| • | receive notice of the annual meeting; and
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| | | FREQUENTLY ASKED QUESTIONS REGARDING THE ANNUAL MEETING (continued)
• | vote at the annual meeting and any adjournment or postponement of the annual meeting. |
vote at the annual meeting and any adjournment If I submit a Proxy, May I Later Revoke it and/or postponement of the annual meeting. IF I SUBMIT A PROXY, MAY I LATER REVOKE IT AND/OR CHANGE MY VOTE?
Change my Vote?Shareholders may revoke a proxy and/or change their vote prior to the completion of voting at the annual meeting by: | • | signing another proxy card with a later date and delivering it to our Secretary, Michael J. LaCascia, 50 Northern Avenue, Boston, Massachusetts 02210, before the annual meeting; or | | | | • | voting at the annual meeting, if you are a shareholder of record or hold your shares in street name and have obtained a legal proxy from your bank or broker. |
What if I do not Specify a later date and delivering it to our Secretary, Michael J. LaCascia, 50 Northern Avenue, Boston, Massachusetts 02210, before the annual meeting; or voting at the annual meeting, if you areChoice for a shareholder of record or hold your shares in street name and have obtainedMatter when Returning a legal proxy from your bank or broker.
WHAT IF I DO NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY?
Proxy?Shareholders should specify their choice for each matter following the directions described on their proxy card. If no specific instructions are given, proxies that are signed and returned will be voted: FOR the election of all director nominees;
FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ended December 31, 2016;
FOR our executive compensation program;
AGAINST the shareholder proposal requesting that we take necessary steps to declassify our board of directors;
AGAINST the shareholder proposal requesting that we adopt| • | FOR the election of all director nominees; | | | | • | FOR the amendments to our charter and by-laws providing for the declassification of our board of directors over time; | | | | • | FOR the amendment and restatement of our 2013 Stock and Option plan to, among other things, increase the number of shares available for issuance by 6.75 million shares; | | | | • | FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2017; | | | | • | FOR our compensation program for our named executive officers; | | | | • | To recommend on an advisory basis, ANNUAL advisory votes on our compensation program for our named executive officers; | | | | • | AGAINST the shareholder proposal requesting that we take steps necessary to eliminate supermajority provisions from our charter and by-laws; and | | | | • | AGAINST the shareholder proposal requesting that we prepare a report on our policies and activities with respect to lobbying. |
Are My Shares Voted if I do not Provide a policy limiting acceleration of equity awards to senior executives upon a change of control; AGAINST the shareholder proposal requesting that we adopt a policy requiring that senior executives retain a percentage of their equity awards; and
AGAINST the shareholder proposal requesting a report assessing the feasibility of integrating sustainability into performance measures for senior executive compensation.
ARE MY SHARES VOTED IF I DO NOT PROVIDE A PROXY?
Proxy?If you are a shareholder of record and do not provide a proxy, you must attend the annual meeting in order to vote. If you hold shares through an account with a bank or broker, your shares may be voted by the bank or broker if you do not provide voting instructions. Banks and brokers have the authority under applicable rules to vote shares on routine matters for which their customers do not provide voting instructions. The ratification of Ernst & Young LLP as our independent registered public accounting firm is considered a routine matter. Each of the other proposals, including the election of directors, the approval of the amendments to our charter and by-laws, the approval of the amendment and restatement of our 2013 Stock and Option Plan, the advisory vote with respect to our executive compensation program and the fourtwo shareholder proposals are not considered routine, and banks and brokers cannot vote shares without instruction on those matters. Shares that banks and brokers are not authorized to vote on those matters are counted as “broker non-votes” and will have no effect on the results of those votes. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 11 WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AND HOW ARE VOTES COUNTED?What Vote is Required to Approve Each Proposal and How are Votes Counted? Item 1: Election of Directors The nominees for director in an uncontested election who receive a majority of the votes from shareholders present in person or represented by proxy at the annual meeting (more votes cast “FOR” such director than “WITHHELD” from such director) will be elected. Abstentions are not counted for purposes of electing directors. You may vote either FOR or WITHHOLD your vote from any one or more of the nominees. Item 2: RatificationApproval of the AppointmentAmendments to our Restated Articles of Independent Registered Public Accounting Firm Organization and By-lawsTo be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing at least 80% of our outstanding shares of common stock as of the record date. Abstentions and broker non-votes will have the same effect on the result of this vote as votes against the proposal. Item 3: Approval of the Amendment and Restatement of our 2013 Stock and Option Plan To be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote. Item 3: Advisory Vote to Approve Named Executive Officer Compensation 4: Ratification of the Appointment of Independent Registered Public Accounting FirmTo be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote. Item 4: Shareholder Proposal Requesting That We Take Necessary Steps5: Advisory Vote to Declassify Our Board of Directors Approve Named Executive Officer CompensationTo be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote. Item 5: Shareholder Proposal Requesting That We Adopt6: Recommendation on the Frequency of Future Advisory Votes on Our Executive Compensation Program The recommendation that receives the most votes, also known as a Policy Limiting Acceleration of Equity Awards to Senior Executives Upon a Change of Control To be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by
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| | FREQUENTLY ASKED QUESTIONS REGARDING THE ANNUAL MEETING (continued)
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proxy at the annual meeting representing a majority“plurality” of the votes, cast on the proposal.will be adopted. Abstentions will have no effect on the results of this vote.
Item 6:7: Shareholder Proposal Requesting That We Adopt a Policy Requiring that Senior Executives Retain a Percentagewe Take Steps Necessary to Eliminate Supermajority Provisions from our Restated Articles of their Equity Awards Organization and Amended and Restated By-LawsTo be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote. Item 7:8: Shareholder Proposal Requesting that we Prepare a Report Assessing the Feasibility of Integrating Sustainability into Performance Measures for Senior Executive Compensation on our Policies and Activities With Respect to LobbyingTo be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote. WHERE CANWhere Can I FIND MORE INFORMATION ABOUT MY VOTING RIGHTS AS A SHAREHOLDER? Find More Information About My Voting Rights as a Shareholder?The SEC has an informational website that provides shareholders with general information about how to cast their vote and why voting should be an important consideration for shareholders. You may access that website at sec.gov/spotlight/proxymatters.shtml.
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 9
12
| Item 1 | Election of Directors |
Our board of directors has nominated Joshua Boger, Terrence C. Kearney, Yuchun LeeAlan Garber, Margaret G. McGlynn and Elaine S. UllianWilliam D. Young for re-electionelection at our 20162017 annual meeting of shareholders to hold office until our 20192020 annual meeting of shareholders. Our board of directors is our company’s ultimate decision-making body, except with respect to those matters reserved to the shareholders. Our board selects our senior management team, who in turn areis responsible for the day-to-day operations of our company. Our board acts as an advisor and counselor to senior management and oversees its performance. Our board currently consists of directors divided into three classes, with each class holding office for a three-year term. Joshua Boger, Terrence C. Kearney, Yuchun LeeMargaret McGlynn and Elaine S. Ullian,William D. Young, current Class IIII Directors, and Alan Garber, who would join our board as a Class I Director upon election by our shareholders, have been nominated by our board for election at the 20162017 annual meeting of shareholders for three-year terms that will expire at the 20192020 annual meeting of shareholders. If the amendments to our charter and by-laws providing for destaggering of the board are approved at our 2017 annual meeting, each class of our directors will continue through their current terms and would stand for re-election for one year terms at future annual meetings. Joshua Boger, a current Class I Director, is not standing for re-election. Each of the nominees has agreed to be named in this proxy statement and to serve if elected. We believe that all of the nominees will be able and willing to serve if elected. However, if any nominee should become unable for any reason or unwilling to serve, proxies may be voted for another person nominated as a substitute by our board, or our board may reduce the number of directors.BOARD STRUCTURE AND COMPOSITION
Board Structure and Composition The corporate governance and nominating committee of our board of directors is responsible for recommending the composition and structure of our board and for developing criteria for board membership. This committee regularly reviews director competencies, qualities and experiences, with the goal of ensuring that our board is comprised of an effective team of directors who function collegially and who are able to apply their experience toward meaningful contributions to general corporate strategy and oversight of corporate performance, risk management, organizational development and succession planning. Our by-laws provide that the size of our board may range between three and eleven members. We currently have nine members on our board. Following our 2016 annual meeting and the election of the four directors, we expect that Dr. Boger will resign as a Class III director and will be re-appointed to our board as a Class I Director, with a term expiring in 2017, in order to ensure that the number of members of each class of our board of directors remains as nearly equal as possible. Our corporate governance and nominating committee may seek additional director candidates who meet the criteria below in order to complement the qualifications and experience of our existing board members. Our corporate governance and nominating committee may engage a search firm to recommend candidates who satisfy the criteria. Director Criteria, Qualifications and Experience; Diversity. DiversityThe corporate governance and nominating committee seeks to recommend for nomination directors of stature who have a substantive knowledge of our business and industry or who can bring to the board specific and valuable strategic or management capabilities acquired in other industries. The committee expects each of our directors to have proven leadership, sound judgment, integrity and a commitment to the success of our company. We also seek personal qualities that foster a respectful environment in which our directors listen to one another and are engaged and constructive. These goals for our board composition presuppose a diverse range of viewpoints, experiences and specific expertise. The corporate governance and nominating committee considers a nominee’s personal characteristics and business experience relative to those of our existing board members, including the type of prior management experience, levels of expertise relevant to our business and its growth stage, prior board service, reputation in the business community, personal characteristics such as gender and race and other factors that the committee believes to be important. In addition, in 2017 our board approved guidelines that provide board service to Vertex of over 20 years and age of over 72 would be considered as factors when considering whether or not to re-nominate a director for board service. At this time, our commitment to diversity is demonstrated by the composition of our board, which includes three women and two ethnically diverse individuals. The key experience, qualifications, attributes and skills brought by our directors to our board that are important to our business include: Corporate leadership experience. We believe that directors who have held significant corporate leadership positions over extended periods of time provide our company with special insights. These people generally have a practical understanding of organizational processes and strategy that is valuable during periods of organizational change and growth.
Industry knowledge. We seek directors with substantive knowledge of the biotechnology, pharmaceutical or related industries.| • | Leadership experience.We believe that directors who have held significant leadership positions over extended periods of time provide our company with special insights. These directors generally have a practical understanding of organizational processes and strategy that is valuable during periods of organizational change and growth. | | | | • | Industry knowledge.We seek directors with substantive knowledge of the biotechnology and pharmaceutical industries and/or expertise regarding healthcare providers and public policy. We believe that having a substantial portion of the members of our board comprised of individuals with experience in these areas provides our board with the background necessary to counsel our management regarding the issues facing our company. | | | | • | Financial expertise.We believe that an understanding of finance is important for members of our board, and our budgeting processes and financial and strategic transactions require our directors to be financially knowledgeable. In addition, we seek to have a number of directors qualified to serve on our audit and finance committee and at least one director with in-depth knowledge of financial statements and financial reporting processes sufficient to qualify as an audit committee financial expert under applicable standards. |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 13 | • | Scientific experience. As a biotechnology company that seeks to develop transformative medicines for patients with serious diseases, we look for directors with backgrounds in science and technology and, in particular, the research and development of pharmaceutical products. | | | | • | Commitment to company values and goals. We seek directors who are committed to our company and its values and goals and who value the contributions that can be provided by individuals who believe in our company and its prospects for success. |
Below we highlight the composition of our board of directors comprised of individuals with
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| | ITEM 1 - ELECTION OF DIRECTORS (continued)
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experience as executives or directors in these industries provides our board with the background necessary to counsel our management regarding the issues facing our company.
Financial expertise. We believe that an understanding of finance is important for our board ofcontinuing directors and our budgeting processes and financial and strategic transactions require our directors to be financially knowledgeable. In addition, we seek to have a number of directors qualified to serve on our audit and finance committee and at least one director with in-depth knowledge of financial statements and financial reporting processes sufficient to qualify as an audit committee financial expert under applicable regulatory standards.
Scientific experience. As a biopharmaceutical company that seeks to develop transformative medicines for patients with serious diseases, we look for directors with backgrounds in science and technology and in particular the research and development of pharmaceutical products.
Commitment to company values and goals. We seek directors who are committed to our company and its values and goals and who value the contributions that can be provided by individuals who believe in our company and its prospects for success.
SHAREHOLDER-RECOMMENDED DIRECTOR CANDIDATES
nominee.
Shareholder-Recommended Director Candidates The corporate governance and nominating committee will consider director candidates recommended by shareholders using the same criteria for director selection described above under Director Criteria, Qualifications and Experience; Diversity. Shareholders recommending candidates for consideration should submit any pertinent information regarding the candidate, including biographical information and a statement by the proposed candidate that he or she is willing to serve if nominated and elected, by mail to our corporate secretary at our offices at 50 Northern Avenue, Boston, Massachusetts 02210. If a shareholder wishes to nominate a candidate to be considered for election as a director at the 20172018 annual meeting of shareholders using the procedures set forth in our by-laws, the shareholder must follow the procedures described inOther Information—Shareholder Proposals for the 20172018 Annual Meeting and Nominations for Directoron page 8880 of this proxy statement. PROXY ACCESS BY-LAW
In April 2016, we amended ourOur by-laws and adoptedprovide for proxy access, a process that allows qualifying shareholders to nominate a director candidate for consideration at an annual meeting of shareholders and have such candidate be included in our proxy materials for the applicable shareholder meeting. This amendment was in response to the approval of a shareholder proposal at our 2015 annual meeting. Our engagement with our shareholders regarding proxy access included discussions over the last several months with a number of our largest shareholders that together hold approximately 46% of our outstanding stock. This engagement allowed us to gain valuable feedback as to the particular proxy access parameters that our shareholders consider appropriate. Based on that feedback and after considering various proxy access provisions recently adopted by other companies, including biotech peers such as Alexion and pharmaceutical companies such as Pfizer, our board of directors adopted a proxy access framework that it believes will provide meaningful access for shareholders while safeguarding the interest of all our shareholders and limiting the potential for abuse. The key elements of our proxy access by-law are as follows: | | Provision | | PROVISION | REQUIRMENTRequirement | | Ownership Threshold and Holding Period | | Available to shareholders owning 3% or more of our shares continuously for at least 3 years. | | Number of Board Seats | | Total number of proxy access nominees is capped at 20% of the existing board seats (or the closest whole number below 20%), with a minimum of two. | | Creeping Control | | A proxy access nominee elected to our board counts towards the cap on proxy access nominees for the two annual meetings following the election if such proxy access nominee'snominee’s term extends beyond the upcoming annual meeting. | | Aggregation Limits | | 20-shareholder limit on the number of shareholders who can aggregate their shares to satisfy the 3% ownership requirement. | | Proxy Fights | | Proxy access nominees will not be included in the proxy materials if we receive notice that a shareholder intends to nominate a candidate who is not to be included in our proxy materials. | | Future Ineligibility | | Proxy access nominees who fail to receive at least 10% of the votes cast "for"“for” such nominee may not be re-nominated as a proxy access nominee for the next two annual meetings. |
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| | ITEM 1 - ELECTION OF DIRECTORS (continued)
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The above table is only a summary of our proxy access by-law and is qualified in its entirety by the actual amendment to our by-laws, which is set forth in Exhibit 3.1 of a CurrentQuarterly Report, on Form 8-K, that we filed with the SEC on April 27,May 3, 2016. A shareholder who wishes to nominate a proxy access nominee to be considered for election as a director at the 20172018 annual meeting of shareholders, must follow the procedures set forth in our by-laws as well as those described inOther Information—Shareholder Proposals for the 20172018 Annual Meeting and Nominations for Directoron page 8880 of this proxy statement.VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 14 Majority Vote Standard Our by-laws provide for a majority vote standard for uncontested elections of our directors. Under our by-laws, director nominees in an uncontested election who receive more votes cast “for” such director nominee than “withheld” from such director nominee are elected. Our board’s policy is that any nominee for director in an uncontested election who receives a greater number of votes “withheld” than votes “for” the nominee’s election shall promptly tender his or her resignation to the chair of our board following certification of the shareholder vote. Our corporate governance and nominating committee will promptly consider the tendered resignation. Based on all factors it deems in its discretion to be relevant, the committee will recommend that our board either accept or reject the resignation and may recommend that the board adopt measures designed to address any issues perceived to underlie the election results. Our board will then act on the corporate governance and nominating committee’s recommendation. We will promptly disclose our board’s decision, including, if applicable, the reasons for rejecting the tendered resignation. Any director whose resignation is being considered under this policy will not participate in the corporate governance and nominating committee or board considerations, recommendations or actions with respect to the tendered resignation. Director Nominees Class I Directors — Present Terms Expiring in 2017 and Proposed Terms to Expire in 2020 Margaret G. McGlynn Age: 57 Director Since: 2011 Committee Assignments: | | OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE NOMINEES. |
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| | ITEM 1 - DIRECTOR NOMINEES |
In each of the director nominee and continuing director biographies that follow, we highlight the specific experience, qualifications, attributes and skills that led the board of directors to conclude that the director nominee or continuing director should serve on our board at this time.
DIRECTOR NOMINEES
CLASS III DIRECTORS— PRESENT TERMS EXPIRING IN 2016 AND PROPOSED TERMS TO EXPIRE IN 2019
| | • | | | Joshua Boger, Ph.D.1
| | Age: 65
| ChairMember – ScienceCorporate Governance and TechnologyNominating Committee | Director Since: 1989
| |
Dr. Boger is the founder of Vertex and has been a director since our inception in 1989. He was our Chief Executive Officer from 1992 through May 2009. He was our Chairman of our board of directors from 1997 until May 2006 and our President from our inception until December 2000, and from 2005 through February 2009. He was our Chief Scientific Officer from 1989 until May 1992. Prior to founding Vertex in 1989, Dr. Boger held the position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research Laboratories in Rahway, New Jersey, where he headed both the Department of Medicinal Chemistry of Immunology & Inflammation and the Department of Biophysical Chemistry. Dr. Boger holds a B.A. in chemistry and philosophy from Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard University.
Skills and Qualifications: Dr. Boger’s qualifications for our board of directors include his extensive industry knowledge and leadership experience. Dr. Boger brings an in-depth knowledge of issues facing our company and our industry as a result of his experience founding and leading Vertex and his distinguished career as a scientist.
| | | Terrence C. Kearney | | Age: 61
| Chair – Audit and Finance Committee | Director Since: 2011
| Member – Management Development and Compensation Committee |
Mr. Kearney served as the Chief Operating Officer of Hospira, Inc., a specialty pharmaceutical and medication delivery company, from April 2006 to January 2011. From April 2004 to April 2006, he served as Hospira’s Senior Vice President, Finance, and Chief Financial Officer, and he served as Acting Chief Financial Officer through August 2006. Mr. Kearney served as Vice President and Treasurer of Abbott Laboratories from 2001 to April 2004. From 1996 to 2001, Mr. Kearney was Divisional Vice President and Controller for Abbott’s International Division. Mr. Kearney serves as a member of the Board of Directors at Acceleron Pharma Inc., a biopharmaceutical company, and AveXis, Inc., a gene therapy company, and served as a member of the Board of Directors at Innoviva, Inc. (formerly known as Theravance, Inc.), a royalty management company, until April 2016. He received his B.S. in biology from the University of Illinois and his M.B.A. from the University of Denver.
Skills and Qualifications: Mr. Kearney’s corporate leadership experience, industry knowledge and financial expertise make him a valuable contributor to our board of directors. He has a practical perspective on the management of global pharmaceutical operations, including commercial, manufacturing and research and development activities, and financial management strategies. He is an “audit committee financial expert” as defined in SEC regulations, with particular experience in matters faced by the audit committee of a company with pharmaceutical product revenues and related expenses.
1Following our 2016 annual meeting and the election of the four directors, we expect that Dr. Boger will resign as a Class III director and will be re-appointed to our board as a Class I Director, with a term expiring in 2017, in order to ensure that number of members of each class of our board of directors remains as nearly equal as possible.
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| | ITEM 1 - DIRECTOR NOMINEES (continued)
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| | | Yuchun Lee | | Age: 50
| Member – Audit and Finance Committee | Director Since: 2012
• | Member – Science and Technology Committee |
Mr. Lee has served as an Executive in Residence (XIR) and Partner of General Catalyst Partners,Following a venture capital firm, since April of 2013. Mr. Lee also serves as the Chief Executive Officer of two software companies, Clarabridge, Inc. and Allego Inc. Mr. Lee was the Vice President of IBM’s Enterprise Marketing Management Group from November 2010 through January 2013. Mr. Lee co-founded Unica Corporation, a provider of software and services used to automate marketing processes, in 1992, and was Unica’s President and/or Chief Executive Officer from 1992 through November 2010, when Unica was acquired by IBM. From 1989 to 1992, Mr. Lee was a senior consultant at Digital Equipment Corporation, a supplier of general computing technology and consulting services. Mr. Lee holds a B.S. and an M.S. in electrical engineering and computer science from the Massachusetts Institute of Technology and an M.B.A. from Babson College. Skills and Qualifications: Mr. Lee’s expertise in marketing processes and customer engagement and business and financial experience make him a valuable contributor to our board of directors. Mr. Lee is an innovator who founded and managed the growth of a successful technology company and gained further leadership experience while serving as an executive at IBM. Mr. Lee’s experiences outside of the biopharmaceutical sector provide the board26 year career with an important perspective on the issues facing the company.
| | | Elaine S. Ullian | Co-lead Independent Director | Age: 68
| Chair – Corporate Governance and Nominating Committee | Director Since: 1997
| Member – Management Development and Compensation Committee |
Ms. Ullian served as President and Chief Executive Officer of Boston Medical Center, a private, not-for-profit, 626-bed, academic medical center with a community-based focus, from 1996 through January 2010. From 1994 to 1996, she served as President and Chief Executive Officer of Boston University Medical Center Hospital. From 1987 to 1994, Ms. Ullian served as President and Chief Executive Officer of Faulkner Hospital. She also serves as a director of Thermo Fisher Scientific Inc. and Hologic, Inc. Ms. Ullian holds a B.A. in political science from Tufts University and an M.P.H. from the University of Michigan.
Skills and Qualifications: Ms. Ullian brings significant leadership experience acquired as the CEO of large health care providers to our board of directors. The knowledge she obtained serving as an executive, together with her extensive experience serving on the boards of directors of multiple public companies in the healthcare field, provide her with the expertise required to serve as one of our co-lead independent directors and as the chair of our corporate governance and nominating committee. She also provides the board with the perspective of providers, payors and patients, for whom our products are intended.
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| | ITEM 1 - CONTINUING DIRECTORS |
CONTINUING DIRECTORS
CLASS I DIRECTORS —TERMS EXPIRING IN 2017
| | | Margaret G. McGlynn | | Age: 56
| Member – Science and Technology Committee | Director Since: 2011
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Merck, Ms. McGlynn served as the President and Chief Executive Officer of the International AIDS Vaccine Initiative, a global not-for-profit organization whose mission is to ensure the development of safe, effective and accessible HIV vaccines for use throughout the world, from July 2011 until September 2015. Ms. McGlynn served as President, Vaccines and Infectious Diseases of Merck & Co., Inc. from 2005 until 2009. Ms. McGlynn joined Merck in 1983 and served in a variety of marketing, sales and managed care roles. Ms. McGlynn serves as a member of the Board of Directors for Air Products and Chemicals, Inc., a company specializing in gases and chemicals for industrial uses, and Amicus Therapeutics, Inc., a biopharmaceutical company.company focused on rare diseases. She is also a member of the National Industrial Advisory Committee at the University at Buffalo School of Pharmacy and Pharmaceutical Sciences. Ms. McGlynn holds a B.S. in Pharmacy and an M.B.A. in Marketing from the State University of New York at Buffalo.
Skills and Qualifications: Ms. McGlynn’s corporate leadership experience and industry knowledge make her a valuable contributor to our board of directors. Her service as an executive at Merck and her service on the board of Amicus Therapeutics and the board and audit committee of Air Products and Chemicals, Inc. give her a practical understanding of organizational practices valuable to a company at our stage of growth. Her experience in the development and commercialization of treatments for infectiousproducts across several therapeutic areas, and her board and advocacy experience in rare diseases, provides her with a valuable understanding of the scientific, regulatory and marketplace issues we face in the drug development and commercialization process.William D. Young Age: 72 Director Since: 2014 Committee Assignments: | | | William D. Young | | Age: 71
• | Member – Corporate Governance and Nominating Committee | Director Since: 2014
• | Member – Management Development and Compensation Committee |
Mr. Young is a Venture Partner at Clarus Ventures, a life sciences venture capital firm, which he joined in 2010. Prior to Clarus Ventures, Mr. Young served from 1999 until June 2009 as the Chairman and Chief Executive Officer of Monogram Biosciences, Inc., a biotechnology company acquired by Laboratory Corporation of America in June 2009. From 1980 to 1999, Mr. Young was employed at Genentech, Inc. in positions of increasing responsibility, including as Chief Operating Officer from 1997 to 1999, where he was responsible for all product development, manufacturing and commercial functions. Prior to joining Genentech, Mr. Young was with Eli Lilly & Co. for 14 years. Mr. Young currently serves as the Chairman of the Board of Directors of NanoString Technologies, Inc., and as a member of the Board of Directors of Theravance BioPharma Inc. Mr. Young retired from BioMarin Pharmaceutical Inc.’s Board of Directors in November 2015 and from Biogen’s Board of Directors in June 2014. Mr. Young holds a B.S. in Chemical Engineering from Purdue University, an M.B.A. from Indiana University and an Honorary Doctorate in Engineering from Purdue University. Mr. Young was elected to the National Academy of Engineering in 1993 for his contributions to biotechnology. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 15 Skills and Qualifications:Mr. Young is a valuable contributor to our board of directors due to the in-depth knowledge of the pharmaceuticalsbiotechnology industry that he acquired through his extensive experience as both a CEO and board member at numerous pharmaceutical and biotechnology organizations and as a venture capitalist focused on the life sciences industry. Mr. Young’s strong leadership qualities, global industry knowledge and financial expertise provide him with the background to work collaboratively with both management and fellow board members in order to address issues facing our company.
NoticeDirector Nominee — Proposed Term to Expire in 2020 Alan Garber, M.D., Ph.D. Age: 61 Dr. Garber is Provost of Annual MeetingHarvard University and the Mallinckrodt Professor of Shareholders Health Care Policy at Harvard Medical School, a Professor of Economics in the Faculty of Arts and 2016Sciences, Professor of Public Policy in the Harvard Kennedy School of Government, and Professor in the Department of Health Policy and Management in the Harvard T.H. Chan School of Public Health. From 1998 until he joined Harvard in 2011, he was the Henry J. Kaiser Jr. Professor, a Professor of Medicine, and a Professor (by courtesy) of Economics, Health Research and Policy, and of Economics in the Graduate School of Business at Stanford University. Dr. Garber is a member of the National Academy of Medicine, the American Society of Clinical Investigation, the Association of American Physicians and the Board on Science, Technology, and Economic Policy at the National Academies. He is a Fellow of the American College of Physicians and the Royal College of Physicians. Dr. Garber is also a Research Associate with the National Bureau of Economic Research and served as founding Director of its Health Care Program for nineteen years. He has also served as a member of the National Advisory Council on Aging at the National Institutes of Health, as a member of the Board of Health Advisers of the Congressional Budget Office and as Chair of the Medicare Evidence Development and Coverage Advisory Committee at the Centers for Medicare and Medicaid Services. Dr. Garber has been a member of the Board of Directors of Exelixis, Inc., a biopharmaceutical company, since 2005. Dr. Garber holds an A.B. summa cum laude, an A.M. and a Ph.D., all in Economics, from Harvard University, and an M.D. with research honors from Stanford University.Skills and Qualifications:Dr. Garber brings extensive leadership experience and knowledge regarding science, medicine and the healthcare industry and in particular healthcare economics to our board of directors. The insights he has developed as an expert in health care policy and as an advisor to government agencies will provide our board important perspectives on the issues facing our company. Board Recommendation In each of the director nominee and continuing director biographies, we highlight the specific experience, qualifications, attributes and skills that led the board of directors to conclude that the director nominee or continuing director should serve on our board at this time. Our board of directors recommends that shareholders voteFOReach of the nominees. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement | 15
16Continuing Directors Class II Directors — Terms to Expire in 2018 Sangeeta N. Bhatia, M.D., Ph.D. Age: 48 Director Since: 2015 Committee Assignments: | • | Chair - Science and Technology Committee | | ITEM 1 - CONTINUING DIRECTORS (continued)
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CLASS II DIRECTORS— TERMS TO EXPIRE IN 2018
| | | Sangeeta N. Bhatia, M.D., Ph.D.• | Member -– Corporate Governance and Nominating Committee | Age: 47
| Member – Science and Technology Committee | Director Since: 2015
| |
Dr. Bhatia is a professor at the Massachusetts Institute of Technology, where she currently serves as the John J. and Dorothy Wilson Professor of Health Sciences & Technology/Electrical Engineering & Computer Science. Prior to joining the Massachusetts Institute of Technology in 2005, Dr. Bhatia was a professor of bioengineering and medicine at the University of California at San Diego from 1998 through 2005. Dr. Bhatia also is an investigator for the Howard Hughes Medical Institute, a member of the Department of Medicine at Brigham and Women’s Hospital, a member of the Broad Institute and a member of the Koch Institute for Integrative Cancer Research. Dr. Bhatia holds an Sc.B. in biomedical engineering from Brown University, an S.M. and Ph.D. in Mechanical Engineering from the Massachusetts Institute of Technology and an M.D. from Harvard Medical School. Skills and Qualifications: Dr. Bhatia is a leading academic scientist and medical researcher. Her extensive experience in the field of biomedical engineering and in-depth understanding on the use of advanced technologies in medical research provides valuable insights to our board of directors, including with respect to our key research and development initiatives. | | | Jeffrey M. Leiden, M.D., Ph.D. | Chairman, Chief Executive Officer and President | Age: 60
| | Director Since: 2009
| |
Jeffrey M. Leiden, M.D., Ph.D. Age: 61 Director Since: 2009 Chairman, Chief Executive Officer and President Dr. Leiden is our Chairman, Chief Executive Officer and President. He has held the positions of Chief Executive Officer and President since February 2012 after joining us as CEO Designee in December 2011. He has been a member of our Board of Directors since July 2009, the Chairman of our Board of Directors since May 2012, and served as our lead independent director from October 2010 through December 2011. Dr. Leiden was a Managing Director at Clarus Ventures, a life sciences venture capital firm, from 2006 through January 2012. Dr. Leiden was President and Chief Operating Officer of Abbott Laboratories, Pharmaceuticals Products Group, and a member of the Board of Directors of Abbott Laboratories from 2001 to 2006. From 1987 to 2000, Dr. Leiden held several academic appointments, including the Rawson Professor of Medicine and Pathology and Chief of Cardiology and Director of the Cardiovascular Research Institute at the University of Chicago, the Elkan R. Blout Professor of Biological Sciences at the Harvard School of Public Health, and Professor of Medicine at Harvard Medical School. He is an elected member of both the American Academy of Arts and Sciences, and the Institute of Medicine of the National Academy of Sciences. Dr. Leiden is a senior advisor to Clarus Ventures. Dr. Leiden serves as a director of Quest Diagnostics Inc., a medical diagnostics company, and Massachusetts Mutual Life Insurance Company, an insurance company. Dr. Leiden was a director and the non-executive Vice Chairman of the board of Shire plc, a specialty biopharmaceutical company, from 2006 to January 2012. Dr. Leiden received his M.D., Ph.D. and B.A. degrees from the University of Chicago. Skills and Qualifications: Dr. Leiden possesses strong leadership qualities, demonstrated through his service as ana senior executive in the pharmaceutical industry and as a life sciences venture capitalist, and has extensive knowledge of the science underlying drug discovery and development through his experiences as a distinguished physician, scientist and teacher. He also provides our board of directors with in-depth knowledge of our company through the day-to-day leadership of our executives.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 16
Bruce I. Sachs Age: 57 Director Since: 1998 Co-lead Independent Director Committee Assignments: | | ITEM 1 - CONTINUING DIRECTORS (continued)
|
| | | Bruce I. Sachs | Co-lead Independent Director
| Age: 56
• | Chair – Management Development and Compensation Committee | Director Since: 1998
• | Member – Audit and Finance Committee |
Mr. Sachs is a General Partner at Charles River Ventures, a venture capital firm he joined in 1999. From 1998 to 1999, he served as Executive Vice President and General Manager of Ascend Communications, Inc. From 1997 until 1998, Mr. Sachs served as President and Chief Executive Officer of Stratus Computer, Inc. From 1995 to 1997, he served as Executive Vice President and General Manager of the Internet Telecom Business Group at Bay Networks, Inc. From 1993 to 1995, he served as President and Chief Executive Officer of Xylogics, Inc. Mr. Sachs holds a B.S.E.E. in electrical engineering from Bucknell University, an M.E.E. in electrical engineering from Cornell University, and an M.B.A. from Northeastern University.
Skills and Qualifications: Mr. Sachs brings strong business judgment and financial analytical skills, honed through his experience developing business strategy at a senior management level and his success in building companies and in venture capital, to our board of directors. In addition, Mr. Sachs has extensive business leadership experience, including service as a CEO at a technology company, as well as financial expertise.VERTEX PHARMACEUTICALS INCORPORATED
Notice of Annual Meeting of Shareholders and 2016 -2017 Proxy Statement | 17
Class III Directors — Terms to Expire in 2019 Terrence C. Kearney Age: 62 Director Since: 2011 Committee Assignments: | • | Chair – Audit and Finance Committee | | • | Member – Management Development and Compensation Committee |
Mr. Kearney served as the Chief Operating Officer of Hospira, Inc., a specialty pharmaceutical and medication delivery company, from April 2006 to January 2011. From April 2004 to April 2006, he served as Hospira’s Senior Vice President, Finance, and Chief Financial Officer, and he served as Acting Chief Financial Officer through August 2006. Mr. Kearney served as Vice President and Treasurer of Abbott Laboratories from 2001 to April 2004. From 1996 to 2001, Mr. Kearney was Divisional Vice President and Controller for Abbott’s International Division. Mr. Kearney serves as a member of the Board of Directors at Acceleron Pharma Inc., a biopharmaceutical company, and AveXis, Inc., a gene therapy company, and served as a member of the Board of Directors at Innoviva, Inc. (formerly known as Theravance, Inc.), a royalty management company, until April 2016. He received his B.S. in biology from the University of Illinois and his M.B.A. from the University of Denver. Skills and Qualifications:Mr. Kearney’s corporate leadership experience, industry knowledge and financial expertise make him a valuable contributor to our board of directors. He has a practical perspective on the management of global pharmaceutical operations, including commercial, manufacturing and research and development activities, and financial management strategies. He is an “audit committee financial expert” with particular experience in matters faced by the audit committee of a company with pharmaceutical product revenues and related expenses. Yuchun Lee Age: 51 Director Since: 2012 Committee Assignments: | • | Member – Audit and Finance Committee | CORPORATE GOVERNANCE AND RISK MANAGEMENT• | Member – Science and Technology Committee |
Mr. Lee is an Executive in Residence (XIR) and Partner of General Catalyst Partners, a venture capital firm, which he joined in April of 2013. Mr. Lee also serves as the Chief Executive Officer of Allego Inc. and Executive Chairman of Clarabridge. Mr. Lee was the Vice President of IBM’s Enterprise Marketing Management Group from November 2010 through January 2013. Mr. Lee co-founded Unica Corporation, a provider of software and services used to automate marketing processes, in 1992, and was Unica’s President and/or Chief Executive Officer from 1992 through November 2010, when Unica was acquired by IBM. From 1989 to 1992, Mr. Lee was a senior consultant at Digital Equipment Corporation, a supplier of general computing technology and consulting services. Mr. Lee holds a B.S. and an M.S. in electrical engineering and computer science from the Massachusetts Institute of Technology and an M.B.A. from Babson College. Skills and Qualifications:Mr. Lee’s expertise in marketing processes and customer engagement and business and financial experience make him a valuable contributor to our board of directors. Mr. Lee is an innovator who founded and managed the growth of a successful technology company and gained further leadership experience while serving as an executive at IBM. Mr. Lee’s experiences outside of the biopharmaceutical sector provide the board with an important perspective on the issues facing the company. Elaine S. Ullian Age: 69 Director Since: 1997 Co-lead Independent Director Committee Assignments: | • | Chair – Corporate Governance and Nominating Committee | | • | Member – Management Development and Compensation Committee |
Ms. Ullian served as President and Chief Executive Officer of Boston Medical Center, a private, not-for-profit, 626-bed, academic medical center with a community-based focus, from 1996 through January 2010. From 1994 to 1996, she served as President and Chief Executive Officer of Boston University Medical Center Hospital. From 1987 to 1994, Ms. Ullian served as President and Chief Executive Officer of Faulkner Hospital. She also serves as a director of Thermo Fisher Scientific Inc. and Hologic, Inc. Ms. Ullian holds a B.A. in political science from Tufts University and an M.P.H. from the University of Michigan. Skills and Qualifications:Ms. Ullian brings significant leadership experience acquired as the CEO of large health care providers to our board of directors. The knowledge she obtained serving as an executive, together with her extensive experience serving on the boards of directors of multiple public companies in the healthcare field, provide her with the expertise required to serve as one of our co-lead independent directors and as the chair of our corporate governance and nominating committee. She also provides the board with the perspective of providers, payors and patients, for whom our products are intended. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 18 CORPORATE GOVERNANCE AND RISK MANAGEMENT We are committed to good corporate governance and integrity in our business dealings. Our governance practices are documented in our Statement of Corporate Governance Principles, which addresses the role and composition of our board of directors and the functioning of the board and its committees. You can find our governance documents, including our Statement of Corporate Governance Principles, charters for each committee of the board and our Code of Conduct, on our websitewww.vrtx.comunder “Investors—Corporate Governance—Governance Documents.” INDEPENDENCE, CHAIR AND CO-LEAD INDEPENDENT DIRECTORS
Independence, Chair and Co-lead Independent Directors Our board of directors has determined that eight of our nine directors qualify as “independent” under the definition of that term adopted by The Nasdaq Stock Market LLC, or Nasdaq.NASDAQ. These directors areinclude Dr. Bhatia, Dr. Boger, Mr. Kearney, Mr. Lee, Ms. McGlynn, Mr. Sachs, Ms. Ullian and Mr. Young. If Dr. Wayne Riley wasGarber is elected to our board, we expect he will qualify as an independent director prior to his resignation from our board in June 2015.director. Our independent directors generally meet in executive session at each regularly scheduled board meeting. Dr. Leiden, our president and chief executive officer, serves as the chairman of our board. Our employment agreement with Dr. Leiden provides that he will serve as the chairman of our board through DecemberMarch 31, 2017.2020. In addition, we have two co-lead independent directors who are elected by the independent directors. Each of the board committees is chaired by one of our independent directors. Our board believes that strong, independent board leadership is a critical aspect of effective corporate governance, and our corporate governance principles require that if the chair is not an independent director, thatthen the independent directors elect a lead independent director. Since December 2011, Mr. Sachs and Ms. Ullian have served as our co-lead independent directors. We believe this structure provides our board independent leadership, while providing the benefit of having our chief executive officer, the individual with primary responsibility for managing our day-to-day operations, chair regular board meetings as we discuss key business and strategic issues. Combined with the co-lead independent directors and experienced and independent committee chairs, this structure provides strong independent oversight of management. Our co-lead independent directors’ responsibilities include: calling and leading regular and special meetings of the independent directors;
serving as a liaison between our executive officers and the independent directors;
reviewing the planned dates for regularly scheduled board meetings and the primary agenda items for each meeting; and
reviewing with the chair of each board committee agenda items that fall within the scope of the responsibilities of that committee.
BOARD COMMITTEES
| • | calling and leading regular and special meetings of the independent directors; | | | | • | serving as a liaison between our executive officers and the independent directors; | | | | • | reviewing the planned dates for regularly scheduled board meetings and the primary agenda items for each meeting; and | | | | • | reviewing with the chair of each board committee agenda items that fall within the scope of the responsibilities of that committee. |
Board Committees Our board of directors has established various committees to assist in discharging its duties: the audit and finance committee, the corporate governance and nominating committee, the MDCC and the science and technology committee. Each member of the audit and finance committee, corporate governance and nominating committee and MDCC is an independent director as that term is defined by the SEC and Nasdaq.NASDAQ. The primary responsibilities of each of the committees are set forth below, and the committee memberships are provided in the table appearing on page 20 of this proxy statement. Each of the committees has the authority, as its members deem appropriate, to engage legal counsel or other experts or consultants in order to assist the committee in carrying out its responsibilities.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 18
| | CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued)
|
RISK MANAGEMENT
Risk ManagementOur board of directors discharges its overall responsibility to oversee risk management with a focus on our most significant risks. We face considerable risk related to the commercialization of our approved products, including regulatory risk with respect to our promotional activities and competition from approved drugs and investigational drug candidates that may have product profiles superior to our approved products. We continue to invest significant resources in research programs and clinical development programs as part of our strategy to develop transformative medicines for patients with serious diseases. With respect to each of our drug development and commercialization programs, we face considerable risk that the program will not ultimately result in a commercially successful pharmaceutical product. Our board and its committees monitor and manage the strategic, compliance and operational risks related to KALYDECO, ORKAMBI and our research and development programs through regular board and committee discussions that include presentations to the board and its committees by our executive officers as well as during in-depth short- and long-term strategic reviews held at least annually. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 19 For certain specific risk types, our board has delegated oversight responsibility to board committees as follows: Our audit and finance committee oversees our enterprise risk management programs and policies, including those related to our financial and accounting systems, accounting policies and investment strategies, intellectual property strategy, information technology systems and steps our management has taken to monitor, mitigate and report on those exposures. The audit and finance committee also is responsible for addressing risks arising from related party transactions.
Our MDCC oversees risks associated with our compensation policies, management resources and structure, succession planning, and management development and selection processes.
Our corporate governance and nominating committee oversees risks related to the company’s governance structure.
Our science and technology committee oversees risks related to our research and development investments.
CODE OF CONDUCT
| • | Our audit and finance committee oversees our enterprise risk management programs and policies, including those related to our financial and accounting systems, accounting policies and investment strategies, intellectual property strategy, information technology systems and steps our management has taken to monitor, mitigate and report on those exposures. The audit and finance committee also is responsible for addressing risks arising from related party transactions. | | | | • | Our MDCC oversees risks associated with our compensation policies, management resources and structure, succession planning, and management development and selection processes. | | | | • | Our corporate governance and nominating committee oversees risks related to the company’s governance structure. | | | | • | Our science and technology committee oversees risks related to our research and development investments. |
Code of Conduct We have adopted a Code of Conduct that applies to all of our directors and employees, including our chief executive officer and chief financial and accounting officers. Our Code of Conduct is available on our websitewww.vrtx.comunder “Investors—Corporate Governance—Governance Documents.” Disclosure regarding any amendments to, or waivers from, provisions of the Code of Conduct that apply to our directors or principal executive, financial or accounting officers will be posted on our website or included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver.
Notice of Annual Meeting of Shareholders Board Attendance, Committee Meetings and 2016 Proxy Statement | 19
BOARD ATTENDANCE, COMMITTEE MEETINGS AND COMMITTEE MEMBERSHIP
| | | | | | | | | | Director (1) | Independence | Board | Audit
and
Finance | Corporate
Governance and
Nominating | Management
Development and
Compensation | Science
and
Technology | 2015
Attendance at
Meetings (2) | | Sangeeta N. Bhatia | X | ● | | ● | | ● | 88% | | Joshua Boger | X | ● | | | | Chair | 100% | | Terrence C. Kearney | X | ● | Chair | | ● | | 100% | | Yuchun Lee | X | ● | ● | | | ● | 100% | | Jeffrey M. Leiden | | Chair | | | | | 100% | | Margaret G. McGlynn | X | ● | | | | ● | 100% | | Bruce I. Sachs | X | Co-lead | ● | | Chair | | 100% | | Elaine S. Ullian | X | Co-lead | | Chair | ● | | 95% | | William D. Young | X | ● | | ● | ● | | 100% | | 2015 Meetings | | 7 | 8 | 5 | 7 | 5 | |
 | = Co-lead | | (1) | EachWe encourage each of our director to attend shareholder meetings, and each of our directors is invited to attend each meeting of shareholders. Joshua Boger, Terrence Kearney, Yuchun Lee and Margaret McGlynn attended our 20152016 annual meeting of shareholders. |
| | | (2) | Includes meetings of the board of directors and meetings of each committee of the board while the director served on such committee. |
Audit and Finance Committee The primary purposes of the audit and finance committee are to: appoint, oversee and replace, if necessary, our independent registered public accounting firm;
assist our board of directors in fulfilling its responsibility for oversight of our accounting and financial reporting processes; and
review and make recommendations to our board concerning our financial structure and financing strategy.
| • | appoint, oversee and replace, if necessary, our independent registered public accounting firm; | | | | • | assist our board of directors in fulfilling its responsibility for oversight of our accounting and financial reporting processes; and | | | | • | review and make recommendations to our board concerning our financial structure and financing strategy. |
Our independent registered public accounting firm reports directly to, and is held accountable by, our audit and finance committee in connection with the audit of our annual financial statements and related services. Mr. Kearney, the chair of our audit and finance committee, is our “audit committee financial expert” as that term is defined in applicable regulations of the SEC. In addition, each of the other members of the audit and finance committee are qualified to serve as an audit committee financial expert under the SEC'sSEC’s rules. The report of the audit and finance committee appears on page 27 33 of this proxy statement.Our audit and finance committee reviews and, if appropriate, recommends for approval or ratification by our board, all transactions with related persons that are required to be disclosed by us pursuant to Item 404(a) of Regulation S-K promulgated by the SEC, except for VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 20 transactions, if any, related to the employment of executive officers, which would be recommended for approval by the MDCC. Our policies and procedures with respect to transactions with related persons are governed by our written Related Party Transaction Policy. Pursuant to this policy, related party transactions include transactions, arrangements or relationships in which our company is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% shareholders or their immediate family members, whom we refer to as related persons, has a direct or indirect material interest, except where disclosure of such transaction would not be required pursuant to Item 404(a) of Regulation S-K. As appropriate for the circumstances, our audit and finance committee will review and consider the related person’s interest in the related party transaction and such other factors as it deems appropriate. Since January 1, 2015,In 2016, we have not entered into any transactionshad one transaction, disclosable pursuant to Item 404(a) of Regulation S-K. S-K, pursuant to which we obtained software services from Allego Inc., a company for which Yuchun Lee serves as CEO. The transaction involved no payments directly to Mr. Lee and payments of approximately $225,000 to Allego Inc., for software licenses that extend through December 2017. The audit committee approved the transaction as a transaction that was entered into at arm’s length and under terms comparable to those that would be provided to other unrelated entities in the marketplace.Corporate Governance and Nominating Committee The corporate governance and nominating committee: | • | assists our board of directors in developing and implementing our corporate governance principles; recommends the size and composition of our board and its committees;
develops and recommends to our board an annual self-evaluation process to assess the effectiveness of our board and oversees this process;
reviews and recommends director compensation;
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 20
| | | CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued)
• | recommends the size and composition of our board and its committees; | | | | • | develops and recommends to our board an annual self-evaluation process to assess the effectiveness of our board and oversees this process; | | | | • | reviews and recommends non-employee director compensation on an annual basis; | | | | • | identifies qualified individuals to become members of our board; | | | | • | recommends director nominations to the full board; and | | | | • | assists the board in external recruiting and evaluating potential candidates for the CEO position. |
identifies qualified individuals to become members of our board;
recommends director nominations to the full board; and
assists the board in external recruiting and evaluating potential candidates for the CEO position.
