UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities
Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check
the appropriate box:
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Preliminary Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
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VERTEX PHARMACEUTICALS INCORPORATED
(Name of Registrant as Specified In Its Charter)
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Title of each class of securities to which transaction applies:
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(1)
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Date Filed:
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2018 PROXY STATEMENT
VERTEX PHARMACEUTICALS INCORPORATED
Notice of Annual Meeting of Shareholders to
be held on May 17, 2018
Dear Shareholders:
Since 2012 we have consistently executed
on our strategy of investing in scientific innovation to create transformative medicines for people with serious diseases –
a strategy that we believe will both maximize benefits for patients and generate long-term value for shareholders. In 2017, we
saw this strategy pay off in remarkable ways for Vertex, for the eligible patients who benefit from our medicines, and for the
long-term shareholders who believe in our company.
During the last year, we reached thousands
of additional patients with our approved cystic fibrosis (CF) medicines and accelerated the progression of our CF pipeline with
the possibility to treat up to 90% of all patients with this devastating disease. As we treated more patients, we exceeded expectations
for revenue growth, became profitable, and expanded our operating margins and increased our cash flow. We also advanced our promising
non-CF pipeline for important new diseases including, pain, sickle cell disease, and alpha-1 anti-trypsin deficiency. We are proud
of these accomplishments, but we realize that with them comes even more responsibility to continue to innovate to produce more
new medicines for patients and value for shareholders. As we exit 2017, we believe we are better positioned than ever to meet these
obligations and grow our company for many years to come.
During the last six years, we have taken Vertex
from a market capitalization of less than $10 billion in early 2012 to over $40 billion in early 2018, creating significant value
for our shareholders. We created this value by executing on a clear and focused vision that balanced shorter-term goals –
advancing our late-stage pipeline, increasing revenues and managing operating expenses – with goals directed at the long-term
trajectory of the company, including enhancing our organizational capabilities, continuing to invest in research, and exploring
promising new therapeutic approaches.
We believe we are one of a small number
of biotechnology companies that has demonstrated the capacity to serially innovate in multiple disease areas. Not only have we
brought four internally discovered and developed medicines for serious diseases to the market, but we also
have established a pipeline of potentially transformative medicines that are in clinical development. This pipeline includes: next-generation
triple-combination regimens that we are advancing into pivotal development, which have the potential to provide highly effective
treatments for up to 90% of patients with CF; selective sodium channel inhibitors, the most advanced of which is currently in Phase
2 development, that we have shown have the potential to provide a non-opioid alternative for the relief of pain; and a potential
novel treatment for influenza A infection that our collaborator advanced into pivotal development in late 2017. We continue to
apply the lessons we have learned in CF about the importance of validated targets, predictive biomarkers, and efficient regulatory
pathways to guide our research efforts as we develop additional drug candidates for serious diseases such as beta-thalassemia and
sickle cell disease using CRISPR/Cas9 gene editing technology and alpha-1 anti-trypsin deficiency and polycystic kidney disease
using other innovative approaches.
We are proud of the evolution of Vertex
over the last several years and are excited about future opportunities to develop additional transformative medicines that could
profoundly affect the lives of patients suffering from serious diseases. As we enter 2018, we are now a financially strong global
biotechnology company well positioned to continue to grow revenues and deliver expanding operating margins, while investing in
research and development to maintain and strengthen our position as one of the most innovative companies in the industry. We thank
you for continuing to support us on this important journey.
Sincerely,
Jeffrey M. Leiden, M.D., Ph.D.
Chairman, Chief Executive Officer and President
Notice
of Annual Meeting of Shareholders
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Thursday, May 17, 2018
9:30 a.m.
50 Northern Avenue
Boston, Massachusetts 02210
Dear Shareholders:
You are invited to attend Vertex Pharmaceuticals
Incorporated’s 2018 Annual Meeting of Shareholders. At the meeting, shareholders will vote:
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to elect the three director nominees that are set forth in the attached proxy statement to one year terms expiring in 2019;
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to approve amendments to our Restated Articles of Organization and Amended and Restated By-laws that eliminate supermajority provisions;
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to approve an 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 8.0 million shares;
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to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for 2018;
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to approve our named executive officers’ compensation in an advisory vote; and
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on two proposals submitted by our shareholders, if properly presented at the meeting.
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Shareholders also will transact any other business that may properly
come before the annual meeting or any adjournment or postponement of the annual meeting.
RECORD DATE:
You can vote if you were a shareholder of record on March 29,
2018.
Your vote matters. Whether or not you plan to attend the annual
meeting, please ensure that your shares are represented by voting, signing, dating and returning your proxy in the enclosed envelope,
which requires no postage if mailed in the United States.
April 17 , 2018
By Order of the Board of Directors
Michael J. LaCascia
Secretary
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IMPORTANT NOTICE REGARDING
AVAILABILITY OF PROXY MATERIALS. This proxy statement and the enclosed proxy card are first being mailed or furnished to our
shareholders on or about April 18 , 2018. This proxy statement and our Annual Report on Form 10-K for the year ended
December 31, 2017 are available to holders of record of our common stock at www.envisionreports.com/vrtx and to beneficial
holders of our common stock at www.edocumentview.com/vrtx.
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SUMMARY INFORMATION
By any measure, 2017 was a remarkable year
for Vertex as we continue to execute on our strategy of investing in scientific innovation to create transformative medicines for
people with serious diseases. With near-30 percent growth in cystic fibrosis (CF) revenues and disciplined management of our operating
expenses, we have established a foundation of financial strength to fuel our innovation engine and growth for the future. In CF,
we continue to develop new and better medicines to treat more people with this devastating disease, and, with the announcement
of the start of our triple combination regimen trials, we are more confident than ever that we will be able to treat up to 90 percent
of people with CF in the near future. Outside of CF, we have made significant progress in advancing our research and development
efforts in other serious diseases, including pain, alpha-1 anti-trypsin deficiency and, with our partner CRISPR, sickle cell disease.
With these advances, we have enhanced our proven track record of serially innovating for patients waiting for new therapies. As
we enter 2018, we are financially strong and well positioned to grow revenues, deliver expanding operating margins, and deliver
long-term shareholder value.
Financial Performance
Our CF medicines, KALYDECO, ORKAMBI and SYMDEKO,
which took more than 15 years to discover and develop, are now transforming the lives of eligible patients around the globe and
driving our financial performance. In 2017, we increased our revenues, managed our operating expenses and established sustainable
profitability on a GAAP and Non-GAAP basis for the first time.
