<PAGE>
As filed with the Securities and Exchange Commission on November 13, 2000
Registration Statement No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
----------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
----------------------
Massachusetts 04-3039129
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
130 Waverly Street
Cambridge, Massachusetts 02139
617-577-6000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------------
Joshua S. Boger
Chief Executive Officer
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, Massachusetts 02139
617-577-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
Copies to:
Michael L. Fantozzi, Esq. Sarah P. Cecil, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky Corporate Counsel
and Popeo, PC Vertex Pharmaceuticals Incorporated
One Financial Center Cambridge, MA 02139
Boston, MA 02111 617-577-6499
617-542-6000
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title Of Each Class Maximum Maximum
Of Securities To Be Amount To Be Offering Aggregate Amount Of
Registered Registered Price Per Unit Offering Price Registration Fee
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5% Convertible Subordinated
Notes due
September 19, 2007 $345,000,000 (1) 100% $345,000,000 $91,080
Common Stock,
par value $.01 per share 3,739,432 (2) (3) (3) (3)
Common Stock,
par value $.01 per share $51,750,000(4) $13,662
Rights to purchase Series A
Junior Participating
Preferred Stock (5) (5) (5) (5)
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equals the aggregate principal amount of the notes being registered.
(2) Represents the number of shares of common stock that are currently
issuable upon conversion of the notes, based on the initial conversion
price of $92.26 per share (equivalent to 10.8389 shares of common stock
for each $1,000 principal amount of the notes). In addition, pursuant to
Rule 416 under the Securities Act of 1933, the amount to be registered
also includes an indeterminate number of shares of common stock that may
be issued as a result of stock splits, stock dividends and antidilution
provisions.
<PAGE>
(3) No additional consideration will be received for the common stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).
(4) Equals the maximum aggregate value of common stock that may be issued as a
"make-whole" payment upon redemption of the notes.
(5) No separate consideration will be received for the rights.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
Subject to completion, dated November 13, 2000
VERTEX PHARMACEUTICALS INCORPORATED
$345,000,000 5% CONVERTIBLE SUBORDINATED NOTES DUE SEPTEMBER 19, 2007
3,739,432 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
SHARES OF COMMON STOCK WITH A POTENTIAL AGGREGATE VALUE OF $51,750,000
ISSUABLE WITH RESPECT TO THE MAKE-WHOLE PAYMENT,
--------------------------
This prospectus covers resales by selling holders of:
- our 5% Convertible Subordinated Notes due September 19, 2007; and
- our common stock into which the notes are convertible
This prospectus also covers the issuance by us of shares of our common stock in
settlement of the make-whole payment relating to the notes, as described in this
prospectus.
The notes are convertible, at the option of the holder, at any time on
or before the maturity date into shares of our common stock. The notes are
convertible at a conversion price of $92.26 per share, which is equal to a
conversion rate of 10.8389 shares per $1,000 principal amount of notes, subject
to adjustment. On November 9, 2000 the last sale price of our common stock on
the Nasdaq National Market was $91.00 per share.
We will pay interest on the notes on March 19 and September 19 of each
year, beginning March 19, 2001. The notes will mature on September 19, 2007. We
may redeem some or all of the
<PAGE>
notes at any time before September 19, 2003 at a redemption price of $1,000
per $1,000 principal amount of notes, plus accrued and unpaid interest, if
any, to the redemption date, if the closing price of our common stock has
exceeded 150% of the conversion price then in effect for at least 20 trading
days within a period of 30 consecutive trading days ending on the trading day
before the date we mail the provisional redemption notice. Upon any
provisional redemption, we will make an additional payment in cash or shares,
at our option, to compensate investors for interest payments not yet received
through the redemption date. We may redeem some or all of the notes at any
time on or after September 19, 2003 at the redemption prices described in
this prospectus, if the closing price of our common stock has exceeded 120%
of the conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day before the
date we mail the optional redemption notice.
The notes are unsecured and subordinated to our existing and future
senior indebtedness.
The selling holders may sell the notes or common stock at any time at
market prices or at privately negotiated prices. We may issue shares under this
prospectus in settlement of the make-whole payment described under "Description
of the Notes - Provisional Redemption." Sales by the selling holders may be made
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions.
The selling holders will be responsible for any commissions or discounts due to
brokers or dealers. The amount of those commissions or discounts cannot be known
now because they will be negotiated at the time of the sales. We will pay all
other offering expenses. We will not receive any of the proceeds from the sale
of the notes or shares by the selling holders, nor will we receive cash proceeds
from the issuance of shares in connection with the settlement of the make-whole
payment.
Our common stock is quoted on the Nasdaq National Market under the
symbol "VRTX." The notes are currently eligible for trading on the PORTAL
market.
INVESTING IN THE NOTES OR OUR COMMON STOCK INVOLVES RISKS THAT ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
The date of this prospectus is ______ , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Forward-Looking Statements.............................................................. 3
Summary................................................................................. 4
Risk Factors............................................................................ 9
Ratio of Earnings to Fixed Charges...................................................... 18
Use of Proceeds......................................................................... 18
Description of the Notes................................................................ 18
Description of Capital Stock............................................................ 36
United States Federal Income Tax Considerations......................................... 38
Selling Holders......................................................................... 40
Plan of Distribution.................................................................... 45
Legal Matters........................................................................... 46
Independent Accountants................................................................. 46
Where You Can Find More Information..................................................... 47
Incorporation of Certain Documents by Reference......................................... 48
</TABLE>
"Vertex" and "Incel" are trademarks of Vertex Pharmaceuticals
Incorporated. "Agenerase" is a trademark of the Glaxo Wellcome Group of
companies. "Prozei" is a trademark of Kissei Pharmaceutical Co., Ltd. Other
brands, names and trademarks contained in this prospectus are the property of
their respective owners.
In this prospectus, "we," "our" and "us" refer to Vertex
Pharmaceuticals Incorporated.
All share and per share data in this prospectus give effect to the
2-for-1 stock split that we effected as a stock dividend on August 23, 2000.
FORWARD-LOOKING STATEMENTS
Our disclosure in this prospectus contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Such statements may
include words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In particular,
these statements include, among other things, statements relating to:
- our business strategy;
- our predicted development and commercial timelines;
- the development of our products;
- the establishment and development of collaborative partnerships;
- our ability to identify new potential products;
- our ability to achieve commercial acceptance of our products;
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<PAGE>
- our ability to scale-up our manufacturing capabilities and
facilities;
- our projected capital expenditures; and
- our liquidity.
Any or all of our forward-looking statements in this prospectus may
turn out to be wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many factors mentioned in
our discussion in this prospectus will be important in determining future
results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially.
We caution you not to put undue reliance on any forward-looking
statements, and advise you to consult additional disclosures we make in our Form
10-Q, 8-K and 10-K reports to the SEC. Also note that we provide a cautionary
discussion of risks and uncertainties under "Risk Factors" beginning on page
9 of this prospectus. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors besides those
listed there could also adversely affect us.
SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE NOTES OR THE SHARES OF COMMON STOCK ISSUABLE UPON THEIR
CONVERSION OR ISSUABLE WITH RESPECT TO THE MAKE-WHOLE PAYMENT DESCRIBED BELOW.
YOU SHOULD READ THE ENTIRE PROSPECTUS AND THE DOCUMENTS WE HAVE INCORPORATED BY
REFERENCE INTO THE PROSPECTUS CAREFULLY.
We design, develop and commercialize novel small molecule drugs that
address significant markets with major unmet medical needs, including the
treatment of viral diseases, cancer, autoimmune and inflammatory diseases, and
neurological disorders. Our drug design platform integrates advanced biology,
chemistry, biophysics and information technologies to make the drug discovery
process more efficient and productive. To date, we have discovered and advanced
one product that has reached the market--the HIV protease inhibitor
Agenerase-TM- (amprenavir)--and seven additional drug candidates that are now in
clinical development.
We have significant collaborations with Aventis, Eli Lilly, Glaxo
Wellcome, Kissei, Novartis, Schering AG (Germany), and Taisho. These
collaborations provide us with financial support and other valuable resources
for our research programs, development of our clinical drug candidates, and
marketing and sales of our products. We believe that we are positioned to
commercialize multiple products over the next two to five years, which we expect
will generate increased milestone payments, product revenues and royalty
payments. We have additional research programs underway, and we expect novel
Vertex drug candidates for the treatment of bacterial infection, hepatitis C and
stroke to enter pre-clinical studies within the next 12 to 18 months.
We believe that the emergence of large amounts of information from
genomic research represents an unprecedented opportunity for drug discovery
directed at novel biological targets. Our approach to drug discovery, which we
call "chemogenomics," seeks to take advantage of this opportunity by combining
medicinal chemistry and molecular biology to identify and describe many of the
possible drug candidates for a drug target or group of drug targets. As part of
this approach, we are pursuing a strategy of parallel drug design directed at
gene families, which are groups of genes with similar sequences that code for
structurally similar proteins. Using this strategy, we seek to identify classes
of chemical inhibitors (drug-like molecules) that are applicable for clusters of
closely related targets that have different biological functions. We believe
that
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<PAGE>
chemogenomics will enhance the speed and productivity of drug design efforts
directed at novel biological targets, secure for us valuable intellectual
property in gene families of interest and ultimately result in the market
introduction of new drugs.
We are presently applying our expertise in chemogenomics to focus on
the protein kinase and caspase gene families, two areas in which we believe we
can leverage our drug design expertise to rapidly create product candidates that
address a variety of sizable therapeutic indications. In May 2000, we entered
into a collaboration with Novartis which will provide us up to $800 million in
pre-commercial payments to discover, develop and commercialize up to eight
kinase inhibitors for the treatment of a range of diseases, including cancer,
cardiovascular diseases, and inflammatory diseases. The financial and
technological support provided by Novartis enables us to expand both our
infrastructure and chemogenomics efforts in the protein kinase gene family. In
addition, we have begun exploring other gene families. We aim to establish
additional partnerships with major pharmaceutical companies in order to obtain
the funding and resources needed to expand our discovery efforts in additional
families.
Over the next few years, we expect to continue our research and
development efforts and to bring drug candidates through late stage clinical
development and into commercialization. We also expect to license and acquire
technologies, resources and products that have the potential to strengthen our
drug discovery platform, product pipeline and commercial capabilities.
AGENERASE
Our first product, Agenerase, received accelerated approval from the
FDA in April 1999 and was launched in May 1999. We received European Union
approval in October 2000. Agenerase, which was designed by Vertex, is
marketed in the United States by Glaxo Wellcome. We co-promote Agenerase in
the United States, and we plan to co-promote Agenerase in selected countries
in the European Union following launch. Total sales of the drug for the
twelve months ended September 30, 2000 were $79.1 million, resulting in $12.0
million in royalties to Vertex from Glaxo Wellcome. More than 14,000 patients
in the United States take Agenerase as part of combination therapy for the
treatment of HIV. Since the beginning of 2000, Agenerase's share of the HIV
protease inhibitor market in the United States has increased from just over
6% to more than 8%. We believe that Agenerase is distinguished from other
protease inhibitors by its:
- longer half-life, which allows for convenient twice-daily dosing and
provides high levels of the drug in the bloodstream;
- ability to be dosed effectively on a full or empty stomach; and
- lower levels of cross-resistance to other protease inhibitors.
Recent research results presented at major medical conferences have
highlighted the use of Agenerase in combination with the protease inhibitor
ritonavir, a regimen that boosts Agenerase levels in the bloodstream of
patients. We believe that based on these research results many physicians
combine Agenerase and ritonavir in clinical practice, to:
- achieve drug levels in the bloodstream sufficient to
reduce viral replication in patients who have extensive prior
treatment experience and may harbor strains of virus that is
resistant to other HIV therapies;
- offset lower blood levels of Agenerase caused by
administration of efavirenz, a reverse transcriptase inhibitor
used to treat HIV; and
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<PAGE>
- reduce the overall pill count.
PRODUCTS IN 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 product pipeline. Seven of our drug
candidates in development are presently in Phase II clinical development, and
five are in preclinical development.
<TABLE>
<CAPTION>
COMPANY WITH ESTIMATED U.S.
DRUG CLINICAL INDICATIONS PHASE MARKETING RIGHTS (REGION) PATIENT
---- -------------------- ----- ------------------------- POPULATION (MILLIONS)
---------------------
<S> <C> <C> <C> <C>
ANTIVIRALS
VX-175 HIV II Glaxo Wellcome (Worldwide); 0.9
Vertex co-promote (U.S. & E.U.)
VX-497 Chronic hepatitis C II Vertex (Worldwide) 2.7
CANCER
Incel-TM- Multidrug resistant solid II Vertex (Worldwide) 0.5 (tumor incidence
tumor cancers in target diseases)
VX-853 Multidrug resistant solid I/II Vertex (Worldwide) 0.5 (tumor incidence
tumor cancers in target diseases)
INFLAMMATION AND
AUTOIMMUNE
VX-740 Rheumatoid arthritis (RA); II Aventis (Worldwide); Vertex 2.1 (RA)
inflammatory diseases co-promote (U.S. & E.U.)