Management Development and Compensation Committee The primary purposes of the MDCC are to oversee the discharge of our board’sboard of directors’ responsibilities relating to: compensation and development of our executives; and
review and approval of our benefit and equity compensation plans.
| • | compensation and development of our executives; and | | | | • | review and approval of our benefit and equity compensation plans. |
The MDCC has the authority to delegate any of its responsibilities to individual members of the MDCC to the extent deemed appropriate by the MDCC in its sole discretion, but subject always to the general oversight of the board of directors. board.See Compensation Discussion and Analysis—Detailed Discussionbelow for a discussion of the MDCC’s role in overseeing executive compensation. The report of the MDCC appears on page 6663 of this proxy statement. Science and Technology Committee Our science and technology committee discharges our board of directors’ responsibilities relating to the oversight of our investment in pharmaceutical research and development. In furtherance of that oversight function, the science and technology committee: | • | reviews and assesses our current and planned research and development programs and technology initiatives from a scientific perspective; | | | | • | assesses the capabilities of our key scientific personnel and the depth and breadth of our scientific resources; | | | | • | provides strategic advice to our board regarding emerging science and technology issues and trends; and | | | | • | periodically reviews our patent portfolio and strategy. |
Compensation Committee Interlocks and Insider Participation. ParticipationMr. Kearney, Mr. Sachs, Ms. Ullian and Mr. Young served on the MDCC during all or a portion of 2015.2016. Each member of the MDCC was an independent director while serving on the MDCC. No member of our board of directors who was a member of our MDCC at any time during 20152016 has ever been one of our employees or officers. No member of our board of directors who was a member of our MDCC at any time during 20152016 has ever been a party to a transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K prior to becoming a member of our MDCC. During 2015,2016, none of our executive officers served as a member of the board of directors or compensation committee of the board of directors, or performed the equivalent functions, of any entity that has one or more executive officers serving as a member of our board or the MDCC. Science and Technology Committee
Our science and technology committee discharges our board’s responsibilities relating to the oversight of our investment in pharmaceutical research and development. In furtherance of that oversight function, the science and technology committee:
reviews and assesses our current and planned research and development programs and technology initiatives from a scientific perspective;
assesses the capabilities of our key scientific personnel and the depth and breadth of our scientific resources;
provides strategic advice to our board regarding emerging science and technology issues and trends; and
periodically reviews our patent portfolio and strategy.
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 21
Non-Employee Director Compensation Program We have designed and implemented our compensation program for our non-employee directors to attract, motivate and retain individuals who are committed to our values and goals and who have the expertise and experience that we need to achieve those goals. Compensation Program
During the course of 2015, we reviewed theThe compensation program for our non-employee directors and consistent with changes made to our executive compensation program, we modified the compensation program for our non-employee directors to reflect the fundamental changes in our business and financial profile. The changes include a transition from a share-based approach to a value-based approach in the granting of equity awards to our non-employee directors, reducing our reliance on stock options and increasing our cash fees. Under our revised program, the value of the equity awards to non-employee directors, as reported in the Director Compensation Table, will be reduced by more than 50% in 2016 as compared to 2015. Beginning in 2016, the compensation program for our non-employee directors is:
| | | | Revised Compensation Elements - New 2016 Program | Cash | | | Annual Cash Retainer | | $85,000 | Annual Committee Chair Retainer | Audit and Finance Committee | $30,000 | | Management Development and Compensation Committee | $25,000 | | Corporate Governance and Nominating Committee | $20,000 | | Science and Technology Committee | $20,000 | Committee Membership Retainer | | | | Audit and Finance Committee | $15,000 | | Management Development and Compensation Committee | $10,000 | | Corporate Governance and Nominating Committee | $10,000 | | Science and Technology Committee | $10,000 | Annual Lead Independent Director Retainer | | $40,000 | Equity | | | Initial Equity Grant | Value-based awards, with a 50/50 mix of restricted stock units and options
• $275,000 in options vesting quarterly over four years from the date of grant
• $275,000 in restricted stock units vesting annually over four years from the date of grant
| Annual Equity Retainer | On June 1 of each year, value-based awards with a 50/50 mix of restricted stock units and options
• $275,000 in options that are fully-vested upon grant
• $275,000 in restricted stock units that vests on the first anniversary of the date of grant
|
| Cash | | | | | | | | Annual Cash Retainer | | | | $ | 85,000 | | | Annual Committee Chair Retainer | | Audit and Finance Committee | | $ | 30,000 | | | | | Management Development and Compensation Committee | | $ | 25,000 | | | | | Corporate Governance and Nominating Committee | | $ | 20,000 | | | | | Science and Technology Committee | | $ | 20,000 | | | Committee Membership Retainer | | | | | | | | | | Audit and Finance Committee | | $ | 15,000 | | | | | Management Development and Compensation Committee | | $ | 10,000 | | | | | Corporate Governance and Nominating Committee | | $ | 10,000 | | | | | Science and Technology Committee | | $ | 10,000 | | | Annual Co-Lead Independent Director Retainer | | | | $ | 40,000 | | | Equity | | | | | | | | Initial Equity Grant | | Value-based awards, with a 50/50 mix of restricted stock units and options | | | | | • $275,000 in options vesting quarterly over four years from the date of grant | | | | | • $275,000 in restricted stock units vesting annually over four years from the date of grant | | | Annual Equity Retainer | | On June 1 of each year, value-based awards with a 50/50 mix of restricted stock units and options | | | | | • $275,000 in options that are fully-vested upon grant | | | | | • $275,000 in restricted stock units that vests on the first anniversary of the date of grant | |
Each of our non-employee directors is eligible to defer the cash and restricted stock portion of his/her compensation set forth above and elect to receive deferred stock units that are paid out in common stock upon the earliest to occur of (i) termination of the non-employee director'sdirector’s service on our board of directors, (ii) a change of control and (iii) the non-employee directors disability or death.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 22
| | DIRECTOR COMPENSATION (continued)
|
In 2015, our non-employee directors were paid in accordance with our then-existing compensation program for non-employee directors as follows:
| | | | Compensation Elements - Previous Non-Employee Director Compensation Program | Cash | | | Annual Cash Retainer | | $50,000 | Annual Committee Chair Retainer | Audit and Finance Committee | $25,000 | | Corporate Governance and Nominating Committee | $20,000 | | Management Development and Compensation Committee | $20,000 | | Science and Technology Committee | $12,500 | Annual Committee Retainer (non-Chair) | | $5,000 | Annual Lead Independent Director Retainer | | $25,000 | Equity | | | Initial Equity Grant | Option to purchase 30,000 shares of common stock. These options vests quarterly over a four-year period from the date of grant. | Annual Equity Retainer | Option to purchase 20,000 shares of common stock granted on June 1 of each year. These options are fully-vested upon the date of grant. | Co-lead Independent Director Annual Grant | Option to purchase 2,500 shares of common stock granted on June 1 of each year. These options are fully-vested upon the date of grant. |
Our non-employee directors also are also reimbursed for their business-related expenses incurred in connection with attendance at board and committee meetings and related activities. Our only employee director, Dr. Leiden, receives no separate compensation for his service in such capacity. We annually review the compensation program for our non-employee directors. In 2015, we changed our compensation program for non-employee directors effective in 2016. We did not make any changes to our non-employee director compensation program for 2017 based on this review. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 22 2016 Summary Compensation | Director | | Fees Earned or
Paid in Cash | | | Stock
Units(1) | | | Option
Awards(1) | | | Total | | | Sangeeta N. Bhatia | | $ | 105,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 668,096 | | | Joshua Boger | | $ | 105,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 668,096 | | | Terrence C. Kearney | | $ | 125,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 688,096 | | | Yuchun Lee | | $ | 110,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 673,096 | | | Margaret G. McGlynn | | $ | 95,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 658,096 | | | Bruce I. Sachs(2) | | $ | 165,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 728,096 | | | Elaine S. Ullian | | $ | 155,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 718,096 | | | William D. Young | | $ | 105,000 | | | $ | 275,013 | | | $ | 288,083 | | | $ | 668,096 | |
| (1) | The amounts set forth under the captions “Stock Units” and “Option Awards” in the table above represent the grant-date fair value for financial statement reporting purposes of the equity awards granted during 2016. Our methodology, including underlying estimates and assumptions, for calculating these values is set forth in Note N to our consolidated financial statements included in our 2016 Annual Report on Form 10-K, filed with the SEC on February 23, 2017. | | (2) | Mr. Sachs elected to defer his quarterly cash retainers which were paid in deferred stock units on each of the quarterly payment dates occurring on the 15th of the month following the quarter end. The fair market value of each deferred stock unit on each of those dates were $84.31, $89.45, $80.01 and $81.16. |
2016 Equity Grants | Grant | | Date | | Shares | | | Exercise
Price | | | Grant-Date
Fair Value | | | Annual Non-Employee Director Option Grants | | June 1, 2016 | | | 7,073 | | | $ | 93.51 | | | $ | 288,083 | | | Annual Non-Employee Director Stock Unit Grants | | June 1, 2016 | | | 2,941 | | | | N/A | | | $ | 275,013 | |
Outstanding Equity As of December 31, 2016, our non-employee directors had outstanding restricted stock units, deferred stock units and stock options to purchase our common stock as follows: | Director | | Outstanding
Restricted Stock Units | | Outstanding Deferred
Stock Units | | Exercisable
Options | | Total
Outstanding
Options | | Sangeeta N. Bhatia | | 2,941 | | — | | 18,323 | | 37,073 | | Joshua Boger | | — | | 2,941 | | 751,573 | | 751,573 | | Terrence C. Kearney | | 2,941 | | — | | 67,448 | | 67,448 | | Yuchun Lee | | 2,941 | | — | | 90,407 | | 90,407 | | Margaret G. McGlynn | | 2,941 | | — | | 87,073 | | 87,073 | | Bruce I. Sachs | | — | | 4,407 | | 127,073 | | 127,073 | | Elaine S. Ullian | | 2,941 | | — | | 74,573 | | 74,573 | | William D. Young | | 2,941 | | — | | 65,823 | | 77,073 |
Non-Employee Director Stock Ownership Guidelines We have stock ownership guidelines for our non-employee directors pursuant to which our non-employee directors should, within five years of becoming subject to the guidelines, achieve ownership of shares of our common stock with a value equal to at least three times the annual cash retainer. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 23 Non-Employee Director Compensation and Equity InformationThe following tables provide summary information regarding compensation| Item 2 | Amendments to our Charter and By-laws |
We are requesting that our shareholders approve amendments to our non-employeeRestated Articles of Organization and Amended and Restated By-Laws. Our Restated Articles of Organization and Amended and Restated By-Laws currently provide that our board of directors be divided into three classes, with each class holding office for a three-year term. At our 2016 annual meeting of shareholders, our shareholders approved a non-binding shareholder proposal requesting that we take necessary steps to declassify our board of directors. After the 2016 annual meeting of shareholders, we continued our engagement with our shareholders and monitored corporate governance trends and in February 2017, our board approved, subject to shareholder approval, amendments to our Restated Articles of Organization and Amended and Restated By-Laws. The proposed amendments provide that, starting with our 2018 annual meeting of shareholders, directors elected to succeed those directors whose terms expire shall be elected for a term expiring at the next annual meeting of shareholders. As a result, all directors will be elected annually beginning with the election of directors at our 2020 annual meeting of shareholders. A director chosen to fill a vacancy not resulting from an enlargement of the board will hold office for the remaining term of his or her predecessor. A director chosen to fill a vacancy resulting from an enlargement of the board will hold office for a term expiring at the next annual meeting of shareholders. Each director will serve until his or her successor is duly elected and qualified, subject to prior death, resignation, retirement or removal. The proposed amendments to the Amended and Restated By-Laws include revisions to refer explicitly to our Restated Articles of Organization in certain circumstances rather than duplicate such provisions in the Amended and Restated By-Laws. The full text of the proposed amendments that would become effective upon shareholder approval of this proposal and filing the Restated Articles of Organization with The Commonwealth of Massachusetts are attached to this proxy statement as Appendix A and Appendix B, with additions of text indicated by underlining and deletions of text indicated by strike-outs. Our modifiedboard of directors recommends a voteFORthe approval of the amendments to our restated articles of organization and amended by-laws. The affirmative vote by the holders of 80% of the shares outstanding as of the record date in person or by proxy on this matter is required for the approval of this proposal. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 24 | Item 3 | Amendment and Restatement of 2013 Stock and Option Plan |
Our board of directors believes that our broad-based equity compensation program is essential to attract, retain and motivate people with the necessary talent and experience and to provide additional incentive to achieve our short- and long-term business objectives. We are requesting that our shareholders approve an amendment and restatement of our 2013 Stock and Option Plan, or 2013 Plan, that would increase the number of shares available for issuance under the 2013 Plan by 6.75 million shares. On April 13, 2017, our board of directors amended and restated our 2013 Plan, subject to shareholder approval, to, among other things, increase the number of shares of common stock authorized for issuance under the 2013 Plan by 6.75 million shares. Our 2013 Plan utilizes “fungible” shares, with stock options counting as one share against the total authorized shares and full value awards, such as restricted stock or restricted stock units, counting as 1.66 shares against the total authorized shares. We adopted this fungible share plan to provide flexibility in the types of awards we grant under our equity compensation program, while appropriately accounting for the difference between stock options and full value awards. Over the last several years, we have implemented changes in our equity compensation program for non-employee directors became effectiveour employees, executives and our board that have significantly reduced dilution from our employee equity awards while maintaining a broad-based equity program. We believe that our equity compensation program has been fundamental to our success over the last several years and that the amendment and restatement of the 2013 Plan, which authorizes the issuance of additional shares subject to the 2013 Plan, is necessary in order to support our equity compensation program going forward. Maintenance of Broad-Based Equity Program While Reducing Dilution Since our inception, we have compensated all eligible employees using a mix of cash and equity. The broad-based nature of our equity compensation program is an important element of our overall employee compensation program and reflects our philosophy that it is important for 2016all of our employees to approach their jobs with a long-term commitment and perspective. Over the last several years, we have modified our equity compensation programs. These modifications are consistent with modifications other biotechnology companies have made as they matured from development-stage companies to commercial-stage companies with a strong financial profile. As a result the tables below reflect compensation paid under our prior compensation program for non-employee directors. Compensation paid in 2016 under our modified program will be reflected in next year's proxy statement and will reflect a significant decrease in total compensation, and specifically a more than 50% decrease in the value of annualthese changes, we granted on an absolute basis equity awards representing 35% fewer shares of common stock in 2016 as compared to 2015. Summary 2015 Compensation
| | | | | | | | | | | | | | | Director | Fees Earned or
Paid in Cash | Option
Awards (1) | Total | | Sangeeta N. Bhatia | | $ | 27,818 |
| | $ | 1,691,118 |
| | $ | 1,718,936 |
| | Joshua Boger | | $ | 62,500 |
| | $ | 1,168,916 |
| | $ | 1,231,416 |
| | Terrence C. Kearney | | $ | 80,000 |
| | $ | 1,168,916 |
| | $ | 1,248,916 |
| | Yuchun Lee | | $ | 60,000 |
| | $ | 1,168,916 |
| | $ | 1,228,916 |
| | Margaret G. McGlynn | | $ | 55,000 |
| | $ | 1,168,916 |
| | $ | 1,223,916 |
| | Wayne J. Riley (until June 30, 2015) | | $ | 35,000 |
| | $ | 1,168,916 |
| | $ | 1,203,916 |
| | Bruce I. Sachs | | $ | 100,000 |
| | $ | 1,315,031 |
| | $ | 1,415,031 |
| | Elaine S. Ullian | | $ | 100,000 |
| | $ | 1,315,031 |
| | $ | 1,415,031 |
| | William D. Young | | $ | 60,000 |
| | $ | 1,168,916 |
| | $ | 1,228,916 |
|
| | | 2012
Equity
Awards | | 2013
Equity
Awards | | 2014
Equity
Awards | | 2015
Equity
Awards | | 2016
Equity
Awards | | % Change
2012 v 2016 | | Total Shares Granted Subject to Equity Awards | | 7,525,000 | | 6,276,000 | | 5,629,000 | | 5,035,000 | | 4,887,000 | | (35)% | | Burn Rate(1) | | 3.6% | | 2.8% | | 2.4% | | 2.1% | | 2.0% | | | | Awards Canceled, Forfeited or Expired | | 1,644,000 | | 2,622,000 | | 1,628,000 | | 1,573,000 | | 928,000 | | | | Net Dilution | | 5,881,000 | | 3,654,000 | | 4,001,000 | | 3,462,000 | | 3,959,000 | | | | Net Burn Rate | | 2.8% | | 1.6% | | 1.7% | | 1.4% | | 1.6% | | |
| | | (1) | The amounts set forth under“Burn rate” is defined as the caption “Option Awards” in the table above represent the grant-date fair value for financial statement reporting purposesnumber of the equity awards granted in a specific year divided by the basic weighted average number of shares outstanding during 2015. Our methodology, including underlying estimatesthat year.
|
We currently expect that we will grant fewer options in 2017 than 2016. As a result, although the MDCC and board retains discretion with respect to equity grants, we expect consistent with the last several years, that there will be a small further decline in the dilution to our shareholders from our equity compensation program in 2017 as compared to 2016. Key Provisions of our 2013 Plan The 2013 Plan includes a number of provisions designed to serve shareholders’ interests and facilitate effective corporate governance, including the following: | • | Fungible Shares: Options and assumptions,other awards granted at a purchase price of 100% of the fair market value of a share of our common stock on the date of grant count against the number of shares authorized under our 2013 Plan at a rate of one share for calculating these valueseach share granted. Any restricted stock, restricted stock units or other awards granted under the 2013 Plan at a purchase price less than 100% of the fair market value of a share of our common stock on the date of grant count against the number of shares authorized for issuance under our 2013 Plan at a rate of 1.66 shares for each share granted. |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 25 | • | No Stock Option Re-pricing/Exchange: Except in connection with specific corporate transactions (including stock dividends, stock splits, consolidations, mergers, recapitalizations and reorganizations), the 2013 Plan does not permit (i) the amendment of stock options or stock appreciation rights granted under the 2013 Plan to provide an exercise price that is set forthlower than the then-current price per share of such outstanding option or stock appreciation right, (ii) the cancellation of any outstanding option or stock appreciation right (whether or not granted under the 2013 Plan) and the grant in Note substitution therefor of any award under the 2013 Plan covering the same or a different number of shares of common stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option or stock appreciation right or (iii) the cancellation in exchange for a cash payment of any outstanding option or stock appreciation right with an exercise price per share above the then-current fair market value of our common stock without shareholder approval. | | | | • | NNo Discounted Stock Options or SARs: Stock options and stockappreciation rights cannot be granted with an exercise price less than the fair market value on the date of grant. | | | | • | No “Evergreen” Provision: The 2013 Plan does not contain an “evergreen” or similar provision. The 2013 Plan fixes the number of shares available for future grants and does not provide for any increase based on increases in the number of outstanding shares of common stock. | | | | • | NoReload Rights: Stock options granted under the 2013 Plan do not contain provisions entitling participants to automatic grants of additional stock options in connection with the exercise of the original option. | | | | • | Limitationon Re-use of Shares: Shares that are delivered to, or withheld by, the company under an award may not be reissued under the 2013 Plan. Shares may be delivered or withheld in connection with the exercise of stock options or the payment of required withholding taxes. | | | | • | IndependentCommittee: As it relates to our consolidated financial statements included in our 2015 Annual Report on Form 10-K, filed withemployees, the SEC on 2013 Plan is administered by the MDCC, which consists of “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act and “independent directors” as defined by NASDAQ.February 16, 2016. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 23
| | DIRECTOR COMPENSATION (continued)
|
2015 Equity Grants
| | | | | | | | | | | | | | Option Grant | Date | Shares | Exercise Price | Grant-Date
Fair Value | | Annual Non-Employee Director Grants | June 1, 2015 | 20,000 |
| | $ | 127.54 |
| | $ | 1,168,916 |
| | Annual Grants to Co-lead Independent Directors | June 1, 2015 | 2,500 |
| | $ | 127.54 |
| | $ | 146,115 |
| | Initial Grant - Sangeeta N. Bhatia | June 4, 2015 | 30,000 |
| | $ | 126.68 |
| | $ | 1,691,118 |
|
Outstanding Equity
Existing Plans As of December 31, 2015, our non-employee directors had outstanding stockMarch 27, 2017, options to purchase (i) an aggregate of 8,299,123 shares having a weighted-average exercise price of $98.26 per share and a weighted-average term before expiration of 8.51 years were outstanding under our 2013 Plan, and (ii) an aggregate of 5,568,119 shares having a weighted-average exercise price of $58.49 per share and a weighted-average term before expiration of 5.18 years were outstanding under our Amended and Restated 2006 Stock and Option Plan, or 2006 Plan. Also on March 27, 2017, there were outstanding an aggregate of 4,023,798 unvested shares of restricted stock and restricted stock units granted under our 2013 Plan and 361,478 unvested shares of restricted stock and restricted stock units granted under our 2006 Plan.We may grant additional awards under our 2013 Plan. We are not able to grant additional awards under our 2006 Plan. As of March 27, 2017, there were 5,524,353 shares remaining available for award under our 2013 Plan. In addition, any shares of common stock subject to awards outstanding under the 2006 Plan which expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right, will become available for issuance under the 2013 Plan. Submission of 2013 Plan We are submitting the amendment to our 2013 Plan to our shareholders as required under applicable rules of Nasdaq and to ensure (i) favorable federal income tax treatment under Section 422 of the Code, for any grants of incentive stock options that we may make under our 2013 Plan and (ii) continued eligibility under Rule 162(m) of the Code to receive a federal income tax deduction with respect to compensation earned upon exercise of options under our 2013 Plan. Summary of the Amended and Restated 2013 Stock and Option Plan A summary of the principal features of our 2013 Plan is set forth below. A copy of our 2013 Plan, as amended and restated and in the form that would become effective upon shareholder approval of this proposal, is attached to this proxy statement as Appendix C. Administration and Eligibility for Participation The 2013 Plan is administered by our board of directors or any committee to which it delegates all or a part of its administrative responsibilities under the 2013 Plan. Our board has delegated the administration of the 2013 Plan to the MDCC. Subject to the provisions of the 2013 Plan, our board, or an authorized committee of our board, determines the persons to whom awards under the 2013 Plan will be granted, the number of shares to be covered by each award, the exercise price per share and the manner of exercise, the terms and VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 26 conditions upon which awards are granted, whether to accelerate the vesting or extend the date of exercise of any installment of any award and how to interpret the provisions of the 2013 Plan. Awards may be granted under the 2013 Plan to our employees, including officers and directors who are employees, and to our consultants, advisors and non-employee directors. As of March 31, 2017, we and our subsidiaries had approximately 2,153 employees and eight non-employee directors eligible to participate in the 2013 Plan. The number of consultants and advisors eligible for awards under our 2013 Plan varies from time to time. No participant may be granted awards in any calendar year for more than 1,000,000 shares, subject to adjustment for stock splits and similar recapitalizations. Description of Awards The 2013 Plan provides for the award of stock options, stock grants, and other stock-based awards. Any restricted stock grants, restricted stock units or other awards granted under the 2013 Plan at a purchase price less than 100% of the fair market value of a share of our common stock on the date of grant will count against the number of shares authorized for issuance under the 2013 Plan at a rate of 1.66 shares for each share granted. Shares of common stock reserved for awards granted under the 2013 Plan that lapse or are canceled or forfeited are added back to the share reserve available for future awards with restricted stock grants, restricted stock units or other awards granted under the 2013 Plan at a purchase price less than 100% of the fair market value of a share of our common stock on the date of grant added back to the share reserve at a rate of 1.66 shares for each share that lapses or is canceled or forfeited. Shares of common stock issued pursuant to restricted stock agreements and restricted stock unit awards may be purchased by employees for nominal value. If we were to permit shares of common stock to be delivered to us to pay the exercise price of a stock option or to be withheld to fund the payment of taxes, those shares would not be added back to the share reserve available for future awards. No option or stock appreciation right may be granted with a term exceeding ten years from the date of grant. Stock Options Stock options provide award recipients with the right, subject to the terms and conditions that are specified in connection with the option grant, to purchase a specified number of shares of our common stock at a specified exercise price. Stock options granted under the 2013 Plan may be awarded as follows: | | | | | | | Director | Exercisable Options | Total Outstanding Options | | Sangeeta N. Bhatia | 3,750 |
| 30,000 |
| | Joshua Boger | 1,067,400 |
| 1,067,400 |
| | Terrence C. Kearney | 60,375 |
| 60,375 |
| | Yuchun Lee | 79,042 |
| 84,667 |
| | Margaret G. McGlynn | 80,000 |
| 80,000 |
| | Bruce I. Sachs | 120,000 |
| 120,000 |
| | Elaine S. Ullian | 67,500 |
| 67,500 |
| | William D. Young | 51,250 |
| 70,000 |
|
Noticeeither non-qualified stock options or as incentive stock options within the meaning of Annual MeetingSection 422 of Shareholders the Code, referred to as ISOs, however only employees may receive ISOs. The maximum value of shares of common stock—determined at the time of grant—that may be subject to ISOs that become exercisable by an employee in any one year is limited to $100,000 and 2016the maximum number of shares that may be issued under the 2013 plan in satisfaction of ISOs is 27.8 million shares. Since 2003, we have only granted non-qualified stock options under our equity plans.Stock options granted under the 2013 Plan may not be granted with an exercise price that is less than the fair market value of our common stock on the date of grant, which is defined under the 2013 Plan as the average of the highest and lowest quoted selling prices on such date. ISOs may not be granted with an exercise price that is less than 110% of fair market value in the case of employees or officers holding 10% or more of our voting stock. ISOs granted to an employee or officer holding 10% or more of our voting stock must expire not more than five years from the date of grant. Stock options granted under the 2013 Plan can only be exercised by the optionholder and are not transferable except by the laws of descent and distribution or pursuant to domestic relations orders or Title I of the Employee Retirement Income Security Act or as otherwise determined by the MDCC, provided such transfer is not for value. The 2013 Plan provides for stock option grants to non-employee directors under our director compensation program. In addition to any other stock rights as may be determined by our board of directors each non-employee director serving in office on June 1 of any year is granted, pursuant to our equity plans, a fully vested non-qualified option to purchase a specified number of shares determined from time to time by our board. The 2013 Plan permits the MDCC to determine the manner of payment of the exercise price of options. Such methods include payment by cash or check, or, at the discretion of the MDCC, by means of a broker assisted “cashless exercise,” delivery to us of shares of our common stock, any combination of such methods or any other lawful means approved by the MDCC, other than delivery of a promissory note. Stock Grants A stock grant is an award of shares of common stock. Stock grants may be issued subject to restrictions on transfer and vesting requirements, as determined by the board or an authorized committee of the board. Vesting requirements may take the form of our lapsing right to repurchase the stock from the award recipient, based on either continued employment for specified time periods or on the attainment of specified business performance goals set by our board or the committee of our board. Subject to the transfer restrictions and our repurchase rights, if any, the grantee will have all rights with respect to unvested shares of common stock issued under a stock grant as are possessed by our other shareholders, including all voting and dividend rights, provided that dividends, if any, with respect to unvested shares shall accrue and be payable only upon the vesting of such shares. Stock-Based Awards The 2013 Plan provides that the MDCC may grant other stock-based awards, including restricted stock units, share grants based upon specified conditions, the grant of securities convertible into shares, or the grant of stock appreciation rights or phantom stock awards, in each case upon terms and conditions established by the MDCC. Performance Awards Under the 2013 Plan, we will have the discretionary authority to structure one or more awards so that the shares of common stock subject to those particular awards will not vest unless certain pre-established objective performance goals are achieved, in order to qualify such awards as performance-based compensation that will not be subject to the $1,000,000 limitation imposed by Section 162(m) VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement | 24
27of the Code on the income tax deductibility of the compensation paid to specified executive officers. Such objective goals may be based on one or more of the following criteria: (i) revenue targets or revenue growth; (ii) achievement of specified milestones in the discovery, development or regulatory approval of one or more of our drug candidates; (iii) achievement of specified milestones in the commercialization of one or more of our products; (iv) achievement of specified milestones in the manufacturing of one or more of our products; (v) cost reduction or other expense control targets; (vi) personal management objectives; (vii) stock price (including, but not limited to, growth measures); (viii) total shareholder return; (ix) income per share; (x) operating efficiency measures; (xi) operating margin; (xii) gross margin; (xiii) return measures (including, but not limited to, return on assets, capital, equity or sales); (xiv) net or total revenue levels; (xv) productivity ratios; (xvi) operating income; (xvii) net operating profit; (xviii) net earnings or net income (before or after taxes); (xix) cash flow (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital); (xx) earnings or operating income before interest, taxes, depreciation, amortization and/or stock-based compensation expense; (xxi) mergers, acquisitions or divestitures objectives; (xxii) market share; (xxiii) customer satisfaction; (xxiv) working capital targets; (xxv) budget objectives and (xxvi) achievement of other balance sheet or statements of operations objectives. Each objective performance measure that is a financial measure may be determined pursuant to generally accepted accounting principles (GAAP) or on a non-GAAP basis. Such objective performance measures may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities, an index or indices or other external measure of the selected performance criteria, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The objective performance measures and any targets with respect thereto need not be based on an increase, a positive or improved result or the avoidance of loss. Such performance measures: (1) may vary by participant and may be different for different awards; (2) may be particular to a participant or the department, branch, line of business, subsidiary or other unit in which the participant works and may cover such performance period as may be specified by us; and (3) shall be set within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code. We may specify that such performance measures shall be adjusted to exclude or provide for appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs; (B) litigation and governmental investigation expenses and judgments, verdicts or claim settlements; (C) the effect of changes in tax law, accounting principles or other laws, regulations or provisions affecting reported results; (D) the effect of exchange rates for non-US dollar denominated net sales or goals based on operating profit, earnings or income; (E) accruals for reorganization and restructuring programs; (F) any non-GAAP adjustments as described in our earnings releases or in the management’s discussion and analysis of financial condition and results of operations appearing in our periodic reports; (G) items of income, gain, loss or expense attributable to the operations of any business acquired by us, any parent or subsidiary or of any joint venture established by us or any parent or subsidiary; (H) costs and expenses incurred in connection with mergers and acquisitions; (I) items of income, gain, loss or expense attributable to one or more business operations divested by us, or any parent or subsidiary or the gain or loss realized upon the sale of any such divested business or the assets thereof; or (J) the effect of any change in the outstanding shares of common stock effected by reason of a stock split, stock dividend, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any distributions to our shareholders other than regular cash dividends. Notwithstanding any provision of the 2013 Plan, with respect to any award that is intended to qualify as performance-based compensation, we may adjust downwards, but not upwards, the number of shares payable pursuant to such award, and we may not waive the achievement of the applicable performance measures except in the case of the death or disability of the participant or a change in control of our company or as otherwise provided by the MDCC. We shall have the power to impose such other restrictions on performance awards as we may deem necessary or appropriate to ensure that such awards satisfy all requirements for performance-based compensation. Adjustments in the Event of Stock Dividends, Stock Splits, Recapitalizations or Reorganizations The number of shares subject to stock rights and other terms applicable to such rights will be equitably adjusted if we issue a stock dividend, or in the event of a stock split, recapitalization or reorganization. In addition, in the event of certain consolidations or acquisitions or a sale of substantially all of our assets, either (i) the MDCC or the entity assuming our obligations under the 2013 Plan shall make appropriate provision for the continuation of all outstanding stock rights under the 2013 Plan or grant replacement stock rights on an equitable basis as determined by the MDCC or the relevant entity, or (ii) if there is no assumption or replacement, the vesting of all outstanding and unvested stock rights under the 2013 Plan will be accelerated and such stock rights will become fully exercisable immediately prior to such consolidation, acquisition or sale. Effective Date, Amendment and Expiration The 2013 Plan became effective on May 8, 2013 and was previously amended and restated effective as of June 4, 2015. The amendment and restatement of our 2013 Plan will be effective, subject to shareholder approval, on June 8, 2017. The 2013 Plan will, subject to shareholder approval, terminate on April 12, 2027. Our board of directors may terminate or amend the 2013 Plan at any time, subject to shareholder approval under certain circumstances as provided in the 2013 Plan. No amendment or termination of the 2013 Plan will VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 28 | ITEM 2 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
adversely and materially affect the rights provided in any award made under the 2013 Plan prior to the plan amendment or termination. Neither our board nor the administrator has the authority to reduce the exercise price of any stock option after the date of grant, except in the case of an equitable adjustment required under the 2013 Plan. No award may be made under the 2013 Plan after the plan expiration date. Awards made prior to expiration of the 2013 Plan may extend beyond the plan expiration date. U.S. Federal Income Tax Consequences The discussion of federal income tax consequences that follows is based on an analysis of the Code as currently in effect, existing law, judicial decisions and administrative regulations and rulings, all of which are subject to change, and is applicable to optionees who are U.S. taxpayers. Non-Qualified Options Options that are designated as non-qualified options are not intended to qualify for treatment under Section 422 of the Code. Options otherwise qualifying as ISOs, to the extent the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar year exceeds $100,000, also will be treated as options that are not ISOs. A non-qualified option ordinarily will not result in income to the optionee or a deduction for us for tax purposes at the time of grant. Instead, the optionee will recognize compensation income at the time of exercise of a non-qualified option in an amount equal to the excess of the fair market value of the shares at the time of exercise over the option exercise price. Any compensation income may be subject to withholding taxes, and a deduction may then be allowable to us in an amount equal to the optionee’s compensation income. An optionee’s initial basis in shares so acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income. Any gain or loss as a result of a subsequent disposition of the shares so acquired will be capital gain or loss. Incentive Stock Options ISOs are intended to qualify for treatment under Section 422 of the Code. An ISO does not result in taxable income to the optionee or a deduction for us at the time it is granted or exercised, provided that the optionee does not dispose of the shares acquired pursuant to the option either within two years after the date of grant of the option or within one year after the shares are issued, referred to as the ISO holding period. However, the difference between the fair market value of the shares on the date of exercise and the option exercise price will be an item of tax preference that is included in alternative minimum taxable income. Upon disposition of the shares after the expiration of the ISO holding period, the optionee generally will recognize long-term capital gain or loss based on the difference between the disposition proceeds and the option exercise price paid for the shares. If the shares are disposed of prior to the expiration of the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction, in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option over the option exercise price. Any additional gain realized on the disposition normally will constitute capital gain. If the amount realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount of compensation income will be limited to the excess of the amount realized over the optionee’s adjusted basis in the shares. Stock Grants With respect to stock grants that result in the issuance of shares that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of shares received. Thus, deferral of the time of issuance generally will result in the deferral of the time the grantee will be liable for income taxes with respect to such issuance. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee. With respect to stock grants involving the issuance of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee generally must recognize ordinary income equal to the fair market value of the shares received at the time the shares become transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. A grantee may elect to be taxed at the time of receipt of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the shares on which the grantee previously paid tax. The grantee must file any such election with the Internal Revenue Service within 30 days of the receipt of the shares. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee. The granting of awards under the 2013 Plan is discretionary and we cannot now determine the number or type of awards to be granted in the future to any particular person or group. For further information on awards to non-employee directors, see the section “Non-Employee Director Compensation Program” beginning on page 22 of this proxy statement. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 29 The following table sets forth, as to our named executive officers and the other individuals and groups indicated, the number of shares of our common stock subject to option grants made under the 2013 Plan from May 8, 2013 through March 27, 2017. | Name | | Position | | Number of Shares
Underlying Options
Granted | | Named Executive Officers | | | | | | Jeffrey M. Leiden | | Chairman, President & Chief Executive Officer | | 743,326 | | Ian F. Smith | | EVP & Chief Operating Officer and CFO | | 235,547 | | David Altshuler | | EVP & Chief Scientific Officer | | 120,013 | | Stuart A. Arbuckle | | EVP & Chief Commercial Officer | | 229,334 | | Michael Parini | | EVP & Chief Legal and Administrative Officer | | 139,278 | | Amit Sachdev | | EVP & Chief Regulatory Officer | | 212,047 | | All current executive officers as a group (8 persons) | | | | 1,961,326 | | Director Nominees | | | | | | Margaret McGlynn | | | | 47,073 | | William Young | | | | 77,073 | | Alan Garber | | | | — | | All non-employee board members, including nominees, as a group (10 persons) | | | | 406,584 | | All employees, including current officers who are not executive officers, as a group | | | | 7,802,655 |
On April 5, 2017, the last reported sale price of our common stock on NASDAQ was $114.11 per share. Our board of directors recommends a voteFORthe approval of the amendment and restatement of our 2013 stock and option plan, that, among other things, increases the number of shares authorized for issuance under this plan by 6.75 million shares. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the approval of this proposal. Equity Compensation Plan Information As of March 27, 2017, there were 5,524,353 shares remaining available for award under our 2013 Plan. Under our 2013 Plan, all awards may be granted as full value awards but count as 1.66 shares for each full value share awarded. As of March 27, 2017, under our equity plans: Stock options covering 13,867,242 shares of our common stock, with a weighted average exercise price of $82.29 and a weighted average remaining term of 7.17 years, were outstanding; and ENGAGEMENT OF ERNSTunvested restricted stock awards or units covering 4,385,276 shares of our common stock were outstanding.
The following table provides aggregate information with respect to all of our equity compensation plans in effect as of December 31, 2016. We are required under applicable SEC rules to disclose in this table the number of shares remaining available for issuance under our equity plans as of December 31, 2016. Accordingly, the figures in the table below do not reflect the equity grants made to our employees under our 2013 Stock and Option Plan, or 2013 Plan, since December 31, 2016. | Plan Category | | Number of
Securities to be
Issued Upon
Exercise of
Outstanding Options | | Weighted-Average
Exercise Price of
Outstanding Options | | Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans
(excluding securities
reflected in first column) | | Equity Compensation Plans Approved by Shareholders(1) | | 12,641,953 | | $ 81.41 | | 10,071,355 | | Equity Compensation Plans Not Approved by Shareholders | | — | | — | | — | | TOTAL | | 12,641,953 | | | | 10,071,355 |
| (1) | These plans consist of our 2013 Plan, 2006 Stock and Option Plan and our Employee Stock Purchase Plan. |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 30 | Item 4 | Ratification of the Appointment of Independent Registered Public Accounting Firm |
Engagement of Ernst & YOUNGYoung LLP Our audit and finance committee is responsible for the appointment, compensation and oversight of our independent registered public accounting firm. Ernst & Young LLP has been our independent registered public accounting firm since 2005, and we believe that the selection of Ernst & Young LLP as our independent registered accounting firm for the year ending December 31, 20162017 is in the best interest of our company and our shareholders. In determining whether to reappoint our independent registered public accounting firm, our audit and finance committee undertakes an annual formal evaluation of the independent registered public accounting firm, during which it considers the quality of its discussions with and the performance of the lead audit partner, the audit team assigned to our account, the potential impact of changing our independent registered public accounting firm, the overall strength and reputation of the firm and issues pertaining to auditor independence, including fees that our independent registered public accounting firm receives for non-audit services. Each year, our audit and finance committee, together with Ian F. Smith, our executive vice president chief operating officer and chief financial officer,CFO, and Paul Silva, our senior vice president and controller, review the selection of our lead audit partner from Ernst & Young LLP. The review considers several factors, including sound judgment, industry knowledge and experience managing audits of complex companies with substantial international operations. After undertaking such review, we decided to retain the same lead audit partner from Ernst & Young LLP for the 20162017 audit. In accordance with applicable requirements, we are required to change our lead audit partner ever five years. Representatives of Ernst & Young LLP are expected to attend the annual meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from shareholders. EFFECT OF VOTE
Effect of Vote We are not required to have shareholders ratify the selection of Ernst & Young LLP. If our shareholders do not ratify the selection, our audit and finance committee will reconsider the selection of Ernst & Young LLP for the ensuing year, but may determine that continued retention of Ernst & Young LLP is in our company’s and our shareholders’ best interests. Even if the appointment is ratified, the audit and finance committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our company’s and our shareholders’ best interests. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
Independent Registered Public Accounting Firm Fees The audit and finance committee works with our management in order to negotiate appropriate fees with Ernst & Young LLP and is ultimately responsible for approving those fees. The following is a summary and description of fees for services provided by Ernst & Young LLP in 20152016 and 2015.| Service | | | 2016 | | | 2015 | | Audit fees | | $ | 2,671,000 | | $ | 1,750,000 | | Audit-related fees | | | 0 | | | 342,000 | | Tax fees | | | 2,282,000 | | | 1,645,000 | | All other fees | | | 3,000 | | | 1,995 | | TOTAL | | $ | 4,956,000 | | $ | 3,738,995 |
VERTEX PHARMACEUTICALS INCORPORATED2014. -2017 Proxy Statement 31 | | | | | | | | | Service | 2015 | 2014 | | Audit fees | $ | 1,750,000 |
| $ | 1,384,000 |
| | Audit-related fees | 342,000 |
| 156,000 |
| | Tax fees | 1,645,000 |
| 1,030,000 |
| | All other fees | 1,995 |
| 1,995 |
| | Total | $ | 3,738,995 |
| $ | 2,571,995 |
|
“ Audit fees”fees” represented the aggregate fees for professional services rendered for the audit of our annual consolidated financial statements, and our internal controls over financial reporting, for the reviews of the consolidated financial statements included in our Form 10-Q filings for each fiscal quarter, for statutory audits of our international operations and providing consents with respect to registration statements.“ Audit-related fees”fees” consisted principally of fees for accounting consultations.“ Tax fees”fees” consisted of fees related to tax compliance, worldwide tax planning and tax advice. The tax fees for 20152016 and 20142015 consisted of:tax compliance and preparation fees, including the preparation of original and amended tax returns and refund claims, and tax payment planning of $1,113,000 and $750,000, respectively; and
tax advice and planning fees of $532,000 and $280,000, respectively.
| • | tax compliance and preparation fees, including the preparation of original and amended tax returns and refund claims, and tax payment planning of $1,219,000 and $1,113,000, respectively; and | | | | • | tax advice and planning fees of $1,063,000 and $532,000,respectively. |
“ All other fees” consisted of licensing fees paid to Ernst & Young LLP for access to its proprietary accounting research database.AUDIT AND FINANCE COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
Audit and Finance Committee Pre-Approval Policies and Procedures Our audit and finance committee has established a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. Prior to the engagement of the firm for each year’s audit, management submits to our audit and finance
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 25
| | ITEM 2 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
|
committee for approval a description of services expected to be rendered during that year for each of the following four categories of services and a budget for those services in the aggregate. Audit services include audit work performed in the preparation of financial statements, as well as work that generally only our independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, consents and attestation services.
Audit-related services are for assurance and related services that traditionally are performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, special procedures required to meet certain regulatory requirements and consultation regarding financial accounting and/or reporting standards.
Tax services include all services performed by the independent registered public accounting firm’s tax personnel except those services specifically related to the audit of our financial statements, and include fees in the areas of tax compliance, tax planning and tax advice.
All other fees are those associated with services not captured in the three preceding categories.
| • | Audit services include audit work performed in the preparation of financial statements, as well as work that generally only our independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, consents and attestation services. | | | | • | Audit-related services are for assurance and related services that traditionally are performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, special procedures required to meet certain regulatory requirements and consultation regarding financial accounting and/or reporting standards. | | | | • | Tax servicesinclude all services performed by the independent registered public accounting firm’s tax personnel except those services specifically related to the audit of our financial statements, and include fees in the areas of tax compliance, tax planning and tax advice. | | | | • | All other fees are those associated with services not captured in the three preceding categories. |
Prior to the engagement of our independent registered public accounting firm, our audit and finance committee pre-approves these services by category of service. The fees are budgeted and our audit and finance committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, our audit and finance committee requires that we obtain its specific pre-approval for these services. The audit and finance committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report any pre-approval decisions to our audit and finance committee at its next scheduled meeting. All of the services set forth above in the categories “audit-related fees,” “tax fees” and “all other fees” were pre-approved and none were approved by our audit and finance committee pursuant to Rule 2-01(c)(7)(i)(C), which relates to the approval of a de minimisamount of non-audit services after the fact but before completion of the audit.Our board of directors recommends that you voteFORratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending december 31, 2017. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the approval of this proposal. VERTEX PHARMACEUTICALS INCORPORATED
-2017 Proxy Statement 32| Back to Contents | | OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2016. THE AFFIRMATIVE VOTE BY THE HOLDERS OF A MAJORITY OF THE VOTES CAST IN PERSON OR BY PROXY ON THIS MATTER IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 26
| | AUDIT AND FINANCE COMMITTEE REPORT |
AUDIT AND FINANCE COMMITTEE REPORTThe Audit and Finance Committee of the Board of Directors (the “Audit Committee”) of Vertex Pharmaceuticals Incorporated (the “Company”), which consists entirely of directors who meet the independence and experience requirements of the Securities and Exchange Commission and The Nasdaq Stock Market LLC, has furnished the following report: The Audit Committee assists the Company’s Board of Directors in overseeing and monitoring the integrity of the Company’s financial reporting process, compliance with legal and regulatory requirements related to financial reporting and the quality of internal controls and external audit processes. The Audit Committee’s roles and responsibilities are set forth in a written charter, which is available on the Company’s website www.vrtx.comunder “Investors—Corporate Governance—Governance Documents.” Among its duties, the Audit Committee is responsible for recommending to the Company’s Board of Directors that the Company’s financial statements be included in the Company’s Annual Report on Form 10-K. As a basis for that recommendation, the Audit Committee engaged in the following activities. First, the Audit Committee discussed with Ernst & Young LLP (“Ernst & Young”), the Company’s independent registered public accounting firm for 2015,2016, those matters that Ernst & Young is required to communicate to and discuss with the Audit Committee by the Public Company Accounting Oversight Board (United States) Auditing Standard No. 16,Communications with Audit Committees, which included information regarding the scope and results of the audit. These communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. Second, the Audit Committee discussed with Ernst & Young the firm’s independence, and received from Ernst & Young the written disclosures and the letter concerning independence as required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526 (Communication with Audit Committees Concerning Independence). This discussion and disclosure informed the Audit Committee of Ernst & Young’s relationships with the Company and was designed to assist the Audit Committee in considering Ernst & Young’s independence. Finally, the Audit Committee reviewed and discussed, with Ernst & Young and with the Company’s management, the Company’s audited consolidated balance sheet as of December 31, 2015,2016, and the Company’s consolidated statements of operations, comprehensive income (loss), shareholders’ equity and noncontrolling interest, and cash flows for the year ended December 31, 2015,2016, including the notes thereto.Management of the Company is responsible for the consolidated financial statements and reporting process, including establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. The independent registered public accounting firm is responsible for expressing an opinion on the conformity of these consolidated financial statements with accounting principles generally accepted in the United States, as well as expressing an opinion on the effectiveness of internal control over financial reporting. During 2015,2016, management tested and evaluated the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. At the conclusion of the process, management provided the Audit Committee with a report on the effectiveness of the Company’s internal control over financial reporting, which the Audit Committee reviewed. The Audit Committee also reviewed the report of management contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 20152016 filed with the Securities and Exchange Commission, as well as Ernst & Young’s Reports of Independent Registered Public Accounting Firm included in the Company’s Annual Report on Form 10-K. The latter reports relate to Ernst & Young’s audit of (i) the consolidated financial statements and (ii) the effectiveness of internal control over financial reporting.Based on (i) discussions with Ernst & Young concerning the audit and the consolidated financial statements, (ii) the independence discussions, (iii) discussions with the Company’s management concerning the consolidated financial statements, and (iv) such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Company’s Board of Directors that the consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2016. This report is provided by the following independent directors, who comprise the Audit Committee:Terrence C. Kearney(Chair)
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 27
33| Back to Contents | | ITEM 3 - ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION |
| Item 5 | Advisory Vote to Approve Named Executive Officer Compensation |
Our compensation program is structured to attract, retain and motivate talented, experienced leaders and reward our executive officers for the achievement of short- and long-term strategic and operational goals while avoiding inappropriate or excessive risk-taking. In 2015, our board of directors and the MDCC decided, based on fundamental changes in our business and financial profile and feedback we received from our shareholders, to adopt significant changes to our executive compensation program, and in particular, our equity compensation program that were implemented in early 2016. As described in the Summary Informationbeginning on page 3 of this proxy statement andCompensation Discussion and Analysissection beginning on page 38 of this proxy statement, based on fundamental changes inthe evolution of our business and financial profile and feedback we received from our shareholders, we adopted significant changes to our executive compensation program, and in particular, our equity compensation program that were fully implemented in early 2016.Our compensation for our named executive officers was supported by 45%74% of the “Say-on-Pay” advisory votes cast by our shareholders in 2016, which was a significant increase in support compared to 2015. In 2015,Compensation for 2016 represents the implementation of our new program discussed and received favorably by our shareholders at our last annual meeting. Over the last several years, we have continued discussionsengaging with our shareholders regarding, among other matters, our executive compensation program and dilution caused by our broad-based equity compensation program. During these discussions, which included discussions with shareholders representing approximately 75% of our common stock in 2016, we listened to their perspectives and gained insight into how we could further align the interests of our company with the interests of our shareholders. Based in part on this feedback, we made significant changes to our equity compensation program, which have now been fully implemented, and which we believe will allow us to (i) continue to attract, retain and motivate our named executive officers and (ii) address the concerns raised by our shareholders. As a result of these changes, our named executive officer'sofficer’s total equity compensation as provided in the summary compensation tables is expected to decreasedecreased by approximately 40% to 45% in 2016 under the new program as compared to our NEO'sNEO’s total equity compensation in 2015 under the prior program. Our board of directors and MDCC reviewed our compensation programs and made the following key decisions: In early 2016, wedecisions, which were implemented significant changes to our equity compensation program (i.e., the adoption of the value-based program).