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We exceeded our CF net product revenue
guidance by $265 million, or 14% ($2.17 billion as compared to the mid-point of our initial guidance of $1.9 billion)
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Our CF net product revenues increased
to $2.17 billion, up 29% as compared to 2016, and we are positioned to further increase CF net product revenues by an additional
25% in 2018
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We increased our net cash position by approximately $950 million, or 84%, to approximately
$2.1 billion, and we expect to continue generating substantial cash flows in 2018
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We went from a GAAP net loss of $112 million in 2016 to GAAP net income of $263 million in 2017
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Our non-GAAP net income increased to $495 million, up $283 million, or 134%, from 2016, driven by our increased net product revenues (a reconciliation of non-GAAP net income is provided in Appendix D)
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VERTEX PHARMACEUTICALS
INCORPORATED
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2018 Proxy Statement
5
CF Pipeline
Advances in our pipeline and our strategic
execution have moved us closer to our goal of delivering highly-effective treatments to all patients with CF. In January 2012,
KALYDECO was first approved to treat approximately 1,000 patients with the G551D mutation. Since then, we have followed a focused
strategy of developing new medicines for CF and expanding the number of patients eligible for our medicines, and today 34,000 patients
around the world are eligible to receive one of our approved CF medicines.
Since the beginning of 2017, we:
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Obtained positive Phase 3 data for SYMDEKO (tezacaftor in combination with ivacaftor) in early 2017
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Achieved approval for SYMDEKO in the United States in February 2018
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Applied for European regulatory approval of tezacaftor in combination with ivacaftor in July 2017 with approval expected in the second half of 2018
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Obtained authorization to market ORKAMBI in the European Union for patients 6-11 in January 2018
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Received approvals to market KALYDECO for approximately 1,500 additional CF patients in the United States with residual function mutations in 2017
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Obtained positive Phase 3 data for KALYDECO for patients 1 to 2 years of age in December 2017
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Obtained highly-positive Phase 2 data for four triple combination regimens, each of which contained different next-generation correctors in combination with tezacaftor and ivacaftor, from mid-2017 through early 2018
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Accelerated initiation of the Phase 3 development program for VX-659 in combination with tezacaftor and ivacaftor, which started in February 2018
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Positioned ourselves to initiate a Phase 3 clinical development program for VX-445 in a triple combination regimen in mid-2018
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With the start of our triple combination
regimen Phase 3 clinical trials, we believe we are well-positioned to treat up to 90% of CF patients with medicines that target
the underlying cause of their disease.
VERTEX PHARMACEUTICALS
INCORPORATED
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2018 Proxy Statement
6
Non-CF Pipeline
Over the last decade, we have demonstrated
an ability to serially discover and develop multiple groundbreaking medicines in different diseases. In 2017, we and our collaborators
continued our serial innovation, advancing promising non-CF programs for important diseases, including pain, sickle cell disease,
alpha-1 anti-trypsin deficiency, polycystic kidney disease and influenza. Specifically, since the beginning of 2017, we have:
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Obtained the first clinical proof-of-concept from a Phase 2 clinical trial evaluating a selective NaV1.8 inhibitor as a potential treatment for chronic pain in January 2017 (VX-150 is our lead non-opioid NaV1.8 inhibitor)
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Obtained clinical proof-of-concept from a second Phase 2 clinical trial of VX-150 as a potential treatment for acute pain in February 2018
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Initiated a Phase 1 clinical trial of VX-128, a second non-opioid sodium channel inhibitor, in December 2017
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Executed a co-development and co-commercialization agreement with CRISPR Therapeutics AG for beta-thalassemia and sickle cell disease
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Advanced through pre-clinical development CTX001 for beta-thalassemia and sickle cell disease pursuant to our collaboration with CRISPR Therapeutics AG. We expect to initiate Phase 1/2 clinical trials in 2018 to evaluate CTX001, which will be the first, or one of the first, clinical trials to evaluate a potential CRISPR/Cas9 drug candidate.
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Advanced our research program for alpha-1 anti-trypsin deficiency into late-stage pre-clinical development
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Janssen Pharmaceuticals, our collaborator, initiated Phase 3 development of pimodivir as a potential treatment for influenza
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Successfully outlicensed our oncology programs to Merck KGaA, Darmstadt, Germany
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Increased Shareholder Value
Driven by our exceptional financial performance and our pipeline
success in 2017:
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Our stock price increased by more than 100% from $73.67 per share to $149.86 per share
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We were the third best performing stock among the approximately 500 mid- and large-cap companies that make up the S&P 500 index
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VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
7
Although our performance in 2017 was remarkable,
biotechnology companies are best measured over the longer-term, as opposed to in one-year increments. As result of executing on
a clear and focused vision that balanced short-term and long-term goals, we have taken Vertex from a market capitalization of less
than $10 billion in early 2012 to over $40 billion in early 2018, creating significant value for our shareholders.
The following chart shows our total shareholder
return during the 1-year, 3-year and 5-year periods ending December 31, 2017 compared to the following members of our peer group:
Alexion, Regeneron, Biomarin, Gilead, Celgene and Biogen. These peers are the companies we consider most similar to our company
based on their business models (see page 54).
The following chart shows our total shareholder
return from the beginning of 2012 when KALYDECO was first approved through February 2018.
2017 Compensation Decisions and Pay-for Performance
Our board of directors and management development and compensation
committee, or MDCC, reviewed our compensation programs and made the following key decisions:
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We maintained the same compensation program design that we implemented in 2016, which we believe closely ties pay with performance and has contributed to our short- and long-term successes
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VERTEX PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
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The company’s exceptional performance in 2017, as described above, resulted in a leading rating (a company rating of 148 out of a potential 150) for 2017 and annual cash bonuses near the high end of the range for 2017, commensurate with this performance
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Our CEO’s salary has been unchanged at $1.3 million since 2014 and is aligned with the median CEO pay of our peer companies
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We continued our utilization of a mix of equity that consists of performance stock units that vest solely upon achievement of rigorous performance goals, stock options that only have value if our stock price appreciates and time-vesting restricted stock units that reward stock price appreciation but also serve as a retention tool
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Corporate Responsibility
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Giving and Access.
Giving is in
our DNA here at Vertex. In 2017, we made a 10-year, $500 million corporate giving commitment that extended and expanded our
existing programs focused on four areas:
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supporting patients
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promoting science, technology, engineering, arts and math (STEAM) education
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developing young physicians and scientists
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strengthening our local communities
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Diversity and Inclusion.
Our commitment
to diversity and inclusion on our board and in our workforce is ingrained in our culture. Four of our nine directors are diverse
on a gender and/or ethnic basis, and 63% of our critical hires at the vice president or above level were diverse on a gender/ethnic
basis in 2017.
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Sustainability.
We are committed
to sustainability. Our facilities are designed to limit our environmental impact, and we encourage our employees to operate
and commute in a sustainable manner through benefit programs and operational initiatives that have resulted in approximately
50% of our employees in Boston commuting using public transportation.