VX-745 RA; inflammatory diseases II Kissei (Japan); Vertex (R.O.W.) 2.1 (RA)
VX-148 Autoimmune diseases Preclinical Vertex (Worldwide) NA
VX-944 Autoimmune diseases Preclinical Vertex (Worldwide) NA
VX-954 Inflammatory diseases Preclinical Kissei (Japan); Vertex (R.O.W.) NA
VX-702 Inflammatory diseases Preclinical Kissei (Japan); Vertex (R.O.W.) NA
VX-765 Inflammatory diseases Preclinical Vertex (Worldwide) NA
NEUROLOGICAL
Timcodar (VX-853) Diabetic neuropathy II Schering AG(c) (E.U.; profit 1.3 (symptomatic)
sharing in U.S.)
</TABLE>
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(a) Development option
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<PAGE>
RESEARCH PROGRAMS
We have numerous research programs underway at the discovery stage,
including multitarget programs that are representative of our chemogenomics
approach, as well as numerous single target programs. We also have several
"second generation" programs where we are advancing drug candidates that will
augment existing products in development. We expect to advance numerous drug
candidates into development in the next several years that are based on this
ongoing research.
<TABLE>
<CAPTION>
MOLECULAR TARGET CLINICAL INDICATIONS COMPANY WITH
---------------- -------------------- MARKETING RIGHTS (REGION)
-------------------------
<S> <C> <C>
Caspases Stroke; cardiovascular diseases Taisho (Japan); Vertex (R.O.W.)
Kinases Cancer; inflammatory diseases; Novartis (Worldwide); Vertex co-promote (U.S. &
neurodegenerative diseases E.U.)
HCV protease Hepatitis C Eli Lilly (Worldwide); Vertex co-promote (U.S.)
HCV helicase Hepatitis C Vertex (Worldwide)
Bacterial DNA gyrase B Bacterial infections Vertex (Worldwide)
</TABLE>
STRATEGY
Our strategy is to:
- continue to advance our seven clinical drug candidates through
late-stage clinical development and commercialization, either
alone or with corporate partners;
- use our technological and organizational advantages to drive a
strong flow of new products into clinical development;
- maximize the long-term commercial opportunities of our
research and development programs through a series of
collaborative arrangements; and
- license and acquire technologies, resources and products that
have the potential to strengthen our drug discovery platform,
product pipeline and commercial capabilities.
Our headquarters and main research facilities are at 130 Waverly
Street, Cambridge, Massachusetts 02139, and our telephone number is (617)
577-6000. We also have a research facility in Oxford, England. Our company was
incorporated under the laws of the Commonwealth of Massachusetts in 1989.
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<PAGE>
THE OFFERING
Securities offered........ The resale by selling holders of $345,000,000
principal amount of 5% Convertible Subordinated Notes
due September 19, 2007 and the 3,739,432 shares of
common stock into which they are convertible, and the
issuance by us of a maximum of $51,750,000 in
aggregate value of shares of common stock in
settlement of the make-whole payment, which is
described below under "Provisional redemption".
Maturity of Notes......... September 19, 2007.
Interest.................. 5% per annum, payable semiannually on March 19 and
September 19, beginning on March 19, 2001.
Conversion rights......... The notes are convertible, at the option of the
holder, at any time on or prior to maturity into
shares of our common stock at a conversion price of
$92.26 per share, which is equal to a conversion rate
of 10.8389 shares per $1,000 principal amount of
notes. The conversion price is subject to adjustment.
Ranking................... The notes are unsecured and subordinated to our
existing and future senior debt, as defined. At
September 30, 2000, we had approximately $5.3
million of senior debt outstanding. Because the
notes are subordinated, in the event of bankruptcy,
liquidation, dissolution or acceleration of payment
on the senior debt, holders of the notes will not
receive any payment until holders of the senior debt
have been paid in full. The indenture under which the
notes were issued does not prevent us or our
subsidiaries from incurring additional senior debt or
other obligations.
Provisional redemption.... We may redeem the notes, in whole or in part, at any
time before September 19, 2003, at a redemption price
equal to $1,000 per $1,000 principal amount of notes
to be redeemed plus accrued and unpaid interest, if
any, to the date of the provisional redemption if:
- the closing price of our common stock has
exceeded 150% of the conversion price then in
effect for at least 20 trading days within a
period of 30 consecutive trading days ending on
the trading day before the date we mail the
provisional redemption notice and
- the registration statement of which this
prospectus forms a part is effective and available
for use and is expected to remain effective and
available for use for the 30 days following the
provisional redemption date.
Upon any provisional redemption, we will make an
additional "make-whole" payment with respect to the
notes called for redemption, equal to $150.00 per
$1,000 principal amount of notes, less the amount of
any interest we have actually paid on the notes
before the provisional redemption date. We may make
this "make-whole" payment, at our option, in either
cash or our common stock (or a combination of both).
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<PAGE>
We have to make this additional payment on all notes
that we call for provisional redemption, including
any notes converted after the notice date and before
the provisional redemption date.
Optional redemption....... We may redeem all or some of the notes on or after
September 19, 2003 at the redemption prices listed
in this prospectus, plusaccrued and unpaid interest,
if the closing price of our common stock has exceeded
120% of the conversion price then in effect for at
least 20 trading days within a period of 30
consecutive trading days ending on the trading day
before the date we mail the optional redemption
notice.
Change of control......... Upon a change of control event, each holder of the
notes may require us to repurchase some or all of its
notes at a purchase price equal to 100% of the
principal amount of the notes plus accrued and unpaid
interest. We may, at our option, instead of paying
the change of control purchase price in cash, pay it
in shares of our common stock valued at 95% of the
average of the closing sales prices of our common
stock for the five trading days immediately preceding
and including the third trading day before the date
we are required to repurchase the notes. We cannot
pay the change of control purchase price in common
stock unless we satisfy the conditions described in
the indenture under which the notes were issued.
Use of proceeds........... We will not receive any of the proceeds from the sale
of securities by the selling holders under this
prospectus, nor will we receive cash proceeds from
the issuance of shares in connection with the
settlement of the make-whole payment..
Trading................... The notes are eligible for trading in the PORTAL
market; however, we can provide no assurance as to
the liquidity of, or trading markets for, the notes.
Our common stock is traded on the Nasdaq National
Market under the symbol "VRTX."
Risk factors.............. See "Risk Factors" and the other information in this
prospectus for a discussion of the factors you should
carefully consider before deciding to invest in the
notes or our common stock.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE THE NOTES OR OUR
COMMON STOCK.
THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES WE FACE. OTHERS THAT WE DO
NOT KNOW ABOUT NOW, OR THAT WE DO NOT NOW THINK ARE IMPORTANT, MAY IMPAIR OUR
BUSINESS OR THE TRADING PRICE OF OUR SECURITIES.
WE DO NOT KNOW HOW SUCCESSFUL AGENERASE WILL BE IN THE MARKET.
Agenerase was launched in the U.S. in May 1999 and received European
Union approval in October 2000. Agenerase is currently awaiting marketing
approval by regulatory authorities in a number of other major markets. It is too
early to predict the extent to which Agenerase will be successful in the market.
Five other HIV protease inhibitors are on the market, as well as a number
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<PAGE>
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.
In addition, we cannot be certain that the clinical benefit of strategies used
to boost drug levels of Agenerase by co-administering other antiretrovirals will
be proven to be effective, or will result in increased revenues. Regulatory
approval of Agenerase in other major markets may be delayed. As a result, we may
not recognize additional royalty and milestone revenues on Agenerase as soon as
we have planned. Further, 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 research and
development efforts will be successful, that drug candidates will enter
preclinical studies as anticipated, that required regulatory approvals will be
obtained or that any products, if introduced, will be commercially successful.
The results of preclinical and initial clinical trials of products under
development by us are not necessarily predictive of results that will be
obtained from large-scale clinical testing. We cannot be sure that clinical
trials of products under development will demonstrate the safety and efficacy of
such products or will result in a marketable product. In addition, the
administration alone or in combination with other drugs of any product developed
by us may produce undesirable side effects in humans.
The failure to demonstrate adequately the safety and efficacy of a
therapeutic drug under development could delay or prevent regulatory approval of
the product and could have a material adverse effect on our company. In
addition, the FDA may require additional clinical trials, which could result in
increased costs and significant development delays.
If any of our development efforts are delayed or unsuccessful, we may
not receive expected milestone payments. Moreover, 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 a new
drug application or that any such application will be reviewed and approved by
the FDA in a timely manner, if at all.
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<PAGE>
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.
WE DEPEND ON COLLABORATIVE PARTNERS FOR RESEARCH SUPPORT AND 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, or fail to meet its contractual obligations, it could have
a material adverse effect on our ability to undertake research, 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 provide research support and to develop and commercialize our
products in the future. We cannot be certain that we will be able to establish
acceptable collaborative arrangements in the future or that such collaborative
arrangements will be successful. Under certain of our collaborative agreements,
our partners have agreed to provide funding for only a portion of our research
and development activities and we are committed to investing our own capital to
fund the remainder of the agreed upon programs. We cannot be sure that we will
have adequate financial resources to satisfy those requirements.
IT IS POSSIBLE THAT WE MAY LOSE OUR TECHNOLOGICAL ADVANTAGE BECAUSE
PHARMACEUTICAL RESEARCH TECHNOLOGIES CHANGE RAPIDLY.
The pharmaceutical research field is characterized by rapid
technological progress and intense competition. As a result, we may not realize
the expected benefits of our chemogenomics approach and parallel drug design
strategy. Further, we believe that interest in the application of
structure-based drug design, parallel drug design and related approaches may
continue and may accelerate as the strategies become more widely understood.
Businesses, academic institutions,
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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. In addition, the level of funding under
certain of our collaborative agreements, in particular the Novartis
collaboration, depends on the number of our scientists performing research under
those agreements. If we cannot hire and retain the required personnel, funding
received under the agreements may be reduced.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY SUFFER.
Our ability to commercialize our products, achieve our expansion
objectives, manage our growth effectively and satisfy our commitments under our
collaboration agreements 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.
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
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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 we receive significant
future payments under our existing and future collaborative agreements and
royalties 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 potential products. We expect that
losses will fluctuate from quarter to quarter and year to year, and that such
fluctuations may be substantial. We cannot be certain that we will ever achieve
and sustain profitability.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.
We expect to incur substantial research and development and related
supporting expenses as we design and develop existing and future compounds and
undertake clinical trials of potential drugs resulting from such compounds. We
also expect to incur substantial administrative and commercialization
expenditures in the future and substantial expenses related to the filing,
prosecution, defense and enforcement of patent and other intellectual property
claims. We anticipate that we will finance these substantial cash needs with:
- the net proceeds from the offering of the notes;
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- 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, or related announcements or developments, concerning the health care
industry or third-party or governmental coverage and reimbursement may adversely
affect our business. In particular, legislation or regulation limiting
consumers' reimbursement rights could have a material adverse effect on our
company.
OUR SALES AND MARKETING EXPERIENCE IS LIMITED.
We currently have little experience in marketing and selling
pharmaceutical products. We must either develop a marketing and sales force or
enter into arrangements with third parties to market and sell any of our product
candidates which are approved by the FDA. In the territories where we retain
marketing and co-promotion rights, we may not be able to develop successfully
our own sales and marketing force. We do not know whether we will be able to
enter into marketing and sales agreements with others on acceptable terms, if at
all. If we develop our own marketing and sales capability, we may be competing
with other companies that currently have experienced and well-funded marketing
and sales operations. To the extent that our collaborative partners have
commercial rights to our products, any revenues we receive from those products
will depend on the sales and marketing efforts of others, and we do not know how
successful those efforts will be.
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
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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 September 30, 2000, we had 54,601,768 shares of common
stock outstanding, excluding shares reserved for issuance upon the exercise of
outstanding stock options, employee stock purchase and 401(k) plans. As of
September 30, 2000, we had granted stock options to purchase 11,026,425 shares
of our common stock at a weighted average exercise price of approximately $13.66
per share, subject to adjustment in certain circumstances. Of this total,
5,669,495 were currently exercisable at an average exercise price of
approximately $11.35 per share. The shares of our common stock that may be
issued under the options will be freely tradeable or transferable pursuant to an
effective registration statement.
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. 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.
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<PAGE>
ADOPTION OF SAB 101 MAY DECREASE OUR REPORTED REVENUES AND INCREASE OUR REPORTED
NET LOSSES.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," (SAB 101) which, as amended,
is to be implemented no later than the fiscal quarter ending December 31,
2000. Vertex and its independent accountants are continuing to review the
effect that the implementation of SAB 101 will have on the Company's net
financial results. The Company expects that the net effect of SAB 101 will be
to defer revenue recognition for some portion of the amounts received by the
Company under contract partnerships into future accounting periods. Vertex
would record the cumulative effect of this change in accounting principle as
of January 1, 2000. The implementation of SAB 101 is expected to have a
material effect on the reported financial results for the year ending
December 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 12 months ended November 10, 2000 our common stock has
traded between $11.68 and $99.25. 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;
- developments in patent or other intellectual property rights
or announcements relating to these matters;
- developments in domestic and international governmental policy
or regulation, for example relating to intellectual property
rights; and
- developments and market conditions for pharmaceutical and
biotechnology stocks, in general.
OUR OUTSTANDING INDEBTEDNESS HAS INCREASED WITH OUR ISSUANCE OF THE NOTES.