For 2015, adjusted base salaries to align our named executive officers' salaries closer to median levels.
As a result of our exceptional performance in 2015, our board approved annual cash bonuses at the high-end of the range for each of our named executive officers.
2016:| • | Minor adjustments to base salaries, other than our CEO’s, primarily to align with median industry levels for our peers and to reflect increases in responsibilities. | | | | • | As a result of our accomplishments and their individual performance in 2016, our board approved annual cash bonuses at above target levels for 2016, but at significantly lower levels than those granted in 2015. | | | | • | Adoption of the value-based equity program and integration into our annual program of equity that vests solely upon achievement of rigorous performance goals. |
Our executive compensation program, including our performance and the compensation earned by our named executive officers, is discussed in greater detail in the Compensation Discussion and Analysissection beginning on page 38 of this proxy statement. In that section, we discuss our executive compensation program and policies and explain the compensation decisions relating to our named executive officers for 2015. In addition,2016, which resulted in significant decreases in the amounts reported in comparison to prior years. Our focus remains on maintaining the strong link between our compensation tablesprograms and related narratives, which begin on page 67 of this proxy statement, provide additional information regarding the compensation received by our named executive officers in 2015. In reviewing the compensation information included in this proxy statement, it is importantability to note that the equity compensation in these tables for 2015 reflects compensation received under the program we had in place priorcontinue to the changes implemented in early 2016. develop transformative medicines while delivering sustained revenues and earnings growth.Based upon a vote of shareholders at the 2011 annual meeting of shareholders, following our Board’sboard’s recommendation for an annual advisory vote to approve executive compensation, we are presenting the following proposal, which gives you as a shareholder the opportunity to endorse or not endorse our 20152016 executive compensation program by voting for or against the following resolution: RESOLVED, that the shareholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis section, the Compensation and Equity Tables and the related narrative executive compensation disclosures contained in this proxy statement.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 28
| | | | ITEM 3 - ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION (continued)
|
While the vote on this resolution is advisory in nature, and therefore will not bind us to take any particular action, our MDCC and board intend to consider carefully the shareholder vote resulting from the proposal in making future decisions regarding our executive compensation program. Our board of directors recommends that you voteFORthe approval of the resolution set forth above. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the approval of this proposal. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 34 | Item 6 | Frequency of Future Advisory Votes on our Executive Compensation Program |
In this proposal, we are asking our shareholders to vote on whether future advisory votes on executive compensation, similar to proposal 5 contained in this proxy statement, should occur every year, every two years or every three years. While this say-on-pay frequency vote is advisory in nature and therefore will not bind us to adopt any particular frequency, our board intends to consider carefully the shareholder vote resulting from this proposal in determining how frequently we will hold “say-on-pay” votes. Our board has determined that an annual advisory vote on executive compensation will allow our shareholders to provide timely, direct input on our executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. In determining to recommend that shareholders vote for a frequency of once per year, our board considered how an advisory vote at this frequency might over-emphasize short-term variations in compensation and business results, particularly in our industry, where a long-term focus for our executive compensation program is required because it can take from 10-15 years to bring a product from inception through to commercialization. On balance, however, our board has determined that the advantages of receiving regular and prompt feedback from our shareholders on our executive compensation program outweigh this concern at this time. Our board of directors recommends that you vote forANNUALshareholder advisory votes on our executive compensation program. The recommendation that receives a plurality of the votes cast in person or by proxy at the annual meeting will be adopted. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 35 OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE RESOLUTION SET FORTH ABOVE. THE AFFIRMATIVE VOTE BY THE HOLDERS OF A MAJORITY OF THE VOTES CAST IN PERSON OR BY PROXY ON THIS MATTER IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 29
| Item 7 | Shareholder Proposal Regarding Simple Majority Vote |
We expect the following shareholder proposal will be presented for consideration at the 20162017 annual meeting of shareholders. Our board of directors recommends a vote AGAINST the shareholder proposal for the reasons set forth following the proposal. THE SHAREHOLDER PROPOSAL AND SUPPORTING STATEMENT Proposal
The ComptrollerKenneth Steiner, c/o John Chevedden, 2212 Nelson Avenue., No. 2015, Redondo Beach, CA 90278, who is the owner of the State of New York, Division of Corporate Governance, 59 Maiden Lane - 30th Floor, New York, New York 10038, as the trustee of the New York State Common Retirement Fund, and as the administrative head of the New York State and Local Retirement System, who collectively are the owners 629,800at least 200 shares of our common stock as of December 17, 2015,22, 2016, has given notice that they, or one or more of them, intendhe intends to present for action at the 20162017 annual meeting of shareholders the following resolution: Item 7 – Simple Majority Vote RESOLVED, ,Shareholders request that shareholders of Vertex Pharmaceuticals urge the Board of Directors toour board take alleach step necessary steps (otherso that each voting requirement in our charter and bylaws that calls for a greater than any steps that mustsimple majority vote be takeneliminated, and replaced by shareholders) to eliminate the classificationa requirement for a majority of the Board of Directorsvotes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to require that all directors elected at or after the annual meeting held in 2016 be elected on an annual basis. Implementation of this proposal should not prevent any director elected prior to the annual meeting held in 2016 from completing the term for which such director was elected.SUPPORTING STATEMENT
The resolution urges the board of directors to facilitate a declassificationmajority of the board. Such a change would enable shareholders to register their views on the performance of all directors at each annual meeting. Having directors stand for elections annually makes directors more accountable to shareholders, and could thereby contribute to improving performance and increasing firm value.
Director accountability is of particular importance at Vertex Pharmaceuticals where the Company's advisory vote on executive compensation received the support of only 45% of votes cast at the 2015 annual shareholder meeting.
The significant shareholder support for declassificationand against such proposals is consistent with empirical studies reporting that:
Classified boardsapplicable laws.Shareowners are associated with lower firm valuation (Bebchuk and Cohen, 2005; confirmed by Faleye (2007) and Frakes (2007)); Takeover targets with classified boards are associated with lower gainswilling to shareholders (Bebchuk, Coates, and Subramanian, 2002);
Firms with classified boards are more likelypay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be associated with value-decreasing acquisition decisions (Masulis, Wang,one of 6 entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Xie, 2007);Allen Ferrell of the Harvard Law School. Supermajority requirements are used to block initiatives supported by most shareowners but opposed by a status quo management.This proposal topic won from 74% to 88% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Classified boards are associated with lower sensitivity Macy’s. The proponents of compensationthese proposals included Ray T. Chevedden and William Steiner.Currently a 1%-minority can frustrate the will of our 79%-shareholder majority. In other words a1%-minority could have the power to performance and lower sensitivity of CEO turnover to firm performance (Faleye, 2007). Although one study (Bates, Becher and Lemmon, 2008) reports that classified boards are associated with higher takeover premiums, this study also reports that classified boards are associated with a lower likelihood of an acquisition and that classified boards are associated with lower firm valuation.
prevent shareholders from improving our corporate governance.Please vote for this proposal to make directors more accountable to shareholders. VERTEX'S STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL NO. 1
enhance shareholder value.Item 7 – Simple Majority Vote YOUR COMPANY’S RESPONSE Our board of directors recommends a vote AGAINST the shareholder proposal requesting that we take steps necessary steps to declassifyeliminate supermajority provisions from our Restated Articles of Organization and Amended and Restated By-Laws. A simple majority vote requirement already applies to most corporate matters submitted to a vote of our shareholders. However, amendments to certain provisions of our Restated Articles of Organization and Amended and Restated By-Laws relating to (1) the number, election and terms of our board of directors, (2) director nominations, (3) newly created directorships and vacancies and (4) removal of directors, require a supermajority vote of our shareholders. Our board believes that the higher voting requirement in these limited circumstances serves important corporate governance objectives, including: Broad Shareholder Consensus: Our board believes that these limited fundamental changes to corporate governance should have the support of a broad consensus of our shareholders. Our board also believes that the supermajority vote requirements protect shareholders, particularly minority shareholders, from the potentially self-interested actions of short-term investors. Without these provisions, it would be possible for a group of short-term shareholders to approve fundamental changes to corporate governance that are not in the best interests of our company and opposed by nearly half of the remaining shareholders. Fiduciary Duty: Our board is subject to fiduciary duties under the law to act in a manner that it believes to be in the best interests of Vertex and its shareholders. Shareholders, on the other hand, do not have the same fiduciary duty as directors and may act in their own self-interests to the detriment of other shareholders. Accordingly, the supermajority voting standards are necessary to safeguard the long-term interests of our company and our shareholders. Protection Against Certain Takeovers: Our supermajority voting provisions further protect our shareholders by encouraging persons or firms making unsolicited takeover proposals to negotiate directly with our board. Our board does not We believe that declassifying our independent board is in the best interest of our company and our shareholders for the following reasons:
Independence, Stability, Continuity and Experience
Our board of directors is divided into three classes, with each class serving a staggered three-year term. The longer term enhances the independence of our board and encourages the directors to make decisions in the long-term interest of our company and our shareholders, reducing the potential influence of certain investors and special interest groups with short-term agendas that may be harmful to our company and shareholders in the long-term. The classified board structure also
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 30
| | | | ITEM 4 - SHAREHOLDER PROPOSAL NO. 1 (continued)
|
creates stability and continuity on our board and ensures that, at any given time, our board is comprised of experienced directors who are intimately familiar with our business, strategic goals, history and culture.
Protects Shareholder Value
The classified board structure protects our company and our shareholders against a hostile purchaser replacing a majority of our directors with its own nominees at a single annual meeting of shareholders, thereby gaining control of our company without paying fair market value to our shareholders. A classified board does not preclude a takeover, but rather provides our board with the time and flexibility necessaryposition to evaluate the adequacyproposed offers, to consider alternatives and fairness of a proposed offer, consider alternative methods of maximizing shareholder value,to protect shareholders against abusive tactics during a takeover process, and as appropriate, to negotiate the best possible return for all shareholders.
Accountability
All directors, regardless Elimination of the length of their term, have a fiduciary duty under the lawthese supermajority provisions may make it more difficult for our board to act in a manner that they believe to bepreserve and maximize value for all shareholders in the best interestsevent of our company and all of our shareholders. As a result, the classified board structure maintains the same level of accountability as with annual elections of directors. In addition, we have adopted a majority vote standard for the election of directors and require that any nominee for director in an uncontested election who receives a greater number of votes “withheld” than votes “for” the nominee’s election shall promptly tender his or her resignation to the chair of our board following certification of the shareholder vote for consideration by ourunsolicited takeover bid.Corporate Governance Practices. Our corporate governance and nominating committee. After careful consideration,committee regularly considers and evaluates corporate governance developments and recommends appropriate changes to our board. For example, we implemented proxy access in 2016 and our board has approved, subject to shareholder approval at the 2017 annual meeting of shareholders, amendments to our Restated Articles of Organization and Amended and Restated By-Laws that would declassify our board. Our governance policies and practices fully comply with all corporate governance standards of NASDAQ and SEC and our board believes that implementation of this proposal would adversely impact our carefully considered corporate governance practices.For all of the above reasons our board of directors has determinedrecommends that continuationyou voteAGAINSTthe shareholder advisory proposal to eliminate the supermajority provisions from our restated articles of our classified board structureorganization and amended and restated by-laws. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is appropriate and inrequired for the best long-term interestsapproval of our company and our shareholders. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 36 | Back to Contents | | FOR ALL OF THE ABOVE REASONS OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE APPROVAL OF SHAREHOLDER PROPOSAL NO. 1. THE AFFIRMATIVE VOTE BY THE HOLDERS OF A MAJORITY OF THE VOTES CAST IN PERSON OR BY PROXY ON THIS MATTER IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 31
| Item 8 | | ITEM 5 - SHAREHOLDER PROPOSAL NO. 2Shareholder Proposal Regarding Lobbying |
We expect the following shareholder proposal will be presented for consideration at the 20162017 annual meeting of shareholders. Our board of directors recommends a vote AGAINST the shareholder proposal for the reasons set forth following the proposal. THE SHAREHOLDER PROPOSAL AND SUPPORTING STATEMENT
The City of Philadelphia Public Employees Retirement System, Sixteenth Floor, Two Penn Center Plaza, Philadelphia, Pennsylvania 19102-1712,Friends Fiduciary Corporation, an owner of 9,215at least 400 shares of our common stock as of December 14, 2016, and Benedictine Sisters of Mount St. Scholastica, the owner of 92 shares of our common stock as of December 22, 2015,2016, has given notice that it intendsone or both of them, intend to present for action at the 20162017 annual meeting of shareholders the following resolution: RESOLVED: The shareholders askWHEREAS, we believe in full disclosure of our company’s direct and indirect lobbying activities and expenditures to assess whether Vertex’s lobbying is consistent with its expressed goals and in the boardbest interests of directorsshareholders. RESOLVED, the shareholders of Vertex Pharmaceuticals Incorporated to adopt a policy that in(“Vertex”) request the eventpreparation of a change in control (as defined under any applicable employment agreement, equity inventive plan or other plan), there shall be no acceleration of vesting of any equity award granted to any senior executive officer, provided, however, that the board's Compensation Committee may provide in an applicable grant or purchase agreement that any unvested award will vest on a partial, pro rata basis up to the time of the senior executive officer's termination, with such qualifications for an award as the Committee may determine. report, updated annually, disclosing:| 1. | Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. | | | | 2. | Payments by Vertex used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. | | | | 3. | Vertex’s membership in and payments to any tax-exempt organization that writes and endorses model legislation. | | | | 4. | Description of the decision making process and oversight by management and the Board for making payments described in section 2 and 3 above. |
For purposes of this Policy, "equity award" means an award granted under an equity incentive plan as defined in item 402proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the SEC's Regulation S-K,communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which addresses elements of executive compensation to be disclosed to shareholders. This resolutionVertex is a member. Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels. The report shall be implemented sopresented to the Audit Committee or other relevant oversight committees and posted on Vertex’s website. SUPPORTING STATEMENT We encourage transparency in the use of corporate funds to influence legislation and regulation, both directly and indirectly. Vertex spent $2.52 million in 2014 and 2015 on federal lobbying (opensecrets.org). This figure does not include lobbying expenditures to influence legislation in states, where Vertex also lobbies but disclosure is uneven or absent. For example, Vertex had 101 lobbyists in 28 states in 2015 (http://www.followthemoney.org/). Vertex’s lobbying to fight a California pricing initiative has attracted media attention (“When a Flawed Remedy to Drug Prices Looks Better Than None at All,” Sacramento Bee, August 12, 2016), as not affect any contractual rights in existence onhas its lobbying at the date this proposalnational level (“Mom To Vertex On Pricey CF Drugs: ‘We’re Middle-Class And We’re Screwed,” Forbes, October 28, 2016). Vertex is adopted, and it shall apply only to equity awards made under equity incentive plans or plan amendments that shareholders approve after the datelisted as a member of the 2016 annual meeting. SUPPORTING STATEMENT
Biotechnology Innovation Organization, which spent $16.63 million on lobbying in 2014 and 2015. Vertex Pharmaceuticals Incorporated ("Company") allows senior executivesdoes not disclose its trade association memberships, nor payments and the portions used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to receive an accelerated award of unearned equity under certain conditions after a change of control of the Company. We do not question that some form of severance payments may be appropriate in that situation.Vertex’s long-term interests. We are concerned however, that current practices at the Company may permit windfall awards that have nothingVertex’s lack of trade association lobbying disclosure, coupled with potential negative publicity for opposing drug price initiatives, presents reputational risks for Vertex.Transparent reporting would reveal whether company assets are being used for objectives contrary to do with an executive's performance. According to last year's proxy statement, a change of control and an involuntary termination other than for cause or a termination by the executive for good reason could have accelerated the vesting of more than $133 million worth ofVertex’s long-term equity to Company's five senior executives, with the Chairman, President and CEO Jeffrey M. Leiden entitled to more than $57 million.
We are unpersuaded by the argument that executives somehow "deserve" to receive unvested awards. To accelerate the vesting of unearned equity on the theory that an executive was denied the opportunity to earn those shares seems inconsistent with a "pay for performance" philosophy worthy of the name.
We do believe, however, that an affected executive should be eligible to receive an accelerated vesting of equity awards on a pro rata basis as of his or her termination date, with the details of any pro rata award to be determined by the Compensation Committee.
Other major corporations, including Apple, Chevron, ExxonMobil, IBM, Intel, Microsoft, and Occidental Petroleum, have limitations on accelerated vesting of unearned equity, such as providing pro rata awards or simply forfeiting unearned awards. Research from James Reda & Associates found that over one third of the largest 200 companies now pro rate, forfeit, or only partially vest performance shares upon a change of control.
We urge you to vote FOR this proposal.
VERTEX'S STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL NO. 2
interests.YOUR COMPANY’ RESPONSE Our board of directors recommends a vote AGAINST the shareholder proposal requesting that we adoptto prepare a policy limiting acceleration of equity awards to senior executives upon a change of control. We believe that it is in the best interest ofreport on our shareholders to retain the current provisions regarding acceleration of equity awards in the event of a change of control as set forth in employment agreements with our senior executive officerspolicies and the terms of the individual equity awards. These provisions do not provide for automatic acceleration in the event of a change of
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 32
| | ITEM 5 - SHAREHOLDER PROPOSAL NO. 2 (continued)
|
control, but instead require a "double trigger" consisting of both a change of control and the involuntary termination of a senior executive officer within a specified time following such change in control.
We believe that our management development and compensation committee, or MDCC, which is composed entirely of independent directors, is in the best position to design and implement executive compensation arrangements that are appropriate for our company, including the treatment of equity awards in connection with a change in control. The proposal would preemptively tie the hands of the MDCCactivities with respect to a significantlobbying.We engage with public policymakers, where legal and appropriate, when we believe it will serve the best interests of our company, our shareholders, employees, patients and other stakeholders. The associations and coalitions to which we belong perform many valuable functions. Lobbying is not the primary focus of these entities, but it is an element of their role, and a portion of the dues that we and other members pay to such organizations may be partially used, in their sole discretion, to engage in certain lobbying activities. We do not direct how these funds are used. Accordingly, our executive compensation program andboard believes that additional disclosures regarding payments to these trade associations would placenot necessarily present an accurate reflection of our company at a competitive disadvantage in attracting and retaining highly qualified and talented executives relative to competing companies, many of whom have acceleration provisions that are similar to our existing provisions. We also believe the currentpositions on certain public policy appropriately alignsissues.Our board acknowledges the interests of senior executives andshareholders in information about our shareholders. Inparticipation in the event of a potential change of control,political process. However, our board believes that the retentive power of our existing compensation programproposal’s additional detailed reporting obligation would be diminished if senior executives were to forfeit a portionduplicative of their equity awards,existing disclosures and that it would impose an unnecessary administrative burden and expense on the potential loss of key executives could mitigate the abilitycompany when sufficient disclosure already exists. For all of the company to deliver an intact management team and achieve critical performance goals. Such an outcome could reduce the value of the company to an acquirer and thereby negatively affect the amount shareholders would realize in the change of control transaction. In addition,above reasons our existing compensation program helps mitigate against the potential misalignment of interests between our senior executives and our shareholders in the event of a change of control transaction by ensuring that our senior executives, who would otherwise forfeit a significant portion of their equity compensation if they are terminated in connection with a change of control, remain objective, avoid conflicts of interest and stay focused on executing a transaction that maximizes shareholder value. The current treatment of equity grants following a change in control is consistent with our overarching goals of providing pay for performance and attracting and retaining highly talented executives in a competitive marketplace where similar provisions are common. Our board does not believe the proposal would be in the best interest of shareholders.
| | | | | | FOR ALL OF THE ABOVE REASONS OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE APPROVAL OF SHAREHOLDER PROPOSAL NO. 2. THE AFFIRMATIVE VOTE BY THE HOLDERS OF A MAJORITY OF THE VOTES CAST IN PERSON OR BY PROXY ON THIS MATTER IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 33
| | | | ITEM 6 - SHAREHOLDER PROPOSAL NO. 3 |
We expect the following shareholder proposal will be presented for consideration at the 2016 annual meeting of shareholders. Our board of directors recommends athat you voteAGAINSTthe shareholder proposal regarding report on lobbying activities. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the reasons set forth following the proposal.
SHAREHOLDER PROPOSAL AND SUPPORTING STATEMENT
Proposal
The Comerica Bank & Trust, National Association, Institutional Services Group, MC 3464, PO Box 75000, Detroit, Michigan 48275, as trustee of the Trowel Trades S&P 500 Index Fund, an owner of 3,990 shares of our common stock as of December 23, 2015 and the International Brotherhood of Electrical Workers Pension Benefit Fund, 900 Seventh Street, NW, Washington, DC 20001, an owner of 3,441 shares of our common stock as of December 24, 2015, have given notice that they, or one of them, intend to present for action at the 2016 annual meeting of shareholders the following resolution:
RESOLVED: Shareholders of Vertex Pharmaceuticals Incorporated (the "Company") urge the Compensation Committee of the Board of Directors (the "Committee") to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until reaching normal retirement age or terminating employment with the Company. For the purposeapproval of this policy, normal retirement age shall be defined by the Company's qualified retirement plan that has the largest number of plan participants. The shareholders recommend that the Committee adopt a share retention percentage requirement of at least 50 percent of net after-tax shares. The policy should prohibit hedging transactions for shares subject to this policy which are not sales but reduce the risk of loss to the executive. This policy shall supplement any other share ownership requirements that have been established for senior executives, and should be implemented so as not to violate the Company's existing contractual obligations or the terms of any compensation or benefit plan currently in effect.proposal.VERTEX PHARMACEUTICALS INCORPORATED SUPPORTING STATEMENT
Equity-based compensation is an important component of senior executive compensation at our Company. While we encourage the use of equity-based compensation for senior executives, we are concerned that our Company's senior executives are generally free to sell shares received from our Company's equity compensation plans. In our opinion, the Company's current share ownership guidelines for its senior executives do not go far enough to ensure that the Company's equity compensation plans continue to build stock ownership by senior executives over the long-term.
For example, our Company's share ownership guidelines require the CEO to hold an amount of shares equivalent to six times his base salary or 150,000 shares. In comparison, the CEO currently owns 778,728 shares. Additionally, in 2015, our Company granted the CEO 509,000 stock and option awards. In other words, one year's worth of equity awards exceeds by three times the Company's long-term share ownership guidelines for the CEO.
We believe that requiring senior executives to only hold shares equal to a set target loses effectiveness over time. After satisfying these target holding requirements, senior executives are free to sell all the additional shares they receive in equity compensation.
Our proposal seeks to better link executive compensation with long-term performance by requiring a meaningful share retention ratio for shares received by senior executives from the Company's equity compensation plans. Requiring senior executives to hold a significant percentage of shares obtained through equity compensation plans until they reach retirement age will better align the interests of executives with the interests of shareholders and the Company. A 2009 report by the Conference Board Task Force on Executive Compensation observed that such hold-through-retirement requirements give executives "an ever growing incentive to focus on long-term stock price performance as the equity subject to the policy increase" (available at http://www.conference-board.org/pdf_free/ExecCompensation2009.pdf).
We urge shareholders to vote FOR this proposal.
VERTEX'S STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL NO. 3
Our board of directors recommends a vote AGAINST the shareholder proposal requesting that we adopt a policy requiring that senior executives retain a percentage of their equity awards.
Notice of Annual Meeting of Shareholders and 2016 -2017 Proxy Statement | 34
37
Our board has already taken steps to align the interests of our senior executives with those of shareholdersCOMPENSATION DISCUSSION AND ANALYSIS Overview Letter from Management Development and to encourage a focus on the long-term performance of our company. These steps, which render the proponents proposal unnecessary, include the following: Executive Stock Ownership Guidelines: We already have stock ownership guidelines for our senior executive officers. These guidelines provide that our chief executive officer should, within five years of becoming subject to the guidelines, satisfy at least one of the following two criteria: (i) ownership of shares of our common stock with a value at least six times his then-current base salary or (ii) ownership of at least 150,000 shares of our common stock. Our executive vice presidents should, within five years of becoming subject to these guidelines, achieve ownership of shares of our common stock with a value at least four times such executive vice president’s then-current base salary.
Clawback Policy: We have a clawback policy providing that, if our board determines that an executive officer engaged in fraud or intentional misconduct that resulted in an incorrect determination that an incentive compensation performance goal had been achieved, the board may take appropriate action to recover from such executive officer any compensation that resulted from such determination. The board may require reimbursement for any bonus, equity or incentive compensation awarded to an executive officer who engaged in the fraud or intentional misconduct to the extent it was based on such incorrect determination.
Anti-Hedging Policy: We prohibit all of our directors and employees worldwide, including our executive officers, from (i) short selling or hedging our securities, (ii) purchasing or selling derivative securities based on our securities and (iii) pledging our securities.
These policies and practices have been carefully designed to align the interests of executive officers with those of our shareholders and encourage a focus on the long-term performance of our company, while enabling us to attract and retain talented executives. We believe that the approach set forth in the proposal fails to strike a reasonable balance between incenting desired management behaviors and permitting executives to manage their own financial affairs. The proposal would place unnecessary constraints on executives’ legitimate needs to diversify their holdings and could hinder our ability to attract and retain executive talent.
| | FOR ALL OF THE ABOVE REASONS OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE APPROVAL OF SHAREHOLDER PROPOSAL NO. 3. THE AFFIRMATIVE VOTE BY THE HOLDERS OF A MAJORITY OF THE VOTES CAST IN PERSON OR BY PROXY ON THIS MATTER IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 35
| | ITEM 7 - SHAREHOLDER PROPOSAL NO. 4
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We expect the following shareholder proposal will be presented for consideration at the 2016 annual meeting of shareholders. Our board of directors recommends a vote AGAINST the shareholder proposal for the reasons set forth following the proposal.
SHAREHOLDER PROPOSAL AND SUPPORTING STATEMENT
Proposal
The Gun Denhart Living Trust, an owner of our common stock with a market value of at least $2,000, has given notice that it intends to present for action at the 2016 annual meeting of the shareholders the following resolution:
WHEREAS: A large and diverse group of companies has integrated sustainability metrics into executive pay incentive plans, among them Walt Disney, Unilever, Pepsi, Walmart, Group Danone and Mead Johnson.
Numerous studies suggest companies that integrate environmental, social and governance factors into their business strategy reduce reputational, legal and regulatory risks and improve long-term performance.
According to the largest study of CEOs on sustainability to date (CEO Study on Sustainability 2013, UN Global Compact and Accenture):
◦76 percent believe embedding sustainability into core business will drive revenue growth and new opportunities.
◦93 percent regard sustainability as key to success.
| | ◦ | 86 percent believe sustainability should be integrated into compensation discussions, and 67 percent report they already do. |
A 2012 Harvard Business School study concluded that firms that adopted social and environmental policies significantly outperformed counterparts over the long-term, in terms of stock market and accounting performance.
The Glass Lewis report Greening the Green 2014: Linking Executive Pay to Sustainability, finds a "mounting body of research showing that firms that operate in a more responsible manner may perform better financially.... Moreover, these companies were also more likely to tie top executive incentives to sustainability metrics."
A 2012 report by the United Nations Principles for Responsible Investment and the UN Global Compact found "the inclusion of appropriate Environmental, Social and Governance (ESG) issues within executive management goals and inventive schemes can be an important factor in the creation and protection of long-term shareholder value."
In 2013, CH2MHill found that firms that set tangible sustainability goals are more likely to tie executive compensation to the achievement of sustainability goals.
Vertex shareholders have expressed their dissatisfaction with pay practices at the company. At the company's last annual meeting, only 45% of shareholders approved the advisory vote on compensation. This was the third lowest vote of all S&P 500 companies. A focus on sustainability will be an improvement.
SUPPORTING STATEMENT
Effectively managing for sustainability creates opportunities for long-term value creation, we therefore believe sustainability should be a key area in which executives are evaluated.
Linking sustainability metrics to executive compensation could reduce risks related to sustainability underperformance and incent executives to meet sustainability goals and achieve resultant benefits. Examples of such metrics might include: greenhouse gas emissions monitoring and reduction goals, green procurement programs, energy consumption (including renewable energy sourcing and efficiency), and progress toward workforce diversity goals.
RESOLVED: Shareholders request the Board Compensation Committee prepare a report assessing the feasibility of integrating sustainability metrics into the performance measures of senior executives under Vertex Pharmaceuticals' compensation incentive plans. Sustainability is defined as how environmental and social considerations, and related financial impacts, are integrated into corporate strategy over the long term.
Notice of Annual Meeting ofto Our Shareholdersand 2016 Proxy Statement | 36
| | | | SHAREHOLDER PROPOSAL NO. 4 (continued)
|
VERTEX'S STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL NO. 4
Our board of directors recommends a vote AGAINST the shareholder proposal requesting a report assessing the feasibility of integrating sustainability into performance measures for senior executive compensation.
We believe that our MDCC, which is composed entirely of independent directors, is in the best position to design and implement executive compensation arrangements that are appropriate for our company, including the performance metrics for senior executives under our equity compensation plans. To that end, the MDCC needs flexibility to develop effective and competitive compensation programs and to establish short- and long-term performance metrics for individual equity awards. While it may be appropriate from time to time to incorporate new performance measures into our executive compensation program, the MDCC is in the best position to evaluate whether such additions will promote our goals and create long-term shareholder value.
Although our board agrees that sustainability is important, we believe that our existing executive compensation program, as modified for 2016, has a strong pay-for-performance philosophy that results in awards to executives that are responsive to the long-term value they produce for shareholders and our underlying mission of discovering, developing, manufacturing and commercializing medicines for serious diseases.
Nonetheless, we are committed to conserving natural resources and minimizing or eliminating any adverse health, safety and environmental impacts that may be associated with our facilities and operations and to promoting waste minimization, recycling and energy efficiency in our business activities. For example, and as a direct result of our commitment to sustainability, we recently achieved LEED Gold certifications for high performance in sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality.
| | FOR ALL OF THE ABOVE REASONS OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE APPROVAL OF SHAREHOLDER PROPOSAL NO. 4. THE AFFIRMATIVE VOTE BY THE HOLDERS OF A MAJORITY OF THE VOTES CAST IN PERSON OR BY PROXY ON THIS MATTER IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 37
| | COMPENSATION DISCUSSION AND ANALYSIS - OVERVIEW |
| | | | | | Letter from Management Development and Compensation Committee to Our Shareholders | Dear Fellow Shareholder, | | The Management Development and Compensation Committee’s stewardship of Vertex’s compensation programs is guided by Vertex’s mission of developing transformative medicines for people with serious diseases.diseases and by so doing, creating superior value for our shareholders. Toward that end, we have designed the company’s compensation programs to closely align management’s incentives with Vertex’s strategic long- and short-term goals and with the interests of Vertex’s shareholders. This alignment has contributed to Vertex ’s exceptional performanceVertex’s accomplishments over the last several years as Vertex significantly increased its revenues, built its leadership position infinancial strength, advanced its pipeline of medicines and potential medicines for the treatment of cystic fibrosis (CF), advanced and made important progress on its pipelinefocused research and increased its CF net product revenues. This performance has helped the company build outstanding financial strength and deliver total shareholder returns of 200% for the three years ended December 31, 2015. | | | | | | | development efforts beyond CF. We take seriously our role in the governance of compensation programs, including how these programs should evolve as the company transforms from a development-stage organization to a profitable global commercial enterprise. We also carefully consider and incorporate the views expressed by the company’s shareholders into our thinking. Based on the progression of the company and input from shareholders, in 2016 we transitioned Vertex’s equity program from a share-based program (that provided for annual equity grants based on specific numbers of shares) to a value-based approach (that provides for annual equity grants based on specific dollar values). This transition is for the first time reflected in the “Summary Compensation Table” included in this proxy statement. As part of this transition, we made modifications to the equity program consistent with market practices for companies at Vertex’s stage of development, including decreasing our reliance on stock options and implementing performance stock units (which utilize a balance of financial and non-financial goals tied to the execution of the company'scompany’s strategic objectives) to further strengthen the link between pay and performance. We believe that many of the enhancements to the company’s equity program which we implemented in February 2016, are consistent with the feedback from the company’s shareholders, and we plan to continue to engage in an active dialogue with these important constituents. | | | | | | In 2016, Vertex had a good year positioning itself for future growth, but faced certain challenges, including not achieving ORKAMBI net product revenue guidance for 2016 despite growing our ORKAMBI net product revenues by more than 70%. As a result, our executives received lower cash bonuses for 2016 performance than they had received for 2015, a year in which Vertex’s performance was exceptional. In addition, our executives received below target payouts on the performance stock unit awards granted in early 2016 and tied to Vertex CF product revenues. We believe that these outcomes are aligned with our commitment to linking pay to performance. Looking ahead, we will continue to focus on maintaining the strong link between Vertex’s compensation programs and its long- and short-term strategic objectives. Central to these objectives is our ability to continue to develop transformative medicines while delivering sustained revenues and earnings growth. | | | | | | |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 38
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 38
This section discusses the principles underlying our policies and decisions with respect to the compensation of our "named“named executive officers"officers” and all material factors we believe are relevant to an analysis of these policies and decisions. Our named executive officers, or NEOs, for 20152016 were: Dr. Jeffrey M. Leiden, our Chairman, Chief Executive Officer and President
Ian F. Smith, our Executive Vice President and Chief Financial Officer
Stuart A. Arbuckle, our Executive Vice President and Chief Commercial Officer
Dr. Jeffrey Chodakewitz, our Executive Vice President, Global Medicines Development and Medical Affairs and Chief Medical Officer
•Dr. David M. Altshuler, our Executive Vice President, Global Research and Chief Scientific Officer| Name | | Position | | Dr. Jeffrey M. Leiden | | Chairman, Chief Executive Officer and President | Performance-based Ian F. Smith | | Executive Compensation ProgramVice President and Chief Operating Officer and Chief Financial Officer | Our compensation program is designed to attract, retainDr. David M. Altshuler | | Executive Vice President, Global Research and motivate talented and experienced individuals across all areas of our business and to align the interests of our executive officers with the interests of our shareholders as we seek to create value through the discovery, development and commercialization of transformative medicines. Our MDCC seeks to achieve this objective through a program consisting of the following principal components:Chief Scientific Officer | SalaryStuart A. Arbuckle | Annual Bonus | Equity CompensationExecutive Vice President and Chief Commercial Officer | | Michael Parini | | Executive Vice President and Chief Legal and Administrative Officer | | Amit Sachdev | | Executive Vice President and Chief Regulatory Officer and Chief of Staff to the CEO |
As will be discussed throughout this section of the proxy statement, in 2016 we implemented our revised equity compensation program, which reflects the evolution of our business and financial profile and feedback we received from our shareholders. Performance-based Executive Compensation Program Our compensation program is designed to attract, retain and motivate talented and experienced individuals across all areas of our business and to align the interests of our executive officers with the interests of our shareholders as we seek to create value through the discovery, development and commercialization of transformative medicines. Our MDCC seeks to achieve this objective through a program consisting of the following principal components: | Component | | Description | | Salary | | Evaluated and adjusted, as appropriate, each year based upon a detailed market assessment as well as each executive’s contributionsresponsibilities and individual performance.contributions. | | Annual Bonus | | Determined each year based on both individual and company performance basedmeasured on achievement against operating and financial goals approved by the committee at the beginning of each year, as well as performance-based and values-based evaluations of individual performance. | | Equity Compensation | | Aligns the incentives of our executive officers with shareholder interests and rewards the creation of sustained long-term shareholder value: | (1) In 2015, granted options and performance-accelerated restricted stock based on 2014 individual and company performance pursuant tovalue by implementing a share-based program. | (2) In 2016, adopted a new "value-based"value-based program, reducing reliance on stock options and introducing performanceperformance-based restricted stock units to increase linkage between pay and performance.unit awards. |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 39 Executive Summary We have adopted significant changes to our executive compensation program, and in particular, to the equity compensation component, which were implemented in early 2016. The new equity compensation program reflects fundamental changes in our business and financial profile and feedback we received from our shareholders. While we continually engage in dialogue with our shareholders, we increased our level of engagement in response to the decline in support we received for our advisory say-on-pay proposal at our 2015 annual meeting. Over the past year, we held specific discussions regarding executive compensation with shareholders representing approximately 75% of our outstanding stock.
Similar to other development-stage companies and consistent with market practices, our long-term equity grants historically have been weighted toward granting a consistent number of stock options, which we refer to as a share-based program. Over the last several years, the value of annual compensation reported in the Summary Compensation Tables for our named executive officers has increased due to our share-based approach, the strong performancewe have met or exceeded most of our businessgoals, significantly increasing our revenues and increases in our share price. During this period we also matured from a development-stage company to a commercial-stage global biotechnology company withestablishing a strong financial profile, building on our leadership position in the treatment of cystic fibrosis, or CF, bolstering our research capabilities and a clear pathexecuting on business development transactions that support our business strategy. 2016 was an important year for Vertex and positioned us well for future success as we succeeded in reaching several critical milestones: Strengthened our Financial Position | • | Increased CF net product revenues to $1.68 million in 2016, an increase of 71% compared to 2015 (and 263% compared to 2014), with additional increases in CF net product revenues expected in 2017 | | | | • | Exceeded guidance for KALYDECO net product revenues ($703 million actual vs. guidance of $670 million to $690 million) | | | | • | However, we did not achieve our ORKAMBI net product revenue guidance for 2016 ($980 million actual compared to guidance of $1.0 billion to $1.1 billion) | | | | • | Maintained financial discipline and managed our operating expenses to within guidance | | | | • | Achieved first full year of Non-GAAP profitability since 2012 | | | | • | Increased our cash, cash equivalents and marketable securities to greater than $1.4 billion at December 31, 2016 |
| INCREASING CF NET PRODUCT REVENUES | | INCREASING FINANCIAL STRENGTH AND
GENERATING SIGNIFICANT POSITIVE CASH FLOWS | | | |  | |  | | | | | MANAGING OPERATING EXPENSES |  |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 40 CLINICAL MILESTONES AND STRATEGIC EXECUTION 
Advanced our CF Pipeline We advanced our CF development pipeline to sustained revenueshelp us reach our goal of developing treatments for all CF patients, including: | • | Advanced several Phase 3 clinical trials evaluating tezacaftor in combination with ivacaftor. In the first quarter of 2017, we reported positive results from 2 of these pivotal trials positioning us to seek approval for this dual-combination regimen in the second half of 2017 in both the United States and Europe and creating significant shareholder value. | | | | • | Initiated Phase 2 development of VX-152 and VX-440, next-generation correctors, which we are developing in triple-combination regimens that include ivacaftor and tezacaftor for 80%-90% of all patients with CF. | | | | • | Initiated clinical development of VX-659 and VX-445, two additional next-generation correctors that are being developed in triple-combination regimens. | | | | • | Expanded U.S. label for ORKAMBI to include patients 6-11 years of age who are homozygous for the F508del mutation in their CFTR gene. |
Improved Research Capabilities and earnings growth. In early 2016, consistentStrategic Execution Beyond CF | • | Augmented our strength in identification of small molecule drugs by focusing our research programs on validated targets addressing the underlying cause of disease and utilizing lab assays designed to predict clinical efficacy. These programs include adrenoleukodystrophy, alpha-1 antitrypsin disease, polycystic kidney disease and sickle cell disease. | | | | • | Incorporated innovative therapeutic approaches including advancing our collaboration with CRISPR Therapeutics AG in the area of gene editing and establishing a collaboration with Moderna Therapeutics, Inc. for mRNA therapies. | | | | • | Successfully outlicensed our oncology programs for $230 million upfront and potential future royalties to Merck KGaA, Darmstadt, Germany in a transaction that allows us to focus our internal development resources, while providing for the continued development of these promising programs. | | | | • | Obtained the first proof-of-concept data for a first in class novel mechanism (NaV 1.8 inhibitors) with VX-150, which we are developing as a potential treatment for pain. |
These accomplishments have positioned us for future growth as we seek to develop additional transformative medicines for people with market practicesserious diseases. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 41 Stock Price and Long-Term Value Creation We are focused on building value over the long term in an industry that is characterized by volatility of stock prices for companies atin our stagesector. Despite this volatility, the success of developmentour executive team in executing our focused strategy has created significant shareholder returns over the last several years. While we transitioned fromexperienced volatility in our stock price in 2016, we believe this was reflective of volatility across the entire biotechnology sector -- generated in part by political uncertainty in the United States and in Europe -- as well as certain challenges we faced in 2016 with respect to ORKAMBI net product revenues. The following charts show the long-term value creation as reflected in the increase in our stock price that has occurred under Dr. Leiden and his management team over the last five years, both through the end of 2016 and through April 11, 2017. In addition, we have included a share-based approach to a value-based approach forchart with our long-term equity program.stock price performance during 2017 through April 11, 2017. 
| STOCK PRICE PER SHARE | | VERTEX STOCK PRICE (% INCREASE SINCE JAN 1, 2017) | | | |  | |  |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 42 Adoption of New "Value-based"“Value-based” Equity Compensation Program As discussed in more detail below, in response to the evolution of our business and financial profile as well as to the feedback we received during our shareholder engagement efforts, we adopted for 2016 a new approach for granting equity and equity-based compensation to our executives, including our named executive officers. Under this program, awards of equity compensation are no longer based upon a targeted number of shares. The value-based program provides that: Annual awards to our executives will be sized based upon a target grant-date value, which will be| • | Annual awards to our executives are sized based upon a target grant-date value, which is determined based upon a holistic analysis of market data, business needs and other considerations that the MDCC deems relevant;
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 39
| | | | COMPENSATION DISCUSSION AND ANALYSIS - OVERVIEW (continued)
• | The targeted values resulted in grants with fewer shares than the prior, share-based approach; | | | | • | The awards themselves are comprised of a mix of award types, and a majority of the value of the awards have performance features (e.g., performance vesting or stock option awards); and | | | | • | The size of annual equity awards also takes into consideration individual performance results as well as adherence to corporate values, including our uncompromising commitment to patients and focus on innovation. |
The targeted values are expected to result in grants with significantly fewer shares than the prior, share-based approach;
The awards themselves will be comprised of a mix of award types, and a majority of the value of each award will have performance features (e.g., performance vesting or stock option awards); and
The size of annual equity awards also takes into consideration individual performance results as well as adherence to corporate values, including our uncompromising commitment to patients and focus on innovation.
Under the value-based program, our CEO will beis eligible for annual equity awards with a value between zero and $14 million (with the actual value depending upon his performance), as compared to the 2015 grant value of $23.3 million under the prior share-based approach. Our other named executive officers will beare eligible for annual equity awards with values between zero and $4.5 million, as compared to the 2015 grant values for such officers, which ranged from $6.6 million to $7.5 million. Shareholder Feedback and Response The following chart summarizes what we heard from our shareholders and how we responded in our revised equity compensation program. | | Concerns We Heard | | CONCERNS WE HEARD | WHAT WE DIDWhat We Did | | Magnitude of awards resulting from our share-based equity program | | Changed to a value-based equity program which should reducereduced grant date fair-value of our CEO'sCEO’s equity awards by 40%41% in 2016 | | Exclusive use of time-based equity | | Implemented performance-contingent restricted stock unit awards, significantly reducing our reliance on time-based stock option awards | Rigor of performance vesting terms for one-time retention awards granted in 2014 | | Implemented balanced financial and non-financial metrics with a substantial risk of forfeiture for performance-contingent restricted stock unit awards | | Dilution created by compensation program | | Changed to value-based program which should significantly reducereduced dilution; for example, the number of shares at target subject tofor our CEO equity awards will decreasedecreased by approximately 44% in 2016 |
In order to ensure that our compensation program is aligned with the achievement of strategic objectives and company performance, we continue to have approximately 90% of the compensation for our CEO and our other named executive officers performance-linked through annual cash bonuses, restricted unit awards and stock-option awards. | | In reviewing the compensation information included in this proxy statement, it is important to note that the equity compensation in these tables for 2015 reflects compensation received under the compensation information included in this proxy statement, it is important to note that the equity compensation in these tables for 2016 reflects compensation received under our current program we had in place prior to the changes implemented in early 2016. |
Performance and Operational Results
We are dedicatedequity compensation for 2015 and 2014 reflects compensation received under our prior equity compensation program.Key Compensation Decisions Our focus is and continues to developingbe maintaining the strong link between our compensation programs and our ability to continue to develop transformative medicines for peoplewhile delivering sustained company performance, with serious diseases. Overapproximately 90% of our NEO compensation tied to performance. Retention of our talented core of executives is likewise critical, as their services have led to the transformation of the company over the last several years, we have met or exceeded our goals, building on our leadership position in the treatment of CF, advancing and broadening our
years.Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 40
43
pipeline, increasing revenues and establishing a strong financial profile. We have two medicines that together are approved to treat approximately 25,000 patients with CF, or approximately one third of the CF population worldwide. These medicines are the first, and only, medicines that treat the underlying cause of CF, and we believe they have fundamentally changed the way eligible patients can be treated. In addition, we have a strong CF pipeline, with multiple drug candidates, that may allow us to help all patients with this rare and life-shortening disease.