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Shareholder Engagement
In 2017, we received support from 83% of
our shareholders on our say-on-pay proposal, and we believe all of our ten largest shareholders supported this proposal. We believe
this support is consistent with our long-term shareholders’ understanding of our business model and the long-term value we
are creating. We plan on continuing a high level of engagement with our shareholders regarding executive compensation and other
matters important to our shareholders. In 2017, we held discussions regarding executive compensation and other matters with shareholders
representing approximately 75% of our outstanding stock.
Corporate Governance Highlights
We are committed to maintaining strong corporate
governance practices that promote the long-term interests of our shareholders and strengthen board and management accountability.
VERTEX PHARMACEUTICALS
INCORPORATED
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2018 Proxy Statement
9
In addition, in February 2018, our board of directors approved,
subject to shareholder approval, an amendment to our Restated Articles of Organization and an amendment and restatement of our
By-Laws, which will result in the removal of the voting requirements in our charter and by-laws that call for greater than a simple
majority vote.
This proposed amendment to our Restated Articles of Organization
and the amendment and restatement of our By-Laws will be voted on at the 2018 annual shareholders meeting and are in response to
the results of a shareholder proposal at our 2017 annual meeting.
Voting Matters
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Item 1:
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FOR
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Election of Directors for One Year Term Expiring in 2019
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all Nominees
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Item 2:
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FOR
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Approval of Amendments to Charter and By-laws
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Item 3:
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FOR
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Approval of Amendment and Restatement of 2013 Stock and Option Plan
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Item 4:
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FOR
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Ratify Selection of Independent Auditor for 2018
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Item 5:
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FOR
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Approve, on an Advisory Basis, Our Named Executive Officer Compensation
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Item 6:
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AGAINST
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Shareholder
Proposal Regarding Report on Drug Pricing
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Item
7:
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AGAINST
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Shareholder
Proposal Regarding Lobbying Report
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VERTEX PHARMACEUTICALS
INCORPORATED
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2018 Proxy Statement
10
Table of Contents
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
11
PROXY STATEMENT
This proxy statement, with the enclosed proxy card, is being
furnished to shareholders of Vertex Pharmaceuticals Incorporated in connection with the solicitation by our board of directors
of proxies to be voted at our 2018 annual meeting of shareholders and at any postponements or adjournments thereof. The annual
meeting will be held on Thursday, May 17, 2018, at 9:30 a.m. at our headquarters, which are located at 50 Northern Avenue,
Boston, Massachusetts.
This proxy statement and the enclosed proxy
card are first being mailed or otherwise furnished to our shareholders on or about April 18 , 2018. Our 2017 Annual Report
on Form 10-K and other materials regarding our company are being mailed to the shareholders with this proxy statement, but are
not part of this proxy statement.
VERTEX
PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
12
FREQUENTLY ASKED QUESTIONS REGARDING THE ANNUAL MEETING
What is the Purpose
of the Annual Meeting?
At the annual meeting, shareholders will act upon the matters
outlined in the Notice of Annual Meeting of Shareholders. These include:
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The election of directors;
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The approval of amendments to our charter and by-laws to eliminate supermajority
provisions;
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The approval of the amendment and restatement
of our 2013 Stock and Option Plan to, among other things, increase the number of shares available under the plan by 8.0 million
shares;
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The ratification of the appointment of
Ernst & Young LLP as our independent registered public accounting firm;
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The approval, on an advisory basis, of
the compensation program for our named executive officers;
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A shareholder proposal requesting that
we prepare a report on the risks to us of rising drug prices; and
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A shareholder proposal requesting that
we prepare a report on our policies and activities with respect to lobbying.
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Management, members of our board and representatives of Ernst
& Young LLP are expected to attend the annual meeting and be available to respond to questions from shareholders.
What is a Proxy?
It is your legal designation of another person to vote the stock
you own in the manner you direct. That other person is called a proxy. If you designate someone as your proxy in a written document,
that document also is called a proxy or a proxy card. The board of directors has designated Jeffrey M. Leiden, Ian F. Smith, Michael
Parini and Michael J. LaCascia to serve as proxies at the annual meeting.
What is a Proxy Statement?
It is a document that provides certain information about a company
and matters to be voted upon at a meeting of shareholders. The rules of the SEC and other applicable laws require us to give you,
as a shareholder, the information in this proxy statement and certain other information when we are soliciting your vote.
What is the Difference between a Shareholder of Record and
a Shareholder Who Holds Stock in Street Name?
Shareholders of Record.
If your shares
are registered in your name with our transfer agent, Computershare, you are a shareholder of record with respect to those shares,
and these proxy materials were sent directly to you by Computershare.
Street Name Holders.
If you hold
your shares in an account at a bank or broker, then you are the beneficial owner of shares held in “street name.”
The proxy materials were forwarded to you by your bank or broker, who is considered the shareholder of record for purposes of
voting at the annual meeting. As a beneficial owner, you have the right to direct your bank or broker how to vote the shares held
in your account.
How Many Shares Must be Represented in Order to Hold the
Annual Meeting?
In order for us to conduct the annual
meeting, holders of a majority of the shares entitled to vote as of the close of business on the record date must be present
in person or by proxy. This constitutes a quorum. If you are a shareholder of record, your shares are counted as present if
you properly return a proxy card or voting instruction form by mail or if you attend the annual meeting and vote in person.
If you are the beneficial owner of shares held in “street name,” you must follow the instructions of your bank or
broker in order to direct them how to vote the shares held in your account. Abstentions and broker non-votes will be counted
as present for purposes of establishing a quorum. If a quorum is not present, we will adjourn the annual meeting until a
quorum is obtained.
VERTEX
PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
13
How Can I Vote at the Annual Meeting if I Own Shares in Street
Name?
If you are a street name holder, you may not vote your shares
at the annual meeting unless you obtain a legal proxy from your bank or broker. A legal proxy is a bank’s or broker’s
authorization for you to vote the shares it holds in its name on your behalf.
What is the Record Date and What Does it Mean?
The record date for the annual meeting is March 29, 2018 and
was established by our board of directors. On the record date, there were 254,879,018 shares of our common
stock outstanding, each of which is entitled to one vote on each matter properly brought before the annual meeting. Owners of
record of common stock at the close of business on the record date are entitled to:
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receive notice of the annual meeting; and
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vote at the annual meeting and any adjournment or postponement of the annual meeting.
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If I Submit a Proxy, May I Later Revoke it and/or Change
my Vote?
Shareholders may revoke a proxy and/or change their vote prior
to the completion of voting at the annual meeting by:
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signing another proxy card
with a later date and delivering it to our Secretary, Michael J. LaCascia, at 50 Northern Avenue, Boston, Massachusetts 02210,
before the annual meeting; or
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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.