As of September 30, 2000, we had approximately $348 million in
long-term debt, including $345 million from the sale of the notes. The high
level of our indebtedness will impact us by:
- making it more difficult for us to make payments on the notes;
- significantly increasing our interest expense and related debt
service costs;
- making it more difficult to obtain additional financing for
working capital, capital expenditures, debt service
requirements or other purposes; and
- constraining our ability to react quickly in an unfavorable
economic climate.
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WE ARE NOT GENERATING SUFFICIENT CASH FLOW TO PAY INTEREST ON THE NOTES.
Currently, we are not generating sufficient cash flow to satisfy the
annual debt service payments that will be required as a result of the
consummation of sale of the notes. This may require us to use a portion of the
proceeds from the sale of the notes to pay interest on the notes or borrow
additional funds or sell additional equity to meet our debt service obligations.
If we are unable to satisfy our debt service requirements, substantial liquidity
problems could result, which would negatively impact our future prospects.
THE NOTES ARE SUBORDINATED TO ANY EXISTING AND FUTURE SENIOR DEBT.
The notes are contractually subordinated in right of payment to our
existing and future senior debt. As of September 30, 2000, we had approximately
$5.3 million of senior debt. The indenture under which the notes were issued
does not limit the creation of additional senior debtor any other indebtedness.
In connection with the expansion of our facilities, we expect that we may
significantly increase our senior debt in the near future. Any significant
additional senior debt incurred may materially adversely impact our ability to
service our debt, including the notes. Due to subordination provisions contained
in the indenture under which the notes were issued and other agreements relating
to our senior debt, in the event of our insolvency, funds which we would
otherwise use to pay the holders of the notes will be used to pay the holders of
senior debt to the extent necessary to pay the senior debt in full. As a result
of these payments, our general creditors may recover less, ratably, than the
holders of our senior debt and such general creditors may recover more, ratably,
than the holders of our notes or our other subordinated indebtedness. In
addition, the holders of our senior debt may, under certain circumstances,
restrict or prohibit us from making payments on the notes.
OUR ABILITY TO REPURCHASE NOTES, IF REQUIRED, MAY BE LIMITED.
In certain circumstances involving a change of control, each holder of
the notes may require us to repurchase some or all of the holder's notes. We
cannot assure you that we will have sufficient financial resources at such time
or would be able to arrange financing to pay the repurchase price of the notes.
Our ability to repurchase the notes in such event may be limited by law, the
indenture, by the terms of other agreements relating to our senior debt and as
such indebtedness and agreements may be entered into, replaced, supplemented or
amended from time to time. We may be required to refinance our senior debt in
order to make such payments.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT BE SUSTAINED.
Although the notes are eligible for trading in the PORTAL market, we
cannot predict whether an active trading market for the notes will be sustained.
If an active market for the notes fails to be sustained, the trading price of
the notes could fall. Whether or not the notes will trade at lower prices
depends on many factors, including:
- prevailing interest rates and the markets for similar
securities;
- general economic conditions; and
- our financial condition, historic financial performance and
future prospects.
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ANY RATING OF THE NOTES MAY CAUSE THEIR TRADING PRICE TO FALL.
If the rating agencies rate the notes, they may assign a lower rating
than expected by investors. Rating agencies may also lower ratings on the notes
in the future. If the rating agencies assign a lower than expected rating or
reduce their ratings in the future, the trading price of the notes could
decline.
RATIO OF EARNINGS TO FIXED CHARGES
We present below the ratio of our earnings to our fixed charges.
Earnings consist of net loss from operations, income (loss) in equity affiliate
and fixed charges. Fixed charges consist of interest expense and that portion of
rental expense we believe to be representative of interest.
<TABLE>
<CAPTION>
Year ended Nine Months
December 31, ended September 30,
------------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges (1) (1) (1) (1) (1) (1)
</TABLE>
(1) For the years ended December 31, 1995, 1996, 1997, 1998, and 1999 and for
the nine months ended September 30, 2000, earnings were insufficient to
cover fixed charges by $21.5 million, $40.0 million, $19.8 million, $33.1
million, $41.0 million, and $28.4 million, respectively. For this reason,
no ratios are provided.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the notes or
of our securities by the selling holders under this prospectus, nor will we
receive cash proceeds from the issuance of shares in connection with the
settlement of the make-whole payment..
DESCRIPTION OF THE NOTES
The notes were issued under an indenture between us and State Street
Bank and Trust Company, as trustee, dated September 19, 2000. We will make
copies of the indenture, notes and registration rights agreement available to
prospective investors in the notes upon request to us. A copy of the indenture
is filed with the SEC as an exhibit to the registration statement of which this
prospectus forms a part.
We have summarized portions of the indenture below. This summary is not
complete. We urge you to read the indenture because it defines your rights as a
holder of the notes. Terms not defined in this description have the meanings
given them in the indenture. In this section, "Vertex", "we", "our" and "us"
each refers only to Vertex Pharmaceuticals Incorporated and not to any existing
or future subsidiary.
GENERAL
The notes are unsecured, subordinated obligations of Vertex and are
convertible into our common stock as described under "Conversion Rights" below.
The notes were issued in an aggregate principal amount of $345,000,000, and will
mature on September 19, 2007.
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The notes bear interest at the rate of 5% per year from the date of
issuance of the notes, or from the most recent date to which interest had been
paid or provided for, subject to adjustment if a reset transaction occurs. See
"Interest Rate Adjustments" below. Interest is payable semi-annually on March 19
and September 19 of each year, commencing March 19, 2001, to holders of record
at the close of business on the preceding March 1 and September 1, respectively.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months. In the event of the maturity, conversion, purchase by us at the option
of the holder or redemption of a note, interest will cease to accrue on the note
under the terms of and subject to the conditions of the indenture.
We will make payments of principal, and you may present the notes for
conversion, registration of transfer and exchange, without service charge, at
our office or agency in New York City, which shall initially be the office or
agency of the trustee in New York, New York. See "Form, Denomination and
Registration."
The indenture does not contain any financial covenants or any
restrictions on our payment of dividends, incurrence of senior debt or other
indebtedness, or issuance or repurchase of securities. The indenture contains no
covenants or other provisions to protect holders of the notes in the event of a
highly leveraged transaction or a change in control, except to the extent
described under "Interest Rate Adjustments" and under "Change of Control Permits
Purchase of Notes at the Option of the Holder" below.
INTEREST RATE ADJUSTMENTS
If a reset transaction occurs, the interest rate will be adjusted to
equal the adjusted interest rate from the effective date of the reset
transaction to, but not including, the effective date of any succeeding Reset
Transaction.
A "reset transaction" means:
- a merger, consolidation or statutory share exchange involving
the entity that is the issuer of the common stock into which
the notes are then convertible;
- a sale of all or substantially all the assets of that entity;
- a recapitalization of that common stock; or
- a distribution described in clause (4) of the fourth paragraph
under "Conversion Rights" below,
after the effective date of which transaction or distribution the notes would be
convertible into:
- shares of an entity the common stock of which had a
dividend yield for the four fiscal quarters immediately
preceding the public announcement of the transaction or
distribution that was more than 2.5% higher than the dividend
yield on our common stock (or other common stock then issuable
upon conversion of the notes) for the four fiscal quarters
preceding the public announcement of the transaction or
distribution; or
- shares of an entity that announces a dividend policy
prior to the effective date of the transaction or distribution
which policy, if implemented, would result in a dividend yield
on that entity's common stock for the next four fiscal
quarters that would result in such a 2.5% increase.
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The "adjusted interest rate" with respect to any reset transaction will
be the rate per year that is the average of the rates quoted by two dealers
engaged in the trading of convertible securities selected by us as the rate at
which interest should accrue so that the fair market value, expressed in
dollars, of a note immediately after the later of:
- the public announcement of the reset transaction; or
- the public announcement of a change in dividend policy in
connection with the reset transaction,
will equal the average trading price of a note for the 20 trading days preceding
the date of public announcement of the reset transaction. However, the adjusted
interest rate will not be less than 5% per year.
For purposes of the definition of reset transaction, the dividend yield
on any security for any period means the dividends paid or proposed to be paid
pursuant to an announced dividend policy on the security for that period divided
by, if with respect to dividends paid on that security, the average closing
price (as defined in the indenture) of the security during that period and, if
with respect to dividends proposed to be paid on the security, the closing price
of such security on the effective date of the related reset transaction.
The "trading price" of a security on any date of determination means:
- the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of a security on the
New York Stock Exchange on that date;
- if that security is not listed on the NYSE on that date, the
closing sale price as reported in the composite transactions
for the principal U.S. securities exchange on which that
security is listed;
- if that security is not so listed on a U.S. national or
regional securities exchange, the closing sale price as
reported by the Nasdaq National Market;
- if that security is not so reported, the last price
quoted by Interactive Data Corporation for that security or,
if Interactive Data Corporation is not quoting such price, a
similar quotation service selected by us;
- if that security is not so quoted, the average of the
mid-point of the last bid and ask prices for that security
from at least two dealers recognized as market-makers for that
security; or
- if that security is not so quoted, the average of the last bid
and ask prices for that security from a dealer engaged in the
trading of convertible securities.
SUBORDINATION
The notes are unsecured obligations and are subordinated in right of
payment, as provided in the indenture, to the prior payment in full of all our
existing and future senior debt.
As of September 30, 2000, we had approximately $5.3 million of senior
debt outstanding. The indenture does not restrict the incurrence by us or our
subsidiaries of indebtedness or other obligations.
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The term "senior debt" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
termination payment with respect to or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, our
indebtedness, whether outstanding on the date of the indenture or subsequently
created, incurred, assumed, guaranteed or in effect guaranteed by us (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), except for
- any indebtedness that by its terms expressly provides that
such indebtedness shall not be senior in right of payment to
the notes or expressly provides that such indebtedness is
equal with or junior to the notes, and
- any indebtedness between or among us and/or any of our
subsidiaries, a majority of the voting stock of which we
directly or indirectly own, or any of our affiliates.
The term "indebtedness" means, with respect to any person:
1. all indebtedness, obligations and other liabilities (contingent or
otherwise) of that person for borrowed money (including our obligations
in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or
advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or other
instruments for the payment of money, or incurred in connection with
the acquisition of any property, services or assets (whether or not the
recourse of the lender is to the whole of the assets of such person or
to only a portion of those assets), other than any account payable or
other accrued current liability or obligation to trade creditors
incurred in the ordinary course of business in connection with the
obtaining of materials or services;
2. all reimbursement obligations and other liabilities (contingent or
otherwise) of that person with respect to letters of credit, bank
guarantees, bankers' acceptances, surety bonds, performance bonds or
other guaranty of contractual performance;
3. all obligations and liabilities (contingent or otherwise) in respect of
(A) leases of such person required, in conformity with generally
accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such person, and (B) any
lease or related documents (including a purchase agreement) in
connection with the lease of real property which provides that such
person is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual
value of the leased property to the landlord and the obligations of
such person under such lease or related document to purchase or to
cause a third party to purchase the leased property;
4. all obligations of such person (contingent or otherwise) with respect
to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement;
5. all direct or indirect guaranties or similar agreements by that person
in respect of, and obligations or liabilities (contingent or otherwise)
of that person to purchase or otherwise acquire or otherwise assure a
creditor against loss in respect of, indebtedness, obligations or
liabilities of another person of the kind described in clauses (1)
through (4);
6. any indebtedness or other obligations described in clauses (1) through
(4) secured by any mortgage, pledge, lien or other encumbrance existing
on property which is owned or held by
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such person, regardless of whether the indebtedness or other obligation
secured thereby shall have been assumed by such person; and
7. any and all deferrals, renewals, extensions, refinancings,
replacements, restatements and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (1) through (6).
Any senior debt will continue to be senior debt and will be entitled to
the benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any of its terms.
The indenture provides that in the event of any payment or distribution
of our assets upon our dissolution, winding up, liquidation or reorganization,
the holders of our senior debt shall first be paid in respect of all senior debt
in full in cash or other payment satisfactory to the holders of senior debt
before we make any payments of principal of, or premium, if any, and interest
(including liquidated damages, if any) on the notes. In addition, if the notes
are accelerated because of an event of default, the holders of any senior debt
would be entitled to payment in full in cash or other payment satisfactory to
the holders of senior debt of all obligations in respect of senior debt before
the holders of the notes are entitled to receive any payment or distribution.
Under the indenture, we must promptly notify holders of senior debt if payment
of the notes is accelerated because of an event of default.
The indenture further provides if any default by us has occurred and is
continuing in the payment of principal of, premium, if any, or interest on, rent
or other payment obligations in respect of, any senior debt, then no payment
shall be made on account of principal of, premium, if any, or interest on the
notes (including any liquidated damages, if any) or to acquire any of the notes,
until all such payments due in respect of that senior debt have been paid in
full in cash or other payment satisfactory to the holders of that senior debt.
