terminate and become null and void; provided, however, that if
the rights of a Participant have not otherwise terminated and expired, the
Participant will have the right immediately prior to such dissolution or
liquidation to exercise any Stock Right to the extent that such Stock Right is
exercisable as of the date immediately prior to such dissolution or liquidation.
17. ADJUSTMENTS
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Stock Right granted to him or her hereunder which
have not previously been exercised in full shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written agreement
between the Participant and the Company relating to such Stock Right or in any
employment agreement between a Participant and the Company or an Affiliate:
17.1 STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of such Stock Right shall be appropriately increased or decreased,
and appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend.
17.2 CONSOLIDATIONS OR MERGERS. In the event of a consolidation or merger
in which the Company is not the surviving corporation or which results in the
acquisition of substantially all the
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Company's outstanding stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets (any of the foregoing, an
"Acquisition"), all then outstanding Options shall terminate unless assumed
pursuant to clause (i) below; provided, that either (i) the Committee shall
provide for the surviving or acquiring entity or an affiliate thereof to assume
the outstanding Options or grant replacement options in lieu thereof, any such
replacement to be upon an equitable basis as determined by the Committee, or
(ii) if there is no such assumption or substitution, all outstanding Options
shall become immediately and fully exercisable immediately prior to the
Acquisition, notwithstanding any restrictions or vesting conditions set forth
therein.
17.3 RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in Section 17.2 above) pursuant to which securities of the Company or
of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising a Stock Right shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Stock Right prior to such
recapitalization or reorganization.
17.4 MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to Section 17.1, 17.2 or 17.3 with respect to ISOs shall be made
only after the Committee determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holders of such ISOs.
If the Committee determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
18. ISSUANCES OF SECURITIES
Except as expressly provided herein, no issuance (including for this
purpose the delivery of shares held in treasury) by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to Options. Except as expressly provided
herein, no adjustments shall be made for dividends paid in cash or in property
(including without limitation, securities) of the Company.
19. FRACTIONAL SHARES
No fractional share shall be issued under the Plan and the person
exercising any Stock Right shall receive from the Company cash in lieu of any
such fractional share equal to the Fair Market Value thereof determined in good
faith by the Board of Directors.
20. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOS
Any Options granted under this Plan which do not meet the requirements of
the Code for ISOs shall automatically be deemed to be NQSOs without further
action on the part of the Committee. The Committee, at the written request of
any Participant, may in its discretion take such actions as may be necessary to
convert such Participant's ISOs (or any portion thereof) that have not been
exercised on the date of conversion into NQSOs at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or an Affiliate at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the Participant) may impose
such
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conditions on the exercise of the resulting NQSOs as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
Participant the right to have such Participant's ISOs converted into NQSOs, and
no such conversion shall occur until and unless the Committee takes appropriate
action. The Committee, with the consent of the Participant, may also terminate
any portion of any ISO that has not been exercised at the time of such
termination.
21. WITHHOLDING
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("FICA") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise of a Stock Right or a Disqualifying Disposition (as defined in
Section 22), the Participant shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Participant, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Committee (and
permitted by law), provided, however, that with respect to persons subject to
Section 16 of the Exchange Act, any such withholding arrangement shall be in
compliance with any applicable provisions of Rule 16b-3 promulgated under
Section 16 of the Exchange Act. For purposes hereof, the Fair Market Value of
any shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Section 1 above, as of the most recent practicable date
prior to the date of exercise. If the Fair Market Value of the shares withheld
is less than the amount of payroll withholdings required, the Participant my be
required to advance the difference in cash to the Company or the Affiliate
employer. The Committee in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding. In no event shall shares be withheld from any award
in satisfaction of tax withholding requirements in an amount that exceeds the
minimum tax withholding requirements of law.
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each Key Employee who receives an ISO must agree to notify the Company
in writing immediately after the Key Employee makes a "Disqualifying
Disposition" of any Shares acquired pursuant to the exercise of an ISO. A
Disqualifying Disposition is any disposition (as defined in Section 424(c) of
the Code) of such shares before the later of (a) two years from the date the Key
Employee was granted the ISO, or (b) one year after the date the Key Employee
acquired Shares by exercising the ISO. If the Key Employee has died before such
Shares are sold, the notice provisions of this Section 22 shall not apply.
23. EFFECTIVE DATE; TERMINATION OF THE PLAN
The Plan shall be effective on December 8, 1994, the date it is
approved by the Board of Directors. The Plan will terminate on December 8, 2004,
the date which is ten (10) years from the earlier of the date of its adoption or
the date of its approval by the stockholders of the Company. The Plan may be
terminated at an earlier date by vote of the stockholders of the Company;
provided, however, that any such earlier termination will not affect any Stock
Rights granted or Stock Agreements executed prior to the effective date of such
termination.
24. AMENDMENT OF THE PLAN; AMENDMENT OF STOCK RIGHTS
The Plan may be amended by the stockholders of the Company. The Plan
may also be amended by the Board of Directors or the Committee, including,
without limitation, to the extent necessary to qualify any or all outstanding
Stock Rights granted under the Plan or Stock Rights to be granted under the Plan
for favorable federal income tax treatment (including deferral of taxation
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upon exercise) as may be afforded incentive stock options under Section 422 of
the Code, to the extent necessary to ensure that Stock Rights granted or to be
granted under the Plan are in accordance with Rule 16b-3 under the Exchange Act,
and to the extent necessary to qualify the shares issuable upon exercise of any
outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan
for listing on any national securities exchange or quotation in any national
automated quotation system of securities dealers. Any amendment approved by the
Board of Directors or the Committee which is of a scope that requires
stockholder approval in order to ensure favorable federal income tax treatment
for any ISOs or Section 162(m) of the Code shall be subject to obtaining such
stockholder approval. No modification or amendment of the Plan shall adversely
affect a Participant's rights under a Stock Right previously granted to the
Participant without such Participant's consent.
In its discretion, the Committee may amend any term or condition of any
outstanding Stock Right, PROVIDED, (i) such term or condition as amended is
permitted by the Plan, (ii) if the amendment is adverse to the Participant, such
amendment shall be made only with the consent of the Participant, (iii) any such
amendment of any ISO shall be made only after the Committee determines whether
such amendment would constitute a "modification" of any Stock Right which is an
ISO (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holder of such ISO, and (iv) with respect to
any Stock Right held by any Participant who is subject to the provisions of
Section 16(a) of the Exchange Act, any such amendment shall be made only after
the Committee determines whether such amendment would constitute the grant of a
new Stock Right.
25. EMPLOYMENT OR OTHER RELATIONSHIP
Nothing in this Plan or any Stock Agreement shall be deemed to prevent
the Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant, nor to prevent a Participant from terminating
his or her own employment, consultancy or director status or to give any
Participant a right to be retained in employment or other service by the Company
or any Affiliate for any period of time.
26. GOVERNING LAW
This Plan shall be construed and enforced in accordance with the law of
The Commonwealth of Massachusetts.
rev. 11/18/99/SPC
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EXHIBIT 10.3
VERTEX PHARMACEUTICALS INCORPORATED
1996 STOCK AND OPTION PLAN
(as amended on September 14, 1999 and restated)
1. DEFINITIONS
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Vertex Pharmaceuticals Incorporated 1996 Stock
and Option Plan, have the following meanings:
AFFILIATE means a corporation which, for purposes of Section 424 of the Code, is
a parent or subsidiary of the Company, direct or indirect.
BOARD OF DIRECTORS means the Board of Directors of the Company.
CODE means the United States Internal Revenue Code of 1986, as amended.
COMMITTEE means the Compensation Committee of the Board of Directors or any
successor thereto appointed by the Board of Directors pursuant to Section 4
hereof to administer this Plan.
COMMON STOCK means shares of the Company's common stock, $.01 par value.
COMPANY means Vertex Pharmaceuticals Incorporated, a Massachusetts corporation.
DISABILITY or DISABLED means permanent and total disability as defined in
Section 22(e)(3) of the Code.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
FAIR MARKET VALUE of a Share of Common Stock on a particular date shall be the
mean between the highest and lowest quoted selling prices on such date (the
"valuation date") on the securities market where the Common Stock of the Company
is traded, or if there were no sales on the valuation date, on the next
preceding date within a reasonable period (as determined in the sole discretion
of the Committee) on which there were sales. In the event that there were no
sales in such a market within a reasonable period, the fair market value shall
be as determined in good faith by the Committee in its sole discretion. The Fair
Market Value as determined in this paragraph rounded down to the next lower
whole cent if the foregoing calculation results in fractional cents.
ISO means an option intended to qualify as an incentive stock option under Code
Section 422(b).
KEY EMPLOYEE means an employee of the Company or of an Affiliate (including,
without limitation, an employee who is also serving as an officer or director of
the Company or of an Affiliate), designated by the Committee to be eligible to
be granted one or more Stock Rights under the Plan.
NQSO means an option which is not intended to qualify as an ISO.
NON-EMPLOYEE DIRECTOR means a member of the Board of Directors who is not an
employee of the Company or any Affiliate.
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OPTION means an ISO or NQSO granted under the Plan.
PARTICIPANT means a Key Employee, Non-Employee Director, consultant or
advisor of the Company to whom one or more Stock Rights are granted under the
Plan. As used herein, "Participant" shall include "Participant's Survivors"
and a Participant's permitted transferees where the context requires.
PARTICIPANT'S SURVIVORS means a deceased Participant's legal representatives
and/or any person or persons who acquires the Participant's rights to a Stock
Right by will or by the laws of descent or distribution.
PLAN means this Vertex Pharmaceuticals Incorporated 1996 Stock and Option Plan,
as amended from time to time.
SHARES means shares of the Common Stock as to which Stock Rights have been or
may be granted under the Plan or any shares of capital stock into which the
Shares are changed or for which they are exchanged within the provisions of
Section 3 of the Plan. The Shares issued upon exercise of Stock Rights granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both.
STOCK AGREEMENT means an agreement between the Company and a Participant
executed and delivered pursuant to the Plan, in such form as the Committee shall
approve.
STOCK AWARD means an award of Shares or the opportunity to make a direct
purchase of Shares of the Company granted under the Plan.
STOCK RIGHT means a right to Shares of the Company granted pursuant to the Plan
as an ISO, an NQSO or a Stock Award.
2. PURPOSES OF THE PLAN
The Plan is intended to encourage ownership of Shares by Key Employees,
Non-Employee Directors and certain consultants and advisors to the Company in
order to attract such persons, to induce them to work for the benefit of the
Company or of an Affiliate and to provide additional incentive for them to
promote the success of the Company or of an Affiliate. The Plan provides for the
granting of Stock Rights to Key Employees, Non-Employee Directors, consultants
and advisors of the Company.
3. SHARES SUBJECT TO THE PLAN
The number of Shares subject to this Plan as to which Stock Rights may be
granted from time to time shall be 4,500,000 plus the number of shares of Common
Stock previously reserved for the granting of options under the Vertex
Pharmaceuticals Incorporated 1991 Stock Option Plan and 1994 Stock and Option
Plan but not granted thereunder, or the equivalent of such number of Shares
after the Committee, in its sole discretion, has interpreted the effect of any
stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Section 17 of this Plan.
If an Option granted hereunder or any option granted under the 1991 Stock
Option Plan or 1994 Stock and Option Plan ceases to be "outstanding", in whole
or in part, or if the Company shall reacquire any Shares issued pursuant to
Stock Awards, the Shares which were subject to such Option and any Shares so
reacquired by the Company shall also be available for the granting of other
Stock Rights under the Plan. Any Stock Right shall be treated as "outstanding"
until such Stock Right is exercised in full, or terminates or expires under the
provisions of the Plan, or by
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agreement of the parties to the pertinent Stock Agreement, without having been
exercised in full.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee is authorized to:
a. Interpret the provisions of the Plan or of any Option, Stock Award or
Stock Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees,
Non-Employee Directors, consultants and advisors of the Company and its
Affiliates shall be granted Stock Rights;
c. Determine the number of Shares and exercise price for which a Stock
Right or Stock Rights shall be granted;
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted; and
e. In its discretion, accelerate the date of exercise of any installment
of any Stock Right; provided that the Committee shall not, without the
consent of the Option holder accelerate the exercise date of any
installment of any Option granted to any Key Employee as an ISO (and
not previously converted into an NQSO pursuant to Section 20) if such
acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in Section 6.2.3.
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Code Section 422 of those Options which are designated as ISOs and
shall be in compliance with any applicable provisions of Rule 16b-3 under the
Exchange Act. Subject to the foregoing, the interpretation and construction by
the Committee of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Committee is other than the Board of Directors.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all Participants, and
all other interested persons. No member or agent of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to this Plan or grants hereunder. Each member of the
Committee shall be indemnified and held harmless by the Company against any cost
or expense (including counsel fees) reasonably incurred by him or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with this Plan
unless arising out of such member's own fraud or bad faith. Such indemnification
shall be in addition to any rights of indemnification the members of the
Committee may have as directors or otherwise under the by-laws of the Company,
or any agreement, vote of stockholders or disinterested directors, or otherwise.
5. ELIGIBILITY FOR PARTICIPATION
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The Committee shall, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee,
Non-Employee Director, consultant or advisor of the Company or of an Affiliate
at the time a Stock Right is granted. Notwithstanding the foregoing, the
Committee may authorize the grant of a Stock Right to a person not then an
employee, Non-Employee Director, consultant or advisor of the Company or of an
Affiliate; PROVIDED, HOWEVER, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of execution of the Stock Agreement evidencing such Stock
Right. The granting of any Stock Right to any individual shall neither entitle
that individual to, nor disqualify him or her from, participation in other
grants of Stock Rights. Nothwithstanding anything to the contrary contained in
this Plan, no Stock Rights shall be granted to any director or officer of the
Company except in accordance with the applicable rules of the Nasdaq Stock
Market or other securities market where the Common Stock is traded.
6. TERMS AND CONDITIONS OF OPTIONS
6.1 GENERAL. Each Option shall be set forth in writing in a Stock
Agreement, duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. The Committee may provide that
Options be granted subject to such conditions as the Committee may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto, PROVIDED,
HOWEVER, that the option price per share of the Shares covered by each Option
shall not be less than the Fair Market Value per share of the Common Stock on
the date of grant (or par value if greater). Each Stock Agreement shall state
the number of Shares to which it pertains, the date or dates on which it first
is exercisable and the date after which it may no longer be exercised. Option
rights may accrue or become exercisable in installments over a period of time,
or upon the achievement of certain conditions or the attainment of stated goals
or events. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to the Committee
providing for certain protections for the Company and its other shareholders,
including requirements that the Participant's or the Participant's Survivors'
right to sell or transfer the Shares may be restricted, and the Participant or
the Participant's Survivors may be required to execute letters of investment
intent and to acknowledge that the Shares will bear legends noting any
applicable restrictions.
6.2 ISOS. ISOs shall be issued only to Key Employees. In addition to the
minimum standards set forth in Section 6.1, ISOs shall be subject to the
following terms and conditions, with such additional restrictions or changes as
the Committee determines are appropriate but not in conflict with Code Section
422 and relevant regulations and rulings of the Internal Revenue Service:
6.2.1 ISO OPTION PRICE: The Option price per Share of the Shares
subject to an ISO shall not be less than one hundred percent (100%) of the Fair
Market Value per share of the Common Stock on the date of grant of the ISO;
provided, however that the Option price per share of the Shares subject to an
ISO granted to a Participant who owns, directly or by reason of the applicable
attribution rules in Code Section 424(d), more than ten percent (10%) of the
total combined voting power of all classes of share capital of the Company or an
Affiliate, shall not be less than one hundred ten percent (110%) of the said
Fair Market Value on the date of grant.
6.2.2 TERM OF ISO: Each ISO shall expire not more than ten (10)
years from the date of grant; provided, however, that an ISO granted to a
Participant who owns, directly or by reason of the applicable attribution rules
in Code Section 424(d), more than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an Affiliate, shall
expire not more than five (5) years from the date of grant.
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6.2.3 LIMITATION ON GRANT OF ISOS: No ISOs shall be granted after
December 8, 2004, the date which is ten (10) years from the earlier of the date
of the adoption of this Plan and the date of the approval of the Plan by the
shareholders of the Company.
6.3 NON-EMPLOYEE DIRECTORS' OPTIONS. Each Non-Employee Director, upon
first being elected or appointed to the Board of Directors, shall be granted an
NQSO to purchase 20,000 Shares. Each such Option shall (i) have an exercise
price equal to the Fair Market Value (per share) on the date of grant of the
Option, (ii) have a term of ten (10) years, and (ii) shall become cumulatively
exercisable in sixteen (16) equal quarterly installments, upon completion of
each full quarter of service on the Board of Directors after the date of grant.
In addition, on June 1 of each year, each Non-Employee Director shall be granted
a NQSO to purchase 5,000 shares. Each such Option shall (i) have an exercise
price equal to the Fair Market Value (per share) on the date of grant of such
Option, (ii) have a term of ten (10) years, and (iii) be exercisable in full
immediately on the date of grant. Any director entitled to receive an Option
grant under this Section may elect to decline the Option. Notwithstanding the
provisions of Section 24 concerning amendment of the Plan, the provisions of
this Subsection shall not be amended more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security
Act, or the rules thereunder. Notwithstanding anything to the contrary contained
in any other provisions of this Plan, the Committee shall have no discretion to
vary the terms of Options granted under this Section 6.3 from those set forth
herein. The provisions of Sections 11, 13 and 14 below shall not apply to
Options granted pursuant to this Subsection.
6.4 LIMITATION ON NUMBER OF OPTIONS GRANTED. Notwithstanding anything in
this Plan to the contrary, no Participant shall be granted Options in any
calendar year for the purchase of more than 200,000 Shares (subject to
adjustment pursuant to Section 17 to the extent consistent with Section 162(m)
of the Code).
7. TERMS AND CONDITIONS OF STOCK AWARDS
Each Stock Award shall be set forth in a Stock Agreement, duly executed
by the Company and, to the extent required by law or requested by the Company,
by the Participant. The Stock Agreement shall be in the form approved by the
Committee, with such changes and modifications to such form as the Committee, in
its discretion, shall approve with respect to any particular Participant or
Participants. The Stock Agreement shall contain terms and conditions which the
Committee determines to be appropriate and in the best interest of the Company;
PROVIDED, HOWEVER, that the purchase price per share of the Shares covered by
each Stock Award shall not be less than the par value per Share. Each Stock
Agreement shall state the number of Shares to which the Stock Award pertains,
the date prior to which the Stock Award must be exercised by the Participant,
and the terms of any right of the Company to reacquire the Shares subject to the
Stock Award, including the time and events upon which such rights shall accrue
and the purchase price therefor, and any restrictions on the transferability of
such Shares.
8. EXERCISE OF STOCK RIGHTS AND ISSUANCE OF SHARES
A Stock Right (or any part or installment thereof) shall be exercised by
giving written notice to the Company, together with provision for payment of the
full purchase price in accordance with this Section for the Shares as to which
such Stock Right is being exercised, and upon compliance with any other
condition(s) set forth in the Stock Agreement. Such written notice shall be
signed by the person exercising the Stock Right, shall state the number of
Shares with respect to which the Stock Right is being exercised and shall
contain any representation required by the Plan or the Stock Agreement.
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Payment of the purchase price for the Shares as to which such Stock Right
is being exercised shall be made (a) in United States dollars in cash or by
check acceptable to the Committee, or (b) at the discretion of the Committee,
(i) through delivery of shares of Common Stock (which, in the case of shares
acquired from the Company, have been held by the Participant for at least six
(6) months) not subject to any restriction under any plan and having a fair
market value equal as of the date of exercise to the cash exercise price of the
Stock Right, determined in good faith by the Committee, or (ii) in accordance
with a cashless exercise program established with a securities brokerage firm,
and approved by the Company, or (iii) by any other means (excluding, however,
delivery of a promissory note of the Participant) which the Committee determines
to be consistent with the purpose of this Plan and applicable law, or (iv) by
any combination of the foregoing. Notwithstanding the foregoing, the Committee
shall accept only such payment on exercise of an ISO as is permitted by Section
422 of the Code.
The Company shall then as soon as is reasonably practicable deliver the
Shares as to which such Stock Right was exercised to the Participant (or to the
Participant's Survivors, as the case may be). It is expressly understood that
the delivery of the Shares may be delayed by the Company in order to comply with
any law or regulation which requires the Company to take any action with respect
to the Shares prior to their issuance. The Shares shall, upon delivery, be fully
paid, non-assessable Shares.
9. RIGHTS AS A SHAREHOLDER
No Participant to whom a Stock Right has been granted shall have rights
as a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise thereof and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
10. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS
ISOs and, except as otherwise provided by the Committee, NQSOs and Stock
Awards shall not be transferable by the Participant other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act or the rules thereunder, PROVIDED, HOWEVER, that the designation of
a beneficiary of a Stock Right by a Participant shall not be deemed a transfer
prohibited by this Section. Except as provided in the preceding sentence or as
otherwise permitted under an NQSO or Stock Award Stock Agreement, a Stock Right
shall be exercisable, during the Participant's lifetime, only by such
Participant (or by his or her legal representative) and shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
any Stock Right or of any rights granted thereunder contrary to the provisions
of this Plan, or the levy of any attachment or similar process upon a Stock
Right, shall be null and void.
11. EFFECT OF TERMINATION OF SERVICE
11.1 Except as otherwise provided in the pertinent Stock Agreement or as
otherwise provided in Sections 12, 13 or 14, if a Participant ceases to be an
employee, director, consultant or advisor with the Company and its Affiliates
(for any reason other than termination "for cause", Disability, or death) (a
"Termination of Service") before the Participant has exercised all Stock Rights,
the Participant may exercise any Stock Right granted to him or her to the extent
that the Stock Right is exercisable on the date of such Termination of Service,
but only within the originally prescribed term of the Stock Right.
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11.2 The provisions of this Section, and not the provisions of Section 13
or 14, shall apply to a Participant who subsequently becomes disabled or dies
after the Termination of Service; provided, however, that in the case of a
Participant's death within three (3) months after the Termination of Service,
the Participant's Survivors may exercise the Stock Right within one (1) year
after the date of the Participant's death, but in no event after the date of
expiration of the term of the Stock Right.
11.3 Notwithstanding anything herein to the contrary, if subsequent to a
Participant's Termination of Service, but prior to the exercise of a Stock
Right, the Committee determines that, either prior or subsequent to the
Participant's Termination of Service, the Participant engaged in conduct which
would constitute "cause" (as defined in Section 12), then such Participant shall
forthwith cease to have any right to exercise any Stock Right.
11.4 Absence from work with the Company or an Affiliate because of
temporary disability or a leave of absence for any purpose, shall not, during
the period of any such absence in accordance with Company policies, be deemed,
by virtue of such absence alone, a Termination of Service, except as the
Committee may otherwise expressly provide.
11.5 A change of employment or other service within or among the Company
and its Affiliates shall not be deemed a Termination of Service, so long as the
Participant continues to be an employee, director, consultant or advisor of the
Company or any Affiliate.
12. EFFECT OF TERMINATION OF SERVICE FOR "CAUSE"
Except as otherwise provided in the pertinent Stock Agreement, in the
event of a Termination of Service of a Participant "for cause" all outstanding
and unexercised Stock Rights as of the date the Participant is notified his or
her service is terminated "for cause" will immediately be forfeited.
For purposes of this Section 12, "cause" shall include (and is not
limited to) dishonesty with respect to the Company and its Affiliates,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, conduct substantially
prejudicial to the business of the Company or any Affiliate, and termination
by the Participant in violation of an agreement by the Participant to remain
in the employ of the Company of an Affiliate. The determination of the
Committee as to the existence of cause will be conclusive on the Participant
and the Company. "Cause" is not limited to events which have occurred prior
to a Participant's Termination of Service, nor is it necessary that the
Committee's finding of "cause" occur prior to termination. If the Committee
determines, subsequent to a Participant's Termination of Service but prior to
the exercise of a Stock Right, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which would
constitute "cause," then the right to exercise any Stock Right shall be
forfeited. Any definition in an agreement between a Participant and the
Company or an Affiliate which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such termination shall
supersede the definition in this Plan with respect to that Participant.
13. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY
Except as otherwise provided in the pertinent Stock Agreement, in the
event of a termination of service with the Company and its Affiliates by reason
of Disability, the Disabled Participant may exercise any Stock Right granted to
him or her to the extent exercisable but not exercised on the date of
Disability. A Disabled Participant may exercise such rights only within a period
of not more than one (1) year after the date that the Participant became
Disabled or, if earlier, within the originally prescribed term of the Stock
Right.
The Committee shall make the determination both of whether Disability has
occurred and of the date of its occurrence (unless a procedure for such
determination is set forth in another
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agreement between the Company and such Participant, in which case such procedure
shall be used for such determination). If requested, the Participant shall be
examined by a physician selected or approved by the Committee, the cost of which
examination shall be paid for by the Company.
14. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT
Except as otherwise provided in the pertinent Stock Agreement, in the
event of death of a Participant while the Participant is an employee, director,
consultant or advisor of the Company or of an Affiliate, any Stock Rights
granted to such Participant may be exercised by the Participant's Survivors to
the extent exercisable but not exercised on the date of death. Any such Stock
Right must be exercised within one (1) year after the date of death of the
Participant but in no event after the date of expiration of the term of the
Stock Right.
15. PURCHASE FOR INVESTMENT
Unless the offering and sale of the Shares to be issued upon the
particular exercise of an Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise such Stock Right shall warrant to the
Company, at the time of such exercise or receipt, as the case may be,
that such person(s) are acquiring such Shares for their own respective
accounts, for investment, and not with a view to, or for sale in
connection with, the distribution of any such Shares, in which event
the person(s) acquiring such Shares shall be bound by the provisions of
the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken
for investment and they may not be sold or otherwise
transferred by any person, including a pledgee, unless (1)
either (a) a Registration Statement with respect to such
shares shall be effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an opinion of
counsel satisfactory to it that an exemption from registration
under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws.
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
16. DISSOLUTION OR LIQUIDATION OF THE COMPANY
Upon the dissolution or liquidation of the Company (other than in
connection with a transaction subject to the provisions of Section 17.2), all
Stock Rights granted under this Plan which as of such date shall not have been
exercised will terminate and become null and void; provided, however, that if
the rights of a Participant have not otherwise terminated and expired, the
Participant will have the right immediately prior to such dissolution or
liquidation to exercise any Stock Right to the extent that such Stock Right is
exercisable as of the date immediately prior to such dissolution or liquidation.
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17. ADJUSTMENTS
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Stock Right granted to him or her hereunder which
have not previously been exercised in full shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written agreement
between the Participant and the Company relating to such Stock Right or in any
employment agreement between a Participant and the Company or an Affiliate:
17.1 STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of such Stock Right shall be appropriately increased or decreased,
and appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend.
17.2 CONSOLIDATIONS OR MERGERS. In the event of a consolidation or merger
in which the Company is not the surviving corporation or which results in the
acquisition of substantially all the Company's outstanding stock by a single
person or entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of substantially all the Company's assets
(any of the foregoing, an "Acquisition"), all then outstanding Options shall
terminate unless assumed pursuant to clause (i) below; provided, that either (i)
the Committee shall provide for the surviving or acquiring entity or an
affiliate thereof to assume the outstanding Options or grant replacement options
in lieu thereof, any such replacement to be upon an equitable basis as
determined by the Committee, or (ii) if there is no such assumption or
substitution, all outstanding Options shall become immediately and fully
exercisable immediately prior to the Acquisition, notwithstanding any
restrictions or vesting conditions set forth therein.
17.3 RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in Section 17.2 above) pursuant to which securities of the Company or
of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising a Stock Right shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Stock Right prior to such
recapitalization or reorganization.
17.4 MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to Section 17.1, 17.2 or 17.3 with respect to ISOs shall be made
only after the Committee determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holders of such ISOs.
If the Committee determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
18. ISSUANCES OF SECURITIES
Except as expressly provided herein, no issuance (including for this
purpose the delivery of shares held in treasury) by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to Options. Except as expressly provided
herein, no adjustments shall be made for dividends paid in cash or in property
(including without limitation, securities) of the Company.
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19. FRACTIONAL SHARES
No fractional share shall be issued under the Plan and the person
exercising any Stock Right shall receive from the Company cash in lieu of any
such fractional share equal to the Fair Market Value thereof determined in good
faith by the Board of Directors.
20. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOS
Any Options granted under this Plan which do not meet the requirements of
the Code for ISOs shall automatically be deemed to be NQSOs without further
action on the part of the Committee. The Committee, at the written request of
any Participant, may in its discretion take such actions as may be necessary to
convert such Participant's ISOs (or any portion thereof) that have not been
exercised on the date of conversion into NQSOs at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or an Affiliate at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the Participant) may impose
such conditions on the exercise of the resulting NQSOs as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
Participant the right to have such Participant's ISOs converted into NQSOs, and
no such conversion shall occur until and unless the Committee takes appropriate
action. The Committee, with the consent of the Participant, may also terminate
any portion of any ISO that has not been exercised at the time of such
termination.
21. WITHHOLDING
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("FICA") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise of a Stock Right or a Disqualifying Disposition (as defined in
Section 22), the Participant shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Participant, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Committee (and
permitted by law), provided, however, that with respect to persons subject to
Section 16 of the Exchange Act, any such withholding arrangement shall be in
compliance with any applicable provisions of Rule 16b-3 promulgated under
Section 16 of the Exchange Act. For purposes hereof, the Fair Market Value of
any shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Section 1 above, as of the most recent practicable date
prior to the date of exercise. If the Fair Market Value of the shares withheld
is less than the amount of payroll withholdings required, the Participant my be
required to advance the difference in cash to the Company or the Affiliate
employer. The Committee in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding. In no event shall shares be withheld from any award
in satisfaction of tax withholding requirements in an amount that exceeds the
minimum tax withholding requirements of law.
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each Key Employee who receives an ISO must agree to notify the Company
in writing immediately after the Key Employee makes a "Disqualifying
Disposition" of any Shares acquired pursuant to the exercise of an ISO. A
Disqualifying Disposition is any disposition (as defined in Section 424(c) of
the Code) of such shares before the later of (a) two years from the date the Key
Employee was granted the ISO, or (b) one year after the date the Key Employee
acquired Shares
-10-
<PAGE>
by exercising the ISO. If the Key Employee has died before such Shares are sold,
the notice provisions of this Section 22 shall not apply.
23. EFFECTIVE DATE; TERMINATION OF THE PLAN
The Plan shall be effective on December 12, 1996, the date of its
approval by the Board of Directors. The Plan will terminate on December 12,
2006. The Plan may be terminated at an earlier date by vote of the Board of
Directors; provided, however, that any such earlier termination will not affect
any Stock Rights granted or Stock Agreements executed prior to the effective
date of such termination.
24. AMENDMENT OF THE PLAN; AMENDMENT OF STOCK RIGHTS
The Plan may be amended by the stockholders of the Company. The Plan
may also be amended by the Board of Directors or the Committee, including,
without limitation, to the extent necessary to qualify any or all outstanding
Stock Rights granted under the Plan or Stock Rights to be granted under the Plan
for favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code, to the extent necessary to ensure that Stock Rights granted or to be
granted under the Plan are in accordance with Rule 16b-3 under the Exchange Act,
and to the extent necessary to qualify the shares issuable upon exercise of any
outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan
for listing on any national securities exchange or quotation in any national
automated quotation system of securities dealers. No modification or amendment
of the Plan shall adversely affect a Participant's rights under a Stock Right
previously granted to the Participant without such Participant's consent.
In its discretion, the Committee may amend any term or condition of any
outstanding Stock Right, PROVIDED, (i) such term or condition as amended is
permitted by the Plan, (ii) if the amendment is adverse to the Participant, such
amendment shall be made only with the consent of the Participant, (iii) any such
amendment of any ISO shall be made only after the Committee determines whether
such amendment would constitute a "modification" of any Stock Right which is an
ISO (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holder of such ISO, and (iv) with respect to
any Stock Right held by any Participant who is subject to the provisions of
Section 16(a) of the Exchange Act, any such amendment shall be made only after
the Committee determines whether such amendment would constitute the grant of a
new Stock Right.
25. EMPLOYMENT OR OTHER RELATIONSHIP
Nothing in this Plan or any Stock Agreement shall be deemed to prevent
the Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant, nor to prevent a Participant from terminating
his or her own employment, consultancy or director status or to give any
Participant a right to be retained in employment or other service by the Company
or any Affiliate for any period of time.
26. GOVERNING LAW
This Plan shall be construed and enforced in accordance with the law of
The Commonwealth of Massachusetts.
rev. 11/18/99/SPC
-11-
<PAGE>
EXHIBIT 10.27
(WITH CERTAIN CONFIDENTIAL INFORMATION DELETED AND MARKED WITH BRACKETED
ASTERIKS)
Collaboration and Option Agreement
BETWEEN
Vertex Pharmaceuticals Incorporated
AND
Taisho Pharmaceutical Co., Ltd
November 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION.............................................................................................1
ARTICLE I -- DEFINITIONS..................................................................................1
ARTICLE II -- RESEARCH PROGRAM............................................................................4
2.1 Commencement......................................................................................4
2.2 Joint Research Committee..........................................................................4
2.3 Exchange of Information...........................................................................4
2.4 Redirection of Research Program...................................................................5
2.5 Taisho Research...................................................................................5
2.6 Improvement.......................................................................................5
2.7 Exclusivity.......................................................................................6
ARTICLE III -- PAYMENT BY TAISHO..........................................................................6
3.1 Reimbursements....................................................................................6
3.2 Research Payment..................................................................................7
3.3 Research Records; Expenditure Reports.............................................................7
ARTICLE IV -- LICENSE AND DEVELOPMENT OPTIONS.............................................................8
ARTICLE V -- CONFIDENTIALITY.............................................................................10
5.1 Undertaking......................................................................................10
5.2 Exceptions.......................................................................................11
5.3 Publicity........................................................................................11
5.4 Survival.........................................................................................11
ARTICLE VI -- PATENTS....................................................................................11
6.1 Preparation......................................................................................11
6.2 Cost Reimbursement...............................................................................12
6.3 Failure to Reimburse.............................................................................12
6.4 License to Formulations and Use Inventions.......................................................12
ARTICLE VII -- INFRINGEMENT..............................................................................12
</TABLE>
Collaboration and Option Agreement - Page 1
<PAGE>
TABLE OF CONTENTS (CON'T)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VIII -- TERM AND TERMINATION....................................................................13
8.1 Term of Agreement................................................................................13
8.2 Termination of Research Program by Taisho for Cause..............................................13
8.3 Termination by Vertex For Cause..................................................................14
8.4 Termination......................................................................................14
8.5 Effect of Termination or Expiration..............................................................15
ARTICLE IX -- DISPUTE RESOLUTION.........................................................................15
9.1 Governing Law, and Jurisdiction..................................................................15
9.2 Arbitration......................................................................................15
ARTICLE X -- MISCELLANEOUS PROVISIONS....................................................................16
10.1 Official Language................................................................................16
10.2 Waiver...........................................................................................16
10.3 Force Majeure....................................................................................16
10.4 Severability.....................................................................................16
10.5 Government Acts..................................................................................17
10.6 Government Approvals.............................................................................17
10.7 Export Controls..................................................................................17
10.8 No Warranty......................................................................................17
10.9 Third Party Actions..............................................................................18
10.10 Tax .............................................................................................19
10.11 Assignment.......................................................................................19
10.12 Counterparts.....................................................................................19
10.13 No Agency........................................................................................19
10.14 Notice...........................................................................................19
10.15 Headings.........................................................................................20
10.16 Authority........................................................................................20
10.17 Entire Agreement.................................................................................20
</TABLE>
Schedule 1.4 -- [***]
Schedule 1.12 -- List of Vertex Patents
Schedule 1.13 -- List of Taisho Patents
Schedule 1.19 -- Summary of Research Activities
Schedule 1.20 -- Countries in the Territory
Schedule 2.2 -- Initial Members of Joint Research Committee
Schedule 3.3 -- Annual Report of Research Expenditures
Collaboration and Option Agreement - Page 2
<PAGE>
COLLABORATION AND OPTION AGREEMENT
AGREEMENT made and effective this 30th day of November, 1999, between VERTEX
PHARMACEUTICALS INCORPORATED, a corporation duly organized and existing under
the laws of the Commonwealth of Massachusetts with its principal place of
business at 130 Waverly Street, Cambridge, Massachusetts 02139-4242, U.S.A.