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What if I do not Specify a Choice for a Matter when Returning
a 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:
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FOR the election of all director
nominees;
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FOR the amendments to our charter and by-laws
to eliminate supermajority provisions;
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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 8.0 million shares;
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FOR ratification of the appointment of
Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018;
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FOR our compensation program for our named executive officers;
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AGAINST the shareholder proposal requesting
that we prepare a report on the risks to us of rising drug prices; and
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AGAINST the shareholder proposal requesting
that we prepare a report on our policies and activities with respect to lobbying.
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Are My Shares Voted if I do not Provide a 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 two 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 (other than
for Item 2, where “broker non-votes” will have the same effect as votes against the proposal).
VERTEX
PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
14
What Vote is Required to Approve Each Proposal and How are
Votes Counted?
Item 1: Election of Directors
To be elected, the number of votes cast “FOR” a director
nominee in an uncontested election must exceed the number of votes cast “AGAINST” that nominee. Abstentions are not
counted for purposes of electing directors. Our Corporate Governance Principles contain procedures to be followed in the event
that one or more directors do not receive a majority of the votes cast “FOR” his or her election.
Item 2: Approval of the Amendments to our Restated Articles
of Organization and By-laws
To 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 4: Ratification of the Appointment of Independent Registered
Public Accounting Firm
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 5: Advisory Vote to Approve Named Executive Officer
Compensation
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 6: Shareholder Proposal Requesting that we Prepare a
Report on the Risks to us of Rising Drug Prices
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 7: Shareholder Proposal
Requesting that we Prepare a Report on our Policies and Activities With Respect to
Lobbying
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.
Where Can I 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.
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2018 Proxy Statement
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Item 1
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Election of Directors
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Our board of directors has nominated Sangeeta
N. Bhatia, Jeffrey M. Leiden, and Bruce I. Sachs for election at our 2018 annual meeting of shareholders to hold office until
our 2019 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, which in
turn is 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.
In 2017, we amended our charter and by-laws to phase out our
staggered board. Our board currently consists of directors divided into three classes, with terms ending at the 2018, 2019 and
2020 annual meeting of shareholders, respectively. The amendments provide that each
class of our directors will continue through their current terms; however, commencing with this year’s annual meeting of shareholders,
each director nominee will stand for election or re-election, as applicable, for a one year term. Sangeeta N. Bhatia, Jeffrey
M. Leiden, and Bruce I. Sachs, our current Class II Directors, have been nominated by our board for election at the 2018 annual
meeting of shareholders for one-year terms that will expire at the 2019 annual meeting of shareholders. 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
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 a team of directors who function collegially and effectively 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. 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
The 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. When considering whether or not to re-nominate a director for board
service, the corporate governance and nominating committee also considers whether the potential nominee has served as a member
of the board for more than 20 years and whether the potential nominee is over 72 years of age. 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:
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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.
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Industry Knowledge.
We seek directors
with substantive knowledge of the healthcare and biotechnology industries to successfully advise and oversee the strategic
development and direction of our company.
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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.
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International Perspective.
We have
significant operations outside the United States and value directors with experience in the operation of complex multinational
organizations.
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Public Policy and
Regulation.
We operate in a highly-regulated industry and seek directors who have experience in public policy and the
regulation of medicines.
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2018 Proxy Statement
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Academic Experience or Technological
Background.
As a biotechnology company that seeks to develop transformative medicines for patients with serious diseases,
we look for directors with backgrounds in academia, science and technology and, in particular, the research and development
of pharmaceutical products.
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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.
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Specifically, our continuing directors and our director nominees
have the following background and experience:
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Leadership
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Industry
Knowledge
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Finance
Expertise
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International
Perspective
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Public Policy/
Regulation
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Academia/
Technology
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Values
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Sangeeta
Bhatia
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Alan
Garber
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Terrence
C. Kearney
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Yuchun
Lee
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Jeffrey
M. Leiden
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Margaret
G. McGlynn
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Bruce
I. Sachs
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Elaine
S. Ullian
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William
D. Young
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Below we highlight the composition of our continuing directors
and our director nominees.
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 2019 annual meeting of shareholders using the procedures set forth in our by-laws, the shareholder must follow
the procedures described in
Other Information—Shareholder Proposals for the 2019 Annual Meeting and Nominations for Director
on page 83 of this proxy statement.
Our by-laws provide 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. The key elements of our proxy
access by-law are as follows:
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PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
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Provision
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Requirement
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Ownership
Threshold and Holding Period
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Available to shareholders owning 3% or
more of our shares continuously for at least 3 years.
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Number
of Board Seats
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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.
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Aggregation
Limits
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20-shareholder limit on the number of shareholders who can aggregate their shares to satisfy the
3% ownership requirement.
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Proxy
Fights
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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.
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Future
Ineligibility
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Proxy access nominees who fail to receive at least 10% of the votes cast “for” such nominee may not be
re-nominated as a proxy access nominee for the next two annual meetings.
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The above table is only a summary of our
proxy access by-law and is qualified in its entirety by our by-laws, which is set forth in Exhibit 3.1 of a Quarterly Report that
we filed with the SEC on July 28, 2017. A shareholder who wishes to nominate a proxy access nominee to be considered for election
as a director at the 2019 annual meeting of shareholders must follow the procedures set forth in our by-laws as well as those
described in
Other Information—Shareholder Proposals for the 2019 Annual Meeting and Nominations for Director
on
page 83 of this proxy statement.
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 “against” 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 “against”
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.
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PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
18
Director Nominees
Class II Directors—
Present Terms Expiring in 2018 and Proposed Terms to Expire in 2019
Sangeeta
N. Bhatia, M.D., Ph.D.
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Age: 49
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Committee Assignments:
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Director Since: 2015
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Chair
– Science and Technology Committee
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Member
– Corporate Governance and Nominating Committee
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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.
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Age:
62
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Committee Assignments:
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Director
Since: 2009
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Chairman,
Chief Executive Officer and President
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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,
a mutual 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 a 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. As our CEO and as a former senior executive at Abbott
Laboratories he brings a global perspective to our business and public policy issues facing our company. He also provides our
board of directors with in-depth knowledge of our company through the day-to-day leadership of our executives.
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PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
19
Bruce
I. Sachs
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Age: 58
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Committee Assignments:
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Director Since: 1998
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Chair
– Management Development and Compensation Committee
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Co-lead Independent Director
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Member
– Audit and Finance Committee
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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 honed through his experience developing business strategy as a senior executive
and in venture capital, to our board of directors. Mr. Sachs has a deep understanding of our business and the global business
environment along with expertise in the technology that supports our infrastructure and operations. In addition, Mr. Sachs
has extensive business leadership experience, including service as a CEO at a technology company, as well as financial expertise.
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 vote
FOR
each of the nominees.