During the continuance of any event of default with respect to any
designated senior debt (other than a default in payment of the principal of or
premium, if any, or interest on, rent or other payment obligations in respect of
any designated senior debt), permitting the holders thereof to accelerate the
maturity thereof (or, in the case of any lease, permitting the landlord either
to terminate the lease or to require us to make an irrevocable offer to
terminate the lease following an event of default thereunder), no payment may be
made by us, directly or indirectly, with respect to principal of, premium, if
any, or interest on the notes (including any liquidated damages, if any) for 179
days following written notice to us, from any holder, representative or trustee
under any agreement pursuant to which that designated senior debt may have been
issued, that such an event of default has occurred and is continuing, unless
such event of default has been cured or waived or that designated senior debt
has been paid in full in cash or other payment satisfactory to the holders of
that designated senior debt. However, if the maturity of that designated senior
debt is accelerated (or, in the case of a lease, as a result of such events of
default, the landlord under the lease has given us notice of its intention to
terminate the lease or to require us to make an irrevocable offer to terminate
the lease following an event of default thereunder), no payment may be made on
the notes until that designated senior debt has been paid in full in cash or
other payment satisfactory to the holders of that designated senior debt or such
acceleration (or termination, in the case of the lease) has been cured or
waived.
The term "designated senior debt" means our senior debt which, at the
date of determination, has an aggregate amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $20 million and is specifically designated in the instrument evidencing
or governing that senior debt as "designated senior debt" for purposes of the
indenture. However, the instrument may place limitations and conditions on the
right of that senior debt to exercise the rights of designated senior debt.
Borrowings under the Credit Agreement, dated
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December 21, 1999, by and among Vertex and Fleet Bank, N.A. shall constitute
designated senior debt. At September 30, 2000, we had no designated senior
debt outstanding.
By reason of these subordination provisions, in the event of
insolvency, funds which we would otherwise use to pay the holders of notes will
be used to pay the holders of Senior Debt to the extent necessary to pay Senior
Debt in full in cash or other payment satisfactory to the holders of Senior
Debt. As a result of these payments, our general creditors may recover less,
ratably, than holders of Senior Debt and such general creditors may recover
more, ratably, than holders of notes.
The notes are effectively subordinated to all existing and future
liabilities of our subsidiaries. Any right we have to receive assets of any of
our existing and future subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the holders of the notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent that we are ourselves
recognized as a creditor of that subsidiary, in which case our claims would
still be subordinate to any security interests in the assets of that subsidiary
and any indebtedness of that subsidiary senior to that held by us. There are no
restrictions in the indenture on the ability of our subsidiaries to incur
Indebtedness or other liabilities. As of September 30, 2000, our existing
subsidiaries had no indebtedness outstanding.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against any losses, liabilities or expenses incurred by it
in connection with its duties relating to the notes. The trustee's claims for
such payments will be senior to those of holders of the notes in respect of all
funds collected or held by the trustee.
CONVERSION RIGHTS
The holders of notes may, at any time prior to the close of business on
the final maturity date of the notes, convert any outstanding notes (or portions
thereof) into our common stock, initially at a conversion price of $92.26 per
share, subject to adjustment as described below. Holders may convert notes only
in denominations of $1,000 and whole multiples of $1,000. Except as described
below, no payment or other adjustment will be made on conversion of any notes
for interest accrued thereon or dividends paid on any common stock.
If notes are converted after a record date for an interest payment but
prior to the next interest payment date, those notes must be accompanied by
funds equal to the interest payable to the record holder on the next interest
payment date on the principal amount so converted, provided that no such payment
will be required from a holder if such notes have been called for redemption. We
will not issue fractional shares of common stock upon conversion of notes and
instead will pay a cash adjustment based upon the market price of our common
stock on the last business day before the date of the conversion. In the case of
notes called for redemption, conversion rights will expire at the close of
business on the business day preceding the date fixed for redemption, unless we
default in payment of the redemption price.
A holder may exercise the right of conversion by delivering the note to
be converted to the specified office of a conversion agent, with a completed
notice of conversion, together with any funds that may be required as described
in the preceding paragraph. The conversion date will be the date on which the
notes, the notice of conversion and any required funds have been so delivered. A
holder delivering a note for conversion will not be required to pay any taxes or
duties relating to the issuance or delivery of the common stock for such
conversion, but will be required to pay any tax or duty which may be payable
relating to any transfer involved in the issuance or delivery of the common
stock in a name other than the holder of the note. Certificates representing
shares of common stock will be issued or delivered only after all applicable
taxes and duties, if any, payable by the holder have been paid. If any note is
converted within two years after its original issuance,
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the common stock issuable upon conversion will not be issued or delivered
in a name other than that of the holder of the note unless the applicable
restrictions on transfer have been satisfied.
The initial conversion price will be adjusted for certain events,
including:
1. the issuance of our common stock as a dividend or distribution
on our common stock;
2. certain subdivisions and combinations of our common stock;
3. the issuance to all holders of our common stock of certain
rights or warrants to purchase our common stock (or securities
convertible into our common stock) at less than (or having a
conversion price per share less than) the current market price
of our common stock;
4. the dividend or other distribution to all holders of our
common stock of shares of our capital stock (other than common
stock) or evidences of our indebtedness or our assets
(including securities, but excluding those rights and warrants
referred to in clause (3) above and dividends and
distributions in connection with a reclassification, change,
consolidation, merger, combination, sale or conveyance
resulting in a change in the conversion consideration pursuant
to the second succeeding paragraph below and dividends or
distributions paid exclusively in cash);
5. dividends or other distributions consisting exclusively of
cash to all holders of our common stock (excluding any cash
that is distributed upon a reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or
conveyance as described in the second succeeding paragraph
hereof or as part of a distribution referred to in clause (4)
above) to the extent that such distributions, combined
together with (A) all other such all-cash distributions made
within the preceding 12 months for which no adjustment has
been made plus (B) any cash and the fair market value of other
consideration paid for any tender or exchange offers by us or
any of our subsidiaries for our common stock concluded within
the preceding 12 months for which no adjustment has been made,
exceeds 10% of our market capitalization on the record date
for such distribution; market capitalization is the product of
the then current market price of our common stock times the
number of shares of our common stock then outstanding; and
6. payments to holders of our common stock pursuant to a tender
or exchange offer made by us or any of our subsidiaries to the
extent that the same involves aggregate consideration that,
together with (A) any cash and the fair market value of any
other consideration paid in any other tender or exchange offer
by us or any of our subsidiaries for our common stock expiring
within the 12 months preceding such tender or exchange offer
for which no adjustment has been made plus (B) the aggregate
amount of any all-cash distributions referred to in clause (5)
above to all holders of our common stock within 12 months
preceding the expiration of such tender or exchange offer for
which no adjustments have been made, exceeds 10% of our market
capitalization on the expiration of such tender or exchange
offer.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect at such time. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
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issuance of our common stock or any securities convertible into or exchangeable
for our common stock or carrying the right to purchase any of the foregoing.
In the case of:
- any recapitalization, reclassification or change of our common
stock (other than changes in par value or resulting from a
subdivision or combination),
- a consolidation, merger or combination involving us,
- a sale, conveyance or lease to another corporation of all or
substantially all of our property and assets, or
- any statutory share exchange,
in each case as a result of which holders of our common stock are entitled to
receive stock, other securities, other property or assets (including cash or any
combination thereof) with respect to or in exchange for our common stock, the
holders of the notes then outstanding will be entitled thereafter to convert
those notes into the kind and amount of shares of stock, other securities or
other property or assets (including cash or any combination thereof) which they
would have owned or been entitled to receive upon such recapitalization,
reclassification, change, consolidation, merger, combination, sale, conveyance
or statutory share exchange had such notes been converted into our common stock
immediately prior to such recapitalization, reclassification, change,
consolidation, merger, combination, sale, conveyance or statutory share
exchange. We may not become a party to any such transaction unless its terms are
consistent with the foregoing.
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price, the
holders of notes may, in certain circumstances, be deemed to have received a
distribution subject to U.S. income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a taxable dividend to
the holders of common stock. See "United States Federal Income Tax
Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the notes by any amount for any period of at least 20 days.
In that case we will give at least 15 days' notice of such decrease. We may make
such reductions in the conversion price, in addition to those set forth above,
as our board of directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for income tax
purposes.
PROVISIONAL REDEMPTION
We may redeem the notes, in whole or in part, at any time prior to
September 19, 2003, at a redemption price equal to $1,000 per $1,000 principal
amount of notes to be redeemed plus accrued and unpaid interest, if any, to, but
excluding, the provisional redemption date if:
- the closing price of our common stock has exceeded
150% of the conversion price then in effect for at least 20
trading days within a period of 30 consecutive trading days
ending on the trading day prior to the date of mailing of the
provisional redemption notice (which date shall be at least 20
but not more than 60 days prior to the provisional redemption
date); and
- the registration statement of which this prospectus forms a
part is effective and available for use and is expected to
remain effective for the 30 days following the provisional
redemption date.
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Upon any provisional redemption, we will make an additional
"make-whole" payment with respect to the notes called for redemption to holders
on the notice date in an amount equal to $150.00 per $1,000 principal amount of
notes, less the amount of any interest actually paid on the notes prior to the
provisional redemption date. We may make this "make-whole" payment, at our
option, either in cash or in our common stock or a combination of cash and
common stock, if the registration statement of which this prospectus forms a
part is effective and expected to remain effective and available for use for the
30 days following the provisional redemption date and if we satisfy certain
other conditions specified in the indenture. We will specify the type of
consideration for the "make-whole" payment in the redemption notice. Payments
made in our common stock will be valued at 97% of the average of the closing
sales prices of our common stock for the five trading days ending on the day
prior to the provisional redemption date.
WE WILL BE OBLIGATED TO MAKE THIS ADDITIONAL PAYMENT ON ALL NOTES
CALLED FOR PROVISIONAL REDEMPTION, INCLUDING ANY NOTES CONVERTED AFTER THE
NOTICE DATE AND BEFORE THE PROVISIONAL REDEMPTION DATE.
REDEMPTION OF NOTES AT OUR OPTION
There is no sinking fund for the notes. On and after September 19,
2003, we are entitled to redeem some or all of the notes on at least 20 but not
more than 60 days' notice, at the redemption prices set out below, together with
accrued and unpaid interest to, but excluding, the date fixed for redemption, if
the closing price of our common stock has exceeded 120% of the conversion price
then in effect for at least 20 trading days within a period of 30 consecutive
trading days ending on the trading day prior to the date of mailing of the
optional redemption notice. However, if a redemption date is an interest payment
date, the semi-annual payment of interest becoming due on such date shall be
payable to the holder of record as of the relevant record date and the
redemption price shall not include such interest payment.
The table below shows redemption prices of a note per $1,000 principal
amount if redeemed during the periods described below.
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ -----------------
<S> <C>
September 19, 2003 through September 18, 2004...................................... 102.857%
September 19, 2004 through September 18, 2005...................................... 102.143%
September 19, 2005 through September 18, 2006...................................... 101.429%
Thereafter......................................................................... 100.714%
</TABLE>
If we do not redeem all of the notes, the trustee will select the notes
to be redeemed in principal amounts of $1,000 or whole multiples of $1,000 by
lot, on a pro rata basis or in accordance with any other method the trustee
considers fair and appropriate. If any notes are to be redeemed in part only, a
new note or notes in principal amount equal to the unredeemed principal portion
thereof will be issued. If a portion of a holder's notes is selected for partial
redemption and the holder converts a portion of its notes, the converted portion
will be deemed to be taken from the portion selected for redemption.
CHANGE OF CONTROL PERMITS PURCHASE OF NOTES AT THE OPTION OF THE HOLDER
If a change of control occurs, each holder of notes will have the right
to require us to repurchase all of that holder's notes not previously called for
redemption, or any portion of those notes that is equal to $1,000 or a whole
multiple of $1,000, on the date that is 45 days after the date
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we give notice at a repurchase price equal to 100% of the principal amount of
the notes to be repurchased, together with interest accrued and unpaid to,
but excluding, the repurchase date.
Instead of paying the repurchase price in cash, we may pay the
repurchase price in common stock. The number of shares of common stock a holder
will receive will equal the repurchase price divided by 95% of the average of
the closing sales prices of our common stock for the five trading days
immediately preceding and including the third trading day prior to the
repurchase date. However, we may not pay in common stock unless we satisfy
certain conditions prior to the repurchase date as provided in the indenture.
Within 30 days after the occurrence of a change of control, we are
required to give notice to all holders of notes, as provided in the indenture,
of the occurrence of the change of control and of their resulting repurchase
right. We must also deliver a copy of our notice to the trustee. To exercise the
repurchase right, a holder of notes must deliver prior to or on the 30th day
after the date of our notice irrevocable written notice to the trustee of the
holder's exercise of its repurchase right, together with the notes with respect
to which the right is being exercised.
A "change of control" will be deemed to have occurred at such time
after the original issuance of the notes when the following has occurred:
- the acquisition by any person of beneficial
ownership, directly or indirectly, through a purchase, merger
or other acquisition transaction or series of transactions of
shares of our capital stock entitling that person to exercise
50% or more of the total voting power of all shares of our
capital stock entitled to vote generally in elections of
directors, other than any acquisition by us, any of our
subsidiaries or any of our employee benefit plans;
- our consolidation or merger with or into any other
person, any merger of another person into us, or any
conveyance, transfer, sale, lease or other disposition of all
or substantially all of our properties and assets to another
person, other than: any transaction (A) that does not result
in any reclassification, conversion, exchange or cancellation
of outstanding shares of our capital stock and (B) pursuant to
which holders of our capital stock immediately prior to the
transaction are entitled to exercise, directly or indirectly,
50% or more of the total voting power of all shares of our
capital stock entitled to vote generally in the election of
directors of the continuing or surviving person immediately
after the transaction; or any merger solely for the purpose of
changing our jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares
of common stock solely into shares of common stock of the
surviving entity;
- during any consecutive two-year period, individuals
who at the beginning of that two-year period constituted our
board of directors (together with any new directors whose
election to our board of directors, or whose nomination for
election by our stockholders, was approved by a vote of a
majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for
any reason to constitute a majority of our board of directors
then in office; or
- we are liquidated or dissolved or our stockholders pass a
resolution approving a plan of liquidation or dissolution.