Specifically, in 2015 we:
Increased the number of CF patients who are eligible for treatment with our medicines by approximately 700%:
| | ◦ | Obtained U.S. and E.U. approval of ORKAMBI and successfully launched ORKAMBI in the U.S. |
| | ◦ | Continued to increase the number of patients eligible to receive KALYDECO through label expansions. |
Advanced our CF development pipeline to help us reach our goal of developing treatments for all CF patients:
| | ◦ | Progressed Phase 3 development of VX-661 in combination with ivacaftor, which may enhance treatment for patients currently eligible for ORKAMBI. |
| | ◦ | Initiated development of VX-152 and VX-440, next-generation correctors that could allow us to increase the benefits our medicines provide to CF patients and increase the number of CF patients eligible for our medicines. |
| | ◦ | In-licensed from Parion Sciences, Inc. VX-371, an investigational ENaC inhibitor, which provides us an approach that, if successful, could be used as a treatment for all CF patients regardless of their CFTR mutation. |
| | ◦ | Established a collaboration with CRISPR Therapeutics AG pursuant to which we are seeking to discover medicines aimed at the underlying genetic causes of human diseases, including CF, using CRISPR-Cas9 gene editing technology. |
Expanded and diversified our pipeline and research efforts beyond CF:
| | ◦ | We are pursuing DNA damage repair, an important emerging area for the development of cancer medicines. We are evaluating VX-970 and VX-803, our most advanced oncology drug candidates, in early-stage clinical trials. |
| | ◦ | In pain, a Phase 2 clinical trial of VX-150 is ongoing, and we expect to begin clinical development of VX-241 in 2016. |
Grew revenues, maintained our financial strength and became cash flow positive in the fourth quarter of 2015, allowing us to continue to invest significantly in R&D and return value to shareholders:
| | ◦ | Increased CF net product revenues by 112% compared to 2014, with significant additional increases expected in 2016. |
| | ◦ | Entered 2016 with approximately $1.0 billion in cash, cash equivalents and marketable securities. |
Our accomplishments reflect the leadership and focus of our executive team in driving exceptional company performance and have led to consistently high shareholder returns and increasing CF net product revenues.
Share Price
(as of December 31, per share)
CF Net Product Revenues
(millions)
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 41
| | | | COMPENSATION DISCUSSION AND ANALYSIS - OVERVIEW (continued)
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From 2013 through 2015 as a result of our business performance, we had a three-year TSR of 44% on an annualized basis. On this basis, we outperformed (i) our Peer Group, (ii) the S&P 500 Healthcare Sector Index and (iii) the S&P 500 overall.
The top and bottom dotted lines in the preceding charts indicate the 3-year total shareholder return for the 25th and 75th percentiles, respectively, for each of these groups.
Key Compensation Decisions
The primary elements of our annual executive compensation program are base salary, annual cash bonus and equity awards. The key recent decisions that our MDCC and board of directors made are as follows: Base Salary: As discussed in our proxy statement for our 2015 annual meeting, in December 2014 our board approved a change in our CEO's base salary from $1,100,000 to $1,300,000. This change was related to the extension of the term of our CEO's contract and is aligned with the median CEO pay of our Peer Group. During 2015, our board also approved adjustments to the base salaries for our other NEOs to align their salaries closer to the median levels for our Peer Group.
Annual Cash Bonus: As a result of our exceptional performance in 2015, our board approved annual cash bonuses at the high-end of the range for each of our NEOs.
Long-Term Equity Program:
| Compensation Element | Key Recent Decisions | ◦Base Salary | In 2015, we granted options• | OurCEO’s salary has been, and performance-accelerated restricted stock undercontinues after the share-based approach that we utilized until early 2016. Dr. Leiden, Mr. Smith, Mr. Arbucklerecent extension of his employment agreement to be, set at $1.3 million. His annual salary is aligned with the median CEO pay of our Peer Group. Our board also approved minor adjustments to the base salaries for our other NEOs primarily to align with median levels for our peers and Dr. Chodakewitz received optionsreflect increases in responsibilities. | | Annual Cash Bonus | • | Asa result of our accomplishments and restricted stock in February 2015 reflecting their individual performance in 2014 and a mid-year option grant. Dr. Altshuler received a sign-on2016, our board approved annual cash bonuses at above target levels for 2016, but at significantly lower levels than those granted in 2015. | | Long-Term Equity Program | • | Ourlong-term equity compensation program includes performance restricted stock award in January 2015unit awards, or PSUs, time-based restricted stock unit awards and a mid-year option grant. |
| | ◦ | awards. In early 2016, we implemented significant changes to our equity compensation program (i.e., the adoptionMDCC established financial and non-financial metrics for the PSUs, with payout earned based on achievement of these metrics. 50% of the value-based equity program, which is summarized abovePSUs were tied to CF net product revenues in 2016, while the remaining 50% of the PSUs are tied to specific clinical milestones over a three-year period. | | | | | | – | In February 2017, the MDCC certified our CF net product revenues at below the target established at the beginning of 2016, resulting in 66.5% of the target shares for the financial-based PSUs being earned. Of note, the almost35% lower than target payout on the PSUwas the result of our not achieving our ORKAMBI net product revenue guidance ($980 million actual ORKAMBI net product revenues compared to guidance of $1.0 billion to $1.1 billion) partially offset by our exceeding KALYDECO net product revenue guidance ($703 million actual KALYDECO net product revenues vs. guidance of $670 million to $690 million). As an example of the sensitivity of PSU payout to performance, the ORKAMBI shortfall represented 2016 ORKAMBI net product revenues of 2% less than the low end of our guidance. The following chart shows the pre-established performance goals and describedthe actual results for the financial PSUs granted in more detail belowearly 2016: | | | | | | | | Company Goal | Threshold | Target | Max | Results | Payout | | | | CF Net Product Revenues | $ 1.65 billion | $ 1.75 billion | $ 1.90 billion | $ 1.68 billion | 66.5% | | | | One third of the earned PSUs vested in February 2017 with the remaining shares subject to continued vesting based on continued service through February 2018 and will be reflected in our Summary Compensation Table for 2016 in next year's proxy statement).February 2019. | | | – | The MDCC intends to continue to establish rigorous performance metrics tied to critical financial and non-financial goals. |
VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 44 2016 v. 2015 Equity Levels As a result of the changes to our equity compensation program, we are decreasinghave substantially decreased the value of compensation provided in the form of stock options, reducingreduced the value of compensation delivered in the form of time-vested restricted stock, and in order to increase the link between performance and compensation introducing performance stock units, orintroduced PSUs. As a result of these changes, the grant date fair-value of our NEOs'NEOs’ total equity compensation under the annual program will decreasedecreased by approximately 40% in 2016 as compared to 45%2015 as set forth in the following chart.chart, which sets forth the fair value of equity compensation received by executives who were named executive officers in both 2016 and 2015. Dr. Altshuler'sAltshuler’s equity grants in 2015 included the sign-on equity grant he received when he became an employee in January 2015.
Notice  The values of Annual Meeting of Shareholders and 2016 Proxy Statement | 42
| | | | COMPENSATION DISCUSSION AND ANALYSIS - OVERVIEW (continued)
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Estimates for value of 2016 equity-based awards are based on our methodology for determining the grant-date fair value, including underlying assumptions for calculating these values as set forth in Note N to our consolidated financial statements included in our 20152016 Annual Report on Form 10-K and are subject to adjustment.
Pay-for-Performance Alignment
We considered pay and performance alignment based on “realized” and “realizable” perspectives. The MDCC’s independent consultant, Pearl Meyer & Partners, or Pearl Meyer, conducted both the realized and realizable pay and performance analyses set forth below, comparing our executive pay and performance as well as our Peer Group companies' pay and performance. Our three-year TSR approximated the 72nd percentile of our Peer Group. Our CEO and NEOs average three-year realized compensation approximated the 53rd and 67th percentiles of our Peer Group’s CEOs and NEOs. Our CEO and NEOs' average three-year realizable compensation approximated the 78th and 84th percentiles of our Peer Group’s CEOs and NEOs. Based on these results, we believe that our pay programs are effective at ensuring that pay levels for our executives are aligned with performance.
Realized compensation is compensation actually received during the year based on the executive’s total compensation as calculated under SEC rules, excluding the grant-date fair value of equity awards and substituting the actual value realized on the exercise of options and the vesting of restricted stock as set forth in our “Total Realized Compensation Table” on page 69 of this proxy statement. Accordingly, it excludes unvested grants and other amounts that will not actually be received, if at all, until a future date.
Realizable compensation is actual salary received, payouts from non-equity incentive plan compensation, the value of time-based shares granted during the period, the in-the-money value of stock options granted during the period, and the value of performance stock or units granted during the period, assessed at payout value, if applicable, and based upon the target value of underlying shares if the performance period has not yet concluded. All equity grants are valued as of December 31, 2015, the last day of the three-year performance period. With respect to options, the value is based on the difference between the exercise price and the fair market value of the company's stock on December 31, 2015. It excludes grants of cash or equity awards outside the three-year performance period.
As discussed above, our business has performed exceptionally over the last several years, and the compensation paid to our NEOs during 2013-2015 shows a strong connection to our TSR relative to our Peer Group, as shown in the graphs below. Data points that are within the shaded area designate Peer Group companies that exhibit pay-for-performance alignment.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 43
| | | | COMPENSATION DISCUSSION AND ANALYSIS - OVERVIEW (continued)
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CEO 3-year Realized Comp. vs. TSR Other NEO 3-year Realized Comp. vs. TSR
In the preceding graphs regarding realized compensation:
Realized compensation was determined using (i) Vertex's realized compensation for 2013-2015 and comparing it to (ii) our Peer Group's realized compensation for 2012-2014, which is the most recent period for which data was available as of December 31, 2015, in each case as reported by the applicable company in their proxy statement.
TSR was determined using the actual TSR for Vertex and each of the companies in our Peer Group for the period from 2013-2015.
CEO 3-year Realizable Comp. vs. TSR Other NEO 3-year Realizable Comp. vs. TSR
In the preceding graphs regarding realizable compensation:
Realizable compensation was determined using our realizable compensation for 2013-2015 and comparing it to our Peer Group's realizable compensation for 2013-2015, in each case valuing all equity grants as of December 31, 2015. For 2015, realizable compensation values for companies in our Peer Group were estimated based on Form 4 filings for equity awards and the assumption that compensation amounts were the same in 2015 as in 2014 for other forms of compensation.
TSR was determined using the actual TSR for Vertex and each of the companies in our Peer Group for the period from 2013-2015.
Since our inception, we have compensated all eligible employees using a mix of cash and equity. The broad-based nature of our equity compensation program is an important element of our overall employee compensation program and reflects our philosophy that it is important for all of our employees to approach their jobs with a long-term commitment and perspective. Over the last several years, we have modified our equity compensation programs. These modifications are consistent with modifications other biotechnology companies have made as they matured from development-stage companies to commercial-stage companies with a strong financial profile. As a result of these changes, we granted on an absolute basis equity awards representing 33%35% fewer shares of common stock in 20152016 as compared to 2012 and reduced our "burn rate"“burn rate” from 3.6% in 2012 to 2.1%2.0% in 2015.
2016.| | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | | | | | Equity | | Equity | | Equity | | Equity | | Equity | | % Change | | | | Awards | | Awards | | Awards | | Awards | | Awards | | 2012 v 2016 | | Total Shares Subject to Equity Awards | | 7,525,000 | | 6,276,000 | | 5,629,000 | | 5,035,000 | | 4,887,000 | | (35)% | | Burn Rate(1) | | 3.6% | | 2.8% | | 2.4% | | 2.1% | | 2.0% | | | | Awards Canceled, Forfeited or Expired | | 1,644,000 | | 2,622,000 | | 1,628,000 | | 1,573,000 | | 928,000 | | | | Net Dilution | | 5,881,000 | | 3,654,000 | | 4,001,000 | | 3,462,000 | | 3,959,000 | | | | Net Burn Rate | | 2.8% | | 1.6% | | 1.7% | | 1.4% | | 1.6% | | |
| | | (1) | “Burn rate” is defined as the number of equity awards granted in a specific year divided by the basic weighted average number of shares outstanding during that year. |
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2017 Proxy Statement | 44
45
| | | | | | | | | | | | 2012 Equity Awards | | 2013 Equity Awards | | 2014 Equity Awards | | 2015 Equity Awards | % Change 2012 v 2015 | | Total Shares Subject to Equity Awards | 7,525,000 | | 6,276,000 | | 5,629,000 | | 5,035,000 | (33)% | | Burn Rate (1) | 3.6% | | 2.8% | | 2.4% | | 2.1% | |
(1) "Burn rate" is defined as the number of equity awards granted in a specific year divided by the basic weighted average number of shares outstanding during that year.
We currently expect that we will grant fewer options in 2016 than 2015. As a result, although the MDCC and board retains discretion with respect to equity grants, we expect consistent with the last several years, that there will be a further decline in the dilution to our shareholders from our equity compensation program in 2016 as compared to 2015.
Compensation Governance Practices We continue to implement and maintain leading practices in our compensation program, shareholder outreach and related areas. Total Compensation and Total Realized Compensation The information set forth below for 2015 NEO compensation reflects compensation received under our prior executive compensation program, which we revised in early 2016. Total compensation for our NEOs in 20152016 is set forth under the caption “Total Compensation” in the table below. To supplement this information, we have included a column entitled “Total Realized Compensation,” which subtracts the grant-date fair value of equity awards granted in 20152016 and substitutes the actual value realized on the exercise of stock options and the vesting of restricted stock awards during 2015. | | | | | | | | | | | | | | | | | | | | | | | Named Executive Officer | Salary | Annual
Cash Bonus | Grant-Date Fair Equity Awards | | Total Compensation | Total Realized Compensation | | Jeffrey M. Leiden | $ | 1,297,692 |
| | $ | 3,463,200 |
| | $ | 23,325,824 |
| | | $ | 28,099,826 |
| | $ | 12,513,357 |
| | | Ian F. Smith | $ | 701,796 |
| | $ | 832,500 |
| | $ | 7,458,577 |
| | | $ | 9,005,983 |
| | $ | 4,837,625 |
| | | David Altshuler | $ | 528,846 |
| | $ | 552,628 |
| | $ | 11,043,284 |
| | | $ | 12,387,868 |
| | $ | 2,574,284 |
| | | Stuart A. Arbuckle | $ | 629,262 |
| | $ | 721,500 |
| | $ | 7,458,577 |
| | | $ | 8,822,449 |
| | $ | 11,961,471 |
| | | Jeffrey Chodakewitz | $ | 615,231 |
| | $ | 617,382 |
| | $ | 6,582,549 |
| | | $ | 7,830,416 |
| | $ | 2,355,296 |
| |
2016.| | | | | | Annual | | | Grant-Date Fair | | | Total | | | Total Realized | | | Named Executive Officer | | Salary | | | Cash Bonus | | | Equity Awards | | | Compensation | | | Compensation | | | Jeffrey M. Leiden | | $ | 1,300,000 | | | $ | 2,246,400 | | | $ | 13,860,473 | | | $ | 17,419,758 | | | $ | 5,349,769 | | | Ian F. Smith | | $ | 750,000 | | | $ | 562,500 | | | $ | 4,455,292 | | | $ | 5,780,677 | | | $ | 2,425,512 | | | David Altshuler | | $ | 561,442 | | | $ | 500,250 | | | $ | 3,712,772 | | | $ | 4,787,349 | | | $ | 1,074,577 | | | Stuart A. Arbuckle | | $ | 672,885 | | | $ | 420,000 | | | $ | 4,455,292 | | | $ | 5,561,062 | | | $ | 1,864,093 | | | Michael Parini | | $ | 517,846 | | | $ | 499,867 | | | $ | 6,420,772 | | | $ | 7,730,264 | | | $ | 1,309,492 | | | Amit Sachdev | | $ | 540,750 | | | $ | 438,007 | | | $ | 4,455,292 | | | $ | 5,435,009 | | | $ | 1,905,230 | |
For more information regarding our NEOs’ compensation as calculated under SEC rules, see the narrative and notes accompanying the Summary Compensation Tableset forth beginning on page 6764 of this proxy statement. For more information regarding the calculation of “Total Realized Compensation” see the narrative accompanying theTotal Realized Compensation Tableon page 6966 of this proxy statement.VERTEX PHARMACEUTICALS INCORPORATED
Notice of Annual Meeting of Shareholders and 2016 - 2017 Proxy Statement | 45
46| Back to Contents | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS |
| | | | | | Compensation Philosophy and Compensation Decision-Making Process |
Detailed Discussion and Analysis Compensation Philosophy and Compensation Decision-Making ProcessCompensation Philosophy Our compensation program is designed to attract, retain and motivate talented and experienced individuals across all areas of our business and to align the interests of our executive officers with the interests of our shareholders as we seek to create value through the discovery, development and commercialization of transformative medicines. Our NEOs have had long and varied careers, and possess experiences and skills that make them extremely valuable members of our executive team and to our company as a whole. They have been instrumental in building Vertex into the company it is today, with a leadership position in the treatment of CF, an advancing CF pipeline that has been significantly broadened over the last several years, increasing revenues and an established strong financial profile. profile all of which positions Vertex to achieve its strategic objectives.Our MDCC and our board of directors seeksseek to connect the achievement of our strategic objectives with our compensation program in a number of ways, including through company goals that underlie our annual cash bonuses and the performance goals which are now included in our equity awards. Our company goals involve a mix of goals relating to revenues from our current products, achievement of research and development objectives, our organizational capability and maintenance of our financial strength. These objectives are selected specifically because they are considered by our board to be objective milestones that our company must achieve if it is to maintain its movement towards significant revenue growth and sustainable profitability. Our MDCC and board of directors expects to continue to seek to balance the use of financial metrics and research and development goals in order to motivate our executive team to increase revenues and manage operating expenses, while providing appropriate incentives for our management to continue to make appropriate investments in our business. In determining compensation, we consider compensation paid to similar companies as reference points, but do not strictly benchmark or target compensation at any particular level. Rather, the MDCC retains flexibility to structure compensation based on good governance practices and our objectives of building our company and creating shareholder value. Compensation Decision-Making Process Role of MDCC and Chief Executive Officer in Setting Executive Compensation The MDCC has responsibility for overseeing the design, development and implementation of the compensation program for our chief executive officer and other NEOs. The MDCC evaluates the performance of our chief executive officer and the performance of the other executive officers. Our chief executive officer and our senior vice president, human resources group, assist the MDCC in evaluating the performance of our other executive officers, including the named executive officers other than the chief executive officer. Our chief executive officer does not make any recommendations to the MDCC regarding his own compensation and does not participate in portions of MDCC meetings or meetings of the board discussions relating toof directors when his compensation is discussed and the other NEOs do not play a role in their own compensation determination. determined.The members of the MDCC, each of whom is an independent director, together with the other independent directors, make final compensation decisions for the CEO’s and other executive officers’ compensation levels based on these assessments. Role of Compensation Consultant The MDCC (i) is directly responsible for the appointment and oversight of its compensation consultants, (ii) has the authority to determine the fees that we pay for services provided by such compensation consultants and (iii) prior to engaging any compensation consultant, considers applicable factors potentially affecting the independence of the compensation consultant, including the factors set forth in Nasdaq Marketplace Rule 5605(d)(3). Annually, the MDCC has engaged a compensation consultant to conduct an analysis of all elements of compensation paid to our executive officers, including our NEOs, compared to similar elements paid to similarly situated executives at companies in our peer group and to provide a written report and presentation of findings at the meeting of the MDCC that occurs in July each year. In 2015,2016, the MDCC selected Pearl Meyer to conduct and present this analysis to the MDCC. In addition, our MDCC also engaged Pearl Meyer in order to assist us in making significant modifications and improvements to our compensation program that were implemented in early 2016. Pearl Meyer only provides, and is compensated for, advice provided to us at the direction of the MDCC. The MDCC considered the following information provided to it by Pearl Meyer:
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 46
| • | Pearl Meyer’s policies and procedures designed to prevent conflicts of interest; | | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
• | that fees paid by us to Pearl Meyer represent less than 1% of PearlMeyer’s total annual revenues; | | | | • | the absence of business and personal relationships between thecompensation consultant and the MDCC or any of our executive officers; and | | | | • | that Pearl Meyer’s partners, consultants and employees who provide services to the MDCC, and their immediate family members, do not own shares of our common stock. |
Pearl Meyer’s policies and procedures designed to prevent conflicts of interest;
that fees paid by us to Pearl Meyer represent less than 1% of Pearl Meyer’s total annual revenues;
the absence of business and personal relationships between the compensation consultant and the MDCC or any of our executive officers; and
that Pearl Meyer’s partners, consultants and employees who provide services to the MDCC, and their immediate family members, do not own shares of our common stock.
Based on these, and other factors considered by the MDCC, the MDCC determined that Pearl Meyer’s work did not raise a conflict of interest. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 47 Use of Peer Group Companies In order to make judgments about elements of executive compensation on a competitive basis, the MDCC and our board of directors considers information about the compensation practices of a representative group of companies with whom we compete for executive talent, or Peer Group. We conduct a detailed analysis to select companies for this Peer Group on the basis of similarity and complexity of business model. InSelecting a peer group for our company is difficult because of the limited number of companies that are at a similar stage of development and our level of revenues. As a result, we use a mix of quantitative and qualitative factors in order to assess business model similarity, we consider a number of factorsestablish our peers, including the following: | | | | Factor Considered | What we look forWe Look For | | Similar industry | Biotechnology or pharmaceutical industry | Importance of medicines to patients and society
| Transformative medicines for serious diseases; therapeutics for unmet needs | Recognized focus on innovation
| Breakthrough Therapy designations, priority review and/or other markers indicating unmet need | | Global operations | Significant operations outside the U.S. | | Commercial operations | Marketing and selling approved medicines | | Significant R&D investment | Greater than $700M or 50% of revenue | | Number of employees | Greater than 750 employees | Market capitalization and significance to broader economy
| Market cap at least ¼ our size and/or inclusion on S&P 500 or NASDAQ 100 | | Labor market competitor | Companies we compete with for executive talent | | Companies that use Vertex as a peer | Inclusion of Vertex in proxy reported peer group |
We also consider revenue but it is not a factor we emphasize because we do not believe revenue adequately reflects business model similarity or complexity in the biotechnology industry. A company with similar revenues may not have global or commercial operations like we have nor may it focus on innovative therapies, but rather on generic medicines, which we believe results in a different business model requiring less research and development investment. Moreover, a companycompanies with similar revenues may not focus on innovative therapies such as those designated as a Breakthrough TherapyTherapies by the Food and Drug Administration,FDA, a designation which expeditescan expedite the development and review of medicines that are intended to treat a serious condition andconditions where preliminary clinical evidence indicates that the medicine may demonstrate substantial improvement over available therapy on clinically significant endpoints.therapy. As a result, we believe the factors listed above provide a better way to assess similarity versus a reliance on the combination of revenue and industry. We also note that it is unlikely for companies to align on all the factors listed above, so we look for companies meeting a majority of the criteria although we place greater weight on companies focused on innovation and importance of medicines to patients and society as we believe these are the key drivers of our business model. We also focus on market capitalization over revenue because we believe it is ana better indicator of the complexity of a company'scompany’s business model.model in our industry. On a regular basis, we review and revise the list of companies with the goal of maintaining a group of comparators comprised of at least twelve companies. As a result of this analysis, and on the basis of the criteria listed above, the MDCC selected the following comparator companies for 2015.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 47
2016. | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
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| | | | 2014 Peer Company | 2015 Peer Company | 2016 Peer Company | Reason for Change | | AbbVie Inc. | AbbVie Inc. | | | Alexion Pharmaceuticals, Inc. | Alexion Pharmaceuticals, Inc. | | Allergan, Inc. | | Acquired | | Alkermes plc | Alkermes plc | Additional company that met criteria | | Amgen Inc. | Amgen Inc. | | | Biogen Inc. | Biogen Inc. | | | BioMarin Pharmaceutical Inc. | BioMarin Pharmaceutical Inc. | | | Celgene Corporation | Celgene Corporation | | Cubist Pharmaceuticals, Inc.Endo International plc | | AcquiredCompany profile | | | Endo InternationalJazz Pharmaceuticals plc | Additional company that met criteriaprofile | | Gilead Sciences, Inc. | Gilead Sciences, Inc. | | | Incyte Corporation | Incyte Corporation | Additional company that met criteria | | Regeneron Pharmaceuticals, Inc. | Regeneron Pharmaceuticals, Inc. | | Salix Pharmaceuticals, Ltd. | | Acquired | | Shire plc | Shire plc | | | United Therapeutics Corporation | United Therapeutics Corporation | |
This Peer Group was modified in 20152016 from 20142015 to include threeone additional companies (Alkermes plc, Endo International plc and Incyte Corporation)company (Jazz Pharmaceuticals plc) to replace threeone prior peer companies: Allergan Inc. (which was acquired by Actaviscompany (Endo International plc), Cubist Pharmaceuticals, Inc. (which was acquired by Merck & Co), and Salix Pharmaceuticals, Ltd. (which was acquired by Valeant Pharmaceuticals). We believe, based on our discussions with major shareholders, that the Peer Group identified by our MDCC is consistent with our shareholders'shareholders’ views of our relevant peers in the biopharmaceuticalbiotechnology industry. In addition, the Peer Group companies have many of the business model characteristics that we seek in comparator companies as set forth in the following table. | | | | | | | | | | | | | | | | Company Information | R&D Expense (1) | Operational Focus | Innovative and Importance of Medicines | | Market Position | | Company | Industry | $ (millions) | % of Revenue | Global | Commercial | Orphan/Unmet Clinical Need | Breakthrough Therapy Designations | Innovative Drugs in Last 5 Years (2) | Uses Vertex as Peer | Nasdaq 100 | S&P 500 | | AbbVie | Biotech | $ | 4,101 |
| 18% | √ | √ | √ | 1 | 2 | | | √ | | Alexion | Biotech | $ | 709 |
| 27% | √ | √ | √ | 1 | 2 | √ | √ | √ | | Alkermes | Biotech | $ | 336 |
| 54% | √ | √ | √ | 0 | 1 | √ | | | | Amgen | Biotech | $ | 4,006 |
| 19% | √ | √ | √ | 1 | 3 | | √ | √ | | Biogen | Biotech | $ | 2,012 |
| 22% | √ | √ | √ | 0 | 2 | √ | √ | √ | | BioMarin | Biotech | $ | 635 |
| 71% | √ | √ | √ | 0 | 1 | √ | √ | | | Celgene | Biotech | $ | 2,090 |
| 23% | √ | √ | √ | 0 | 3 | | √ | √ | | Endo | Pharma | $ | 102 |
| 3% | √ | √ | | 0 | 0 | √ | √ | √ | | Gilead | Biotech | $ | 3,014 |
| 9% | √ | √ | √ | 3 | 4 | √ | √ | √ | | Incyte | Biotech | $ | 481 |
| 64% | | √ | √ | 0 | 1 | √ | √ | | | Regeneron | Biotech | $ | 1,621 |
| 40% | √ | √ | √ | 1 | 4 | √ | √ | √ | | Shire | Pharma | $ | 920 |
| 14% | √ | √ | √ | 0 | 3 | | | | | United Therapeutics | Biotech | $ | 245 |
| 17% | √ | √ | √ | 0 | 3 | √ | | | | | | | | | | | | | | | | | Vertex | Biotech | $ | 996 |
| 96% | √ | √ | √ | 4 | 3 | | √ | √ |
(1) R&D Expense and R&D Expense as a % of Revenue reflects the trailing data for the most recent four quarters as of 12/31/2015 per the S&P Capital IQ database.
(VERTEX PHARMACEUTICALS INCORPORATED2) Innovative drugs in the last five years include: VIEKIRA PAK and IMBRUVICA (Abbvie), STRENSIQ and KANUMA (Alexion), ARISTADA (Alkermes), XGEVA, PROLIA and KYPROLIS (Amgen), TECFIDERA and ALPROLIX (Biogen), VIMIZIM (BioMarin), POMALYST, ABRAXANE and OTEZLA (Celgene), SOVALDI, HARVONI, CAYSTON and ZYDELIG (Gilead), JAKAFI (Incyte), PRALUENT, EYLEA, ZALTRAP and ELOCTATE (Regeneron), FIRAZYR, NATPARA and GATTEX (Shire) and REMODULIN, ORENITRAM and UNITUXIN (United Therapeutics).
Notice of Annual Meeting of Shareholders and 2016 - 2017 Proxy Statement | 48
| Company | | | | | | | | | | | Innovative and Importance of Medicines | | | | | | | | Information | | R&D Expense(1) | | Operational Focus | | Orphan/ | | Breakthrough | | Innovative | | Uses | | Market Position | | Company | | Industry | | $
(millions) | | % of
Revenue | | Global | | Commercial | | Unmet
Clinical Need | | Therapy
Designations(2) | | Drugs in Last
6 Years(3) | | Vertex
as Peer | | Nasdaq 100 | | S&P 500 | | AbbVie | | Biotech | | $ | 4,366 | | 17% | |  | | | | | | 3 | | 3 | | | | | | | | Alexion | | Biotech | | $ | 757 | | 25% | |  | | | | | | 1 | | 2 | | | | | | | | Alkermes | | Biotech | | $ | 387 | | 52% | | | | | | | | 0 | | 1 | | | | | | | | Amgen | | Biotech | | $ | 3,847 | | 18% | | | | | | | | 1 | | 4 | | | | | | | | Biogen | | Biotech | | $ | 1,973 | | 20% | | | | | | | | 0 | | 4 | | | | | | | | BioMarin | | Biotech | | $ | 662 | | 59% | | | | | | | | 0 | | 1 | | | | | | | | Celgene | | Biotech | | $ | 4,470 | | 40% | | | | | | | | 0 | | 3 | | | | | | | | Gilead | | Biotech | | $ | 4,666 | | 15% | | | | | | | | 4 | | 5 | | | | | | | | Incyte | | Biotech | | $ | 595 | | 54% | | | | | | | | 0 | | 1 | | | | | | | | Jazz | | Biotech | | $ | 162 | | 11% | | | | | | | | 0 | | 1 | | | | | | | | Regeneron | | Biotech | | $ | 2,052 | | 43% | | | | | | | | 1 | | 3 | | | | | | | | Shire | | Pharma | | $ | 1,431 | | 13% | | | | | | | | 0 | | 3 | | | | | | | United
Therapeutics | | Biotech | | $ | 148 | | 9% | | | | | | | | 0 | | 3 | | | | | | | | Vertex | | Biotech | | $ | 1,062 | | 62% | | | | | | | | 5 | | 3 | | | | | | |
| (1) | R&D Expense and R&D Expense as a % of Revenue reflects the trailing data for the most recent four quarters as of 12/31/2016 per the S&P Capital IQ database. | | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
(2) | Per Center for Drug Evaluation and Research (CDER) Breakthrough Therapy Approvals report which lists approvals for breakthrough therapy designated drugs. | | | | (3) | Innovative drugs in the last six years include: VIEKIRA PAK, IMBRUVICA and VENCLEXTA (Abbvie), STRENSIQ and KANUMA (Alexion), ARISTADA (Alkermes), XGEVA, PROLIA, KYPROLIS and PARSABIV (Amgen), TECFIDERA, ALPROLIX, SPINRZA and ELOCTATE (Biogen), VIMIZIM (BioMarin), POMALYST, ABRAXANE and OTEZLA (Celgene), SOVALDI, HARVONI, CAYSTON, VEMLIDY and ZYDELIG (Gilead), JAKAFI (Incyte), DEFITELIO (Jazz), PRALUENT, EYLEA and ZALTRAP (Regeneron), FIRAZYR, NATPARA and GATTEX (Shire) and REMODULIN, ORENITRAM and UNITUXIN (United Therapeutics). |
We do not strictly benchmark to a particular level of compensation relative to compensation levels at the Peer Group companies, but rather make a judgment about where each executive should fall in comparison with executives with similar responsibilities at the Peer Group companies. We believe this should mitigate concerns regarding our Peer Group including companies that have significantly higher revenues than our current revenues. The MDCC looks at Peer Group information to confirm that our compensation levels are competitive with those of the Peer Group companies and consistent with our compensation philosophy. In addition, the MDCC reviews broader industry specific executive compensation surveys published by Radford, Mercer SIRS and Towers Watson, but does not make any material compensation decisions based on any particular company participants in such surveys.
NoticeElements of Annual Meeting of Shareholders CompensationOur practice is to target total direct compensation including base salary, annual cash incentives targets, and 2016 Proxy Statement | 49
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| | | | | | Elements of Annual Compensation |
long-term incentive targets at market competitive levels depending upon the NEO’s responsibilities, expertise and experience. Our executive compensation program is structured to useuses a mix of base salary, annual performance-based cash bonus, and long-term equity compensation awards in the form of performance stock options and restricted stock/performance restricted stock unit awards and time-based restricted stock units to incent and reward those individuals who make the greatest contribution to our company performance over time. For the NEOs, this means compensation is primarily in the form of equity and directly tied to changes in shareholder value over time. The elements of our annual executive compensation program are base salary, annual cash bonus, equity awards in the form of stock option awards and restricted stock/restricted stock unit awards. Each year we review the balance of the elements of our executive compensation program to ensure that they are appropriately designed in light of our goals to align the program with our shareholders’ interests, the competitive environment and our business strategy. In early 2016, we implemented a revised long-term equity program, changing from a share-based approach to a value-based approach, deemphasized stock options and replaced time-based restricted stock awards that could accelerate based on performance goals with a mix of performance contingent restricted stock unit awards and time-based restricted stock unit awards. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 49 Compensation Program (Prior Share-based Program) The following chart sets forth the target mix of compensation for our CEO and NEO, under the compensation program we utilized(Implemented in 2015 (actual values, excluding Dr. Altshuler who joined us during 2015).
2016 Program (New Value-based Program)
2016)As shown in the following charts, under our new compensation program was fully implemented this year, and we have deemphasized options and introduced performance restricted stock units (based on target values):
Noticeunit awards:
The charts above represent the actual values, and exclude the compensation of Annual Meeting of Shareholders Mr. Parini, who joined the company in 2016 and 2016 Proxy Statement | 50
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Performance-Linked 2015 Program
In line withwas not eligible for grants under our objectives, a significant portion of our NEOs' 2015 compensation wasannual program in the form of equity, specifically:
Stock options. Our NEOs received 70% of their equity in the form of stock options that vest over a four-year period. We have historically heavily weighted our equity program toward stock options given our stage of development at the time.
Performance accelerated restricted stock (PARS). Our NEOs received 30% of their equity in the form of PARS that cliff-vest after four years with the opportunity to earn and vest earlier if certain performance criteria is met related to our long-term strategic objectives. For 2015, the performance acceleration vesting criteria were as follows:
The vesting accelerates for the first half of the shares upon (i) U.S. net ORKAMBI sales for a 12-month period ending on a calendar quarter being equal to or greater than $1.25 billion or (ii) completion of a clinical trial that establishes a proof-of-concept for a next-generation CFTR corrector.
The vesting accelerates for the second half of the shares upon (i) worldwide net ORKAMBI sales, excluding U.S. net ORKAMBI sales, for a 12-month period ending on a calendar quarter being equal to or greater than $500 million or (ii) completion of a pivotal clinical trial of a non-CF drug candidate that provides sufficient data to support a new drug application.
We have historically granted PARS as a combination of a retentive tool and an incentive tool to focus our executives on achieving strategic objectives. As discussed below, we have changed our equity program and are effectively replacing PARS with PSUs.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 51
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2016.Performance-Linked 2016 Value-Based Program Under our new value-based program, we maintained our focus on performance-linked elements as follows:
| | | Compensation Element | Performance-Link | Annual Cash Bonus | 4 Annual bonus dependent on company performance factors
4 Annual bonus dependent on individual performance
4 Potential range of bonus 0% to 225% of target bonus
| Stock Options | 4 Grant date value of options granted based on individual performance
4 Value of awards tied to potential increases in share price with no value to executive unless share price increases
| Performance Restricted Stock Unit Awards | 4 Potential range of shares issued 0% to 200% of target based on financial and non-financial metrics
4 Value of awards increases or decreases based on increases or decreases in stock price
| Time-Based Restricted Stock Unit Awards | 4 Number of shares granted based on individual performance
4 Value of awards increases or decreases based on increases or decreases in stock price
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As mentioned above, we haveWe made significant changes to our equity program over the last yearthat were fully implemented in 2016 due to the evolution of our company as well as feedback we received from our engagement with shareholders. We have matured from a research and development company to a global biotechnology company with a market cap ranging from twenty to thirty billion dollars over the last year.company. We became cash flow positive in the fourth quarter of 2015 and by the end of 2015 were2016, are marketing two commercial medicines that each produce significant revenues and are the first and only medicines to treat the underlying cause of CF and hadhave expanded our global footprint to support the salesales of KALYDECO and ORKAMBI. Because of these accomplishments, we believed it was the right time to modify our equity compensation program to better fit where we are in our stage of growth. As a result, we madefully implemented the following changes: Adopted a value-based approach to granting equity awards; Decreased emphasis on stock options; Replaced performance accelerated restricted stock with performance stock units tied to a balance of financial and non-financial metrics; and Modified our mix of long-term incentive awards to provide balance between our incentive, shareholder alignment and retention objectives of our equity awards. Under the new value-based program we implemented in 2016, we continue to focus on performance-linked elements as follows: | Compensation Element | Performance-Link | | Annual Cash Bonus | • Annual bonus dependent on company performance factors and individual performance | | • Potential range of bonus 0% to 225% of target bonus | | Stock Options | • Grant date value of options granted based on individual performance | | • Value of awards tied to potential increases in share price with no value to executive unless share price increases | | Performance Restricted Stock Unit Awards | • 50% of PSUs with range of shares issued 0% to 200% of target based on one year financial performance metric (vesting annually over 3 years) • 50% of PSUs with range of shares issued 0% to 200% of target based on three-year non-financial metric (cliff-vesting after three years) | | • Value of awards increases or decreases based on increases or decreases in stock price | | Time-Based Restricted Stock Unit Awards | • Number of shares granted based on individual performance | | • Value of awards increases or decreases based on increases or decreases in stock price |
More specifically, under the revised program:
specifically:| • | Stock Options. Our NEOs receive 30% of their annual target equity value in the form of stock options that vest over a four-year period. This was a significant shift away from the 70% weight under the prior program and we believe this aligns better with our current stage of growth. We continue stock option awards because we believe stock options are performance-based and provide alignment with shareholders as executives are rewarded for broad corporate performance only if the stock price appreciates. | | | | • | Performance Stock Units. Our NEOs receive 35% of their annual target equity compensation in the form of PSUs, which we introduced in 2016. The PSUs vest, if at all, based half on financial and half on non-financial goals. The potential range of shares issuable pursuant to the performance stock unit awards range from 0% to 200% of the target shares based on financial and non-financial measures. For grants in February of 2016 and February of 2017, fifty percent of PSUs that could be earned have a one-year performance period with the amount actually earned dependent upon Vertex’s CF net product revenue performance and with vesting of the earned shares in three equal installments over a three-year period. The MDCC selected a one-year performance period because of the difficulty in forecasting financial metrics at our stage of growth beyond a one-year period. The remaining 50% of PSUs that could be earned have a three-year performance period with the amount actually earned dependent upon the achievement of multiple clinical development milestones (i.e., advancement of CF and non-CF therapies in the clinic) and with the earned shares |
Stock Options. VERTEX PHARMACEUTICALS INCORPORATEDOur NEOs will receive 30% of their annual target equity value in the form of stock options that will vest over a four-year period. This is a significant shift away from the 70% weight under the prior program that we believe aligns better with our current stage of growth. We are continuing stock option awards because we believe stock options are performance-based and provide alignment with shareholders as executives are rewarded for broad corporate performance only if the stock price appreciates.
Performance Stock Units. Our NEOs will receive 35% of their annual equity compensation in the form of PSUs, which we introduced in 2016. The PSUs will vest, if at all, based half on financial and half on non-financial goals. The potential range of shares issuable pursuant to the performance stock unit awards range from 0% to 200% of the target shares based on financial and non-financial measures. Fifty percent of PSUs that could be earned have a one-year performance period with the amount actually earned dependent upon Vertex’s net product revenue performance for 2016 and with vesting of the earned shares in three equal installments over a three-year period. The MDCC selected a one-year performance period because of the difficulty in forecasting financial metrics at our stage of growth beyond a one-year period. The remaining 50% of PSUs that could be earned have a three-year performance period with the amount actually earned dependent upon the achievement of multiple clinical development milestones (i.e., advancement of CF and non-CF therapies in the clinic) and with the earned shares cliff vesting at the end of the three-year performance period. The MDCC selected revenue and clinical development milestones because
Notice of Annual Meeting of Shareholders and 2016 - 2017 Proxy Statement | 52
50 | cliff vesting at the end of the three-year performance period. The MDCC selected revenue and clinical development milestones because shareholders and analysts rely heavily on these metrics to understand the underlying condition and the performance of our business. In addition, achievement of these metrics would indicate successful execution toward our long-term strategic objectives of expanding our CF franchise and diversifying our product portfolio. | | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
• | Time-based Stock Units. Our NEOs receive 35% of their annual target equity compensation in the form of restricted stock units that will vest over a three-year period, subject to continued service. We believe that with a majority of the annual long-term incentive award at risk based on our stock price appreciation and successful execution of our strategic objectives, it is important to have a smaller portion of the annual award focused on retaining our key executive talent. As a result, we believe time-based restricted stock units encourage retention while also providing immediate alignment with our shareholders. |
shareholders and analysts rely heavily on these metrics to understand the underlying condition and the performance of our business. In addition, achievement of these metrics would indicate successful execution toward our long-term strategic objectives of expanding our CF franchise and diversifying our product portfolio.
Time-based Stock Units. Our NEOs will receive 35% of their annual equity compensation in the form of restricted stock units that will vest over a three-year period, subject to continued service. We believe that with a majority of the annual long-term incentive award at risk based on our stock price appreciation and successful execution of our strategic objectives, it is important to have a smaller portion of the annual award focused on retaining our key executive talent. As a result, we believe time-based restricted stock units encourage retention while also providing immediate alignment with our shareholders.
No Other Awards. No off-cycle grants were made in 2015 to our NEOs, nor are there any plans to make such grants in 2016.
In total, approximately 90% of our CEO's 2016CEO’s 2017 compensation is performance-linked:
2017 COMPENSATION ELEMENTS AT TARGET 
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2017 Proxy Statement | 53
51 | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
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Base Salary The MDCC recommends base salaries for each of our executive officers on the basis of a market analysis, on a position-by-position basis. Annually, the MDCC reviews tables showing a comparison of each executive’s prior year base salary and cash bonus opportunity, measured at the target level, to salaries and cash bonuses reported for executives with similar responsibilities at comparable companies. We do not strictly benchmark to a particular level of compensation relative to compensation levels at the Peer Group companies, but rather make a judgment about where each executive should fall in comparison with executives with similar responsibilities at the Peer Group companies, taking into account the executive’s general level of experience and capability, the significance of his or her job responsibilities to the achievement of our business strategy and company goals, and general performance over time, including demonstration of the values and desirable behaviors under our core values program. On the basis of that information, including compensation at Peer Group companies, and taking into consideration the executive’s base salary for the previous year, the MDCC recommends an appropriate salary for each executive officer, subject to final approval by our independent directors. Our current base salaries for our named executive officers approximate the median base salaries for counterparts at companies in our Peer Group. In December 2014,November 2016, our board of directors negotiated an extension to the term of Dr. Leiden’s employment agreement, which included a salary increase, effective January 1, 2015. Our board and MDCC considered, among other factors, our success duringprovided that his tenure as our CEO and the salaries of the CEOs for companies in our Peer Group, and increased Dr. Leiden's salary to the median of the salaries of the CEOs in our Peer Group. In 2015, the MDCC reviewed and adjusted base salary levels for our other NEOs, other than Dr. Altshuler who joined uswould remain the same in early 2015, based on market data regarding salaries at our Peer Group companies. The following table sets forth our NEOs annual base salaries at the end of 20142017 as 2016. In connection with Mr. Smith and 2015, together with information regarding a comparison ofMr. Parini assuming new responsibilities as Chief Operating Officer and Chief Legal and Administrative Officer, respectively, their base salaries were increased for 2017 as compared to comparable executives at companies in our Peer Group. | | | | | | | | Name | 2014 Base Salary | % of Peer Group | 2015 Base Salary | % of Peer Group | % Change 2014 v 2015 | | Jeffrey M. Leiden | $1,100,000 | 35th | $1,300,000 | 50th | 18% | | Ian F. Smith | $650,000 | 35th | $750,000 | 50th | 15% | | David Altshuler | na | na | $550,000 | 55th | na | | Stuart A. Arbuckle | $600,000 | 40th | $650,000 | 50th | 8% | | Jeffrey Chodakewitz | $600,000 | 60th | $618,000 | 60th | 3% |
2016.| | | 2015 | | | 2016 | | | 2017 | | | | | | % Change | | | Name | | Base Salary | | | Base Salary | | | Base Salary | | | Peer Ranking | | | 2016 v 2017 | | | Jeffrey M. Leiden | | $ | 1,300,000 | | | $ | 1,300,000 | | | $ | 1,300,000 | | | | 60th | | | | 0% | | | Ian F. Smith | | $ | 750,000 | | | $ | 750,000 | | | $ | 850,000 | | | | 60th | | | | 13% | | | David Altshuler | | $ | 550,000 | | | $ | 575,000 | | | $ | 575,000 | | | | 45th | | | | 0% | | | Stuart A. Arbuckle | | $ | 650,000 | | | $ | 700,000 | | | $ | 700,000 | | | | 50th | | | | 0% | | | Michael Parini | | | na | | | $ | 560,000 | | | $ | 675,000 | | | | 55th | | | | 21% | | | Amit Sachdev | | $ | 540,750 | | | $ | 540,750 | | | $ | 540,750 | | | | 65th | | | | 0% | |
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2017 Proxy Statement | 54
52 | | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
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Company and Individual Ratings Two of the principal elements of our executive compensation program - annual cash bonus and annual equity awards - are awarded in amounts determined on the basis of annual company and individual performance ratings. Overview of Company Performance Rating & Achievement in 2015 2016At the beginning of each year, our board of directors, in consultation with our CEO, establishes company-wide goals for that year. Our performance against these goals is the most important factor considered by theour board in assessing our corporate performance, but our board considers additional accomplishments and may increase or decrease the performance scores. Although the directors discuss and analyze our performance as a group, each director makes his or her own judgment about specific performance factors and accomplishment of the goals in reaching a conclusion. For 2015,2016, the board of directors set company goals and assigned relative weights that reflected our operational, strategic and financial objectives for the year and the importance of these goals to our long-term goals of significant revenue growth and achieving sustainable profitability. Our 20152016 weighted goals and the year-end score achieved by the company and assigned by the board are set forth in the following table: | | | | | Goal(s) | Maximum Score | Actual 2015 Performance Score | | Marketed and Approval-Stage Products | 60 | 60 | | • Expand KALYDECO label in U.S. and ex-U.S. markets and support adherence for KALYDECO patients through compliant marketing practices | | | | • Support activities to obtain marketing approval for ORKAMBI in the U.S. by mid-2015 and in the European Union by end of 2015 | | | | • Prepare for and launch ORKAMBI in U.S. and European Union pending regulatory approvals | | | | Pipeline Growth | 45 | 38 | | • Advance next-generation CFTR correctors into clinical development | | | • Advance Phase 3 clinical trials of VX-661 | | | | • Maintain high productivity in research and early-stage development to expand pipeline | | | | • Execute collaborations to support and diversify the pipeline and monetize non-core pipeline assets | | | | Organizational Development and Capability | 15 | 15 | | • Attract, develop and retain Vertex expertise and key talent necessary to drive near- and long-term company growth | | | | • Continue to implement our international expansion strategy | | | | • Support U.S. and international efforts to support access to ORKAMBI | | | | • Continue our leadership and commitment to the global CF community | | | | • Continue to ensure a strong compliance mindset and enterprise-wide risk management program | | | | Financial Strength | 30 | 30 | | • Manage balance sheet to sustain financial capacity for future investment | | | | Additional Factors (see page 57 of this proxy statement) | | 5 | | Total | 150 | 148 |
| | | Maximum | Actual 2016 | | | Goal(s) | Score | Performance Score | | | Marketed and Approval-Stage Products | 50 | 26 | | | • Expand ORKAMBI net product revenues through compliant marketing practices | | | | | • Expand KALYDECO net product revenues through compliant marketing practices | | | | | Pipeline Growth | 55 | 40 | | | • Obtain key results from Phase 3 clinical trials of VX-661 | | | | | • Advance next-generation CFTR correctors and initiate at least one proof-of-concept clinical trial to evaluate a triple-combination regimen | | | | | • Maintain high productivity in research and early-stage development to expand pipeline | | | | | • Execute collaborations to support and diversify the pipeline and monetize non-core pipeline assets | | | | | Organizational Development and Capability | 15 | 15 | | | • Fill critical positions with superior and diverse talent to support business growth | | | | | • Improve infrastructure to support expanding business | | | | | • Continue to ensure a strong compliance mindset and enterprise-wide risk management program | | | | | Financial Strength | 30 | 30 | | | • Manage balance sheet to sustain financial capacity for future investment | | | | | Additional Factors (see page 54 of this proxy statement) | | 9 | | | TOTAL | 150 | 120 |
Our 20152016 company performance score was 148120 out of a potential of 150.Going forward, our 2016Our 2017 company performance will be evaluated against the broad categories set forth above putting slightly more emphasis on Pipeline Growth (55Marketed & Approval Stage Products (60 points in 20162017 as compared to 4550 points in 2015)2016) and slightlyOrganization Development and Capability (20 points in 2017 as compared to 15 points in 2016) and less on Marketed &
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 55
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Approval-Stage Products (50Financial Strength (15 points in 20162017 compared to 6030 points in 2015)2016). ThisThese change waswere made to better align our annual incentive plan with our business goals for 2016.