Continuing Directors
Class III Directors — Terms to Expire in 2019
Terrence
C. Kearney
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Age:
63
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Committee Assignments:
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Director
Since: 2011
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Chair
– Audit and Finance Committee
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Member
– Management Development and Compensation Committee
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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.
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2018 Proxy Statement
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Yuchun
Lee
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Age:
52
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Committee Assignments:
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Director
Since: 2012
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Member
– Audit and Finance Committee
|
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Member
– Science and Technology Committee
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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
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Age: 70
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Committee Assignments:
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Director Since: 1997
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Chair
– Corporate Governance and Nominating Committee
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Co-lead Independent Director
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Member
– Management Development and Compensation Committee
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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 insight into public policy matters, including the perspective of providers, payors and patients, for whom our products are
intended.
Class I Directors — Terms to Expire in 2020
Margaret
G. McGlynn
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Age:
58
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Committee Assignments:
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Director
Since: 2011
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Member
– Science and Technology Committee
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Member
– Corporate Governance and Nominating Committee
|
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. 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 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 products across several therapeutic areas, and in her board roles and advocacy in rare diseases,
provides her with a valuable understanding of the scientific, public policy, regulatory and marketplace issues we face in the
drug development and commercialization process.
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PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
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William
D. Young
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|
|
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Age:
73
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Committee Assignments:
|
Director
Since: 2014
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Member
– Corporate Governance and Nominating Committee
|
|
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.
Skills and Qualifications:
Mr. Young is a valuable contributor to our board of directors due to the in-depth knowledge of the biotechnology 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.
Alan
Garber, M.D., Ph.D.
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|
|
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Age:
62
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Committee Assignments:
|
Director
Since: 2017
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Member
– Science and Technology Committee
|
Dr. Garber is Provost of Harvard University
and the Mallinckrodt Professor of Health Care Policy at Harvard Medical School, a Professor of Economics in the Faculty of Arts
and Sciences, 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, the American Academy for
Arts and Sciences, and the Board on Science, Technology, and Economic Policy at the National Academies. He is a Fellow of the
American Association for the Advancement of Science, 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 provides our board important perspectives on the issues facing our company.
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PHARMACEUTICALS INCORPORATED
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2018 Proxy Statement
22
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 website www.vrtx.com under “Investors—Corporate Governance—Governance
Documents.”
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. These directors include Dr. Bhatia, Dr. Garber, Mr. Kearney, Mr. Lee, Ms. McGlynn,
Mr. Sachs, Ms. Ullian and Mr. Young. Our independent directors 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 March 31, 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, then 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
Our board of directors has established various
committees, each of which has a written charter, 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.
The primary responsibilities of each of the committees are set forth below, and the committee memberships are provided in the
table appearing on page 24 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.
Risk Management
Our 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, SYMDEKO 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
-
2018 Proxy Statement
23
For certain specific risk types, our board has delegated oversight
responsibility to board committees as follows:
|
Our audit and finance committee oversees our policies and programs related to our financial and accounting systems, accounting policies and investment strategies, internal audit function and cybersecurity. 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, 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.
|
|
|
|
Our MDCC and corporate governance and nominating committee work together to oversee CEO succession planning.
|
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 website www.vrtx.com under “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.
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
|
|
2017
Attendance at
Meetings
(2)
|
Sangeeta N. Bhatia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91%
|
Alan Garber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
Terrence C. Kearney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
Yuchun Lee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96%
|
Jeffrey M. Leiden
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
Margaret G. McGlynn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
Bruce I. Sachs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
Elaine S. Ullian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
William D. Young
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91%
|
2017 Meetings
|
|
|
|
11
|
|
9
|
|
5
|
|
7
|
|
5
|
|
|
|
= Member
|
|
= Chair
|
|
= Co-lead
|
(1)
|
We encourage each of our directors
to attend shareholder meetings, and each of our directors attended our 2017 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;
|
|
|
|
review and make recommendations to our board concerning our financial structure and financing strategy;
|
|
|
|
oversee our policies and programs related to our financial and accounting systems and cybersecurity programs; and
|
|
|
|
oversee our internal audit function.
|
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 is qualified to serve as an audit committee financial
expert under the SEC’s rules.
The report of the audit and finance committee appears on page
40 of this proxy statement.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
24
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 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,
2017, we have not entered into any transactions disclosable pursuant to Item 404(a) of Regulation S-K.
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, with the advice of the MDCC, 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.
|
Management Development and Compensation Committee
The primary purposes of the MDCC are to oversee the discharge
of our board of directors’ responsibilities relating to:
|
compensating and developing our executives (and assisting the corporate governance and nominating committee with respect to director compensation);
|
|
recommending
to our board (i) ratings for the company performance against company goals for the prior year and (ii) goals and weighting of
goals for the next year;
|
|
assisting the board in evaluating potential internal candidates for the CEO position; and
|
|
reviewing and approving our benefit and equity compensation plans.
|
The MDCC has the authority to delegate any of its responsibilities to individual members to the extent deemed appropriate
by the MDCC in its sole discretion, but subject always to the general oversight of the board.
See Compensation
Discussion and Analysis—Detailed
Discussion
below for a discussion of the MDCC’s role in overseeing executive compensation.
The report of the MDCC appears on page 67 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; and
|
|
provides strategic advice to our board regarding emerging science and technology issues and trends.
|
Compensation Committee Interlocks and Insider Participation
Mr. Kearney, Mr. Sachs, Ms. Ullian
and Mr. Young served on the MDCC during 2017. 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 2017 has ever been one of our employees or
officers. No member of our board who was a member of our MDCC at any time during 2017 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 2017, 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.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
25
Public Policy and
Engagement
The biotechnology industry is a highly-regulated
industry, and it is important to our business, our patients and our shareholders that we engage compliantly on public policy issues.
This includes providing advocacy for healthcare innovation and patient access to care. We engage with various policy makers to
help promote an environment in which we can continue to innovate and develop transformative medicines for the benefit of patients
with serious diseases.
We meet all federal, state and local
laws and reporting requirements governing corporate political contributions. We file quarterly reports on our federal
lobbying activity in compliance with the Honest Leadership and Open Government Act of 2007. These reports are available to
the public at
https://soprweb.senate.gov/index.cfm?event=selectfields.
Vertex is a member of a number of industry
and trade groups, including the Biotechnology Industry Association. These organizations represent the biotechnology industry and/or
businesses more broadly in engaging with policy makers on issues that affect our business. Our governmental affairs executives
evaluate our participation in these organizations regularly to ensure that they are broadly aligned with our business objectives,
but we do not always agree with positions taken by these organizations and/or its members.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
26
DIRECTOR COMPENSATION
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.