The beneficial owner shall be determined in accordance with Rule 13d-3
promulgated by the SEC under the Securities Exchange Act of 1934. The term
"person" includes any syndicate or group which would be deemed to be a "person"
under Section 13(d)(3) of the Exchange Act.
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Rule 13e-4 under the Exchange Act, as amended, requires the
dissemination of certain information to security holders if an issuer tender
offer occurs and may apply if the repurchase option becomes available to holders
of the notes. We will comply with this rule to the extent applicable at that
time.
We may, to the extent permitted by applicable law, at any time purchase
the notes in the open market or by tender at any price or by private agreement.
Any note so purchased by us may, to the extent permitted by applicable law, be
reissued or resold or may be surrendered to the trustee for cancellation. Any
notes surrendered to the trustee may not be reissued or resold and will be
canceled promptly.
The foregoing provisions would not necessarily protect holders of the
notes if highly leveraged or other transactions involving us occur that may
adversely affect holders.
Our ability to repurchase notes upon the occurrence of a change of
control is subject to important limitations. The occurrence of a change of
control could cause an event of default under, or be prohibited or limited by,
the terms of existing or future Senior Debt. As a result, any repurchase of the
notes would, absent a waiver, be prohibited under the subordination provisions
of the indenture until the Senior Debt is paid in full. Further, we cannot
assure you that we would have the financial resources, or would be able to
arrange financing, to pay the repurchase price for all the notes that might be
delivered by holders of notes seeking to exercise the repurchase right. Any
failure by us to repurchase the notes when required following a change of
control would result in an event of default under the indenture, whether or not
such repurchase is permitted by the subordination provisions of the indenture.
Any such default may, in turn, cause a default under existing or future Senior
Debt. See "Subordination" above.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of notes, consolidate with,
merge into or transfer all or substantially all of our assets to any
corporation, limited liability company, partnership or trust organized under the
laws of the United States or any of its political subdivisions provided that:
- the surviving entity assumes all our obligations under the
indenture and the notes;
- at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and
- an officers' certificate and an opinion of counsel, each
stating that the consolidation, merger or transfer complies
with the provisions of the indenture, have been delivered to
the trustee.
INFORMATION REQUIREMENT
We have agreed that, during any period in which we are not subject to
the reporting requirements of the Exchange Act, to make available to holders of
the notes, or beneficial owners of interests therein, or any prospective
purchaser of the notes, the information required by Rule 144A(d)(4) to be made
available in connection with the sale of notes or beneficial interests in the
notes. We are not required, however, to furnish such information in connection
with any request made on or after the date which is two years from the later of
the date such notes were last acquired by us or an affiliate.
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EVENTS OF DEFAULT
Each of the following constitutes an event of default under the
indenture:
1. our failure to pay when due the principal of or premium, if
any, on any of the notes at maturity, upon redemption or
exercise of a repurchase right or otherwise, whether or not
such payment is prohibited by the subordination provisions of
the indenture;
2. our failure to pay an installment of interest (including
liquidated damages, if any) on any of the notes for 30 days
after the date when due, whether or not such payment is
prohibited by the subordination provisions of the indenture;
3. our failure to deliver shares of common stock, together with
cash instead of fractional shares, when those shares of common
stock or cash instead of fractional shares, are required to be
delivered following conversion of a note, and that failure
continues for 10 days;
4. our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture for a period
of 60 days after written notice of such failure, requiring us
to remedy the same, shall have been given to us by the trustee
or to us and the trustee by the holders of at least 25% in
aggregate principal amount of the notes then outstanding;
5. our failure to make any payment by the end of the applicable
grace period, if any, after the maturity of any Indebtedness
for borrowed money in an amount in excess of $5 million, or
there is an acceleration of Indebtedness for borrowed money in
an amount in excess of $5 million because of a default with
respect to such Indebtedness without such Indebtedness having
been discharged or such acceleration having been cured,
waived, rescinded or annulled, in either case, for a period of
30 days after written notice to us by the trustee or to us and
the trustee by holders of at least 25% in aggregate principal
amount of the notes then outstanding; and
6. certain events of our bankruptcy, insolvency or
reorganization.
If an event of default specified in clause (6) above occurs and is
continuing, then the principal of all the notes and the interest thereon shall
automatically become immediately due and payable. If an event of default shall
occur and be continuing, other than with respect to clause (6) above, the
trustee or the holders of at least 25% in aggregate principal amount of the
notes then outstanding may declare the notes due and payable at their principal
amount together with accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of notes by
appropriate judicial proceedings. Such declaration may be rescinded and annulled
with the written consent of the holders of a majority in aggregate principal
amount of the notes then outstanding subject to the provisions of the indenture.
The holders of a majority in aggregate principal amount of notes at the
time outstanding through their written consent, or the holders of a majority in
aggregate principal amount of notes then outstanding represented at a meeting at
which a quorum is present by a written resolution, may waive any existing
default or event of default and its consequences except any default or event of
default:
- in any payment on the notes;
- in respect of the conversion rights of the notes; or
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- in respect of the covenants or provisions in the indenture that
may not be modified or amended without the consent of the holder
of each note affected as described in "Modification, Waiver and
Meetings" below.
Holders of a majority in aggregate principal amount of the notes then
outstanding through their written consent, or the holders of a majority in
aggregate principal amount of the notes then outstanding represented at a
meeting at which a quorum is present by a written resolution, may direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred upon the trustee, subject
to the provisions of the indenture. The indenture contains a provision entitling
the trustee, subject to the duty of the trustee during a default to act with the
required standard of care, to be indemnified by the holders of notes before
proceeding to exercise any right or power under the indenture at the request of
such holders. The rights of holders of the notes to pursue remedies with respect
to the indenture and the notes are subject to a number of additional
requirements set forth in the indenture.
The right of any holder:
- to receive payment of principal, premium, if any, the change of
control purchase price and interest in respect of the notes held
by that holder on or after the respective due dates expressed in
the notes;
- to convert those notes; and
- to bring suit for the enforcement of any such payment on or after
the respective due dates expressed in the notes, and the right to
convert;
will not be impaired or affected without that holder's consent.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default of which the trustee has received written notice, give
to the registered holders of the notes notice of all uncured defaults known to
it, but the trustee shall be protected in withholding such notice if it, in good
faith, determines that the withholding of such notice is in the best interest of
such registered holders, except in the case of a default in the payment of the
principal of, or premium, if any, or interest on, any of the notes when due or
in the payment of any redemption or repurchase obligation.
We are required to furnish annually to the trustee a statement as to
the fulfillment of our obligations under the indenture. In addition, we are
required to file with the trustee a written notice of the occurrence of any
default or event of default within five business days of our becoming aware of
the occurrence of any default or event of default.
MODIFICATION, WAIVER AND MEETINGS
The indenture contains provisions for convening meetings of the holders
of notes to consider matters affecting their interests.
The indenture (including the terms and conditions of the notes) may be
modified or amended by us and the trustee, without the consent of the holder of
any note, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of notes;
- surrendering any right or power conferred upon us;
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- providing for conversion rights of holders of notes if any
reclassification or change of our common stock or any
consolidation, merger or sale of all or substantially all of our
assets occurs;
- providing for the assumption of our obligations to the holders of
notes in the case of a merger, consolidation, conveyance,
transfer or lease;
- reducing the conversion price, provided that the reduction will
not adversely affect the interests of holders of notes in any
material respect;
- complying with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act of 1939;
- making any changes or modifications to the indenture necessary in
connection with the registration of the notes under the
Securities Act of 1933 as contemplated by the registration rights
agreement, provided that this action does not adversely affect
the interests of the holders of the notes in any material respect;
- curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture, provided that such
modification or amendment does not, in the good faith opinion of
our board of directors and the trustee, adversely affect the
interests of the holders of the notes in any material respect; or
- adding or modifying any other provisions which we and the trustee
may deem necessary or desirable and which will not adversely
affect the interests of the holders of notes in any material
respect.
Modifications and amendments to the indenture or to the terms and
conditions of the notes may also be made, and noncompliance by us with any
provision of the indenture or the notes may be waived, either:
- with the written consent of the holders of at least a majority
in aggregate principal amount of the notes at the time
outstanding; or
- by the adoption of a resolution at a meeting of holders at which
a quorum is present by at least a majority in aggregate principal
amount of the notes represented at such meeting.
However, no such modification, amendment or waiver may, without the
written consent or the affirmative vote of the holder of each note affected:
- change the maturity of the principal of or any installment of
interest on any note (including any payment of liquidated
damages);
- reduce the principal amount of, or any premium, if any, on any
note;
- reduce the interest rate or interest (including any liquidated
damages) on any note;
- change the currency of payment of principal of, premium, if any,
or interest on any note;
- impair the right to institute suit for the enforcement of any
payment on or with respect to, or the conversion of, any note;
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- modify our obligations to maintain an office or agency in New
York City;
- except as otherwise permitted or contemplated by provisions of
the indenture concerning specified reclassifications or corporate
reorganizations, adversely affect the conversion rights of
holders of the notes;
- adversely affect the repurchase option of holders upon a change
of control;
- modify the subordination provisions of the notes in a manner
adverse to the holders of notes;
- reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to
waive any past default; or
- reduce the percentage in aggregate principal amount of notes
outstanding required for the adoption of a resolution or the
quorum required at any meeting of holders of notes at which a
resolution is adopted.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes at
the time outstanding.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding, subject to certain conditions, if:
- all outstanding notes will become due and payable at their
scheduled maturity within one year; or
- all outstanding notes are scheduled for redemption within one
year,
and, in either case, we have deposited with the trustee an amount sufficient to
pay and discharge all outstanding notes on the date of their scheduled maturity
or the scheduled date of redemption.
FORM, DENOMINATION AND REGISTRATION
The notes are issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and whole multiples of $1,000.
GLOBAL NOTES: BOOK-ENTRY FORM. The notes were offered only to qualified
institutional buyers as defined in Rule 144A under the Securities Act . Except
as provided below, the notes are and will continue to be evidenced by one or
more global notes deposited with the trustee as custodian for The Depository
Trust Company, New York, New York, and registered in the name of Cede & Co. as
DTC's nominee. Prior to resale under this prospectus, the global notes and any
notes issued in exchange for the global notes are subject to the restrictions on
transfer in the global notes and in the indenture. Record ownership of the
global notes may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee, except as set forth below.
A QIB may hold its interests in a global note directly through DTC if
such QIB is a participant in DTC, or indirectly through organizations which are
direct DTC participants. Transfers between direct DTC participants will be
effected in the ordinary way in accordance with DTC's rules and will be settled
in same-day funds. QIBs may also beneficially own interests in the global notes
held by DTC through certain banks, brokers, dealers, trust companies and other
parties that
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clear through or maintain a custodial relationship with a direct DTC
participant, either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of
the global notes, Cede & Co. for all purposes will be considered the sole holder
of the global notes. Except as provided below, owners of beneficial interests in
the global notes will not be entitled to have certificates registered in their
names, will not receive or be entitled to receive physical delivery of
certificates in definitive form, and will not be considered holders thereof. The
laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer a
beneficial interest in the global notes to such persons may be limited.
We will wire, through the facilities of the trustee, principal,
premium, if any, and interest payments on the global notes to Cede & Co., the
nominee for DTC, as the registered owner of the global notes. Vertex, the
trustee and any paying agent will have no responsibility or liability for paying
amounts due on the global notes to owners of beneficial interests in the global
notes.
It is DTC's current practice, upon receipt of any payment of principal
of and premium, if any, and interest on the global notes, to credit
participants' accounts on the payment date in amounts proportionate to their
respective beneficial interests in the notes represented by the global notes, as
shown on the records of DTC, unless DTC believes that it will not receive
payment on the payment date. Payments by DTC participants to owners of
beneficial interests in notes represented by the global notes held through DTC
participants will be the responsibility of DTC participants, as is now the case
with securities held for the accounts of customers registered in "street name."
If you would like to convert your notes into common stock pursuant to
the terms of the notes, you should contact your broker or other direct or
indirect DTC participant to obtain information on procedures, including proper
forms and cut-off times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn act
on behalf of indirect DTC participants and other banks, your ability to pledge
your interest in the notes represented by global notes to persons or entities
that do not participate in the DTC system, or otherwise take actions in respect
of such interest, may be affected by the lack of a physical certificate.
Neither Vertex nor the trustee, nor any registrar, paying agent or conversion
agent under the indenture, will have any responsibility for the performance by
DTC or direct or indirect DTC participants of their obligations under the rules
and procedures governing their operations. DTC has advised us that it will take
any action permitted to be taken by a holder of notes, including, without
limitation, the presentation of notes for conversion as described below, only at
the direction of one or more direct DTC participants to whose account with DTC
interests in the global notes are credited and only for the principal amount of
the notes for which directions have been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for DTC
participants and to facilitate the clearance and settlement of securities
transactions between DTC participants through electronic book-entry changes to
the accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations such as the initial purchasers of the notes. Certain DTC
participants or their representatives, together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with, a participant, either directly or indirectly.