("Vertex"), and TAISHO PHARMACEUTICAL CO., LTD., a corporation duly organized
and existing under the laws of Japan with its principal place of business at
24-1, Takata 3-Chome, Toshima-ku, Tokyo 170-8633, Japan ("Taisho").
INTRODUCTION
A. Vertex is engaged in the discovery, development and commercialization
of novel, small molecule pharmaceuticals using advanced biology,
biophysics, chemistry and information technologies. The Company has
been involved for some time in research aimed at designing certain
caspase inhibitors for acute intervention in stroke and other
therapeutic indications.
B. Taisho is a diversified pharmaceutical company with substantial
expertise in the areas of research, product development, the conduct of
preclinical and clinical trials, sales and marketing, and is interested
in the research, development, marketing and sale of pharmaceuticals for
acute intervention in stroke and other therapeutic indications.
C. Both parties desire to enter into a collaboration specifically
targeting an area in which Vertex has been working for some time --
the development of small molecule inhibitors of certain caspases --
applying the complementary skills and strengths which each party brings
to the transaction.
D. The purpose of this Agreement is to set forth the terms upon which
Vertex, together with Taisho, will attempt to design and develop novel,
small molecule inhibitors of certain caspases for acute intervention in
stroke and other therapeutic indications, with the financial and
technical assistance of Taisho, for development, formulation, marketing
and sale by Taisho and/or sublicensees in the Territory (as defined
below) upon the terms set forth herein and in the License and
Development Agreement attached as ExhibitA hereto.
In consideration of the mutual covenants set forth in this Agreement, and other
good and valuable consideration, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 "AFFILIATE" shall mean, with respect to any Person, any other
Person which directly or indirectly, by itself or through one
or more intermediaries, controls, is controlled by or is under
direct or indirect common control with, such Person.
Collaboration and Option Agreement - Page 1
<PAGE>
The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the
management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Control will be presumed if one Person owns, either of record
or beneficially, fifty percent (50%) or more of the voting
stock of any other Person.
1.2 "PERSON" shall mean any individual, corporation, partnership,
association, limited liability company, trust, unincorporated
organization or government or political subdivision thereof.
1.3 "CASPASES" are
[*************************************************************
*************************************************************
******************************************************].
1.4 "COMPOUND" shall mean a small molecule inhibitor of a Caspase,
synthesized (a) by Vertex, prior to the Effective Date of this
Agreement in the course of its research program directed
toward the discovery of Caspase inhibitors; or (b) by Vertex,
Taisho, or Vertex together with Taisho, in the course of the
Research Program to which this Agreement relates. The term
"Compound" shall, however, exclude
[*************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
*************************************************]
1.5 "CONTROLLED" shall mean the legal authority or right of a
party hereto to grant a license or sublicense of intellectual
property rights to another party hereto, or to otherwise
disclose or grant a right to use proprietary or trade secret
information to such other party, without breaching the terms
of any agreement with a Third Party, infringing upon the
intellectual property rights of a Third Party, or
misappropriating the proprietary or trade secret information
of a Third Party.
1.6 "EFFECTIVE DATE" shall mean the effective date of this
Agreement as set forth on the first page hereof.
1.7 "FIELD" shall mean the treatment or prevention of diseases in
humans using pharmaceutical products which inhibit one or more
Caspases.
1.8 "LICENSE AGREEMENT" shall mean a License and Development
Agreement substantially in the form attached hereto as Exhibit
A which shall become effective as set forth in Article IV
hereof.
1.9 "LICENSED COMPOUND" shall mean any Compound which becomes the
subject of Taisho's rights upon exercise of its license and
development option or is selected by the JDC (as defined in
Article IV (c)) in accordance with the provisions of Article
IV hereof.
Collaboration and Option Agreement - Page 2
<PAGE>
1.10 "LICENSED PATENTS" shall mean any Vertex Patents which become
the subject of Taisho's rights upon exercise of its license
and development option or is selected by the JDC in accordance
with the provisions of Article IV hereof.
1.11 "PATENTS" shall mean all existing patents and patent
applications and all patent applications hereafter filed,
including any continuations, continuations-in-part,
divisionals, provisionals or any substitute applications, any
patent issued with respect to any such patent applications,
any reissue, reexamination, renewal or extension (including
any supplemental patent certificate) of any such patent, and
any confirmation patent or registration patent or patent of
addition based on any such patent, and all foreign
counterparts of any of the foregoing.
1.12 "VERTEX PATENTS" shall mean any Patents Controlled by Vertex
(or any of its Affiliates) claiming (i) a Compound or a method
of using a Compound (a "method of using" being deemed to
refer, here and hereafter in this Agreement, to a use patent),
or (ii) a Compound formulation or a manufacturing process or
packaging invention related to a Compound or (iii) an
improvement to the subject matter of a Patent covering a
Compound or a method of using a Compound or a manufacturing
process or packaging invention related to a Compound. A list
of Vertex Patents is appended hereto as Schedule 1.12 and will
be updated periodically to reflect additions thereto during
the course of this Agreement.
1.13 "TAISHO PATENTS" shall mean any Patents Controlled by Taisho
(or any of its Affiliates), excluding patent applications or
patents which Taisho has assigned to Vertex under Section 2.6
hereof, claiming (i) a Compound or a method of using a
Compound or (ii) a Compound formulation or a manufacturing
process or packaging invention related to a Compound or (iii)
an improvement to the subject matter of a Patent covering a
Compound or a method of using a Compound or a manufacturing
process or packaging invention related to a Compound. A list
of Taisho Patents is appended hereto as Schedule 1.13 and will
be updated periodically to reflect additions thereto during
the course of this Agreement.
1.14 "KNOW-HOW" shall mean all proprietary and confidential
material and information including data, technical
information, know-how, experience, inventions, discoveries,
trade secrets, compositions of matter and methods, whether
currently existing or developed or obtained during the course
of this Agreement and whether or not patentable, that are
Controlled by a party hereto or its Affiliates and that relate
to the development, utilization, manufacture or use of any
Compound, including but not limited to processes, techniques,
methods, products, materials and compositions.
1.15 "VERTEX KNOW-HOW" shall mean all Know-How of Vertex.
1.16 "TAISHO KNOW-HOW" shall mean all Know-How of Taisho.
1.17 "VERTEX TECHNOLOGY" shall mean all Vertex Patents and Vertex
Know-How.
1.18 "TAISHO TECHNOLOGY" shall mean all Taisho Patents and Taisho
Know-How.
Collaboration and Option Agreement - Page 3
<PAGE>
1.19 "RESEARCH PROGRAM" shall mean research activities associated
with discovery or creation of Compounds hereunder, including
IN VITRO studies of Compounds, IN VIVO animal studies for
research purposes only (rather than for the generation of data
for regulatory submission), and related activities, as
described in the Summary of Research Activities attached
hereto as Schedule 1.19, as that Summary may be revised from
time to time by the Joint Research Committee.
1.20 "TERRITORY" shall mean those countries listed in Schedule 1.2
hereto.
1.21 "THIRD PARTY" shall mean any Person other than Vertex, Taisho
or their respective Affiliates or sublicensees of rights
conveyed under this Agreement.
ARTICLE II
RESEARCH PROGRAM
2.1 COMMENCEMENT. Vertex shall commence the Research Program
promptly upon the Effective Date and shall use its reasonable
best efforts to diligently conduct the Research Program during
the term of this Agreement in accordance with the provisions
hereof. The Research Program will continue for [*******] after
the Effective Date, and may be extended for a further period
by written agreement of the parties hereto.
2.2 JOINT RESEARCH COMMITTEE. Upon the execution of this
Agreement, Vertex and Taisho will establish a Joint Research
Committee (the "JRC") under the leadership of Vertex which
shall consist of three (3) persons designated from time to
time by Vertex and three (3) persons designated from time to
time by Taisho, or such additional number as may be mutually
agreed. The initial members of the JRC shall be those persons
designated on Schedule 2.2 hereto. The JRC shall operate by
consensus and in accordance with agreed joint resolutions, but
in the event of disagreement which cannot be resolved by
discussion among the parties,
[*************************************************************
******************]
The JRC shall meet formally at least semi-annually, or with
such other frequency, and at such time and location, as may be
established by the JRC, for the following purposes:
(a) To receive and review reports by Vertex (and by Taisho if
it is conducting activities under the Research Program), which shall be prepared
and submitted to the JRC on a quarterly basis within thirty (30) days after the
end of the quarter, setting forth in general terms the results of work performed
by the reporting party and its Affiliates and sublicensees during the preceding
calendar quarter under the Research Program, including any planned or filed
Patents covering Compounds;
(b) To advise Vertex and Taisho concerning research strategy,
goals and activities, and to consider whether redirection of the Research
Program should be recommended to Vertex and Taisho under Section 2.4 of this
Agreement;
Collaboration and Option Agreement - Page 4
<PAGE>
(c) To assist in coordinating scientific interactions between
Vertex and Taisho during the course of the Research Program;
(d) To discuss matters relating to Vertex Patents and Taisho
Patents (other than
[**********************************************************************
*****************************************************************************]
2.3 EXCHANGE OF INFORMATION. Vertex and Taisho will meet
informally on a regular basis to discuss the Research Program,
and each party will freely share with the other party,
technical and commercial information Controlled by the
disclosing party which is relevant to the subject matter of
the Research Program and the license and development option
referenced in Article IV hereof. Vertex will provide quarterly
written reports on the progress of the Research Program,
including information regarding possible Compound candidates,
to Taisho and to the JRC, within thirty (30) days after the
end of each calendar quarter during the term of the Research
Program. Taisho will make similar reports if it has conducted
activities in connection with the Research Program during the
reporting period. Each party will enable any of the other
party's representatives on the JRC, or other authorized
representatives, to review the ongoing research being
conducted by it under the Research Program and to discuss that
research with its officers, all at such reasonable times and
as often as may be reasonably requested. Any representatives
of Vertex or Taisho receiving information from representatives
of the other party shall sign appropriate agreements ensuring
that information disclosed to them is held in confidence as
required under Article V, or shall be subject to similar
obligations of confidentiality and non-use which cover the
information disclosed. In the event that Taisho is required
under any provision hereof to disclose to or provide Vertex
with data or information generated by Taisho, or at its
direction, during the Research Program, concerning a Compound,
Taisho shall provide a summary of that data and information,
in English, sufficient for Vertex to understand the general
content and significance of that data and information,
[*************************************************************
**************************************************************
**************************************************************
***********].
2.4 REDIRECTION OF RESEARCH PROGRAM. The primary focus of the
Research Program is to design Compounds having activity in the
inhibition of Caspases, for [****************]. If at any time
during the term of this Agreement, the JRC shall determine in
good faith that the Research Program or any portion thereof
cannot be successfully completed, or if so completed will not
produce a Compound that is commercially viable, or that the
goal of the Research Program has been attained prior to the
end of its [******], the JRC may suggest revision or
reorientation of the Research Program to each party's own top
management, and upon mutual consent Vertex and Taisho shall
thereafter promptly modify their respective activities in
connection with the Research Program accordingly.
Collaboration and Option Agreement - Page 5
<PAGE>
2.5 TAISHO RESEARCH. Taisho will not be obligated to conduct any
part of the Research Program, and
[*************************************************************
**************************************************************
**].
If Taisho is conducting activities under the Research Program
pursuant to the foregoing, Vertex will supply Taisho with such
amounts of bulk Compound as shall be reasonably necessary for
any small-scale preclinical activities being undertaken by
Taisho hereunder, at [**************************].
2.6 IMPROVEMENT. Taisho shall use its reasonable best efforts to
keep Vertex promptly and fully informed of any Compounds
designed or discovered by Taisho or any of its Affiliates,
sublicensees and subcontractors as a result of work under the
Research Program ("Taisho Research Compounds"), and any
improvements other than the Formulation and Use Inventions
defined in Section 6.1 hereof, made by Taisho or its
Affiliates or sublicensees relating to Compounds and Know-How
during the term of the Research Program, whether patentable or
not ("Taisho Improvements"). Upon Vertex's written request
which shall be required to be made within three (3) months
from Taisho's notification, Taisho shall
[*************************************************************
**************************************************************
**************************************************************
**************************************************************
*****].
Vertex shall use its reasonable best efforts to keep Taisho
promptly and fully informed of any Compounds designed or
discovered by Vertex or any of its Affiliates, sublicensees
and subcontractors as a result of work under the Research
Program ("Vertex Research Compound"), and any improvements
made by Vertex or any of its Affiliates, sublicensees and
subcontractors relating to Compound and Know-How during the
term of the Research Program, whether patentable or not
("Vertex Improvement"). Such Vertex Research Compound and
Vertex Improvement shall be subject to Taisho's rights under
Article IV hereof. [******************************************
**************************************************************
****************************]. Vertex will not [**************
**************************************************************
**************************************************************
***************************************].
2.7 EXCLUSIVITY. During the term of this Agreement,
[*************************************************************
**************************************************************
******************************************************]
other than under the terms of this Agreement. The foregoing
provision shall only be applicable to the research,
development, manufacture or sale of small molecule compounds,
or pharmaceutical products containing small molecule
compounds, for which Caspase inhibition is a principal mode of
therapeutic action. Notwithstanding the foregoing, this
Section 2.7 shall
Collaboration and Option Agreement - Page 6
<PAGE>
not apply to [******************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
***************************************]
ARTICLE III
PAYMENTS BY TAISHO
3.1 REIMBURSEMENT. Taisho will make reimbursement to Vertex as
follows, on the dates referenced below, of certain of Vertex's
past research costs, in recognition of Vertex's research
program in the Field having achieved certain research
milestones through the Effective Date:
1. Not more than fifteen (15) [****]
business days after the later of
the Effective Date or the date
upon which the last party hereto
executes this Agreement:
2. On the first anniversary of the [****]
------
Effective Date: TOTAL [****]
At Taisho's request Vertex will provide Taisho with documentation which
support characterization of the payments made by Taisho under this Section 3.1
as reimbursement for research expenditures made by Vertex.
3.2 RESEARCH PAYMENT. Taisho will make research payment for
Vertex's research activities under the Research Program in the
form of the following payments to Vertex.
Research Year 1. October 1, 1999 - September 30, 2000 [****]
Research Year 2. October 1, 2000 - September 30, 2001 [****]
Research Year 3. October 1, 2001 - September 30, 2002 [****]
------
TOTAL [****]
The payments referenced in this paragraph shall be made in equal
quarterly installments of [***], each of which will be due not later than
[**********] the commencement of each three (3) month period (October 1, January
1, April 1 and July 1) during the referenced Research Year. The first payment
due for the period October 1 - December 31, 1999 shall be made not more than
[****************] the later of the Effective Date or the date upon which the
last party
Collaboration and Option Agreement - Page 7
<PAGE>
hereto executes this Agreement. A "business day" for purposes of this
Agreement shall mean a day that is not a weekend day or a legal holiday in
Boston, Massachusetts or Tokyo, Japan or is customarily specified as a holiday
by Vertex or Taisho. All payments shall be made by wire transfer in United
States dollars to the credit of such bank account as may be designated by Vertex
in writing to Taisho. Any payment which falls due on a date which is not a
business day may be made on the next succeeding business day. Taisho's
obligation to make any of the foregoing payments which are due and payable on
the effective date of any termination of this Agreement pursuant to Section 8.1
hereof shall survive termination.
3.3 RESEARCH RECORDS; EXPENDITURE REPORTS. Each researcher
performing work under this Agreement, whether employed
directly by Vertex or Taisho or one of its Affiliates, or
subcontractors, shall keep and properly maintain a laboratory
notebook in which all work and experiments performed by him
are entered and kept separate and distinct from all other work
not related to this Agreement. Vertex shall provide to Taisho,
annually during the term of the Research Program, a research
expenditure report in the form attached hereto as Schedule
3.3, which shall be delivered to Taisho within ninety (90)
days following December 31 of each year of the Research
Program. The books and records of Vertex relating to such
research expenditures will be subject to inspection at all
reasonable times by Taisho with reasonable notice, for the
purpose of verifying the accuracy of the research expenditure
report referenced above. The books and records relating to a
reported research expenditure shall be retained by Vertex for
a period of not less than five (5) full fiscal years after the
year in which the research expenditure occurred.
ARTICLE IV
LICENSE AND DEVELOPMENT OPTION
Taisho has the exclusive license and development option to the
Compounds and by exercising its option may obtain an exclusive license to one or
more Licensed Compounds which Taisho is interested in developing, marketing and
selling in the Territory subject to the following terms and conditions.
(a) (i) During the course of the Research Program
[**************** ******************] Vertex will notify Taisho in writing if
and when Vertex has selected a Compound for development in the Field outside the
Territory. Taisho shall have a period of [*************************************]
(an "Option Exercise Period") after receipt of such written notice from Vertex
in which to exercise its option to obtain a license and to develop that Compound
as a Licensed Compound under the License Agreement, by written notice to Vertex.
Taisho shall use good faith efforts to decide as early as possible within the
[****] Option Exercise Period whether to exercise its option in each case, and
will communicate that decision to Vertex as soon as it is made. Taisho's option
with respect to a particular Compound shall expire if the option is not
exercised within the associated Option Exercise Period.
Collaboration and Option Agreement - Page 8
<PAGE>
(ii) If during the term of the Research Program
Vertex does not designate any Compounds for development in the Field outside the
Territory, or if there are no Compounds under development outside the Territory
on the date the Research Program terminates, then Taisho shall have an option
exercisable during the [*******] after termination of the Research Program to
obtain a license and to develop any Compound as a Licensed Compound under the
License Agreement, whether or not thereafter selected by Vertex for development
outside the Territory, upon written notice to Vertex. Vertex shall not be
obligated in such event to develop that Compound, and if it chooses not to do
so, the full cost of development of that Compound in the Territory shall be
borne by Taisho.
(b) Promptly upon exercise of any such option by notice
in writing from Taisho to Vertex, the parties shall execute a License Agreement
covering the Licensed Compound to which the option exercise was directed,
substantially identical in form and substance to the form of License Agreement
attached hereto as Exhibit A. Subsequent Licensed Compounds, if any, as to which
Taisho exercises its option shall be added to the License Agreement as
contemplated therein. Taisho will develop that Compound as a Licensed Compound
in the Territory in accordance with the terms of the License Agreement.
(c) Taisho's option rights under this Article IV shall
expire upon the later of
[****************************************************************************]
provided that, even after [*****************] and so long as the option has
previously been exercised with respect to a Licensed Compound and development or
commercialization of that Licensed Compound is proceeding in accordance with the
terms of the License Agreement, Taisho may propose to the Joint Development
Committee (the "JDC," a committee established under the License Agreement,
details of which are provided in the License Agreement), at any time during the
[*************************************************************] that the JDC
select any other Compound for development under the License Agreement from among
those Compounds that were synthesized or had shown activity as Caspase
inhibitors in the Research Program. Any Compound so proposed by Taisho and
selected by the JDC will be developed by Taisho under the License Agreement,
except that Vertex shall not be obligated in such event to develop that
Compound, and if it chooses not to do so, the full cost of development of that
Compound in the Territory shall be borne by Taisho. Without reference to the
previously mentioned [*****] limitation or provisions of Article IV (d),
[*******************************************************************************
********************************************************************************
*******************]with
respect to a Licensed Compound shall be exercisable for a period ending ninety
(90) days after the earlier of termination of the development of that Licensed
Compound or [********** *******] in the Territory with respect to that Licensed
Compound. The option shall also continue to be exercisable,
[*******************************************************************************
********************************************************************************
***********************************]
with respect to that Licensed Compound, after which it will expire. For purposes
of the foregoing: (i) a [***** ******] shall mean a Phase II Clinical Trial
which contains one or more studies aimed at yielding preliminary data on the
efficacy of a Compound in a tested indication. ; (ii) a Designated Substitute
Compound for a Licensed Compound shall be those one or more Compounds
Collaboration and Option Agreement - Page 9
<PAGE>
(presumptively one Compound, but more than one upon a demonstration that more
than one is reasonably necessary) selected by the JDC which in the opinion of
the JDC are the Compound or Compounds, if any, most likely on a scientific and
commercial basis to be selected for development as substitutes for a Licensed
Compound if development of that Licensed Compound should be terminated prior to
regulatory approval in Japan for the sale of a Drug Product containing that
Licensed Compound. If the JDC is unable to reach consensus on whether a Compound
so proposed by Taisho should be selected for development, or whether a Compound
should be substituted for a Licensed Compound the development of which has been
terminated, or which if any Compound should be selected as Designated Substitute
Compound for a Licensed Compound,
[*******************************************************************************
********************************************************************************
********************].
(d) After the expiration of the [*****] period referenced
in (c) above, and so long as Taisho is developing or commercializing a Licensed
Compound in accordance with the terms of the License Agreement, Vertex will
attempt in good faith to negotiate with Taisho the terms under which Taisho
might obtain a license, to develop and commercialize in the Territory any
Compound in the Field, before Vertex shall license or otherwise transfer rights
to that Compound in the Territory to a Third Party. Notwithstanding the
foregoing, Vertex shall not license or otherwise transfer rights to any Compound
to a Third Party without adequate provisions to ensure that those Compounds
remain subject to Taisho's option or the JDC's option of substitution referenced
in (c) above, so long as that option is exercisable with respect to those
Compounds.
(e) Upon exercise by Taisho or the JDC of the option
under Article IV to develop a Compound, Taisho will be entitled to the exclusive
right to that Compound in the Territory under the terms of the License
Agreement, which right includes [*****************
****************************************************************************].
ARTICLE V
CONFIDENTIALITY
5.1 UNDERTAKING. During the term of this Agreement, each party
shall keep confidential, and other than as provided herein
shall not use or disclose, directly or indirectly, any trade
secrets, confidential or proprietary information (including
information embodied in sample materials), or any other
knowledge, information, documents or materials, owned,
developed or possessed by the other party, whether in tangible
or intangible form, the confidentiality of which such other
party takes reasonable measures to protect, including but not
limited to Vertex Technology and Taisho Technology. Each party
shall take any and all lawful measures to prevent the
unauthorized use and disclosure of such information, and to
prevent unauthorized persons or entities from obtaining or
using such information. Each party further agrees to refrain
from directly or indirectly taking
Collaboration and Option Agreement - Page 10
<PAGE>
any action which would constitute or facilitate the
unauthorized use or disclosure of such information. Each party
may disclose such information to its directors, officers,
employees, consultants and agents, and in the case of Vertex,
to its licensees and subcontractors in the Field outside the
Territory, and in case of Taisho, to sublicensees under the
License Agreement, if any, and to subcontractors in connection
with the research, development or manufacture of Compounds, to
the extent necessary to enable such parties to perform their
obligations or exercise their rights hereunder or under the
applicable sublicense or subcontract, as the case may be;
provided, that such directors, officers, employees,
consultants, agents, licensees, sublicensees and
subcontractors have entered into appropriate confidentiality
agreements for secrecy and non-use of such information which
by their terms shall be enforceable by injunctive relief at
the instance of the disclosing party. Each party shall be
liable for any unauthorized use and disclosure of such
information by its directors, officers, consultants, employees
and agents and any such licensees, sublicensees and
subcontractors. Taisho may also provide a copy of this
Agreement to the Bank of Japan, Japan's Ministry of Finance,
Ministry of Health and Welfare, National Tax Office and other
governmental agencies, all as and only to the extent required
under applicable Japanese laws or government regulations.
5.2 EXCEPTIONS. Notwithstanding the foregoing, the provisions of
Section 5.1 hereof shall not apply to knowledge, information,
documents or materials which the receiving party can
conclusively establish: (i) have entered the public domain
without such party's breach of any obligation owed to the
disclosing party; (ii) have become known to the receiving
party prior to the disclosing party's disclosure of such
information to such receiving party; (iii) are permitted to be
disclosed by the prior written consent of the disclosing
party; (iv) have become known to the receiving party from a
source other than the disclosing party other than by breach of
an obligation of confidentiality owed to the disclosing party;
(v) are disclosed by the disclosing party to a Third Party
without restrictions on its disclosure; (vi) are independently
developed by the receiving party without breach of this
Agreement; or (vii) are required to be disclosed by the
receiving party to comply with applicable laws, to defend or
prosecute litigation or to comply with governmental
regulations, provided that the receiving party provides prior
written notice of such disclosure to the disclosing party and
takes reasonable and lawful actions to avoid or minimize the
degree of such disclosure.
5.3 PUBLICITY. The timing and content of any press releases or
other public communications relating to the Agreement and the
transactions contemplated herein will, except as otherwise
required by law, be determined jointly by Taisho and Vertex.
5.4 SURVIVAL. The provisions of this Article V shall survive the
termination of this Agreement.
Collaboration and Option Agreement - Page 11
<PAGE>
ARTICLE VI
PATENTS
6.1 PREPARATION. Vertex will be responsible for the preparation,
filing, prosecution and maintenance of any and all Patents in
the Territory included in Vertex Patents,
[*************************************************************
**************************************************************
***].
Taisho will be responsible for the preparation, filing,
prosecution and maintenance of any and all Patents in the
Territory included in the Taisho Patents
[*************************************************************
**************************************************************
******************]
including without limitation any such Patents covering
formulations
[*************************************************************
*******************].
Vertex and Taisho shall each furnish to the other party copies
of significant documents relevant to any such preparation,
filing, prosecution or maintenance. Vertex and Taisho shall
cooperate fully in the preparation, filing, prosecution and
maintenance of all Vertex Patents and Taisho Patents,
executing all papers and instruments so as to enable the
responsible party to apply for, prosecute, and to maintain
patent applications and patents in its name in any country in
the Territory. The parties acknowledge the importance of
maintaining the confidentiality of any inventions or other
information relating to potential patent claims prior to the
filing of patent applications with respect thereto. Each party
shall provide to the other prompt notice as to all matters
which may affect the preparation, filing, prosecution or
maintenance of any such patent applications or patents.
6.2 COST REIMBURSEMENT. Taisho shall reimburse Vertex for the
following direct costs with respect to Vertex Patents
[*************************************************************
*********************************************************],
for the preparation, filing, prosecution and maintenance of
Vertex Patents in the Territory. "General patent preparation
and maintenance costs" shall include the direct costs of
preparation, filing and prosecution of any patent application
contained in Vertex Patents from which a patent application
filed in any country of the Territory claims priority, and any
patent application filed under the Patent Cooperation Treaty
(PCT). Vertex shall notify Taisho in writing from time to time
of its plans with respect to the preparation, filing,
prosecution and maintenance of Vertex Patents in each country
in the Territory which are, or have not yet become, Licensed
Patents, together with Vertex's estimate of the costs of such
preparation, filing, prosecution and maintenance and an
estimate of Vertex's general patent preparation and
maintenance costs. Taisho shall reimburse Vertex for
[*************************************************************
***************************************************]. In any
event, the provisions of Section 6.3 will apply to any patent
which is the object of the
Collaboration and Option Agreement - Page 12
<PAGE>
foregoing notice from Taisho and which Vertex continues to
prosecute or maintain.
6.3 FAILURE TO REIMBURSE. If Taisho shall fail, without good
reason hereunder, to reimburse Vertex as required under
Section 6.2 above with respect to a patent application or
patent included within the Vertex Patents within sixty (60)
days after receipt of a written request for payment from
Vertex, Vertex may terminate Taisho's rights with respect to
that patent or patent application upon thirty (30) days
written notice thereof to Taisho, unless Taisho during such
30-day period shall have submitted payment pursuant to the
aforementioned request for payment.
6.4 LICENSE TO FORMULATIONS AND USE INVENTIONS. The license to the
Formulations and Use Inventions granted to Vertex under
Section 8.2 of the License Agreement shall be effective
hereunder subject to the limitations set forth in Section 8.2
of the License Agreement.
ARTICLE VII
INFRINGEMENT
Either party shall notify the other party promptly of any possible
infringements, imitations or unauthorized possession, knowledge or use of the
intellectual property embodied in any of the Vertex Technology by Third Parties
in any country in the Territory, of which it becomes aware. Either party shall
promptly furnish the other party with full details of such infringements,
imitations or unauthorized possession, knowledge or use, and shall assist in
preventing any recurrence thereof.
[*******************************************************************************
********************************************************************************
****************************].
Such suit may not be settled by Taisho without Vertex's consent, which shall not
be unreasonably withheld. Damages recovered in any actions referenced hereunder
shall be divided [*************] to Taisho and [********] to Vertex after
reimbursement to each party of their respective expenses in prosecuting such
actions as provided hereunder.
ARTICLE VIII
TERM AND TERMINATION
8.1 TERM OF AGREEMENT. This Agreement will extend until the later
of the expiration of Taisho's option rights or JDC's option
right under Article IV hereof, unless earlier terminated by
either party hereto in accordance with other applicable
provisions of this Agreement. Taisho may elect to extend the
term of the Research Program and this Agreement by written
notice given to Vertex not less than [*************] prior to
the expiration of the Research Program, upon
Collaboration and Option Agreement - Page 13
<PAGE>
terms and conditions to be negotiated in good faith and agreed
upon in writing by the parties.
8.2 TERMINATION OF RESEARCH PROGRAM BY TAISHO FOR CAUSE. Upon
written notice to Vertex, Taisho may at its sole option
terminate the Research Program and this Agreement upon the
occurrence of any of the following events:
(a) Vertex shall materially breach this Agreement, which
shall include a failure to use its reasonable best efforts to pursue the
Research Program diligently (provided, however, that this provision shall not be
construed as a guarantee by Vertex that the Research Program will be
successfully completed or any Compounds successfully developed), and such
material failure to perform shall not have been remedied or steps initiated to
remedy the same to Taisho's reasonable satisfaction, within [**********] days
after Taisho sends written notice of failure to perform to Vertex; or
(b) Vertex shall cease to function as a going concern by
suspending or discontinuing its business for any reason except for interruptions
caused by strike, labor dispute or any other events over which it has no control
(unless termination of this Agreement is permitted under Section 10.3 hereof);
or
(c) A receiver for Vertex shall be appointed or applied
for, or a general assignment shall be made for the benefit of its creditors or
any proceeding involving Vertex shall be voluntarily commenced by it under any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute of the United States or any state thereof or such
proceedings shall be involuntarily instituted against it, and Vertex by any
action shall indicate its approval of or consent to, or acquiescence therein, or
the same shall remain undismissed for [*******].
In the event of any valid termination under this Section 8.2,
Taisho shall not be required to make any payments under Section 3.2 hereof which
are not due and payable prior to receipt by Vertex of the notice of failure to
perform referenced under Section 8.2(a), receipt by Vertex of the notice of
termination pursuant to Section 8.2(b), or the occurrence of the event
referenced in Section 8.2(c), as the case may be. Notwithstanding the foregoing,
any License Agreement then in effect under the provisions of Article IV of this
Agreement shall continue in effect in accordance with its terms.
8.3 TERMINATION BY VERTEX FOR CAUSE. In addition to rights of
termination which may be granted to Vertex under other
provisions of this Agreement, upon written notice to Taisho,
Vertex may at its sole option terminate this Agreement upon
the occurrence of any of the following events:
(a) Taisho shall materially breach this Agreement, and
such material failure to perform shall not have been remedied or steps initiated
to remedy the same to Vertex's reasonable satisfaction, within [**************]
after Vertex sends written notice of failure to perform to Taisho; or
Collaboration and Option Agreement - Page 14
<PAGE>
(b) Taisho shall cease to function as a going concern by
suspending or discontinuing its business for any reason except for interruptions
caused by strike, labor dispute or any other events over which it has no control
(unless termination of this Agreement is permitted under Section 10.3 hereof);
or
(c) A receiver for Taisho shall be appointed or applied
for, or a general assignment shall be made for the benefit of its creditors or
any proceeding involving Taisho shall be voluntarily commenced by it under any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law of Japan or such proceedings shall be involuntarily instituted
against it, and Taisho by any action shall indicate its approval of or consent
to, or acquiescence therein, or the same shall remain undismissed for
[************].
8.4 TERMINATION. If the parties shall determine in good faith (as
evidenced by a writing signed by each party), that there is no
further scientific basis to pursue research and development of
Compounds in the Field, and if either party shall propose, in
writing, to the JRC and the other party that the parties
consider redirection of the Research Program under Section 2.4
of this Agreement, and if within [*******] after such proposal
is received by the other party and the JRC, the Research
Program has not been redirected, then either party may
terminate this Agreement on [************] written notice to
the other party. On or after the effective date of any such
termination no further payments shall become due and payable
hereunder by one party to the other, except pursuant to
obligations which have accrued hereunder prior to the
effective date of such termination.
8.5 EFFECT OF TERMINATION OR EXPIRATION. Termination of this
Agreement for any reason, or expiration of this Agreement,
will not affect: (i) obligations which have accrued as of the
date of termination or expiration, and (ii) obligations and
rights under the following provisions, which shall survive
termination or expiration of this Agreement: the last sentence
of both Sections 3.2 and 3.3; Articles IV(d), V and IX.
ARTICLE IX
DISPUTE RESOLUTION
9.1 GOVERNING LAW, AND JURISDICTION. This Agreement shall be
governed and construed in accordance with the
[********************************]. Both parties agree that
any legal proceedings between the parties relating to this
Agreement other than a proceeding to which Section 9.2 is
applicable, shall be brought in the state or prefecture of the
principal office of the defendant party; provided that a
proceeding to enforce an arbitration award may be brought in
the state or prefecture of the plaintiff's principal office,
and each party agrees to submit to personal jurisdiction and
to accept venue in the courts of such state or prefecture
solely for the purpose of enforcement of any such award.
Collaboration and Option Agreement - Page 15
<PAGE>
9.2 ARBITRATION. In the event of any controversy or claim arising
out of or relating to any provision of this Agreement or the
breach thereof, the parties shall try to settle their
differences amicably between themselves. Any such controversy
or claim which the parties are unable to resolve shall, upon
the written request for arbitration of one party delivered to
the Secretariat of the International Court of Arbitration (the
"Court"), be submitted to and be settled by arbitration
[*************************************************************
*************************************************************]
in accordance with the Rules of Arbitration of the
International Chamber of Commerce (the "Rules") then in effect
(except as hereinafter stated), and enforcement of the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof and shall be final and conclusive upon
both parties hereto. Notwithstanding anything to the contrary
which may be contained in the Rules of the Court, the parties
further agree as follows:
(i) [*************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
********************].
(ii) The arbitrators will consider the nature of the dispute, the
availability of information upon which resolution of the
dispute may be fairly based, and in view of those
considerations and such other facts and circumstances as they
may deem appropriate, shall determine the application of
discovery and, if decided it is applied, shall determine the
nature, scope and timing of any discovery which will be
permitted to the parties to any proceeding hereunder, and that
determination of the arbitrators shall be binding on such
parties. The costs of arbitration to each party will be
determined in accordance with Articles 30 and 31 of the Rules.
(iii) The arbitrators shall state the reasons upon which any award
is based. The arbitrators shall not be authorized to award
punitive damages to either party.
(iv) Upon receipt of the arbitrator's statement, either party will
have the right, within [***********] thereof, to apply to the
Secretariat for a correction and/or an interpretation of the
award, and the arbitrators thereupon will reconsider the
issues raised by said application and either confirm or alter
their decision, which will then be final and conclusive upon
both parties hereto.
Collaboration and Option Agreement - Page 16
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 OFFICIAL LANGUAGE. English shall be the official language of
this Agreement and the License Agreement, and all
communications between the parties hereto shall be conducted
in that language.