The compensation program for our non-employee directors is:
Compensation Elements
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
Annual Cash Retainer
|
|
|
|
$
|
100,000
|
|
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
|
|
$
|
12,500
|
|
|
|
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
|
|
A $475,000 value-based award, comprised of:
|
|
|
|
|
|
|
$200,000 in options vesting quarterly over four years from the date of grant
|
|
|
$275,000 in restricted stock units vesting annually over three years from the date of grant
|
Annual Equity Retainer
|
|
On June 1 of each year, a $475,000 value-based award, comprised of:
|
|
|
|
$200,000 in options that are fully-vested upon grant
|
|
|
|
|
|
|
$275,000 in restricted stock units vesting in full 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’s service on our board
of directors, (ii) a change of control and (iii) the non-employee directors disability or death.
Our non-employee directors also are 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 2017, based on a market assessment of the board compensation at our peer companies, we modified
the non-employee director compensation program to (i) reduce the overall compensation payable to our non-employee directors and
(ii) adjust the cash versus equity allocation of the compensation.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
27
2017 Summary Compensation
Director
|
|
Fees Earned or
Paid in
Cash
|
|
|
Stock
Units
(1)
|
|
|
Option
Awards
(1)
|
|
|
Total
|
|
Sangeeta N. Bhatia
|
|
$
|
113,700
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
663,828
|
|
Joshua Boger
(2)
|
|
$
|
43,058
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
593,186
|
|
Alan Garber
(3)
|
|
$
|
53,503
|
|
|
$
|
275,117
|
|
|
$
|
275,150
|
|
|
$
|
603,770
|
|
Terrence C. Kearney
|
|
$
|
125,000
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
675,128
|
|
Yuchun Lee
|
|
$
|
110,000
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
660,128
|
|
Margaret G. McGlynn
|
|
$
|
103,700
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
653,828
|
|
Bruce I. Sachs
(4)
|
|
$
|
165,000
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
715,128
|
|
Elaine S. Ullian
|
|
$
|
155,000
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
705,128
|
|
William D. Young
|
|
$
|
105,000
|
|
|
$
|
275,053
|
|
|
$
|
275,075
|
|
|
$
|
655,128
|
|
(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 2017. 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 2017 Annual Report on Form 10-K, filed with the SEC on February
15, 2018.
|
(2)
|
Dr. Boger retired from our board of directors on June 8, 2017.
|
(3)
|
Dr. Garber joined our board on June 8, 2017.
|
(4)
|
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 15
th
of the month following the quarter end. The fair market value of each deferred
stock unit on each of those dates were $114.58, $130.15, $155.44 and $157.50.
|
2017 Equity Grants
Grant
|
|
Date
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Grant-Date
Fair Value
|
|
Annual Non-Employee Director Option Grants
|
|
June 1, 2017
|
|
|
5,295
|
|
|
$
|
125.71
|
|
|
$
|
275,075
|
|
Annual Non-Employee Director Stock Unit Grants
|
|
June 1, 2017
|
|
|
2,188
|
|
|
|
N/A
|
|
|
$
|
275,053
|
|
Initial Option Grant to Dr. Garber
|
|
June 8, 2017
|
|
|
5,320
|
|
|
$
|
125.11
|
|
|
$
|
275,150
|
|
Initial Restricted Stock Unit Grant to Dr. Garber
|
|
June 8, 2017
|
|
|
2,199
|
|
|
|
N/A
|
|
|
$
|
275,117
|
|
Outstanding Equity
As of December 31, 2017, 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
|
|
2,188
|
|
—
|
|
24,045
|
|
35,295
|
Alan Garber
|
|
2,199
|
|
—
|
|
665
|
|
5,320
|
Terrence C. Kearney
|
|
2,188
|
|
—
|
|
72,743
|
|
72,743
|
Yuchun Lee
|
|
2,188
|
|
—
|
|
95,702
|
|
95,702
|
Margaret G. McGlynn
|
|
2,188
|
|
—
|
|
92,368
|
|
92,368
|
Bruce I. Sachs
|
|
2,188
|
|
5,858
|
|
132,368
|
|
132,368
|
Elaine S. Ullian
|
|
2,188
|
|
—
|
|
79,868
|
|
79,868
|
William D. Young
|
|
2,188
|
|
—
|
|
78,618
|
|
82,368
|
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
-
2018 Proxy Statement
28
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
During the last three years, we have significantly expanded our
long-standing commitments to philanthropic giving, diversity and inclusion and global sustainability.
|
Giving and Access
|
Giving is in our DNA here at Vertex. In
2017, we made a global 10-year, $500 million corporate giving commitment focused on four areas:
|
patients, including enabling access to our medicines
|
|
|
|
expanding our commitment to science, technology, engineering, arts and math
(STEAM) education--$50 million of this commitment is dedicated to STEAM education, particularly for underserved communities
and women
|
|
|
|
developing young physicians and scientists
|
|
|
|
strengthening our local communities, including fostering the innovation ecosystem
and supporting youth health and wellness
|
This corporate giving initiative extends
and expands our long-term commitment to patients with serious diseases and our community, continuing programs to provide access
to our medicines and extending and expanding our collaboration with the Boston Public Schools. Through this collaboration, high
school students have ongoing access to Vertex’s 3,000 square foot learning lab established in 2014 and mentoring and internship
opportunities with Vertex scientists. In addition, we have established an extensive internship program for college students and
fellowship programs for graduate students and postdoctoral scientists. We also annually grant full four-year scholarships to the
University of Massachusetts.
As part of this commitment, we established
The Vertex Foundation, a 501(c)(3) organization and long-term source of charitable giving, with an initial commitment of $10 million.
The Vertex Foundation supports, among other initiatives, a dollar-for-dollar employee matching gift program to magnify the impact
of employees’ donations to qualified non-profit organizations.
In addition, we encourage our employees
to participate in community service activities. For example, our employees provide thousands of volunteer hours through, among
other activities, participation in our global day of service (volunteering at dozens of nonprofit organizations and schools in
our community), leading activities in our learning laboratory, and
pro bono
activities conducted by members of our legal
and compliance group.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
29
|
Diversity and Inclusion
|
Diversity and inclusion is deeply ingrained
in our culture. We believe that in an inclusive workforce each employee brings diverse perspectives and strengths, and that embracing
those strengths and celebrating those differences is essential to our success. Our commitment to gender and ethnic diversity is
reflected at the board level and within our workforce and our hiring and promotion policies.
Four of our nine board members are diverse
based on gender and/or ethnicity. This includes three female board members, and we are pleased to have been recognized by 2020
Women on Boards, a non-profit organization that is focused on educating corporate stakeholders on the importance of board diversity.
On a global basis, our employees are evenly
split between men and women. In the United States, approximately 30% of our workforce is racially/ethnically diverse. As of the
beginning of 2018, 38% of our senior employees (VP and above) were women and 18% of senior employees in the United States were
racially/ethnically diverse.