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Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global notes among DTC participants, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. If DTC is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by us within 90 days, we will cause notes to be issued in definitive form in
exchange for the global notes. None of Vertex, the trustee or any of their
respective agents will have any responsibility for the performance by DTC,
direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to, or payments made on account of, beneficial
ownership interests in global notes.
According to DTC, the foregoing information with respect to DTC has
been provided to its participants and other members of the financial community
for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
CERTIFICATED NOTES. The notes represented by a global note are exchangeable for
notes in definitive form of like tenor as that global note in denominations of
$1,000 and in any greater amount that is an integral multiple of $1,000 if:
- DTC notifies us in writing that it is unwilling or unable to
continue as depositary for that global note or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act
and a successor depositary is not appointed by us within 90 days;
- we, at our option, notify the trustee in writing that we elect to
issue the notes in definitive form in exchange for all or any
part of the notes represented by the global notes; or
- there is, or continues to be, an event of default and the
registrar has received a request from DTC for the issuance of
definitive notes in exchange for the global notes.
Any note that is exchangeable pursuant to the preceding sentence is
exchangeable for notes registered in the names which DTC will instruct the
trustee. DTC's instructions may be based upon directions received by DTC from
its participants with respect to ownership of beneficial interests in that
global note. Subject to the foregoing, a global note is not exchangeable except
for a global note or global notes of the same aggregate denominations to be
registered in the name of DTC or its nominee.
RESTRICTIONS ON TRANSFER; LEGENDS. Prior to resale under this prospectus,
certificates evidencing the notes will bear a restrictive legend as described in
the indenture.
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NOTICES
Except as otherwise provided in the indenture, notices to holders of
notes will be given by mail to the addresses of holders of the notes as they
appear in the note register.
GOVERNING LAW
The indenture, the notes and the registration rights agreement will be
governed by, and construed in accordance with, the law of the State of New York.
INFORMATION REGARDING THE TRUSTEE
State Street Bank and Trust Company, as trustee under the indenture,
has been appointed by us as paying agent, conversion agent, registrar and
custodian with regard to the notes. EquiServe Limited Partnership is the
transfer agent and registrar for our common stock. The trustee or its affiliates
may from time to time in the future provide banking and other services to us in
the ordinary course of their business.
REGISTRATION RIGHTS OF HOLDERS OF THE NOTES
When we issued the notes, we entered into a registration rights
agreement with the initial purchasers of the notes. As required under that
agreement, we have filed with the SEC, at our expense, a shelf registration
statement, of which this prospectus forms a part, covering the resale by holders
of the notes and the common stock issuable upon conversion of the notes, and
covering the original issuance by us of the shares of common stock issuable with
respect to the settlement of the make-whole payment. Under the terms of the
registration rights agreement, we have agreed to use our best efforts to keep
the registration statement effective until September 19, 2002 or such earlier
date when the holders of the notes and the common stock issuable upon conversion
of the notes are able to sell all such securities immediately without
restriction pursuant to the volume limitation provisions of Rule 144 under the
Securities Act or any successor rule thereto or otherwise.
We have also agreed to provide to each registered holder copies of this
prospectus and take other actions that are required to permit unrestricted
resales of the notes and the common stock issuable upon conversion of the notes.
A holder who sells the notes and the common stock issuable upon conversion of
the notes pursuant to the shelf registration statement of which this prospectus
forms a part must be named as a selling stockholder in this prospectus (or a
supplement to this prospectus) and must deliver this prospectus (together with
any prospectus supplement) to the purchasers. The holder is also bound by the
provisions of the registration rights agreement including certain
indemnification provisions.
Each holder must notify us not later than three business days prior to
any proposed sale by that holder pursuant to the shelf registration statement.
This notice will be effective for five business days. We may suspend the
holder's use of the prospectus for a reasonable period not to exceed 45 days (60
days under certain circumstances relating to a proposed or pending material
business transaction, the disclosure of which would impede our ability to
consummate such transaction) in any 90-day period, and not to exceed an
aggregate of 90 days in any 12-month period, if we, in our reasonable judgment,
believe we may possess material non-public information the disclosure of which
would have a material adverse effect on us and our subsidiaries taken as a
whole. Each holder, by its acceptance of a note, agrees to hold any
communication by us in response to a notice of a proposed sale in confidence.
If any of the following events, which we refer to as a registration
default, occurs:
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- the registration statement of which this prospectus is a part
ceases to be effective or fails to be usable without being
succeeded within five business days by a post-effective amendment
or a report filed with the SEC pursuant to the Exchange Act that
cures the failure of the registration statement to be effective
or usable; or
- on the 45th or 60th day, as the case may be, of any period that
the prospectus has been suspended as described in the preceding
paragraph, such suspension has not been terminated,
then additional interest as liquidated damages will accrue on the notes, from
and including the day following the registration default to but excluding the
day on which the registration default has been cured. Liquidated damages will be
paid semi-annually in arrears, with the first semi-annual payment due on the
first interest payment date, as applicable, following the date on which such
liquidated damages begin to accrue, and will accrue at a rate per year equal to:
- an additional 0.25% of the principal amount to and including the
90th day following the registration default; and
- an additional 0.5% of the principal amount from and after the
91st day following the registration default.
In no event will liquidated damages accrue at a rate per year exceeding
0.5%. If a holder has converted some or all of its notes into common stock, the
holder will be entitled to receive equivalent amounts based on the principal
amount of the notes converted.
The specific provisions relating to the registration described above
are contained in the registration rights agreement between Vertex and the
initial purchasers of the notes, which is available to holders upon request to
us, and a copy of which has been filed with the SEC.
DESCRIPTION OF CAPITAL STOCK
Vertex's authorized capital stock consists of 100,000,000 shares of
common stock, $.01 par value, and 1,000,000 shares of preferred stock, $.01 par
value.
COMMON STOCK
As of September 30, 2000, there were 54,601,768 shares of common stock
outstanding held by approximately 200 stockholders of record.
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding preferred stock. Upon the liquidation, dissolution or winding up
of Vertex, the holders of common stock are entitled to receive ratably the net
assets of Vertex available after the payment of all debts and other liabilities
and subject to any prior rights of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.
The shares of common stock issuable upon conversion of the notes and in
settlement of the make-whole payment, when issued and paid for, will be, fully
paid and nonassessable. The rights, preferences and privileges of holders of
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common stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of our common stock and the likelihood that
such holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change in control.
We have no present plan to issue any shares of Preferred Stock.
OPTIONS
As of September 30, 2000, there were outstanding options for the
purchase of 11,026,425 shares of our common stock at exercise prices ranging
from $3.88 per share to $89.65 per share. Options for the purchase of 5,669,495
shares were exercisable as of that date.
STOCKHOLDER RIGHTS PLAN
Pursuant to our Stockholder Rights Plan, each share of common stock has
an associated preferred share purchase right. Each right entitles the holder to
purchase from Vertex one half of one-hundredth of a share of Series A Junior
Participating Preferred Stock, $.01 par value, of Vertex at a price of $135 per
one half of one-hundredth of a Junior Preferred Share, subject to adjustment.
The rights are not exercisable until after acquisition by a person or group of
15% or more of the outstanding common stock (an "acquiring person") or after the
announcement of an intention to make or commencement of a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding common stock
(the earlier of such dates being called the "Distribution Date"). Until a right
is exercised, the holder thereof will have no rights as a stockholder of Vertex.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the Rights will be transferred with and only with the common stock.
In the event that any person or group becomes an acquiring person, each
holder of a right, other than rights beneficially owned by the acquiring person,
will thereafter have the right to receive upon exercise that number of shares of
common stock having a market value of two times the purchase price, and in the
event that Vertex is acquired in a business combination transaction or 50% or
more of its assets are sold, each holder of a right will thereafter have the
right to receive upon exercise that number of shares of common stock of the
acquiring company which at the time of the transaction will have a market value
of two times the purchase price.
At any time after any person becomes an acquiring person and prior to
the acquisition by such person or group of 50% or more of the outstanding common
stock, our Board of Directors may cause the rights (other than rights owned by
such person or group) to be exchanged, in whole or in part, for common stock or
junior preferred shares, at an exchange rate of one share of common stock per
right or one half of one-hundredth of a junior preferred share per right.
At any time prior to the acquisition by a person or group of beneficial
ownership of 15% or more of the outstanding common stock, our Board of Directors
may redeem the rights in whole at a price of $.01 per right.
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The rights have certain anti-takeover effects, in that they will cause
substantial dilution to a person or group that attempts to acquire a significant
interest in Vertex on terms not approved by the Board of Directors.
PROVISIONS OF OUR CHARTER AND BY-LAWS RELATING TO A CHANGE IN CONTROL
Our corporate charter and by-law provisions and Stockholder Rights Plan
may discourage certain types of transactions involving an actual or potential
change in control of Vertex which might be beneficial to the company or its
stockholders. Our charter provides for staggered terms for the members of the
Board of Directors. Our by-laws grant the directors a right to adjourn annual
meetings of stockholders, and certain provisions of the by-laws may be amended
only with an 80% stockholder vote.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is EquiServe
Limited Partnership. The Transfer Agent's address is P.O. Box 8040, Boston, MA
02266-8040, and its telephone number is 781-575-3120.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax
considerations to a U.S. holder relating to the purchase, ownership and
disposition of the notes and common stock into which the notes may be converted.
This discussion is based upon the Internal Revenue Code of 1986, as amended,
existing and proposed Treasury Regulations, and judicial decisions and
administrative interpretations thereunder, as of the date hereof, all of which
are subject to change, possibly with retroactive effect. There can be no
assurance that the Internal Revenue Service will not challenge one or more of
the tax results described herein, and we have not obtained, nor do we intend to
obtain, a ruling from the IRS with respect to the U.S. federal tax consequences
of acquiring or holding notes or common stock.
This discussion does not purport to address all tax considerations that
may be important to a particular U.S. holder in light of the U.S. holder's
particular circumstances (such as the alternative minimum tax provisions of the
Code), or to certain categories of investors (such as certain financial
institutions, tax-exempt organizations, dealers in securities, persons who hold
notes or common stock as part of a hedge, conversion or constructive sale
transaction, or straddle or other risk reduction transaction or persons who are
not U.S. holders) that may be subject to special rules. This discussion is
limited to U.S. holders of notes who hold the notes and any common stock into
which the notes are converted as capital assets. This discussion also does not
address the tax consequences arising under the laws of any foreign, state or
local jurisdiction.
PERSONS CONSIDERING THE PURCHASE OF A NOTE SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING,
CONVERTING OR OTHERWISE DISPOSING OF THE NOTES AND COMMON STOCK, INCLUDING THE
EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS. PERSONS THAT ARE
NOT UNITED STATES PERSONS (WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE
CODE) THAT ARE CONSIDERING THE PURCHASE OF A NOTE SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN THE NOTES, INCLUDING THE POTENTIAL APPLICATION OF THE UNITED
STATES WITHHOLDING TAXES.
For purposes of this discussion, the term "U.S. holder" means a
beneficial owner of a note or common stock that is for U.S. federal income tax
purposes:
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- a natural person who is a citizen or resident of the United
States,
- a corporation or partnership created or organized in or under the
laws of the United States or any state thereof, or
- an estate or trust that is a United States person (within the
meaning of section 7701(a)(30) of the Code).
TAX CONSEQUENCES TO U.S. HOLDERS
We believe that the notes and the common stock into which the notes
will be converted will be treated as described below. The description below
assumes, and we believe, that the possibility of our making certain payments
(other than principal and stated interest) with respect to the notes is remote,
and also that the possibility of an additional payment in connection with a
provisional redemption does not result in the notes being treated as "contingent
payment debt instruments." Persons that are considering the purchase of a note
should consult their own tax advisors as to the foregoing.
PAYMENTS OF INTEREST. Payments of stated interest on a note will be includable
in the income of a U.S. holder as ordinary income at the time it accrues or is
received in accordance with the U.S. holder's method of accounting for federal
income tax purposes. The notes will not be treated as bearing original issue
discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF NOTES. Upon the sale, exchange or retirement of
a note, a U.S. holder will recognize taxable gain or loss equal to the
difference between such holder's adjusted tax basis in the note and the amount
realized on the sale, exchange or retirement (including any additional payment
received upon a provisional redemption but excluding amounts representing
interest not previously included in income). A U.S. holder's adjusted tax basis
in a note will generally equal the cost of the note to such holder. In general,
gain or loss realized on the sale, exchange or retirement of a note will be
capital gain or loss.
Prospective investors should consult their tax advisers regarding the
treatment of capital gains (which may be taxed at lower rates than ordinary
income for taxpayers who are individuals, trust or estates and have held their
notes for more than one year) and losses (the deductibility of which is subject
to limitations).