2017.Detailed Discussion of Company Performance Rating Factors and Achievements Goals - Marketed and Approval-Stage Products ORKAMBI.ORKAMBI net product revenues increased from $350.7 million in 2015 to $979.6 million in 2016. However, we did not meet our U.S. or our ex-U.S. ORKAMBI goals for 2016 due primarily to lower than expected initiations and adherence in the U.S. and slower than expected uptake in Germany. Specifically, we fell $20 million or 2% short of the low end of our ORKAMBI net product revenue guidance for 2016 ($980 million actual compared to guidance of $1.0 billion to $1.1 billion). KALYDECO. In 2016, we exceeded the upper end of our KALYDECO net product revenue guidance by $13 million, or 2% ($703 million actual vs. guidance of $670 million to $690 million). KALYDECO net product revenues increased by 36%11% from $463.8 million in 2014 to $631.7 million in 2015.2015 to $703.4 million in 2016. The increase was due to additional patients being treated with KALYDECO as we completed reimbursement discussions in various jurisdictions, and increased the number of patients eligible to receive KALYDECO through label expansions and the maintenance of high compliance rates.ORKAMBI. In 2015, we obtained timely approval of ORKAMBI in the U.S. and European Union, increasing the number of patients eligible for our medicines by approximately 20,500. As of December 31, 2015, more than 4,500 patients had initiated treatment with ORKAMBI, and in 2015 we had ORKAMBI net product revenues of $350.7 million as compared to no ORKAMBI net product revenues in 2015.
Overall, we increased CF net product revenues to $982.3$1.68 million, in 2015, an increase of 112%71% compared to 2014,2015, with significant additional increases in CF net product revenues expected in 2016. 2017.For marketed and approval-stage products goals, our board assigned the company a score of 6026 out of 60,50, due to (1) our not achieving our goals with respect to ORKAMBI net product revenues and (2) our success in expanding our KALYDECO revenues, which resulted in KALYDECO net product revenues that increased by 36% and (2) our achievements in obtaining approval for ORKAMBI in the U.S. and E.U, and commercializing ORKAMBI in the U.S. and preparing for the global launch of ORKAMBI.11%. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 53 Goals - Pipeline Growth (Late and Early-Stage) In 2015,2016, we built onexpanded our leadership position in the treatment of CF, achieved our research goals and advancing and broadening our pipeline.executed on strategic transactions. Specifically, we: | • | Advanced our CF development pipeline to help us reach our goal of developing treatments for all CF patients: | – | Advanced several Phase 3 clinical trials evaluating tezacaftor in combination with ivacaftor (we recently reported positive results from 2 of these pivotal trials positioning us to seek approval for this dual-combination regimen in the United States and Europe in the second half of 2017) | | | | | – | Initiated Phase 2 development of VX-152 and VX-440, next-generation correctors, which we are developing in triple-combination regimens that could allow us to increase benefits our medicines provide to patients with CFinclude ivacaftor and increase the numbertezacaftor for 80%-90% of patients with CF eligible for our medicines. |
| | ◦ | In-licensed from Parion Sciences, Inc. VX-371, an investigational ENaC inhibitor, which provides us an approach that could be used as a treatment for all patients with CF regardless | | | | | – | Initiated clinical development of VX-659 and VX-445, two additional next-generation correctors that are being developed in triple-combination regimens | | | | | – | Initiated a Phase 2 proof-of-concept clinical trial to evaluate VX-371 with ORKAMBI | | | | | – | Obtained U.S. approval for ORKAMBI for patients age 6 to 11 who are homozygous for the F508del mutation in their CFTR mutation.gene | | | | | – | Initiated a clinical trial to evaluate KALYDECO in patients 0 to 2 years of age | | | |
| • | Improved our research capabilities and advanced our development programs outside of CF: | ◦ | Established |
| – | Augmented our strength in identification of small molecule drugs by focusing research on validated targets addressing the underlying cause of disease and utilizing lab assays designed to predict clinical efficacy | | | | | – | Incorporated innovative therapeutic approaches with a focus on nucleic acid-based therapies | | | | | – | Obtained the first proof-of-concept data for a first in class novel mechanism (NaV 1.8 inhibitors) with VX-150, which we are developing as a potential treatment for pain | | | |
| • | Executed on business development transactions, including: | | |
| – | Establishing a collaboration with CRISPRModerna Therapeutics, AGInc. in July 2016 pursuant to which we are seeking to discover medicines aimed at the underlying genetic causes of human diseases, including CF, using CRISPR-Cas9 gene editing technology. |
Expanded and diversified our pipeline and research efforts beyond CF:
| develop mRNA therapeutics | ◦ | We are pursuing DNA damage repair, an important emerging area for | | | – | Orchestrating the developmentsuccessful outlicense of cancer medicines. We are evaluatingour four oncology programs, including VX-970 and VX-803 our most advanced oncology drug candidates, in early-stage clinical trials. |
| | ◦ | In pain, a Phase 2 clinical trial of VX-150 is ongoing and we expect to begin clinical development of VX-241 in 2016. |
Partially offsetting these achievements, were challenges and/or delays we encountered with respect to certainthe timing of our development programs, including VX-210, andenrollment of two of the four Phase 3 clinical trials of tezacaftor in combination with respect to the expansion of manufacturing infrastructure. ivacaftor.On the basis of (1) the accomplishments in advancing our research and development programs and, in particular, the advancement of next-generation correctors and (2) executing our CF programs across multiple initiatives including research and business development strategy, partially offset by delays with respect to certaindevelopment activities, theour board assigned the company a score of 3840 out of 4555 for our pipeline growth goal. Goals - Organizational Development and Capability Talent and expertise. S trengthenedStrengthened our organizational capabilities by attracting, developing and retaining the key talent necessary to operate our business, including the advancementfilling 23 of 26 critical positions with superior and diverse talent and initiating new leadership development programs and diversity initiatives.International Expansion. Expanded and improved our international infrastructure, including the transition to our new international headquarters in London and the expansionmanagement training programs.Systems.Continued improvement of our international operations. Systems. Improved infrastructure to support and integrate external research efforts and to support clinical operations.
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Vsmart software to support clinical development.Compliance. C ontinuedContinued to promote effective governance, communication and training to support our company-wide compliance and risk management programs. To reflect the improvements to our organizational structure, processes and systems achieved in 2015, the2016, our board assigned the company a score of 15 out of 15 for our organizational development and capability goals.Goals - Financial Strength We met all of our financial strength goals in 2015.2016. We managed our operating expenses to the low end of our guidance allowing us to maintainstrengthen our balance sheet strength and exit 2015end 2016 with cash, cash equivalents and marketable securities of $1.04$1.43 billion. As a result of our success in maintaining our financial strength by managing our operating expenses and securing a strong cash position, theour board assigned the company a score of 2030 out of 2030 for our financial strength goals.In connection with determining our 20152016 company rating, our board of directors made a net positive fivenine point adjustment based on additional factors that were not anticipated in our goals, including positive factors such as execution of our regulatory strategy for KALYDECO label expansion, our overall financial performance, advancement of VX-970 through engagement with the National Cancer Institute and implementation of initiatives to foster innovation, partially offset by certain negative factorswhich were primarily related to our operations,success in accelerating the development of multiple next-generation correctors (four versus two in our plan), including positive data from clinical trials evaluating VX-440 and VX-152 allowing both to advance into proof-of-concept clinical trials and the slower than expected enrollmentadvancement of certaintwo additional next-generation correctors, VX-659 and VX-445, which are each being evaluated in Phase 1 clinical trials.trials, and also included two additional points for exceeding the upper end of our KALYDECO net product revenue guidance by $13.4 million. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 54 2016 Individual Performance Ratings - Overview The MDCC evaluates executives’ individual performance on a “results-based, values-tempered” basis, which takes into account not only “what” was accomplished, but “how” it was accomplished. The results-based component evaluates the executive officer’s performance in his or her individual role and as a leader of our company in achieving our objectives. The possible individual results-based performance ratings are “not building,” “building,” “strong” or “leading.” The values-tempered component of the individual evaluations builds upon our company core values: “uncompromising commitment to patients;” “innovation is our lifeblood;” “fearless pursuit of excellence” and “we wins” and are based on whether the decisions made by the executives were consistent with these values and what is in the best interests of the company in the long term. Under our Values Into Practice program, we expect all employees to demonstrate our company core values in all aspects of job performance. We further expect that our executives will be stewards of our core values, and the performance ratings assigned to them incorporate our board’s assessment of the strength of their leadership with respect to, and demonstration of, values-based behavior. This evaluation results in ratings of “not demonstrating,” “living the values” or “exemplary demonstration.” The possible individual performance ratings under this program are as set forth in the following table: | | | | | | | | Results Evaluation | | Values Evaluation | Not Building | Building | Strong | Leading | | Exemplary Demonstration | [Not Possible] | Strong | Leading | Leading/Exemplary | | Living the Values | Not Building | Building | Strong | Leading | | Not Demonstrating | Not Building | Not Building | Building | [Not Possible] |
The 20152016 results-based rating recommendation for each NEO, other than our CEO, is the combined result of the committee members’ observations and review of the executive’s role in the accomplishment of the corporate goals and recommendations provided to the MDCC by our chief executive officer made on the basis of his independent assessment of each executive officer’s performance. The MDCC and Dr. Leiden discussed the recommendations at length, on both an individual-by-individual basis, and on a comparative basis. Upon completion of these discussions, the MDCC finalized its recommendation for the results-based rating for each executive, taking into account Dr. Leiden’s recommendations, factors considered in the discussions and the opinions of MDCC members based on the executive’s contributions and the committee members’ interactions with the executive. When considering the more subjective values-based rating, the MDCC also discussed Dr. Leiden’s recommendations, giving Dr. Leiden'sLeiden’s recommendations greater weight when determining the values-based rating than when determining the results-based rating, because the values-based rating is pertinent to the executive’s daily interactions in carrying out his or her duties. Furthermore, the MDCC believes that, in his role as CEO, Dr. Leiden had greater
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visibility than the committee members into the quality of these interactions. Taking into account all of the factors raised in the discussion and the assigned individual performance rating, the MDCC assigns an individual performance factor for each NEO within the ranges set forth above. While the individual ratings are not 100% objective, we view them as critical factors indicative of management success and critical to achieving the more objective goals discussed above.VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 55 2016 Actual Individual Ratings for Named Executive Officers Dr. Leiden:
| Dr. Jeffrey Leiden | | 2016 Rating: | | Leading | | | Chairmen, President and CEO | | 2017 Salary: | $ | 1,300,000 | | | | | 2016 Bonus: | $ | 2,246,400 | | | | | LTI Equity Grants (Feb 2017): | $ | 12,500,000 | |
On the basis of the MDCC’s recommendation, our independent directors rated Dr. Leiden’s overall performance for 20152016 as “leading/exemplary”“leading” with an individual performance factor of 150%120%. The performance rating for Dr. Leiden combined a “leading”“strong” results-based rating with an “exemplary demonstration” values-based rating. The rating derived principally from his leadership of our executive team as we executed our strategy for 2015,2016, which was highlighted by: Obtaining timely approval for ORKAMBI in the United States and Europe
Advancing and broadening our pipeline in CF
Advancing our non-CF pipeline through internal research and external business development activities
Continuing to develop the strength of the organization in order to support the expanded scope and increased complexity of our business
Maintaining our financial strength through increased revenues and management of our operating expenses
Advancing our gender and ethnic diversity initiatives
Leadership in determining our corporate strategy and executing our business goals
Coordinating, as the chair of our board, clear communication between our board and management regarding key business and strategic issues
Exhibiting outstanding personal and leadership qualities enabling the successful stewardship of our company over the last year
Mr. Smith:
included:| • | The challenges faced with respect to the commercialization of ORKAMBI, partially offset by the continued over-achievement of our goals surrounding the commercialization of KALYDECO | | | | • | The advancement of our CF and non-CF pipelines, and in particular our four next-generation corrector compounds and our novel pain compound, partially offset by some delays with respect to enrollment of two or our four Phase 3 clinical trials for tezacaftor in combination with ivacaftor | | | | • | The excellent performance of our research organization in bringing forward multiple additional next-generation corrector compounds and augmenting our research capabilities in the area of nucleic acid technologies | | | | • | The execution of our business development strategy for 2016 | | | | • | Significantly increasing our financial strength through increased revenues and management of our operating expenses | | | | • | Leadership in determining our corporate strategy and executing our business goals | | | | • | Coordinating, as the chair of our board, clear communication between our board and management regarding key business and strategic issues | | | | • | Exhibiting outstanding personal and leadership qualities and Vertex’s core values in enabling the successful stewardship of our company over the last year | | |
| Ian Smith | | 2016 Rating: | | Leading | | | EVP, Chief Operating Officer and CFO | | 2017 Salary: | $ | 850,000 | | | | | 2016 Bonus: | $ | 562,500 | | | | | LTI Equity Grants (Feb 2017): | $ | 3,750,000 | |
The MDCC recommended and the board adopted a “leading/exemplary”“leading” rating for Mr. Smith based on a results-based rating of “leading” and a values-based rating of “exemplary demonstration”“living the values” with an individual performance factor of 150%125%. Mr. Smith’s rating was due to his overall contributions to the execution of our strategy with a focus on performance of the finance/accounting, business development, information systems and investor relations functions. More specifically, Mr. Smith was responsible for: Managing operating expenses in accordance with our budget and guidance, which together with increased CF net product revenues, allowed us to return to profitability in the fourth quarter of 2015 and to exit 2015 with cash, cash equivalents and marketable securities of approximately $1.0 billion
Leading our business development group, which had a very successful year, including the execution of two significant collaboration agreements:
| • | Managing operating expenses in accordance with our budget and guidance, which together with increased CF net product revenues, allowed us to generate significant cash flow in 2016 and end 2016 with cash, cash equivalents and marketable securities increasing to approximately $1.43 billion (as compared to $1.04 billion at the end of 2015) | ◦ | Parion Sciences Inc. - the in-license of VX-371, an investigational ENaC inhibitor, | | • | Leading our business development group, which strengthened our CF pipelinehad a very successful year, including: | | |
| – | orchestrating the successful outlicense of our oncology programs for $230 million upfront and potential future royalties to Merck KGaA, Darmstadt, Germany in a transaction that allows us to focus our development resources, while providing for the continued development of these promising programs | ◦ | CRISPR Therapeutics AG - | | | – | establishing a collaboration with Moderna Therapeutics, Inc. in July 2016 pursuant to which we are seeking to discover medicines aimed atdevelopment mRNA therapeutics for the underlying genetic causestreatment of human diseases, including CF using CRISPR-Cas9 gene editing technology | | | |
Coordinating the expansion of our infrastructure to support continued international expansion in support of the launch of ORKAMBI
Managing the implementation of multiple new GIS systems, including integrated systems to enhance the management of our development activities| • | Establishing a five-year $500 million revolving credit facility with $300 million in potential additional capacity to replace a $300 million term loan that would have matured in mid-2017 | | | | • | Implementing infrastructure systems to support our growth, integrate external research efforts and support our clinical operations | | |
| Dr. David M. Altshuler | | 2016 Rating: | | Leading/Exemplary | | | EVP, Global Research and Chief Scientific Officer | | 2017 Salary: | $ | 575,000 | | | | | 2016 Bonus: | $ | 500,250 | | | | | LTI Equity Grants (Feb 2017): | $ | 4,500,000 | |
The MDCC recommended and the expansion of our international GIS infrastructure
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Dr. Altshuler:
The MDCC recommendedboard adopted an overall rating of “leading”“leading/exemplary” for Dr. Altshuler based on a results-based rating of “strong”“leading” and a values-based rating of “exemplary demonstration” with an individual performance factor of 140%145%. Dr. Altshuler’s rating derived from his leadership of the research organization, including the following: | • | Accelerating multiple additional next-generation CFTR corrector compounds into clinical development | | | | • | Implementing a research strategy that augments our strength in identification of small molecule drugs by focusing research on validated targets addressing the underlying cause of disease and utilizing lab assays designed to predict clinical efficacy | | | | • | Incorporating innovative therapeutic approaches with a focus on nucleic acid-based therapies | | | | • | Recruiting an outstanding set of senior research scientists to our global research organization |
VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 56 Advancing multiple next-generation CFTR corrector compounds into clinical developmentAdvancing multiple oncology and pain drug candidates into clinical development
Leading the review of our research strategy and global research function, which was designed to support our long-term strategy of continuing to invest in research in order to expand our pipeline through the discovery and development of transformation medicines
Supporting business development efforts directed at enhancing our pipeline through our collaboration with Parion Sciences and our research capabilities through our collaboration with CRISPR Therapeutics AG
Completing the build out of infrastructure to support and integrate external research efforts
Mr. Arbuckle:
| Stuart A. Arbuckle | | 2016 Rating: | | Strong | | | EVP, Chief Commercial Officer | | 2017 Salary: | $ | 700,000 | | | | | 2016 Bonus: | $ | 420,000 | | | | | LTI Equity Grants (Feb 2017): | $ | 3,000,000 | |
The MDCC recommended and the board adopted an overall rating of “strong” for Mr. Arbuckle based on a results-based rating of “strong” and a values-based rating of “living the values” with an individual performance factor of 100%. Mr. Arbuckle’s rating was the result of the combination of: | • | The shortfall on ORKAMBI revenues in the U.S. and in ex-U.S. markets partially offset by | | | | • | The continued commercial over-performance of KALYDECO in U.S. and ex-U.S. markets | | |
| Michael Parini | | 2016 Rating: | | Leading/Exemplary | | | EVP, Chief Legal and Administrative Officer | | 2017 Salary: | $ | 675,000 | | | | | 2016 Bonus: | $ | 499,867 | | | | | LTI Equity Grants (Feb 2017): | $ | 4,500,000 | |
The MDCC recommended and the board adopted an overall rating of “leading/exemplary” for Mr. ArbuckleParini based on a results-based rating of “leading” and a values-based rating of “exemplary demonstration” with an individual performance factor of 150%. The MDCC noted Mr. Arbuckle’s leadership with respect to the following: Increasing CF net product revenues by 112% compared to 2014
Successfully launching ORKAMBI in the United States in mid-2015 and preparing for the launch of ORKAMBI in ex-U.S. markets
Successfully securing appropriate reimbursement for eligible KALYDECO patients in the United States and ex-U.S. markets as we continued to increase the number of patients who were eligible for KALYDECO through label and geographic expansions
Executing international expansion to support KALYDECO and ORKAMBI through Vertex's presence in multiple additional jurisdictions
Facilitating strong cooperation across a diverse set of cross-functional teams and partnering with other leadership team members in the commercial and research and development organizations
Overseeing the successful development and validation of the new commercial manufacturing processes that enabled the ORKAMBI launch
Dr. Chodakewitz:
Parini’s rating derived from:| • | Leading the legal and compliance organization as it supported the achievement of company-wide goals | | | | • | Leading a successful reorganization of the legal and compliance department | | | | • | Recruiting a number of outstanding senior and mid-level lawyers to the legal department | | | | • | Enhancing our global compliance organization, particularly ex-U.S. | | | | • | Successfully resolving several legal cases on terms favorable to the company | | |
| Amit Sachdev | | 2016 Rating: | | Leading | | | EVP, Chief Regulatory Officer and Chief of Staff to the CEO | | 2017 Salary: | $ | 540,750 | | | | | 2016 Bonus: | $ | 438,007 | | | | | LTI Equity Grants (Feb 2017): | $ | 3,750,000 | |
The MDCC recommended and the board adopted an overall rating of “leading” for Dr. ChodakewitzMr. Sachdev based on a results-based rating of “strong” and a values-based rating of “exemplary demonstration” with an individual performance factor of 135%. Dr. Chodakewitz ’sMr. Sachdev’s rating derived principally from his leadership of the regulatory and developmentgovernmental affairs organizations with respect to the following: Obtaining timely approval for ORKAMBI in the United States and European Union
Advancing multiple development programs, including the four ongoing Phase 3 clinical trials of VX-661 in combination with ivacaftor
Advancing our pipeline through multiple early-stage clinical trials in a number of therapeutic areas, including clinical trials evaluating:
| • | Assuming responsibility for, and managing our global regulatory strategy | ◦ | our next-generation corrector compounds, VX-152 and VX-440; and |
| | ◦• | our drug candidatesLeading a successful reorganization of the global regulatory group | | | | • | Obtaining U.S. approval for ORKAMBI for patients age 6 to 11 who are homozygous for the treatmentF508del mutation | | | | • | Formulating the U.S. and European regulatory strategies for tezacaftor in combination with ivacaftor | | | | • | Leading the health economics outcomes research analysis of cancerthe long-term data for KALYDECO and painORKAMBI |
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Annual Cash Bonus The cash bonus (referred to in the Summary Compensation Tableon page 6764 of this proxy statement as “Non-Equity Incentive Plan Compensation”) is calculated by multiplying the executive officer’s target bonus by both the company performance factor and the individual performance factor, in accordance with the following formula:formula in 2016: | | | | | | | | | | | Target Cash Bonus | x× | Performance Factors | = | Cash Bonus | | Base Salary | × | Individual
Incentive Target
(expressed as
a percentage
of base salary)
| × | Company Performance
Factor
(expressed as a
percentage of the
target bonus)
| × | Individual Performance
Factor
(expressed as a
percentage of the
target bonus)
| = | Annual
Cash
Bonus
Award
| | | | CEO 120% of base | | | | | | | | | salary (50% of base salary for other NEOs) | | 0%- 150% | | 0-150% | | | | | salary for other NEOs) | | | | | | |
The individual incentive targets were established, and are reviewed annually, by the MDCC based on available data about Peer Group company compensation. These individual incentive targets have remained unchanged since we modified our cash compensation program in 2012. In November 2016, in connection with his promotion to chief operating officer, we increased Mr. Smith’s individual target bonus (expressed as a percentage of his base salary) from 50% to 75% for 2017. The resulting target annual bonuses approximate the median target annual bonuses for comparable executives at companies in our Peer Group.
peer companies.Company performance factors are determined annually and range from 0% to 150%. The possible individual ratings and corresponding individual performance factor ranges for our executive officers in 20152016 are set forth in the table below: | Individual | | | | Individual Rating | Individual
Performance Factor | | Not Building | 0% | | Building | 50%-80% | | Strong | 80%-120% | | Leading | 120%-150% | | Leading/Exemplary | 150%140%-150% |
On the basis of the factors described above, our independent directors approved, upon the MDCC’s recommendation, individual performance factors and annual bonus awards for each of the NEO on account of 20152016 performance, as set forth in the table below. | | | | | | | | | | | | | | | | Name | 2015
Target
Bonus | | Company
Performance
Factor | | Individual
Performance
Factor | | Proration Factor | | 2015
Performance
Cash Bonus | | Jeffrey M. Leiden | $ | 1,560,000 |
| x | 148% | x | 150% | x | 100% | = | $ | 3,463,200 |
| | Ian F. Smith | $ | 375,000 |
| x | 148% | x | 150% | x | 100% | = | $ | 832,500 |
| | David Altshuler | $ | 275,000 |
| x | 148% | x | 140% | x | 97% | = | $ | 552,628 |
| | Stuart A. Arbuckle | $ | 325,000 |
| x | 148% | x | 150% | x | 100% | = | $ | 721,500 |
| | Jeffrey Chodakewitz | $ | 309,000 |
| x | 148% | x | 135% | x | 100% | = | $ | 617,382 |
|
| | 2016 | | Company | | Individual | | | | | 2016 | | | Target | Performance | Performance | | Proration | | | Performance | | Name | Bonus | | Factor | | Factor | | Factor | | | Cash Bonus | | Jeffrey M. Leiden | $ | 1,560,000 | x | 120% | x | 120% | x | 100% | = | $ | 2,246,400 | | Ian F. Smith | $ | 375,000 | x | 120% | x | 125% | x | 100% | = | $ | 562,500 | | David Altshuler | $ | 287,500 | x | 120% | x | 145% | x | 100% | = | $ | 500,250 | | Stuart A. Arbuckle | $ | 350,000 | x | 120% | x | 100% | x | 100% | = | $ | 420,000 | | Michael Parini | $ | 280,000 | x | 120% | x | 150% | x | 99% | = | $ | 499,867 | | Amit Sachdev | $ | 270,375 | x | 120% | x | 135% | x | 100% | = | $ | 438,007 |
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The annual equity awards granted to our named executive officers are determined based on the executives' individual rating (i) in 2015 under our share-based guidelines and (ii) in 2016 under our new value-based guidelines.
2015Annual Equity Awards (Share-based Program) Under our prior program, our NEOs were eligible for the following equity awards granted in 2015 based on 2014 individual performance.
| | | | | | | | | | | | Building | Strong | Leading | Leading and
Exemplary | | | Restricted
Stock | Stock
Options | Restricted
Stock | Stock
Options | Restricted
Stock | Stock
Options | Restricted
Stock | Stock
Options | | Chief Executive Officer | 21,500 | 106,500 | 43,000 | 213,000 | 53,750 | 266,250 | 64,500 | 319,500 | | Executive Vice President | 6,900 | 34,000 | 13,800 | 68,000 | 17,250 | 85,000 | 20,700 | 102,000 |
During 2015, our named executive officers received equity awards in the following aggregate amounts, which are reflected in the 2015 Summary Compensation Table. Dr. Leiden, Mr. Smith, Mr. Arbuckle and Dr. Chodakewitz received options and restricted stock awards in February 2015 based on 2014 performance and a mid-year option grant. Dr. Altshuler received a sign-on performance contingent restricted stock award in January 2015 and a mid-year option grant.
| | | | | | | | | Stock Options | Restricted Stock | Value | | Jeffrey M. Leiden | 319,500 | 64,500 | $ | 23,325,824 |
| | Ian F. Smith | 102,000 | 20,700 | $ | 7,458,577 |
| | David Altshuler | 34,000 | 75,000 | $ | 11,043,284 |
| | Stuart A. Arbuckle | 102,000 | 20,700 | $ | 7,458,577 |
| | Jeffrey Chodakewitz | 91,500 | 17,250 | 6,582,549 |
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2016 Equity Awards (New Value-based Program)
We made significant modifications to our equity program, fundamentally shifting from a share-based approach to granting equity to a value-based program. The first equity grants under thisThis program were madewas fully implemented in February 2016. As a result of these changes, we are: substantially decreasing the value of compensation provided in the form of stock options (30% of total annual awards);
reducingwe:| • | substantially decreased the value of compensation provided in the form of stock options (30% of total annual awards); | | | | • | reduced the value of compensation delivered in the form of time-vested restricted stock (35% of total annual awards); and | | | | • | increased the link between performance and compensation by introducing PSU (35% of total annual awards). |
Value-Based Guidelines for Annual NEO Equity Grants Under our program our NEOs were eligible for awards with the following target values based on 2016 performance: | | | Not Building | | | Building | | | Strong | | | Leading | | | Leading/Exemplary | | | CEO | | $ | — | | | $ | 5,500,000 | | | $ | 11,000,000 | | | $ | 12,500,000 | | | $ | 14,000,000 | | | EVP | | $ | — | | | $ | 1,500,000 | | | $ | 3,000,000 | | | $ | 3,750,000 | | | $ | 4,500,000 | |
The number of shares subject to the time-vested restricted stock (35%units and performance stock units is based on the fair value of total annual awards); and increasingour common stock on the link between performance and compensation by introducing PSU (35%date of total annual awards).
| | | | | | | | | | | | | | | | | | | Not Building | Building | Strong | Leading | Leading/Exemplary | | CEO | $ | — |
| $ | 5,500,000 |
| $ | 11,000,000 |
| $ | 12,500,000 |
| $ | 14,000,000 |
| | EVP | $ | — |
| $ | 1,500,000 |
| $ | 3,000,000 |
| $ | 3,750,000 |
| $ | 4,500,000 |
|
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In February 2016, our independent directors approved, uponshares subject to the MDCC’s recommendation, individual performance factors and 2016 equity awards for eachstock options is based on an estimate of the NEOs,fair value of the stock options pursuant to the Black-Scholes option pricing model based on information available as of the grant date.Comparison of Value of Equity Grants in 2016 and 2015 As a result of these changes, the grant date fair-value of our NEOs’ total equity compensation under the annual program decreased by approximately 40% in 2016 under the new value-based program as compared to 2015 under the share-based program as set forth in the table below. | | | | | | | | Name | Individual
Performance
Rating | Performance-Based RSU (35%) | Options (30%) | Time-based RSU (35%) | Total Equity Value | | Jeffrey M. Leiden | Leading Exemplary | $4,900,000 | $4,200,000 | $4,900,000 | $14,000,000 | | Ian F. Smith | Leading Exemplary | $1,575,000 | $1,350,000 | $1,575,000 | $4,500,000 | | David Altshuler | Leading | $1,312,500 | $1,125,000 | $1,312,500 | $3,750,000 | | Stuart A. Arbuckle | Leading Exemplary | $1,575,000 | $1,350,000 | $1,575,000 | $4,500,000 | | Jeffrey Chodakewitz | Leading | $1,312,500 | $1,125,000 | $1,312,500 | $3,750,000 |
(1) Estimates forfollowing chart, which sets forth the fair value of equity compensation received by executives who were named executive officers in both 2016 and 2015. Dr. Altshuler’s equity grants in 2015 included his sign-on equity grant.LTI PROGRAM CHANGE HAS RESULTED IN DECREASED EQUITY AWARD LEVELS FOR NEOs 
The values of equity-based awards are based on our methodology for determining the grant-date fair value, including underlying assumptions for calculating these values as set forth in Note N to our consolidated financial statements included in our 20152016 Annual Report on Form 10-K10-K. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 59 February 2017 Grants Based on 2016 Performance In February 2017, our independent directors approved, upon the MDCC’s recommendation, individual performance factors and are subject to adjustment. In connection with the revision of our equity program, we have eliminated our practice of granting mid-year equity awards. In addition, we do not expect to grant off-cycle equity awards to our named executive officers in 2016. As a resultfor 2016 performance for each of these changes, the grant date fair-value of our NEOs, total equity compensation under the annual program will decrease by 40% to 45% in 2016 under the new value-based program as compared to 2015 under the share-based program. Dr. Altshuler's equity grants in 2015 included his sign-on equity grant.
 (1) Estimates for value of 2016 equity-based awards are based on our methodology for determining the grant-date fair value, including underlying assumptions for calculating these values as set forth in the table below.| | | | Individual | | | Performance- | | | | | | Time-based | | | | | | | | | Performance | | | Based RSU | | | Options | | | RSU | | | Total Equity | | | Name | | | Rating | | | (35%) | | | (30%) | | | (35%) | | | Value | | | Jeffrey M. Leiden | | | Leading | | | $ | 4,375,000 | | | $ | 3,750,000 | | | $ | 4,375,000 | | | $ | 12,500,000 | | | Ian F. Smith | | | Leading | | | $ | 1,312,500 | | | $ | 1,125,000 | | | $ | 1,312,500 | | | $ | 3,750,000 | | | David Altshuler | | | Leading Exemplary | | | $ | 1,575,000 | | | $ | 1,350,000 | | | $ | 1,575,000 | | | $ | 4,500,000 | | | Stuart A. Arbuckle | | | Strong | | | $ | 1,050,000 | | | $ | 900,000 | | | $ | 1,050,000 | | | $ | 3,000,000 | | | Michael Parini | | | Leading Exemplary | | | $ | 1,575,000 | | | $ | 1,350,000 | | | $ | 1,575,000 | | | $ | 4,500,000 | | | Amit Sachdev | | | Leading | | | $ | 1,312,500 | | | $ | 1,125,000 | | | $ | 1,312,500 | | | $ | 3,750,000 | |
| (1) | Estimates for value of equity-based awards granted in February 2017 for 2016 performance are based on our methodology for determining the grant-date fair value, including underlying assumptions for calculating these values as set forth in Note N to our consolidated financial statements included in our 2016 Annual Report on Form 10-K and are subject to adjustment. |
The terms of the equity granted in 2017 are as follows: | • | Stock Options. Stock options are granted at fair market value on the date of grant and vest over four years. | | | | • | Performance Stock Units. The PSUs vest, if at all, based half on financial and half on non-financial goals. The potential range of shares issuable pursuant to the performance stock unit awards range from 0% to 200% of the target shares based on financial and non-financial measures. Fifty percent of PSUs that could be earned have a one-year performance period with the amount actually earned dependent upon Vertex’s net product revenue performance and with vesting of the earned shares in three equal installments over a three-year period. The remaining 50% of PSUs that could be earned have a three-year performance period with the amount actually earned dependent upon the achievement of multiple clinical development milestones (i.e., advancement of CF and non-CF therapies in the clinic) and with the earned shares cliff vesting at the end of the three-year performance period. | | | | • | Time-based Stock Units. The time-based restricted stock units vest over a three-year period, subject to continued service. |
2016 Performance Units Company Target and Results Table We made our first equity grants under our new program in February 2016 based on 2015 performance. The structure of the awards granted in 2016 is the same as the structure of the awards granted in 2017. The final performance multiplier for the the 2016 financial-based performance restricted stock unit awards was determined by the MDCC and applied to the target units granted to determine the actual units earned and eligible to vest. The following chart shows the pre-established financial goals and the actual results for the financial-based performance restricted stock unit awards granted in 2016: | Company Goal | | Threshold | | | Target | | | Max | | | Results | | | Payout | | | CF Net Product Revenues | | | $ 1.65 billion | | | | $ 1.75 billion | | | | $ 1.90 billion | | | | $ 1.68 billion | | | | 66.5% | |
The performance multiple for the 2016 non-financial based performance restricted stock unit awards will be determined in the first quarter of 2019 based on performance over the three year performance period. The non-financial goals contained in our 2015 Annual Report on Form 10-K and3-year performance restricted stock units are subject to adjustment.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 62
| | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
|
| | | | | | Other Compensation Arrangements |
not disclosed for competitive reasons.Other Compensation Arrangements Benefits Our executives are eligible to participate in all benefit programs on the terms made generally available to our employees, including medical insurance, dental insurance, payment of life insurance premiums, disability coverage, equity programs, including a career employment/retirement provision, and participation in our employee stock purchase plan. We have a defined contribution—a 401(k)—plan, in which our NEOs are eligible to participate. We make matching contributions to the 401(k) plan. The formula for determining the amount of our matching contributions is the same for our NEOs as for our other employees (and are subject to the same statutory maximum), but the actual contributions made to the accounts of our NEOs generally are at the top end of the range, due to the executives’ higher salaries and correspondingly higher cash contribution levels. We do not provide any other retirement benefits to our executive officers. Employment Agreements and Post-Termination Compensation and Benefits The initial compensation terms for newly hired members of our executive team are the result of negotiations between us, in consultation with the MDCC and our board of directors, and the executive being recruited. Accordingly, the initial employment terms for each of the executive officers may vary significantly because they VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 60 take into account both our interests and the executive’s interests under the circumstances at the time of negotiation, and depend on the level of job responsibility, the market for the executive’s services, the value of other opportunities then available to the executive and similar considerations. Executives who join us from other companies may sacrifice potential bonuses and/or equity payouts, and may request compensation elements of similar value. More experienced individuals may seek higher compensation than individuals who are still establishing their careers. We seek to balance the need to be competitive in a competitive market against the need for the executive’s compensation to be comparable with the executive’s peers at the company. In general, each newly hired executive team member enters into an employment agreement and a change of control agreement and is awarded a stock option grant and a restricted stock grant, and in some cases a cash sign-on bonus, reimbursement of moving expenses, and other benefits. We also enter into employment and change of control agreements with executives who are promoted to our executive team, on the basis of standard terms and conditions that have been recommended by our MDCC and approved by our board for such circumstances. We have entered into agreements providing for severance and change of control payments with each of the members of our executive team, including all of the NEOs, because we believe that they are a fair and effective way to allow our executives to maintain focus on our business in the face of market and other volatility in our industry. In general, each employment arrangement provides for cash severance and continuation of certain employee benefits in the event that an executive’s employment is terminated by us without cause or is terminated by the executive for good reason. We use a “double trigger” with respect to benefits that are to be provided in connection with a change of control. A change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability, or by the executive for good reason, during a specified period before or after a change of control. We believe a “double trigger” benefit maximizes shareholder value because it prevents a windfall to executives in the event of a change of control in which the executive retains significant responsibility as defined in his or her individual agreement, while still providing our executives appropriate incentives to cooperate in negotiating any change of control that may put their jobs at risk. In addition to the benefits that only accrue in connection with a change of control, our agreements with our executive officers provide benefits if we terminate their employment with us without cause or they terminate their employment with us for good reason, as such terms are defined in the applicable agreement with the executive officer. A further discussion of the terms and projected payments under each of these agreements is set forth below under the heading Employment Contracts and Change of Control Arrangements.We would like our compensation program to be reasonably cost and tax effective. To the extent consistent with our other goals, we seek to preserve corporate tax deductions, while maintaining the flexibility to approve compensation arrangements that we believe are in the best interests of the company and our shareholders. The approach does not always result in full tax deductibility.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 63
| | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
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Compensation Practices Equity Grant Practices The exercise price for each stock option awarded to our executive officers under our equity compensation program is equal to the fair market value of our common stock on the date of grant, which under our equity plans is the average of the high and low price for our common stock on the date of grant. Our board of directors generally grants employee options two times per year, on the date of its mid-summer meeting, usually in July, and on the date of its first meeting of each new year, usually in late January or early February. Beginning in 2016, ourannual equity awards to named executive officers will no longer receive mid-year equity grants. Supplemental equity grants, if any, are made at a board meetings at the time when the board determines they are appropriate in order to meet the objectives of our compensation program. Board and committee meetings generally aremeeting scheduled at least a year in advance and schedulingfor early February. Scheduling decisions are made without regard to anticipated earnings or other major announcements by the company. Newly hired employees, including executive officers, are sometimes granted options and/or restricted stock units effective on the first day of employment, with the options having an exercise price set at the average of the high and low price for our common stock on the employment start date. The employees’ start dates are scheduled without regard to anticipated earnings or other major announcements by the company. In the past, the MDCC has recommended that our board of directors make an additional, off-cycle equity award to an executive officer or group of officers in order to achieve one or more of the objectives of our executive compensation program. Supplemental grants have been made on an ad hoc basis, when warranted in the judgment of the MDCC and our board. No such supplemental grants of equity compensation were made during 2015.2015 or 2016. Our MDCC and board do not currently anticipate making supplemental grants in 2016,2017, but retain the discretion to do so if warranted in their judgment. Compensation Recoupment (“Clawback”) Policy We have adopted a recoupment or claw-back policy providing that, if our board of directors determines that an executive officer engaged in fraud or intentional misconduct that resulted in an incorrect determination that an incentive compensation performance goal had been achieved, the board may take appropriate action to recover from such executive officer any compensation that resulted from such determination. The board may require reimbursementrepayment for any bonus, equity or incentive compensation awarded to an executive officer who engaged in the fraud or intentional misconduct to the extent it was based on such incorrect determination. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 61 Stock Ownership Guidelines We have stock ownership guidelines for our chief executive officer and NEOs and in 2014 adopted stock ownership guidelines for our non-employee directors, as discussed in Non-Employee Director Stock Ownership Guidelineson page 23 of this proxy statement. The guidelines for our NEOs are set forth in the following table: | | Employee | | Employee | Minimum Shareholding Requirement | | Chief Executive Officer | 6X base salary or 150K shares of our common stock | | Executive Vice Presidents | 4X base salary |
Individual holdings, and holdings of immediate family members, of (a) common stock, including unvested restricted stock, (b) restricted stock units and (c) shares held through our 401(k) plan count toward meeting these guidelines. Each of our NEOs, including our chief executive officer, currently satisfies the individual holding requirements. Anti-Hedging and Pledging Policy We prohibit all of our directors and employees, including our named executive officers, from (i) short selling or hedging our securities, (ii) purchasing or selling derivative securities based on our securities and (iii) pledging our securities.
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 64
| | COMPENSATION DISCUSSION AND ANALYSIS - DETAILED DISCUSSION AND ANALYSIS (continued)
|
Our MDCC reviews the risks and rewards associated with our compensation programs. The programs are designed with features that mitigate risk without diminishing the incentive nature of the compensation. We believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking over the short term and the long term. Our MDCC regularly evaluates the risks involved with our compensation programs and does not believe that any of our compensation programs create risks that are reasonably likely to have a material adverse effect on our company. We believe that our annual cash bonus and long-term equity compensation programs, which account for most of our executive officers’ compensation, contain appropriate risk mitigation factors, as summarized below: 
VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 62 | | | | | | | | Risk Mitigation Factor | | | | | | | | | | Cap on Awards | | | | | | | | | | Multiple Performance Factors | | | | | | | | Annual Cash Bonus | | Range of Awards (not all or nothing) | | | | | | | | | | Clawback Policy | | Equity Grants | | | | | | | | Balance of Short-term and Long-term Incentives (through annual cash bonuses and equity awards) | | | | | | | | | | Anti-hedging Policy | | | | | | | | | | Executive and Non-Employee Director Stock Ownership Guidelines | | | | | | | |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 65
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT The Management Development and Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and its discussions with management, the Management Development and Compensation Committee recommended to Vertex’s Board of Directors that the Compensation Discussion and Analysis be included in Vertex’s proxy statement for its 20162017 annual meeting of shareholders and incorporated by reference into Vertex’s Annual Report on Form 10-K for the year ended December 31, 2015.2016. This report is provided by the following directors who comprise the Management Development and Compensation Committee:
Terrence C. Kearney
Elaine S. Ullian
William D. Young
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2017 Proxy Statement | 66
63
SUMMARY COMPENSATION TABLE AND EQUITY TABLESSummary Compensation Table The following table provides summary information concerning compensation earned by (i) our president and chief executive officer; (ii) our chief operating officer and chief financial officer; and (iii) our other threefour most highly compensated employees who were serving as executive officers on December 31, 2015.2016. We refer to these officers collectively as our named executive officers. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | Year | Salary | | Bonus | | Stock
Awards | | Option
Awards | | Non-Equity
Incentive
Plan
Compensation | | All Other
Compensation | | Total | | Jeffrey M. Leiden | 2015 | $ | 1,297,692 |
| | $ | — |
| | $ | 7,038,885 |
| | $ | 16,286,939 |
| | $ | 3,463,200 |
| | $ | 13,110 |
| | $ | 28,099,826 |
| | Chairman, President & CEO | 2014 | $ | 1,100,000 |
| | $ | — |
| | $ | 19,883,350 |
| | $ | 12,669,261 |
| | $ | 2,970,000 |
| | $ | 12,857 |
| | $ | 36,635,468 |
| | | 2013 | $ | 1,038,462 |
| | $ | — |
| | $ | 1,773,963 |
| | $ | 7,529,374 |
| | $ | 2,772,000 |
| | $ | 12,675 |
| | $ | 13,126,474 |
| | Ian F. Smith | 2015 | $ | 701,796 |
| | $ | — |
| | $ | 2,258,991 |
| | $ | 5,199,586 |
| | $ | 832,500 |
| | $ | 13,110 |
| | $ | 9,005,983 |
| | EVP & Chief Financial Officer | 2014 | $ | 650,000 |
| | $ | — |
| | $ | 9,865,110 |
| | $ | 4,044,646 |
| | $ | 731,250 |
| | $ | 12,857 |
| | $ | 15,303,863 |
| | | 2013 | $ | 582,959 |
| | $ | — |
| | $ | 544,988 |
| | $ | 2,361,640 |
| | $ | 682,500 |
| | $ | 12,675 |
| | $ | 4,184,762 |
| | David Altshuler | 2015 | $ | 528,846 |
| | $ | 250,000 |
| | $ | 9,078,750 |
| | $ | 1,964,534 |
| | $ | 552,628 |
| | $ | 13,110 |
| | $ | 12,387,868 |
| | EVP & Chief Scientific Officer | | | | | | | | | | | | | | | | Stuart A. Arbuckle | 2015 | $ | 629,262 |
| | $ | — |
| | $ | 2,258,991 |
| | $ | 5,199,586 |
| | $ | 721,500 |
| | $ | 13,110 |
| | $ | 8,822,449 |
| | EVP & Chief Commercial | 2014 | $ | 600,000 |
| | $ | — |
| | $ | 9,865,110 |
| | $ | 4,044,646 |
| | $ | 675,000 |
| | $ | 12,857 |
| | $ | 15,197,613 |
| | Officer | 2013 | $ | 553,846 |
| | $ | — |
| | $ | 544,988 |
| | $ | 3,077,513 |
| | $ | 630,000 |
| | $ | 12,675 |
| | $ | 4,819,022 |
| | Jeffrey Chodakewitz | 2015 | $ | 615,231 |
| | $ | — |
| | $ | 1,882,493 |
| | $ | 4,700,056 |
| | $ | 617,382 |
| | $ | 15,254 |
| | $ | 7,830,416 |
| | EVP & Chief Medical Officer | 2014 | $ | 539,077 |
| | $ | 250,000 |
| | $ | 8,963,250 |
| | $ | 3,171,829 |
| | $ | 630,000 |
| | $ | 241,936 |
| | $ | 13,796,092 |
|
| | | | | | | | | | | | | | | | | | Non-Equity | | | | | | | | | Name and | | | | | | | | | | | Stock | | | Option | | | Incentive Plan | | | All Other | | | | | | Principal Position | | Year | | | Salary | | | Bonus | | | Awards | | | Awards | | | Compensation | | | Compensation | | | Total | | | Jeffrey M. Leiden | | | 2016 | | | $ | 1,300,000 | | | $ | — | | | $ | 9,800,076 | | | $ | 4,060,397 | | | $ | 2,246,400 | | | $ | 12,885 | | | $ | 17,419,758 | | | Chairman, President & CEO | | | 2015 | | | $ | 1,297,692 | | | $ | — | | | $ | 7,038,885 | | | $ | 16,286,939 | | | $ | 3,463,200 | | | $ | 13,110 | | | $ | 28,099,826 | | | | | | 2014 | | | $ | 1,100,000 | | | $ | — | | | $ | 19,883,350 | | | $ | 12,669,261 | | | $ | 2,970,000 | | | $ | 12,857 | | | $ | 36,635,468 | | | Ian F. Smith | | | 2016 | | | $ | 750,000 | | | $ | — | | | $ | 3,150,148 | | | $ | 1,305,144 | | | $ | 562,500 | | | $ | 12,885 | | | $ | 5,780,677 | | | EVP & Chief Operating Officer | | | 2015 | | | $ | 701,796 | | | $ | — | | | $ | 2,258,991 | | | $ | 5,199,586 | | | $ | 832,500 | | | $ | 13,110 | | | $ | 9,005,983 | | | and CFO | | | 2014 | | | $ | 650,000 | | | $ | — | | | $ | 9,865,110 | | | $ | 4,044,646 | | | $ | 731,250 | | | $ | 12,857 | | | $ | 15,303,863 | | | David Altshuler | | | 2016 | | | $ | 561,442 | | | $ | — | | | $ | 2,625,152 | | | $ | 1,087,620 | | | $ | 500,250 | | | $ | 12,885 | | | $ | 4,787,349 | | | EVP & Chief Scientific Officer | | | 2015 | | | $ | 528,846 | | | $ | 250,000 | | | $ | 9,078,750 | | | $ | 1,964,534 | | | $ | 552,628 | | | $ | 13,110 | | | $ | 12,387,868 | | | | Stuart A. Arbuckle | | | 2016 | | | $ | 672,885 | | | $ | — | | | $ | 3,150,148 | | | $ | 1,305,144 | | | $ | 420,000 | | | $ | 12,885 | | | $ | 5,561,062 | | | EVP & Chief Commercial Officer | | | 2015 | | | $ | 629,262 | | | $ | — | | | $ | 2,258,991 | | | $ | 5,199,586 | | | $ | 721,500 | | | $ | 13,110 | | | $ | 8,822,449 | | | | | | 2014 | | | $ | 600,000 | | | $ | — | | | $ | 9,865,110 | | | $ | 4,044,646 | | | $ | 675,000 | | | $ | 12,857 | | | $ | 15,197,613 | | | Michael Parini | | | 2016 | | | $ | 517,846 | | | $ | 250,000 | | | $ | 1,689,672 | | | $ | 4,731,100 | | | $ | 499,867 | | | $ | 41,779 | | | $ | 7,730,264 | | | EVP & Chief Legal and Administrative Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amit Sachdev | | | 2016 | | | $ | 540,750 | | | $ | — | | | $ | 3,150,148 | | | $ | 1,305,144 | | | $ | 438,007 | | | $ | 960 | | | $ | 5,435,009 | | | EVP & Chief Regulatory Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bonus Pursuant to applicable SEC rules, the annual cash bonuses earned by our named executive officers are set forth under the caption “Non-Equity Incentive Plan Compensation.” Other bonuses, such as sign-on bonuses, are listed separately under the caption “Bonus.” Stock Awards and Options Awards Pursuant to applicable SEC rules the grant-date fair values of the equity awards granted in February 20152016 for 20142015 performance are included in 20152016 compensation. Equity awards granted in February 20162017 for 20152016 performance pursuant to our revised equity compensation program are not reflected in theSummary Compensation Tableabove and will be included as 20162017 compensation in next year’s proxy statement. The amounts set forth under the captions “Stock Awards” and “Option Awards” in the table above represent the grant-date fair value of awards granted during the applicable fiscal year.Our methodology for determining the grant-date fair value, including underlying estimates and assumptions for calculating these values, is set forth in Note N to our consolidated financial statements included in our 20152016 Annual Report on Form 10-K filed with the SEC on February 16,23, 2017.The “Stock Awards” for 2016 . consist of performance stock unit, or PSU, awards and time-vested restricted stock unit awards granted in February 2016 and a sign-on equity grant for Mr. Parini in January 2016. The "Stock Awards"“Stock Awards” for 2015 consist of performance-accelerated restricted stock, or PARS, awards granted in February 2015 and a sign-on equity grant for Dr. Altshuler in February 2015. The "Stock Awards"“Stock Awards” for 2014 consist of PARS awards granted in February 2014, a sign-on equity grant for Dr. Chodakewitz in January 2014 and one-time performance-contingent retention awards granted in the fourth quarter of 2014 to each of our named executive officers (other than Dr. Altshuler).