In 2017:
|
63% of our critical hires at the vice president and above levels were diverse on a gender or ethnic
basis
|
|
|
|
37% of new hires in the United States were ethnically diverse
|
|
|
|
65% of promotions were diverse on a gender or ethnic basis
|
We are also committed to fostering diversity
and inclusion through support of our employee-led resource networks (ERNs) that foster connectivity and collaboration across our
organization and provide mentoring, career development, community outreach and cultural awareness opportunities. Our current ERNs
are: IWILL (Inspiring Women in Leadership and Learning), VIBE (Vertex Includes Boundless Ethnicities), and Vertex Pride (providing
an opportunity to engage with the LGBT community).
2017 marked the first annual Diversity Week
at Vertex, which included activities focused on advancing, promoting, engaging and celebrating diversity. Activities included speakers,
unconscious bias training, communication and diversity workshops, ERN sponsored activities and other special events designed to
increase employee awareness and engagement with respect to this critical issue.
|
Sustainability
|
We at Vertex are committed to sustainability.
We seek to limit our environmental impact and have implemented a number of programs in an effort to operate our business in a sustainable
manner.
In designing our major facilities around
the world, we have focused on energy efficiency. This is demonstrated by our corporate headquarters in Boston, Massachusetts, which
was completed in 2014 and achieved a LEED Gold certification. In 2015, our UK Paddington office was awarded BREEAM “Excellent
Status” for sustainability, and our new research facility in San Diego is being constructed in accordance with LEED Gold
standards. In addition, in 2016, we committed to reducing the greenhouse gas emissions at our corporate headquarters by a further
35% by 2020, pursuant to Greenovate Boston Mayor’s Carbon Cup.
We promote energy efficiency through our
employee benefits, which include a generous subsidy for employees who take public transportation, as well as programs promoting
commuting using alternative means such as biking. As a result, approximately 50% of our Boston headquarters employees commute using
public transportation.
In addition, we have implemented a recycling
and composting program at multiple locations. At our corporate headquarters, these efforts have reduced waste and has converted
80% of the waste from our cafeteria into compost.
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30
Item 2
|
Amendments to our Charter and By-laws
|
We are requesting that our shareholders
approve (i) an amendment to our Restated Articles of Organization and (ii) our Amended and Restated By-Laws that would eliminate
supermajority voting requirements.
Our Restated Articles of Organization and
Amended and Restated By-Laws each currently require the affirmative vote of 80% of the voting power of the then outstanding shares
of common stock to amend certain provisions 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.
At our 2017 annual meeting of shareholders,
our shareholders approved a non-binding shareholder proposal requesting that we take each necessary step to eliminate each voting
requirement in our charter and by-laws that called for greater than a simple majority vote. After the 2017 annual meeting of shareholders,
we continued our engagement with our shareholders and monitored corporate governance trends and in February 2018 our board approved,
subject to shareholder approval, an amendment to our Restated Articles of Organization and Amended and Restated By-Laws that eliminate
the supermajority vote requirements. If approved by shareholders, all items in our Restated Articles of Organization and Amended
and Restated By-Laws will be subject to amendment by a simple majority vote of shareholders, unless a greater vote threshold is
required by applicable law.
The full text of the proposed amendment
to our Restated Articles of Organization and the Amended and Restated By-Laws 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 board of directors recommends
a vote
FOR
the approval of (i) the amendments to our restated articles of organization and (ii) our amended and restated
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.
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31
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, which would increase the number of shares
available for issuance under the 2013 Plan by 8.0 million shares.
On April 2, 2018, 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 8.0 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 our 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 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 41% fewer shares of common stock in 2017 as compared to 2012 and reduced our “burn rate”
from 3.6% in 2012 to 1.8% in 2017.
|
|
2012
Equity
Awards
|
|
2013
Equity
Awards
|
|
2014
Equity
Awards
|
|
2015
Equity
Awards
|
|
2016
Equity
Awards
|
|
2017
Equity
Awards
|
|
% Change
2012 v 2017
|
Total Shares Granted Subject to Equity Awards
|
|
7,525,000
|
|
6,276,000
|
|
5,629,000
|
|
5,035,000
|
|
4,887,000
|
|
4,470,000
|
|
(41)%
|
Burn Rate
(1)
|
|
3.6%
|
|
2.8%
|
|
2.4%
|
|
2.1%
|
|
2.0%
|
|
1.8%
|
|
|
Awards Canceled, Forfeited or Expired
|
|
1,644,000
|
|
2,622,000
|
|
1,628,000
|
|
1,573,000
|
|
928,000
|
|
1,107,000
|
|
|
Net Dilution
|
|
5,881,000
|
|
3,654,000
|
|
4,001,000
|
|
3,462,000
|
|
3,959,000
|
|
3,363,000
|
|
|
Net Burn Rate
|
|
2.8%
|
|
1.6%
|
|
1.7%
|
|
1.4%
|
|
1.6%
|
|
1.3%
|
|
|
(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 2018
than in 2017. As a result, although the MDCC and board retains discretion with respect to equity grants, we expect that, consistent
with the last several years, there will be a small further decline in the dilution to our shareholders from our equity compensation
program in 2018 as compared to 2017.
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 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 each share granted. Any restricted stock, restricted stock units or other “full value”
awards granted under the 2013 Plan count against the number of shares authorized for issuance under our 2013 Plan at a rate
of 1.66 shares for each share granted.
|
|
|
|
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 lower 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 substitution therefor of any award under the 2013 Plan covering the same or a different number of shares
of common stock and having
|
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INCORPORATED
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2018 Proxy Statement
32
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.
|
No Discounted Stock Options or SARs:
Stock options and stock appreciation
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.
|
|
|
|
No Reload 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.
|
|
|
|
Limitation on 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.
|
|
|
|
Limitations on Dividend Payments:
No dividends or dividend equivalents
will be paid with respect to shares subject to stock options or stock appreciation rights unless and until such awards have
vested and been exercised in accordance with their terms. Any dividends or dividend equivalents paid with respect to shares
underlying stock rights other than stock options or stock appreciation rights will be subject to the same vesting terms otherwise
applicable to the award
|
|
|
|
Independent Committee:
As it relates to our employees, the 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.
|
Existing Plans
As of February 28, 2018, options to purchase
(i) an aggregate of 7,876,791 shares having a weighted-average exercise price of $114.94 per share and a weighted-average
term before expiration of 8.23 years were outstanding under our 2013 Plan, and (ii) an aggregate of 2,416,691 shares having a weighted-average
exercise price of $62.85 per share and a weighted-average term before expiration of 4.28 years were outstanding under our Amended
and Restated 2006 Stock and Option Plan, or 2006 Plan. Also, on February 28, 2018, there were outstanding an aggregate of 4,089,535
unvested shares of restricted stock and restricted stock units granted under our 2013 Plan and 87,111 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 February 28, 2018, there were 7,663,273 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 the extent applicable, for a federal income tax deduction with respect to compensation
earned in respect of certain awards granted under our 2013 Plan prior to December 22, 2017.