CONVERSION OF NOTES. A U.S. holder's conversion of a note into common
stock will generally not be a taxable event, except for (i) any cash received
instead of a fractional share of common stock, as described below, and (ii) any
cash received as an additional payment following conversion of a note after
receiving notice of a provisional redemption, to the extent described below. The
receipt of cash in lieu of a fractional share of common stock should generally
result in capital gain or loss (measured by the difference between the cash
received for the fractional share interest and the U.S. holder's tax basis in
the fractional share interest), the taxation of which is described above in
"Sale, Exchange or Retirement of Notes." Although the treatment of any cash
payment that we will be required to make in connection with a provisional
redemption is unclear, it is likely that you will be required to recognize gain,
if any, that you realize to the extent not in excess of such cash payment. Any
gain so recognized will generally be capital gain. A U.S. holder's basis in the
common stock received on conversion of a note generally will be the same as the
U.S. holder's basis in the note at the time of conversion, increased by the
amount of gain, if any, recognized or as a result of the additional payment in
connection with a provisional redemption, and reduced by the amount of such
additional payment and by any tax basis allocable to a fractional share. The
holding period for the common stock received on conversion will include the
holding period of the note converted. If we repurchase a note in exchange for
common stock after a change of control, although the matter is not entirely
clear, such exchange should be treated in the same
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manner as a conversion of the note as described in this paragraph (except with
respect to any common stock received that is attributable to accrued interest
on the notes).
OWNERSHIP AND DISPOSITION OF COMMON STOCK. Dividends, if any, paid on the
common stock generally will be includable in the income of a U.S. holder as
ordinary income to the extent of the U.S. holder's ratable share of our current
or accumulated earnings and profits. Upon the sale or exchange of common stock,
a U.S. holder generally will recognize capital gain or capital loss equal to the
difference between the amount realized on such sale or exchange and the holder's
adjusted tax basis in such shares. Prospective investors should consult their
tax advisers regarding the treatment of capital gains (which may be taxed at
lower rates than ordinary income for taxpayers who are individuals, trust or
estates and have held their common stock for more than one year) and losses (the
deductibility of which is subject to limitations).
ADJUSTMENT OF CONVERSION PRICE. If at the time we make a distribution to
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (for example, distributions of evidence of
indebtedness or assets, but generally not stock dividends or rights to subscribe
for common stock) and, pursuant to the anti-dilution provisions of the
indenture, the Conversion Price of the notes is reduced, such reduction may be
deemed to represent the payment of a taxable dividend to the U.S. holders of
notes in a corresponding amount. If the Conversion Price is reduced at our
discretion or in certain other circumstances, such reduction also may be deemed
to represent the payment of a taxable dividend to U.S. holders of notes in a
corresponding amount. Moreover, in certain other circumstances, the absence of
such an adjustment to the Conversion Price of the notes may result in a taxable
dividend to the holders of common stock.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Information reporting will apply to payments of interest or dividends
made by us on, or the proceeds of the sale or other disposition of, the notes or
shares of common stock with respect to certain noncorporate U.S. holders, and
backup withholding at a rate of 31% may apply unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amount withheld under the backup
withholding rules is allowable as a credit against the U.S. holder's federal
income tax, provided that the required information is provided to the IRS.
SELLING HOLDERS
The notes were originally issued by us and sold by Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation,
Robertson Stephens, Inc., Chase Securities Inc. and J.P. Morgan Securities Inc.
as the initial purchasers in transactions exempt from the registration
requirements of the Securities Act to persons reasonably believed by the initial
purchasers to be qualified institutional buyers. Selling holders, including
their transferees, pledgees or donees or their successors, may from time to time
offer and sell any or all of the notes and the common stock into which the notes
are convertible pursuant to this prospectus. The selling holders may offer all,
some or none of the notes and the common stock into which the notes are
convertible.
The table below sets forth information, as of November 7, 2000, with
respect to the selling holders and the principal amounts of notes and amounts of
common stock beneficially owned by each selling holder that may be offered under
this prospectus by the selling holders. The information is based on information
provided by or on behalf of the selling holders. The selling holders identified
below may have sold, transferred or otherwise disposed of all or a portion of
their notes or common stock since the date on which they provided the
information regarding their notes or common stock in transactions exempt from
the registration requirements of the Securities Act.
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Because the selling holders may offer all or some portion of the notes
or the common stock to be offered by them, we cannot estimate the amount of the
notes or our common stock that will be held by the selling holders upon
completion of any sales.
No selling holder named in the table below beneficially owns one
percent or more of our common stock, assuming conversion of a selling holder's
notes. None of the selling holders has had any material relationship with us or
our affiliates within the past three years, except that Robertson Stephens,
Inc. and J.P. Morgan Securities Inc. acted as initial purchasers of the notes.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
PRINCIPAL AMOUNT ISSUABLE UPON
OF NOTES CONVERSION OF
NAME OF SECURITY HOLDER BENEFICIALLY THE NOTES
----------------------- OWNED AND THAT MAY BE
OFFERED(1) OFFERED
---------- -------
<S> <C> <C>
AAM/Zazone Institutional Income Fund L.P. $ 850,000 9,213
Alexandra Global Investment Fund 1 Ltd $ 3,000,000 32,517
AllState Insurance Company $ 2,000,000 21,678
AIG/National Union Fire Insurance $ 775,000 8,400
Arkansas Teachers Retirement $ 5,850,000 63,407
Argent Classic Arbitrage fund (Bermuda) L.P. $ 4,400,000 47,691
Argent Classic Convertible Arbitrage Fund (Bermuda) L.P. $ 5,400,000 58,530
Argent Classic Convertible Arbitrage Fund L.P. $ 1,600,000 17,342
Attorney's Title Insurance Fund, Inc. $ 500,000 5,419
Bankers Trust Company Trustee for Daimler Chrysler Corp. empl #1 $ 3,655,000 39,616
Pension Plan DTS 4/1/89
Baptist Health Southern Florida $ 297,000 3,219
BNP Arbitrage SNC $ 2,812,000 30,479
BNP Cooper Neff Convertible Strategies Fund, L.P. $ 188,000 2,038
Boilermakers Blacksmith Pension Trust $ 1,650,000 17,884
Boston Museum of Fine Arts $ 151,000 1,636
BP Amoco PLC Master Trust $ 1,758,000 19,055
California Public Employees Retirement System Nominee Name: $ 3,000,000 32,517
Surfboard & Co.
Canyon Value Realization (Cayman) Ltd. $ 11,000,000 119,228
CFFX, LLC $ 2,000,000 21,678
CIBC World Markets $ 5,000,000 54,195
Clinton Riverside Convertible Portfolio Limited $ 4,000,000 43,356
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<PAGE>
Conseco Fund Group - Convertible Securities Fund $ 3,250,000 35,227
Conseco Health Insurance Company - Convertible $ 1,500,000 16,258
Conseco Senior Health Insurance Company Convertible $ 1,500,000 16,258
Conseco Variable Insurance Company - Convertible $ 750,000 8,129
Cove Bond Debenture Fund $ 500,000 5,419
D.E. Shaw Investments, L.P. $ 700,000 7,587
D.E. Shaw Valence, L.P. $ 1,300,000 14,091
Deephaven Domestic Convertible Trading Co. $ 1,000,000 10,839
Delphi Financial Group, Inc. $ 500,000 5,419
Delaware PERS $ 1,840,000 19,943
Deutsche Bank Securities $ 48,500,000 525,688
Elf Aquitaine $ 200,000 2,168
Engineers Joint Pension Fund $ 621,000 6,730
Employee Benefit Convertible Securities Fund $ 200,000 2,168
Franklin and Marshall College $ 245,000 2,656
First Republic Bank $ 225,000 2,438
Fuji U.S. Income Open $ 500,000 5,419
Gaia Offshore Master Fund Ltd. $ 2,500,000 27,097
Granville Capital Corporation $ 6,000,000 65,034
Hamilton Partners Limited $ 4,000,000 43,356
Hotel Union & Hotel Industry of Hawaii $ 980,000 10,622
ICI American Holdings Trust $ 980,000 10,622
Island Holdings $ 50,000 541
ITG, Inc. $ 203,000 2,200
J.P. Morgan Securities, Inc. $ 10,950,000 118,686
Jeffries & Company Inc. $ 11,000 119
Kentfield Trading, Ltd. $ 3,760,000 40,754
Lazard Freres & Co. LLC $ 1,000,000 10,839
Lipper Convertibles Series II, L.P.'s $ 1,875,000 20,323
Lipper Offshore Convertibles, L.P. $ 1,875,000 20,323
Lipper Offshore Convertibles, L.P. #2 $ 750,000 8,129
Lippers Convertibles, L.P.'s $ 13,500,000 146,326
Lord Abbett Bond Debenture Fund $ 2,000,000 21,678
Lord Abbett Bond Debenture Fund $ 500,000 5,421
Lumberman's Mutual Casualty $ 643,000 6,969
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<PAGE>
Mainstay Convertible Fund $ 5,000,000 54,194
Mainstay VP Convertible Portfolio $ 1,000,000 10,838
McMahan Securities $ 2,150,000 23,304
Morgan Stanley & Co. $ 5,000,000 54,195
Nalco Chemical Company $ 295,000 3,197
Nations Convertible Securities Fund $ 3,300,000 35,768
New York Life Insurance and Annuity Corporation $ 15,600,000 169,087
New York Life Insurance Company $ 1,400,000 15,175
Nicholas Applegate Convertible Fund $ 2,107,000 22,837
Occidental Petroleum Corporation $ 200,000 2,168
Oxford, Lord Abbett & Co, $ 800,000 8,671
Penn Treaty Network America Insurance Company $ 295,000 3,197
Peoples Benefit Life Insurance Company Teamsters $ 3,725,000 40,375
PGEP IV, LLC $ 113,000 1,225
Physicians Life $ 487,000 5,278
PIMCO Convertible Bond $ 3,000,000 32,517
Putnam Investment Management Inc. on behalf of: Putnam Asset $ 190,000 2,059
Allocation Funds-Balanced Portfolio
Putnam Investment Management, Inc. on behalf of: Putnam Asset $ 130,000 2,059
Allocation Funds - Conservative Portfolio
Putnam Investment Management, Inc. on behalf of: Putnam $ 1,000,000 10,839
Convertible Income-Growth Trust
Putnam Investment Management, Inc. on behalf of: Putnam $ 70,000 759
Convertible Opportunities and Income Trust
Quattro Global Capital, LLC $ 1,500,000 16,258
Quattro Global Capital, LLC $ 1,500,000 16,258
Robertson Stephens $ 15,000,000 162,584
San Diego City Retirement $ 1,247,000 13,516
San Diego County Convertible $ 2,674,000 28,983
San Diego Employees Retirement Association $ 1,900,000 20,594
Screen Actors Guild Convertible $ 662,000 7,175
Shell Pension Trust $ 280,000 3,035
Southern Farm Bureau Life Insurance $ 600,000 6,503
State of Maryland Retirement Agency $ 2,730,000 29,590
State of Oregon Equity $ 5,975,000 64,762
State Street Bank custodian For GE Pension Trust $ 1,805,000 19,564
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<PAGE>
Starvest Combined Portfolio $ 94,500 10,242
Teachers Insurance and Annuity Association $ 3,500,000 37,936
The Estate of James Campbell $ 895,000 9,701
The Putnam Advisory Company, Inc. on behalf of: University of $ 30,000 325
Rochester
The Putnam Advisory Company, Inc. on behalf of: Parker-Hammifin $ 50,000 542
Corporation
The Putnam Advisory Company, Inc. on behalf of: Museum of Fine $ 30,000 325
Arts, Boston
The Putnam Advisory Company, Inc. on behalf of: ProMutual $ 100,000 1,084
Tracor, Inc. Employees Retirement Plan $ 172,000 1,864
Transamerica Life Insurance and Annuity Company $ 8,000,000 3,344
Transamerica Premier Balanced Fund $ 1,000,000 10,839
UBS O'Connor LLC, F/B/O UBS Global Equity Arbitrage Master $ 4,000,000 43,356
Limited
Value Realization Fund B, LP $ 450,000 4,878
Value Realization Fund, LP $ 8,000,000 86,711
Viacom Inc. Pension Plan Master Trust $ 68,000 737
Wake Forest University $ 1,163,000 12,605
Writers Guild Convertible $ 385,000 4,172
Wyoming State Treasurer $ 1,329,000 14,404
Zeneca Holdings Trust $ 765,000 8,291
Zurich HFR Master Hedge Fund Index Ltd $ 100,000 1,084
Zurich HFR Master Hedge Fund Index Ltd $ 250,000 2,710
Others $ 64,340,945
Total $345,000,000
</TABLE>
(1) The number of securities beneficially owned is determined under the rules
of the SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any securities as to which the individual has sole or
shared voting power or investment power and also any securities which the
individual has the right to acquire within 60 days after the date the
selling holder provided this information, through the exercise of any
stock option or other right. The inclusion in the table of securities,
however, does not constitute an admission that the selling holders are
direct or indirect beneficial owners of those securities. The selling
holders have sole voting power and investment power with respect to all
securities of capital stock listed as owned by the selling holders.
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<PAGE>
PLAN OF DISTRIBUTION
The selling holders and their successors, including their
transferees, pledgees or donees or their successors, may sell the notes and
our common stock into which the notes are convertible directly to purchasers
or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling holders or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be
in excess of those customary in the types of transactions involved.
The common stock issuable in settlement of the make-whole payment
will be originally issued by us if and when we elect to settle the make-whole
payment using our common stock.