10.2 WAIVER. Any waiver by either party of the breach of any term
or condition of this Agreement will not be considered as a
waiver of any subsequent breach of the same or any other term
or condition hereof.
10.3 FORCE MAJEURE. Neither party will be in breach hereof by
reason of its delay in the performance of, or failure to
perform any of its obligations hereunder, if that delay or
failure is caused by strikes, acts of God or the public enemy,
riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for
materials, or any fault beyond its control or without its
fault or negligence. In the event that any delay or failure to
perform by Vertex by reason of force majeure shall extend
[*************] Taisho may suspend any payment which would
otherwise become due and payable to Vertex during
[*************************************************************
**************************************************************
**************************************************************
**************************************************************
************************************************************].
10.4 SEVERABILITY. Should one or more provisions of this Agreement
be or become invalid, then the parties hereto shall attempt in
good faith to agree upon valid provisions in substitution for
the invalid provisions, which in their economic effect come so
close to the invalid provisions that it can be reasonably
assumed that the parties would have accepted this Agreement
with those new provisions. If the parties are unable to agree
on such valid provisions, the invalidity of such one or more
provisions of this Agreement shall nevertheless not affect the
validity of this Agreement as a whole.
10.5 GOVERNMENT ACTS. In the event that any act, regulation,
directive, or law of a government within the Territory,
including its departments, agencies or courts, should make
impossible or prohibit, restrain, modify or limit any material
act or obligation of Taisho or Vertex under this Agreement,
the party, if any, not so affected, shall have the right, at
its option, to suspend or terminate this Agreement as to such
country, if good faith negotiations between the parties to
make such modifications herein as may be necessary to fairly
address the impact thereof, are not successful after a
reasonable period of time in producing mutually acceptable
modifications to this Agreement.
10.6 GOVERNMENT APPROVALS. Taisho or its sublicensees will, if
necessary, obtain any government approval required in the
Territory to enable this Agreement to become effective, or to
enable any payment hereunder to be made, or any other
Collaboration and Option Agreement - Page 17
<PAGE>
obligation hereunder to be observed or performed. Taisho will
keep Vertex informed of progress in obtaining any such
government approval, and Vertex will cooperate with Taisho in
any such efforts.
10.7 EXPORT CONTROLS. This Agreement is made subject to any
restrictions concerning the export of Compounds or Vertex
Technology from the United States which may be imposed upon or
related to either party to this Agreement from time to time by
the Government of the United States. Furthermore, Taisho will
not export, directly or indirectly, any Vertex Technology or
any Compounds utilizing such Technology to any countries for
which the United States Government or any agency thereof at
the time of export requires an export license or other
governmental approval, without first obtaining the written
consent to do so (of which Taisho will promptly inform Vertex)
from the Department of Commerce or other agency of the United
States Government when required by applicable statute or
regulation. As of the date hereof Vertex warrants that current
US export control regulations do not prohibit the disclosure
or delivery to Taisho of information, data, compounds, or
other materials required to be provided by Vertex to Taisho
hereunder, and if such regulations should become applicable,
Vertex will forthwith notify Taisho.
10.8 NO WARRANTY. Vertex makes no warranty of any kind whatsoever,
either express or implied, to Taisho, or any customer of
Taisho, as to the ability of Taisho to understand and utilize
the Vertex Technology. Taisho makes no warranty of any kind
whatsoever, either express or implied, to Vertex, or to any
customer of Vertex, as to the ability of Vertex to understand
and utilize the Taisho Technology.
[****************************************************
**************************************************************
**************************************************************
**********].
Should a party becomes aware of any unexpected serious adverse
reactions to any Compounds, Licensed Compounds or Drug
Products administered to humans or animals, the party shall
promptly notify the other and/or make a report to the U.S.
Food and Drug Administration ("FDA") or the Japanese Ministry
of Health and Welfare as required by applicable governmental
regulations.
10.9 THIRD PARTY ACTIONS. (a) To Vertex's knowledge
[*************************************************************
**************************************************************
*****************].
Nevertheless, each party will promptly notify the other in the
event any relevant Third Party patents come to its notice.
Neither party gives a warranty to the other regarding the
infringement of Third Party rights by the development,
manufacture, use or sale of the Licensed Compounds or the
practice of the Vertex Technology or the Taisho Technology,
and gives no indemnity against costs, damages, expenses or
other losses arising out of proceedings brought against the
other party or any other Person by any Third Party.
Collaboration and Option Agreement - Page 18
<PAGE>
(b) In the event that the development of a Compound in any country
necessarily involves working within the scope of a Third Party's patent, which
would otherwise be infringed by the practice of a Vertex Patent in connection
with such development, then [***************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
***].
If the terms of a required license under a Third Party patent do not meet the
foregoing requirements and Vertex therefore elects not to assume its share of
any financial obligation, [***************************************
**************************************************************************]. If
the required license is either unavailable or its terms are unacceptable both to
Vertex and to Taisho, then Taisho may elect in its sole discretion to
discontinue sales of the Drug Product in such country or at its sole expense to
undertake the defense of a patent infringement action or the prosecution of a
declaratory judgment action with respect to the Third Party patents.
(c) In the event Taisho is sued for infringement of any rights of any
Third Party in the course of its development of the Compounds or its use of
Vertex Technology in connection therewith, Vertex shall extend to Taisho good
faith assistance and support in defending such action, and may participate in
the conduct of, and in discussions regarding strategic and business responses
to, the suit. Damages and out-of-pocket legal fees and expenses (including legal
fees and expenses of Taisho and Vertex) arising from such a legal action shall
be borne [**********************************************************************
********************************************************************************
*************].
10.10 TAX.[*********************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
******************].
10.11 ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either party without the prior written consent
of the other party; PROVIDED, HOWEVER, that either party may
assign this Agreement, WITHOUT the consent of the other party,
(i) to any of its Affiliates, if the assigning party
guarantees the full performance of its Affiliates' obligations
hereunder, or (ii) in connection with the transfer or sale of
all or substantially all of its assets or business or in the
event of its merger or consolidation with another Person. Any
purported assignment in contravention of this section shall,
at the option of the nonassigning party, be null and void and
of no effect. No assignment shall release either party from
responsibility for the performance of any accrued obligations
of such party hereunder.
Collaboration and Option Agreement - Page 19
<PAGE>
10.12 COUNTERPARTS. This Agreement may be executed in duplicate,
each of which shall be deemed to be original and both of which
shall constitute one and the same Agreement.
10.13 NO AGENCY. Nothing in this Agreement shall be deemed to create
an agency, joint venture, amalgamation, partnership or similar
relationship between Vertex and Taisho. Notwithstanding any of
the provisions of this Agreement, neither party to this
Agreement shall at any time enter into, incur, or hold itself
out to Third Parties as having authority to enter into or
incur, on behalf of the other party, any commitment, expense,
or liability whatsoever, and all contracts, expenses and
liabilities in connection with or relating to the obligations
of each party under this Agreement shall be made, paid, and
undertaken exclusively by such party on its own behalf and not
as an agent or representative of the other.
10.14 NOTICE. All communications between the parties with respect to
any of the provisions of this Agreement will be sent to the
addresses set out below or to other addresses as may be
designated by one party to the other by notice pursuant
hereto, by prepaid certified air mail (which shall be deemed
received by the other party on the seventh business day
following deposit in the mails), or by facsimile transmission
or other electronic means of communication (which shall be
deemed received when transmitted), with confirmation by first
class letter, postage pre-paid, given by the close of business
on or before the next following business day:
if to Taisho, at: Taisho Pharmaceutical Co., Ltd.
24-1, Takata 3-Chome
Toshimaku, Tokyo, 170-8633, Japan
Attention: General Manager, Licensing
Division
with a copy to:
General Manager, Legal Division
if to Vertex, at: 130 Waverly Street
Cambridge, MA 02139-4242
Attention: Richard H. Aldrich
Senior Vice President and Chief Business
Officer
cc: Corporate Counsel
with a copy to:
Kirkpatrick & Lockhart LLP
75 State Street
Boston, MA 02109
Attention: Kenneth S. Boger, Esquire
Fax: 617-951-9151
10.15 HEADINGS. The paragraph headings are for convenience only and
will not be deemed to affect in any way the language of the
provisions to which they refer.
Collaboration and Option Agreement - Page 20
<PAGE>
10.16 AUTHORITY. The undersigned represent that they are authorized
to sign this Agreement on behalf of the parties hereto. The
parties each represent that no provision of this Agreement
will violate any other agreement that a party may have with
any Third Party. Each party has relied on that representation
in entering into this Agreement.
10.17 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties relating to the matters referred
to herein, and may only be amended by a written document, duly
executed on behalf of the respective parties.
Collaboration and Option Agreement - Page 21
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
By:
---------------------------------------
Title:
-------------------------------------
Date of Signature:
--------------------------
TAISHO PHARMACEUTICAL CO., LTD.
By:
-----------------------------------------
Akira Uehara
Title: PRESIDENT
-------------------------------------
Date of Signature:
-------------------------
Collaboration and Option Agreement - Page 22
<PAGE>
SCHEDULE 1.4
- --------------------------------------------------------------------------------
[*****************************************************************************
********************************************************************************
********************************************************************************
*************************************************************************]
CONFIDENTIAL- DRAFT- Collaboration & Option Agreement- Page 1
<PAGE>
SCHEDULE 1.12
LIST OF VERTEX PATENTS
- --------------------------------------------------------------------------------
[*******************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************]
Research Agreement & License Option- Page ii
<PAGE>
SCHEDULE 1.13
LIST OF TAISHO PATENTS
- --------------------------------------------------------------------------------
NONE
<PAGE>
SCHEDULE 1.19
SUMMARY OF RESEARCH ACTIVITIES
- --------------------------------------------------------------------------------
[*******************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*********************************************************]
<PAGE>
SCHEDULE 1.20
COUNTRIES IN THE TERRITORY
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SCHEDULE 2.2
INITIAL MEMBERS OF JOINT RESEARCH COMMITTEE
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SCHEDULE 3.3
ANNUAL REPORT OF RESEARCH EXPENDITURES
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VERTEX/TAISHO CASPASE PROGRAM
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<PAGE>
EXHIBIT A TO COLLABORATION AND OPTION AGREEMENT
License and Development Agreement
BETWEEN
Vertex Pharmaceuticals Incorporated
AND
Taisho Pharmaceutical Co., Ltd
November 30, 1999
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License and Development Agreement - Page 1
TABLE OF CONTENTS Page
<S> <C>
Introduction....................................................................................1
ARTICLE I -- Definitions........................................................................1
ARTICLE II -- Rights and Licenses...............................................................5
2.1 TAISHO RIGHTS..........................................................................5
2.1.1 EXCLUSIVE LICENSE...............................................................5
2.1.2 [**************]................................................................5
2.2 IMPROVEMENT............................................................................6
2.3 EXCLUSIVITY............................................................................6
ARTICLE III -- Development......................................................................7
3.1 JOINT DEVELOPMENT COMMITTEE............................................................7
3.2 CORE DEVELOPMENT ACTIVITIES............................................................8
3.3 DEVELOPMENT ACTIVITIES EXCLUSIVELY FOR THE TERRITORY...................................8
3.4 DEVELOPMENT ACTIVITIES IN [****************************]...............................9
3.5 INFORMATION TRANSFER...................................................................9
3.6 BULK SUPPLY FOR DEVELOPMENT............................................................9
3.7 REGULATORY APPROVALS...................................................................9
3.8 DUE DILIGENCE.........................................................................10
ARTICLE IV -- Milestone Payments...............................................................10
ARTICLE V -- Supply Licensed Compound..........................................................11
5.1 SUPPLY................................................................................11
5.2 SUPPLY PRICE..........................................................................12
5.3 FORECASTS AND ADJUSTMENTS.............................................................12
5.4 SUPPLY AGREEMENT......................................................................13
5.5 PRICE REVISION........................................................................13
5.6 UNPATENTED PRODUCT....................................................................13
5.7 TAXES.................................................................................13
5.8 CO-LABELING...........................................................................13
ARTICLE VI -- Reporting........................................................................14
6.1 DEVELOPMENT REPORTS...................................................................14
6.2 SALES REPORTS AND RECORDS.............................................................14
6.3 PAYMENT DELAY.........................................................................14
License and Development Agreement - Page ii
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<TABLE>
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Table Of Contents (con't)Page
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ARTICLE VII -- Confidentiality.................................................................14
7.1 UNDERTAKING...........................................................................14
7.2 EXCEPTIONS............................................................................15
7.3 PUBLICITY.............................................................................15
7.4 SURVIVAL..............................................................................15
ARTICLE VIII -- Patents........................................................................15
8.1 PREPARATION...........................................................................15
8.2 LICENSE TO FORMULATION AND USE INVENTIONS.............................................16
8.3 COST REIMBURSEMENT....................................................................16
8.4 FAILURE TO REIMBURSE..................................................................17
8.5 COST REIMBURSEMENT FOR THE PATENTS COVERING THE FORMULATION AND USE
INVENTIONS............................................................................17
ARTICLE IX --Infringement......................................................................17
ARTICLE X -- Term and Termination..............................................................18
10.1 TERM..................................................................................18
10.2 TERMINATION OF RESEARCH PROGRAM BY TAISHO FOR CAUSE...................................18
10.3 TERMINATION BY VERTEX FOR CAUSE.......................................................19
10.4 TERMINATION...........................................................................19
10.5 EFFECT OF TERMINATION AND EXPIRATION..................................................19
ARTICLE XI -- Dispute Resolution...............................................................20
11.1 GOVERNING LAW, AND JURISDICTION.......................................................20
11.2 ARBITRATION...........................................................................20
ARTICLE XII -- Miscellaneous Provisions........................................................21
12.1 NO WARRANTY...........................................................................21
12.2 THIRD PARTY ACTIONS...................................................................21
12.3 OFFICIAL LANGUAGE.....................................................................22
12.4 TAX...................................................................................22
12.5 WAIVER................................................................................23
12.6 FORCE MAJEURE.........................................................................23
12.7 SEVERABILITY..........................................................................23
12.8 GOVERNMENT ACTS.......................................................................23
</TABLE>
License and Development Agreement - Page iii
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12.9 GOVERNMENT APPROVALS..................................................................23
12.10 EXPORT CONTROLS.......................................................................23
12.11 ASSIGNMENT............................................................................24
12.12 COUNTERPARTS..........................................................................24
12.13 NO AGENCY.............................................................................24
12.14 NOTICE................................................................................24
12.15 HEADINGS..............................................................................25
12.16 AUTHORITY.............................................................................25
12.17 ENTIRE AGREEMENT......................................................................25
</TABLE>
License and Development Agreement - Page iii
SCHEDULE 1.9 -- LICENSED COMPOUNDs
<PAGE>
LICENSE AND DEVELOPMENT AGREEMENT
This Agreement is made and entered into as of ________________ between
VERTEX PHARMACEUTICALS INCORPORATED, a corporation duly organized and existing
under the laws of the Commonwealth of Massachusetts with its principal place of
business at 130 Waverly Street, Cambridge, Massachusetts 02139-4242, U.S.A.
(hereinafter "Vertex"), and TAISHO PHARMACEUTICAL CO., LTD., a corporation duly
organized and existing under the laws of Japan with its principal place of
business at 24-1, Takata 3-Chome, Toshima-ku, Tokyo 170-8633, Japan (hereinafter
"Taisho").
INTRODUCTION
WHEREAS, Vertex and Taisho are parties to the Collaboration Agreement
(as defined below) under which Vertex is engaged in the design and discovery of
certain novel small molecule inhibitors of caspases, with the financial and
technical assistance of Taisho; and
WHEREAS, Taisho has exercised its option under the Collaboration
Agreement to develop and commercialize one or more Licensed Compounds in the
Territory.
NOW THEREFORE, in consideration of the foregoing premises, the parties
agree as follows:
ARTICLE I
DEFINITIONS
1.1. "AFFILIATE" shall mean, with respect to any Person, any other
Person which directly or indirectly, by itself or through one
or more intermediaries, controls, is controlled by or is under
direct or indirect common control with, such Person. The term
"control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Control will be presumed
if one Person owns, either of record or beneficially, fifty
percent (50%) or more of the voting stock of any other Person.
1.2. "COLLABORATION AGREEMENT" shall mean that certain
Collaboration and Option Agreement dated November 30, 1999 by
and between Vertex and Taisho.
1.3. "CORE DEVELOPMENT PLAN," "CORE DEVELOPMENT ACTIVITIES" and
"CORE DEVELOPMENT COSTS" shall have the meanings ascribed to
them in Section 3.1 hereof.
1.4. "DEVELOPMENT PROGRAM" shall mean activities associated with
development of Licensed Compounds for sale as Drug Products in
the Territory, including but not limited to (a) formulation of
Licensed Compounds for use in preparation for
License and Development Agreement - Page 1
<PAGE>
preclinical studies; (b) preclinical animal studies performed
in accordance with "Good Laboratory Practices" (or the
applicable equivalent) in preparation for the filing of an
Investigational New Drug Application (or the applicable
equivalent); (c) formulation and manufacture of Licensed
Compounds for preclinical and clinical studies; (d) planning,
implementation, evaluation and administration of human
clinical trials; (e) manufacturing process development and
scale-up for the manufacture of bulk Licensed Compound and
Drug Product; (f) preparation and submission of applications
for regulatory approval; and (g) post-market surveillance of
approved drug indications, as required or agreed as part of a
marketing approval by any governmental regulatory authority.
1.5. "DRUG PRODUCT" shall mean a product prepared from bulk
Licensed Compound in finished dosage form ready for
administration to the ultimate consumer as a
pharmaceutical.
1.6. "COMMENCEMENT DATE" shall mean, with respect to the
application of this Agreement to a Licensed Compound, the date
on which Taisho exercises its option under Article IV of the
Collaboration Agreement with respect to that Licensed
Compound.
1.7. "CASPASES" are[***********************************************
*************************************************************
**************************************************].
1.8. "FIELD" shall mean the treatment or prevention of diseases in
humans using pharmaceutical products which inhibit one or more
Caspases.
1.9. "LICENSED COMPOUNDS" shall mean any Compounds as to which the
option rights granted under Article IV of the Collaboration
Agreement have been exercised in accordance therewith by
Taisho as identified on Schedule 1.9 hereto, as Schedule 1.9
may be updated from time to time by reason of the subsequent
exercise by Taisho or the JDC of such option rights with
respect to additional Compounds. "Compounds" shall have the
meaning ascribed to it in the Collaboration Agreement, and the
"JDC" shall have the meaning ascribed to it in Section 3.1
hereof.
1.10. "LICENSED PATENTS" shall mean any Vertex Patents which become
the subject of Taisho's rights under Article II of this
Agreement upon exercise of its license and development option
or selection by the JDC in accordance with the provisions of
Article IV of the Collaboration Agreement.
1.11. "PATENTS" shall mean all existing patents and patent
applications and all patent applications hereafter filed,
including any continuations, continuations-in-part,
divisionals, provisionals or any substitute applications, any
patent issued with respect to any such patent applications,
any reissue reexamination, renewal or extension (including any
supplemental patent certificate) of any such patent, and
License and Development Agreement - Page 2
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any confirmation patent or registration patent or patent of
addition based on any such patent, and all foreign
counterparts of any of the foregoing.
1.12. "VERTEX PATENTS" shall mean any Patents Controlled by Vertex
(or any of its Affiliates) claiming (i) a Compound or a method
of using a Compound (a "method of using" being deemed to
refer, here and hereafter in this Agreement, to a use patent),
or (ii) a method of formulating, manufacturing, process
development or packaging related to a Compound or (iii) an
improvement to the subject matter of a Patent covering a
Compound or a method of using a Compound or a method of
manufacturing, process development or packaging related to a
Compound. A list of Vertex Patents is appended hereto as
Schedule 1.12 and will be updated periodically to reflect
additions thereto during the course of this Agreement.
1.13. "TAISHO PATENTS" shall mean any Patents Controlled by Taisho
(or any of its Affiliates) excluding patent applications or
patents which Taisho has assigned to Vertex under Section 2.6
of the Collaboration Agreement, claiming (i) a Compound or a
method of using a Compound or (ii) a method of formulating,
manufacturing, process development or packaging related to a
Compound or (iii) an improvement to the subject matter of a
Patent covering a Compound or a method of using a Compound or
a method of manufacturing, process development or packaging
related to a Compound. A list of Taisho Patents is appended
hereto as Schedule 1.13 and will be updated periodically to
reflect additions thereto during the course of this Agreement.
1.14. "KNOW-HOW" shall mean all proprietary and confidential
material and information including data, technical
information, know-how, experience, inventions, discoveries,
trade secrets, compositions of matter and methods, whether
currently existing or developed or obtained during the course
of this Agreement, and whether or not patentable, that are
controlled by a party hereto or its Affiliates and that relate
to the development, utilization, manufacture or use of any
Compound, including but not limited to processes, techniques,
methods, products, materials and compositions.
1.15. "VERTEX KNOW-HOW" shall mean all Know-How of Vertex.
1.16. "TAISHO KNOW-HOW" shall mean all Know-How of Taisho.
1.17. "VERTEX TECHNOLOGY" shall mean all Vertex Patents and Vertex
Know-How.
1.18. "TAISHO TECHNOLOGY" shall mean all Taisho Patents and Taisho
Know-How.
1.19. "NET SALES" shall mean, with respect to a Drug Product, the
gross amount invoiced by Taisho and any Taisho Affiliate,
sublicensee or marketing partner to Third Party customers for
the Drug Product, less:
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License and Development Agreement - Page 3
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1.20. "RESEARCH PROGRAM" shall have the meaning ascribed to it in
the Collaboration Agreement.
1.21. "PERSON" shall mean any individual, corporation, partnership,
association, limited liability company, trust, unincorporated
organization or government or political subdivision thereof.
1.22. "PHASE II CLINICAL TRIALS" shall mean human clinical trials
conducted for inclusion in (i) that portion of the FDA
submission and approval process which provides for trials of a
Drug Product on a limited number of patients for the purposes
of collecting data on dosage, evaluating safety and collecting
preliminary information regarding efficacy in the proposed
therapeutic indication, as more fully defined in 21 C.F.R.
Section 312.21(b), and (ii) equivalent submissions with
similar requirements in other countries in the Territory.
1.23. "PHASE III CLINICAL TRIALS" shall mean human clinical trials
conducted for inclusion in (i) that portion of the FDA
submission and approval process which provides for the
continued trials of a Drug Product on sufficient numbers of
patients to generate safety and efficacy data to support
Regulatory Approval in the proposed therapeutic indication, as
more fully defined in 21 C.F.R. Section 312.21(c), and (ii)
equivalent submissions with similar requirements in other
countries in the Territory.
1.24. "REGULATORY APPROVAL" shall mean, with respect to a country in
the Territory, all authorizations by the appropriate
governmental entity or entities necessary for commercial sale
of a Drug Product in that country including, without
limitation and where applicable, approval of labeling, price,
reimbursement and manufacturing.
1.25. "THIRD PARTY" shall mean any Person other than Vertex, Taisho
or their respective Affiliates or sublicensees of rights
conveyed under this Agreement.
1.26. "LIVE CLAIM" shall mean a claim of any issued, unexpired
Patent which shall not have been withdrawn, canceled or
disclaimed, nor held invalid or unenforceable by a court of
competent jurisdiction in an unappealed or unappealable
decision.
License and Development Agreement - Page 4
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1.27. "GMP" shall mean the current Good Manufacturing Practice
regulations promulgated by the FDA, published at 21 CFR Part
210 et seq., as such regulations may be amended, and such
equivalent foreign regulations or standards as may be
applicable with respect to bulk Licensed Compound or Drug
Product(s) manufactured or sold outside the United States.
1.28. "FIRST COMMERCIAL SALE" shall mean the first shipment of a
Drug Product to a Third Party by Taisho or an Affiliate or
sublicensee of Taisho in a country in the Territory following
applicable Regulatory Approval of the Drug Product in such
country.
1.29. "TERRITORY" shall mean those countries listed in Schedule 1.29
hereof.
ARTICLE II
RIGHTS AND LICENSES
2.1. TAISHO RIGHTS.
2.1.1. EXCLUSIVE LICENSE. Subject to the other provisions of this
Agreement (including the rights of Vertex under Articles III
and V hereof), Vertex grants to Taisho an -----------------
exclusive license, with the right to sublicense, under the
Vertex Technology to develop, use, sell, have sold, export
(within the Territory) and import the Licensed Compounds and
to develop, make, have made, use, market, sell, have sold,
export (within the Territory) and import for sale Drug
Products in each country in the Territory, except in
[******************]. Vertex hereby grants to Taisho a
semi-exclusive license (exclusive except as to Vertex or
Vertex's other permitted licensees hereunder) under the Vertex
Technology in [**********************] as set forth in Section
2.1.2 below. The foregoing licenses shall not extend to the
sale of Licensed Compounds in bulk form for purposes other
than manufacturing Drug Product. Taisho shall have the right
to grant sublicenses as stated above in each country in the
Territory, under terms not inconsistent with this Agreement,
and subject in each case to prior written notification to
Vertex. Any such sublicense shall be entered into by Taisho
and the sublicensee on an arms-length basis. In the event the
sublicensee breaches the sublicense, Taisho shall promptly
take all reasonable steps to enforce the same. In the event of
a continuing breach Taisho shall, if so requested by Vertex,
terminate that sublicense in accordance with the procedures
prescribed therein.
2.1.2. [**********]. Vertex and Taisho shall have semi-exclusive
rights in [*********************] under the Vertex Technology
to develop, make, have made, use, market and sell, have sold,
export (within the Territory) and import for sale Drug
Products. Vertex and Taisho each may further license its
semi-exclusive rights in [****************], to not more than
one licensee (in the case of Taisho, such license being a
sublicense subject to the terms and conditions
License and Development Agreement - Page 5
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of this Agreement governing sublicensees). Either party shall
notify the other party of its grant of any such license in
advance, together with the name and address of any such
licensee.
2.2. IMPROVEMENTS. Taisho shall use its reasonable best efforts to
keep Vertex promptly and fully informed of any improvements
(other than improvements made solely by Taisho which are
Formulation and Use Inventions under Section 8.1 hereof)
relating to Licensed Compounds, made by Taisho or its
Affiliates or sublicensees during the term of the Development
Program, whether those improvements are patentable or not
("Taisho Improvements"). Upon Vertex's written request which
shall be required to be made within three (3) months from
Taisho's notification, Taisho shall
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Vertex shall use its reasonable best efforts to keep Taisho
promptly and fully informed of any improvement relating to
Licensed Compounds, made by Vertex or any of its Affiliates,
sublicensees and subcontractors as a result of activities
hereunder, and such improvement shall be included in the
Vertex Technology and shall be subject to Taisho's rights
under Section 2.1 hereof. [****
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**********]. Vertex will not
[************************************************************
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*******************].
2.3. EXCLUSIVITY. During the period ending
[************************************************************
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**************] other than under the terms of this Agreement.
[************************************************************
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******]. The foregoing provisions shall only be applicable to
small molecule compounds, or pharmaceutical products
containing small molecule compounds, for which Caspase
inhibition is a principal mode of therapeutic action, and
[******************
******************************************************]. If
this Agreement is validly terminated by Vertex under Section
10.3 hereof, then Taisho and its Affiliates will refrain from
any of the foregoing activity for a period of [*******] after
such termination.
License and Development Agreement - Page 6
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ARTICLE III
DEVELOPMENT
3.1. JOINT DEVELOPMENT COMMITTEE. As soon as practicable after the
Commencement Date with respect to a Licensed Compound, Vertex
and Taisho shall establish a Joint Development Committee (the
"JDC") comprised of an equal number of representatives. The
JDC shall coordinate the development efforts of both parties
with respect to development of a Licensed Compound, will
review the Core Development Plan submitted by Vertex as
specified below, and will review and approve the Taisho
Development Plan. When appropriate, Vertex and Taisho will
seek to form a committee or other group, with members
representing each party, to coordinate the development
activities, worldwide, being conducted with respect to
Licensed Compounds by Vertex, Taisho and any of its or their
Affiliates, licensees or sublicensees. The JDC shall operate
by consensus and in accordance with agreed joint resolutions,
but in the event of disagreement which cannot be resolved by
discussions among the parties, decisions shall be made as
follows:
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3.2. CORE DEVELOPMENT ACTIVITIES. Vertex and/or its licensees, if
any, will be undertaking development activities, including
preclinical and clinical studies and process development,
which Vertex deems necessary or appropriate in order to
obtain Regulatory Approval for the sale of Drug Products
outside the Territory from the U.S. FDA and the EMEA of
the European Union (the "Core Development Activities").
Vertex expects the Core Development Activities will be
undertaken applying standards which will allow the
results of those activities to be used by Taisho in its
regulatory filings in the Territory. If drug development
standards and practices in the Territory are substantially at
variance with usual and customary practices in the United
States or the European Union in connection with Core
Development Activities proposed to be conducted by Vertex,
Taisho shall so inform Vertex on a timely basis. Vertex shall
create a development plan for Core Development Activities with
respect to Licensed Compounds (the "Core
License and Development Agreement - Page 7
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Development Plan"), which shall be provided to the JDC and
Taisho in advance for its review and comment. **
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3.3. DEVELOPMENT ACTIVITIES EXCLUSIVELY FOR THE TERRITORY. Taisho
and/or its sublicensees, if any, will be responsible for and,
except as otherwise provided below with ** respect to
development activities by Vertex in [********************],
shall bear the cost of the Development Program for Licensed
Compound(s) in the Territory. The Taisho Development Program
shall be conducted in accordance with a development plan (the
"Taisho Development Plan") provided in advance to and reviewed
and approved by the JDC. The Taisho Development Plan shall
include, without limitation, the design and conduct of all
preclinical and clinical studies required to obtain regulatory
approval for Drug Products in the Territory that are not
otherwise required as part of the Core Development Plan
outside the Territory. The Taisho Development Plan may provide
for the conduct of development activities in countries outside
the Territory, as may be reasonably necessary or appropriate
in connection with Regulatory Approval in the Territory, so
long as those activities have been coordinated and are
consistent with the Core Development Plan and have been
approved by the JDC.[****************************************
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*].
3.4. DEVELOPMENT ACTIVITIES IN [**************]. Vertex and Taisho
will attempt to coordinate their respective development
activities in [***] but shall have the right to pursue
development of Licensed Compounds independently [*********] if
effective coordination is not achieved. Absent any agreement
to the contrary, each party will bear the cost of its own
activities which are undertaken exclusively for Regulatory
Approval in [*****]. Either party shall be free to use any
data and information generated by the other party and its
sublicensees, as permitted by law,
License and Development Agreement - Page 8
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in connection with development activities in the Field for
Licensed Compounds [******] for the purpose of developing
Licensed Compounds in their respective territory.
3.5. INFORMATION TRANSFER. Vertex shall deliver to Taisho all
information (including raw data from clinical studies of
Licensed Compounds conducted by Vertex and its other licensees
outside the Territory) which is necessary or useful for
further development of the Licensed Compound, and for
manufacture, commercial exploitation and distribution of the
Drug Product in the Territory, to the extent that such
information is not subject to restrictions imposed by a Third
Party on disclosure to or use by the other party. Such
information shall include a summary of all material written
communications (copies of which Vertex will provide to Taisho
at Taisho's request and expense) between Vertex or (to the
extent available to Vertex) its other licensees and the U.S.
FDA concerning Licensed Compounds. This information shall also
include copies of all patents, patent applications,
copyrights, copyright registrations and applications therefor
and all other manifestations of the intellectual property
embodied in the Licensed Compounds, whether in human or
machine readable form.
3.6. BULK SUPPLY FOR DEVELOPMENT. Vertex will provide Taisho with
bulk Licensed Compound for development in the Territory,
[******************************]. For purposes hereof
[************************************************************
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*************************].
3.7. REGULATORY APPROVALS. Taisho will be responsible for all
required Regulatory Approvals in the Territory, including all
interaction with Koseisho (Ministry of Health and Welfare) in
Japan. All filings with Koseisho will be made by Taisho and
approvals will be held in the name of Taisho. Taisho will keep
Vertex informed about the substance of all material written
communication between Taisho and Koseisho (copies of which
communications Taisho will provide to Vertex at Vertex's
request and expense) and may at Vertex's request attend
meetings between Taisho and Koseisho representatives. Taisho
shall have the right to cross-reference information and
regulatory filings arising out of development work which has
been conducted by Vertex and its Affiliates, licensees and
sublicensees outside the Territory, for the purpose of
regulatory filings in the Territory. Vertex and its licensees
shall have the reciprocal right to cross reference all
information and regulatory filings arising out of development
work conducted by Taisho and its Affiliates and sublicensees
hereunder. Taisho will supply Vertex at its request with data
based on all raw data from clinical
License and Development Agreement - Page 9
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studies conducted by Taisho and any of its sublicensees with
respect to Licensed Compounds. In the event that Taisho is
required subject to any provision hereof to disclose or
provide Vertex with data or information generated by it during
the Development Program, concerning a Licensed Compound or a
Drug Product, Taisho shall provide a summary of that data and
information, in English, sufficient for Vertex to understand
the general content and significance of that data and
information, [***********************************************
*************************************************************
********************************************].
3.8. DUE DILIGENCE. Promptly upon exercise of its option with
respect to a Compound, Taisho shall commence the Development
Program in the Territory with respect to that Licensed
Compound and shall use its reasonable best efforts to effect
introduction of the Drug Product into the commercial market in
the Territory as soon as practicable, consistent with the
requirements of the Development Program and sound and
reasonable business practices and judgment. After the date of
the first Regulatory Approval for the sale of the Drug
Product(s) in the Territory, Taisho shall use reasonable best
efforts to effect introduction of the Drug Product(s) into
commercial use in the other countries of the Territory, and
following initial product introduction in each country shall
keep the Drug Product(s) reasonably available to the public
therein. In the normal course of development, a certain
Licensed Compound may be dropped from development and replaced
within a reasonable time with another Licensed Compound, and
such occurrence in the Development Program shall not
constitute a failure of due diligence. After Regulatory
Approval thereof and until the expiration of this Agreement,
Taisho shall endeavor to keep Drug Products reasonably
available to the public throughout the commercial market in
the Territory.
ARTICLE IV
MILESTONE PAYMENTS
Taisho shall make the following milestone payments with respect to each
Licensed Compound developed hereunder. Milestone payments shall be payable
[******************************************************************************
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*************].If two (2) (or more) Licensed Compounds are being developed at
the same time, the milestones specified below will be applicable to each such
Licensed Compound; PROVIDED, that [********************************************
*******************]. On the date any one of the milestone payments set forth
below is earned with respect to a particular Licensed Compound, any of the other
lower numbered milestones which have not yet been earned with respect to that
Licensed Compound shall be deemed to have been achieved and therefore payable
with respect to that Licensed Compound.
License and Development Agreement - Page 10
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ARTICLE V
SUPPLY LICENSED COMPOUND
5.1. SUPPLY. Vertex shall manufacture or have manufactured and
supply Taisho, its Affiliates and its sublicensees with their
entire commercial requirements for bulk Licensed Compound in
the Territory. Taisho shall purchase all of the requirements
(including those of its Affiliates and sublicensees) of bulk
Licensed Compound from Vertex for manufacture of Drug Products
containing the Licensed Compounds for sale in the Territory.
If Vertex shall be in material default of its supply
obligations hereunder, it will immediately meet with Taisho at
Taisho's request, and the parties shall agree on an
alternative supply arrangement, which shall include
manufacture of bulk Licensed Compound by Taisho, and shall
consider whether that arrangement shall apply for the long
term or until such time as the causes for Vertex's default
have been cured.
5.2. SUPPLY PRICE. The supply price for a unit of bulk Licensed
Compound supplied by Vertex for the manufacture of a Drug
Product sold in the Territory shall be determined [*****
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********].