Notice of Annual Meeting of Shareholders Leiden, Mr. Smith and 2016Mr. Arbuckle.VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement | 67
64
Non-Equity Incentive Plan Compensation—Annual Cash Bonus The amounts set forth under the caption “Non-Equity Incentive Plan Compensation” in the table above represent annual cash bonuses for 2016, 2015, 2014 and 20132014 performance, each of which was paid in the first quarter of the subsequent year. The cash bonus awards to the named executive officers for 20152016 performance were determined as follows: | | | | | | | | | | | | | | | | | | | | | | Name | Base Salary
| | Individual
Incentive
Target | | 2015
Target
Bonus | | Company
Performance
Factor | | Individual
Performance
Factor | | Proration Factor | | 2015
Performance
Cash Bonus | | Jeffrey M. Leiden | $ | 1,300,000 |
| x | 120% | = | $ | 1,560,000 |
| x | 148% | x | 150% | x | 100% | = | $ | 3,463,200 |
| | Ian F. Smith | $ | 750,000 |
| x | 50% | = | $ | 375,000 |
| x | 148% | x | 150% | x | 100% | = | $ | 832,500 |
| | David Altshuler | $ | 550,000 |
| x | 50% | = | $ | 275,000 |
| x | 148% | x | 140% | x | 97% | = | $ | 552,628 |
| | Stuart A. Arbuckle | $ | 650,000 |
| x | 50% | = | $ | 325,000 |
| x | 148% | x | 150% | x | 100% | = | $ | 721,500 |
| | Jeffrey Chodakewitz | $ | 618,000 |
| x | 50% | = | $ | 309,000 |
| x | 148% | x | 135% | x | 100% | = | $ | 617,382 |
|
| | | | | Individual | | | | 2016 | | Company | | Individual | | | | | | 2016 | | | | | | | Incentive | | | | Target | | Performance | | Performance | | Proration | | | | Performance | | | Name | | Base Salary | | Target | | | | Bonus | | Factor | | Factor | | Factor | | | | Cash Bonus | | | Jeffrey M. Leiden | | $ | 1,300,000 | | x | 120% | | = | | $ | 1,560,000 | | x | 120% | | x | 120% | | x | 100% | | = | | $ | 2,246,400 | | | Ian F. Smith | | $ | 750,000 | | x | 50% | | = | | $ | 375,000 | | x | 120% | | x | 125% | | x | 100% | | = | | $ | 562,500 | | | David Altshuler | | $ | 575,000 | | x | 50% | | = | | $ | 287,500 | | x | 120% | | x | 145% | | x | 100% | | = | | $ | 500,250 | | | Stuart A. Arbuckle | | $ | 700,000 | | x | 50% | | = | | $ | 350,000 | | x | 120% | | x | 100% | | x | 100% | | = | | $ | 420,000 | | | Michael Parini | | $ | 560,000 | | x | 50% | | = | | $ | 280,000 | | x | 120% | | x | 150% | | x | 99% | | = | | $ | 499,867 | | | Amit Sachdev | | $ | 540,750 | | x | 50% | | = | | $ | 270,375 | | x | 120% | | x | 135% | | x | 100% | | = | | $ | 438,007 | |
All Other Compensation The amounts set forth under the caption “All Other Compensation” in the table for 20152016 consist of: | | | | | | | | | | | | | | | Name | 401(k)
Match | Life Insurance
Premiums | Relocation Expense | Total | | Jeffrey M. Leiden | $ | 11,925 |
| $ | 1,185 |
| $ | — |
| $ | 13,110 |
| | Ian F. Smith | $ | 11,925 |
| $ | 1,185 |
| $ | — |
| $ | 13,110 |
| | David Altshuler | $ | 11,925 |
| $ | 1,185 |
| $ | — |
| $ | 13,110 |
| | Stuart A. Arbuckle | $ | 11,925 |
| $ | 1,185 |
| $ | — |
| $ | 13,110 |
| | Jeffrey Chodakewitz | $ | 11,925 |
| $ | 1,185 |
| $ | 2,144 |
| $ | 15,254 |
|
“All Other Compensation”| | | 401(k) | | | Life Insurance | | | Relocation | | | | | | Name | | Match | | | Premiums | | | Expense | | | Total | | | Jeffrey M. Leiden | | $ | 11,925 | | | | $ 960 | | | $ | — | | | $ | 12,885 | | | Ian F. Smith | | $ | 11,925 | | | | $ 960 | | | $ | — | | | $ | 12,885 | | | David Altshuler | | $ | 11,925 | | | | $ 960 | | | $ | — | | | $ | 12,885 | | | Stuart A. Arbuckle | | $ | 11,925 | | | | $ 960 | | | $ | — | | | $ | 12,885 | | | Michael Parini | | $ | 11,925 | | | | $ 960 | | | $ | 28,894 | | | $ | 41,779 | | | Amit Sachdev | | $ | — | | | | $ 960 | | | $ | — | | | $ | 960 | |
Option Exercises and Stock Vested for Dr. Chodakewitz in 2014 consisted primarily of relocation costs. OPTION EXERCISES AND STOCK VESTED FOR 2015
2016The following table sets forth the value realized by our named executive officers from options to purchase common stock exercised by the named executive officers during 20152016 and shares of restricted stock that vested during 2015.2016. The value realized per share for options is based on the difference between the exercise price and the fair market value of the shares of common stock on the date the options were exercised. The value realized on vesting of restricted stock awards is based on the fair market value of the shares on the vesting date.| | | Option Awards | | | Stock Awards | | | | Number of Shares | | | | | | Number of Shares | | | | | | | | Acquired on | | | Value Realized | | | Acquired on | | | Value Realized | | | Name | | Exercise | | | on Exercise | | | Vesting | | | on Vesting | | | Jeffrey M. Leiden | | | — | | | | $ — | | | | 19,667 | | | $ | 1,790,484 | | | Ian F. Smith | | | — | | | | $ — | | | | 12,084 | | | $ | 1,100,127 | | | David Altshuler | | | — | | | | $ — | | | | — | | | $ | — | | | Stuart A. Arbuckle | | | — | | | | $ — | | | | 8,458 | | | $ | 758,323 | | | Michael Parini | | | — | | | | $ — | | | | — | | | $ | — | | | Amit Sachdev | | | — | | | | $ — | | | | 10,166 | | | $ | 925,513 | |
VERTEX PHARMACEUTICALS INCORPORATED | | | | | | | | | | | | | | | | Option Awards | Stock Awards | | Name | Number of Shares
Acquired on Exercise | Value Realized
on Exercise | Number of Shares
Acquired on Vesting | Value Realized
on Vesting | | Jeffrey M. Leiden | — |
| | $ | — |
| 64,500 |
| | $ | 7,739,355 |
| | Ian F. Smith | — |
| | $ | — |
| 26,742 |
| | $ | 3,290,219 |
| | David Altshuler | 20,000 |
| | $ | 1,229,700 |
| — |
| | $ | — |
| | Stuart A. Arbuckle | 94,211 |
| | $ | 6,826,163 |
| 33,117 |
| | $ | 3,771,436 |
| | Jeffrey Chodakewitz | 17,188 |
| | $ | 838,864 |
| 2,375 |
| | $ | 268,565 |
|
Notice of Annual Meeting of Shareholders and 2016 - 2017 Proxy Statement | 68
65
TOTAL REALIZED COMPENSATION TABLE
Total Realized Compensation Table To supplement the SEC-required disclosure in the Summary Compensation Tableset forth above, we have included the additional table below, which shows “Total Realized Compensation” representing the total compensation realized by each named executive officer in each of the years shown. Total compensation as calculated under SEC rules, as shown in theSummary Compensation Table, includes several items that are driven by accounting assumptions, which are not necessarily reflective of compensation actually realized by the named executive officers in a particular year. The amounts reported in the Total Realized Compensation column differ substantially from the amounts reported in the Total column required under SEC rules and are not a substitute for those Total amounts. Total Realized Compensation represents: (1) Total compensation, as determined under applicable SEC rules,minus(2) the aggregate grant-date fair value of restricted stock unit awards, restricted stock awards and stock option awards (as determined under applicable SEC and accounting rules and reflected in the Stock Awards column and Option Awards column),plus(3) the value realized in the applicable year from the vesting of restricted stock and exercises of stock options (calculated in the same manner as for theOption Exercises and Stock Vested for 20152016table on page 6865 of this proxy statement).| | | | | | | | | | | | | | | Value Realized | | | Value | | | | | | | | | | | | | | Annual | | | All Other | | | from Vesting | | | Realized | | | | | | | | | | | | | | Cash | | | Compensation/ | | | of Restricted | | | from Stock | | | Total Realized | | | Name | | Year | | | Salary | | | Bonus | | | Bonus | | | Stock | | | Options | | | Compensation | | | Jeffrey M. Leiden | | | 2016 | | | $ | 1,300,000 | | | $ | 2,246,400 | | | $ | 12,885 | | | $ | 1,790,484 | | | $ | — | | | $ | 5,349,769 | | | | | | 2015 | | | $ | 1,297,692 | | | $ | 3,463,200 | | | $ | 13,110 | | | $ | 7,739,355 | | | $ | — | | | $ | 12,513,357 | | | | | | 2014 | | | $ | 1,100,000 | | | $ | 2,970,000 | | | $ | 12,857 | | | $ | 5,988,035 | | | $ | 18,793,100 | | | $ | 28,863,992 | | | Ian F. Smith | | | 2016 | | | $ | 750,000 | | | $ | 562,500 | | | $ | 12,885 | | | $ | 1,100,127 | | | $ | — | | | $ | 2,425,512 | | | | | | 2015 | | | $ | 701,796 | | | $ | 832,500 | | | $ | 13,110 | | | $ | 3,290,219 | | | $ | — | | | $ | 4,837,625 | | | | | | 2014 | | | $ | 650,000 | | | $ | 731,250 | | | $ | 12,857 | | | $ | — | | | $ | 7,598,771 | | | $ | 8,992,878 | | | David Altshuler | | | 2016 | | | $ | 561,442 | | | $ | 500,250 | | | $ | 12,885 | | | $ | — | | | $ | — | | | $ | 1,074,577 | | | | | | 2015 | | | $ | 528,846 | | | $ | 552,628 | | | $ | 263,110 | | | $ | — | | | $ | 1,229,700 | | | $ | 2,574,284 | | | Stuart A. Arbuckle | | | 2016 | | | $ | 672,885 | | | $ | 420,000 | | | $ | 12,885 | | | $ | 758,323 | | | $ | — | | | $ | 1,864,093 | | | | | | 2015 | | | $ | 629,262 | | | $ | 721,500 | | | $ | 13,110 | | | $ | 3,771,436 | | | $ | 6,826,163 | | | $ | 11,961,471 | | | | | | 2014 | | | $ | 600,000 | | | $ | 675,000 | | | $ | 12,857 | | | $ | 1,396,788 | | | $ | 2,935,124 | | | $ | 5,619,769 | | | Michael Parini | | | 2016 | | | $ | 517,846 | | | $ | 499,867 | | | $ | 291,779 | | | $ | — | | | $ | — | | | $ | 1,309,492 | | | Amit Sachdev | | | 2016 | | | $ | 540,750 | | | $ | 438,007 | | | $ | 960 | | | $ | 925,513 | | | $ | — | | | $ | 1,905,230 | |
VERTEX PHARMACEUTICALS INCORPORATED | | | | | | | | | | | | | | | | | | | | | | Name | Year | Salary | Annual
Cash
Bonus | All Other
Compensation/Bonus | Value Realized
from Vesting of
Restricted Stock | Value
Realized
from Stock
Options | Total Realized
Compensation | | Jeffrey M. Leiden | 2015 | $ | 1,297,692 |
| $ | 3,463,200 |
| $ | 13,110 |
| $ | 7,739,355 |
| $ | — |
| $ | 12,513,357 |
| | | 2014 | $ | 1,100,000 |
| $ | 2,970,000 |
| $ | 12,857 |
| $ | 5,988,035 |
| $ | 18,793,100 |
| $ | 28,863,992 |
| | | 2013 | $ | 1,038,462 |
| $ | 2,772,000 |
| $ | 12,675 |
| $ | 4,289,766 |
| $ | — |
| $ | 8,112,903 |
| | Ian F. Smith | 2015 | $ | 701,796 |
| $ | 832,500 |
| $ | 13,110 |
| $ | 3,290,219 |
| $ | — |
| $ | 4,837,625 |
| | | 2014 | $ | 650,000 |
| $ | 731,250 |
| $ | 12,857 |
| $ | — |
| $ | 7,598,771 |
| $ | 8,992,878 |
| | | 2013 | $ | 582,959 |
| $ | 682,500 |
| $ | 12,675 |
| $ | 393,878 |
| $ | 34,925,940 |
| $ | 36,597,952 |
| | David Altshuler | 2015 | $ | 528,846 |
| $ | 552,628 |
| $ | 263,110 |
| $ | — |
| $ | 1,229,700 |
| $ | 2,574,284 |
| | Stuart A. Arbuckle | 2015 | $ | 629,262 |
| $ | 721,500 |
| $ | 13,110 |
| $ | 3,771,436 |
| $ | 6,826,163 |
| $ | 11,961,471 |
| | | 2014 | $ | 600,000 |
| $ | 675,000 |
| $ | 12,857 |
| $ | 1,396,788 |
| $ | 2,935,124 |
| $ | 5,619,769 |
| | | 2013 | $ | 553,846 |
| $ | 630,000 |
| $ | 12,675 |
| $ | 1,338,439 |
| $ | — |
| $ | 2,534,960 |
| | Jeffrey Chodakewitz | 2015 | $ | 615,231 |
| $ | 617,382 |
| $ | 15,254 |
| $ | 268,565 |
| $ | 838,864 |
| $ | 2,355,296 |
| | | 2014 | $ | 539,077 |
| $ | 630,000 |
| $ | 491,936 |
| $ | — |
| $ | 248,291 |
| $ | 1,909,304 |
|
Notice of Annual Meeting of Shareholders and 2016 - 2017 Proxy Statement | 69
66
GRANTS OF PLAN-BASED AWARDS DURING 2015
Grants of Plan-Based Awards During 2016 The following table provides information with respect to grants of awards to each of our named executive officers during 2015.2016. Pursuant to SEC rules, (i) the threshold, target and maximum amounts payable pursuant to our 20152016 annual cash bonus program are set forth in columns three through five, (ii) the threshold, target and maximum number of shares that could vest pursuant to a sign-on equity awardPSUs granted to Dr. Altshuler isin 2016 are set forth in columns six through eight, (iii) the number of shares granted pursuant to other restricted stock unit and restricted stock awards in 20152016, including a sign-on equity grant for Mr Parini, is set forth in column nine and (iv) the number of shares subject to option awards granted in 20152016 is set forth in column ten. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts
Under Equity Incentive
Plan Awards (shares) | | Name
| Grant Date
| Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other
Stock
Awards:
Number of
Shares of Stock or Units (#) | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | Exercise or
Base Price
of Option
Awards
($/Sh) | Closing
Price of
Stock on
Grant Date
($/Sh) | Grant-Date
Fair Value
of Stock
and Option
Awards ($) | | Jeffrey M. | | $ | 0 |
| $ | 1,560,000 |
| $ | 3,510,000 |
| | | | | | | | | | Leiden | 2/3/2015 | | | | | | | 64,500 |
| | | | $ | 7,038,885 | | | | 2/3/2015 | | | | | | | | 213,000 |
| $ | 109.14 | | $ | 108.72 | | $ | 10,133,326 | | | | 7/21/2015 | | | | | | | | 106,500 |
| $ | 131.89 | | $ | 130.97 | | $ | 6,153,613 | | | Ian F. | | $ | 0 |
| $ | 375,000 |
| $ | 843,750 |
| | | | | | | | | | Smith | 2/3/2015 | | | | | | | 20,700 |
| | | | $ | 2,258,991 | | | | 2/3/2015 | | | | | | | | 68,000 |
| $ | 109.14 | | $ | 108.72 | | $ | 3,235,052 | | | | 7/21/2015 | | | | | | | | 34,000 |
| $ | 131.89 | | $ | 130.97 | | $ | 1,964,534 | | | David | | $ | 0 |
| $ | 275,000 |
| $ | 618,750 |
| | | | | | | | | | Altshuler | 1/12/2015 | | | | — |
| 75,000 |
| 75,000 |
| | | | | $ | 9,078,750 | | | | 7/21/2015 | | | | | | | | 34,000 |
| 131.89 | | 130.97 | | $ | 1,964,534 | | | Stuart A. | | $ | 0 |
| $ | 325,000 |
| $ | 731,250 |
| | | | | | | | | | Arbuckle | 2/3/2015 | | | | | | | 20,700 |
| | | | $ | 2,258,991 | | | | 2/3/2015 | | | | | | | | 68,000 |
| $ | 109.14 | | $ | 108.72 | | $ | 3,235,052 | | | | 7/21/2015 | | | | | | | | 34,000 |
| $ | 131.89 | | $ | 130.97 | | $ | 1,964,534 | | | Jeffrey | | $ | 0 |
| $ | 309,000 |
| $ | 695,250 |
| | | | | | | | | | Chodakewitz | 2/3/2015 | | | | | | | 17,250 |
| | | | $ | 1,882,493 | | | | 2/3/2015 | | | | | | | | 57,500 |
| $ | 109.14 | | $ | 108.72 | | $ | 2,735,522 | | | | 7/21/2015 | | | | | | | | 34,000 |
| $ | 131.89 | | $ | 130.97 | | $ | 1,964,534 | |
| | | | | | | | | | | | | | | | | | | | | | | | All Other | | | All Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock | | | Option | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Awards: | | | Awards: | | | Exercise | | | | | | Grant-Date | | | | | | | | Estimated Possible Payouts | | | Estimated Future Payouts | | | Number of | | | Number of | | | or Base | | | Closing | | | Fair Value | | | | | | | | Under Non-Equity Incentive | | | Under Equity Incentive Plan | | | Shares of | | | Securities | | | Price of | | | Price of | | | of Stock | | | | | | | | Plan Awards | | | Awards (shares) | | | Stock or | | | Underlying | | | Option | | | Stock on | | | and Option | | | | | | | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | Units | | | Options | | | Awards | | | Grant Date | | | Awards | | | Name | | | Grant Date | | | | ($) | | | | ($) | | | | ($) | | | | (#) | | | | (#) | | | | (#) | | | | (#) | | | | (#) | | | | ($/Sh) | | | | ($/Sh) | | | | ($) | | | Jeffrey M. Leiden | | | | | | $ | 0 | | | $ | 1,560,000 | | | $ | 3,510,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 26,909 | | | | 53,818 | | | | | | | | | | | | | | | | | | | $ | 2,450,065 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 26,908 | | | | 53,816 | | | | | | | | | | | | | | | | | | | $ | 2,449,973 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 53,817 | | | | | | | | | | | | | | | $ | 4,900,038 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 107,276 | | | $ | 91.05 | | | $ | 90.98 | | | $ | 4,060,397 | | | Ian F. Smith | | | | | | $ | 0 | | | $ | 375,000 | | | $ | 843,750 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 8,650 | | | | 17,300 | | | | | | | | | | | | | | | | | | | $ | 787,583 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 8,649 | | | | 17,298 | | | | | | | | | | | | | | | | | | | $ | 787,491 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,299 | | | | | | | | | | | | | | | $ | 1,575,074 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,482 | | | $ | 91.05 | | | $ | 90.98 | | | $ | 1,305,144 | | | David Altshuler | | | | | | $ | 0 | | | $ | 287,500 | | | $ | 646,875 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 7,208 | | | | 14,416 | | | | | | | | | | | | | | | | | | | $ | 656,288 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 7,208 | | | | 14,416 | | | | | | | | | | | | | | | | | | | $ | 656,288 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,416 | | | | | | | | | | | | | | | $ | 1,312,576 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 28,735 | | | $ | 91.05 | | | $ | 90.98 | | | $ | 1,087,620 | | | Stuart A. Arbuckle | | | | | | $ | 0 | | | $ | 350,000 | | | $ | 787,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 8,650 | | | | 17,300 | | | | | | | | | | | | | | | | | | | $ | 787,583 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 8,649 | | | | 17,298 | | | | | | | | | | | | | | | | | | | $ | 787,491 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,299 | | | | | | | | | | | | | | | $ | 1,575,074 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,482 | | | $ | 91.05 | | | $ | 90.98 | | | $ | 1,305,144 | | | Michael Parini | | | | | | $ | 0 | | | $ | 280,000 | | | $ | 630,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1/4/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,800 | | | | | | | | | | | | | | | $ | 1,689,672 | | | | | | 1/4/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 68,000 | | | $ | 122.45 | | | $ | 122.89 | | | $ | 3,461,880 | | | | | | 7/12/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,000 | | | $ | 90.29 | | | $ | 89.63 | | | $ | 1,269,220 | | | Amit Sachdev | | | | | | $ | 0 | | | $ | 270,375 | | | $ | 608,344 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 8,650 | | | | 17,300 | | | | | | | | | | | | | | | | | | | $ | 787,583 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | — | | | | 8,649 | | | | 17,298 | | | | | | | | | | | | | | | | | | | $ | 787,491 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,299 | | | | | | | | | | | | | | | $ | 1,575,074 | | | | | | 2/2/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,482 | | | $ | 91.05 | | | $ | 90.98 | | | $ | 1,305,144 | |
Annual Cash Bonus. The amounts in the “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” column represent the minimum threshold, target and maximum amounts that our named executive officers were eligible for pursuant to our 20152016 annual cash bonus program. Actual amounts paid to each of the named executive officers under this program for 20152016 performance are set forth in theSummary Compensation Tableabove.Sign-on Equity Award. PSU.The amounts in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column represent the minimum threshold, target and maximum amounts that Dr. Altshuler is eligible forcould vest pursuant to his sign-on equity awardPSUs granted in February 2015. This award will2016. These awards vest if, and only if, performance objectives are achieved, as described in the footnotes to the table Outstanding Equity Awards at Fiscal Year-End for 20152016below.Time-Based Restricted Stock Grants. Units.The amounts in the “All Other Stock Awards: Number of Shares of Stock or Units” column represent the number of shares oftime-based restricted stock units granted to the named executive officers in 2015 pursuant to the annual2016 and a sign-on equity program that wasgrant for Mr Parini in place in February 2015.January 2016. The number of time-based restricted stock awardsunits to these named executive officers were made in February 20152016 on account of the executives’ performances in 2014. Each of these restricted stock awards is characterized as a PARS award that is subject to time-based vesting on the fourth anniversary of the grant date, subject to acceleration as described in the footnotes to the table 2015.VERTEX PHARMACEUTICALS INCORPORATEDOutstanding Equity Awards at Fiscal Year-End for 2015 below. - 2017 Proxy Statement 67 Options. In accordance with our stock and option plans, the exercise prices for the stock options granted to our named executive officers during 20152016 were equal to the average of the high and the low prices of our common stock on the grant date. As a result, in 20152016 the exercise prices of options granted to our named executive officers were higher than the grant-date closing price for the February 3, 20152, 2016 grants and the July 21, 2015 grants.12, 2016 grant to Mr. Parini. In the future, we expect that options will continue to be granted with exercise prices equal to the average of the high and low prices of our common stock on the
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 70
| | COMPENSATION AND EQUITY TABLES (continued)
|
grant date, and that as a result the exercise prices are likely to be different from the closing price of our common stock on the grant date. Each stock option set forth in the table above was granted subject to vesting in 16 quarterly installments during the first four years of its ten-year term.
Notice of Annual Meeting of Shareholders andOutstanding Equity Awards at Fiscal Year-End for 2016 Proxy Statement | 71
| | COMPENSATION AND EQUITY TABLES (continued)
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2015
The following table provides information with respect to outstanding equity awards held by each of our named executive officers on December 31, 2015,2016, based on the closing price of $125.83$73.67 per share of our common stock on December 31, 20152016:| | | Option Awards | | Stock Awards | | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares)(1) | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares)(1) | | Option
Exercise
Price
(per share) | | | Option
Expiration
Date(2) | | Number
of Shares
or Units of
Stock That
Have Not
Vested
(shares) | | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested | | | Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not Vested
(shares) | | | Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units
or Other Rights
That Have Not
Vested | | | Jeffrey M. Leiden | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 64,500 | (3) | | $ | 4,751,715 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 125,000 | (5) | | $ | 9,208,750 | | | | | | Time-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 53,817 | (4) | | $ | 3,964,698 | | | | | | | | | | | | Performance-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,909 | (6) | | $ | 1,982,386 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,908 | (7) | | $ | 1,982,312 | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 213,108 | | | | 0 | | | $ | 29.98 | | | 12/13/2021 | | | | | | | | | | | | | | | | | | | | | 30,000 | | | | 0 | | | $ | 34.05 | | | 7/5/2019 | | | | | | | | | | | | | | | | | | | | | 20,000 | | | | 0 | | | $ | 34.24 | | | 5/31/2020 | | | | | | | | | | | | | | | | | | | | | 1,527 | | | | 0 | | | $ | 34.39 | | | 12/14/2020 | | | | | | | | | | | | | | | | | | | | | 165,937 | | | | 11,063 | | | $ | 45.11 | | | 2/4/2023 | | | | | | | | | | | | | | | | | | | | | 118,000 | | | | 0 | | | $ | 48.74 | | | 7/24/2022 | | | | | | | | | | | | | | | | | | | | | 22,500 | | | | 0 | | | $ | 53.85 | | | 5/31/2021 | | | | | | | | | | | | | | | | | | | | | 146,437 | | | | 66,563 | | | $ | 77.31 | | | 2/4/2024 | | | | | | | | | | | | | | | | | | | | | 86,531 | | | | 19,969 | | | $ | 83.36 | | | 7/29/2023 | | | | | | | | | | | | | | | | | | | | | 20,114 | | | | 87,162 | | | $ | 91.05 | | | 2/1/2026 | | | | | | | | | | | | | | | | | | | | | 59,906 | | | | 46,594 | | | $ | 96.87 | | | 7/14/2024 | | | | | | | | | | | | | | | | | | | | | 93,187 | | | | 119,813 | | | $ | 109.14 | | | 2/2/2025 | | | | | | | | | | | | | | | | | | | | | 33,281 | | | | 73,219 | | | $ | 131.89 | | | 7/20/2025 | | | | | | | | | | | | | | | | | | Ian F. Smith | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20,700 | (3) | | $ | 1,524,969 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 75,000 | (5) | | $ | 5,525,250 | | | | | | Time-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,299 | (4) | | $ | 1,274,418 | | | | | | | | | | | | Performance-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,650 | (6) | | $ | 637,246 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,649 | (7) | | $ | 637,172 | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23,789 | | | | 0 | | | $ | 37.86 | | | 2/1/2022 | | | | | | | | | | | | | | | | | | | | | 10,195 | | | | 0 | | | $ | 38.80 | | | 2/2/2021 | | | | | | | | | | | | | | | | | | | | | 33,984 | | | | 3,399 | | | $ | 45.11 | | | 2/4/2023 | | | | | | | | | | | | | | | | | | | | | 18,124 | | | | 0 | | | $ | 48.74 | | | 7/24/2022 | | | | | | | | | | | | | | | | | | | | | 9,062 | | | | 0 | | | $ | 51.75 | | | 7/12/2021 | | | | | | | | | | | | | | | | | | | | | 46,750 | | | | 21,250 | | | $ | 77.31 | | | 2/4/2024 | | | | | | | | | | | | | | | | | | | | | 27,625 | | | | 6,375 | | | $ | 83.36 | | | 7/29/2023 | | | | | | | | | | | | | | | | | | | | | 6,465 | | | | 28,017 | | | $ | 91.05 | | | 2/1/2026 | | | | | | | | | | | | | | | | | | | | | 19,125 | | | | 14,875 | | | $ | 96.87 | | | 7/14/2024 | | | | | | | | | | | | | | | | |
VERTEX PHARMACEUTICALS INCORPORATED: | | | | | | | | | | | | | | | | | | | | | | | Option Awards | Stock Awards | | Name | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares) (1) | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares) (1) | Option
Exercise
Price
(per share) | Option
Expiration
Date (2) | Number of
Shares or
Units of
Stock
That
Have Not
Vested
(shares) | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested | Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(shares) | | Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units or
Other Rights
That Have
Not Vested | | Jeffrey M. Leiden | Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | 19,667 |
| (3) | $ | 2,474,699 |
| | | |
|
|
|
|
|
|
| 64,500 |
| (4) | $ | 8,116,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 125,000 |
| (5) | $ | 15,728,750 |
|
| Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 213,108 | 0 |
|
| $29.98 |
| 12/13/2021 |
|
|
|
|
|
|
|
|
|
|
| 30,000 | 0 |
|
| $34.05 |
| 7/5/2019 |
|
|
|
|
|
|
|
|
|
|
| 20,000 | 0 |
|
| $34.24 |
| 5/31/2020 |
|
|
|
|
|
|
|
|
|
|
| 1,527 | 0 |
|
| $34.39 |
| 12/14/2020 |
|
|
|
|
|
|
|
|
|
| | | 121,687 | 55,313 |
|
| $45.11 |
| 2/4/2023 | | | | | | | | | 95,875 | 22,125 |
|
| $48.74 |
| 7/24/2022 | | | | | | |
| 22,500 | 0 |
|
| $53.85 |
| 5/31/2021 |
|
|
|
|
|
|
|
|
|
| | | 93,187 | 119,813 |
|
| $77.31 |
| 2/4/2024 | | | | | | | | | 59,906 | 46,594 |
|
| $83.36 |
| 7/29/2023 | | | | | | | | | 33,281 | 73,219 |
|
| $96.87 |
| 7/14/2024 | | | | | | | | | 39,937 | 173,063 |
|
| $109.14 |
| 2/2/2025 | | | | | | |
| 6,656 | 99,844 |
|
| $131.89 |
| 7/20/2025 |
|
|
|
|
|
|
|
|
|
| | Ian F. Smith | Restricted Stock | | | |
|
| | | | | | | | | | | | 6,042 |
| (6) | $ | 760,265 |
| | | | | | | | | | 6,042 |
| (3) | $ | 760,265 |
| | | | | | | | | | 20,700 |
| (4) | $ | 2,604,681 |
| | | | | | | | | | | | | 75,000 |
| (5) | $ | 9,437,250 |
| | | Stock Options | | | | | | | | | | | | 20,390 | 3,399 |
|
| $37.86 |
| 2/1/2022 | | | | | | | | | 10,195 | 0 |
|
| $38.80 |
| 2/2/2021 | | | | | | | | | 20,391 | 16,992 |
|
| $45.11 |
| 2/4/2023 | | | | | | | | | 11,327 | 6,797 |
|
| $48.74 |
| 7/24/2022 | | | | | | | | | 9,062 | 0 |
|
| $51.75 |
| 7/12/2021 | | | | | | | | | 29,750 | 38,250 |
|
| $77.31 |
| 2/4/2024 | | | | | | | | | 19,125 | 14,875 |
|
| $83.36 |
| 7/29/2023 | | | | | | | | | 10,625 | 23,375 |
|
| $96.87 |
| 7/14/2024 | | | | | | | | | 12,750 | 55,250 |
|
| $109.14 |
| 2/2/2025 | | | | | | | | | 2,125 | 31,875 |
|
| $131.89 |
| 7/20/2025 | | | | | | |
Notice of Annual Meeting of Shareholders and 2016 -2017 Proxy Statement | 72
68| | | Option Awards | | Stock Awards | | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares)(1) | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares)(1) | | | Option
Exercise
Price
(per share) | | | Option
Expiration
Date(2) | | Number
of Shares
or Units of
Stock That
Have Not
Vested
(shares) | | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested | | | Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not Vested
(shares) | | | Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units
or Other Rights
That Have Not
Vested | | | | | | 29,750 | | | | 38,250 | | | $ | 109.14 | | | 2/2/2025 | | | | | | | | | | | | | | | | | | | | | 10,625 | | | | 23,375 | | | $ | 131.89 | | | 7/20/2025 | | | | | | | | | | | | | | | | | | David Altshuler | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 75,000 | (5) | | $ | 5,525,250 | | | | | | Time-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,416 | (4) | | $ | 1,062,026 | | | | | | | | | | | | | Performance-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7,208 | (6) | | $ | 531,013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7,208 | (7) | | $ | 531,013 | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7,500 | | | | 0 | | | $ | 63.14 | | | 5/23/2022 | | | | | | | | | | | | | | | | | | | | | 7,500 | | | | 0 | | | $ | 72.14 | | | 5/31/2024 | | | | | | | | | | | | | | | | | | | | | 20,000 | | | | 0 | | | $ | 81.54 | | | 5/31/2023 | | | | | | | | | | | | | | | | | | | | | 5,387 | | | | 23,348 | | | $ | 91.05 | | | 2/1/2026 | | | | | | | | | | | | | | | | | | | | | 10,625 | | | | 23,375 | | | $ | 131.89 | | | 7/20/2025 | | | | | | | | | | | | | | | | | | Stuart A. Arbuckle | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20,700 | (3) | | $ | 1,524,969 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 75,000 | (5) | | $ | 5,525,250 | | | | | | Time-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,299 | (4) | | $ | 1,274,418 | | | | | | | | | | | | | Performance-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,650 | (6) | | $ | 637,246 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,649 | (7) | | $ | 637,172 | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 22,656 | | | | 5,664 | | | $ | 45.11 | | | 2/4/2023 | | | | | | | | | | | | | | | | | | | | | 13,594 | | | | 0 | | | $ | 53.74 | | | 9/3/2022 | | | | | | | | | | | | | | | | | | | | | 17,000 | | | | 21,250 | | | $ | 77.31 | | | 2/4/2024 | | | | | | | | | | | | | | | | | | | | | 27,625 | | | | 6,375 | | | $ | 83.36 | | | 7/29/2023 | | | | | | | | | | | | | | | | | | | | | 6,465 | | | | 28,017 | | | $ | 91.05 | | | 2/1/2026 | | | | | | | | | | | | | | | | | | | | | 19,125 | | | | 14,875 | | | $ | 96.87 | | | 7/14/2024 | | | | | | | | | | | | | | | | | | | | | 29,750 | | | | 38,250 | | | $ | 109.14 | | | 2/2/2025 | | | | | | | | | | | | | | | | | | | | | 10,625 | | | | 23,375 | | | $ | 131.89 | | | 7/20/2025 | | | | | | | | | | | | | | | | | | Michael Parini | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,800 | | | $ | 1,016,646 | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,125 | | | | 31,875 | | | $ | 90.29 | | | 7/11/2026 | | | | | | | | | | | | | | | | | | | | | 12,750 | | | | 55,250 | | | $ | 122.45 | | | 1/3/2026 | | | | | | | | | | | | | | | | | | Amit Sachdev | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,250 | (3) | | $ | 1,270,808 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 40,000 | (5) | | $ | 2,946,800 | | | | | | Time-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,299 | (4) | | $ | 1,274,418 | | | | | | | | | | | | | Performance-based RSU | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,650 | (6) | | $ | 637,246 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,649 | (7) | | $ | 637,172 | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,156 | | | | 0 | | | $ | 37.86 | | | 2/1/2022 | | | | | | | | | | | | | | | | | | | | | 5,719 | | | | 0 | | | $ | 38.80 | | | 2/2/2021 | | | | | | | | | | | | | | | | | | | | | 25,733 | | | | 2,860 | | | $ | 45.11 | | | 2/4/2023 | | | | | | | | | | | | | | | | | | | | | 29,032 | | | | 0 | | | $ | 48.74 | | | 7/24/2022 | | | | | | | | | | | | | | | | | | | | | 30,500 | | | | 0 | | | $ | 51.75 | | | 7/12/2021 | | | | | | | | | | | | | | | | | | | | | 28,360 | | | | 12,890 | | | $ | 77.31 | | | 2/4/2024 | | | | | | | | | | | | | | | | | | | | | 22,343 | | | | 5,157 | | | $ | 83.36 | | | 7/29/2023 | | | | | | | | | | | | | | | | | | | | | 6,465 | | | | 28,017 | | | $ | 91.05 | | | 2/1/2026 | | | | | | | | | | | | | | | | |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 69 | COMPENSATION AND EQUITY TABLES (continued)
|
| | | | | | | | | | | | | | | | | | | | | | Option Awards | Stock Awards | | Name | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares) (1) | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares) (1) | Option
Exercise
Price
(per share) | Option
Expiration
Date (2) | Number of
Shares or
Units of
Stock
That
Have Not
Vested
(shares) | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested | Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(shares) | | Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units or
Other Rights
That Have
Not Vested | | David Altshuler | Restricted Stock | | | | | | | | | | | | | | | | | | | 75,000 |
| (5) | $ | 9,437,250 |
| | | Stock Options | | | | | | | | | | | | 3,750 | 3,750 |
| $63.14 |
| 5/23/2022 | | | | | | | | | 7,500 | 0 |
| $72.14 |
| 5/31/2024 | | | | | | | | | 20,000 | 0 |
| $81.54 |
| 5/31/2023 | | | | | | | | | 2,125 | 31,875 |
| $131.89 |
| 7/20/2025 | | | | | | | | Stuart A. Arbuckle | Restricted Stock | | | | | | | | | | | | | | | | 2,416 |
| (7) | $ | 304,005 |
| | | | | | | | | | 6,042 |
| (3) | $ | 760,265 |
| | | | | | | | | | 20,700 |
| (4) | $ | 2,604,681 |
| | | | | | | | | | | | | 75,000 |
| (5) | $ | 9,437,250 |
| | | Stock Options | | | | | | | | | | | | 0 | 28,320 |
| $45.11 |
| 2/4/2023 | | | | | | | | | 0 | 13,594 |
| $53.74 |
| 9/3/2022 | | | | | | | | | 0 | 38,250 |
| $77.31 |
| 2/4/2024 | | | | | | | | | 19,125 | 14,875 |
| $83.36 |
| 7/29/2023 | | | | | | | | | 10,625 | 23,375 |
| $96.87 |
| 7/14/2024 | | | | | | | | | 12,750 | 55,250 |
| $109.14 |
| 2/2/2025 | | | | | | | | | 2,125 | 31,875 |
| $131.89 |
| 7/20/2025 | | | | | | | | Jeffrey Chodakewitz | Restricted Stock | | | | | | | | | | | | | | | | 7,125 |
| (8) | $ | 896,539 |
| | | | | | | | | | 17,250 |
| (4) | $ | 2,170,568 |
| | | | | | | | | | | | | 75,000 |
| (5) | $ | 9,437,250 |
| | | Stock Options | | | | | | | | | | | | 3,437 | 30,938 |
| $73.51 |
| 1/1/2024 | | | | | | | | | 5,156 | 18,907 |
| $96.87 |
| 7/14/2024 | | | | | | | | | 10,781 | 46,719 |
| $109.14 |
| 2/2/2025 | | | | | | | | | 2,125 | 31,875 |
| $131.89 |
| 7/20/2025 | | | | | | |
| | | Option Awards | | Stock Awards | | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares)(1) | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares)(1) | | | Option
Exercise
Price
(per share) | | | Option
Expiration
Date(2) | | Number
of Shares
or Units of
Stock That
Have Not
Vested
(shares) | | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested | | Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not Vested
(shares) | | | Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units
or Other Rights
That Have Not
Vested | | | | | | 15,468 | | | | 12,032 | | | $ | 96.87 | | | 7/14/2024 | | | | | | | | | | | | | | | | | | | 25,156 | | | | 32,344 | | | $ | 109.14 | | | 2/2/2025 | | | | | | | | | | | | | | | | | | | 10,625 | | | | 23,375 | | | $ | 131.89 | | | 7/20/2025 | | | | | | | | | | | | | | |
| (1) | Unvested stock options are vesting in 16 quarterly installments during the first four years of their ten-year terms. The option expiration dates listed above reflect the final expiration date for each of the listed options. If the named executive officer’s service with us is terminated, the options would expire, subject to certain exceptions, three months after the termination of service. |
| | | (2) | Dr. Leiden’s options expiring in 2019 and 2020 and on May 31, 2021, which were granted in connection with service as a non-employee director, have ten-year terms and will not expire as a result of a termination of service. Dr. Altshuler’s options expiring in 2022 and 2023 and 2024, which were granted in connection with service as a non-employee director, have ten-year terms and will not expire as a result of a termination of service. |
| | | (3) | Each of these restricted stock awards is a PARS award, which was subject to time-based vesting on February 5, 2017, the fourth anniversary of grant, subject to acceleration of vesting upon the achievement of specified performance objectives. The vesting accelerated in February 2016 for the shares of each award outstanding as of December 31, 2015 upon reaching $1.0 billion in net product revenues over a one-year period from our cystic fibrosis products. |
| | (4) | Each of these restricted stock awards is a PARS award, which is subject to time-based vesting on February 3, 2019, the fourth anniversary of grant, subject to acceleration of vesting upon the achievement of specified performance objectives. The vesting accelerates for the first half of the shares upon (i) U.S net ORKAMBI sales for a 12-month period ending on a calendar quarter is equal to or greater than $1.25 billion or (ii) completion of a clinical trial that establishes a proof-of-concept for a next-generation CFTR corrector. The vesting accelerates for the second half of the shares upon (i) worldwide net ORKAMBI sales, excluding U.S. net ORKAMBI sales, for a 12-month period ending on a calendar quarter that is equal to |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 73
| or greater than $500 million or (ii) completion of a pivotal clinical trial of a non-cystic fibrosis drug candidate that provides sufficient data to support a new drug application. | | | COMPENSATION AND EQUITY TABLES (continued)
(4) | These time-based restricted stock unit awards vested as to one third of the shares on February 10, 2017 and vests in two remaining annual installments on February 10, 2018 and 2019. |
or greater than $500 million or (ii) completion of a pivotal clinical trial of a non-cystic fibrosis drug candidate that provides sufficient data to support a new drug application.