The notes and common stock issuable upon conversion of the notes may
be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at prices related to the prevailing market
prices, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve
crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on
which the notes or our common stock may be listed or quoted at
the time of sale;
- in the over-the-counter market;
- otherwise than on these exchanges or systems or in the
over-the-counter market;
- through the writing of options, whether the options are listed
on an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and common stock issuable
upon conversion of the notes, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the notes or common stock in the course of
hedging the positions they assume. The selling holders may also sell the
notes or common stock issuable upon conversion of the notes short and deliver
these securities to close out their short positions, or loan or pledge the
notes or common stock to broker-dealers that in turn may sell these
securities.
The aggregate proceeds to the selling holders from the sale of the
notes or common stock offered by them will be the purchase price of the notes
or common stock less discounts and commissions, if any. Each of the selling
holders reserves the right to accept and, together with their agents from
time to time, to reject, in whole or in part, any proposed purchase of notes
or common stock to be made directly or through agents. We will not receive
any of the proceeds from the sales by the selling holders.
Our common stock is quoted on the Nasdaq National Market under the
symbol "VRTX." The notes are currently eligible for trading on the PORTAL
market. However, we do not intend to list the notes for trading on any
national securities exchange or on the Nasdaq National Market and can give no
assurance about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if
applicable, the notes and common stock may be sold in these jurisdictions
only through registered or licensed brokers or
-45-
<PAGE>
dealers. In addition, in some states the notes and common stock may not be
sold unless they have been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
The selling holders and any underwriters, broker-dealers or agents
that participate in the sale of the notes and common stock may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities
Act. Selling holders who are "underwriters" within the meaning of Section
2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The selling holders have acknowledged
that they understand their obligations to comply with the provisions of the
Exchange Act and the rules thereunder relating to stock manipulation,
particularly Regulation M.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than under this prospectus. A selling
holder may not sell any notes or common stock described in this prospectus
and may not transfer, devise or gift these securities by other means not
described in this prospectus.
To the extent required, the specific notes or shares of our common
stock to be sold, the names of the selling holders, the respective purchase
prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement
or, if appropriate, a post-effective amendment to the registration statement
of which this prospectus is a part.
We entered into a registration rights agreement for the benefit of
holders of the notes to register their notes and our common stock under
applicable federal and state securities laws under specific circumstances and
at specific times. The registration rights agreement provides for
cross-indemnification of the selling holders and us and our respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the notes and our common stock,
including liabilities under the Securities Act. We will pay substantially all
of the expenses incurred by the selling holders of incident to their offering
and sale of the notes and our common stock. We estimate that our total
expenses of the offering of the notes and common stock will be approximately
$150,750.
LEGAL MATTERS
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC will pass upon the
legality of the issuance of the notes and the shares of common stock offered
in this prospectus on our behalf.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for Vertex Pharmaceuticals
Incorporated for the year ended December 31, 1999 have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
With respect to the unaudited financial information of Vertex
Pharmaceuticals Incorporated for the three-month periods ended March 31, 2000
and 1999, for the three and six-month periods ended June 30, 2000 and 1999,
and for the three and nine-month periods ended September 30, 2000 and 1999,
incorporated by reference in this Prospectus, PricewaterhouseCoopers LLP
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate reports dated April 28, 2000, July 25, 2000 and
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<PAGE>
October 24, 2000 incorporated by reference herein, state that they did not
audit and they do not express an opinion on that unaudited financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature of the review
procedures applied. PricewaterhouseCoopers LLP is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited financial information because those reports are not
a "report" or a "part" of the registration statement prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the
Exchange Act, as amended, under which we file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
Copies of the reports, proxy statements and other information may be examined
without charge at the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549, and the
Securities and Exchange Commission's Regional offices located at 500 West
Madison Street, Suite 1400, Chicago IL 60661, and 7 World Trade Center, 13th
Floor, New York, NY 10048 or on the Internet at www.sec.gov. Copies of all or
a portion of such materials can be obtained from the Public Reference Section
of the Securities and Exchange Commission upon payment of prescribed fees.
Please call the Securities and Exchange Commission at 800-SEC-0330 for
further information about the Public Reference Room. These reports, proxy
statements and other information may also be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W. Washington, D.C. 20006.
We have agreed that if, at any time that the notes or the common
stock issuable upon conversion of the notes are "restricted securities"
within the meaning of the Securities Act and we are not subject to the
information reporting requirements of the Exchange Act, we will furnish to
holders of the notes and such common stock and to prospective purchasers
designated by them the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act to permit compliance with Rule 144A in
connection with resales of the notes and such common stock.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information
that we file with the SEC in other documents. This means that we can disclose
important information to you by referring to other documents that contain
that information. The information incorporated by reference is considered to
be part of this prospectus. Information contained in this prospectus and
information that we file with the SEC in the future and incorporate by
reference in this prospectus automatically updates and supersedes previously
filed information. We incorporate by reference the documents listed below and
any future filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the sale of all the notes and shares of
our common stock covered by this prospectus.
(1) Our Annual Report on Form 10-K for the year ended December 31, 1999
(Commission File No. 000-19319);
(2) Our Current Reports on Form 8-K (Commission File No. 000-19319) filed
with the SEC on:
- March 27, 2000;
- August 1, 2000;
- September 11, 2000;
- September 14, 2000;
- September 15, 2000;
- September 19, 2000; and
- October 5, 2000.
(3) Our Quarterly Reports on Form 10-Q (Commission File No. 000-19319) for
the quarters ended March 31, 2000, June 30, 2000 and September 30,
2000.
(4) The description of our common stock contained in our Registration
Statement on Form 8-A, as that description is amended from time to time.
You may request, orally or in writing, a copy of these documents, which
we will provide to you at no cost, by contacting:
Corporate Communications
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, MA 02139
Telephone: (617) 577-6000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred
in connection with the registration of the securities being registered
hereby, all of which will be borne by Vertex Pharmaceuticals Incorporated
(except any underwriting discounts and commissions and expenses incurred by
the selling stockholders for brokerage, accounting, tax or legal services or
any other expenses incurred by the selling stockholders in disposing of the
notes or the shares). All amounts shown are estimates except the Securities
and Exchange Commission registration fee .
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<PAGE>
<TABLE>
<S> <C>
SEC registration fee.....................................$ 104,742
Legal fees and expenses..................................$ 25,000
Accounting fees and expenses.............................$ 11,000
Printing fees............................................$ 5,000
Miscellaneous expenses...................................$ 5,008
-----------
Total expenses...........................................$ 150,750
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Part D of Article 6 of the Restated Articles of Organization of the
Registrant provides that no director of the Registrant shall be personally
liable to the Registrant or its stockholders for monetary damages for any
breach of fiduciary duty as a director. Such paragraph provides further,
however, that to the extent provided by applicable law it will not eliminate
or limit the liability of a director (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 61 or 62 of the Massachusetts
Business Corporation Law, or (iv) for any transactions from which the
director derived an improper personal benefit.
Article V of the Registrant's By-laws provides that the Registrant
shall indemnify each of its directors and officers (including persons who
serve at the Registrant's request as a director, officer, or trustee of
another organization in which the Registrant has any interest, direct or
indirect, as a stockholder, creditor, or otherwise or who serve at the
Registrant's request in any capacity with respect to any employee benefit
plan) against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise, or as fines and penalties, and
counsel fees reasonably incurred by such director or officer in connection
with the defense or disposition of any action, suit, or other proceeding,
whether civil or criminal, in which such director or officer may be involved
or with which such person may be threatened, while in office or thereafter,
by reason of such person's being or having been such a director, officer, or
trustee, except with respect to any matter as to which such director or
officer shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that such director's or officer's action
was in the best interest of the Registrant or, to the extent that such matter
relates to service with respect to an employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan.
As to any matter disposed of by a compromise payment by any such
person, pursuant to a consent decree or otherwise, Article V of the
Registrant's Bylaws provides that no indemnification shall be provided to
such person for such payment or for any other expenses unless such compromise
has been approved as in the best interests of the Registrant, after notice
that it involves such indemnification (i) by a disinterested majority of the
directors then in office or (ii) by a majority of the disinterested directors
then in office provided there has been obtained an opinion in writing of
independent legal counsel to the effect that such director or officer
appeared to have acted in good faith in the reasonable belief that such
person's action as in the best interest of the Registrant, or (iii) by the
holders of a majority of the outstanding stock at the time entitled to vote
for directors, voting as a single class, exclusive of any stock owned by any
interested director or officer.
Article V of the Registrant's By-laws provides that expenses,
including counsel fees, reasonably incurred by any director or officer in
connection with the defense or disposition of any such action, suit or other
proceeding may be paid from time to time by the Registrant at the discretion
of a majority of the disinterested directors then in office, in advance of
the final disposition thereof, upon receipt of an undertaking by such
director or officer to repay the Registrant the amounts so paid if it is
ultimately determined that indemnification for such expenses
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<PAGE>
is not authorized under Article V of the Bylaws, which undertaking may be
accepted by the Registrant without reference to the financial ability of such
director or officer to make repayment.
Article V of the Registrant's By-laws gives the Board of Directors
of the Registrant the power to authorize the purchase and maintenance of
insurance, in such amounts as the Board of Directors may from time to time
deem appropriate, on behalf of any person who is or was a director, officer,
or agent of the Registrant, or who is or was serving at the request of the
Registrant as a director, officer or agent of another organization in which
the Registrant has any interest, direct or indirect, as a shareholder,
creditor or otherwise, or with respect to any employee benefit plan, against
any liability incurred by such person in any such capacity, or arising out of
such person's status as such agent, whether or not such person is entitled to
indemnification by the Registrant pursuant to Article V of otherwise and
whether or not the Registrant would have the power to indemnify the person
against such liability.
Section 13(b)(1 1/2) of the Massachusetts Business Corporation Law,
Chapter 156B of the General Laws of Massachusetts (the `MBCL') authorizes the
provisions, described above, contained in Part D Article 6 of the Restated
Articles of Organization of the Registrant.
Section 67 of the MBCL authorizes the provisions, described above,
contained in Article V of the By-laws of the Registrant.
Section 65 of the MBCL provides that performance by a director,
officer, or incorporator of his duties in good faith and in a manner he
reasonably believes to be in the best interest of the corporation, and with
such care as an ordinarily prudent person in a like position would use under
similar circumstances, shall be a complete defense to any claim asserted
against him, whether under Sections 60 to 64, inclusive, or otherwise, except
as expressly provided by statute, by reason of his being or having been a
director, officer, or incorporator of the corporation.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.1 Indenture dated as of September 19, 2000 between the
Registrant and State Street Bank and Trust Company, including
therein the forms of the notes (filed as Exhibit 4.1 to our
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (SEC File No. 000-19319) and
incorporated herein by reference).
4.2 Supplemental Indenture dated as of ___________ , 2000 between
the Registrant and State Street Bank and Trust Company (to be
filed by amendment).
4.3 Registration Rights Agreement dated as of September 19, 2000
among the Registrant and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First
Boston Corporation, Robertson Stephens, Inc., Chase Securities
Inc. and J.P. Morgan Securities Inc., as Initial Purchasers
(filed as Exhibit 4.2 to our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000 (SEC File No.
000-19319) and incorporated herein by reference).
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC
with respect to the legality of the securities being
registered.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC,
included in Exhibit 5.1 filed herewith.
24.1 Power of Attorney (See page 54 of this Registration Statement).
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<PAGE>
25 Form T-1. Statement of Eligibility under the Trust Indenture
Act of State Street Bank and Trust Company.
99 Awareness Letter of PricewaterhouseCoopers LLP.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included is a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in
this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
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<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the indemnification provisions described herein, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under Subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on November 10, 2000.
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/ Joshua S. Boger
-----------------------
Joshua S. Boger
President and Chief Executive Officer
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<PAGE>
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of Vertex Pharmaceuticals
Incorporated, hereby severally constitute and appoint Joshua S. Boger, Richard
H. Aldrich and Thomas G. Auchincloss, Jr., and each of them singly, our true and
lawful attorneys with full power to any of them, and to each of them singly, to
sign for us and in our names in the capacities indicated below the Registration
Statement on Form S-3 filed herewith and any and all pre-effective and
post-effective amendments to said Registration Statement (or any other
Registration Statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933) and generally to do
all such things in our name and behalf in our capacities as officers and
directors to enable Vertex Pharmaceuticals Incorporated to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Joshua S. Boger Director, President and November 10, 2000
-------------------- Chief Executive Officer
Joshua S. Boger (Principal Executive Officer)
/s/ Thomas G. Auchincloss, Jr. Vice President of Finance November 10, 2000
------------------------------- and Treasurer
Thomas G. Auchincloss, Jr. (Principal Financial and Accounting Officer)
/s/ Barry M. Bloom Director November 10, 2000
-------------------------------
Barry M. Bloom
/s/ Roger W. Brimblecombe Director November 10, 2000
-------------------------------
Roger W. Brimblecombe
/s/ Donald R. Conklin Director November 10, 2000
----------------------------
Donald R. Conklin
/s/ Bruce I. Sachs Director November 10, 2000
----------------------------
Bruce I. Sachs
/s/ Charles A. Sanders Director November 10, 2000
----------------------------
Charles A. Sanders
/s/ Elaine S. Ullian Director November 10, 2000
----------------------------
Elaine S. Ullian
</TABLE>
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