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5.3. FORECASTS AND ADJUSTMENTS.
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5.4. SUPPLY AGREEMENT. All bulk Licensed Compound supplied by
Vertex to Taisho hereunder shall be provided under the terms
of a supply agreement containing terms and ** conditions, in
addition to those provided herein, which are usual and
customary in the trade, as shall be agreed in good faith
between the parties hereto.
5.5. PRICE REVISION. If Taisho produces and submits to Vertex
supportive materials that show, with reference to market
pricing and/or cost factors (as appropriate), that Taisho is
unable to achieve a reasonable margin on sales of a Drug
Product, then it will notify Vertex and the parties shall meet
to discuss the matter. If it ** appears, as a result of those
discussions, that the cost to Vertex of producing the Licensed
Compound being sold to Taisho is significantly low in relation
to the ** supply price to Taisho under the circumstances of
this Agreement, then Vertex will consider reducing the supply
price. Similarly, Taisho shall consider upward ** revisions of
the supply price in the event that Vertex produces and submits
to Taisho supportive materials that show, with reference to
market pricing and/or cost ** factors (as appropriate), that
Vertex is unable to obtain a reasonable margin on sales of
Licensed Compound to Taisho.
5.6. UNPATENTED PRODUCT. In the event that [**********************
*************************************************************
*************************************************************
*************************************************************
***********] Vertex shall reduce the Applicable Percentage of
Net Sales, for Net Sales in that country, that is used to
compute the supply price under Section 5.2 above for the **
Licensed Compound which is incorporated in the Drug Product,
by [****************].
License and Development Agreement - Page 12
<PAGE>
5.7. TAXES. The amounts payable under this Article V are net of any
applicable duties, government charges, or similar items, if
any, all of which shall be paid by ** Taisho.
5.8. CO-LABELING. All Drug Products sold in the Territory shall
bear reference to Taisho's and Vertex's logos and trademarks
with equal prominence or to the extent not ** prohibited by
local law. Vertex's name, where it shall appear, will be
written in the English language.
ARTICLE VI **
REPORTING **
6.1. DEVELOPMENT REPORTS. Taisho shall prepare and submit to
Vertex, on a quarterly basis, reports which set forth in
reasonable detail the progress of the Development ** Program
in the Territory and the results of work performed thereunder
during the preceding quarter. Vertex shall also report to
Taisho on a quarterly basis the ** results of any development
work which it may have undertaken with respect to Licensed
Compounds during the preceding quarter.
6.2. SALES REPORTS AND RECORDS. During the term of this Agreement
and after the First Commercial Sale of a Drug Product, Taisho
shall deliver to Vertex within forty five (45) days after the
end of each calendar quarter a written report showing actual
Net Sales of Drug Products by Taisho, its Affiliates and
sublicensees in each ** country in the Territory during such
calendar quarter, and any revision of the supply price for
bulk Licensed Compound to be recommended by Taisho, based on
the ** information in that report. All Net Sales shall be
divided in each such report into sales by Taisho and each
Affiliate and sublicensee, as well as on a **
country-by-country basis, shall be stated in U.S. dollars, and
shall state the rates of exchange used to convert the amounts
into United States dollars from the ** currency in which such
amounts are received by Taisho, using Taisho's then-current
standard exchange rate methodology applied in its external
reporting for the ** translation of foreign currency sales
into U.S. dollars. Taisho will keep complete, true and
accurate books of account and records for the purpose of
showing the ** derivation of Net Sales and all amounts payable
to Vertex under this Agreement. Such books and records will be
kept at Taisho's principal place of business for at ** least
three (3) years following the end of the calendar quarter to
which they pertain, and will be open at all reasonable times
and agreed by Taisho for inspection ** and copying by
representatives of Vertex for the purpose of verifying
Taisho's sales reports, or Taisho's compliance in other
respects with this Agreement. Such ** inspections shall be at
the expense of Vertex, unless a variation or error exceeding
[***********] or the equivalent, is discovered in the course
of any such ** inspection, whereupon the costs relating
thereto shall be for the account of Taisho. Taisho will
promptly pay to Vertex the full amount of any
License and Development Agreement - Page 13
<PAGE>
underpayment, together with interest thereon at the rate of
[**************] assessed from the date payment was due.
6.3. PAYMENT DELAY. In case of a delay in any payments due from
Taisho to Vertex hereunder not occasioned by force majeure,
interest at the rate of [*******************], assessed
from the thirty-first day after the due date of the said
payment, shall be due by Taisho without any special notice.
ARTICLE VII
CONFIDENTIALITY
7.1. UNDERTAKING. During the term of this Agreement, each party
shall keep confidential, and other than as provided herein
shall not use or disclose, directly or indirectly, any
trade secrets, confidential or proprietary information
(including information embodied in sample materials), or any
other knowledge, information, documents or materials,
owned, developed or possessed by the other party, whether in
tangible or intangible form, the confidentiality of which such
other party takes reasonable measures to protect, including
but not limited to Vertex Technology and Taisho Technology.
Each party shall take any and all lawful measures to prevent
the unauthorized use and disclosure of such information,
and to prevent unauthorized persons or entities from obtaining
or using such information. Each party further agrees to
refrain from directly or indirectly taking any action which
would constitute or facilitate the unauthorized use or
disclosure of such information. Each party may disclose such
information to its directors, officers, employees, consultants
and agents, (and in the case of Vertex, to its licensees in
the Field outside the Territory, and in case of Taisho, to
sublicensees under this Agreement, if any), and to
subcontractors in connection with the development or
manufacture of Licensed Compounds and Drug Products, to the
extent necessary to enable such parties to perform their
obligations hereunder or under the applicable sublicense or
subcontract, as the case may be; provided, that such
directors, officers, employees, consultants, agents,
licensees, sublicensees and subcontractors have entered
into appropriate confidentiality agreements for secrecy and
non-use of such information which by their terms shall be
enforceable by injunctive relief at the instance of the
disclosing party. Each party shall be liable for any
unauthorized use and disclosure of such information by its
directors, officers, consultants, employees and agents and
any such sublicensees and subcontractors. Taisho may also
provide a copy of this Agreement to the Bank of Japan, Japan's
Ministry of Finance, Ministry of Health and Welfare,
National Tax Office and other governmental agencies, all as
and only to the extent required under applicable Japanese laws
or government regulations.
7.2. EXCEPTIONS. Notwithstanding the foregoing, the provisions of
section 7.1 hereof shall not apply to knowledge, information,
documents or materials which the
License and Development Agreement - Page 14
<PAGE>
receiving party can conclusively establish: (i) have entered
the public domain without such party's breach of any
obligation owed to the disclosing party; (ii) have become
known to the receiving party prior to the disclosing party's
disclosure of such information to such receiving party; (iii)
are permitted to be disclosed by the prior written consent
of the disclosing party; (iv) have become known to the
receiving party from a source other than the disclosing party
other than by breach of an obligation of confidentiality
owed to the disclosing party; (v) are disclosed by the
disclosing party to a Third Party without restrictions on its
disclosure; (vi) are independently developed by the receiving
party without breach of this Agreement; or (vii) are required
to be disclosed by the receiving party to comply with
applicable laws, to defend or prosecute litigation or to
comply with governmental regulations, provided that the
receiving party provides prior written notice of such
disclosure to the other party and takes reasonable and lawful
actions to avoid or minimize the degree of such disclosure.
7.3. PUBLICITY. The timing and content of any press releases or
other public communications relating to the Agreement and the
transactions contemplated herein will, ** except as otherwise
required by law, be determined jointly by Vertex and Taisho.
7.4. SURVIVAL. The provisions of this Article VII shall survive the
termination of this Agreement.
ARTICLE VIII
PATENTS
8.1. PREPARATION. Vertex will be responsible for the preparation,
filing, prosecution and maintenance of any and all Patents in
the Territory included in Vertex Patents,[*******************
*******************************************************].
Taisho will be responsible for the preparation, filing,
prosecution and maintenance of any and all Patents in the
Territory included in the Taisho Patents
[************************************************************
*************************************************************
*************************************************************
**********] including without limitation any such Patents
covering formulations [**************************************
*************************************************************
*************************************************************
*************************************************************
**************************] Vertex and Taisho shall each
furnish to the other party copies of significant documents
relevant to any such preparation, filing, prosecution or
maintenance. Vertex and Taisho shall cooperate fully in the
preparation, filing, prosecution and maintenance of all Vertex
Patents and Taisho
License and Development Agreement - Page 15
<PAGE>
Patents, executing all papers and instruments so as to
enable the responsible party to apply for, to prosecute and to
maintain patent applications and patents in its name in any
country in the Territory. The parties acknowledge the
importance of maintaining the confidentiality of any
inventions or other information relating to potential patent
claims prior to the filing of patent applications with
respect hereto. Each party shall provide to the other prompt
notice as to all matters which may affect the preparation,
filing, prosecution or maintenance of any such patent
applications or patents.
8.2. LICENSE TO FORMULATION AND USE INVENTIONS. Taisho shall use
its reasonable best efforts to keep Vertex promptly (but not
before filing of any planned patent application) and fully
informed, of any Formulation and Use Inventions. Upon Vertex's
written request which shall be required to be made within
three (3) months from Taisho's notice to Vertex, Vertex shall
have, and Taisho hereby grants to Vertex, a royalty-free,
exclusive license (with the right to sublicense) under
Patents covering the Formulation and Use Inventions to
make, have made, use, import for sale, sell and have sold,
Compounds and pharmaceutical products incorporating Compounds
worldwide outside the Territory. The foregoing license will
continue following expiration or termination (excluding the
case of Section 10.2) of this Agreement, and will extend
thereafter to the Territory. Provided, however, Vertex may
license or otherwise transfer its rights to apply the
Formulation and Use Inventions to the development and sale
in the Field of a Compound in the Territory, only after any
and all Taisho's rights to that Compound hereunder have
terminated.
8.3. COST REIMBURSEMENT. Taisho shall reimburse Vertex for the
following patent direct costs with respect to Vertex Patents
[************************************************************
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*******] for the preparation, filing, prosecution and
maintenance of Vertex Patents in the Territory. "General
patent preparation and maintenance direct costs" shall include
the costs of preparation, filing and prosecution of any patent
application from which a patent application filed in any
country of the Territory claims priority, and any patent
application filed under the Patent Cooperation Treaty (PCT).
Vertex shall notify Taisho in writing from time to time of its
plans with respect to the preparation, filing, prosecution and
maintenance of Vertex Patents in each country in the
Territory, together with its estimate of the costs of such
preparation, filing, prosecution and maintenance and an
estimate of Vertex's general patent preparation and
maintenance costs. Taisho shall reimburse Vertex for
[************************************************************
*************************************************************
**********************************************************].
In any event, the provisions of Section 8.3 will apply to any
patent which is the object of the
License and Development Agreement - Page 16
<PAGE>
foregoing notice from Taisho and which Vertex continues to
prosecute or maintain.
8.4. FAILURE TO REIMBURSE. If Taisho shall fail, without good
reason hereunder, to reimburse Vertex as required under
Section 8.3 above with respect to a patent application or
patent included within the Vertex Patents within sixty (60)
days after receipt of a written request for payment from
Vertex, Vertex may terminate Taisho's rights with respect to
that patent or patent application upon thirty (30) days
written notice thereof to Taisho, unless Taisho during such
thirty (30) day period shall have submitted payment pursuant
to the aforementioned request for payment.
8.5. COST REIMBURSEMENT FOR THE PATENTS COVERING THE FORMULATION
AND USE INVENTIONS. In the event that Vertex is granted a
license to the Patents covering the Formulation and Use
Inventions under Section 8.2, Vertex shall reimburse Taisho
for the following patent direct costs with respect to such
licensed Formulation and Use Inventions: (a) two-thirds (2/3)
of all of Taisho's "general patent preparation and maintenance
direct costs;" and (b) all of the reasonable expenses (other
than "general patent prosecution and maintenance" costs) which
Taisho has incurred, or may in the future incur, for the
preparation, filing, prosecution and maintenance of the
Patents covering the Formulation and Use Inventions outside
the Territory. Taisho shall notify Vertex in writing from time
to time of its plans with respect to the preparation, filing,
prosecution and maintenance of the Patents covering the
Formulation and Use Inventions in each country outside the
Territory, together with its estimate of the costs of such
preparation, filing, prosecution and maintenance and an
estimate of general patent preparation and maintenance costs
of the Patents covering the Formulation and Use Inventions.
Section 8.4 shall be applied mutatis mutandis to this Section
8.5
ARTICLE IX
INFRINGEMENT
Either party shall notify the other party promptly of any possible
infringements, imitations or unauthorized possession, knowledge or use of the
intellectual property embodied in any of the Licensed Patents and Vertex
Know-How or Taisho Know-How related to the manufacture or use of Licensed
Compounds and Drug Products by Third Parties in any country in the Territory, of
which it becomes aware. Either party shall promptly furnish the other party with
full details of such infringements, imitations or unauthorized possession,
knowledge or use, and shall assist in preventing any recurrence thereof.
[******************************************************************************
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*********] Such suit may not be settled by Taisho without Vertex's consent,
which shall not be unreasonably withheld. Damages recovered in any actions
referenced hereunder shall be
License and Development Agreement - Page 17
<PAGE>
divided [*************] to Taisho and [**************] to Vertex after
reimbursement to each party of their respective expenses in prosecuting such
actions as provided hereunder.
ARTICLE X
TERM AND TERMINATION
10.1. TERM. The term of this Agreement with respect to any Licensed
Compound or Drug Product incorporating that Licensed Compound
shall extend in each country of the Territory until the later
of the last to expire in that country of any substance Patent
or use Patent which are Licensed Patents covering the Licensed
Compound or Drug Product, or [*****] from the date of First
Commercial Sale of the Drug Product in that country .
10.2. TERMINATION OF RESEARCH PROGRAM BY TAISHO FOR CAUSE. Upon
written notice to Vertex, Taisho may at its sole option
terminate this Agreement with respect to a Licensed Compound
upon the occurrence of any of the following events:
(a) Vertex shall materially breach this Agreement, which
shall include a failure to use its reasonable best efforts to pursue the
Development Program diligently (provided, however, that this provision shall not
be construed as a guarantee by Vertex that the Development Program will be
successfully completed or any Licensed Compounds successfully developed), and
such material failure to perform shall not have been remedied or steps initiated
to remedy the same to Taisho's reasonable satisfaction, within [************]
after Taisho sends written notice of failure to perform to Vertex; or
(b) Vertex shall cease to function as a going concern by
suspending or discontinuing its business for any reason except for interruptions
caused by strike, labor dispute or any other events over which it has no control
(unless termination of this Agreement is permitted under Section 12.6 hereof);
or
(c) A receiver for Vertex shall be appointed or applied
for, or a general assignment shall be made for the benefit of its creditors or
any proceeding involving Vertex shall be voluntarily commenced by it under any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute of the United States or any state thereof or such
proceedings shall be involuntarily instituted against it, and Vertex by any
action shall indicate its approval of or consent to, or acquiescence therein, or
the same shall remain undismissed for [***********].
In the event of any valid termination under this Section 10.2,
Taisho shall not be required to make any payments under Article IV hereof which
are not due and payable prior to receipt by Vertex of the notice of failure to
perform referenced under Section 10.2(a), receipt by Vertex of the notice of
termination pursuant to Section 10.2(b), or the occurrence of the event
referenced in Section 10.2(c), as the case may be. Notwithstanding the
foregoing, any License
License and Development Agreement-Page 18
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Agreement then in effect covering another Licensed
Compound shall continue in accordance with its terms.
10.3. TERMINATION BY VERTEX FOR CAUSE. In addition to rights of
termination which may be granted to Vertex under other
provisions of this Agreement with respect to a Licensed
Compound, upon written notice to Taisho, Vertex may at its
sole option terminate this Agreement upon the occurrence of
any of the following events:
(a) Taisho shall materially breach this Agreement, and
such material failure to perform shall not have been remedied or steps initiated
to remedy the same to Vertex's reasonable satisfaction, [*************] after
Vertex sends written notice of failure to perform to Taisho; or
(b) Taisho shall cease to function as a going concern by
suspending or discontinuing its business for any reason except for interruptions
caused by strike, labor dispute or any other events over which it has no control
(unless termination of this Agreement is permitted under Section 12.6 hereof);
or
(c) A receiver for Taisho shall be appointed or applied
for, or a general assignment shall be made for the benefit of its creditors or
any proceeding involving Taisho shall be voluntarily commenced by it under any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law of Japan or such proceedings shall be involuntarily instituted
against it, and Taisho by any action shall indicate its approval of or consent
to, or acquiescence therein, or the same shall remain undismissed for
[**********].
10.4. TERMINATION. If the parties shall determine in good faith (as
evidenced by a writing signed by each party), that there is no
further scientific basis to pursue research and development of
a Licensed Compound in the Field, and if either party shall
thereafter propose, in writing, to the JDC and the other party
that the parties consider redirection of the Development
Program for such Licensed Compound, and if within
[***************] after such proposal is received by the other
party and the JDC, the Development Program has not been
redirected, then either party may terminate the License
Agreement regarding such Licensed Compound on [***********]
written notice to the other party. On or after the effective
date of any such termination no further payments shall become
due and payable hereunder by one party to the other, except
pursuant to obligations which have accrued hereunder prior to
the effective date of such termination.
10.5. EFFECT OF TERMINATION AND EXPIRATION. Termination of this
Agreement for any reason, or expiration of this Agreement,
will not affect: (i) obligations, including the payment of any
milestones or royalties, which have accrued as of the date of
termination or expiration, and (ii) rights and obligations
under the following provisions of this Agreement, which shall
survive termination or expiration of this Agreement: the last
sentence of Section 2.3, and Articles VII, XI and the last
License and Development Agreement-Page 19
<PAGE>
sentence of Section 12.4. Following termination of this
Agreement under Section 10.1 hereof with respect to a
particular country, Taisho shall have a fully paid license
under the Vertex Technology to make, have made, use, sell,
have sold, and import for sale the Licensed Compound and Drug
Product in that country in the Territory.
ARTICLE XI
DISPUTE RESOLUTION
11.1. GOVERNING LAW, AND JURISDICTION. This Agreement shall be
governed and construed in accordance with the
[**********************************]. Both parties agree that
any legal proceedings between the parties relating to this
Agreement other than a proceeding to which Section 9.2 is
applicable, shall be brought in the state or prefecture of the
principal office of the defendant party; provided that a
proceeding to enforce an arbitration award may be brought in
the state or prefecture of the plaintiff's principal office,
and each party agrees to submit to personal jurisdiction and
to accept venue in the courts of such state or prefecture
solely for the purpose of enforcement of any such award.
11.2. ARBITRATION. In the event of any controversy or claim arising
out of or relating to any provision of this Agreement or the
breach thereof, the parties shall try to settle their
differences amicably between themselves. Any such controversy
or claim which the parties are unable to resolve shall, upon
the written request for arbitration of one party delivered to
the Secretariat of the International Court of Arbitration (the
"Court"), be submitted to and be settled by arbitration
[************************************************************
******************************************] in accordance with
the Rules of Arbitration of the International Chamber of
Commerce (the "Rules") then in effect (except as hereinafter
stated), and enforcement of the award rendered by the
arbitrators may be entered in any court having jurisdiction
thereof and shall be final and conclusive upon both parties
hereto. Notwithstanding anything to the contrary which may be
contained in the rules of the Court, the parties further agree
as follows:
(i)
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(ii) The arbitrators will consider the nature of the dispute, the
availability of information upon which resolution of the
dispute may be fairly based, and in view of those
considerations and such other facts and circumstances as they
may deem appropriate, shall determine the application of
discovery and, if decided it is applied, shall determine the
nature, scope and timing of any discovery which will be
permitted to the parties to any proceeding hereunder, and that
determination of the arbitrators shall be binding on such
parties. The costs of arbitration to each party will be
determined in accordance with Articles 30 and 31 of the Rules.
(iii) The arbitrators shall state the reasons upon which any award
is based. The arbitrators shall not be authorized to award
punitive damages to either party.
(iv) Upon receipt of the arbitrator's statement, said written
opinion, either party will have the right, within
[***********] thereof, to apply to the Secretariat for a
correction and/or an interpretation of the award, and the
arbitrators thereupon will reconsider the issues raised by
said application and either confirm or alter their decision,
which will then be final and conclusive upon both parties
hereto.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. NO WARRANTY. Vertex makes no warranty of any kind whatsoever,
either express or implied, to Taisho, or any customer of
Taisho, as to the ability of Taisho to understand and utilize
the Vertex Technology. Taisho makes no warranty of any kind
whatsoever, either express or implied, to Vertex, or to any
customer of Vertex, as to the ability of Vertex to understand
and utilize the Taisho Technology. [****************
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**************************************************************
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**************************************************************
****]. Should a party becomes aware of any unexpected serious
adverse reactions to any Licensed Compounds or Drug Products
administered to humans or
License and Development Agreement-Page 21
<PAGE>
animals, the party shall promptly notify the other and/or make
a report to U.S. FDA or MHW as required by applicable
governmental regulations.
12.2. THIRD PARTY ACTIONS. (a) To Vertex's knowledge, [*************
************************************************************].
Nevertheless, each party will promptly notify the other in the
event any relevant Third Party patents come to its notice.
Neither party gives a warranty to the other regarding the
infringement of Third Party rights by the development,
manufacture, use or sale of the Licensed Compounds or the
practice of the Vertex Technology or the Taisho Technology,
and gives no indemnity against costs, damages, expenses or
other losses arising out of proceedings brought against the
other party or any other Person by any Third Party.
(b) In the event that the development of a Licensed Compound
or the sale of a Drug Product in any country necessarily involves working within
the scope of a Third Party's patent, which would otherwise be infringed by the
practice of a Vertex Patent in connection with such development or sale, [******
********************************************************************************
********************************************************************************
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********************************].
If the terms of a required license under a Third Party patent do not meet the
foregoing requirements and Vertex therefore elects not to assume its share of
any financial obligation, [*****************************************************
************************************]. If the required license is either
unavailable or its terms are unacceptable both to Vertex and to Taisho, then
Taisho may elect in its sole discretion to discontinue sales of the Drug Product
in such country or at its sole expense to undertake the defense of a patent
infringement action or the prosecution of a declaratory judgment action with
respect to the Third Party patents.
(c) In the event Taisho is sued for infringement of any
rights of any Third Party in the course of its development, manufacture,
marketing and sale of Licensed Compounds or Drug Products or its use of Vertex
Technology in connection therewith, Vertex shall extend to Taisho good faith
assistance and support in defending such action, and may participate in the
conduct of, and in discussions regarding strategic and business responses to,
the suit. Damages and out-of-pocket legal fees and expenses (including legal
fees and expenses of Taisho and Vertex) arising from such a legal action shall
be borne
[******************************************************************************
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****************************]
12.3. OFFICIAL LANGUAGE. English shall be the official language of
this Agreement and the License Agreement, and all
communications between the parties hereto shall be conducted
in that language
License and Development Agreement-Page 22
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12.4. TAX. [*******************************************************
**************************************************************
**************************************************************
****************************]. At Taisho's request Vertex will
provide Taisho with such documentation as may be reasonably
available to it which support characterization of the payments
made by Taisho
12.5. WAIVER. Any waiver by either party of the breach of any term
or condition of this Agreement will not be considered as a
waiver of any subsequent breach of the same or any other term
or condition hereof.
12.6. FORCE MAJEURE. Neither party will be in breach hereof by
reason of its delay in the performance of or failure to
perform any of its obligations hereunder, if that delay or
failure is caused by strikes, acts of God or the public enemy,
riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for
materials, or any fault beyond its control or without its
fault or negligence. In the event that any delay or failure to
perform by Vertex by reason of force majeure shall extend
beyond six (6) months, Taisho may terminate this Agreement
upon notice in writing to Vertex; provided that Taisho's right
to terminate hereunder shall end, if not exercised, at such
time as Vertex shall have eliminated any material delay or
failure to perform giving rise to the Taisho's termination
right under this Section 12.5, if Taisho does not exercise its
right to terminate this Agreement under this Section 10.3
within fifteen (15) days after the conclusion of the twelve
(12) month period.
12.7. SEVERABILITY. Should one or more provision of this Agreement
be or become invalid, then the parties hereto shall attempt in
good faith to agree upon valid provisions in substitution for
the invalid provisions, which in their economic effect come so
close to the invalid provisions that it can be reasonably
assumed that the parties would have accepted this Agreement
with those new provisions. If the parties are unable to agree
on such valid provisions, the invalidity of such one or more
provisions of this Agreement shall nevertheless not affect the
validity of the Agreement as a whole, unless the invalid
provisions are of such essential importance for this Agreement
that it may be reasonably presumed that the parties would not
have entered into this Agreement without the invalid
provisions.
12.8. GOVERNMENT ACTS. In the event that any act, regulation,
directive, or law of a government within the Territory,
including its departments, agencies or courts, should make
impossible or prohibit, restrain, modify or limit any material
act or obligation of Taisho or Vertex under this Agreement,
the party, if any, not so affected, shall have the right, at
its option, to suspend or terminate this Agreement as to such
country, if good faith negotiations between the parties to
make such modifications herein as may be necessary to fairly
address the impact thereof, after a reasonable period of time
are not successful in producing mutually acceptable
modifications to this Agreement.
License and Development Agreement-Page 23
<PAGE>
12.9. GOVERNMENT APPROVALS. Taisho or its sublicensees will, if
necessary, obtain any government approval required in the
Territory to enable this Agreement to become effective, or to
enable any payment hereunder to be made, or any other
obligation hereunder to be observed or performed. Taisho will
keep Vertex informed of progress in obtaining any such
government approval, and Vertex will cooperate with Taisho in
any such efforts.
12.10. EXPORT CONTROLS. This Agreement is made subject to any
restrictions concerning the export of Licensed Compounds or
Vertex Technology from the United States which may be imposed
upon or related to either party to this Agreement from time to
time by the Government of the United States. Furthermore,
Taisho will not export, directly or indirectly, any Vertex
Technology or any Licensed Compounds utilizing such Technology
to any countries for which the United States Government or any
agency thereof at the time of export requires an export
license or other governmental approval, without first
obtaining the written consent to do so (of which Taisho will
promptly inform Vertex) from the Department of Commerce or
other agency of the United States Government when required by
applicable statute or regulation.
12.11. ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either party without the prior written consent
of the other party; PROVIDED, HOWEVER, that either party may
assign this Agreement, WITHOUT the consent of the other party,
(i) to any of its Affiliates, if the assigning party
guarantees to full performance of its Affiliates' obligations
hereunder, or (ii) in connection with the transfer or sale of
all or substantially all of its assets or business or in the
event of its merger or consolidation with another company. Any
purported assignment in contravention of this section shall,
at the option of the nonassigning party, be null and void and
of no effect. No assignment shall release either party from
responsibility for the performance of any accrued obligations
of such party hereunder.
12.12. COUNTERPARTS. This Agreement may be executed in duplicate,
each of which shall be deemed to be original and both of which
shall constitute one and the same Agreement.
12.13. NO AGENCY. Nothing in this Agreement shall be deemed to create
an agency, joint venture, amalgamation, partnership or similar
relationship between Vertex and Taisho Notwithstanding any of
the provisions of this Agreement, neither party to this
Agreement shall at any time enter into, incur, or hold itself
out to Third Parties as having authority to enter into or
incur, on behalf of the other party, any commitment, expense,
or liability whatsoever, and all contracts, expenses and
liabilities in connection with or relating to the obligations
of each party under this Agreement shall be made, paid, and
undertaken exclusively by such party on its own behalf and not
as an agent or representative of the other.
License and Development Agreement-Page 24
<PAGE>
12.14. NOTICE. All communications between the parties with respect to
any of the provisions of this Agreement will be sent to the
addresses set out below or to other addresses as may be
designated by one party to the other by notice pursuant
hereto, by prepaid certified air mail (which shall be deemed
received by the other party on the seventh business day
following deposit in the mails), or by facsimile transmission
or other electronic means of communication (which shall be
deemed received when transmitted), with confirmation by first
class letter, postage pre-paid, given by the close of business
on or before the next following business day:
if to Taisho, at: Taisho Pharmaceutical Co., Ltd.
24-1, Takata 3-Chome
Toshimaku, Tokyo, 170-8633, Japan
Attention: General Manager, Licensing
Division
with a copy to:
General Manager, Legal Division
if to Vertex, at: 130 Waverly Street
Cambridge, MA 02139-4242
Attention: Richard H. Aldrich
Senior Vice President and Chief Business
Officer
cc: Corporate Counsel
with a copy to:
Kirkpatrick & Lockhart LLP
75 State Street
Boston, MA 02109
Attention: Kenneth S. Boger, Esquire
Fax: 617-951-9151
12.15. HEADINGS. The paragraph headings are for convenience only and
will not be deemed to affect in any way the language of the
provisions to which they refer.
12.16. AUTHORITY. The undersigned represent that they are authorized
to sign this Agreement on behalf of the parties hereto. The
parties each represent that no provision of this Agreement
will violate any other agreement that a party may have with
any Third Party . Each party has relied on that representation
in entering into this Agreement.
License and Development Agreement-Page 25
<PAGE>
12.17. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties relating to the matters referred
to herein, and may only be amended by a written document, duly
executed on behalf of the respective parties.
VERTEX PHARMACEUTICALS INCORPORATED
By:_________________________________________
Title:______________________________________
Date of Signature:__________________________
TAISHO PHARMACEUTICAL CO., LTD.
By:_________________________________________
Title:______________________________________
Date of Signature:__________________________
License and Development Agreement-Page 26
<PAGE>
SCHEDULE 1.9
LICENSED COMPOUNDS
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.28
(WITH CERTAIN CONFIDENTIAL INFORMATION DELETED AND MARKED WITH BRACKETED
ASTERISKS)
CREDIT AGREEMENT
BETWEEN
VERTEX PHARMACEUTICALS INCORPORATED
AND
FLEET NATIONAL BANK
DATED AS OF DECEMBER 21, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. - DEFINITIONS
1.1 Defined Terms
1.2 Accounting Terms
ARTICLE 2. - LOANS
2.1 Term Loan Commitment
2.2 Term Loan Borrowing Request
2.3 Term Loan Prepayment
2.4 Term Note and Records
2.5 Term Loan Proceeds
2.6 Reduction or Termination of Term Loan Commitment
2.7 Facility Fee.
2.8 Debit of Accounts.
ARTICLE 3. - REPRESENTATIONS AND WARRANTIES
3.1 Financial Condition
3.2 Organization, Existence, Good Standing
3.3 Subsidiaries; Capitalization
3.4 Power and Authority
3.5 Legal, Valid, Binding Obligation
3.6 Consents
3.7 No Legal Bar
3.8 No Litigation
3.9 No Default
3.10 Assets, No Liens;
3.11 No Burdensome Restrictions
3.12 Taxes
3.13 Regulation U, Etc.
3.14 ERISA
3.15 Investment Company Act, Etc.
3.16 Indebtedness
3.17 Contingent Liabilities
3.18 Chief Place of Business; Locations of Books and Records; Locations
of Assets
3.19 Laws Including Environmental and Safety Matters
3.20 Intellectual Property
3.21 Negative Pledges
3.22 Full Disclosure
ARTICLE 4. - AFFIRMATIVE COVENANTS
4.1 Financial Statements and Other Documents
4.2 Existence; Compliance with Laws; Etc.
4.3 Maintain Property
4.4 Insurance
4.5 Notice of Material Events
<PAGE>
4.6 Deposit Accounts
ARTICLE 5. - NEGATIVE COVENANTS
5.1 Indebtedness
5.2 Contingent Liabilities
5.3 Limitation on Liens
5.4 Mergers; Dissolution; Disposals or Acquisitions
5.5 Investments and Loans
5.6 Dividends
5.7 Transactions with Affiliates
5.8 Negative Pledge
5.9 Minimum Liquidity Ratio
5.10 Minimum Tangible Capital Base Ratio
5.11 Minimum Debt Service Test/Minimum Cash and Cash Equivalents
5.12 Lines of Business
ARTICLE 6. - CONDITIONS PRECEDENT
6.1 Conditions of Initial Extension of Credit
6.2 Conditions of All Loans
ARTICLE 7. - EVENTS OF DEFAULT
7.1 Events of Default
7.2 Lender's Remedies
7.3 Cross Default
7.4 Setoff
ARTICLE 8. - MISCELLANEOUS
8.1 Notices
8.2 No Waiver of Rights
8.3 Obligations Absolute; Cumulative Remedies
8.4 Successors
8.5 Participants
8.6 Governing Law
8.7 Submission to Jurisdiction; Waiver of Trial by Jury.
8.8 Complete Agreement, Amendments
8.9 Expenses
8.10 Indemnification
8.11 Survival of Agreements
8.12 Severability
8.13 Descriptive Headings
8.14 Counterparts
8.15 Pledge to Federal Reserve
8.16 Lost Note
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1 (Definitions)
Schedule 3.1 (Financial Statements of Borrower)
Schedule 3.3 (Subsidiaries and Investments/ +5% Shareholders)
Schedule 3.6 (Consents and Approvals)
Schedule 3.8 (Litigation)
Schedule 3.11 (Burdensome Restrictions)
Schedule 3.18 (Location of Assets)
Schedule 3.20 (Intellectual Property Disclosure)
Schedule 3.21 (Existing Negative pledges)
Schedule 5.1 (Disclosed Indebtedness)
Schedule 5.2 (Disclosed Contingent Liabilities)
Schedule 5.3 (Disclosed Liens)
Schedule 5.5 (Investment policy)
Exhibit A - TERM NOTE
Exhibit B - Compliance Certificate
EXHIBIT C - PLEDGE AGREEMENT
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of December 21, 1999 between VERTEX
PHARMACEUTICALS INCORPORATED, a Massachusetts corporation ("Borrower"), and
FLEET NATIONAL BANK, a national banking association ("Lender").
WHEREAS, Borrower has requested that Lender provide it with a term loan
facility;
WHEREAS, Lender is willing, on the terms and subject to the conditions
in this Agreement, to make such a credit facility available to Borrower;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, Lender and Borrower agree as follows:
ARTICLE 1. - DEFINITIONS
1.1 DEFINED TERMS. Unless otherwise defined herein, the capitalized
terms, as used in this Agreement, shall have the meanings as set forth on
SCHEDULE 1 hereto.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be interpreted and all financial statements and reports as to
financial matters required to be delivered to Lender hereunder shall be prepared
in accordance with GAAP consistently applied with those used in the preparation
of the audited and quarterly financial statements furnished to Lender in
connection with the initial Loans issued on the Initial Borrowing Date.
ARTICLE 2. - TERM LOANS
2.1 TERM LOAN COMMITMENT. Subject to the terms and conditions hereof,
Lender agrees to make the Term Loans to the Borrower from time to time during
the Term Loan Commitment Period, provided, however, that, except as provided in
the Term Note, each Term Loan request shall be in a minimum amount of $250,000
and shall not exceed the Purchased Equipment Cost. Not more than one such Term
Loan request shall be made in each calendar quarter (except for any Term Loan
request that equals or exceeds $500,000), and the aggregate principal amount of
all Term Loans shall not exceed the Term Loan Limit.
2.2 TERM LOAN BORROWING REQUEST. Subject to the terms and conditions
hereof and the Term Note, Borrower may borrow under the Term Loan Commitment
during the Term Loan Commitment Period on any Business Day. Borrower may request
Term Loans from time to time by submitting irrevocable Loan requests in such
form and manner as Lender may require or permit signed by an Authorized
Representative of Borrower, specifying the amount to be borrowed, the requested
Borrowing Date and, if such Term Loan is to be made after the Initial Borrowing
Date, together with a completed Notice of Selection (as defined in the Term
Note), and copies of invoices and such information Lender may reasonably request
concerning the Purchased Equipment or Build-Out Fees, as the case may be, for
which invoices are being submitted for reimbursement with the proceeds of such
Term Loan. Except as otherwise agreed
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<PAGE>
by Lender, the proceeds of all Term Loans will be made available to Borrower by
Lender by crediting Borrower's deposit account(s) with Lender.