| | | (5) | As disclosed in our 2015 Proxy Statement, theseThese restricted stock awards were granted in the fourth quarter of 2014 or the first quarter of 2015 and will vest only if performance objectives are achieved prior to November 15, 2019. These awards will vest, only if we achieve positive EBITDA for the 12-month period ending September 30, 2017 on the third anniversary of the grant date. Between January 1, 2018 and November 15, 2019, if we achieve positive EBITDA for a 12-month period ending on a calendar quarter, these awards will vest on the day following the applicable earnings release. If the executive is terminated by us without cause prior to the second anniversary of the grant, 10% of the shares subject to the applicable award will vest if the performance condition is ultimately satisfied. If the executive is terminated by us without cause after the second anniversary of the grant date and prior to November 15, 2019, 20% of the shares subject to the applicable award will vest if the performance condition is ultimately satisfied. |
| | | (6) | This restrictedperformance stock unit award is a PARS award, which was subject to time-based vestingbased on February 2, 2016, the fourth anniversary of grant, subject to acceleration of vesting upon the achievement of specifiedone-year financial performance objectives. The vestingmetrics tied to our net product revenue for medicines for the treatment of cystic fibrosis (“Net Product Revenue”) during 2016 and with vesting of the earned shares in three equal installments on each of each award outstandingFebruary 10, 2017, 2018 and 2019. On February 3, 2017 our management development and compensation committee certified as to the level of December 31, 2015 occurred on February 2, 2016.performance-goal at 66.5% of the number of target shares. |
| | | (7) | This restrictedperformance stock award vests in one remaining annual installment on September 30, 2016. |
| | (8) | This restricted stock award vests in three remaining annual installments on January 31, 2016, 2017 and 2018. |
| | (9) | In 2014, we implemented a career employment/retirement program applicable to all of our employees 55 years of age or older, which provides that qualified employees who have provided significant service to us, are entitled, subject to certain restrictions including the provision of services during a required transition period, to partial or full acceleration of vesting of certain equity awards upon a termination of employment other than for cause. In addition, if such equityunit award is an option award it would remain outstandingbased on the achievement of three-year non-financial performance metrics. The awards provide for its original ten-year term. This program is only applicablemultiple clinical and research milestones, with a payout range of zero to equity awards granted on or after February 5, 2014200%. The specific clinical and isresearch milestones are not applicable todisclosed for competitive reasons. Performance against these goals will be certified by the performance-contingent restricted stock granted to our named executive officersMDCC in the fourth quarter of 2014 or first quarter of 2015. For Dr. Leiden's 2014 annual equity awards, upon a termination by us without cause or a termination of his employment for good reason, 18 months of service would be added to his length of service as an employee for purposes of calculating this accelerated vesting.early 2019. |
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 74
70
SUMMARY OF TERMINATION AND CHANGE OF CONTROL BENEFITS The amounts shown in the following table are calculated based on the amounts that would have been payable by us had the listed named executive officer experienced an employment termination on December 31, 20152016.| | | Voluntary
Termination or
Retirement/
Termination
for Cause | | | Separate From a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
With Good Reason | | | In Connection With a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
for Good Reason | | | Disability | | | Death | | | Jeffrey M. Leiden | | | | | | | | | | | | | | | | | | | | | | Cash Severance Benefits | | $ | — | | | $ | 4,420,000 | | | $ | 10,111,400 | | | $ | 1,560,000 | | | $ | 1,560,000 | | | Continuation of Employee Benefits | | | — | | | | 38,242 | | | | 38,242 | | | | — | | | | — | | | Accelerated Vesting of Stock Options | | | — | | | | 315,959 | | | | 315,959 | | | | 315,959 | | | | 315,959 | | | Accelerated Vesting of Restricted Stock | | | — | | | | 18,085,528 | | | | 21,889,862 | | | | 8,647,617 | | | | 21,889,862 | | | TOTAL | | $ | — | | | $ | 22,859,729 | | | $ | 32,355,463 | | | $ | 10,523,576 | | | $ | 23,765,821 | | | Ian F. Smith | | | | | | | | | | | | | | | | | | | | | | Cash Severance Benefits | | $ | — | | | $ | 1,500,000 | | | $ | 1,500,000 | | | $ | 937,500 | | | $ | 937,500 | | | Continuation of Employee Benefits | | | — | | | | 25,495 | | | | 25,495 | | | | — | | | | — | | | Accelerated Vesting of Stock Options | | | — | | | | 97,075 | | | | 97,075 | | | | 97,075 | | | | 97,075 | | | Accelerated Vesting of Restricted Stock | | | — | | | | 7,138,106 | | | | 9,599,054 | | | | 5,658,525 | | | | 9,599,054 | | | 280G Excise Tax | | | — | | | | — | | | | — | | | | — | | | | — | | | TOTAL | | $ | — | | | $ | 8,760,676 | | | $ | 11,221,624 | | | $ | 6,693,100 | | | $ | 10,633,629 | | | David Altshuler | | | | | | | | | | | | | | | | | | | | | | Cash Severance Benefits | | $ | — | | | $ | 862,500 | | | $ | 1,150,000 | | | $ | — | | | $ | — | | | Continuation of Employee Benefits | | | — | | | | 25,495 | | | | 25,495 | | | | — | | | | — | | | Accelerated Vesting of Stock Options | | | — | | | | — | | | | — | | | | — | | | | — | | | Accelerated Vesting of Restricted Stock | | | — | | | | — | | | | 7,649,303 | | | | — | | | | 7,649,303 | | | TOTAL | | | — | | | | 887,995 | | | | 8,824,798 | | | | — | | | | 7,649,303 | | | Stuart A. Arbuckle | | | | | | | | | | | | | | | | | | | | | | Cash Severance Benefits | | $ | — | | | $ | 1,050,000 | | | $ | 1,400,000 | | | $ | — | | | $ | — | | | Continuation of Employee Benefits | | | — | | | | 25,495 | | | | 25,495 | | | | — | | | | — | | | Accelerated Vesting of Stock Options | | | — | | | | — | | | | 161,764 | | | | — | | | | 161,764 | | | Accelerated Vesting of Restricted Stock | | | — | | | | — | | | | 9,599,054 | | | | — | | | | 9,599,054 | | | TOTAL | | $ | — | | | $ | 1,075,495 | | | $ | 11,186,313 | | | $ | — | | | $ | 9,760,818 | | | Michael Parini | | | | | | | | | | | | | | | | | | | | | | Cash Severance Benefits | | $ | — | | | $ | 840,000 | | | $ | 1,120,000 | | | $ | — | | | $ | — | | | Continuation of Employee Benefits | | | — | | | | — | | | | — | | | | — | | | | — | | | Accelerated Vesting of Stock Options | | | — | | | | — | | | | — | | | | — | | | | — | | | Accelerated Vesting of Restricted Stock | | | — | | | | — | | | | 1,016,646 | | | | — | | | | 1,016,646 | | | TOTAL | | $ | — | | | $ | 840,000 | | | $ | 2,136,646 | | | $ | — | | | $ | 1,016,646 | | | Amit Sachdev | | | | | | | | | | | | | | | | | | | | | | Cash Severance Benefits | | $ | — | | | $ | 811,125 | | | $ | 1,081,500 | | | $ | — | | | $ | — | | | Continuation of Employee Benefits | | | — | | | | 25,246 | | | | 25,246 | | | | — | | | | — | | | Accelerated Vesting of Stock Options | | | — | | | | 81,682 | | | | 81,682 | | | | — | | | | 81,682 | | | Accelerated Vesting of Restricted Stock | | | — | | | | 5,029,915 | | | | 6,766,442 | | | | — | | | | 6,766,442 | | | TOTAL | | $ | — | | | $ | 5,947,968 | | | $ | 7,954,870 | | | $ | — | | | $ | 6,848,124 | |
VERTEX PHARMACEUTICALS INCORPORATED. -2017 Proxy Statement 71 | | | | | | | | | | | | | | | | | | | Voluntary Termination or Retirement/Termination
for Cause | Separate From a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
With Good Reason | In Connection With a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
for Good Reason | Disability | Death | | Jeffrey M. Leiden |
|
|
|
|
|
|
|
| | | Cash Severance Benefits | $ | — |
| $ | 7,280,000 |
| $ | 10,111,400 |
| $ | 1,560,000 |
| $ | 1,560,000 |
| | Continuation of Employee Benefits | — |
| 27,553 |
| 35,504 |
| — |
| — |
| | Accelerated Vesting of Stock Options | — |
| — |
| 18,971,499 |
| 10,651,733 |
| 18,971,499 |
| | Continued Vesting of Stock Options | — |
| 12,898,752 |
| — |
| — |
| — |
| | Accelerated Vesting of Restricted Stock | — |
| 2,474,699 |
| 26,319,484 |
| 6,961,748 |
| 26,319,484 |
| | Total | $ | — |
| $ | 22,681,004 |
| $ | 55,437,887 |
| $ | 19,173,481 |
| $ | 46,850,983 |
| | Ian F. Smith |
|
|
|
|
|
|
|
| | | Cash Severance Benefits | $ | — |
| $ | 1,500,000 |
| $ | 1,500,000 |
| $ | 937,500 |
| $ | 937,500 |
| | Continuation of Employee Benefits | — |
| 18,369 |
| 18,369 |
| — |
| — |
| | Accelerated Vesting of Stock Options | — |
| 4,768,173 |
| 6,281,279 |
| 3,636,003 |
| 6,281,279 |
| | Accelerated Vesting of Restricted Stock | — |
| 8,123,554 |
| 13,562,461 |
| 7,020,374 |
| 13,562,461 |
| | 280G Excise Tax | — |
| — |
| — |
| — |
| — |
| | Total | $ | — |
| $ | 14,410,096 |
| $ | 21,362,109 |
| $ | 11,593,877 |
| $ | 20,781,240 |
| | David Altshuler | | | | | | | Cash Severance Benefits | $ | — |
| $ | 825,000 |
| $ | 1,100,000 |
| $ | — |
| $ | — |
| | Continuation of Employee Benefits | — |
| 23,669 |
| 23,669 |
| — |
| — |
| | Accelerated Vesting of Stock Options | — |
| — |
| 235,088 |
| — |
| 235,088 |
| | Accelerated Vesting of Restricted Stock | — |
| — |
| 9,437,250 |
| — |
| 9,437,250 |
| | Total | — |
| 848,669 |
| 10,796,007 |
| — |
| 9,672,338 |
| | Stuart A. Arbuckle |
|
|
|
|
|
|
|
| | | Cash Severance Benefits | $ | — |
| $ | 975,000 |
| $ | 1,300,000 |
| $ | — |
| $ | — |
| | Continuation of Employee Benefits | — |
| 23,669 |
| 23,669 |
| — |
| — |
| | Accelerated Vesting of Stock Options | — |
| — |
| 7,352,676 |
| — |
| 7,352,676 |
| | Accelerated Vesting of Restricted Stock | — |
| — |
| 13,106,201 |
| — |
| 13,106,201 |
| | Total | $ | — |
| $ | 998,669 |
| $ | 21,782,546 |
| $ | — |
| $ | 20,458,877 |
| | Jeffrey Chodakewitz |
|
|
|
|
|
|
|
| | | Cash Severance Benefits | $ | — |
| $ | 927,000 |
| $ | 1,236,000 |
| $ | — |
| $ | — |
| | Continuation of Employee Benefits | — |
| 23,420 |
| 23,420 |
| — |
| — |
| | Accelerated Vesting of Stock Options | — |
| — |
| 2,945,963 |
| — |
| 2,945,963 |
| | Accelerated Vesting of Restricted Stock | — |
| 896,539 |
| 12,504,356 |
| — |
| 12,504,356 |
| | Total | $ | — |
| $ | 1,846,959 |
| $ | 16,709,739 |
| $ | — |
| $ | 15,450,319 |
|
The amounts in the table above do not include any life insurance payments or disability insurance payments that the executive or the executive’s estate may receive under existing insurance policies. The assumptions underlying the calculations in the table include: the value of each share subject to an option to purchase common stock that would be accelerated or continue to vest in the circumstances described below under Employment Contracts and Change of Control Arrangements equals $125.83per share (the closing price on the last trading day of 2015), minus the exercise price per share;
the value of each share of restricted stock for which our repurchase right would lapse in the circumstances described below equals $125.83per share (the closing price on the last trading day of 2015);
appropriate provision for the continuation of all then-outstanding options would be made in connection with a change of control;
our board of directors would elect not to pay a pro rata portion of an executive’s target bonus for the year of termination in cases where the executive’s employment is terminated voluntarily by the executive (for any reason, including retirement) or for cause, under our policy that cash bonuses are payable only to employees who are otherwise eligible and who remain employed by us on the date of bonus payment, typically in February of the next year;
in addition to the amounts above, if Dr. Leiden, Mr. Arbuckle or Dr. Chodakewitz had been involuntarily terminated by us as of December 31, 2015, then 10% of the 2014 retention awards granted to them would vest on or after October 2017 to the extent the performance condition related to such awards is ultimately satisfied. The value of the shares that could vest pursuant to this provision was $1,572,875 for Dr. Leiden and $943,725 for each of Mr. Arbuckle and Dr. Chodakewitz; and
our board of directors would have assigned the same 2015 individual and company performance ratings on December 31, 2015 as they assigned in the first quarter of 2016.
| • | the value of each share subject to an option to purchase common stock that would be accelerated or continue to vest in the circumstances described below underEmployment Contracts and Change of Control Arrangementsequals $73.67 per share (the closing price on the last trading day of 2016), minus the exercise price per share; | | | | • | the value of each share of restricted stock for which our repurchase right would lapse or restricted stock unit that would be accelerated or continue to vest, in each case in the circumstances described below, equals $73.67 per share (the closing price on the last trading day of 2016); | | | | • | appropriate provision for the continuation of all then-outstanding options would be made in connection with a change of control; | | | | • | our board of directors would elect not to pay a pro rata portion of an executive’s target bonus for the year of termination in cases where the executive’s employment is terminated voluntarily by the executive (for any reason, including retirement) or for cause, under our policy that cash bonuses are payable only to employees who are otherwise eligible and who remain employed by us on the date of bonus payment, typically in February of the next year; | | | | • | our board of directors would have assigned the same 2016 individual and company performance ratings on December 31, 2016 as they assigned in the first quarter of 2017; and | | | | • | As of December 31, 2016, Dr. Leiden would not have received any benefits if he voluntarily retired. Under his amended employment agreement, Dr. Leiden is entitled to receive certain additional benefits upon retirement if (i) he were to provide 12 months notice or (ii) he retires at the end of the term of his employment agreement in March 2020. | | | | • | in addition to the amounts above, if Mr. Arbuckle had been involuntarily terminated by us as of December 31, 2016, then 20% of the 2014 retention award granted to him would vest on or after October 2017 to the extent the performance condition related to such award is ultimately satisfied. If Dr. Altshuler had been involuntarily terminated by us as of December 31, 2016, then 10% of his retention award would vest on or after October 2017 to the extent the performance condition related to such awards is ultimately satisfied. The value of the shares that could vest pursuant to this provision was $1,105,050 for Mr. Arbuckle and $552,525 for Dr. Altshuler. |
The actual amounts that the named executive officers could receive in the future as a result of a termination of employment would likely differ materially from the amounts set forth above as a result of, among other things, changes in our stock price, changes in their base salary, target bonus amounts and actual bonus amounts, and the vesting and grants of additional equity awards.
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 75
72 | | EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS |
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS We have entered into agreements and maintain plans that will require us to provide to our named executive officers cash compensation, benefits and/or acceleration of the vesting of equity awards in the event of termination of employment or service as a director under specified circumstances. The following summary descriptions of such agreements with our named executive officers are qualified by the complete terms and conditions set forth in each of the agreements. In addition to the agreements described below, outstanding options granted under our stock and option plans provide that, in the event of certain changes of control, either appropriate provision for the continuation of all then-outstanding options must be made, or the vesting of those options will be accelerated and they will become fully exercisable immediately prior to such change of control. As described below, the benefits that are to be provided in connection with a change of control are subject to a “double trigger.” A change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability or by the executive for good reason during a specified period before or after a change of control. The following descriptions are qualified in the entirety by the agreements with the executive officers, which have been filed with the SEC.In addition to the benefits described below, under programs applicable to all employees, if a named executive officer dies while an employee, his estate and/or beneficiaries would receive full acceleration of all outstanding stock options and restricted stockequity awards. The terms and conditions of Dr. Leiden’s employment are governed by a written employment contract, which was entered into on December 14, 2011, as amended on December 10, 2014,and restated in November 2016, and expires on DecemberMarch 31, 2017, provided that, if Dr. Leiden’s employment with us extends beyond the contract expiration date, certain provisions providing for severance benefits upon a “not-for-cause” employment termination by the company survive the contract expiration.2020. Dr. Leiden’s employment agreement provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Dr. Leiden has agreed not to engage in specified competitive activities for 18 months after his employment with us terminates. If Dr. Leiden’s employment is terminated by us without cause or he terminates his employment for good reason he would be entitled to receive: receive, subject to limited exceptions: | | | | | Severance Payment: | A) | 200%100% of the sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro-rated bonus for the year in which the termination occurs based on his target bonus for the year in which the termination occurs | Options:Equity: | Outstanding options, restricted stock and restricted stock units unvested on the termination date would receive partial vesting based on his years of termination shall be subject to continued vesting forservice as an additional 18 months following termination | Restricted Stock: | Vesting in fullemployee or non-employee director. This percentage is currently 70% and increases by 10% of each outstanding restricted stock award thatfull year of service. Options granted starting in 2014 would have otherwise vested in the 18 months following the termination | Restricted Stock Units: | Vesting in full of each outstanding RSU award that would have otherwise vested in the 18 months following the termination (using target or earned shares, as applicable,remain exercisable for performance-based awards) or, in the case of certain performance-based RSU awards, vesting in full of the number of target shares if the termination occurs within 18 months of the end of the performance perioda ten year term. | | Employee Benefits: | Continuation of certain employee benefits for up to 18 months |
If Dr. Leiden’s employment is terminated by us without cause or he terminates his employment for good reason within two years after a change of control of Vertex, he would instead be entitled to receive: | | | | | Severance Payment: | A) | 299% of the sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro-rated bonus for the year in which the termination occurs | Options:Equity: | Full vesting of all outstanding options, | Restricted Stock: | Full vesting of all outstanding restricted stock awards | Restricted Stock Units: | Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards) and restricted stock unit awards. | | Employee Benefits: | Continuation of certain employee benefits for up to 18 months |
Severance payments to Dr. Leiden in connection with a change of control may be reduced to increase their value to Dr. Leiden if such payments would be subject to an excise tax under Section 4999 of the Code. Dr. Leiden’s employment agreement does not provide for a so-called Section 4999 excise tax “gross-up.”
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 76
| | EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS (continued)
|
Under the employment agreement, Dr. Leiden would have the right to terminate his employment for good reason upon the occurrence of any of the following events without Dr. Leiden’s consent:
our failure to continue Dr. Leiden in the positions of chairman of the board, chief executive officer and president at any time during the term of the employment agreement;
a material adverse change in his duties, authority and/or responsibilities that, taken as a whole, effectively constitutes a demotion;
a material breach of the employment agreement by us, including a material reduction in base salary or target bonus; or
the relocation of the office to which he is assigned to a place 35 or more miles away from Cambridge, Massachusetts or Fan Pier, Boston, Massachusetts and such relocation is not at his request or is other than in connection with a change in location of our principal executive offices.
In addition, if there is a change of control and a resulting change in Dr. Leiden’s reporting relationship, without his consent, such that he is reporting to an executive officer of a parent entity, rather than to the board of directors of our company (or a successor corporation) or to the board of directors of a parent thereof, any material erosion of Dr. Leiden’s independent authority shall in itself constitute good reason for termination; provided that (a) such termination for good reason occurs within two years of such change of control and (b) the fact that there has been a change in Dr. Leiden’s reporting relationship shall not itself constitute an erosion of his independent authority.
Under Dr. Leiden’s employment agreement a change of control shall be deemed to have occurred if:
any person or group, as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act, becomes the beneficial owner, as such term is used in Rule 13d-3 promulgated under the Exchange Act, of securities representing more than 50% of the combined voting power of our outstanding securities, having the right to vote in the election of directors; or
all or substantially all our business or assets are sold or disposed of, or we or our subsidiary combines with another company pursuant to a merger, consolidation, or other similar transaction (subject to exceptions set forth in the agreement, including transactions in which our shareholders immediately prior to such merger or consolidation continue to own at least a majority of our outstanding voting securities or the outstanding voting securities of the surviving entity immediately after the merger or consolidation).
If Dr. Leiden’s employment is terminated as a result of disability, he would be entitled to receive: | • | a pro-rated bonus for the year of employment termination; | | | | • | vesting of options that would have vested during the 12 months following employment termination; | | | | • | for each restricted stock award that vests proportionally over time, vesting of all shares that would have vested in the 12 months following the employment termination; | | | | • | for each restricted stock award that cliff-vests on a specified date, vesting of shares pro rata over time on a daily basis from the date of grant through the date of employment termination; and | | | | • | for each RSU award, vesting of all shares that would have vested in the 12 months following the employment termination (using target or earned shares, as applicable, for performance-based awards), or, in the case of certain performance-based RSU awards, vesting of target shares pro-rata over time on a daily basis from the date of grant through the date of employment termination. |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 73 a pro-rated bonus for the year of employment termination;vesting of options that would have vested during the 12 months following employment termination;
for each restricted stock award that vests proportionally over time, vesting of all shares that would have vested in the 12 months following the employment termination;
for each restricted stock award that cliff-vests on a specified date, vesting of shares pro rata over time on a daily basis from the date of grant through the date of employment termination; and
for each RSU award, vesting of all shares that would have vested in the 12 months following the employment termination (using target or earned shares, as applicable, for performance-based awards), or, in the case of certain performance-based RSU awards, vesting of target shares pro-rata over time on a daily basis from the date of grant through the date of employment termination.
If Dr. Leiden dies while he is an employee, his estate and/or beneficiaries would receive a pro-rated bonus for the year of employment termination, as well as the full acceleration of his equity awards provided under our company-wide program. In addition, Dr. Leiden is eligible for a company-wide program that started in 2014 which provides, subject to certain restrictions, accelerationfor eligible employees, upon a voluntary termination with 12 months notice (including as a result of all or a portionthe expiration of the term of his employment agreement), additional vesting of outstanding equity awards upon a terminationbased on years of service other than for cause as described on page 74 of this proxy statement. After expiration of the agreement on December 31, 2017, we may nominatean employee and non-employee director. Dr. Leiden for re-election to our boardcurrently would receive vesting of directors, provided that from January 1, 2018 through December 31, 2018, our board may request Dr. Leiden resign70% the unvested shares and Dr. Leiden shall comply with any such request. If Dr. Leiden is not renominated, or resigns at our request between January 1, 2018 and December 31, 2018, his servicethis percentage will be deemed to continue through December 31, 2018 for the purposesincrease by 10% of vesting
Noticeeach full year of Annual Meeting of Shareholders and 2016 Proxy Statement | 77
| | EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS (continued)
|
of any equity, including any length of service calculation pursuant to the program described on page 74 of this proxy statement.
The terms and conditions of Mr. Smith’s employment are governed by a written employment contract, which was entered into in 2001, amended and restated in 2004 and amended in 2008. Mr. Smith’s employment agreement provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Mr. Smith has agreed not to engage in specified competitive activities for a period of one year after the termination of his employment with us. If Mr. Smith’s employment is terminated without cause, or if he terminates his employment with us of his own initiative for good reason or we do not renew his agreement, other than in connection with a change of control as described below, he would be entitled to receive: | | | | | Severance Payment: | A) | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro rata portion of his target bonus for the year in which the termination occurs | | Options: | Vesting of outstanding options that otherwise would have vested in the 18 months following termination | | Restricted Stock: | Vesting of each outstanding restricted stock award that would otherwise have vested in the 18 months following the termination, treating each award that vests other than ratably as if it vests ratably over the term of the grant | | Restricted Stock Units: | Vesting in full of each outstanding RSU award that would have otherwise vested in the 18 months following the termination (using target or earned shares, as applicable, for performance-based awards) or, in the case of certain performance-based RSU awards, vesting of target shares pro rata over time on a daily basis from the date of grant through the date that is 18 months following the termination | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
If we terminate Mr. Smith’s employment without cause or he terminates his employment with us for good reason on a date within the 90 days prior to or the 12 months after a change of control he would be entitled to receive: | | | | | Severance Payment: | A) | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro rata portion of his target bonus for the year in which the termination occurs | | Options: | Full vesting of all outstanding options | | Restricted Stock: | Full vesting of all outstanding restricted stock awards | | Restricted Stock Units: | Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards) | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months | | Tax Benefits: | Additional payments required to compensate him if payments made under the employment agreement result in certain adverse tax consequences including excise taxes under Section 4999 of the Code |
If Mr. Smith’s employment is terminated as a result of his disability, he would receive six months of severance pay, a pro rata portion of his target bonus for the year in which the termination occurred and 12 months’ acceleration of outstanding stock options, restricted stock awards and RSU awards (using target or earned shares, as applicable, for performance-based RSU awards), other than certain performance-based RSU awards which provide for vesting of target shares pro-rata over time on a daily basis from the date of grant through the date that is 12 months following the termination. If Mr. Smith dies while he is an employee, his estate and/or beneficiaries would receive six months of severance pay and a pro-rated target bonus for the year of employment termination, as well as the full acceleration of his equity awards provided under our company-wide program. Under the employment agreement, Mr. Smith would have the right to terminate his employment for good reason upon the occurrence of the following events without Mr. Smith’s consent:
he is assigned to any duties or responsibilities that are inconsistent, in any significant respect, with the scope of duties and responsibilities associated with his positions and offices on the date of the agreement, provided that such reassignment of duties or responsibilities is not due to his disability or performance, or is at his request;
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he suffers a reduction in the authorities, duties and responsibilities associated with his positions and offices on the date of the agreement, on the basis of which he makes a determination in good faith that he can no longer carry out those positions or offices in the manner contemplated on the date the agreement was entered into, provided that any such reduction of duties or responsibilities is not due to his disability or performance, or at his request;
his base salary is decreased;
his office location as assigned to him by us is relocated 35 or more miles from Cambridge, Massachusetts; or
in the event of a change of control, failure of any successor to assume the obligations and liabilities of the employment agreement.
Under Mr. Smith’s employment agreement cause means:
he is convicted of a crime involving moral turpitude;
he commits a material breach of any provision of his employment agreement; or
in carrying out his duties, he acts or fails to act in a manner which is determined, in the sole discretion of our board, to be (A) willful gross neglect or (B) willful gross misconduct resulting, in either case, in material harm to us unless such act, or failure to act, was believed by him, in good faith, to be in our best interests.
Under Mr. Smith’s employment agreement a change of control shall be deemed to have occurred if:
any person or group as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act, becomes the beneficial owner, as such term is used in Rule 13d-3 promulgated under the Exchange Act, of securities representing 51% or more of the combined voting power of our outstanding securities, having the right to vote in the election of directors;
a majority of our board during any 12-month period is replaced at a meeting of our board or at a meeting of our shareholders with individuals other than individuals nominated or approved by a majority of the disinterested directors (as such term is defined in the employment agreement);
all or substantially all of our business is disposed of pursuant to a merger, consolidation or other transaction (subject to exceptions set forth in the agreement) in which we are not the surviving corporation or we are materially or completely liquidated; or
we combine with another company and are the surviving corporation but, immediately after the combination, our shareholders hold, directly or indirectly, less than 50% of the total outstanding securities of the combined company having the right to vote in the election of directors.
The terms and conditions of Dr. Altshuler'sAltshuler’s employment are governed by a written employment contract, which was entered into in December 2014. His employment agreement provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Dr. Altshuler has agreed not to engage in specified competitive activities for a period of one year after the termination of his employment with us. VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 74 Under his employment agreement, if (i) Dr. Altshuler'sAltshuler’s employment is terminated without cause or (ii) he terminates his employment with us for good reason within 30 days of the event giving rise to his right to terminate for good reason, subject to notice and cure provisions, he would be entitled to receive: | | | | Severance Payment: | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Under the employment agreement, Dr. Altshuler would have the right to terminate his employment for good reason upon the occurrence of the following events without his consent:
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his duties are materially diminished to an extent that results in Dr. Altshuler either (i) no longer being an “officer,” as such term is defined in Rule 16a-1(f) promulgated under the Exchange Act, or (ii) ceasing to be a member of our executive management team;
his base salary is decreased, unless such reduction is part of an across-the-board proportionate reduction in the salaries of our senior management team; or
the office to which he is assigned is relocated to a place 35 or more miles away and such relocation is not at his request or with his prior agreement (and other than in connection with a change in location of our principal executive offices).
Under the employment agreement, cause means:
Dr. Altshuler is convicted of a crime involving moral turpitude;
he commits a material breach of any provision of the agreement not involving the performance or nonperformance of duties; or
in carrying out his duties, Dr. Altshuler acts or fails to act in a manner that is determined, in the sole discretion of our board, after written notice of any such act or failure to act and a reasonable opportunity to cure the deficiency has been provided to Dr. Altshuler, to be (A) willful gross neglect or (B) willful gross misconduct, resulting, in either case, in material harm to us unless such act, or failure to act, was believed by him, in good faith, to be in our best interests.
Change of Control Agreement We have a change of control agreement with Dr. Altshuler, which was entered into in December 2014. Under this agreement, if we terminate Dr. Altshuler’s employment without cause on a date within the 90 days prior to or the 12 months after a change of control or he terminates his employment within 30 days of an event giving rise to a right to terminate for good reason, subject to notice and cure provisions, and the event occurs on a date within the 90 days prior to or the 12 months after a change of control, he would be entitled to receive: | | | | | Severance Payment: | A) | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro rata portion of his target bonus for the year in which the termination occurs | | Options: | Full vesting of all outstanding options | | Restricted Stock: | Full vesting of all outstanding restricted stock awards | | Restricted Stock Units: | Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards) | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Severance payments to Dr. Altshuler in connection with a change of control may be reduced to increase their value to Dr. Altshuler if such payments would be subject to an excise tax under Section 4999 of the Code. Dr. Altshuler’s agreements do not provide for a so-called Section 4999 excise tax “gross-up.” Under the change of control agreement, Dr. Altshuler would have the right to terminate his employment for good reason upon the occurrence of the following events without his consent:
he suffers a material reduction in the authorities, duties or job title and responsibilities associated with his position as of the date of the change of control agreement;
his base salary is decreased;
the office to which he is assigned is relocated to a place 35 or more miles away; or
following a change of control, our successor fails to assume our obligations under the change of control agreement.
Under the change of control agreement, cause means:
Dr. Altshuler is convicted of a crime involving moral turpitude;
he willfully refuses or fails to follow a lawful directive or instruction of our board or the individual to whom he reports provided that he received prior written notice of the directive or instruction that he failed to follow and, provided further,
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that we, in good faith, give him 30 days to correct such failure, and further provided if he corrects such failure any termination of his employment on account of such failure shall not be treated as a termination for cause;
he commits willful gross negligence, or willful gross misconduct, resulting in either case in material harm to us, unless such act, or failure to act, was believed by him, in good faith, to be in our best interests; or
he violates any of our policies made known to him regarding confidentiality, securities trading or inside information.
Under the change of control agreement, change of control means:
any person or group as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act becomes the beneficial owner, as such term is used in Rule 13d-3 promulgated under the Exchange Act, of securities representing more than 50% of the combined voting power of our outstanding securities having the right to vote in the election of directors; or
all or substantially all of our business or assets are sold or disposed of, or we or one of our subsidiaries combines with another company pursuant to a merger, consolidation, or other similar transaction, other than (i) a transaction solely for the purpose of reincorporating us or one of our subsidiaries in a different jurisdiction or recapitalizing or reclassifying our stock; or (ii) a merger or consolidation in which our shareholders immediately prior to such merger or consolidation continue to own at least a majority of the outstanding securities of the surviving entity immediately after the merger or consolidation.
The terms and conditions of Mr. Arbuckle’s employment are governed by a written employment contract, which was entered into in August 2012. His employment agreement provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Mr. Arbuckle has agreed not to engage in specified competitive activities for a period of one year after the termination of his employment with us. Under his employment agreement, if (i) Mr. Arbuckle’s employment is terminated without cause or (ii) he terminates his employment with us for good reason within 30 days of the event giving rise to his right to terminate for good reason, subject to notice and cure provisions, he would be entitled to receive: | | | | Severance Payment: | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Under the employment agreement, Mr. Arbuckle would have the right to terminate his employment for good reason upon the occurrence of the following events without his consent:
his duties are materially diminished to an extent that results in Mr. Arbuckle either (i) no longer being an “officer,” as such term is defined in Rule 16a-1(f) promulgated under the Exchange Act, or (ii) ceasing to be a member of our executive management team;
his base salary is decreased, unless such reduction is part of an across-the-board proportionate reduction in the salaries of our senior management team; or
the office to which he is assigned is relocated to a place 35 or more miles away and such relocation is not at his request or with his prior agreement (and other than in connection with a change in location of our principal executive offices).
Under the employment agreement, cause means:
Mr. Arbuckle is convicted of a crime involving moral turpitude;
he commits a material breach of any provision of the agreement not involving the performance or nonperformance of duties; or
in carrying out his duties, Mr. Arbuckle acts or fails to act in a manner that is determined, in the sole discretion of our board, after written notice of any such act or failure to act and a reasonable opportunity to cure the deficiency has been
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provided to Mr. Arbuckle, to be (A) willful gross neglect or (B) willful gross misconduct, resulting, in either case, in material harm to us unless such act, or failure to act, was believed by him, in good faith, to be in our best interests.
Change of Control Agreement We have a change of control agreement with Mr. Arbuckle, which was entered into in August 2012. Under this agreement, if we terminate Mr. Arbuckle’s employment without cause on a date within the 90 days prior to or the 12 months after a change of control or he terminates his employment within 30 days of an event giving rise to a right to terminate for good reason, subject to notice and cure provisions, and the event occurs on a date within the 90 days prior to or the 12 months after a change of control, he would be entitled to receive: | | | | | Severance Payment: | A) | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro rata portion of his target bonus for the year in which the termination occurs | | Options: | Full vesting of all outstanding options | | Restricted Stock: | Full vesting of all outstanding restricted stock awards | | Restricted Stock Units: | Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards) | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Severance payments to Mr. Arbuckle in connection with a change of control may be reduced to increase their value to Mr. Arbuckle if such payments would be subject to an excise tax under Section 4999 of the Code. Mr. Arbuckle’s agreements do not provide for a so-called Section 4999 excise tax “gross-up.” Under the change of control agreement, Mr. Arbuckle would have the right to terminate his employment for good reason upon the occurrence of the following events without his consent:
he suffers a material reduction in the authorities, duties or job title and responsibilities associated with his position as of the date of the change of control agreement;
his base salary is decreased;
the office to which he is assigned is relocated to a place 35 or more miles away; or
following a change of control, our successor fails to assume our obligations under the change of control agreement.
Under the change of control agreement, cause means:
Mr. Arbuckle is convicted of a crime involving moral turpitude;
he willfully refuses or fails to follow a lawful directive or instruction of our board or the individual to whom he reports provided that he received prior written notice of the directive or instruction that he failed to follow and, provided further, that we, in good faith, give him 30 days to correct such failure, and further provided if he corrects such failure any termination of his employment on account of such failure shall not be treated as a termination for cause;
he commits willful gross negligence, or willful gross misconduct, resulting in either case in material harm to us, unless such act, or failure to act, was believed by him, in good faith, to be in our best interests; or
he violates any of our policies made known to him regarding confidentiality, securities trading or inside information.
Under the change of control agreement, change of control means:
any person or group as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act becomes the beneficial owner, as such term is used in Rule 13d-3 promulgated under the Exchange Act, of securities representing more than 50% of the combined voting power of our outstanding securities having the right to vote in the election of directors; or
all or substantially all of our business or assets are sold or disposed of, or we or one of our subsidiaries combines with another company pursuant to a merger, consolidation, or other similar transaction, other than (i) a transaction solely for the purpose of reincorporating us or one of our subsidiaries in a different jurisdiction or recapitalizing or reclassifying our stock; or (ii) a merger or consolidation in which our shareholders immediately prior to such merger or consolidation continue to own at least a majority of the outstanding securities of the surviving entity immediately after the merger or consolidation.
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75 | | EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS (continued)
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Jeffrey Chodakewitz
Michael J. Parini Employment Agreement The terms and conditions of Dr. Chodakewitz'sMr. Parini’s employment are governed by a written employment contract, which was entered into in December 2013.November 2015. His employment agreement provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Dr. ChodakewitzMr. Parini has agreed not to engage in specified competitive activities for a period of one year after the termination of his employment with us. Under his employment agreement, if (i) Dr. Chodakewitz’sMr. Parini’s employment is terminated without cause or (ii) he terminates his employment with us for good reason within 30 days of the event giving rise to his right to terminate for good reason, subject to notice and cure provisions, he would be entitled to receive: | | | | Severance Payment: | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | Restricted Stock: | Full vesting of his initial restricted stock award that vests over the four-year period ending in January 2018 | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Under the employment agreement, Dr. Chodakewitz would have the right to terminate his employment for good reason upon the occurrence of the following events without his consent:
his duties are materially diminished to an extent that results in Dr. Chodakewitz ceasing to be a member of our executive management team;
his base salary is decreased, unless such reduction is part of an across-the-board proportionate reduction in the salaries of our senior management team; or
the office to which he is assigned is relocated to a place 35 or more miles away and such relocation is not at his request or with his prior agreement (and other than in connection with a change in location of our principal executive offices).
Under the employment agreement, cause means:
Dr. Chodakewitz is convicted of a crime involving moral turpitude;
he commits a material breach of any provision of the agreement not involving the performance or nonperformance of duties; or
in carrying out his duties, Dr. Chodakewitz acts or fails to act in a manner that is determined, in the sole discretion of our board, after written notice of any such act or failure to act and a reasonable opportunity to cure the deficiency has been provided to Dr. Chodakewitz, to be (A) willful gross neglect or (B) willful gross misconduct, resulting, in either case, in material harm to us unless such act, or failure to act, was believed by him, in good faith, to be in our best interests.
Change of Control Agreement We have a change of control agreement with Dr. Chodakewitz,Mr. Parini, which was entered into in December 2013.November 2015. Under this agreement, if we terminate Dr. Chodakewitz’sMr. Parini’s employment without cause on a date within the 90 days prior to or the 12 months after a change of control or he terminates his employment within 30 days of an event giving rise to a right to terminate for good reason, subject to notice and cure provisions, and the event occurs on a date within the 90 days prior to or the 12 months after a change of control, he would be entitled to receive: | | | | | Severance Payment: | A) | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | | B) | A pro rata portion of his target bonus for the year in which the termination occurs | | Options: | Full vesting of all outstanding options | | Restricted Stock: | Full vesting of all outstanding restricted stock awards | | Restricted Stock Units: | Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards) | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
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Severance payments to Dr. ChodakewitzMr. Parini in connection with a change of control may be reduced to increase their value to Dr. ChodakewitzMr. Parini if such payments would be subject to an excise tax under Section 4999 of the Code. Dr. Chodakewitz’sMr. Parini’s agreements do not provide for a so-called Section 4999 excise tax “gross-up.” Amit Sachdev Employment Agreement The terms and conditions of Mr. Sachdev’s employment are governed by a written employment contract, which was amended and restated in February 2013. His employment agreement provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Mr. Sachdev has agreed not to engage in specified competitive activities for a period of one year after the termination of his employment with us. Under his employment agreement, if (i) Mr. Sachdev’s employment is terminated without cause or (ii) he terminates his employment with us for good reason within 30 days of the event giving rise to his right to terminate for good reason, subject to notice and cure provisions, he would be entitled to receive: | Severance Payment: | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | Options: | Vesting of outstanding options that otherwise would have vested in the 18 months following termination | | Restricted Stock: | Vesting of each outstanding restricted stock award that would otherwise have vested in the 18 months following the termination, treating each award that vests other than ratably as if it vests ratably over the term of the grant | | Restricted Stock Units: | Vesting in full of each outstanding RSU award that would have otherwise vested in the 18 months following the termination (using target or earned shares, as applicable, for performance-based awards) or, in the case of certain performance-based RSU awards, vesting of target shares pro rata over time on a daily basis from the date of grant through the date that is 18 months following the termination | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
VERTEX PHARMACEUTICALS INCORPORATED -2017 Proxy Statement 76 Change of Control Agreement We have a change of control agreement Dr. Chodakewitz would havewith Mr. Sachdev, which was amended and restated in February 2013. Under this agreement, if we terminate Mr. Sachdev’s employment without cause on a date within the right90 days prior to terminate his employment for good reason uponor the occurrence of the following events without his consent: he suffers a material reduction in the authorities, duties or job title and responsibilities associated with his position as of the date of the change of control agreement;
his base salary is decreased;
the office to which he is assigned is relocated to a place 35 or more miles away; or
following12 months after a change of control our successor failsor he terminates his employment within 30 days of an event giving rise to assume our obligations undera right to terminate for good reason, subject to notice and cure provisions, and the event occurs on a date within the 90 days prior to or the 12 months after a change of control, agreement.
Underhe would be entitled to receive:| Severance Payment: | A) | The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated | | B) | A pro rata portion of his target bonus for the year in which the termination occurs | | Options: | Full vesting of all outstanding options | | Restricted Stock: | Full vesting of all outstanding restricted stock awards | | Restricted Stock Units: | Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards) | | Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Severance payments to Mr. Sachdev in connection with a change of control agreement, cause means: Dr. Chodakewitz is convicted of a crime involving moral turpitude;
he willfully refuses or failsmay be reduced to follow a lawful directive or instruction of our board or the individualincrease their value to whom he reports provided that he received prior written noticeMr. Sachdev if such payments would be subject to an excise tax under Section 4999 of the directive or instruction that he failed to follow and, provided further, that we, in good faith, give him 30 days to correct such failure, and further provided if he corrects such failure any termination of his employment on account of such failure shallCode. Mr. Sachdev’s agreements do not be treated asprovide for a termination for cause;
he commits willful gross negligence, or willful gross misconduct, resulting in either case in material harm to us, unless such act, or failure to act, was believed by him, in good faith, to be in our best interests; or
he violates any of our policies made known to him regarding confidentiality, securities trading or inside information.