2.3 TERM LOAN PREPAYMENT. Amounts borrowed as Term Loans which are paid
or prepaid by the Borrower may not be reborrowed. Term Loans may be prepaid to
the extent and in the manner permitted under the Term Note.
2.4 TERM NOTE AND RECORDS. The Term Loans shall be evidenced by the
Term Note and shall bear interest and be payable as set forth therein. Lender
shall maintain records of each (i) Term Loan and (ii) payments of principal
balance of Term Loans. The Lender's records shall constitute PRIMA FACIE
evidence of the accuracy of the information recorded therein and in the event
that Borrower fails to object, within thirty (30) days of receipt of Lender's
periodic reports to Borrower with respect to Term Loans, the information in such
reports shall be conclusive and binding as against Borrower; PROVIDED, HOWEVER,
that any failure by Lender to maintain such records or furnish such reports
shall not affect the obligations of Borrower under the Note or this Agreement.
2.5 TERM LOAN PROCEEDS. Borrower shall use the proceeds of the Term
Loans to acquire Purchased Equipment and to pay Build-Out Fees (in each case, in
compliance with all applicable legal and regulatory requirements, including,
without limitation, Regulations U and X and the Securities Act of 1933 and the
Securities Exchange Act of 1934); PROVIDED that Lender shall have no
responsibility as to the use of any of such proceeds.
2.6 REDUCTION OR TERMINATION OF TERM LOAN COMMITMENT.
(a) The Borrower may permanently reduce, from time to time, the Term
Loan Limit by giving Lender not less than ten (10) Business Days prior notice
and prior to the reduction date prepay the Term Loans to the extent the
outstanding amount of the Term Loans exceed the reduced Term Loan Limit,
provided, however, that, (i) each such reduction shall be an amount that is at
least $500,000 or any greater multiple thereof, and (ii) no reduction shall be
effective if the amount of the Term Loans as of the proposed reduction date
exceeds the amount of the proposed reduced Term Loan Limit.
(b) To terminate the Term Loan Commitment, Borrower shall give Lender
not less than ten (10) Business Days prior notice and on the termination date
prepay in full all Term Loans together with accrued interest, fees, and charges
thereon to the date of prepayment, including, without limitation, any loss, cost
or expense including yield maintenance fees (as defined in the Note) due
hereunder or under the Note. As set forth in Article 7, the Term Loan Commitment
may be terminated by Lender or shall terminate automatically as set forth
therein.
2.7 FACILITY FEE. Borrower shall pay to Lender a Term Loan facility fee
as provided in the facility fee letter between Borrower and Lender dated as of
December 21, 1999, which facility fee shall be fully earned and paid on the date
hereof.
2.8 DEBIT OF ACCOUNTS. Lender may, at its election, without any
obligation on the part of the Lender, effect payment of all amounts due, or any
portion thereof, from Borrower under
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<PAGE>
this Agreement, the Note or the other Loan Documents, by debiting from time to
time any of the Borrower's deposit or other accounts maintained at the Lender.
ARTICLE 3. - REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the
Loans, Borrower represents and warrants to Lender, except as otherwise set forth
in a schedule attached hereto and made a part hereof, that:
3.1 FINANCIAL CONDITION. The financial statements previously delivered
to Lender and listed on SCHEDULE 3.1 present fairly the Consolidated financial
position of Borrower and its Subsidiaries as of the dates thereof and its and
their results of operations, shareholders' equity and cash flows for the periods
then ended. All such financial statements and information, including any related
schedules and notes, and any other financial information or statements furnished
in accordance herewith, have been prepared in accordance with GAAP, subject only
in the case of unaudited interim financial statements to normal year-end audit
adjustments and the absence of footnotes. In the case of each Loan, the
representations and warranties in this Section shall be deemed to have been made
in respect of the then most recent financial statements of Borrower furnished to
Lender pursuant to Section 4.1.
3.2 ORGANIZATION, EXISTENCE, GOOD STANDING. Each of Borrower and VSC:
(i) is duly organized, validly existing and in good standing as a corporation
under the laws of the Commonwealth of Massachusetts (ii) has obtained all
licenses, permits, approvals and consents and has filed all registrations
necessary for the lawful operation of its business, (iii) has the corporate
power and authority and the legal right to own, lease and operate its property
and to conduct the business in which it is currently engaged, and (iv) is duly
qualified to do business and is licensed and in good standing as a foreign
corporation under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.
3.3 SUBSIDIARIES; CAPITALIZATION. Except as set forth on SCHEDULE 3.3,
Borrower has no Subsidiaries, Investments or Joint Ventures in or with any other
Person. As of the date hereof, except as set forth on SCHEDULE 3.3, no other
Person owns beneficially or of record more than fifty percent (50%) of the
issued and outstanding voting common stock of the Borrower and, to Borrower's
knowledge, no other Person owns beneficially or of record more than five percent
(5%) of the issued and outstanding voting common stock of the Borrower. Borrower
owns all of the issued and outstanding shares of capital stock or other equity
securities of VSC.
3.4 POWER AND AUTHORITY. Borrower has (i) full corporate power,
authority and legal right to execute, deliver and perform its obligations under
the Loan Documents to which it is a party and to borrow hereunder, (ii) taken
all necessary actions to authorize the execution, delivery and performance by it
of each Loan Document to which it is a party and to authorize its borrowings
hereunder, and (iii) caused to be duly executed and delivered on behalf of the
Borrower each of the Loan Documents to which Borrower is a party.
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<PAGE>
3.5 LEGAL, VALID, BINDING OBLIGATION. Each of the Loan Documents and
each agreement, certificate, document, instrument or other paper delivered
pursuant thereto, to which Borrower is a party, constitutes the legal, valid,
and binding obligation of Borrower enforceable against Borrower in accordance
with its terms.
3.6 CONSENTS. No consent, permit, license, approval, authorization or
other action of, or registration, declaration or filing with or notice to, any
governmental authority, bureau or agency or any other Person is required in
connection with the execution, delivery or performance by Borrower, or the
validity or enforceability against Borrower, of any Loan Document to which it is
a party, except for the consents and approvals set forth on SCHEDULE 3.6, all of
which have been obtained.
3.7 NO LEGAL BAR. The execution, delivery and performance by Borrower
of the Loan Documents, and each agreement, certificate, document, instrument or
other paper delivered pursuant thereto, to which Borrower is a party, does not
and will not conflict with or cause a breach of any provision of any existing
law, rule or regulation, order, judgment, award or decree of any court,
arbitrator or governmental authority, bureau or agency, or of the Articles of
Organization or Bylaws of, or any security issued by, Borrower or VSC, as the
case may be, or of any material mortgage, deed of trust, indenture, lease,
contract or other agreement or undertaking to which Borrower or VSC, as the case
may be, is a party or by which any of the properties or VSC, as the case may be,
may be bound, and will not result in the creation or imposition of any Lien on
any of its revenues or properties, except in favor of Lender.
3.8 NO LITIGATION. Except as set forth on SCHEDULE 3.8, no litigation,
investigation or other proceeding of or before any court, arbitrator or
governmental authority is currently pending nor, to the knowledge of Borrower,
threatened against Borrower, any of its Subsidiaries or its properties which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
3.9 NO DEFAULT. Neither Borrower nor any of its Subsidiaries is in
default in any respect in the payment or performance of any of its obligations
for monies borrowed or under any material mortgage, deed of trust, indenture,
lease, contract or other agreement or undertaking to which it is a party or by
which it or any of its property may be bound or affected and no Default or Event
of Default has occurred and is continuing. Neither Borrower nor any of its
Subsidiaries is in default under any order, award or decree of any court,
arbitrator or governmental authority binding upon or affecting it or by which
any of its property may be bound or affected, and no such order, award or decree
has or could reasonably be expected to have a Material Adverse Effect.
3.10 ASSETS, NO LIENS. Borrower and each of its Subsidiaries has good
and marketable title to, or valid leasehold interest in, all of its real
property and good title to all its personal property, including assets carried
on its books and reflected in the financial statements furnished to Lender
herewith, subject to no Liens except for (i) Liens permitted under Section 5.3
hereof, or (ii) inventory sold or otherwise disposed of in the ordinary course
of its business.
3.11 NO BURDENSOME RESTRICTIONS. Except as set forth in SCHEDULE 3.11,
neither
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<PAGE>
Borrower nor any of its Subsidiaries is a party to or bound by any contract,
agreement or instrument or subject to any corporate restriction (including any
restriction set forth in its charter or Bylaws) or subject to any legal
requirement or restriction that would have a Material Adverse Effect.
3.12 TAXES. All federal, state, local and other tax reports and returns
which are required to be filed by Borrower and its Subsidiaries have been filed,
except where extensions have been properly obtained, and Borrower and its
Subsidiaries have paid or made adequate provision for all taxes, interest and
penalties shown to be due and payable on such returns or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any governmental authority, including,
without limitation, all payroll withholding taxes, have been paid and no tax
liens have been filed and no claims are being asserted with respect to any such
taxes, fees or other charges.
3.13 REGULATION U, ETC. Neither Borrower nor any of its Subsidiaries is
engaged or will engage, principally or as one of its important activities, in
the business of extending credit for the purpose of "purchasing" or "carrying"
any "margin stock" (within the respective meanings of each of the quoted terms
under Regulations U, T, or X of the Board of Governors of the Federal Reserve
System and any successors thereto as now and from time to time hereafter in
effect), and the proceeds of any Loan hereunder shall not be used for
"purchasing" or "carrying" any "margin stock" as so defined, or for any purpose
which violates, or which would be inconsistent with, the provisions of
Regulation U of the Federal Reserve Board.
3.14 ERISA. The Borrower, all Commonly Controlled Entities, and all
their Plans are and have been in substantial compliance with the provisions of,
to the extent applicable, ERISA, the qualification requirements of IRC Section
401(a), and the published interpretations thereunder. No notice of intent to
terminate any such Plan has been filed under Section 4041 of ERISA, nor has any
such Plan been terminated under Section 4041(e) of ERISA which resulted in
substantial liability to Borrower or any of its Commonly Controlled Entities.
The PBGC has not instituted proceedings to terminate, or appoint a trustee to
administer, any such Plan and no event has occurred or condition exists which
might constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer any such Plan. Neither Borrower nor
any Commonly Controlled Entities would be liable for any amount pursuant to
Sections 4063 or 4064 of ERISA if all such Plans terminated as of the most
recent valuation dates of such Plans. Neither Borrower nor any Commonly
Controlled Entities have: withdrawn from a Multiemployer Plan during a plan year
for which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; or failed to make a payment to a Plan required under Section 302(f)(1) of
ERISA such that security would have to be provided pursuant to Section 307 of
ERISA. No lien upon the assets of Borrower or any of its Subsidiaries has arisen
with respect to any such Plan. To the best knowledge of Borrower, no Prohibited
Transaction or Reportable Event has occurred with respect to any such Plan.
Borrower and each Commonly Controlled Entity has each made all contributions
required to be made by them to any such Plan or Multiemployer Plan when due.
There is no accumulated funding deficiency in any such Plan, whether or not
waived.
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<PAGE>
3.15 INVESTMENT COMPANY ACT, ETC. Neither Borrower nor any of its
Subsidiaries is an "investment company" registered or required to be registered
under the Investment Company Act of 1940, or a company "controlled" (within the
meaning of such Investment Company Act) by such an "investment company". Neither
Borrower nor any of its Subsidiaries is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act or to any other federal or state statute or regulation limiting its
ability to incur indebtedness for money borrowed.
3.16 INDEBTEDNESS. Neither Borrower nor any of its Subsidiaries has any
Indebtedness of any type except Indebtedness incurred under this Agreement and
that which is permitted under Section 5.1 of this Agreement. All credit and loan
agreements, indentures, commitments, notes and other agreements, instruments and
documents pursuant to which Borrower or any of it Subsidiaries, as the case may
be, has incurred or has the right to borrow or incur Indebtedness are set forth
on SCHEDULE 5.1.
3.17 CONTINGENT LIABILITIES. Except as set forth in SCHEDULE 5.2,
neither Borrower nor any of its Subsidiaries has any material Contingent
Liabilities.
3.18 CHIEF PLACE OF BUSINESS; LOCATIONS OF BOOKS AND RECORDS; LOCATIONS
OF ASSETS. The chief executive office of Borrower is located at 130 Waverly
Street, Cambridge, Massachusetts 02139, all books and records of Borrower are
located at that address, and the Borrower and its Subsidiaries have no property
located at any other location, except as set forth on SCHEDULE 3.18.
3.19 LAWS INCLUDING ENVIRONMENTAL AND SAFETY MATTERS. Borrower and each
of its Subsidiaries is in compliance in all material respects with all laws,
statutes, rules, regulations ordinances, orders of court or other governmental
authorities, and other valid requirements of governmental authorities applicable
to it including, without limitation, all environmental, health and safety
statutes and regulations and specifically the Federal Resource Conservation and
Recovery Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Clean Air Act, the requirements
and regulations of the Nuclear Regulatory Commission, the Federal Occupational
Safety and Health Act and the Federal Food, Drug and Cosmetic Act, and the
regulations promulgated thereunder. Neither Borrower nor any of its Subsidiaries
is subject to any judicial or administrative proceedings alleging the violation
of any applicable law or regulation which could reasonably be expected to have a
Material Adverse Effect. Neither Borrower nor any of its Subsidiaries is the
subject of any federal, state or local investigation regarding, among other
matters, the release of any Hazardous Material into the environment, the results
of which could reasonably be expected to have a Material Adverse Effect. Neither
Borrower nor any of its Subsidiaries has filed any notice under any applicable
law indicating past or present treatment, storage, disposal, generation,
transportation or reporting a spill or release into the environment of any
Hazardous Material which could reasonably be expected to have a Material Adverse
Effect. Neither Borrower nor any of its Subsidiaries has placed or disposed of,
used, generated or transported any Hazardous Material in violation of any
applicable law or regulation, upon or over any real property owned or leased by
Borrower and any of its Subsidiaries and neither Borrower nor any of its
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<PAGE>
Subsidiaries has knowledge of such Hazardous Material on such real property.
3.20 INTELLECTUAL PROPERTY; FRANCHISES; PERMITS. Except as set forth on
SCHEDULE 3.20 hereto, (a) the Borrower and its Subsidiaries own or license all
material Intellectual Property necessary for the conduct of their business as
presently conducted; (b) all material agreements pursuant to which the Borrower
and its Subsidiaries license the manufacture, marketing or sale of products
employing its Intellectual Property, and all non-governmental permits and
franchises material to the proper conduct of their business, are in full force
and effect; (c) no claims, demands, suits, or proceedings are pending or, to the
knowledge of the Borrower and its Subsidiaries, threatened which might impair
their rights in any material Intellectual Property used in the conduct of their
business or any material agreement relating thereto; and (d) the Borrower and
its Subsidiaries have not infringed (without any license therefor) any
Intellectual Property of any other Person, and the present conduct of the
Borrower's and its Subsidiaries' business does not infringe any such rights in
any way which would have a Material Adverse Effect.
3.21 NEGATIVE PLEDGES. Neither Borrower nor any of its Subsidiaries is
a party to or bound by any agreement, indenture, or other instrument which
prohibits the creation, incurrence or allowance to exist of any mortgage, deed
of trust, pledge, lien, security interest or other encumbrance or conveyance
upon Borrower's or any Subsidiary's properties, except as disclosed on SCHEDULE
3.21 hereto or in favor of the Lender.
3.22 YEAR 2000 COMPLIANCE. The Borrower has taken all necessary action
to access and evaluate all of the hardware, software, embedded microchips and
other processing capabilities it uses and which is used in the products it
sells, directly or indirectly, and has made inquiry of the Borrower's and its
Subsidiaries' material suppliers and vendors, to be able to ensure that the
Borrower and its Subsidiaries and each product they sell will be able to
function accurately and without interruption using date information before,
during and after January 1, 2000. Any reprogramming of any computer systems or
equipment required to permit the proper functioning of the Borrower and its
Subsidiaries and its business and each product it sells following January 1,
2000 and any testing of such systems and equipment and each product it sells was
completed by September 30, 1999, and the cost of such reprogramming and testing
has not and will not result in a material adverse change in the operations,
business, financial condition or prospects of the Borrower and its Subsidiaries.
3.23 FULL DISCLOSURE. The financial statements referred to in Section
3.1, the Schedules hereto, the Loan Documents and any list, certificate, written
statement, instrument, paper or other information furnished by Borrower to
Lender in connection with the Loan Documents do not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements contained therein and herein, in light of the circumstances in which
they are made, not misleading.
ARTICLE 4. - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any Commitment remains in
effect, any Note remains outstanding and unpaid, in whole or in part, or any
other amount is owing to
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Lender hereunder:
4.1 FINANCIAL STATEMENTS AND OTHER DOCUMENTS. Borrower shall furnish or
cause to be furnished to Lender:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within 45 days after the end of each of the first three quarterly fiscal
periods of the Borrower, Consolidated statements of earnings, shareholders'
equity, and cash flows of the Borrower and its Subsidiaries for such period and
for the period from the beginning of the respective fiscal year to the end of
such period, and the related Consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such period, setting forth in each case in
comparative form, the corresponding Consolidated figures for the corresponding
periods in the preceding fiscal year accompanied by a certificate of the chief
financial officer of the Borrower, which certificate shall state that said
Consolidated financial statements present fairly in all material respects the
Consolidated financial position and results of operations of the Borrower and
its Subsidiaries, in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 90 days after the end of each fiscal year of the Borrower, Consolidated
statements of earnings, shareholders' equity and cash flows of the Borrower and
its Subsidiaries for such fiscal year and the related Consolidated balance
sheets of the Borrower and its Subsidiaries as at the end of such fiscal year,
setting forth in each case in comparative form, to the extent such figures
appear therein, the corresponding Consolidated figures for the preceding fiscal
year, and accompanied by a report thereon of independent certified public
accountants satisfactory to the Lender, which report shall state that said
Consolidated financial statements present fairly in all material respects the
Consolidated financial position and results of operations of the Borrower and
its Subsidiaries as at the end of, and for, such fiscal year in accordance with
GAAP, consistently applied;
(c) PERIODIC SEC REPORTS; COMPLIANCE CERTIFICATE. Simultaneously with
the delivery of the financial statements required under Section 4.1(a) and (b)
above, (i) a copy of the Borrower's Form 10-Q or 10-K filing made for the
periods covered by such financial statements, together with (ii) a properly
completed Compliance Certificate as of the date of such financial statements, in
the form attached as EXHIBIT B hereto;
(d) OTHER SEC REPORTS. Promptly upon their becoming available, copies
of all (i) regular, periodic and special reports that the Borrower shall have
filed with the Securities and Exchange Commission (or any governmental agency
substituted therefor) pursuant to the Securities Exchange Act of 1934, as
amended, (ii) financial statements, reports, notices or proxy or other
statements sent to shareholders of the Borrower, and (iii) press releases and
other statements generally made available by the Borrower to the public
concerning material developments in the business of the Borrower;
(e) ERISA NOTICES. As soon as possible and in any event within five (5)
days after any officer of Borrower obtains knowledge thereof: (i) notice of
Borrower's failure to make any required payment to any Plan in sufficient amount
to comply with ERISA and the Code on or before the due date for such payment;
(ii) notice of the occurrence or expected occurrence of any
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"Reportable Event" under ERISA, "Prohibited Transaction" or "Accumulated Funding
Deficiency" with respect to any Plan; and (iii) notice of receipt by Borrower of
any notice (A) from a Multiemployer Plan regarding the imposition of withdrawal
liability; or (B) of the institution, or expectancy of the institution, of any
proceeding or any other action which may result in the termination of any Plan,
or Borrower's withdrawal or partial withdrawal from any Plan;
(f) NOTICE OF DEFAULT. Promptly after the Borrower knows that any
Default has occurred, a notice of such Default describing the same in reasonable
detail and, together with such notice or as soon thereafter as possible, a
description of the action that the Borrower has taken or proposes to take with
respect thereto (a "Notice of Default");
(g) PROJECTIONS; MANAGEMENT LETTER. (a) With the delivery of the
Borrower's 10-K annual report, the Borrower's quarterly projections (income
statements and balance sheets) for the then current fiscal year of the Borrower,
as approved by the Board of Directors of the Borrower and (b) as soon as
available, but in any event within 120 days after the end of each fiscal year of
the Borrower, a copy of any letter from the Borrower's auditors to Borrower's
management prepared in connection with the audited financial statements of the
Borrower; and
(h) OTHER INFORMATION. From time to time such other information
regarding the property, operations, business, financial condition or prospects
of the Borrower or any of its Subsidiaries as the Lender may reasonably request.
4.2 EXISTENCE; COMPLIANCE WITH LAWS; ETC.. Borrower shall and shall
cause each Subsidiary to:
(a) CORPORATE EXISTENCE. Preserve and keep in full force and effect its
corporate existence and all franchises, licenses and permits issued by
governmental agencies material to the proper conduct of its business;
(b) COMPLIANCE WITH APPLICABLE LAWS. Comply with and duly observe all
applicable laws, statutes, regulations, rules, ordinances, orders of court or
governmental authorities, and requirements of governmental authorities the
breach of which could reasonably be expected to have a Material Adverse Effect,
except when contested with due diligence, in good faith and in proper
proceedings. Borrower shall also pay and cause all of its Subsidiaries to pay
all of their other Indebtedness and obligations promptly and in accordance with
normal terms and trade practices.
(c) PAYMENT OF TAXES. File or cause to be filed all tax returns and
reports which are required by law to be filed by it, and pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attached thereto, except for any such tax, assessment, charge or levy the
payment of which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained in accordance with GAAP.
(d) RECORDS. Keep adequate records and books of account, in which
complete entries
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will be made in accordance with GAAP; and
(e) ACCESS. Permit representatives of Lender, upon reasonable advance
notice to the Borrower and during normal business hours, to examine, copy and
make extracts from its books and records, to inspect any of its properties,
including, without limitation, any Purchased Equipment, and to discuss its
business and affairs with its officers, all to the extent reasonably requested
by Lender.
4.3 MAINTAIN PROPERTY. Borrower shall, and Borrower shall cause each of
its Subsidiaries to, keep and maintain all property useful and necessary in its
business in good operating condition and repair, ordinary wear and tear
excepted.
4.4 INSURANCE. Borrower shall keep adequately insured by financially
sound and responsible insurers (a) all property owned or leased by it and its
Subsidiaries and all property of an insurable nature, such insurance to be in at
least such amounts and covering loss or damage from at least such risks and
hazards (including, without limitation, business interruption insurance and use
and occupancy insurance) as are usually insured against in the same geographic
areas by companies engaged in similar businesses, and (b) all liabilities of
Borrower and its Subsidiaries for damage to property, death or bodily injury,
including without limitation insurance required under all applicable workmen's
compensation laws, and insurance for such liabilities resulting from, caused by
or arising out of any product sold by any predecessor of Borrower or by Borrower
or any Subsidiary, all such insurance to be in at least such amounts as are
usually insured against by companies engaged in the same or similar businesses.
4.5 NOTICE OF MATERIAL EVENTS. Borrower will, promptly upon any officer
of Borrower obtaining knowledge thereof, give notice to Lender of (i) any
material casualty, loss or depreciation to any inventory or other property of
Borrower or any Subsidiary or any litigation, investigation or other proceeding
against or involving Borrower or any Subsidiary the result of any of which might
have a Material Adverse Effect; (ii) any litigation, investigation (other than
in the ordinary course of business), other proceeding or dispute affecting
Borrower (A) which relates, in whole or in part, to any of the transactions
contemplated by any of the Loan Documents, (B) which involves an amount in
excess of $1,000,000, or (C) which may exist between Borrower or any Subsidiary
and any governmental body; or (iii) any release of any Hazardous Materials at
any location owned or leased by Borrower or any Subsidiary or any investigation
or proceeding by any governmental body alleging or relating to the violation by
Borrower or any Subsidiary of any law or regulation. Borrower will furnish to
Lender from time to time all information which Lender shall reasonably request
with respect to the status of any litigation, investigation, other proceeding or
dispute to which Borrower is a party.
4.6 DEPOSIT ACCOUNTS. Borrower shall maintain with Lender bank accounts
to be used as its principal depository and operating account(s).
ARTICLE 5. - NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Commitment is in
effect, any Note remains outstanding and unpaid, in whole or in part, or any
other amount is owing to Lender
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hereunder, Borrower will not, directly or indirectly, and Borrower will not
permit any of its Subsidiaries to:
5.1 INDEBTEDNESS. Create, incur, assume or allow to exist any
Indebtedness, except:
(a) LOAN DOCUMENT INDEBTEDNESS. Indebtedness evidenced by the Note and
any other Indebtedness owing to or held by Lender arising under any of the Loan
Documents;
(b) DISCLOSED INDEBTEDNESS. Indebtedness of Borrower existing on the
Initial Borrowing Date and disclosed in SCHEDULE 5.1 (including, without
limitation, all Capital Lease Obligations and purchase money financings existing
on the Initial Borrowing Date); PROVIDED, HOWEVER, that, without the prior
written consent of Lender, none of such Indebtedness shall be renewed, extended
or otherwise modified in any material respect and may be extended by Borrower
only on substantially the same terms and conditions as in effect on the date
hereof;
(c) UNSECURED CURRENT LIABILITIES. Unsecured current liabilities (not
the result of borrowing) incurred in the ordinary course of business which are
not evidenced by notes or instruments and which are not more than sixty (60)
days overdue from the original due dates thereof (unless and to the extent only
that any such liability is contested by Borrower in good faith by appropriate
proceedings and adequate reserves have been set aside with respect thereto in
accordance with GAAP);
(d) ADDITIONAL CAPITAL LEASES AND PURCHASE MONEY FINANCINGS. Capital
Leases and purchase money financings incurred in the ordinary course of business
by Borrower for the lease or purchase of Capital Equipment provided that the
aggregate outstanding amount of all Capital Leases and purchase money financings
existing on the Initial Borrowing Date plus all additional Capital Leases and
purchase money financings incurred after the Initial Borrowing Date shall not
exceed $20,000,000, the amount of each such Capital Lease or purchase money
financing does not exceed 100% of the lesser of the cost or fair market value of
such Capital Equipment (and Borrower agrees to furnish copies of the
documentation for its outstanding Capital Leases and purchase money financings
to Lender from time to time upon request);
(e) INDEBTEDNESS AMONG SUBSIDIARIES. Indebtedness existing as of the
date hereof and disclosed on Schedule 5.1 of (i) Subsidiaries of the Borrower to
the Borrower, (ii) the Borrower to any of its Subsidiaries, or (iii)
Subsidiaries to Subsidiaries, provided that any such Indebtedness of the
Borrower to its Subsidiaries is subordinated as to payment of the Obligations in
a manner satisfactory to Lender; and
(f) APPROVED INDEBTEDNESS. Indebtedness for borrowed money incurred
after the Initial Borrowing Date with prior notice to and the written consent of
Lender.
5.2 CONTINGENT LIABILITIES. Except for Contingent Liabilities existing
on the Initial Borrowing Date and disclosed on SCHEDULE 5.2, create, incur,
assume or allow to exist any Contingent Liabilities in excess of $500,000, in
the aggregate, except for Contingent Liabilities arising out of the endorsement
of instruments for deposit or collection in the ordinary course of business.
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5.3 LIMITATION ON LIENS. Create, incur, assume or allow to exist, any
Lien upon any of its property, income or profits, whether now owned or held or
hereafter acquired, including attachment, levy, garnishment or other judicial
process relating to such property, except:
(a) Liens in existence on the date hereof and listed on SCHEDULE 5.3
hereof;
(b) Liens imposed by any governmental authority for taxes, assessments
or charges not yet due or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Borrower, in accordance with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business that are not
overdue or that are being contested in good faith and by appropriate proceedings
if adequate reserves with respect thereto are maintained or the books of the
Borrower, in accordance with GAAP;
(d) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of property or imperfections in title thereto that, in the aggregate, are not
material in amount, and that do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries;
(g) Liens upon Capital Equipment to secure purchase money Indebtedness
or Capital Lease of the Borrower or a Subsidiary permitted under Section 5.1(a);
PROVIDED, THAT, (i) such Lien does not extend to or cover any other property of
the Borrower or such Subsidiary and (ii) such Lien does not secure any
Indebtedness other than the Indebtedness so incurred;
(h) Liens arising from or upon any judgment or award, provided that
such judgment or award does not exceed $50,000 and is being contested in good
faith by proper appeal proceedings, such judgment or award is not secured by any
Lien which is not discharged within thirty (30) days, and only so long as
execution thereon shall be stayed; and
(i) Liens now or hereafter granted to the Lender under the Loan
Documents.
5.4 MERGERS; DISSOLUTION; DISPOSALS; OR ACQUISITIONS. (a) Enter into
any transaction of merger or consolidation or amalgamation; (b) liquidate,
wind-up or dissolve itself; (c) convey, sell, issue, exchange, lease, assign,
transfer or otherwise dispose of all or any material portion of its business or
property or the business, property or stock of any Subsidiary (other than sales
of
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inventory in the ordinary course of business and obsolete equipment or equipment
no longer used or useful in the business of Borrower); or (d) without the prior
written consent of the Lender, make any Investment in or purchase, lease or
otherwise acquire all or any material portion of the business or property of any
other Person or enter into any Joint Venture or any exclusive licensing
agreement for any of its material Intellectual Property; PROVIDED, HOWEVER, that
notwithstanding the foregoing so long as no Default or Event of Default exists,
the Borrower may enter into agreements, including licensing agreements, relating
to the research, development, marketing and sale of its products and
Intellectual Property in the ordinary course of its business and on reasonable
and appropriate terms and conditions including the payment of fair and
reasonable compensation to the Borrower.
5.5 INVESTMENTS AND LOANS. Except as permitted by Section 5.1(e) make
any Investment in or make any loan or other advances of money to any Person,
including, without limitation, any Subsidiary, except for loans and advances to
employees for salary, travel advances, advances against commissions and similar
advances in the ordinary course of BUSINESS or pursuant to the investment policy
attached hereto as SCHEDULE 5.5.
5.6 DIVIDENDS. Pay or set aside any amount to pay any Dividends.
5.7 TRANSACTIONS WITH AFFILIATES. Enter into or be a party to any
agreement or transaction with any Affiliate, except in the ordinary course of
Borrower's business and pursuant to reasonable requirements of Borrower's
business and upon fair and reasonable terms and conditions which are fully
disclosed to Lender and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a person not an Affiliate of Borrower.
5.8 NEGATIVE PLEDGE. Directly or indirectly, enter into any agreement,
indenture, or other instrument which prohibits the creation, incurrence or
allowance to exist of any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance or conveyance upon any of Borrower's or its
Subsidiaries' property, except for negative pledges in connection with
Indebtedness incurred under Capital Leases and purchase money financings
permitted under Section 5.1(d) hereof, provided that such negative pledges apply
only to the Capital Equipment purchased or leased pursuant thereto and not to
any other property.
5.9 MINIMUM LIQUIDITY RATIO. Permit the Borrower's Liquidity Ratio, on
a Consolidated basis, to be less than [***] to 1.0 at any time.
5.10 MINIMUM TANGIBLE CAPITAL BASE. Permit the Borrower's Tangible
Capital Base, on a Consolidated Basis, to be less than [*******] at any time.
5.11 MINIMUM DEBT SERVICE TEST/MINIMUM CASH AND CASH EQUIVALENTS.
Permit, for any fiscal quarter, the Borrower's Debt Service Coverage Ratio, on a
Consolidated basis, to be less than [***] to 1.0, for the period of the four
consecutive fiscal quarters ending with such fiscal quarter; UNLESS the sum of
the Borrower's Unrestricted Cash on a Consolidated basis, is not less than the
GREATER of: (x) the sum of (1) the product of the net loss, as determined in
accordance with GAAP excluding all extraordinary and nonrecurring gains and
losses (the "Net Loss") for such fiscal quarter, MULTIPLIED BY four, PLUS (2)
Funded Indebtedness; or (y) the sum of
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(1) the Net Loss for the period of the four consecutive fiscal quarters ending
with such fiscal quarter, PLUS (2) Funded Indebtedness.
5.12 LINES OF BUSINESS. Engage to any significant extent, or permit any
Subsidiary to engage to any significant extent, in any line or lines of business
activity other than the biotechnology or pharmaceutical businesses.
5.13 TANGIBLE CAPITAL BASE. Permit, at any time, (a) the sum of the
Tangible Capital Base of Borrower alone and VSC alone (in each case, exclusive
of any investment in Subsidiaries and any Indebtedness owed by any Subsidiary to
the Borrower) to be less than 90% of the Tangible Capital Base of the Borrower
and its Subsidiaries.
ARTICLE 6. - CONDITIONS PRECEDENT
6.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Lender
to make a Term Loan on the Initial Borrowing Date is subject to the satisfaction
of the condition precedent that Lender shall have received on or before such
date, the following items in form and substance satisfactory to Lender and its
counsel executed where appropriate by a duly authorized officer of Borrower:
LOAN DOCUMENTS
(a) CREDIT AGREEMENT. This Agreement;
(a) TERM NOTE. The Term Note; and
(b) PLEDGE AGREEMENT. The Pledge Agreement, together with
originals of all share certificates of capital stock
of VSC, accompanied by an executed, undated stock
power with respect to such shares.
CORPORATE DOCUMENTS:
(d) CORPORATE RESOLUTIONS. Copies of resolutions of the Board
of Directors (and, if necessary, the Stockholders) of Borrower, authorizing the
execution, delivery and performance of the Loan Documents to which Borrower is a
party, and the transactions contemplated thereby, certified as of the Initial
Borrowing Date by the Secretary/Clerk or Assistant Secretary/Clerk of Borrower
(which certificate shall state that such resolutions have not been amended,
modified, revoked or rescinded as of such date);
(e) CORPORATE INCUMBENCY CERTIFICATE. Certificate of the
Secretary/Clerk or Assistant Secretary/Clerk of Borrower, dated as of the
Initial Borrowing Date, certifying the names and titles of the officers
authorized to execute the Loan Documents to which Borrower is a party and any
other documents related to any thereof, together with specimen signatures of
such officers;
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(f) CHARTER DOCUMENTS. Copies of (i) the charter documents and
all amendments thereto of Borrower and VSC, currently certified by the Office of
the Secretary of State for the Commonwealth of Massachusetts, and (ii) the
By-Laws of Borrower and VSC certified as of the Initial Borrowing Date by the
Secretary/Clerk or Assistant Secretary/Clerk of the Borrower;
(g) LEGAL GOOD STANDING CERTIFICATES. For each of Borrower and
VSC, a certificate of legal existence and good standing issued by the Office of
the Secretary of State for the Commonwealth of Massachusetts and a certificate
of foreign qualification and good standing issued by the Secretary of State of
each state of foreign qualification or authorization, all of which shall be
dated currently;
(h) TAX GOOD STANDING CERTIFICATES. For each of Borrower and
VSC, a certificate of tax good standing currently dated from each jurisdiction
in which such party is obliged to file tax returns and pay taxes (or, to the
extent any such certificates are unobtainable, because it is not the practice of
the taxing authority to issue such certificate, or because of time delays in the
issuance of such certificate attributable to such taxing authority, a letter
from Borrower's or VSC's, as the case may be, chief financial officer setting
forth the nature of the tax obligation and the relevant jurisdiction, and
certifying that all required returns have been duly filed and all required taxes
shown thereon paid);
MISCELLANEOUS DOCUMENTS:
(i) UCC AND OTHER SEARCHES. Copies of UCC, tax lien, judgment,
bankruptcy and other searches reasonably requested by Lender of all appropriate
filing offices relating to the Borrower and its Subsidiaries;
(j) TERMINATIONS AND DISCHARGES. Termination Statements,
mortgage discharges and other discharges of all Liens other than those permitted
under Section 5.3 hereof;
(k) LEGAL OPINIONS. Written opinions of counsel for Borrower
and VSC in form and content satisfactory to Lender, dated the Initial Borrowing
Date, addressed to Lender and covering such matters related to the Borrower and
VSC and the transactions contemplated hereby as Lender may request;
(l) CONSENTS. Copies of all consents or approvals of any
Person that may be required in connection with the transactions contemplated by
the Loan Documents;
(m) FEES. Execution of the facility fee letter referenced
under Section 2.7 hereof, and payment of the facility fee set forth therein,
together with the estimated fees and disbursements of Lender's counsel in
connection with the Loan Documents and the transactions contemplated hereby; and
(n) ADDITIONAL CLOSING AGENDA ITEMS. Fulfillment, to Lender's
satisfaction, of each of the additional items set forth on the closing agenda
for this transaction.