Under the change of control agreement, change of control means:
any person or group as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act becomes the beneficial owner, as such term is used in Rule 13d-3 promulgated under the Exchange Act, of securities representing more than 50% of the combined voting power of our outstanding securities having the right to vote in the election of directors; or
all or substantially all of our business or assets are sold or disposed of, or we or one of our subsidiaries combines with another company pursuant to a merger, consolidation, or other similar transaction, other than (i) a transaction solely for the purpose of reincorporating us or one of our subsidiaries in a different jurisdiction or recapitalizing or reclassifying our stock; or (ii) a merger or consolidation in which our shareholders immediately prior to such merger or consolidation continue to own at least a majority of the outstanding securities of the surviving entity immediately after the merger or consolidation.
so-called Section 4999 excise tax “gross-up.”Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 -2017 Proxy Statement | 84
77
EQUITY COMPENSATION PLAN INFORMATION
The following table provides aggregate information with respect to all of our equity compensation plans in effect as of December 31, 2015. We are required under applicable SEC rules to disclose in this table the number of shares remaining available for issuance under our equity plans as of December 31, 2015. Accordingly, the figures in the table below do not reflect the equity grants made to our employees under our 2013 Stock and Option Plan, or 2013 Plan, since December 31, 2015.
| | | | | | | | Plan Category | Number of
Securities
to be Issued Upon
Exercise of
Outstanding Options | Weighted-Average
Exercise Price of
Outstanding Options | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in first column) | | Equity Compensation Plans Approved by Shareholders (1) | 11,145,334 |
| $75.99 | 15,288,603 |
| | Equity Compensation Plans Not Approved by Shareholders | — |
| — | — |
| | Total | 11,145,334 |
| | 15,288,603 |
|
| | (1) | These plans consist of our 2013 Plan, 2006 Stock and Option Plan and our Employee Stock Purchase Plan, and awards granted under our 1996 Stock and Option Plan for which we obtained shareholder approval. |
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| | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following table sets forth information regarding beneficial ownership of our common stock as of April 20, 2016,12, 2017, by: each shareholder known by us to be the beneficial owner of more than 5% of our common stock on that date;
each of our directors;
each named executive officer; and
all directors and executive officers as a group.
| | | | | | | Name and Address | Shares
Beneficially Owned (1) | Percentage of Total (2) | | T. Rowe Price Associates, Inc. (3) | 25,345,121 |
| 10.2 | % | | 100 E. Pratt Street | | | | Baltimore, Maryland 21202 | | | | Capital World Investors (4) | 20,737,911 |
| 8.4 | % | | 333 South Hope Street | | | | Los Angeles, California 90071 | | | | BlackRock, Inc. (5) | 18,229,864 |
| 7.4 | % | | 55 East 52nd Street | | | | New York, New York 10055 | | | | FMR LLC (6) | 15,009,184 |
| 6.1 | % | | 245 Summer Street | | | | Boston, Massachusetts 02210 | | | | Wellington Management Group LLP (7) | 14,863,986 |
| 6.0 | % | | 280 Congress Street | | | | Boston, Massachusetts 02210 | | | | The Vanguard Group (8) | 14,503,469 |
| 5.9 | % | | 100 Vanguard Blvd. | | | | Malvern, Pennsylvania 19355 | | | | JPMorgan Chase & Co. (9) | 12,630,441 |
| 5.1 | % | | 270 Park Ave. | | | | New York, New York 10017 | | | | Sangeeta N. Bhatia (10) | 7,500 |
| * |
| | Joshua Boger (10) | 1,374,970 |
| * |
| | Terrence C. Kearney (10) | 61,875 |
| * |
| | Yuchun Lee (10) | 82,500 |
| * |
| | Jeffrey M. Leiden (10) | 1,326,254 |
| * |
| | Margaret G. McGlynn (10) | 81,088 |
| * |
| | Bruce I. Sachs (10) | 141,699 |
| * |
| | Elaine S. Ullian (10) | 72,765 |
| * |
| | William D. Young (10) | 55,000 |
| * |
| | Ian F. Smith (10) | 406,377 |
| * |
| | David Altshuler (10) | 207,586 |
| * |
| | Stuart A. Arbuckle (10) | 310,897 |
| * |
| | Jeffrey Chodakewitz (10) | 254,647 |
| * |
| | All directors and executive officers as a group (16 persons) (10) | 4,797,821 |
| 1.9 | % |
* | • | each shareholder known by us to be the beneficial owner of more than 5% of our common stock on that date; | | | | • | each of our directors and our director nominee; | | | | • | each named executive officer; and | | | | • | all directors and executive officers as a group. | | |
| | Shares Beneficially | Percentage of | | Name and Address | Owned(1) | Total(2) | | T. Rowe Price Associates, Inc.(3) | 21,860,325 | 8.8% | | 100 E. Pratt Street | | | | Baltimore, Maryland 21202 | | | | Capital World Investors(4) | 20,758,133 | 8.3% | | 333 South Hope Street | | | | Los Angeles, California 90071 | | | | BlackRock, Inc.(5) | 20,116,538 | 8.1% | | 55 East 52nd Street | | | | New York, New York 10055 | | | | FMR LLC(6) | 20,096,787 | 8.1% | | 245 Summer Street | | | | Boston, Massachusetts 02210 | | | | The Vanguard Group(7) | 15,914,094 | 6.4% | | 100 Vanguard Blvd. | | | | Malvern, Pennsylvania 19355 | | | | Wellington Management Group LLP(8) | 14,920,158 | 6.0% | | 280 Congress Street | | | | Boston, Massachusetts 02210 | | | | Sangeeta N. Bhatia(9) | 25,014 | * | | Joshua Boger(9) | 1,096,784 | * | | Alan Garber | — | * | | Terrence C. Kearney(9) | 71,889 | * | | Yuchun Lee(9) | 94,389 | * | | Jeffrey M. Leiden(9) | 1,343,367 | * | | Margaret G. McGlynn(9) | 91,207 | * | | Bruce I. Sachs(9) | 153,198 | * | | Elaine S. Ullian(9) | 82,779 | * | | William D. Young(9) | 72,514 | * | | Ian F. Smith(9) | 375,900 | * | | David Altshuler(9) | 136,183 | * | | Stuart A. Arbuckle(9) | 292,000 | * | | Michael Parini(9) | 40,304 | | | Amit Sachdev(9) | 318,816 | | | All directors and executive officers as a group (17 persons)(9) | 4,458,966 | 1.8% |
| * | Less than 1% | | | (1) | Beneficial ownership of shares for purposes of this proxy statement is determined in accordance with applicable SEC rules and includes shares of common stock as to which a person has or shares voting power and/or investment power, including dispositive power. The persons and entities named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, except as noted below. Information with respect to persons other than directors and executive officers is based solely upon Schedules 13G and amendments thereto filed with the SEC in the first quarter of 2016. |
| 2017. | | (2) | Percentage ownership is based on 247,349,864249,043,095 shares of our common stock outstanding on April 20, 2016. |
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 86
| | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (continued)
|
| 12, 2017. | | (3) | Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly affiliated with T. Rowe Price Associates, Inc. |
| | | (4) | Capital World Investors is a division of Capital Research and Management Company ("CRMC"(“CRMC”) and is deemed the beneficial owner of the shares as a result of CRMC acting as investment adviser to various investment companies. |
| | | (5) | Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly owned by BlackRock, Inc. |
| | | (6) | Reflects the securities beneficially owned, or that may be deemed to be beneficially owned, by FMR LLC, certain of its subsidiaries and affiliates, and other companies. |
VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 78 | (7) | Includes 316,915 shares beneficially owned by Vanguard Fiduciary Trust Company and 176,984 shares held by Vanguard Investments Australia, Ltd., each of which are a wholly-owned subsidiaries of The Vanguard Group, Inc. | (7)(8) | Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly owned by Wellington Management Group LLP. |
| | (8) | Includes 384,632LLP, including shares beneficially owned by Vanguard Fiduciary Trust Company and 176,468 shares held by Vanguard Investments Australia, Ltd., each of which are a wholly-owned subsidiaries of The Vanguard Group, Inc. |
| Health Care Fund. | | (9) | Reflects the securities beneficially owned by JPMorgan Chase & Co. or one of its wholly-owned subsidiaries. |
| | (10) | Includes shares that may be acquired upon the exercise of options exercisable within 60 days after April 20, 2016,12, 2017, unvested shares of restricted stock as of April 20, 201612, 2017, unvested restricted stock units vesting within 60 days of April 12, 2017 and deferred stock units as of April 20, 201612, 2017 issued pursuant to our Non-Employee Director Deferred Compensation Plan, as follows: | | |
| | | | | | | | | | Stock Options
Exercisable
Within 60 Days of
April 20, 2016 | Unvested Shares of
Restricted Stock as of
April 20, 2016 | Deferred Stock Units as of April 20, 2016 | | Sangeeta N. Bhatia | 7,500 |
| — |
| — |
| | Joshua Boger | 973,700 |
| — |
| — |
| | Terrence C. Kearney | 60,375 |
| — |
| — |
| | Yuchun Lee | 81,459 |
| — |
| — |
| | Jeffrey M. Leiden | 874,429 |
| 189,500 |
| — |
| | Margaret G. McGlynn | 80,000 |
| — |
| — |
| | Bruce I. Sachs | 120,000 |
| — |
| 489 |
| | Elaine S. Ullian | 67,500 |
| — |
| — |
| | William D. Young | 55,000 |
| — |
| — |
| | Ian F. Smith | 192,372 |
| 95,700 |
| — |
| | David Altshuler | 43,170 |
| 75,000 |
| — |
| | Stuart A. Arbuckle | 96,920 |
| 98,116 |
| — |
| | Jeffrey Chodakewitz | 45,044 |
| 97,000 |
| — |
| | All directors and executive officers as a group (16 persons) | 2,920,435 |
| 643,116 |
| 489 |
|
SECTION| | Stock Options | | Unvested Restricted | | | | Exercisable | Unvested Shares of | Units Vesting Within | Deferred Stock | | | Within 60 Days of | Restricted Stock as of | 60 Days of | Units as of | | | April 12, 2017 | April 12, 2017 | April 12, 2017 | April 12, 2017 | | Sangeeta N. Bhatia | 22,073 | — | 2,941 | — | | Joshua Boger | 737,073 | — | — | 2,941 | | Alan Garber | — | — | — | — | | Terrence C. Kearney | 67,448 | — | 2,941 | — | | Yuchun Lee | 90,407 | — | 2,941 | — | | Jeffrey M. Leiden | 1,134,657 | 189,500 | — | — | | Margaret G. McGlynn | 87,073 | — | 2,941 | — | | Bruce I. Sachs | 127,073 | — | — | 4,915 | | Elaine S. Ullian | 74,573 | — | 2,941 | — | | William D. Young | 69,573 | — | 2,941 | — | | Ian F. Smith | 274,894 | 95,700 | — | — | | David Altshuler | 61,183 | 75,000 | — | — | | Stuart A. Arbuckle | 188,117 | 95,700 | — | — | | Michael Parini | 29,954 | 10,350 | — | — | | Amit Sachdev | 249,137 | 57,250 | — | — | | All directors and executive officers as a group (17 persons) | 3,366,370 | 631,875 | 17,646 | 7,856 |
Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires directors, officers and persons who are beneficial owners of more than 10% of our common stock to file with the SEC reports of their ownership of our securities and of changes in that ownership. To our knowledge, based upon a review of copies of reports filed with the SEC with respect to the fiscal year ended December 31, 20152016 and written representations by our directors and officers that no other reports were required with respect to their transactions, all reports required to be filed under Section 16(a) by our directors and officers and persons who were beneficial owners of more than 10% of our common stock were timely filed.VERTEX PHARMACEUTICALS INCORPORATED
Notice of Annual Meeting of Shareholders and 2016 - 2017 Proxy Statement | 87
79
INFORMATIONOther Matters The 20162017 annual meeting of shareholders is called for the purposes set forth in the notice. Our board of directors does not know of any other matters to be considered by the shareholders at the 20162017 annual meeting other than the matters described in the notice. However, the enclosed proxy confers discretionary authority on the persons named in the proxy card with respect to matters that may properly come before the annual meeting and that are not known to our board at the date this proxy statement was printed. It is the intention of the persons named in the proxy card to vote in accordance with their best judgment on any such matter. SHAREHOLDER PROPOSALS FOR THE 2017 ANNUAL MEETING AND NOMINATIONS FOR DIRECTOR
Shareholder Proposals for the 2018 Annual Meeting and Nominations for Director In order to be considered for inclusion in the proxy statement for our 20172018 annual meeting of shareholders, shareholder proposals must be received by us no later than January 2, 2017.2018. If we do not receive notice of a matter to be considered for presentation at the 20172018 annual meeting of shareholders by March 18, 2017,2018, our proxy holders will have the right to exercise discretionary voting authority with respect to the proposal without including information regarding the proposal in our proxy materials. Proposals should be sent to the attention of our corporate secretary at our offices at 50 Northern Avenue, Boston, Massachusetts 02210.If a shareholder wishes to nominate a candidate for election to our board of directors at the 20172018 annual meeting of shareholders, but is not eligible or does not elect to have such candidate included in the proxy statement for our 20172018 annual meeting of shareholders, such nomination may be submitted to our corporate secretary no later than March 17, 2017,10, 2018, and must include:the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated;
a representation that the shareholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;
the other information regarding each nominee proposed by the shareholder that would be required to
be included in a proxy statement filed pursuant to the proxy rules of the SEC; and
the consent of each nominee to serve on our board of directors if so elected.
| • | the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; | | | | • | a representation that the shareholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; | | | | • | a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; | | | | • | the other information regarding each nominee proposed by the shareholder that would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC; and | | | | • | the consent of each nominee to serve on our board of directors if so elected. |
If a shareholder wishes to nominate a candidate for election to our board of directors at the 20172018 annual meeting of shareholders, and is eligible and elects to have such candidate included in the proxy statement for our 20172018 annual meeting of shareholders pursuant to our proxy access by-law, such nomination may be submitted to our corporate secretary no later than March 17, 201710, 2018 and must include, in addition to the information set forth for above for other shareholder nominees, the information set forth in Section 8(e) of Article II of our by-laws. SHAREHOLDER COMMUNICATIONS TO THE BOARD
Shareholder Communications to the Board Generally, shareholders who have questions or concerns should contact our investor relations department at (617) 341-6100. However, any shareholder who wishes to address questions regarding our business directly with our board of directors, or any individual director, should direct his or her questions, in writing, in care of our corporate secretary, to our offices at 50 Northern Avenue, Boston, Massachusetts 02210. Under procedures approved by our board, including a majority of our independent directors, all substantive communications shall be reviewed by our corporate secretary and forwarded or reported to the chair of the corporate governance and nominating committee, the independent directors and/or our full board, as deemed appropriate, with the exception of those communications relating to ordinary or routine business affairs, personal grievances or matters as to which we tend to receive repetitive or duplicative communications. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 80 HOUSEHOLDING OF ANNUAL MEETING MATERIALSHouseholding of Annual Meeting Materials Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement and annual report may have been sent to multiple shareholders in your household. We will promptly deliver a separate copy of these documents to you if you write or call our corporate secretary at the following address or phone number: 50 Northern Avenue, Boston, Massachusetts 02210, telephone (617) 341-6100. If you want to receive separate copies of the annual report and proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee
Notice of Annual Meeting of Shareholders and 2016 Proxy Statement | 88
| | OTHER INFORMATION (continued)
|
record holder, or you may contact us at the above address and phone number. SOLICITATION
Solicitation We will bear the cost of soliciting proxies, including expenses in connection with preparing and mailing this proxy statement. We have retained MacKenzie Partners, Inc. to assist in the solicitation of proxies at an estimated cost of approximately $20,000. Proxies also may be solicited by our directors and employees by mail, by telephone, in person or otherwise. Employees will not receive additional compensation for solicitation efforts. In addition, we will request banks, brokers and other custodians, nominees and fiduciaries to forward proxy material to the beneficial owners of common stock and to obtain voting instructions from the beneficial owners. We will reimburse those firms for their reasonable expenses in forwarding proxy materials and obtaining voting instructions. AVAILABILITY OF MATERIALS
Availability of Materials Our Annual Report on Form 10-K for the fiscal year ended December 31, 20152016 has been filed with the SEC and provides additional information about us. It is available on the internet atwww.vrtx.comand is available in paper form (other than exhibits thereto) to beneficial owners of our common stock without charge upon written request to Investor Relations, 50 Northern Avenue, Boston, Massachusetts 02210. In addition, it is available to holders of record of our common stock atwww.envisionreports.com/vrtxand to beneficial holders of our common stock atwww.edocumentview.com/vrtx.FORWARD LOOKING STATEMENTS
vrtx.Forward Looking Statements This proxy statement contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding our medicines, statements with respect to potential regulatory approval of our drug candidates and expected clinical development plans and timing, as well as statements with respect to Vertex'sVertex’s potential future financial performance. While we believe the forward-looking statements contained in this proxy statement are accurate, these forward-looking statements represent the our beliefs only as of the date of this proxy statement and there are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, including risks listed under Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 20152016 and available through the company'scompany’s website at www.vrtx.com.www.vrtx.com. We disclaim any obligation to update the information contained in this proxy statement as new information becomes available.
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2017 Proxy Statement | 89
81| Appendix A | Amendment to Restated Articles of Organization |
ARTICLE 6 E.Board of Directors | 1. | Number, Election and Terms. Subject to the rights of the holders of any series of Preferred Stock to elect directors who shall serve for such term and have such voting powers as shall be provided in Article 4 of these Articles, the Board of Directors shall consist of such number of persons as shall be provided in the Corporation’s By-Laws. The Board of Directorsshall becurrently is classified with respect to the time for which its membersshallseverally hold office bydividing them division into three classes, as nearly equal in number as possible,with the term of office of one class expiring at the annual meeting of stockholders each year. At each annual meeting of the stockholders of the Corporation, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. If the number of directors is changed, any increase or decrease shall be apportioned by the Board of Directors among the classes so as maintain the number of directors in each class as nearly equal as possible. Each director shall hold office until the annual meeting for the year in which such director’s term expires and until such director’s successor shall be elected andshall qualifyqualified, subject to prior death, resignation, retirement or removal. At the 2017 annual meeting of stockholders of the Corporation, the successors to the directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the 2020 annual meeting of stockholders; at the 2018 annual meeting of stockholders, the successors to the directors whose terms expire at that meeting shall be elected for terms expiring at the 2019 annual meeting of stockholders; and at the 2019 annual meeting of shareholders, the successors to the directors whose terms expire at that meeting shall be elected for terms expiring at the 2020 annual meeting of stockholders. Thereafter all directors shall be elected for terms expiring at the next annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. No director need be a stockholder. | | | | 2. | Nomination. Advance notice of nominations for the election of directors, other than by the Board of Directors or a committee thereof, shall be given within the time and in the manner provided in the By-Laws. | | | | 3. | Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Director.Any director elected in accordance with the preceding sentenceEach director chosen to fill a newly created directorship resulting from an increase in the number of directors shall be elected for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified. Each director chosen to fill a vacancy on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall hold office for the remainder of the full term ofthe class of directors in which the new directorship was created or the vacancy occurred office of the director who is being succeeded and until such director’s successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. | | | | 4. | Removal of Directors. Any director may be removed from office by stockholder vote at any time, but only for cause, by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Any director may also be removed from office for cause by vote of a majority of the directors then in office. |
VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 82 | Appendix B | Amendment to Amended and Restated By-Laws |
ARTICLE II Board of Directors Section 1.Number,and Electionsand Terms. Subject to the rights of the holders of Preferred Stock to elect one or more additional directors under specified circumstances as provided in Article 4 of the Articles of Organization, the Board of Directors shall consist of not less than three nor more than eleven persons, the exact number to be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority vote of the directors then in office. TheBoard of Directions shall be classified with respect to the time for which they shall severally hold officedirectors shall be elected in the manner provided in the Articles of Organization, by such stockholders as have the right to vote thereon.by dividing them into three classes, as nearly equal in number as possible, with the term of office of one class expiring at the annual meeting of stockholders each year. At each annual meeting of the stockholders of the Corporation, the successors to the class of directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the annual meeting of stockholders held in the third year following the year of their election. If the number of directors is changed, any increase or decrease shall be apportioned by the Board of Directors among the classes so as to maintain the number of directors in each class as nearly equal as possible. Each director shall hold office until the annual meeting for the year in which such director’s term expires and until such director’s successor shall be elected and shall qualify. No director need be a stockholder. Section 2.Nomination. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one of more persons for election as directors at a meeting only if written notice of such stockholder’s intent to make such nomination or nominations has been given, either by personal delivery or by mailing it, postage prepaid, to the Clerk of the Corporation not later than (a) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days prior to the anniversary date of the immediately preceding annual meeting, and (b) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (v) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 3.Newly Created Directorships and Vacancies. Newly created directorshipsresulting from any increase in the number of directors and anyand vacancies on the Board of Directorsresulting from death, resignation, disqualification, removal, or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director’s successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.shall be filled as provided in the Articles of Organization. Section 4.Removal of Directors.Any directorDirectors may be removed from officeby stockholder vote at any time, but only for cause, by the affirmative vote of the holders of at least a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Any director may also be removed from office for cause by vote of a majority of the directors then in office.only as provided in the Articles of Organization. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 83 | Appendix C | Amended and Restated 2013 Stock and Option Plan | | |
Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Vertex Pharmaceuticals Incorporated Amended and Restated 2013 Stock and Option Plan, have the following meanings: Accounting Rules means Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision. Administrator means the Board of Directors and/or a committee of the Board of Directors to which the Board of Directors has delegated power to act on its behalf in administering this Plan in whole or in part. Affiliate means a corporation that, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect. Board of Directors means the Board of Directors of the Company. Code means the United States Internal Revenue Code of 1986, as amended. Common Stock means shares of the Company’s common stock, $.01 par value. Company means Vertex Pharmaceuticals Incorporated, a Massachusetts corporation. Employee means an employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan. Exchange Act means the Securities Exchange Act of 1934, as amended. Fair Market Value of a share of Common Stock on a particular date shall be the mean between the highest and lowest quoted selling prices on such date (the “valuation date”) on the securities market where the Common Stock is traded, or if there were no sales on the valuation date, on the next preceding date within a reasonable period (as determined in the sole discretion of the Administrator) on which there were sales. If there were no sales in such a market within a reasonable period, the Fair Market Value shall be as determined in good faith by the Administrator in its sole discretion. The Fair Market Value as determined in this paragraph shall be rounded down to the next lower whole cent if the foregoing calculation results in fractional cents. Full Value Award means any Stock Grant or Stock-Based Award other than Options and Stock Appreciation Rights. ISO means an option entitling the holder to acquire Shares upon payment of the exercise price that is intended to qualify as an incentive stock option under Section 422 of the Code. Non-Employee Director means a member of the Board of Directors who is not an employee of the Company or any Affiliate. Non-Qualified Option means an option entitling the holder to acquire Shares upon payment of the exercise price that is not an ISO. Option means an ISO or Non-Qualified Option. Participant means an Employee, Non-Employee Director, consultant or advisor of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” and a Participant’s permitted transferees where the context requires. Participant’s Survivors means a deceased Participant’s legal representatives and/or any person or persons who acquires the Participant’s rights to a Stock Right by will or by the laws of descent and distribution. Plan means this Vertex Pharmaceuticals Incorporated Amended and Restated 2013 Stock and Option Plan, as amended from time to time. Restricted Stock Units means an unfunded and unsecured promise, denominated in shares of Common Stock, to deliver Common Stock or cash measured by the value of Common Stock in the future, subject to the satisfaction of specified performance or other vesting conditions. Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of the Plan. Stock Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan with respect to a Stock Right, in such form as the Administrator shall approve. Stock Appreciation Right means a right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Common Stock of equivalent value) equal to the excess of the Fair Market Value of the shares of Common Stock subject to the right over the base value (i.e., the exercise price) from which appreciation under the Stock Appreciation Right is to be measured. Stock-Based Award means Restricted Stock Units, Stock Appreciation Rights or any other grant by the Company under the Plan of an equity award, equity-based award or other award that is convertible into Common Stock that is not an Option or Stock Grant. Stock Grant means a grant by the Company of Shares under the Plan that may or may not be subject to restrictions requiring that the Shares underlying the Stock Grant be redelivered or offered for sale to the Company if specified service or performance-based conditions are not satisfied. Stock Right means an Option (including an ISO or a Non-Qualified Stock Option), Stock Grant, or Stock-Based Award. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 84 Substitute Stock Rights means Stock Rights issued under the Plan in substitution for equity awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition. Termination of Service means that a Participant ceases to be an Employee, Non-Employee Director, consultant or advisor with the Company and its Affiliates (for any reason other than death). A change in a Participant’s form of service (e.g., from Employee to Non-Employee Director, consultant or advisor) shall not be a Termination of Service hereunder. Notwithstanding the foregoing, in construing the provisions applicable to any Stock Right relating to the payment of “nonqualified deferred compensation” (subject to Section 409A of the Code) upon a termination or cessation of employment or service, references to termination or cessation of employment or service, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations, after giving effect to the presumptions contained therein) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Plan is intended to encourage ownership of Shares by Employees, Non-Employee Directors and certain consultants and advisors to the Company in order to attract such persons, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of Stock Rights to Employees, Non-Employee Directors, consultants and advisors of the Company. | 3. | SHARES SUBJECT TO THE PLAN |
The number of Shares subject to this Plan as to which Stock Rights may be granted from time to time shall be equal to the sum of: | a. | 27,875,861 shares of Common Stock; and | | | | b. | the number of shares subject to awards granted under the Company’s Amended and Restated 2006 Stock and Option Plan (the “2006 Plan”) which expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, however, in the case of ISOs, to any limitations under the Code), |
or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Section 17 of this Plan. Subject to Section 17 of this Plan, and the provisions of the second paragraph of this Section 3, the number of Shares remaining subject to this Plan shall be reduced by (i) one Share for each Share subject to a Stock Right granted under this Plan that is not a Full Value Award and (ii) 1.66 Shares for each Share (each, a “Full-Value Award Share”) subject to a Stock Right granted under this Plan that is a Full Value Award. If an Option granted hereunder ceases to be outstanding, in whole or in part (other than by exercise), or if the Company shall reacquire (at no more than its original issuance price) any Shares issued pursuant to a Stock Grant, or if any Stock Right expires or is forfeited, cancelled or otherwise terminated or results in any Shares not being issued, the unissued Shares that were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan;provided, however,that, the following Shares may not again be made available for issuance under the Plan: (i) Shares that are not issued or delivered because they are applied to the payment of the exercise or purchase price of any Stock Right or to satisfy the tax withholding requirements with respect to any Stock Right, (ii) the full number of Shares underlying any Stock Appreciation Right any portion of which is settled in Shares (and not only the number of Shares delivered in settlement of the Stock Right) and (iii) any Shares that have been repurchased by the Company using proceeds directly attributable to the exercise of Options. To the extent that Shares are returned to the Plan pursuant to this Section 3, (i) 1.66 Shares, for each Full Value Award Share granted under this Plan and (ii) one Share for all other Shares (including Shares returned from the 2006 Plan in accordance with clause (b) above), shall again be available for issuance from time to time pursuant to this Plan. The maximum number of Shares that may be issued in satisfaction of ISOs is 27,875,861 Shares. The Administrator may grant Substitute Stock Rights under the Plan. To the extent consistent with the requirements of Section 422 of the Code and the regulations thereunder (if applicable) and other applicable legal requirements (including applicable stock exchange requirements), Common Stock issued under Substitute Stock Rights will be in addition to and will not reduce the number of Shares available for Stock Rights under the Plan set forth in this Section 3, but, notwithstanding anything in this Section 3 to the contrary, if any Substitute Stock Right is settled in cash or expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company without the issuance of Common Stock, the Shares previously subject to such Stock Right will not be available for future grants under the Plan. The Administrator will determine the extent to which the terms and conditions of the Plan apply to Substitute Stock Rights, if at all, provided, however, that Substitute Stock Rights will not be subject to the last sentence of Section 6.1 or the per-Participant annual limits on grants of Stock Rights described in Section 13 below. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 85 | 4. | ADMINISTRATION OF THE PLAN |
The Administrator shall administer the Plan. Subject to the provisions of the Plan, the Administrator is authorized to: | a. | Interpret the provisions of the Plan and of any Stock Right or Stock Agreement and to make all rules and determinations that it deems necessary or desirable for the administration of the Plan; | | | | b. | Determine which Employees, Non-Employee Directors, consultants and advisors of the Company and its Affiliates shall be granted Stock Rights; | | | | c. | Determine the number of Shares and exercise price for which a Stock Right shall be granted; | | | | d. | Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted; | | | | e. | In its discretion, accelerate: | | |
| (i) | the date of exercise of any installment of any Option; or | | | | | (ii) | the date or dates of vesting of Shares, or lapsing of Company repurchase rights with respect to any Shares, under any Stock Rights; and | | | |
| f. | In its discretion, extend the period during which an Option may be exercised (but not beyond the earlier of the expiration date of the Option and the 10thanniversary of the date the Option was granted); |
provided, however,that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs (unless the holder of any such Option otherwise agrees). Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final. The Administrator may employ attorneys, consultants, accountants or other persons, and the Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon the Company, all Participants, and all other interested persons. Neither the Administrator, nor the Company, nor any person acting on behalf of the Administrator or the Company shall be personally liable for any action, determination, or interpretation made in good faith with respect to this Plan or grants hereunder or for any acceleration of income or additional tax (including interest and penalties) asserted by reason of the failure of a Stock Right to satisfy the requirements of Section 422 of the Code, Section 409A of the Code or by reason of Section 4999 of the Code, or otherwise with respect to a Stock Right. Each member of the Administrator shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him or her or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such member’s own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the members of the Administrator may have as directors or otherwise under the by-laws of the Company, or any agreement, vote of shareholders or disinterested directors, or otherwise. | 5. | ELIGIBILITY FOR PARTICIPATION |
The Administrator shall, in its sole discretion, select the individuals to be the Participants in the Plan;provided, however,that each Participant must be an Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate;provided, however,that the actual grant of such Stock Right shall not be effective until such person becomes eligible to be a Participant. ISOs may be granted only to Employees. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in other grants of Stock Rights. | 6. | TERMS AND CONDITIONS OF OPTIONS |
6.1 General.Each Option shall be set forth in writing in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. Each Stock Agreement shall state the exercise price (per share) of the Shares covered by each Option, the number of Shares to which it pertains, the date or dates on which it first is exercisable and the date after which it may no longer be exercised (subject to Sections 11 and 12 of this Plan). Options may vest or become exercisable in installments over a period of time, or upon the achievement of certain conditions or the attainment of stated goals or events. The exercise price per share of Shares covered by an Option (including both ISOs and Non-Qualified Options) shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock on the date of grant. 6.2 ISOs.Each Option intended to be an ISO shall be issued only to an Employee. In addition to the provisions set forth in Section 6.1, ISOs shall be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service: 6.2.1 ISO Exercise Price.In addition to the limitation set forth in Section 6.1, the exercise price per share of the Shares covered by each ISO granted to a Participant who owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code, VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 86 more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant. 6.2.2Term of ISO.Each ISO shall expire not more than ten (10) years from the date of grant;provided, however,that an ISO granted to a Participant who owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate shall expire not more than five (5) years from the date of grant. 6.2.3Annual Limit on Incentive Stock Options.To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Shares with respect to which ISOs granted under this Plan and any other plan of the Company or its Affiliate become exercisable for the first time by a Participant during any calendar year shall not exceed the aggregate threshold for ISOs established by the Code ($100,000 as of January 1, 2017). To the extent that any Option exceeds this limit, it shall constitute a Non-Qualified Option. 6.3Non-Employee Directors’ Options.Each Non-Employee Director, upon first being elected or appointed to the Board of Directors, shall, in addition to any other Stock Rights as may be determined by the Board of Directors, be granted a Non-Qualified Option to purchase that number of Shares as shall be established for such Option grants from time to time by the Board of Directors. In addition, unless otherwise determined by the Board of Directors, on June 1 of each year, each Non-Employee Director shall, in addition to any other Stock Rights as may be determined by the Board of Directors, be granted a Non-Qualified Option to purchase that number of Shares as shall be established for such Option grants from time to time by the Board of Directors. If a Non-Employee Director ceases to be any of an Employee, Non-Employee Director, consultant or advisor of the Company, Options granted under this Section 6.3 shall remain exercisable to the extent such Options are exercisable on the date of such Termination of Service, for their full term, and the provisions of Sections 11 and 12 below shall not apply to any such Options. 6.4Term of Options.No Option will be granted with a term in excess of ten (10) years. | 7. | TERMS AND CONDITIONS OF STOCK GRANTS |
Each Stock Grant shall be set forth in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Stock Agreement shall be in the form approved by the Administrator, with such changes and modifications to such form as the Administrator, in its discretion, shall approve with respect to any particular Participant or Participants. The Stock Agreement shall contain terms and conditions that the Administrator determines to be appropriate and in the best interest of the Company. Each Stock Agreement shall state the number of Shares to which the Stock Grant pertains and the terms of any right of the Company to reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, and any restrictions on the transferability of such Shares. | 8. | TERMS AND CONDITIONS OF STOCK-BASED AWARDS |
The Administrator shall have the right to grant Stock-Based Awards having such terms and conditions as the Administrator may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of Stock Appreciation Rights or Restricted Stock Units. The principal terms of each Stock-Based Award shall be set forth in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Stock Agreement shall be in a form approved by the Administrator and shall contain terms and conditions that the Administrator determines to be appropriate. No Stock Appreciation Right will be granted with a term in excess of ten (10) years. The base value (i.e., exercise price) of any Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock on the date of grant. | 9. | EXERCISE OF OPTIONS AND STOCK APPRECIATION RIGHTS AND ISSUANCE OF SHARES |
Options and Stock Appreciation Rights (or any part or installment thereof) shall be exercised by delivery to the Company, or its designee, of a notice of exercise in any form (which may be electronic) approved by the Company, together, in the case of an Option, with provision for payment of the full purchase price in accordance with this Section for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Stock Agreement. Payment of the exercise price for the Shares as to which such Option is being exercised shall be made (a) in cash or by check acceptable to the Administrator, or (b) at the discretion of the Administrator, (i) through delivery of shares of Common Stock not subject to any restriction under any plan and having a Fair Market Value equal as of the date of exercise to the cash exercise price of the Option, (ii) in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Company, (iii) by any other means (excluding, however, delivery of a promissory note of the VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 87 Participant) that the Administrator determines to be consistent with the purpose of this Plan and applicable law, or (iv) by any combination of the foregoing. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code. Following the exercise of an Option or Stock Appreciation Right, and, in the case of an Option, the payment of the exercise price, in each case in accordance with this Section 9, and the satisfaction of any tax withholding as contemplated by Section 21, the Company shall, as soon as is reasonably practicable, deliver the Shares as to which such Option or Stock Appreciation Right was exercised to the Participant (or to the Participant’s Survivors, as the case may be). It is expressly understood that the Company may delay the delivery of the Shares in order to comply with any law or regulation that requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares. | 10. | ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS |
By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than by will or by the laws of descent and distribution or pursuant to a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder or as approved by the Administrator in its discretion and set forth in the applicable Stock Agreement;provided, however,that the Administrator shall not approve any transfer of a Stock Right for consideration. Except as provided in the preceding sentence or as otherwise permitted under a Stock Agreement, a Stock Right shall be exercisable, during the Participant’s lifetime only by such Participant (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void. | 11. | EFFECT ON STOCK RIGHTS OF TERMINATION OF SERVICE |
11.1 Except as otherwise provided in the applicable Stock Agreement or as otherwise provided in Section 12, all Options and Stock Appreciation Rights held by a Participant, if any, immediately prior to the Participant’s Termination of Service, to the extent then exercisable, will remain exercisable for ninety (90) days after the date of the Participant’s Termination of Service, unless otherwise provided in the applicable Stock Agreement, but in no event after the expiration of the term of the Stock Right. 11.2 The provisions of this Section, and not the provisions of Section 12, shall apply to a Participant who subsequently dies after the Termination of Service. In the event of the death of a Participant within ninety (90) days after the Participant’s Termination of Service, all Options and Stock Appreciation Rights held by the Participant, if any, immediately prior to such death, to the extent then exercisable, will remain exercisable for one (1) year after the date of the Participant’s death, but in no event after the expiration of the term of the Stock Right. 11.3 Absence from work with the Company or an Affiliate because of temporary disability or a leave of absence for any purpose, shall not, during the period of any such absence in accordance with Company policies, be deemed, by virtue of such absence alone, a Termination of Service, except as the Administrator may otherwise expressly provide or except as otherwise provided by law. 11.4 Except as required by law or as set forth in a Participant’s Stock Agreement and, in the case of any Stock Right that constitutes “non-qualified deferred compensation” subject to Section 409A of the Code, only to the extent consistent with Section 409A of the Code, Stock Rights granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an Employee, Non-Employee Director, consultant or advisor of the Company or any Affiliate. | 12. | EFFECT ON STOCK RIGHTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR, CONSULTANT OR ADVISOR |
Except as otherwise provided in a Participant’s Stock Agreement, in the event of the death of a Participant while the Participant is an Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate, (i) vesting of all unvested Shares subject to outstanding Stock Rights shall be accelerated and (ii) all Options and Stock Appreciation Rights held by the Participant, if any, immediately prior to such death, to the extent then exercisable, will remain exercisable for a period of one (1) year after the date of death of the Participant but in no event after the date of expiration of the term of the Stock Right. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 88 | 13. | ANNUAL LIMITS ON STOCK RIGHTS; PERFORMANCE AWARDS |
13.1Annual Limits.Notwithstanding anything in this Plan to the contrary, no Participant shall be granted Stock Rights under this Plan in any calendar year for more than an aggregate of 1,000,000 Shares (subject to adjustment pursuant to Section 17 to the extent consistent with Section 162(m) of the Code). For purposes of the foregoing limitation, each Share subject to a Stock Right shall be counted as one Share of Common Stock (including each Share subject to a Full-Value Award). To the extent applicable, the foregoing provisions will be construed in a manner consistent with Section 162(m) of the Code, including, without limitation, where applicable, the rules under Section 162(m) of the Code pertaining to permissible deferrals of exempt awards. 13.2Performance Awards.Stock Grants and Stock-Based Awards may be made subject to the achievement of performance goals pursuant to this Section 13.2 (“Performance Awards”). Grants of Performance Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code (“Performance-Based Compensation”) shall be made only by a “Committee” comprised solely of two or more directors eligible to serve on a committee making awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code. For any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee shall specify that the degree of granting, vesting and/or payout of the Performance Award shall be based on the relative or absolute attainment of one or any combination of the following objective performance measures: (i) revenue targets or revenue growth targets, (ii) achievement of specified milestones in the discovery, development or regulatory approval of one or more of the Company’s drug candidates, (iii) achievement of specified milestones in the commercialization of one or more of the Company’s products, (iv) achievement of specified milestones in the manufacturing of one or more of the Company’s products, (v) cost reduction or other expense control targets, (vi) personal management objectives, (vii) stock price targets (including, but not limited to, growth measures), (viii) total shareholder return, (ix) income per share, (x) operating efficiency measures, (xi) operating margin, (xii) gross margin, (xiii) return measures (including, but not limited to, return on assets, capital, equity or sales), (xiv) net or total revenue levels, (xv) productivity ratios, (xvi) operating income, (xvii) net operating profit, (xviii) net earnings or net income (before or after taxes), (xix) cash flow (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital), (xx) earnings or operating income before interest, taxes, depreciation, amortization and/or stock-based compensation expense, (xxi) mergers, acquisitions or divestitures objectives, (xxii) market share, (xxiii) customer satisfaction, (xxiv) working capital targets, (xxv) budget objectives and (xxvi) achievement of other balance sheet or statement of operations objectives. Each objective performance measure that is a financial measure may be determined pursuant to generally accepted accounting principles (“GAAP”) or on a non-GAAP basis, as determined by the Committee. Such objective performance measures may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities, an index or indices or other external measure of the selected performance criteria and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The objective performance measures and any targets with respect thereto need not be based on an increase, a positive or improved result or the avoidance of loss. The Committee may specify that such performance measures shall be adjusted to exclude or provide for appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs; (B) litigation and governmental investigation expenses and judgments, verdicts or claim settlements; (C) the effect of changes in tax law, accounting principles or other laws, regulations or provisions affecting reported results; (D) the effect of exchange rates for non-U.S. dollar denominated net sales or goals based on operating profit, earnings or income; (E) accruals for reorganization and restructuring programs; (F) any non-GAAP adjustments as described in the Company’s earnings releases or in the management’s discussion and analysis of financial condition and results of operations appearing in the Company’s periodic reports; (G) items of income, gain, loss or expense attributable to the operations of any business acquired by the Company or any parent or subsidiary or of any joint venture established by the Company or any parent or subsidiary; (H) costs and expenses incurred in connection with mergers and acquisitions; (I) items of income, gain, loss or expense attributable to one or more business operations divested by the Company or any parent or subsidiary or the gain or loss realized upon the sale of any such divested business or the assets thereof; or (J) the effect of any change in the outstanding shares of Common Stock effected by reason of a stock split, stock dividend, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any distributions to the Company’s shareholders other than regular cash dividends. Such performance measures: (1) may vary by Participant and may be different for different Stock Rights; (2) may be particular to a Participant or the department, branch, line of business, subsidiary or other unit in which a Participant works and may cover such performance period as may be specified by the Committee; and (3) shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code. Notwithstanding any provision of the Plan, with respect to any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee may adjust downwards, but not upwards, the number of shares payable pursuant to such Performance Award, and the Committee may not waive the achievement of the applicable performance measures except in the case of the death or disability of the Participant or a change in control of the Company or as otherwise determined by the Committee. The Committee shall have the power to impose such other restrictions on Performance Awards as it may deem necessary or appropriate to ensure that such Performance Awards satisfy all requirements for Performance-Based Compensation. | 14. | RIGHTS AS A SHAREHOLDER |
No Participant to whom a Stock Right (other than a Stock Grant) has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except as to Shares actually issued under the Plan. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 89 | 15. | EMPLOYMENT OR OTHER RELATIONSHIP |
Nothing in this Plan or any Stock Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, or to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time. The loss of existing or potential profit from a Stock Right will not constitute an element of damages in the event of a termination of employment or service for any reason, even if the termination is in violation of an obligation of the Company or any Affiliate. | 16. | DISSOLUTION OR LIQUIDATION OF THE COMPANY |
Upon the dissolution or liquidation of the Company (other than in connection with a transaction subject to the provisions of Section 17.2), all Stock Rights granted under this Plan which as of such date have not been exercised will terminate and become null and void;provided, however,that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise any Stock Right to the extent that such Stock Right is exercisable as of the date immediately prior to such dissolution or liquidation. Upon the dissolution or liquidation of the Company, any outstanding Stock Rights shall immediately terminate unless otherwise determined by the Administrator or specifically provided in the applicable Stock Agreement. Upon the occurrence of any of the following events, a Participant’s rights with respect to any outstanding Stock Right shall be adjusted as hereinafter provided, unless otherwise specifically provided in the Stock Agreement or in any employment agreement between a Participant and the Company or an Affiliate: 17.1 Stock Dividends and Stock Splits.If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock subject to or deliverable upon the vesting or exercise of a Stock Right shall be appropriately increased or decreased, and appropriate adjustments shall be made in the purchase or exercise price per Share to reflect such event. The number of Shares subject to the limitation in Section 13.1 shall also be adjusted upon the occurrence of such events. 17.2 Consolidations or Mergers.In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company’s outstanding stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of substantially all the Company’s assets (any of the foregoing, an “Acquisition”), all then outstanding Stock Rights (excluding any Shares subject to Stock Grants as to which all Company repurchase rights shall have lapsed) shall terminate unless assumed pursuant to clause (i) below; provided that either (i) the Administrator shall provide for the surviving or acquiring entity or an affiliate thereof to assume the outstanding Stock Rights or grant replacement Stock Rights in lieu thereof, any such replacement to be upon an equitable basis as determined by the Administrator, or (ii) if there is no such assumption or substitution, all outstanding Stock Rights shall become immediately and fully exercisable and all Company repurchase rights with respect to Stock Rights shall lapse, in each case immediately prior to the Acquisition, notwithstanding any restrictions or vesting conditions set forth therein. 17.3Recapitalization or Reorganization.In the event of a recapitalization or reorganization of the Company (other than a transaction described in Section 17.2 above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising a Stock Right shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Stock Right immediately prior to such recapitalization or reorganization. 17.4 Adjustments to Shares, Stock Grants and Stock-Based Awards.Upon the happening of any of the events described in Sections 17.1, 17.2 or 17.3, or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of the Accounting Rules, the maximum number of Shares specified in Section 3, the number of Shares subject to the limits in Section 13.1, any exercise price per Share of any Stock Right, any outstanding Stock-Based Award and the Shares subject to any Stock Grant, vested or unvested, shall be appropriately adjusted by the Administrator to reflect such events. The Administrator may also make adjustments of the type described above to take into account distributions to stockholders other than those provided for in Sections 17.1, 17.2 or 17.3, or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan. The Administrator shall determine the specific adjustments to be made under this Section 17.4. References in the Plan to Shares will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 17.4. 17.5 Modification of ISOs.Notwithstanding the foregoing, any adjustments made pursuant to Section 17.1, 17.2 or 17.3 with respect to ISOs shall be made only after the Administrator determines whether such adjustments would constitute a “modification” of such ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Administrator determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments, unless the holder of an ISO specifically consents in writing to such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the ISO. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 90 | 18. | ISSUANCES OF SECURITIES |
Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to Stock Rights. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company. No fractional share shall be issued under the Plan and the person exercising any Stock Right shall receive from the Company cash in lieu of any such fractional share equal to the Fair Market Value thereof. The Administrator may provide for the payment of amounts (on terms and subject to conditions established by the Administrator, including providing for the reinvestment of such amounts in the form of additional Stock Rights) in lieu of cash dividends or other cash distributions with respect to Common Stock subject to a Stock Right whether or not the holder of such Stock Right is otherwise entitled to share in the actual dividend or distribution in respect of such Stock Right;provided, however,that notwithstanding anything to the contrary in the Plan (a) any dividends or dividend equivalents relating to a Stock Right that, at the dividend payment date, remains subject to a risk of forfeiture (whether service-based or performance-based) shall be subject to the same risk of forfeiture as applies to the underlying Stock Right and (b) no dividends or dividend equivalents shall be payable with respect to Options or Stock Appreciation Rights prior to their exercise or settlement, as applicable. The delivery, vesting and retention of Shares, cash or other property under a Stock Right are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Stock Right. The Administrator shall prescribe such rules for the withholding of taxes with respect to any Stock Right as it deems necessary. The Administrator may withhold from the Participant’s compensation or require that the Participant advance cash to the Company or an Affiliate the amount of such withholding and may hold back Shares from a Stock Right or permit a Participant to tender previously owned Shares in satisfaction of tax withholding requirements (but not in excess of the maximum withholding amount consistent with the award being subject to equity accounting treatment under the Accounting Rules). For purposes hereof, the Fair Market Value of any shares withheld for purposes of payroll withholding shall be determined in the manner provided in Section 1 above, as of the most recent practicable date prior to the date of grant, vesting, exercise or the date of the Disqualifying Disposition. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. | 22. | NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION |
Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a “Disqualifying Disposition” of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition (as defined in Section 424(c) of the Code) of such Shares before the later of (a) two years from the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO. If the Employee has died before such Shares are sold, the notice provisions of this Section 22 shall not apply. | 23. | EFFECTIVE DATE; TERMINATION OF THE PLAN |
This Plan was adopted by the Board on April 13, 2017, subject to the approval of the Plan by the shareholders of the Company. The Plan will terminate on April 12, 2027. The Plan also may be terminated at an earlier date by vote of the Board of Directors. Termination of this Plan will not affect any Stock Rights granted or Stock Agreements executed prior to the effective date of such termination. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 91 | 24. | AMENDMENT OF THE PLAN; AMENDMENT OF STOCK RIGHTS |
The Plan may be amended by the Board of Directors or the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code, and to the extent necessary to qualify the shares issuable upon exercise of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendments to the Plan will be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code) or applicable stock exchange requirements, as determined by the Administrator. No modification or amendment of the Plan shall adversely and materially affect a Participant’s rights under a Stock Right previously granted to the Participant, without such Participant’s consent. In its discretion, the Administrator may amend any term or condition of any outstanding Stock Right, provided: (i) such term or condition is not prohibited by the Plan; (ii) if the amendment is materially adverse to the Participant, such amendment shall be made only with the consent of the Participant or the Participant’s Survivors, as the case may be; and (iii) any such amendment of any ISO shall be made only after the Administrator determines whether such amendment would constitute a “modification” of any Stock Right which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of such ISO (in which case, the Participant’s or Participant’s Survivors’ consent to such amendment shall be required). Notwithstanding the foregoing, unless such action is approved by the Company’s shareholders, the Company may not (except for adjustments permitted under Section 17 of this Plan) (1) amend any outstanding Option or Stock Appreciation Right granted under the Plan to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option or Stock Appreciation Right; (2) cancel any outstanding Option or Stock Appreciation Right (whether or not granted under the Plan) and grant in substitution therefor new Stock Rights under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option or Stock Appreciation Right; or (3) cancel in exchange for a cash payment any outstanding Option or Stock Appreciation Right with an exercise price per share above the then-current Fair Market Value. | 25. | RECOVERY OF COMPENSATION |
The Administrator may provide in any case that outstanding Stock Rights (whether or not vested or exercisable) and the proceeds from the exercise or disposition of Stock Rights or Common Stock acquired under Stock Rights will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, if the Participant to whom the Stock Right was granted violates (i) a non-competition, non-solicitation, confidentiality or other restrictive covenant by which he or she is bound, or (ii) any Company policy applicable to the Participant that provides for forfeiture or disgorgement with respect to incentive compensation that includes Stock Rights under the Plan. In addition, the Administrator may require forfeiture and disgorgement to the Company of outstanding Stock Rights and the proceeds from the exercise or disposition of Stock Rights or Common Stock acquired under Stock Rights, with interest and other related earnings, to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D of the Exchange Act, and any applicable Company policy. Each Participant, by accepting or being deemed to have accepted a Stock Right under the Plan, agrees to cooperate fully with the Administrator, and to cause any and all permitted transferees of the Participant to cooperate fully with the Administrator, to effectuate any forfeiture or disgorgement required hereunder. Neither the Administrator nor the Company nor any other person, other than the Participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 25. | 26. | COMPLIANCE WITH SECTION 409A OF THE CODE |
Without limiting the generality of Section 4 hereof, each Stock Right will contain such terms as the Administrator determines and will be construed and administered, such that the Stock Right either qualifies for an exemption from the requirements of Section 409A of the Code or satisfies such requirements. Notwithstanding Section 24 hereof or any other provision of this Plan or any Stock Agreement to the contrary, the Administrator may unilaterally amend, modify or terminate the Plan or any outstanding Stock Right, including but not limited to changing the form of the Stock Right, if the Administrator determines that such amendment, modification or termination is necessary or advisable to avoid the imposition of an additional tax, interest or penalty under Section 409A of the Code. If a Participant is deemed on the date of the Participant’s Termination of Service to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code, then, with regard to any payment that is considered nonqualified deferred compensation under Section 409A of the Code, to the extent applicable, payable on account of a “separation from service”, such payment will be made or provided on the date that is the earlier of (i) the expiration of the six-month period measured from the date of such “separation from service” and (ii) the date of the Participant’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 26 (whether they would have otherwise been payable in a single lump sum or in installments in the absence of such delay) will be paid on the first business day following the expiration of the VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 92 Delay Period in a lump sum and any remaining payments due under the Stock Right will be paid in accordance with the normal payment dates specified for them in the applicable Stock Agreement. For purposes of Section 409A of the Code, each payment made under this Plan will be treated as a separate payment. With regard to any payment considered to be nonqualified deferred compensation under Section 409A of the Code, to the extent applicable, that is payable upon a change in control of the Company or other similar event, to avoid the imposition of an additional tax, interest or penalty under Section 409A of the Code, no amount will be payable unless such change in control constitutes a “change in control event” within the meaning of Section 1.409A-3(i)(5) of the Treasury Regulations. | 27. | AUTHORIZATION OF SUB-PLANS |
The Board of Directors may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable securities, tax or other laws of various jurisdictions. The Board of Directors shall establish such sub-plans by adopting supplements to the Plan containing (i) such limitations on the Board of Director’s discretion under the Plan as the Board of Directors deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board of Directors shall deem necessary or desirable. All supplements adopted by the Board of Directors shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction that is not the subject of such supplement. This Plan, Stock Rights under the Plan and all claims or disputes arising out of or based upon the Plan or Stock Rights under the Plan or relating to the subject matter hereof or thereof shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. By accepting or being deemed to have accepted a Stock Right under the Plan, each Participant will be deemed to (a) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Stock Right; (b) agree not to commence any suit, action or other proceeding arising out of or based upon the Plan or a Stock Right, except in the federal and state courts located within the geographic boundaries of the United States District Court for the District of Massachusetts; and (c) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of the above-named courts that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or a Stock Right or the subject matter thereof may not be enforced in or by such court. By accepting or being deemed to have accepted a Stock Right under the Plan, to the extent permitted by applicable law, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Stock Right, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim will be tried before a court and not before a jury. By accepting or being deemed to have accepted a Stock Right under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers. Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit disputes arising under the terms of the Plan or any Stock Right made hereunder to binding arbitration or as limiting the ability of the Company to require any eligible individual to agree to submit such disputes to binding arbitration as a condition of receiving a Stock Right hereunder. VERTEX PHARMACEUTICALS INCORPORATED - 2017 Proxy Statement 93 
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