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6.2 CONDITIONS OF ALL LOANS. The Lender's obligation to make any Loan
is subject to the fulfillment of the following additional conditions precedent:
(a) REPRESENTATIONS. The representations and warranties made
by any party to any Loan Document (other than Lender) in any Loan Document or in
any certificate, document or financial or other statement furnished at any time
under or in connection therewith shall be true and correct on and as of the
Borrowing Date for such Loan as if made on and as of such date, provided that,
if any such representation or warranty is expressly required herein or therein
to be made only as of a specific date, such representation or warranty shall be
true or correct as of such date;
(b) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on the Borrowing Date for such Loan either before or
after giving effect to the Loan made on such date; and
(c) NO MATERIAL ADVERSE EFFECT. There shall have occurred no
event or change in circumstances having a Material Adverse Effect since the date
of the most recent financial statements delivered by Borrower to Lender.
Each request for a Loan by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such request or
application that the conditions contained in paragraphs (a) through (c) of this
Section 6.2 have been satisfied.
ARTICLE 7. - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:
(a) FAILURE OF PAYMENT. If Borrower fails to pay any
principal, interest or other amount due, under this Agreement or with respect to
any Loan on the date due (whether on a scheduled payment date or otherwise) and
in the manner provided herein;
(b) MISSTATEMENTS. If any representation, warranty or other
statement made herein or in any other Loan Document or otherwise in writing by
or on behalf of Borrower or any Subsidiary in connection herewith proves to be
or to have been incorrect or misleading in any material respect as of the date
at which it is made or deemed to be made;
(c) PERFORMANCE OF OTHER COVENANTS. If Borrower defaults in
the due performance or observance of:
(i) any covenant contained in Sections 4.1, 4.2(a) or 4.4
or Article 5 or
(ii) any other covenant, condition or provision to be
performed or observed by it hereunder or under any of
the Loan Documents (other than a payment or covenant
default the performance or observance of which is dealt
with specifically elsewhere in this Section 7.1) and
the breach of
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such other provision is not cured to Lender's
satisfaction within thirty (30) days after the sooner
to occur of Borrower's receipt of notice of such
breach from Lender or the date on which such failure
or neglect first becomes known to any officer of
Borrower.
(d) OTHER INDEBTEDNESS. If Borrower or any Subsidiary
defaults, which default continues after any applicable grace or cure period, in
any payment of principal of or interest on any Indebtedness for borrowed money
in excess of $1,000,000, including, without limitation, on any Capital Lease or
any other default occurs with respect to any Indebtedness for borrowed money in
excess of $1,000,000 giving the holder thereof the right to accelerate the
payment thereof or require such Indebtedness to be paid before its stated
maturity or before any regularly scheduled date of prepayment;
(e) MATERIAL CONTRACTS. Any default occurs under any material
contract of Borrower or any Subsidiary which default gives any other party to
such contract the right to terminate such contract or exercise remedies and such
termination or remedies are reasonably likely to have a Material Adverse Effect;
(f) JUDGMENTS. If Borrower or any Subsidiary permits any
judgment against it in excess of $1,000,000 to remain undischarged for a period
of more than thirty (30) days unless (i) during such period such judgment is
effectively stayed or bonded, on appeal or otherwise; or (ii) such judgment is
insured, subject only to the Borrower's or Subsidiary's regular deductible
amount, without exception;
(g) LEVY, ATTACHMENTS. If any levy, seizure, attachment,
execution or similar process shall be issued on any of the Borrower's or its
Subsidiaries' cash, accounts or any material property and, with respect to
attachments only, such attachment is not voided or removed within 10 days of
such issuance;
(h) VOLUNTARY BANKRUPTCY. If Borrower or any Subsidiary (i)
commences a voluntary case under the Bankruptcy Code (as now or hereafter in
effect); or (ii) files a petition or commences any case, proceeding, or action
in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up,
arrangement, composition, readjustment of its debts or any other relief under
any other bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or similar act or law of any
jurisdiction, now or hereafter existing; or (iii) takes any action indicating
its consent to, approval of, or acquiescence in, any such case, proceeding or
other action; or (iv) applies for a receiver, trustee or custodian of it or for
all or a substantial part of its property; or (v) makes an assignment for the
benefit of creditors; or (vi) is unable to pay its debts as they mature or
admits in writing such inability; or (vii) is adjudicated insolvent or bankrupt;
(i) INVOLUNTARY BANKRUPTCY. (i) If there is commenced against
Borrower or any Subsidiary (1) an involuntary case under the Bankruptcy Code (as
now or hereafter in effect); or (2) any case or proceeding or any other action
in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up,
arrangement, composition, readjustment of its debts or any other relief under
any other bankruptcy, insolvency, reorganization, liquidation, dissolution,
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arrangement, composition, readjustment of debt or similar act or law of any
jurisdiction, now or hereafter existing, or seeking appointment of a receiver,
trustee or custodian of Borrower or any Subsidiary or for all or a substantial
part of the property of either of them, and any of the foregoing cases,
proceedings, or actions is not dismissed within sixty (60) days; or (ii) if an
order, judgment or decree approving any of the foregoing is entered or a warrant
of attachment, execution or similar process against any substantial part of the
property of Borrower or any Subsidiary is issued, and such order, judgment,
decree, warrant, execution or similar process is not vacated or stayed within
sixty (60) days; or (iii) if an order for relief under the Bankruptcy Code (as
now or hereafter in effect) is entered against Borrower or any Subsidiary;
(j) CHANGE IN CONTROL OF BORROWER. A Change in Control shall
occur; or
(k) MATERIAL ADVERSE EFFECT. Any event or change in
circumstances having a Material Adverse Effect.
7.2 LENDER'S REMEDIES. Upon the occurrence of any such Event of
Default, Lender may, at Lender's option, immediately exercise one or more of the
following rights: (a) declare all obligations of Lender to Borrower, including,
without limitation, the Commitments to be terminated, whereupon such obligations
shall immediately terminate; (b) declare all obligations of Borrower to Lender,
including, without limitation, the Loans and all other amounts owing under this
Agreement and the Note to be immediately due and payable, whereupon they shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived; and (c) exercise
any and all rights and remedies of the Lender under Section 11 of the Pledge
Agreement; PROVIDED, however, that upon the occurrence of any such Event of
Default specified in Sections 7.1(h) or 7.1(i), the Commitments shall
immediately terminate and all obligations of Borrower to Lender, including,
without limitation, Loans and all other amounts owing under this Agreement and
the Note shall immediately become due and payable without presentment, further
demand, protest or notice of any kind, all of which are hereby expressly waived.
7.3 CROSS DEFAULT It is agreed by Borrower that any Event of Default
under this Agreement will constitute an event of default under all Loans and all
of the Loan Documents and all other agreements and evidences of Indebtedness
between Borrower and Lender, whether now existing or hereafter executed and
whether or not such is an event of default therein.
7.4 SETOFF. Borrower hereby grants to Lender a lien, security interest
and right of set off as security for all liabilities and obligations to Lender,
whether now existing or hereafter arising, upon and against all deposits,
credits, collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Lender or any entity under the control of Fleet
Financial Group, Inc., or in transit to any of them. At any time, without demand
or notice, Lender may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Loans. ANY AND ALL RIGHTS TO
REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
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RESPECT TO SUCH DEPOSITS, CREDIT OR OTHER PROPERTY OF THE BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
ARTICLE 8. - MISCELLANEOUS
8.1 NOTICES. Except as otherwise specified herein, all notices to or
upon the parties hereto shall be in writing (including teletransmissions), shall
be given or made to the party to which such notice is required or permitted to
be given or made under this Agreement at the address or telex or telecopier
number set forth below or at such other address or telex or telecopier number as
any party hereto may hereafter specify to the others in writing, and (unless
otherwise specified herein) shall be deemed delivered on receipt, if
teletransmitted or delivered by hand, or three (3) Business Days after mailing,
and all mailed notices shall be by registered or certified mail, postage
prepaid:
If to Borrower to:
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, MA 02139
Attention: Thomas G. Auchincloss, Jr., Vice President of
Finance
Fax No. (617) 577-6680
With a copy to:
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, MA 02139
Attention: Sarah P. Cecil, Esquire, Corporate Counsel
Fax No. (617) 577-6680
If to Lender to:
Fleet National Bank
High Technology Division
One Federal Street
Boston, MA 02110
Attention: Kimberly A. Martone, Senior Vice President
Fax No. 617-346-0151
With a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Attention: Jeffery L. Keffer, Esquire
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Facsimile No. (617) 856-8201
8.2 NO WAIVER OF RIGHTS. No failure to exercise nor any delay in
exercising, on the part of Lender, any right, remedy, power or privilege under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power, or privilege operate as a waiver
of any further or complete exercise thereof. No waiver shall be effective unless
in writing. No waiver or condonation of any breach on one occasion shall be
deemed a waiver or condonation on any other occasion.
8.3 OBLIGATIONS ABSOLUTE; CUMULATIVE REMEDIES. All payments to be made
by the Borrower hereunder and under the Note and other Loan Documents shall be
made in immediately available funds and shall be absolute and unconditional and
shall not be subject to set off, recoupment or counterclaim of any kind. Each of
the Loan Documents and the obligations of Borrower thereunder are in addition to
and not in substitution for any other obligations or security interests now or
hereafter held by Lender and shall not operate as a merger of any contract or
debt or suspend the fulfillment of or affect the rights, remedies, powers, or
privileges of Lender in respect of any obligation or other security interest
held by it for the fulfillment thereof. The rights and remedies provided in the
Loan Documents are cumulative and not exclusive of any other rights or remedies
provided by law.
8.4 SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of Borrower, Lender and all future holders of the Note, and their
respective successors and assigns, except that Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of Lender. Lender shall have the unrestricted right at any time or from time to
time, and without Borrower's consent, to assign all or any portion of its rights
and obligations hereunder to one or more banks or other financial institutions
(each, an "Assignee"), and Borrower agrees that it shall execute, or cause to be
executed, such documents, including without limitation, amendments to this
Agreement and to any other documents, instruments and agreements executed in
connection herewith as Lender shall deem necessary to effect the foregoing. In
addition, at the request of Lender and any such Assignee, Borrower shall issue
one or more new promissory notes, as applicable, to any such Assignee and, if
Lender has retained any of its rights and obligations hereunder following such
assignment, to Lender, which new promissory notes shall be issued in replacement
of, but not in discharge of, the liability evidenced by the Note held by Lender
prior to such assignment and shall reflect the amount of the respective
Commitments and Loans held by such Assignee and Lender after giving effect to
such assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments and any other documentation required by Lender in
connection with such assignment, and the payment by Assignee of the purchase
price agreed to by Lender, and such Assignee, such Assignee shall be a party to
this Agreement and shall have all of the rights and obligations of Lender
hereunder (and under any and all other guaranties, documents, instruments and
agreements executed in connection herewith) to the extent that such rights and
obligations have been assigned by Lender pursuant to the assignment
documentation between Lender and such Assignee, and Lender shall be released
from its obligations hereunder and thereunder to a corresponding extent. Lender
may furnish any information concerning Borrower in its possession from time to
time to prospective Assignees, provided that Lender shall require any
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such prospective Assignee to agree in writing to maintain the confidentiality of
such information.
8.5 PARTICIPANTS.
(a) LENDER'S RIGHTS. Lender shall have the unrestricted right
at any time and from time to time, and without the consent of or notice
to Borrower or any guarantor, to grant to one or more banks or other
financial institutions (each, a "Participant") participating interests
in Lender's obligation to lend under the Loan Documents and/or any or
all of the loans held by Lender hereunder. In the event of any such
grant by Lender of a participating interest to a Participant, whether
or not upon notice to Borrower, Lender shall remain responsible for the
performance of its obligations under the Loan Documents and Borrower
shall continue to deal solely and directly with Lender in connection
with Lender's rights and obligations hereunder and thereunder. Lender
may furnish any information concerning Borrower in its possession from
time to time to prospective participants, provided that Lender shall
require any such prospective participant to agree in writing to
maintain the confidentiality of such information.
(b) QUALIFYING PARTICIPATION EVENT. A "Qualifying
Participation Event" shall be deemed to have occurred upon the
occurrence of all of the following on or before December 31, 2000: (i)
a Participant who is a non-affiliate of the Lender and who is
satisfactory in all respects to the Lender in its discretion purchasing
a participation interest in Lender's obligation to lend under the Loan
Documents and/or any or all of the loans held by Lender hereunder in
the amount of not less than $5,000,000; (ii) the execution and delivery
of such a Participant's written agreement that the Amortization Number
(as defined in the Term Note) may be increased to forty (40); and (iii)
the execution and delivery by such a Participant of any and all
documents evidencing such purchase in form and substance satisfactory
to the Lender. The Borrower agrees that: (i) the Lender has no
obligation to solicit potential Participants; and (ii) the Lender has
no obligation to require or persuade potential Participants to agree to
increase the Amortization Number to forty (40) as a pre-condition to
becoming a Participant.
8.6 GOVERNING LAW. This Agreement, the Note and other Loan Documents
shall be governed by, and construed and interpreted in accordance with, the laws
of the Commonwealth of Massachusetts.
8.7 SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY.
(a) For purposes of any action or proceeding involving the
Loan Documents or any other agreement or document referred to therein, Borrower
hereby submits to the jurisdiction of all federal and state courts located in
the Commonwealth of Massachusetts and consents that any order, process, notice
of motion or other application to or by any of said courts or a judge thereof
may be served within or without such court's jurisdiction by registered mail or
by personal service, PROVIDED a reasonable time for appearance is allowed (but
not less than the time otherwise afforded by any law or rule).
(b) THE BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY,
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VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION
HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ACCEPT THIS AGREEMENT AND MAKE THE LOANS.
8.8 COMPLETE AGREEMENT, AMENDMENTS. This Agreement, together with the
Note and other Loan Documents contains the entire agreement between the parties
with respect to the transactions contemplated hereby, and supersedes all
negotiations, presentations, warranties, commitments, offers, contracts and
writings prior to the date hereof relating to the subject matter. This Agreement
may only be amended, modified, waived, discharged or terminated by a writing
signed by the party to be charged with such amendment, modification, waiver,
discharge or termination.
8.9 EXPENSES. The Borrower shall pay on demand, regardless of whether
any Default or Event of Default has occurred or whether any proceeding to
enforce any Loan Document has been commenced, all out-of-pocket expenses
(including, without limitation, the reasonable fees and disbursements of counsel
to Lender) incurred by Lender in connection with (a) the negotiation,
preparation, filing or recording of the Loan Documents, and any future requests
for amendments or waivers of the Loan Documents (whether or not the transactions
contemplated thereby shall be consummated), (b) the collection of the Loans and
any and all other obligations of Borrower to Lender whether now existing or
hereafter arising, or with the preservation, exercise or enforcement of Lender's
rights and remedies under or in connection with the Loan Documents, including,
without limitation, any and all expenses incurred by Lender in or in connection
with any case commenced by or against Borrower under the Bankruptcy Code, and
(c) any claim or liability for any stamp, excise or other similar taxes and any
penalties or interest with respect thereto that may be levied, collected,
withheld or assessed by any jurisdiction in connection with the execution and
delivery of the Loan Documents or any modification thereof. This covenant shall
survive payment of the Loans and termination of this Agreement. Borrower hereby
authorizes Lender to debit Borrower's deposit accounts if Borrower fails to pay
such amount promptly after demand.
8.10 INDEMNIFICATION. Borrower agrees to indemnify and hold Lender
harmless from and against any and all loss, liability, obligations, damages,
penalties, judgments, actions, investigations, claims, costs and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
now or in the future incurred by or asserted against Lender by any Person
arising out of or in connection with any past, present, or future action or
inaction by Lender or Borrower in connection with any Loan Document, or any
transaction contemplated thereby, except any action or inaction arising out of
Lender's gross negligence or willful misconduct as determined by a court of
competent jurisdiction in an order binding on Lender and not subject to appeal.
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8.11 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations
and warranties made herein and in the certificates delivered pursuant hereto
shall survive the making of Loans and the execution and delivery to Lender of
the Note and shall continue in full force and effect so long as any Note is
outstanding and unpaid or this Agreement remains in effect. All agreements,
obligations and liabilities of Borrower under this Agreement concerning the
payment of money to Lender, other than the obligation to pay principal of and
interest on Loans, shall survive the payment in full of Loans and termination of
this Agreement.
8.12 SEVERABILITY. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8.13 DESCRIPTIVE HEADINGS. The Table of Contents and the captions in
this Agreement are for convenience of reference only and shall not define or
limit the provisions hereof.
8.14 COUNTERPARTS. This Agreement may be executed by one or more of the
parties on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
8.15 PLEDGE TO FEDERAL RESERVE. Lender may at any time pledge all or
any portion of its rights under the Loan Documents including any portion of the
Note to any of the twelve (12) Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement
thereof shall release Lender from its obligations under any of the Loan
Documents.
8.16 LOST NOTE. Upon receipt of an affidavit of an officer of Lender as
to the loss, theft, destruction or mutilation of the Note or any other Loan
Documents which is not of public record, and, in the case of any such loss,
theft, destruction or mutilation, upon receipt of an affidavit of surrender and
cancellation of such Note or other Loan Document, Borrower will issue, in lieu
thereof, a replacement Note or other Loan Document in the same principal amount
thereof and otherwise of like tenor.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as an instrument under seal by their respective duly authorized officers as of
the date first written above.
WITNESS: VERTEX PHARMACEUTICALS INCORPORATED
___________________________ By: _________________________________________
Name: Thomas G. Auchincloss, Jr.
Title: Vice President, Finance
FLEET NATIONAL BANK
___________________________ By: _________________________________________
Name: Kimberly A. Martone
Title: Senior Vice President
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SCHEDULE 1
DEFINITIONS
"ACCUMULATED FUNDING DEFICIENCY" - the amount referred to by such term
as defined in Section 302(a)(2) of ERISA.
"AFFILIATE" - as to any Person (a) any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any other Person who is an officer or director of such
Person, or (c) any Person described in clause (a) above (other than any
Subsidiary all of the capital stock of which is owned by Borrower).
"AUTHORIZED REPRESENTATIVE" - any person holding the position of
President, Treasurer or Vice President of Finance of the Borrower at any time.
"BANKRUPTCY CODE" - The Bankruptcy Reform Act of 1978, as heretofore
and hereafter amended, and codified as 11 U.S.C. Sections 101, et seq.
"BORROWING DATE" - the Business Day on which any Loan is made.
"BUILD-OUT FEES" - the fees earned and reimbursable expenses incurred
by architects, contractors, and engineers for their services in connection with
the build-out of the Borrower's premises at 200 Sidney Street, Cambridge,
Massachusetts.
"BUSINESS DAY" - any day other than a Saturday, Sunday or day on which
shall be in the Commonwealth of Massachusetts a legal holiday or a day on which
banking institutions in Boston, Massachusetts are required or authorized to
close.
"CAPITAL EQUIPMENT" - equipment that in accordance with GAAP is
required or permitted to be depreciated or amortized on Borrower's balance
sheet.
"CAPITAL EXPENDITURES" - for any period, the sum of (i) all
expenditures that, in accordance with GAAP, are required to be included in land,
property, plant or equipment or similar fixed asset account (whether involving
real or personal property) and (ii) Capital Lease Obligations incurred during
such period (excluding renewals of Capital Leases).
"CAPITAL LEASE" - any capital lease, conditional sales contract or
other title retention agreement relating to the acquisition of Capital
Equipment.
"CAPITAL LEASE OBLIGATIONS" - the aggregate capitalized amount of the
obligations of Borrower under all Capital Leases.
"CASH EQUIVALENTS" - (a) securities with maturities of 180 days or less
from the date of acquisition issued or fully guaranteed or insured as to payment
of principal and interest by the United States or any agency thereof, (b)
certificates of deposit with maturities of 365 days or less
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from the date of acquisition issued by Lender or any domestic commercial bank
having capital and surplus reasonably acceptable to Lender and (c) commercial
paper of a domestic issuer rated at least either A-1 by Standard & Poor's or B-1
by Moody's Investors Service with maturities of 180 days or less from the date
of acquisition.
"CHANGE IN CONTROL" - at any time that any Person, together with the
affiliates and associates of such Person within the meaning of Rule 12b-2 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), shall acquire
beneficial ownership within the meaning of Rule 13d of the Exchange Act of fifty
(50%) percent or more of the voting stock or total equity of the Borrower, or if
a change in the Board of Directors of Borrower in which the individuals who
constituted the Board of Directors at the beginning of the two (2) year period
immediately preceding such change (together with any other director whose
election by the Board of Directors was approved by at least two-thirds of the
directors then in office at the beginning of such period) cease for any reason
to constitute a majority of the directors of the Borrower then in office.
"COMMITMENTS" - the Term Loan Commitment.
"COMMONLY CONTROLLED ENTITY" - an entity, whether or not incorporated,
which is under common control with Borrower within the meaning of Section 414(b)
or (c) of the IRC.
"CONSOLIDATED" - when used with reference to any term, that term as
applied to the accounts of the Borrower and all of its Subsidiaries,
consolidated in accordance with GAAP.
"CONTINGENT LIABILITY" - any obligation of Borrower guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly.
"DEBT SERVICE COVERAGE RATIO" - for any period, the quotient of: (i)
the sum of (a) net earnings (loss) as determined in accordance with GAAP
excluding all extraordinary and nonrecurring gains, PLUS (b) the sum of
interest, taxes, depreciation, and amortization (to the extent that any of the
foregoing were deducted in calculating net earnings (loss)); DIVIDED BY (ii) the
sum of (a) current maturities of long-term Indebtedness, PLUS (ii) interest
expense, PLUS (iii) non-financed Capital Expenditures.
"DEFAULT" - any event specified in Article 7, whether or not any
requirement for the giving of notice or lapse of time or any other condition has
been satisfied.
"DIVIDENDS" means, for any applicable period, the aggregate of all
amounts paid or payable (without duplication) as dividends (exclusive of
dividends payable solely in capital stock of Borrower), distributions or owner
withdrawals with respect to Borrower's shares of capital stock, whether now or
hereafter outstanding and includes any purchase, redemption or other retirement
of any shares of the Borrower's stock, directly or indirectly.
"DOLLARS" and "$" - lawful money of the United States. Any reference to
payment means payment in lawful money of the United States in immediately
available funds.
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"ELIGIBLE ACCOUNTS" - shall mean accounts receivable of the Borrower
arising from the sale of inventory or provision of services in the ordinary
course of business, that are unpaid less than 90 days from the invoice date,
that are not subject to counterclaim, setoff or other claim of any kind, and
that are otherwise reasonably acceptable to Lender.
"ERISA" - the Employee Retirement Income Security Act of 1974, as
amended from time to time, including all regulations promulgated under such Act.
"EVENT OF DEFAULT" - any event specified in Article 7, PROVIDED that
any requirement for the giving of notice or lapse of time or any other condition
has been satisfied.
"FUNDED INDEBTEDNESS" - shall mean all obligations of the Borrower for
borrowed money including, without limitation, all Capital Lease Obligations and
all obligations in respect of advances made or to be made under letters of
credit issued for such Person's account and in respect of acceptance of drafts
drawn by such Person.
"GAAP" - those generally accepted accounting principles set forth in
Statements of the Financial Accounting Standards Board and in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants or which have other substantial authoritative support in the United
States and are applicable in the circumstances, as applied on a consistent
basis. As used in the preceding sentence "consistent basis" shall mean that the
accounting principles observed in the current period are comparable in all
material respects to those applied in the preceding period.
"HAZARDOUS MATERIAL" - any hazardous waste, toxic substance hazardous
chemical, radioactive material, hazardous material, oil or gasoline, under any
applicable federal or state statute, county or municipal law or ordinance,
including (without limitation) any substance defined as a "hazardous substance"
or "toxic substance" (or comparable term) in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended (42 U.S.C. 9601, ET SEQ.),
the Hazardous Materials Transportation Act (49 U.S.C. 1802), or the Resource
Conservation and Recovery Act (42 U.S.C. 6901, ET SEQ.).
"INDEBTEDNESS" - with respect to any Person, any item that would
properly be included as a liability on the liability side of a balance sheet of
such Person as of any date as of which Indebtedness is to be determined and
includes (but is not limited to) (a) all obligations for borrowed money
including all Loans, (b) all obligations evidenced by bonds, debentures, notes
or other similar instruments, (c) all obligations to pay the deferred purchase
price of property or services, (d) all Capital Lease Obligations, (e) all
Contingent Liabilities, and (e) all obligations in respect of advances made or
to be made under letters of credit issued for such Person's account and in
respect of acceptances of drafts drawn by such Person.
"INITIAL BORROWING DATE" - the date of this Agreement.
"INTANGIBLE ASSETS" - all intangible assets of the Borrower including,
without limitation, all deferred assets, patents, copyrights, trademarks,
non-compete agreements and similar intangibles, good will, unamortized debt
discount and expenses, and all investments other than
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Marketable Investments.
"INTELLECTUAL PROPERTY" - shall mean "Intellectual Property," as
defined in Section 101(35A) of the Bankruptcy Code, now or hereafter owned by
Borrower or any of its Subsidiaries, together with all of the following property
now or hereafter owned by Borrower or any of its Subsidiaries: all domestic and
foreign patents and patent applications; inventions, discoveries and
improvements, whether or not patentable; trademarks, trademark applications and
registrations; service marks, service mark applications and registrations;
copyrights, copyright applications and registrations; all licenses therefor;
trade secrets and all other proprietary information.
"INVESTMENT" - any transfers of property to, contribution to capital
of, acquisition of stock, other securities or evidences of indebtedness of,
acquisition of businesses of, or acquisition of property of, any Person, other
than in the ordinary course of business.
"IRC" - the Internal Revenue Code of 1986, as amended from time to time
and including all regulations promulgated thereunder.
"JOINT VENTURE" - a single-purpose corporation, partnership, limited
liability company, joint venture or other similar legal arrangement (whether
created by contract or conducted through a separate legal entity) now or
hereafter formed by Borrower or any of its Subsidiaries with another Person in
order to conduct a common venture or enterprise with such Person.
"LIEN" - any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance (including, without limitation, any
easement, right-of-way, zoning or similar restriction or title defect), lien
(statutory or other) or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC or comparable
law of any jurisdiction).
"LIQUIDITY RATIO" - at any date, the quotient of: (a) the sum of
Unrestricted Cash, PLUS Marketable Investments, PLUS Eligible Accounts; DIVIDED
BY (b) all Indebtedness of the Borrower.
"LOAN" or "LOANS" - any Term Loan.
"LOAN DOCUMENTS" - this Agreement, the Term Note, and all other
instruments and documents executed in connection with the Indebtedness covered
hereby and thereby.
"MARKETABLE INVESTMENTS" - any interest-bearing debt obligations owned
by Borrower (excluding directors' qualifying shares and items included as Cash
Equivalents) which meet the definition of marketable securities under GAAP. Such
amounts shall exclude common or preferred stock. Such securities shall include
obligations issued by the U.S. Treasury and other agencies of the U.S.
government, corporate bonds, bank notes, mortgage and asset backed securities,
finance company securities and auction rate preferred stocks. Such securities
shall be rated investment grade (BBB or better for bonds or similar securities,
A1/P1 for commercial
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paper and notes) and shall otherwise be liquid investments as reasonably
determined by Lender.
"MATERIAL ADVERSE EFFECT" - means a material adverse effect, as
reasonably determined by the Lender, on (a) the property, business, operations,
financial condition, liabilities or capitalization of Borrower or of Borrower
and its Subsidiaries taken as a whole; or (b) the validity or enforceability of
any of the Loan Documents.
"MULTIEMPLOYER PLAN" - a Plan which is a multiemployer plan as defined
in Section 3(37)(A) of ERISA or Section 414(f) of the IRC.
"NOTE" - the Term Note.
"OBLIGATIONS" means all loans, advances, interest, fees, debts,
guaranties, liabilities, obligations (including without limitation the Loans and
contingent obligations under guarantees), agreements, undertakings, covenants
and duties owing or to be performed or observed by Borrower to or in favor of
Lender, of every kind and description (whether or not evidenced by any note or
other instrument; for the payment of money; arising out of the Loans, this
Agreement or any other agreement between Lender and Borrower or any other
instrument of Borrower in favor of Lender; arising out of or relating or similar
to transactions described herein; or contemplated as of the Initial Borrowing
Date), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, including without limitation all interest, fees,
charges, and amounts chargeable to Borrower under this Agreement.
"PBGC" - the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERSON" - an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"PLAN" - any pension plan, as defined in Section 3(2) of ERISA and any
welfare plan, as defined in Section 3(1) of ERISA, which is sponsored,
maintained or contributed to by Borrower or any Commonly Controlled Entity, or
in respect of which Borrower or a Commonly Controlled Entity is an "employer" as
defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENT" - the Pledge Agreement in the form of EXHIBIT C
hereto, as it may be amended, supplemented or otherwise modified, from time to
time.
"PROHIBITED TRANSACTION" - any of the transactions set forth in Section
406 of ERISA to the extent not exempt under Section 408 of ERISA.
"PURCHASED EQUIPMENT" - the equipment and fixtures at 200 Sidney
Street, Cambridge, Massachusetts 02139 purchased by Borrower.
"PURCHASED EQUIPMENT COST" - the amount paid by Borrower to purchase
the Purchased
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Equipment or to pay Build-Out Fees.
"QUALIFYING PARTICIPATION EVENT" - has the meaning set forth in Section
8.5 hereof.
"REPORTABLE EVENT" - any of the events set forth in Section 4043(b) of
ERISA.
"SUBORDINATED DEBT" - Indebtedness of Borrower and its Subsidiaries
that by its terms is fully subordinated to the payment and enforcement of the
Loans in a manner satisfactory to the Lender.
"SUBSIDIARY" - with respect to any Person, any corporation,
partnership, trust or other organization, whether or not incorporated, the
majority of the voting stock or voting rights of which is owned or controlled,
directly or indirectly, by such Person.
"TANGIBLE CAPITAL BASE" - the sum of shareholders' equity, PLUS
Subordinated Debt, LESS Intangible Assets.
"TERM LOAN" - any loan made pursuant to Section 2.1.
"TERM LOAN COMMITMENT" - the commitment by the Lender to make Term
Loans pursuant to Section 2.1.
"TERM LOAN COMMITMENT PERIOD" - the period from and including the
Initial Borrowing Date to and including December 31, 2000.
"TERM LOAN LIMIT" - $20,000,000, less the aggregate principal amount of
all Term Loans made to Borrower.
"TERM NOTE" - a promissory note of Borrower made to evidence the Term
Loans in the form of EXHIBIT A, as it may be amended, supplemented or otherwise
modified, from time to time.
"TERMINATION DATE" - the earlier of (a) December 30, 2005, and (b) the
date the Lender's commitment to make Loans is terminated pursuant to Section 7.2
of Article 7.
"UNRESTRICTED CASH" - cash and Cash Equivalents of the Borrower or VSC
that are readily available to Borrower or VSC, as the case may be, and not
subject to any lien or limitation or restriction on their use by the Borrower or
VSC, as the case may be.
"VSC" - Vertex Securities Corp., a Massachusetts corporation.
- -61-
<PAGE>
SCHEDULE 3.1
FINANCIAL STATEMENTS OF BORROWER PROVIDED
Year 2000 Forecasted Statement of Operations:
- - Summary Income Statement
- - Major Expense Groupings
- - Forecasted Balance Sheets
- -62-
<PAGE>
SCHEDULE 3.3
SUBSIDIARIES, INVESTMENTS AND +5% SHAREHOLDERS
SUBSIDIARIES:
Vertex Securities Corp. (incorporated in Massachusetts) (wholly-owned)
Vertex Pharmaceuticals (Europe) Limited (incorporated in England) (wholly-owned)
INVESTMENTS:
Altus Biologics Inc. (incorporated in Massachusetts). At December 31, 1998,
Vertex owned approximately 70% of the capital stock of Altus. On February 5,
1999, Vertex restructured its investment in Altus. As part of the transaction,
Vertex provided Altus $3,000,000 of cash in exchange for preferred stock and
warrants. The preferred stock provides Vertex with a minority ownership position
in Altus, and the warrants become exercisable upon certain events. As a result
of the transaction, Altus now operates independently from Vertex. In addition,
Vertex has retained a non-exclusive royalty-free right to use Altus' technology
for discovering, developing and manufacturing small molecule drugs. Vertex
records its percentage of Altus' net income and losses using the equity method
of accounting.
Versal Technologies Inc. (incorporated in Massachusetts). Vertex owns less than
20% of total Versal shares outstanding.
PRINCIPAL SHAREHOLDERS
As of 12/17/99, based solely upon information filed by shareholders with the
S.E.C.:
<TABLE>
<CAPTION>
Shares Percentage
------ ----------
Name Beneficially Owned of Total
- ---- ------------------ --------
<S> <C> <C>
Wellington Management Company LLP .................... 2,704,200 10.7%
Trimark Financial Corporation ........................ 2,102,000 8.3%
Bluewater Fund ....................................... 1,370,000 5.4%
</TABLE>
- -63-
<PAGE>
SCHEDULE 3.6
CONSENTS AND APPROVALS REQUIRED
None
- -64-
<PAGE>
SCHEDULE 3.8
LITIGATION
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against the
Company and Eli Lilly and Company in the United States District Court for the
Northern District of California, alleging infringement by the defendants of
various U.S. patents issued to Chiron. The infringement action relates to
research activities by the defendants in the hepatitis C viral protease field
and the alleged use of inventions claimed by Chiron in connection with that
research and development. Chiron has requested damages in an unspecified amount,
as well as an order permanently enjoining the defendants from unlicensed use of
Chiron inventions. While the final outcome of these actions cannot be
determined, the Company believes that the plaintiff's claims are without merit
and intends to defend the actions vigorously.
- -65-
<PAGE>
SCHEDULE 3.11
BURDENSOME RESTRICTIONS
None
- -66-
<PAGE>
SCHEDULE 3.18
LOCATION OF ASSETS
130 Waverly Street, Cambridge, MA, USA (includes buildings located at 40 Allston
Street, 228 and 240 Sidney Street, 62 Hamilton Street, and 625 Putnam Street,
Cambridge, Massachusetts)
88 Milton Park, Abingdon, Oxon OX14 4RY, U.K.
Items in storage in leased premises at 345 Vassar Street and 21 Erie Street,
Cambridge, MA, and in contracted warehouse storage at 134 Mass. Ave.
(Metropolitan Storage), Cambridge, and 41 Atlantic Ave in Woburn (Sacco's
Storage Warehouse).
Office equipment and related property maintained by medical liaison field staff
based in 12 locations in the U.S., Germany, France and Italy (1 employee in each
location)
In addition, from time to time Vertex compounds and other research and
development materials are sent to contract testing laboratories and process
development contractors for testing, scale-up and manufacture. Some clinical
trial materials may be located in off-site storage facilities.
The Purchased Equipment will be located at 200 Sidney Street, Cambridge, MA.
- -67-
<PAGE>
SCHEDULE 3.20
INTELLECTUAL PROPERTY DISCLOSURE
See Schedule 3.8
In addition, an opposition to one of Vertex's patents in the EPO has been filed
by another pharmaceutical company.
- -68-
<PAGE>
SCHEDULE 3.21
NEGATIVE PLEDGES
None
- -69-
<PAGE>
SCHEDULE 5.1
INDEBTEDNESS
Capital Leases
- --------------
- - BankBoston Balance at 11/30/99 = $1,848,807
- - GE Capital Balance at 11/30/99 = $4,447,321
- - Lasalle Balance at 11/30/99=$886,717
- - Apple Comm Credit Balance at 11/30/99 = $87,926
Operating Leases
- ----------------
- - Fort Washington Realty Trust lease expires 1/1/01
- - Fort Washington Limited Partnershipleases expire12/31/09 & 12/31/05
- - Fort Washington Limited Partnership (new building) lease expires 5/1/10
- - Hybridon lease expires 10/01/00
- - Sidney Street Enterprises lease expires 12/1/00
- - C. Vincent Vappi lease expires 12/31/03
- - Milton Park Limited (UK) lease expires 12/31/09
Purchase Commitments
- --------------------
- - Silicon Graphics - Supercomputer lease through 2001
- - Various Software - approx. $350,000 per year for 2000 & 2001
- -70-
<PAGE>
SCHEDULE 5.2
CONTINGENT LIABILITIES
None
- -71-
<PAGE>
SCHEDULE 5.3
DISCLOSED LIENS
PRECISION CORPORATE SERVICES, INC.
October 12, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - CAMBRIDGE CITY CLERK, MA
THROUGH DATE: OCTOBER 4, 1999 Page 1 of 5
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Mar. 23, 1992 #055544 SNET Credit Inc.
North Haven, CT 06473
Assignment Filed 07-16-93
Assignment Filed 08-09-95
Continuation Filed 10-02-96
Apr. 13, 1992 #055593 SNET Credit, Inc.
North Haven, CT 06473
Assignment Filed 07-16-93
Assignment Filed 08-09-95
Continuation Filed 10-15-96
Jun. 05, 1992 #055728 SNET Credit, Inc.
North Haven, CT 06473
Assignment Filed 07-16-93
Assignment Filed 08-09-95
Continuation Filed 12-10-96
Aug. 26, 1992 #055976 SNET Credit, Inc.
North Haven, CT 06473
Assignment Filed 08-09-95
Continuation Filed 01-02-97
Oct. 14, 1992 #056113 General Electric Capital
Corporation
Hunt Valley, MD
#056113 Continuation Filed 04-24-97
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -72-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 12, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - CAMBRIDGE CITY CLERK, MA
THROUGH DATE: OCTOBER 4, 1999 Page 2 of 5
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Jan. 21, 1993 #056399 General Electric Capital
Corporation
Hunt Valley, MD
Continuation Filed 07-23-97
Oct. 07, 1993 #057220 General Electric Capital
Corporation
Hunt Valley, MD 21031
Continuation Filed 04-16-98
Jan. 13, 1994 #057551 General Electric Capital
Corporation
Hunt Valley, MD 21031
Continuation Filed 07-24-98
Jan. 20, 1995 #058888 BayBank Boston, N.A.
Boston, MA 01803
Assignment Filed 08-28-97
Amendment Filed 09-26-97
Apr. 27, 1995 #059248 BayBank Boston, N.A.
Boston, MA 02110
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Jun. 28, 1995 #059459 BayBank Boston, N.A.
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -73-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 12, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - CAMBRIDGE CITY CLERK, MA
THROUGH DATE: OCTOBER 4, 1999 Page 3 of 5
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Boston, MA 02110
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Sep. 20, 1995 #059731 BayBank Boston, N.A.
Boston, MA 02110
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Dec. 29, 1995 #060100 BayBank , N.A.
Boston, MA 02110
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Apr. 30, 1996 #060550 BayBank, N.A.
Burlington, MA 01803
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Assignment Filed 10-09-97
Jul. 02, 1996 #060862 BayBank, N.A.
Burlington, MA 01803
Assignment Filed 09-26-97
Amendment Filed 09-26-97
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -74-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 12, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - CAMBRIDGE CITY CLERK, MA
THROUGH DATE: OCTOBER 4, 1999 Page 4 of 5
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Assignment Filed 10-09-97
Oct. 15, 1996 #061251 BayBank, N.A.
Burlington, MA 01803
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Assignment Filed 10-09-97
Jan. 15, 1997 #061671 BayBank
Burlington, MA 01803
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Feb. 11, 1997 #061786 BayBank, N.A.
Burlington, MA 01803
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Assignment Filed 10-09-97
May 08, 1997 #062107 BayBank, N.A.
Burlington, MA
Assignment Filed 09-26-97
Amendment Filed 09-26-97
Assignment Filed 10-09-97
Aug. 05, 1997 #062498 BancBoston Leasing Inc.
Burlington, MA 01803
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -75-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 12, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - CAMBRIDGE CITY CLERK, MA
THROUGH DATE: OCTOBER 4, 1999 Page 5 of 5
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Amendment Filed 09-26-97
Oct. 03, 1997 #062753 General Electric Capital
Corporation
Hunt Valley, MD
Amendment Filed 06-18-98
Nov. 13, 1997 #062933 Silicon Graphics, Inc.
Mountain View, CA
Jan. 05, 1998 #063181 General Electric Capital
Corporation
Hunt Valley, MD
Apr. 09, 1998 #063544 General Electric Capital
Corporation
Hunt Valley, MD 21030
Jul. 10, 1998 #063965 General Electric Capital
Corporation
Hunt Valley, MD 21030
Nov. 03, 1998 #064537 General Electric Capital
Corporation
Hunt Valley, MD 21030
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -76-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 6, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - MASSACHUSETTS SECRETARY OF STATE
THROUGH DATE: OCTOBER 01, 1999 Page 1 of 6
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Mar. 25, 1992 #081823 SNET Credit, Inc.
North Haven, CT 06473
#176429 Assignment Filed 07-28-93
#330976 Assignment Filed 08-09-95
#420394 Continuation Filed 10-02-96
Apr. 13, 1992 #085553 SNET Credit, Inc.
North Haven, CT 06473
#174092 Assignment Filed 07-16-93
#330975 Assignment Filed 08-09-95
#423008 Continuation Filed 10-15-96
Jun. 05, 1992 #096063 SNET Credit, Inc.
North Haven, CT 06473
#174067 Assignment Filed 07-16-93
#330974 Assignment Filed 08-09-95
#434738 Continuation Filed 12-10-96
June. 26, 1992 #100038 SNET Credit, Inc.
North Haven, CT 06473
#174069 Assignment Filed 07-16-93
#330978 Assignment Filed 08-09-95
#439923 Continuation Filed 01-02-97
Sep. 08, 1993 #112691 SNET Credit, Inc.
North Haven, CT 06473
#174070 Assignment Filed 07-16-93
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -77-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 6, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - MASSACHUSETTS SECRETARY OF STATE
THROUGH DATE: OCTOBER 01, 1999 Page 2 of 6
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
#330979 Assignment Filed 08-09-95
#455902 Continuation Filed 03-20-97
Oct. 02, 1992 #117565 SNET Credit, Inc.
North Haven, CT 06473
#175873 Assignment Filed 07-26-93
#330980 Assignment Filed 08-09-95
#460297 Continuation Filed 04-10-97
Oct. 15, 1992 #119868 General Electric Capital
Corporation
Hunt Valley, MD
#463703 Continuation Filed 04-24-97
Jan. 20, 1993 #138847 General Electric Capital
Corporation
Hunt Valley, MD
#485092 Continuation Filed 07-23-97
Oct. 07, 1993 #190096 General Electric Capital
Corporation
Hunt Valley, MD 21031
#542955 Continuation Filed 04-15-98
Jan. 24, 1994 #211595 General Electric Capital
Corporation
Hunt Valley, MD 20131
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -78-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 6, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - MASSACHUSETTS SECRETARY OF STATE
THROUGH DATE: OCTOBER 01, 1999 Page 3 of 6
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
#567708 Continuation Filed 07-29-98
Jan. 13, 1995 #286425 BayBank Boston, N.A.
Boston, MA 01803
#493006 Assignment Filed 08-27-97
#499617 Amendment Filed 09-25-97
Apr. 24, 1995 #308152 BayBank Boston, N.A.
Boston, MA 02110
#499605 Assignment Filed 09-25-97
#499628 Amendment Filed 09-25-97
May 15, 1995 #312413 Xerox Corporation
Stamford, CT, 06907
Jun. 28, 1995 #322275 BayBank Boston, N.A.
Boston, MA 02110
#499606 Assignment Filed 09-25-97
#499627 Amendment Filed 09-25-97
Sep. 29, 1995 #341260 BayBank Boston, N.A.
Boston, MA 02110
#499607 Assignment Filed 09-25-97
#499626 Amendment Filed 09-25-97
Dec. 28, 1995 #360219 BayBank , N.A.
Boston, MA 02110
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -79-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 6, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - MASSACHUSETTS SECRETARY OF STATE
THROUGH DATE: OCTOBER 01, 1999 Page 4 of 6
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
#499608 Assignment Filed 09-25-97
#499625 Amendment Filed 09-25-97
Apr. 24, 1996 #384660 BayBank, N.A.
Burlington, MA 01803
#499624 Amendment Filed 09-25-97
#499909 Assignment Filed 09-26-97
#502436 Assignment Filed 10-08-97
Jul. 01, 1996 #400581 BayBank, N.A.
Burlington, MA 01803
#499609 Assignment Filed 09-25-97
#499623 Amendment Filed 09-25-97
#502435 Assignment Filed 10-08-97
Oct. 07, 1996 #421439 BayBank, N.A.
Burlington, MA 01803
#499610 Assignment Filed 09-25-97
#499622 Amendment Filed 09-25-97
#502434 Assignment Filed 10-08-97
Jan. 10, 1997 #441294 BayBank, N.A.
Burlington, Ma
#499611 Assignment Filed 09-25-97
#499621 Amendment Filed 09-25-97
Jan. 13, 1997 #442078 LINC Quantum Anayltics
Inc.
Foster City, CA 94404
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -80-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 6, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - MASSACHUSETTS SECRETARY OF STATE
THROUGH DATE: OCTOBER 01, 1999 Page 5 of 6
<TABLE>
<CAPTION>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C> <C>
Feb. 05, 1997 #446572 BayBank, N.A.
Burlington, MA 01803
#499612 Assignment Filed 09-25-97
#499620 Amendment Filed 09-25-97
#502432 Assignment Filed 10-08-97
May 06, 1997 #466394 BayBank, N.A.
Burlington, Ma
#499613 Assignment Filed 09-25-97
#499619 Amendment Filed 09-25-97
#502433 Assignment Filed 10-08-97
Aug. 14, 1997 #490197 BancBoston Leasing Inc.
Burlington, MA 01803
#499618 Amendment Filed 09-25-97
Oct. 03, 1997 #501217 General Electric Capital
Corporation
Hunt Valley, MD
#558209 Amendment Filed 07-18-98
Nov. 13, 1997 #510374 Silicon Graphics Inc.
Mountain View, CA
Jan. 05, 1998 #521048 General Electric Capital
Corporation
Hunt Valley, MD
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -81-
<PAGE>
PRECISION CORPORATE SERVICES, INC.
October 6, 1999
SUBJECT: VERTEX PHARMACEUTICALS INCORPORATED
SEARCH REQUEST: UCC - MASSACHUSETTS SECRETARY OF STATE
THROUGH DATE: OCTOBER 01, 1999 Page 6 of 6
<TABLE>
- -----File Date---------File Number -----------------Type--------------Description---------------
<S> <C> <C>
Jan. 09, 1998 #522144 Silicon Graphics, Inc.
Mt. View, CA 94043
Apr. 08, 1998 #541304 General Electric Capital
Corporation
Hunt Valley, MD 20130
Jul. 09, 1998 #563183 General Electric Capital
Corporation
Hunt Valley, MD
Oct. 30, 1998 #587614 General Electric Capital
Corporation
Hunt Valley, MD 21030
</TABLE>
Precision Corporate Services cannot be held liable as to the accuracy of the
information contained herein. This information is derived from public records
which are maintained by government officials.
P.O. Box 1673, McCormack Station, Boston, MA 02105 (617) 227-2276
- -82-
<PAGE>
SCHEDULE 5.5
INVESTMENT POLICIES
VERTEX PHARMACEUTICALS INCORPORATED
INVESTMENT POLICY GUIDELINES
FISHER, FRANCIS, TREES AND WATTS, INC.
I. PURPOSE
To establish policy and guidelines for investment of corporate surplus
cash. "Surplus cash" is cash in corporate accounts not immediately
required for debt repayment, working capital, capital investment, or
other outstanding near-term financial obligations.
II. OBJECTIVES
The investment portfolio will be managed to:
A. Maximize returns versus the industry averages.
B. Diversify investments to minimize the risk and inappropriate
concentrations of investments with any one entity.
Securities in the portfolio may be actively traded before maturation.
Gains and losses may be realized on certain trades in order to more
effectively reposition the portfolio for performance within specified
parameters. Total net realized losses (realized losses net of realized
gains) are not to exceed $175,000 per fiscal quarter.
III. INVESTMENT RESTRICTIONS
Investments shall be made in the context of the following investment
guide lines:
The current benchmark for duration and performance of the portfolio:
25% in the Merrill 3 month treasury index
75% in the Merrill 1-3 year treasury index
Periodic liquidity in the portfolio will be required for use in funding
the operations of the Company. Notification of a draw-down will be
given with a reasonable amount of time as to avoid any unneccesary
trading losses.
Eligible Investments:
1. Direct obligations of the U.S. Treasury including bills,
notes, and bonds.
- -83-
<PAGE>
2. Obligations issued or guaranteed by agencies or instruments of
the U.S. government.
3. Bank obligations, including certificates of deposit, bank
notes and bankers acceptances. Investments in these securities
is limited to banks whose long term debt is rated "A" or
higher by Moody's or Standard & Poor's and short term
obligations are rated "P-l " or higher by Moody's or "A-l " or
higher by Standard & Poor's.
4. Corporateobligations, including intermediate term notes rated
"A" or higher by Moody's or Standard & Poors and Commercial
Paper rated "P-l" or higher by Moody's, or "A-l" or higher by
Standard & Poor's.
5. At the discretion of the Treasurer, a maximum 20% of the
portfolio, at the time of purchase, may be invested in
corporate obligations with a short term rating of A2/P2 and
long term ratings of Baa1/BBB+, with a maturity not to exceed
six months.
6. Repurchase agreements collateralized at a minimum of 102% with
U.S. Treasury securities or other securities rated "AAA/Aaa"
or equivalent.
7. Internal money market funds may be utilized for excess cash in
the portfolio. Outside money market funds over $1 billion in
assets consisting of acceptable securities are appropriate for
investing, as long as the fund's manager has been in business
over five years, has name recognition, ant that performance
that is easily tracked.
8. U.S. and dollar denominated International corporate debt of
all types is acceptable as long as the issuer meets credit
rating and marketability guidelines.
9. Asset backed and mortgage backed securities (including CMOs)
with AAA/Aaa credit rating or equivalent are acceptable
investments. Expected maturity should be no longer than four
years.
10. Fannie Mae, Freddie Mac, and Ginnie Mae securities are
acceptable investments.
11. Treasury futures, including Eurodollar futures, on allowable
securities otherwise eligible for purchase into the portfolio
may be used to manage the duration of the portfolio though
their exercise dates must be within + (-) six months of the
duration of the portfolio.
IV. MATURITIES, DURATION, VOLATILITY
The maximum maturity of individual securities or the maximum average
life of a security in the portfolio may not exceed 4 years.
- -84-
<PAGE>
The effective duration of the portfolio may not exceed 2 years.
For securities which have put dates, reset dates, or are traded based
on their average maturity, the put date, reset date, or average
maturity will be used, instead of the final maturity date, for maturity
guideline purposes.
The overall volatility of the entire portfolio will be 2% or less at
all times.
V. CONCENTRATION LIMITS/RESTRICTIONS
There is no minimum or maximum limit to the percentage of the portfolio
invested in securities issued by the U.S. Treasury or by its agencies
and instrumentalities.
No one issuer or group of issuers from the same holding company, is to
exceed 10% of the portfolio at time of purchase, with the exception of
US Government securities.
Excess concentrations is any one sector or any one type of security
(i.e. corporates, mortgage-backed, asset backed, repos) should be
avoided and no one sector or class should represent more than 50% of
the portfolio with the exception of US Government securities.
VI. INVESTMENT PERFORMANCE
The company shall review the performance of it's investment managers on
at least an annual basis. A quarterly meeting will be held in person or
by telephone with the Treasurer to review performance figures and any
updated liquidity needs and to discuss portfolio strategy.
VII. CREDIT QUALITY
Should any investment held in Vertex's portfolio be down-graded below
the minimum prescribed rating, immediate notification must be made to
Vertex.
VIII. MARKETABILITY
All securities are to be purchased through investment banking and
brokerage firms of high quality and reputation, with a history of
making markets for the securities in which we invest. All holdings will
be of sufficient size and held in issues traded actively enough to
facilitate minimum transaction costs and accurate market valuations.
IX. TRADING GUIDELINES
Normal investing practice is to actively manage the account and
reinvest funds to take advantage of changing market conditions or
reinvest on the day a security matures to maximize interest. A daily
transaction log is to be maintained and available for review at
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any time. All trading firms must generate a hard copy document for each
transaction which is mailed to Vertex on a timely basis, and then
matched to the transaction log.
X. SAFEKEEPING
Assets are to be held in a segregated bank custody account at State
Street Bank with separate fiduciary account documents executed by and
between State Street and Vertex. Assets shall not be held by any
investment manager or securities dealer.
Xl. FIDUCIARY DISCRETION
The manager has full discretion to invest capital subject with strict
adherence to these guidelines. These guidelines are to be reviewed
periodically by the Treasurer and revisions made consistent with
objectives set forth herein.
APPROVED BY: DATE: 11/17/97
-----------------------------------------------------
Thomas G. Auchincloss, Treasurer
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VERTEX PHARMACEUTICALS INCORPORATED
INVESTMENT POLICY GUIDELINES
MERRILL LYNCH
I. PURPOSE
To establish policy and guidelines for investment of corporate surplus
cash. "Surplus cash" is cash in corporate accounts not immediately
required for debt repayment, working capital, capital investment, or
other outstanding near-term financial obligations.
II. OBJECTIVES
The investment portfolio will be managed to:
A. Maximize returns versus the industry averages.
B. Diversify investments to minimize the risk and inappropriate
concentrations of investments with any one entity.
Securities in the portfolio may be actively traded before maturation.
Gains and losses may be realized on certain trades in order to more
effectively reposition the portfolio for performance within specified
parameters. Total net realized losses (realized losses net of realized
gains) are not to exceed $175,000 per fiscal quarter.
III. INVESTMENT RESTRICTIONS
Investments shall be made in the context of the following investment
guide lines:
The current BENCHMARK for duration and performance of the portfolio:
25% in the Merrill 3 month treasury index
75% in the Merrill 1-3 year treasury index
Periodic liquidity in the portfolio will be required for use in funding
the operations of the Company. Notification of a draw-down will be
given with a reasonable amount of time as to avoid any unnecessary
trading losses.
Eligible Investments:
1. Direct obligations of the U.S. Treasury including bills,
notes, and bonds.
2. Obligations issued or guaranteed by agencies or instruments of
the U.S. government.
3. Bank obligations, including certificates of deposit, bank
notes and bankers
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acceptances. Investments in these securities is limited to
banks whose long term debt is rated "A" or higher by Moody's
or Standard & Poor's and short term obligations are rated "P-l
" or higher by Moody's or "A-l " or higher by Standard &
Poor's.
4. Corporate obligations, including intermediate term notes rated
"A" or higher by Moody's or Standard & Poors and Commercial
Paper rated "P-l" or higher by Moody's, or "A-l" or higher by
Standard & Poor's.
5. At the discretion of the Treasurer, a maximum 20% of the
portfolio, at the time of purchase, may be invested in
corporate obligations with a short term rating of A2/P2 and
long term ratings of Baa1/BBB+, with a maturity not to exceed
six months.
6. Repurchase agreements collateralized at a minimum of 102% with
U.S.. Treasury securities or other securities rated "AAA/Aaa"
or equivalent.
7. Internal money market funds may be utilized for excess cash in
the portfolio. Outside money market funds over $1 billion in
assets consisting of acceptable securities are appropriate for
investing, as long as the fund's manager has been in business
over five years, has name recognition, ant that performance
that is easily tracked.
8. U.S. and dollar denominated International corporate debt of
all types is acceptable as long as the issuer meets credit
rating and marketability guidelines.
9. Asset backed and mortgage backed securities (including CMOs)
with AAA/Aaa credit rating or equivalent are acceptable
investments. Expected maturity should be no longer than four
years.
10. Fannie Mae, Freddie Mac, and Ginnie Mae securities are
acceptable investments.
IV. MATURITIES, DURATION, VOLATILITY
The maximum maturity of individual securities or the maximum average
life of a security in the portfolio may not exceed 4 years.
The effective duration of the portfolio may not exceed 2 years.
For securities which have put dates, reset dates, or are traded based
on their average maturity, the put date, reset date, or average
maturity will be used, instead of the final maturity date, for maturity
guideline purposes.
The overall volatility of the entire portfolio will be 2% or less at
all times.
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V. CONCENTRATION LIMITS/RESTRICTIONS
There is no minimum or maximum limit to the percentage of the portfolio
invested in securities issued by the U.S. Treasury or by its agencies
and instrumentalities.
No one issuer or group of issuers from the same holding company, is to
exceed 10% of the portfolio at time of purchase, with the exception of
US Government securities.
Excess concentrations is any one sector or any one type of security
(i.e. corporates, mortgage-backed, asset backed, repos) should be
avoided and no one sector or class should represent more than 50% of
the portfolio with the exception of US Government securities.
VI. INVESTMENT PERFORMANCE
The company shall review the performance of it's investment managers on
at least an annual basis. A quarterly meeting will be held in person or
by telephone with the Treasurer to review performance figures and any
updated liquidity needs and to discuss portfolio strategy.
VII. CREDIT QUALITY
Should any investment held in Vertex's portfolio be down-graded below
the minimum prescribed rating, immediate notification must be made to
Vertex.
VIII. MARKETABILITY
All securities are to be purchased through investment banking and
brokerage firms of high quality and reputation, with a history of
making markets for the securities in which we invest. All holdings will
be of sufficient size and held in issues traded actively enough to
facilitate minimum transaction costs and accurate market valuations.
IX. TRADING GUIDELINES
Normal investing practice is to actively manage the account and
reinvest funds to take advantage of changing market conditions or
reinvest on the day a security matures to maximize interest. A daily
transaction log is to be maintained and available for review at any
time. All trading firms must generate a hard copy document for each
transaction which is mailed to Vertex on a timely basis, and then
matched to the transaction log.
X. SAFEKEEPING
Assets are to be held in a segregated bank custody account at State
Street Bank with separate fiduciary account documents executed by and
between State Street and Vertex. Assets shall not be held by any
investment manager or securities dealer.
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Xl. FIDUCIARY DISCRETION
The manager has full discretion to invest capital subject to strict
adherence to these guidelines. These guidelines are to be reviewed
periodically by the Treasurer and revisions made consistent with
objectives set forth herein.
APPROVED BY: DATE: 11/17/97
------------------------------------------------------
Thomas G. Auchincloss, Treasurer
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VERTEX PHARMACEUTICALS INC.
INVESTMENT POLICY GUIDELINES FOR:
CAPITAL ADVISORS
I. PURPOSE
To establish policy and guidelines for investment of corporate surplus
cash. "Surplus cash" is cash in corporate accounts not immediately
required for debt repayment, working capital, capital investment, or
other outstanding near-term financial obligation-.
OBJECTIVES
Conservation of capital and maintenance of liquidity until funds can be
used in business operations.
A Preserve capital.
B. Anticipate liquidity requirements.
C. Maximize returns versus the industry averages.
D. Diversify investments to minimize the risk and inappropriate
concentrations of investments with any one entity.
E. Provide fiduciary control of cash and investments by
individuals approved by the Board.
II. LIQUIDITY GUIDELINES
Excess cash is invested with liquidity in mind, and without any loss of
principal. Daily liquidity is essential, restriction on liquidity are:
At least $1,000,000 must be available each business day until 2:30 p.m.
Eastern time with no loss of principal.
At least $2,500,000 must be available within 30 days with no loss of
principal.
The remainder of the funds are to be invested, consistent with
anticipated cash needs, in securities with maturities no longer than 4
years. Repositioning of these securities before their maturity,
generating small gains or losses, is permitted for managing liquidity
requirements only. Any repositioning of securities causing a gain or
loss must be pre-approved by the V.P. Finance and Treasurer for
fiduciary control
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purposes.
III. INVESTMENT RESTRICTIONS
Investments shall be made in the context of the following investment guide
lines:
ELIGIBLE INVESTMENTS
1. Direct obligations of the U.S. Treasury including bills, notes, and
bonds.
2. Obligations issued or guaranteed by agencies or instruments of the U.S.
government.
3. Bank obligations, including certificates of deposit, bank notes and
bankers acceptances. Investments in these securities is limited to
banks whose long term debt is rated "A" or higher by Moody's or
Standard & Poor's and short term obligations are rated "P-l " or higher
by Moody's or "A-l " or higher by Standard & Poor's.
4. Corporate obligations, including intermediate term notes rated "A" or
higher by Moody's or Standard & Poors and Commercial Paper rated "P-l"
or higher by Moody's, or "A-l" or higher by Standard & Poor's.
5. At the discretion of the Senior Director of Finance, a maximum 20% of
the portfolio, at the time of purchase, may be invested in corporate
obligations with a short term rating of A2/P2 and long term ratings of
Baa1/BBB+, with a maturity not to exceed six months.
6. Repurchase agreements collateralized at a minimum of 102% with U.S..
Treasury securities or other securities rated "AAA/Aaa" or equivalent.
7. Money market funds over $1 billion in assets consisting of acceptable
securities are appropriate for investing, as long as the fund's manager
has been in business over five years, has name recognition, ant that
performance that is easily tracked.
8. U.S. and dollar denominated International corporate debt of all types
is acceptable as long as the issuer meets credit rating and
marketability guidelines. Pre-approval of Senior Director of Finance
shall be obtained.
9. Floating rate note securities are acceptable with maturities greater
than 18 months only if they have a readjustment period of 6 months or
less, are government issued (AAA Credit Rating) and are to reset off a
common short term index (3 month treasury index). Terms of reset
mechanisms including caps, floors and spreads shall be reviewed and
approved by the
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Senior Director of Finance.
IV. MATURITIES
The maximum maturity of individual securities in the portfolio may not
exceed 4 years.
The average maturity of the portfolio may not exceed 2 years.
For securities which have put dates, reset dates, or are traded based
on their average maturity, the put date, reset date, or average
maturity will be used, instead of the final maturity date, for maturity
guideline purposes. Notification to the Treasurer is needed prior to
purchase of any maturity greater than 1 year.
V. CONCENTRATION LIMITS/RESTRICTIONS
There is no limit to be percentages of the portfolio which may be
maintained in securities issued by the U.S. Treasury or by its agencies
and instrumentalities.
No one issuer or group of issuers from the same holding company, is to
exceed 15% of the portfolio at time of purchase, with the exception of
Government securities.
U.S. bank and insurance company securities (CDs, commercial paper, BAs,
etc..), must not in total exceed 60% of the portfolio. Holdings of one
issuer cannot exceed 10% of the total portfolio at the time of
purchase.
VI. INVESTMENT PERFORMANCE
The company shall review the performance of it's investment managers on
at least an annual basis. A quarterly meeting will be held with the
individual appointed by the board for fiduciary controls, to review
performance figures and any updated liquidity needs and to discuss
portfolio strategy.
VII. CREDIT QUALITY
Trends for a given company or industry must be reviewed periodically by
the Treasurer and adjustments in percentage positions made accordingly.
Should any investment held in Vertex's portfolio fall short of
prescribed guidelines, immediate notification must be made to the
individual appointed by the board to oversee fiduciary controls.
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<PAGE>
VIII. MARKETABILITY
All securities are to be purchased through investment banking and
brokerage firms of high quality and reputation, with a history of
making markets for the securities in which we invest. In the unlikely
event that securities must be sold before their maturity, the
securities must be easily remarketed. To accomplish this, the
securities must be conventional "products" with strong name
recognition.
IX. TRADING GUIDELINES
Normal investing practice is to reinvest the funds on the day a
security matures, to maximize interest. A daily transaction log is to
be maintained and available for review at any time. All trading firms
must generate a hard copy document for each transaction which is mailed
to us on a timely basis, and then matched to the transaction log.
Quarterly summaries of our investment holdings and cash usage are to be
made available for board review.
X. SAFEKEEPING
Assets are to be held in a segregated bank custody account with
separate fiduciary account documents executed by the bank. Assets shall
not be held by any investment manager or securities dealer.
Xl. FIDUCIARY DISCRETION
The Treasurer and his/her authorized employees are responsible for
securing and managing investments and cash for operations. These
individuals have full discretion to invest any excess capital subject
to strict adherence to these guidelines. These guidelines are to be
reviewed periodically with the Chief Business Officer and revisions
made consistent with objectives set forth herein.
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EXHIBIT A TO CREDIT AGREEMENT
TERM NOTE
$20,000,000.00 Boston, Massachusetts
December 21, 1999
1. PROMISE TO PAY.
FOR VALUE RECEIVED, VERTEX PHARMACEUTICALS INCORPORATED, a Massachusetts
corporation, having an address at 130 Waverly Street, Cambridge, Massachusetts
02139, ("Borrower") promises to pay to the order of FLEET NATIONAL BANK, a
national banking association, having an address at One Federal Street, Boston,
Massachusetts 02110 ("Lender"), the principal sum of TWENTY MILLION DOLLARS
($20,000,000.00), or so much thereof as may be advanced as Term Loans from time
to time under the Credit Agreement, defined below, with interest thereon, or on
the amount thereof from time to time outstanding, to be computed, as hereinafter
provided, on each advance from the date of its disbursement until such principal
sum shall be fully paid. Interest and principal shall be payable as set forth in
Section 4 below. The total principal sum, or the amount thereof outstanding,
together with any accrued but unpaid interest, shall be due and payable in full
on December 30, 2005 ("Maturity Date"), or earlier, as provided under Section 7
hereof. All payments shall be in lawful money of the United States in
immediately available funds.
2. CREDIT AGREEMENT.
This Note is issued pursuant to the terms, provisions and conditions of a
certain Credit Agreement between Borrower and Lender dated as of the date hereof
(the "Credit Agreement"), as amended from time to time, and evidences the Term
Loans made pursuant thereto. Capitalized terms used herein which are
specifically defined herein shall have the meanings assigned to such terms
herein, and Capitalized Terms which are not otherwise specifically defined shall
have the same meaning herein as in the Credit Agreement.
3. INTEREST RATES.
3.1 BORROWER'S OPTIONS. Principal amounts outstanding hereunder shall
bear interest at the following rates, at Borrower's selection, subject to the
conditions and limitations provided for in this Note: (i) Variable Rate or (ii)
Libo Rate.
3.1.1. SELECTION TO BE MADE. Borrower shall select, and
thereafter may change the selection of, the applicable interest rate, from the
alternatives otherwise provided for in this Note, by giving Lender a Notice of
Rate Selection: (i) prior to the end of each Interest Period applicable to a
Libor Advance, or (iii) on any Business Day on which Borrower desires to convert
an outstanding Variable Rate Advance to a Libor Advance.
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3.1.2. NOTICE OF RATE SELECTION. A "Notice of Rate Selection"
shall be a written notice, given by cable, tested telex, telecopier (with
authorized signature), or by telephone if immediately confirmed by such a
written notice, from an Authorized Representative of Borrower which: (i) is
irrevocable with respect to the interest rate, amount, and Interest Period
selected; (ii) is received by Lender not later than 10:00 o'clock A.M. Eastern
Time: (a) if a Libo Rate is selected, at least three (3) Business Days prior to
the first day of the Interest Period to which such selection is to apply, (b) if
a Variable Rate is selected, on the first day to which it applies; and (iii) as
to each selected interest rate option, sets forth the aggregate principal
amount(s) to which such interest rate option(s) shall apply and the Interest
Period(s) applicable to each Libor Advance.
3.1.3. IF NO NOTICE. If Borrower submits a borrowing request
without a Notice of Rate Selection, the Borrower authorizes the Lender in its
discretion to (a) refuse to make the requested Term Loans, or (b) make such Term
Loans as Variable Rate Advances. At the end of each applicable Interest Period,
the applicable Libor Advance shall be converted to a Variable Rate Advance
unless Borrower selects another option in accordance with the provisions of this
Note.
3.2. TELEPHONIC NOTICE. Without in any way limiting Borrower's
obligation to confirm in writing any telephonic notice, Lender may act without
liability upon the basis of telephonic notice believed by Lender in good faith
to be from Borrower prior to receipt of written confirmation. In each case
Borrower hereby waives the right to dispute Lender's record of the terms of such
telephonic Notice of Rate Selection in the absence of manifest error.
3.3 LIMITS ON OPTIONS. Each Libor Advance shall be in a minimum amount
of $1,000,000 or an integral multiple of $100,000 in excess thereof. At no time
shall there be outstanding a total of more than six (6) Libor Advances.
4. PAYMENT OF INTEREST AND PRINCIPAL.
4.1 PAYMENT AND CALCULATION OF INTEREST. All interest shall be payable
in arrears (i) on the last Business Day of each month (with respect to Variable
Rate Advances) or (ii) on the last day of each Interest Period and, if such
Interest Period is longer than three months, at three-month intervals following
the first day of such Interest Period (with respect to Libor Advances) until the
principal together with all interest and other charges payable with respect to
the Loan Advances shall be fully paid. All computations of interest under this
Note shall be made on the basis of a three hundred sixty (360) day year and the
actual number of days elapsed. Each change in the Prime Rate shall
simultaneously change the Variable Rate payable under this Note, without notice
or demand. Interest at the Libo Rate shall be computed from and including the
first day of the applicable Interest Period to, but excluding, the last day
thereof.
4.2 PRINCIPAL. Term Loans shall be paid in twenty (20) quarterly
installments, as follows: (x) the first nineteen (19) of which shall be payable
on the last Business Day of each calendar quarter commencing on March 31, 2001
and in an amount equal to the quotient of (i) the aggregate principal amount of
such Term Loans at the close of business on December 31,
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2000 divided by (ii) the Amortization Number (as defined below); and (y) the
twentieth (20th) installment shall be payable on December 30, 2005 and shall be
in the then outstanding amount of such Term Loans. The "Amortization Number"
shall be equal to: (a) forty (40), with respect to the first installment that is
payable after a Qualifying Participation Event and with respect to all
subsequent quarterly installments; and (b) twenty-eight (28), at all other
times.
4.3 BUSINESS DAYS; LATE FEE. If the entire amount of any required
principal and/or interest is not paid in full within ten (10) days after the
same is due, Borrower shall pay the Lender a late fee equal to five percent (5%)
of the required payment.
4.4 PREPAYMENT. The Loan Advances or any portion thereof may be prepaid
in full or in part at any time without premium or penalty with respect to
Variable Rate Advances and, with respect to Libor Advances subject to a
make-whole provision, as set forth in Section 4.7, and upon payment of the yield
maintenance fee (as defined herein). Any partial prepayment of principal shall
first be applied to any installment of principal then due and then be applied to
the principal due in the reverse order of maturity, and no such partial
prepayment shall relieve Borrower of the obligation to pay each subsequent
installment of principal when due.
4.5 MATURITY. At maturity all accrued interest, principal and other
charges due with respect to the Loan Advances shall be due and payable in full
and the principal balance and such other charges, but not unpaid interest, shall
continue to bear interest at the Default Rate until so paid.
4.6 DEFAULT RATE. Upon and during the continuance of an Event of
Default or after judgment has been rendered on this Note, the unpaid principal
of all Loan Advances shall, at the option of the Lender, bear interest at a rate
which is four (4) percentage points per annum greater than that which would
otherwise be applicable (the "Default Rate").
4.7 MAKE WHOLE PROVISION. Borrower may prepay a Libor Advance only upon
at least three (3) Business Days prior written notice to Lender (which notice
shall be irrevocable), and any such prepayment shall occur only on the last day
of the Interest Period for such Libor Advance. Borrower shall pay Lender, upon
request of Lender, such amount or amounts as shall be sufficient (in the
reasonable opinion of Lender) to compensate it for any loss, cost, or expense
incurred as a result of: (i) any payment of a Libor Advance on a date other than
the last day of the Interest Period for such Libor Advance; (ii) any failure by
Borrower to borrow a Libor Advance on the date specified by Borrower's written
notice; (iii) any failure by Borrower to pay a Libor Advance on the date for
payment specified in Borrower's written notice. Upon the occurrence of any of
the events set forth in items (i), (ii), or (iii) of the foregoing sentence, and
without limiting the foregoing, Borrower shall pay to Lender a "yield
maintenance fee" in an amount computed as follows: The current rate for United
States Treasury securities (bills on a discounted basis shall be converted to a
bond equivalent) (the "United States Treasury Security Rate") with a maturity
date closest to the maturity date of the term chosen pursuant to the Libor
Election (as defined below) as to which the prepayment is made, shall be
subtracted from the Libo Rate in effect at the time of prepayment. If the result
is zero or a negative number, there shall be no yield maintenance fee. If the
result is a positive number, then the resulting percentage shall be
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multiplied by the amount of the principal balance being prepaid. The resulting
amount shall be divided by 360 and multiplied by the number of days remaining in
the term chosen pursuant to the Libor Election as to which the prepayment is
made. Said amount shall be reduced to present value calculated by using the
number of days remaining in the designated term and using the above-referenced
United States Treasury Security Rate and the number of days remaining in the
term chosen pursuant to the Libor Election as to which the prepayment is made.
The resulting amount shall be the yield maintenance fee due to Lender upon
prepayment of any Libor Advance. Each reference in this paragraph to "Libor
Election" shall mean the election by the Borrower to apply the Libo Rate to the
Loan, pursuant to a Notice of Rate Selection. If by reason of an Event of
Default, Lender elects to declare the Obligations to be immediately due and
payable, then any yield maintenance fee with respect to the Loan shall become
due and payable in the same manner as though Borrower had exercised such right
of prepayment.
5. CERTAIN DEFINITIONS AND PROVISIONS RELATING TO INTEREST RATE.
5.1 ADJUSTED LIBO RATE. The term "Adjusted Libo Rate" means for each
Interest Period the rate per annum obtained by dividing (i) the Applicable Libo
Rate for such Interest Period, by (ii) a percentage equal to one hundred percent
(100%) minus the maximum reserve percentage applicable during such Interest
Period under regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve requirements
(including, without limitation, any basic, supplemental, marginal and emergency
reserve requirements) for Lender (or of any subsequent holder of this Note which
is subject to such reserve requirements) in respect of liabilities or assets
consisting of or including Eurocurrency liabilities (as such term is defined in
Regulation D of the Board of Governors of the Federal Reserve System) having a
term equal to the Interest Period.
5.2 APPLICABLE LIBO RATE. "Applicable Libo Rate" shall mean, as
applicable to any Libor Advance, the rate per annum (rounded upward, if
necessary, to the nearest 1/32 of one percent) as determined on the basis of the
offered rates for deposits in U.S. dollars, for a period of time comparable to
such Libor Advance which appears on the Telerate page 3750 as of 11:00 a.m.
London time on the day that is two London Banking days preceding the first day
of such Libor Advance; provided, however, if the rate described above does not
appear on the Telerate system on any applicable interest determination date, the
Applicable Libo Rate shall be the rate (rounded upwards as described above, if
necessary) for deposits in dollars for a period of time substantially equal to
the interest period on the Reuters Page "LIBO" (or such other page as may
replace the LIBO Page on that service for the purpose of displaying such rates),
as of 11:00 a.m. (London Time), on the day that is two (2) London Banking Days
prior to the beginning of such interest period.
If both the Telerate and Reuters system are unavailable, then
the rate for that date will be determined on the basis of the
offered rates for deposits in U.S. dollars for a period of
time comparable to such Libor Advance which are offered by
four major banks in the London interbank market at
approximately 11:00 a.m. London time, on the day that is two
(2) London Banking Days preceding the first day of such Libor
Advance as selected by the Lender. The principal London office
of
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each of the four major London banks will be requested to
provide a quotation of its U.S. dollar deposit offered rate.
If at least two such quotations are provided, the rate for
that date will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, the rate
for that date will be determined on the basis of the rates
quoted for loans in U.S. dollars to leading European banks for
a period of time comparable to such Libor Advance offered by
major banks in New York City at approximately 11:00 a.m. New
York City time, on the date that is two London Banking Days
preceding the first day of such Libor Advance. In the event
that Lender is unable to obtain any such quotation as provided
above, it will be deemed that the Applicable Libo Rate
pursuant to a Libor Advance cannot be determined. In the event
that the Board of Governors of the Federal Reserve System
shall impose a Reserve Percentage with respect to Lender then
for any period during which such Reserve Percentage shall
apply, the Applicable Libo Rate shall be equal to the amount
determined above divided by an amount equal to 1 minus the
Reserve Percentage. "Reserve Percentage" means the maximum
aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed on
member banks of the Federal Reserve System against
"Euro-currency Liabilities" as defined in Regulation D.
5.3 APPLICABLE MARGIN. The "Applicable Margin" shall be determined
based upon the financial position and results of the Borrower based upon the
financial statements and Compliance Certificates furnished by the Borrower
pursuant to the Credit Agreement. The term "Applicable Margin" means, for any
period set forth below the percentage set forth below opposite such period:
PERIOD APPLICABLE MARGIN
Level I Period [****]
Level II Period [****]
5.4 BUSINESS DAY; SAME CALENDAR MONTH. If any day on which a payment is
due is not a Business Day, then the payment shall be due on the next day
following which is a Business Day, unless, with respect to Libor Advances, the
effect would be to make the payment due in the next calendar month, in which
event such payment shall be due on the next preceding day which is a Business
Day. Further, if there is no corresponding day for a payment in the given
calendar month (i.e., there is no "February 30th"), the payment shall be due on
the last Business Day of the calendar month.
5.5 DOLLARS. The term "Dollars" or "$" means lawful money of the United
States.
5.6 INTEREST PERIOD.
5.6.1. The term "Interest Period" means with respect to each
Libor Advance: a period of an integral multiple of one month, but no Interest
Period shall be greater than three (3) months, subject to availability, as
selected, or deemed selected, by Borrower at least three (3)
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Business Days prior to the end of the current Interest Period or the
commencement of the next Interest Period. Each such Interest Period shall
commence on the Business Day so selected, or deemed selected, by Borrower and
shall end on the numerically corresponding day in the month in which the
Interest Period ends; PROVIDED, HOWEVER: (i) if there is no such numerically
corresponding day, such Interest Period shall end on the last Business Day of
the applicable month, (ii) if the last day of such an Interest Period would
otherwise occur on a day which is not a Business Day, such Interest Period shall
be extended to the next succeeding Business Day; but (iii) if such extension
would otherwise cause such last day to occur in a new calendar month, then such
last day shall occur on the next preceding Business Day.
5.6.2. No Interest Period may be selected which would end
beyond the Maturity Date.
5.7 LEVEL I PERIOD. The term "Level I Period" means any period (a) from
and including the Business Day immediately following the Business Day on which a
senior financial officer of the Borrower shall have delivered to the Lender a
Compliance Certificate, together with the related financial statements referred
to in Section 4.1 of the Credit Agreement, demonstrating in reasonable detail
that the Debt Service Coverage Ratio, as of the last day of the fiscal quarter
of the Borrower most recently ended, is greater than or equal to 1.5 to 1.0, to,
but excluding, the next succeeding Reporting Date; and (b) during which no Event
of Default shall have occurred and be continuing.
5.8 LEVEL II PERIOD. The term "Level II Period" means any period, other
than a Level I Period.
5.9 LIBOR ADVANCE. The term "Libor Advance" means any principal
outstanding under this Note which pursuant to this Note bears interest at the
Libo Rate.
5.10 LIBO RATE. The term "Libo Rate" means the per annum rate equal to
the Adjusted Libo Rate plus the Applicable Margin.
5.11 LOAN ADVANCE. The term "Loan Advance" means any portion of
principal outstanding under this Note.
5.12 LONDON BANKING DAY. The term "London Banking Day" means a day on
which commercial banks settle payments in London.
5.13 MATURITY. The term "Maturity" means the Termination Date.
5.14 PRIME RATE. The term "Prime Rate" means the variable per annum
rate of interest so designated from time to time by Lender as its prime rate.
The Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate being charged to any customer. Changes in the rate of interest
resulting from changes in the Prime Rate shall take place immediately without
notice or demand of any kind.
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5.15 REPORTING DATE. The term "Reporting Date" means the first to occur
of (i) the Business Day following the Business Day that the Lender receives a
Compliance Certificate providing the information required to determine whether a
period is a Level I Period or a Level II Period and (ii) the first Business Day
after (a) with respect to the first three quarterly fiscal periods of the
Borrower's fiscal year, the date on which the quarterly financial statement and
Compliance Certificate is required to be delivered to the Lender pursuant to
Section 4.1(c) of the Credit Agreement; and (b) with respect to the fourth
quarterly fiscal period of the Borrower's fiscal year, 45 days after the end of
such fiscal period.
5.16 TREASURY RATE. The term "Treasury Rate" means, as of the date of
any calculation or determination, the latest published rate for United States
Treasury Notes or Bills (but the rate on Bills issued on a discounted basis
shall be converted to a bond equivalent) as published weekly in the Federal
Reserve Statistical Release H.15(519) of Selected Interest Rates in an amount
which approximates (as reasonably determined by Lender) the amount (i)
approximately comparable to the portion of the Loan Advance to which the
Treasury Rate applies for the Interest Period, or (ii) in the case of a
prepayment, the amount prepaid and with a maturity closest to the original
maturity of the installment which is prepaid in whole or in part.
5.17 VARIABLE RATE. The term "Variable Rate" means a per annum rate
equal at all times to the Prime Rate, with changes therein to be effective
simultaneously with any change in the Prime Rate, without notice or demand.
5.18 VARIABLE RATE ADVANCE. The term "Variable Rate Advance" means any
principal amount outstanding under this Note which pursuant to this Note bears
interest at the Variable Rate.
6. ADDITIONAL PROVISIONS RELATED TO INTEREST RATE SELECTION.
6.1 INCREASED COSTS. If, due to any one or more of: (i) the
introduction of any applicable law or regulation or any change (other than any
change by way of imposition or increase of reserve requirements already referred
to in the definition of Libo Rate) in the interpretation or application by any
authority charged with the interpretation or application thereof of any law or
regulation; or (ii) the compliance with any guideline or request from any
governmental central bank or other governmental authority (whether or not having
the force of law), there shall be an increase in the cost to Lender of agreeing
to make or making, funding or maintaining Libor Advances, including without
limitation changes which affect or would affect the amount of capital or
reserves required or expected to be maintained by Lender, with respect to all or
any portion of the Loan Advances, or any corporation controlling Lender, on
account thereof, then Borrower from time to time shall, upon written demand by
Lender made within ninety (90) days of such increase in cost, pay Lender
additional amounts sufficient to indemnify Lender against the increased cost. A
certificate as to the amount of the increased cost and the reason therefor
submitted to Borrower by Lender, in the absence of manifest error, shall be
conclusive and binding for all purposes.
6.2 ILLEGALITY. Notwithstanding any other provision of this Note, if
the introduction of
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or change in or in the interpretation of any law, treaty, statute, regulation or
interpretation thereof shall make it unlawful, or any central bank or government
authority shall assert by directive, guideline or otherwise, that it is
unlawful, for Lender to make or maintain Libor Advances or to continue to fund
or maintain Libor Advances then, on written notice thereof and demand by Lender
to Borrower, (a) the obligation of Lender to make Libor Advances and to convert
or continue any Loan Advances as Libor Advances shall terminate and (b) Borrower
shall convert all principal outstanding under this Note into Variable Rate
Advances.
6.3 ADDITIONAL LIBOR CONDITIONS. The selection by Borrower of a Libo
Rate and the maintenance of Loan Advances at such rate shall be subject to the
following additional terms and conditions:
6.3.1. AVAILABILITY. If, before or after Borrower has selected
to take or maintain a Libor Advance, Lender notifies Borrower that:
6.3.1.1. dollar deposits in the amount and for the
maturity requested are not available to
Lender in the London interbank market at
the rate specified in the definition of
Libo Rate set forth above, or
6.3.1.2. reasonable means do not exist for Lender
to determine the Libo Rate for the amounts
and maturity requested,
then the principal which would have been a Libor
Advance shall be a Variable Rate Advance.
6.3.2. PAYMENTS NET OF TAXES. All payments and prepayments of
principal and interest under this Note shall be made net of any taxes and costs
resulting from having principal outstanding at or computed with reference to a
Libo Rate. Without limiting the generality of the preceding obligation,
illustrations of such taxes and costs are taxes, or the withholding of amounts
for taxes, of any nature whatsoever including income, excise, interest
equalization taxes (other than United States or state income taxes) as well as
all levies, imposts, duties or fees whether now in existence or as the result of
a change in or promulgation of any treaty, statute, regulation, or
interpretation thereof or any directive guideline or otherwise by a central bank
or fiscal authority (whether or not having the force of law) or a change in the
basis of, or the time of payment of, such taxes and other amounts resulting
therefrom.
6.4. VARIABLE RATE ADVANCES. Each Variable Rate Advance shall continue
as a Variable Rate Advance until the Maturity Date, unless sooner converted or
prepaid, in whole or in part, to a Libor Rate Advance, subject to the
limitations and conditions set forth in this Note.
7. ACCELERATION; EVENT OF DEFAULT.
Upon the occurrence of any Event of Default, Lender may, at Lender's
option,
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immediately exercise one or more of the following rights: (a) declare all
obligations of Lender to Borrower, including, without limitation, the
Commitments to be terminated, whereupon such obligations shall immediately
terminate; and (b) declare all obligations of Borrower to Lender, including,
without limitation, the Loans and all other amounts owing under the Credit
Agreement and this Note to be immediately due and payable, whereupon they shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived; PROVIDED, however,
that upon the occurrence of any such Event of Default specified in Sections
7.1(h) or 7.1(i) of the Credit Agreement, the Commitments shall immediately
terminate and all obligations of Borrower to Lender, including, without
limitation, Loans and all other amounts owing under the Credit Agreement and
this Note shall immediately become due and payable without presentment, further
demand, protest or notice of any kind, all of which are hereby expressly waived.
8. CERTAIN WAIVERS, CONSENTS AND AGREEMENTS.
Each and every party liable hereon or for the indebtedness evidenced hereby
whether as maker, endorser, guarantor, surety or otherwise hereby: (a) waives
presentment, demand, protest, suretyship defenses and defenses in the nature
thereof; (b) waives any defenses based upon and specifically assents to any and
all extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the holder to any party now or hereafter liable hereunder or for the
indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Credit Agreement, or any of
the other Loan Documents, and to the addition or release of any other party or
person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or referred to in the Credit Agreement,
or any of the other Loan Documents, shall be found to be unenforceable in full
or to any extent, or if Lender or any other party shall fail to duly perfect or
protect such collateral, the same shall not relieve or release any party liable
hereon or thereon nor vitiate any other security or collateral given for any
obligations evidenced hereby or thereby; (e) subject to the terms of the Credit
Agreement, agrees to pay all costs and expenses incurred by Lender or any other
holder of this Note in connection with the indebtedness evidenced hereby,
including, without limitation, all reasonable attorneys' fees and costs, for the
implementation of the Term Loans evidenced hereby, the collection of the
indebtedness evidenced hereby and the enforcement of rights and remedies
hereunder or under the other Loan Documents, whether or not suit is instituted;
and (f) consents to all of the terms and conditions contained in this Note, the
Credit Agreement, and all other instruments now or hereafter executed evidencing
or governing all or any portion of the security or collateral for this Note and
for such Credit Agreement, or any one or more of the other Loan Documents.
9. DELAY NOT A BAR.
No delay or omission on the part of the holder in exercising any right hereunder
or any right under any instrument or agreement now or hereafter executed in
connection herewith, or any
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agreement or instrument which is given or may be given to secure the
indebtedness evidenced hereby or by the Credit Agreement, or any other agreement
now or hereafter executed in connection herewith or therewith shall operate as a
waiver of any such right or of any other right of such holder, nor shall any
delay, omission or waiver on any one occasion be deemed to be a bar to or waiver
of the same or of any other right on any future occasion.
10. PARTIAL INVALIDITY.
The invalidity or unenforceability of any provision hereof, of the Credit
Agreement, of the other Loan Documents, or of any other instrument, agreement or
document now or hereafter executed in connection with the Credit Agreement made
pursuant hereto and thereto shall not impair or vitiate any other provision of
any of such instruments, agreements and documents, all of which provisions shall
be enforceable to the fullest extent now or hereafter permitted by law.
11. COMPLIANCE WITH USURY LAWS.
All agreements between Borrower and Lender are hereby expressly limited so that
in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, PROVIDED, HOWEVER, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the Commonwealth of Massachusetts from time to time in effect.
If, under or from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Loan Documents at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if under or from any circumstances
whatsoever Lender should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced hereby and not to
the payment of interest. This provision shall control every other provision of
all agreements between Borrower and Lender.
12. WAIVER OF JURY TRIAL.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ACCEPT
THIS NOTE AND MAKE THE LOANS.
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13. NO ORAL CHANGE.
This Note and the other Loan Documents may only be amended, terminated, extended
or otherwise modified by a writing signed by the party against which enforcement
is sought. In no event shall any oral agreements, promises, actions, inactions,
knowledge, course of conduct, course of dealing, or the like be effective to
amend, terminate, extend or otherwise modify this Note or any of the other Loan
Documents.
14. RIGHTS OF THE HOLDER.
This Note and the rights and remedies provided for herein may be enforced by
Lender or any subsequent holder hereof. Wherever the context permits each
reference to the term "holder" herein shall mean and refer to Lender or the then
subsequent holder of this Note.
15. SETOFF.
Borrower hereby grants to Lender a lien, security interest and right of set off
as security for all liabilities and obligations to Lender, whether now existing
or hereafter arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Lender or any entity under the control of Fleet Financial Group, Inc., or in
transit to any of them. At any time, without demand or notice, Lender may set
off the same or any part thereof and apply the same to any liability or
obligation of Borrower even though unmatured and regardless of the adequacy of
any other collateral securing the Loans. ANY AND ALL RIGHTS TO REQUIRE LENDER TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH
DEPOSITS, CREDIT OR OTHER PROPERTY OF THE BORROWER ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the
date set forth above as a sealed instrument.
Witness: VERTEX PHARMACEUTICALS INCORPORATED
By:
--------------------------------
Name: Thomas G. Auchincloss, Jr.
Title: Vice President of Finance
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EXHIBIT B TO CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
To be delivered by the Bank
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<PAGE>
EXHIBIT C TO CREDIT AGREEMENT
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "AGREEMENT"), dated as of December 21, 1999, by VERTEX
PHARMACEUTICALS INCORPORATED ("BORROWER"), a Massachusetts corporation, to FLEET
NATIONAL BANK, a national banking association ("LENDER").
W I T N E S S E T H :
WHEREAS, the Borrower and the Lender are parties to a Credit Agreement of even
date (as amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"; capitalized terms used but not otherwise defined shall have
the meanings ascribed to such terms in the Credit Agreement), pursuant to which
the Lender has agreed to make up to $20,000,000 in Term Loans to the Borrower on
the terms and subject to the conditions set forth therein;
WHEREAS, to induce to the Lender to enter into the Credit Agreement and make the
Term Loans thereunder, the Borrower has agreed to enter into this Pledge
Agreement and pledge all of the capital stock of Vertex Securities Corp. (the
"Subsidiary") a Massachusetts corporation, to the Lender;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the the Lender hereby agree as follows:
1. PLEDGE. The Borrower hereby grants, assigns and pledges to the Lender,
a valid lien on and security interest in, all of the Borrower's right,
title and interest in and to the following, whether now owned or at any
time hereafter acquired (collectively, the "Collateral"):
(a) All of the issued and outstanding capital stock of the Borrower in the
Subsidiary as set forth on SCHEDULE 1 (the "Pledged Shares") and the
certificates representing the Pledged Shares, and all dividends,
distributions, cash, instruments, investment property and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares, and all additional capital stock in Subsidiary from time to
time acquired in any manner by the Borrower, and the certificates
representing such additional capital stock, and all dividends,
distributions, cash, instruments, investment property and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such capital
stock; and
(b) all proceeds of any of the foregoing (including, without limitation,
proceeds constituting any property of the types described above).
2. ALL OBLIGATIONS SECURED. This Agreement secures the prompt and complete
payment and
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performance when due (whether at the stated maturity, by acceleration
or otherwise) of all of the Obligations.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Borrower has the requisite corporate power and authority to execute,
deliver and perform this Agreement and all corporate action necessary
for the execution, delivery and performance of this Agreement has been
taken.
(b) The execution, delivery and performance of this Agreement by Borrower
does not, and will not, contravene (i) the Articles of Organization and
By-Laws of Borrower, (ii) any legal requirement or (iii) any franchise,
license, permit, indenture, contract, lease, agreement, instrument or
other commitment to which it is a party or by which it or any of its
properties are bound, and will not, except as contemplated herein,
result in the imposition of any liens or security interests upon any of
its properties.
(c) This Agreement is the legal, valid and binding obligation of Borrower,
enforceable in accordance with its terms.
(d) Borrower is the legal and beneficial owner of record of the Pledged
Shares set forth in SCHEDULE 1, free and clear of any lien other than
liens created pursuant to this Agreement. On the date hereof, no
effective financing statement or other instrument similar in effect
covering all or any part of the Collateral will be on file in any
recording office.
(e) The pledge of the Collateral and granting of the liens hereunder,
together with the delivery of the stock certificates pledged hereunder
and appropriate filings of Uniform Commercial Code financing
statements, create a valid and perfected first priority lien on the
Collateral, securing the payment and performance of the Obligations,
and all filings and other actions necessary or desirable to perfect and
protect such lien have been duly made or taken.
(f) No authorization, approval, or other action by, and no notice to or
filing with, any Person or governmental authority is required for (i)
the pledge by Borrower of the Collateral pursuant to this Agreement,
the grant by Borrower of the liens granted hereby or the execution,
delivery or performance of this Agreement by Borrower, (ii) the
perfection of the liens granted pursuant to this Agreement, except for
the delivery to the Lender of the stock certificates representing the
Pledged Shares in Subsidiary and appropriate filings of Uniform
Commercial Code financing statements, or (iii) the exercise by the
Lender of the rights or remedies provided for in this Agreement.
(g) The Pledged Shares represented by the certificates identified in
SCHEDULE 1 are, and all other Pledged Shares in which Borrower shall
hereafter obtain an interest will be duly authorized, fully paid and
nonassessable and none of such Pledged Shares is or will be subject to
any contractual restriction upon the transfer of such Pledged Shares.
(h) The Pledged Shares represented by the certificates identified in
SCHEDULE 1 constitute all of the issued and outstanding shares of
capital stock or other equity securities of any class in the
Subsidiary, and SCHEDULE 1 correctly identifies, as at the date hereof,
the respective class of the shares comprising such Pledged Shares and
the respective number of shares represented by each such certificate.
4. FURTHER ASSURANCES; COVENANTS; REPLACEMENT COLLATERAL.
(a) Borrower covenants and agrees that at any time and from time to time,
at the expense of Borrower, Borrower will promptly execute and deliver
all further instruments and
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documents, and take all further action, that may be necessary or
desirable, or that the Lender may request, to perfect and protect any
security interest granted or purported to be granted hereby or to
enable the Lender to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Borrower will execute and file such
financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as
the Lender may request, to perfect and preserve the liens granted or
purported to be granted hereby, and cause third parties to acknowledge
and to register the pledge of securities hereunder on their books and
to deliver statements of account upon the Lender's request therefor.
(b) Borrower covenants and agrees that, without the prior written consent
of the Lender, Borrower will not (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect
to, any of the Collateral, (ii) create or suffer to exist any lien upon
or with respect to any of the Collateral, except for the liens under
this Agreement, (iii) vote to enable, or take any other action to
permit, Subsidiary to issue any capital stock or other equity
securities of any nature or to issue any other securities convertible
into, exchangeable for or granting the right to purchase any capital
stock or other equity securities of any nature of Subsidiary or to
convey, exchange, lease, assign, transfer, sell or otherwise dispose of
any material assets of the Subsidiary, (iv) enter into any agreement or
undertaking restricting the right or ability of the Lender to sell,
assign or transfer any of the Collateral or (v) permit Subsidiary to
issue any shares of capital stock or other equity securities of any
nature or to issue any securities convertible into or granting the
right to purchase or otherwise acquire any shares of capital stock or
equity securities of Subsidiary or to convey, exchange, lease, assign,
transfer, sell or otherwise dispose of any material assets of the
Subsidiary.
(c) If Borrower acquires any additional capital stock in Subsidiary,
Borrower shall hold the same in trust for the Lender and promptly
deliver to the Lender the stock certificates evidencing such capital
stock, together with undated stock powers related thereto duly executed
in blank by Borrower.
5. RIGHTS OF THE BORROWER; VOTING; ETC.
(a) So long as no Event of Default shall have occurred and be continuing,
Borrower shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement and the
other Loan Documents and in a manner which does not impair any of the
Collateral and to receive and retain any and all cash dividends and
distributions paid in respect of the Pledged Shares.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of Borrower to receive the cash dividends and distributions
that Borrower would otherwise be authorized to receive and retain
pursuant to Section 5(a) hereof shall cease, and all such rights shall
thereupon become vested in the Lender who shall thereupon have the sole
right to receive and hold as Collateral such dividends, distributions
and payments.
(ii) Any and all other dividends and distributions payable to Borrower in
respect of the Collateral shall be received by Borrower in trust for
the benefit of the Lender, shall be
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segregated from other funds of Borrower and shall be forthwith paid
over to the Lender as Collateral in the same form as so received (with
any necessary endorsement).
6. PRINCIPAL PLACE OF BUSINESS; RECORDS. Borrower shall keep its principal
place of business and the place where it keeps its records concerning
the Collateral at the address of the Borrower specified in the Credit
Agreement. The Borrower will hold and preserve such records and, upon
reasonable notice from the Lender, will permit representatives of the
Lender at any time during normal business hours to inspect and make
abstracts from such records.
7. TRANSFER OR LIENS. Borrower agrees that it will not sell, transfer or
convey any interest in, grant any option with respect to, or suffer or
permit any lien to be created upon or with respect to, any of the
Pledged Shares during the term of this Agreement, except to or in favor
of the Lender.
8. LENDER APPOINTED ATTORNEY-IN-FACT; IRREVOCABLE AUTHORIZATION AND
INSTRUCTION TO THE SUBSIDIARIES. Borrower hereby appoints the Lender as
Borrower's attorney-in-fact, with full authority in the place and stead
of the Borrower and in the name of the Borrower or otherwise, from time
to time in the Lender's discretion, to, upon the occurrence and during
the continuance of an Event of Default, take any action and to execute
any instrument which the Lender may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without
limitation, to exercise the voting and other consensual rights which
Borrower would otherwise be entitled to exercise pursuant to Section
5(a) (and all right of Borrower to exercise such rights shall cease)
and to receive, endorse and collect all instruments made payable to the
Borrower representing any distribution in respect of the Collateral or
any part thereof and to give full discharge for the same. Borrower
hereby authorizes and instructs Subsidiary to comply with any
instruction received by it from the Lender in writing that (i) states
that an Event of Default has occurred and is continuing and (ii) is
otherwise in accordance with the terms of this Agreement, without any
other or further instructions from Borrower, and Borrower agrees that
Subsidiary shall be fully protected in so complying. Borrower hereby
ratifies all that such attorney shall lawfully do or cause to be done
by virtue hereof. This power of attorney is coupled with an interest
and is irrevocable.
9. REASONABLE CARE; RETURN OF COLLATERAL.
(a) Prior to the exercise of its remedies hereunder, the Lender shall be
deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which the Lender accords
its own similar property, it being understood that the Lender shall not
have the responsibility under this Agreement for taking any necessary
steps to preserve rights against any parties with respect to any
Collateral except as set forth in subsection (b) below.
(b) Upon the indefeasible payment in full in cash of all the Obligations
and the termination of the Credit Agreement, Borrower shall be entitled
to the return of all of the Collateral pledged by Borrower hereunder.
10. LENDER MAY PERFORM. If Borrower fails to perform any agreement
contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of
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the Lender incurred in connection therewith shall be payable by
Borrower.
11. REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and
be continuing, the Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party under
the Uniform Commercial Code (the "CODE") and the Lender may also,
without notice except as specified below, transfer the Collateral into
its name or that of its nominee, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Lender's offices or
elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. Borrower
agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Borrower of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Lender shall not be obligated
to make any sale of Collateral regardless of notice of sale having been
given. The Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
12. INDEMNITY AND EXPENSES.
(a) Borrower agrees to and hereby indemnifies the Lender from and against
any and all claims, damages, losses, liabilities and expenses arising
out of, or in connection with, or resulting from, this Agreement
(including, without limitation, enforcement of this Agreement) other
than such as arise from the Lender's gross negligence or willful
misconduct.
(b) Borrower will, upon demand, pay to the Lender the amount of any and all
expenses, including the reasonable fees and expenses of its counsel and
of any experts and agents, that the Lender may incur in connection with
(i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement of any
of the rights of the Lender hereunder, (iv) the failure of Borrower to
perform or observe any of the provisions hereof, or (v) any action
taken by the Lender pursuant to this Agreement.
13. SECURITY INTEREST ABSOLUTE. All rights of the Lender and security
interests hereunder, and all obligations of Borrower hereunder, shall
be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Credit Agreement, the
Note or any other Loan Document;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to departure from any of the Loan Documents;
(c) any taking and holding of collateral or any guaranty for all or any of
the Obligations, or any amendment, alteration, exchange, substitution,
transfer, enforcement, waiver, subordination, termination or release of
any collateral or such guaranty, or any non-perfection of any
collateral, or any consent to departure from any such guaranty;
(d) any manner of application of collateral, or proceeds thereof, to all or
any of the Obligations, or the manner of sale of any collateral;
(e) any consent by Lender to the restructure of the Obligations, or any
other restructure or
- -111-
<PAGE>
refinancing of the Obligations or any portion thereof;
(f) any modification, compromise, settlement or release by Lender, by
operation of law or otherwise, collection or other liquidation of the
Obligations or the liability of any guarantor, or of any collateral, in
whole or in part, and any refusal of payment by the Lender, in whole or
in part, from any obligor or guarantor in connection with any of the
Obligations, whether or not with notice to, or further assent by, or
any reservation of rights against, any Borrower; or
(g) any other circumstance (including, without limitation, any statute of
limitations) which might otherwise constitute a defense available to,
or a discharge of, any third party pledgor or guarantor.
- -112-
<PAGE>
14. AMENDMENTS; WAIVERS; PARTIAL EXERCISE. No amendment or waiver of any
provision of this Agreement or consent to any departure by the Borrower
here from shall be effective unless in writing and signed by Borrower
and the Lender, and any such amendment, waiver or consent shall be
effective only to the extent set forth therein. No failure to exercise
or any delay in exercising on the part of the Lender any right, power
or privilege under this Agreement shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege under this
Agreement shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
15. ADDRESSES FOR NOTICES. All notices and correspondence hereunder shall
be provided in the manner, to the Persons and to the addresses set
forth in the Credit Agreement.
16. CONTINUING SECURITY INTEREST; ASSIGNMENTS OF SECURED DEBT. This
Agreement shall create a continuing security interest in and lien on
the Collateral and shall (i) remain in full force and effect until
released in accordance with the terms hereof, (ii) be binding upon
Borrower, its successors and assigns, and (iii) inure, together with
the rights and remedies of the Lender hereunder, to the benefit of
their respective successors and assigns. Without limiting the
generality of the foregoing clause (iii), the Lender, in accordance
with the terms of the Credit Agreement, may assign or otherwise
transfer all or any portion of their rights and obligations under this
Agreement to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect hereof granted herein.
17. GOVERNING LAW; DEFINED TERMS. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts without giving effect to principles of conflicts of law.
Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Code are used herein as therein defined.
This Agreement shall be deemed for all purposes to be a Loan Document
under the Credit Agreement.
18. MARSHALLING. Borrower hereby waives any right to require the Lender to
marshal any security or Collateral or otherwise compel the Lender
recourse against or satisfaction of the Obligations from one source
before seeking recourse or satisfaction from another source.
19. EXECUTION IN COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement may be
executed in counterparts, each of which shall constitute an original,
but all of which taken together shall constitute one and the same
instrument. This Agreement, and any notices to be given pursuant to
this Agreement, may be executed and delivered by telecopier or other
facsimile transmission all with the same force and effect as if the
same was a fully executed and delivered original counterpart.
20. SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG THE BORROWER AND THE
LENDER, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL
BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN BOSTON,
MASSACHUSETTS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE
TAKEN; PROVIDED, HOWEVER, THAT THE LENDER SHALL HAVE THE RIGHT, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR
ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY THE LENDER IN GOOD
FAITH TO ENABLE THE LENDER TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR
- -113-
<PAGE>
OTHER COURT ORDER IN FAVOR OF THE LENDER. THE BORROWER AGREES THAT IT
WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS
IN ANY PROCEEDING BROUGHT BY THE LENDER. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE
LENDER HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
21. JURY TRIAL. THE BORROWER AND, BY ITS ACCEPTANCE HEREOF, THE LENDER EACH
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed by its
proper and duly authorized officer as of the day and year first above written.
VERTEX PHARMACEUTICALS INCORPORATED
By:
-------------------------------
Name:
Title:
Accepted:
FLEET NATIONAL BANK
By:
-----------------------------
Name:
Title:
- -114-
<PAGE>
Schedule 1
Pledge Agreement between
Vertex Pharmaceuticals Incorporated and Fleet National Bank
Pledged Shares
Issuer: Vertex Securities Corp.
Class of Shares: Common
Number of Pledged Shares: one hundred (100)
Date of Issuance: December 22, 1993
Date of Pledge: December 21, 1999
- -115-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Vertex Securities Corp. (incorporated in Massachusetts)
Vertex Pharmaceuticals (Europe) Limited (incorporated in England)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-48030, 33-48348, 33-65742, 33-93224,
33-12325, 333-27011, 333-56179 and 333-79549) of Vertex Pharmaceuticals
Incorporated 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 appears in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 3, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S YEAR END REPORT ON FORM 10-K, FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000875320
<NAME> VERTEX PHARMACEUTICALS, INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 31,548
<SECURITIES> 156,254
<RECEIVABLES> 5,956
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 195,197
<PP&E> 58,831
<DEPRECIATION> 34,351
<TOTAL-ASSETS> 232,445
<CURRENT-LIABILITIES> 18,518
<BONDS> 0
0
0
<COMMON> 257
<OTHER-SE> 208,977
<TOTAL-LIABILITY-AND-EQUITY> 232,445
<SALES> 8,053
<TOTAL-REVENUES> 61,648
<CGS> 2,925
<TOTAL-COSTS> 102,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 654
<INCOME-PRETAX> (40,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (40,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,966)
<EPS-BASIC> (1.61)
<EPS-DILUTED> (1.61)
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