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
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2018 Proxy Statement
33
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, 2018, we and our
subsidiaries had approximately 2,327 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 “full
value” awards granted under the 2013 Plan 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 such awards granted under the 2013 Plan
that lapse or are canceled or forfeited are 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
either non-qualified stock options or as incentive stock options within the meaning of Section 422 of 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. 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 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, with respect to awards made before December 22,
2017, qualify such awards as performance-based compensation that will not be subject to the $1,000,000 limitation imposed by Section 162(m)
of the Code, to the extent applicable, 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
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2018 Proxy Statement
34
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, to the extent applicable.
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.
The foregoing references in this “Performance
Awards” section to Section 162(m) of the Code refer to such Code section as in effect prior to December 22, 2017, including
the regulations thereunder and other applicable Internal Revenue Service guidance, whether promulgated or issued before or after
December 22, 2017.
It is the intent of the Company that the
amendment and restatement of the 2013 Plan not constitute a “material modification” of the Plan or awards granted under
it prior to May 17, 2018 (the effective date of the amendment and restatement of the 2013 Plan), in each case within the meaning
of Section 162(m) of the Code. However, there can be no guarantee that awards made before December 22, 2017 under the 2013 Plan
will be deductible as qualified performance-based compensation under Section 162(m) of the Code. In addition, the MDCC has and
will continue to have authority to pay or provide compensation (including under the 2013 Plan) that is not deductible under Section
162(m) of the Code in order to maintain a competitive compensation program and provide compensation that will attract and retain
highly qualified executives.
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.
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2018 Proxy Statement
35
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 and June 8, 2017. The amendment and restatement of our
2013 Plan will be effective, subject to shareholder approval, on May 17, 2018. The 2013 Plan will 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 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 27 of this proxy statement.
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2018 Proxy Statement
36
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 29, 2018.
Name
|
|
Position
|
|
Number of Shares
Underlying Options
Granted
|
Named Executive Officers
|
|
|
|
|
Jeffrey M. Leiden
|
|
Chairman, President & Chief Executive Officer
|
|
816,372
|
David Altshuler
|
|
EVP & Chief Scientific Officer
|
|
139,579
|
Thomas Graney
|
|
SVP & Chief Financial Officer
|
|
10,436
|
Michael Parini
|
|
EVP & Chief Legal and Administrative Officer
|
|
158,844
|
Amit Sachdev
|
|
EVP & Chief Regulatory Officer
|
|
235,526
|
Ian F. Smith
|
|
EVP & Chief Operating Officer
|
|
255,113
|
All current executive officers as a group (9 persons)
|
|
2,179,813
|
Director Nominees
|
|
|
|
|
Sangeeta N. Bhatia
|
|
|
|
42,368
|
Jeffrey M. Leiden
|
|
|
|
816,372
|
Bruce I. Sachs
|
|
|
|
57,368
|
All non-employee board members, including nominees, as a group (8 persons)
|
|
401,896
|
All employees, including current officers who are not executive officers, as a group
|
|
9,818,901
|
On March 29, 2018, the last reported
sale price of our common stock on NASDAQ was $162.98 per share.
Our board of directors recommends
a vote
FOR
the 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 8.0 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 February 28, 2018, there were 7,663,273
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 February 28, 2018, under our equity
plans:
|
Stock options covering 10,293,482 shares of our common stock, with a weighted
average exercise price of $102.71 and a weighted average remaining term of 7.30 years, were outstanding; and
|
|
|
|
unvested restricted stock awards or units covering 4,176,646 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, 2017. 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, 2017.
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, 2017.
Plan Category
|
|
Number of
Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(2)
|
|
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
|
|
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)
|
|
9,767,326
|
|
$ 91.57
|
|
11,427,114
|
Equity Compensation Plans Not Approved by Shareholders
|
|
—
|
|
—
|
|
—
|
TOTAL
|
|
9,767,326
|
|
|
|
11,427,114
|
(1)
|
These plans consist of our 2013 Plan, 2006 Stock and Option Plan and our Employee Stock Purchase Plan.
|
(2)
|
Does not include restricted stock awards or units covering 3,724,165 shares of our common stock outstanding as of December
31, 2017.
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
37
Item 4
|
Ratification of the Appointment of Independent Registered Public Accounting Firm
|
Engagement of Ernst &
Young 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, 2018 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 and chief operating officer, Thomas Graney, our senior vice president and chief
financial officer, 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 2018 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
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
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 2017 and 2016.
Service
|
|
2017
|
|
|
2016
|
Audit fees
|
|
$
|
2,818,000
|
|
|
$
|
2,671,000
|
Audit-related fees
|
|
|
24,000
|
|
|
|
0
|
Tax fees
|
|
|
2,587,000
|
|
|
|
2,282,000
|
All other fees
|
|
|
3,000
|
|
|
|
3,000
|
TOTAL
|
|
$
|
5,432,000
|
|
|
$
|
4,956,000
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
38
“Audit 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”
consisted
principally of fees for accounting consultations.
“Tax fees”
consisted of fees
related to tax compliance, worldwide tax planning and tax advice. The tax fees for 2017 and 2016 consisted of:
|
tax compliance and preparation fees, including the preparation of original and amended tax
returns and refund claims, and tax payment planning of $1,857,000 and $1,219,000, respectively; and
|
|
|
|
tax advice and planning fees of $730,000 and $1,063,000, 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
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 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.
|
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 minimis
amount
of non-audit services after the fact but before completion of the audit.
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, 2018. 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
-
2018 Proxy Statement
39
AUDIT AND FINANCE COMMITTEE REPORT
The 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.com
under “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 2017, 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, 2017, 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, 2017, 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 2017, 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, 2017 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, 2017. This
report is provided by the following independent directors, who comprise the Audit Committee:
Terrence C. Kearney
(Chair)
Yuchun Lee
Bruce I. Sachs
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
40
Item 5
|
Advisory Vote to Approve Named Executive Officer Compensation
|
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.
In 2017, we received support from 83% of our
shareholders on our say-on-pay proposal, and we believe all of our ten largest shareholders supported this proposal. We believe
this support is consistent with our long-term shareholders’ understanding of our business model and the long-term value we are creating.
We plan on continuing a high level of engagement with our shareholders regarding executive compensation. In 2017, we held discussions
regarding executive compensation with shareholders representing approximately 75% of our outstanding stock.
Our focus is and continues to be maintaining
the strong link between our compensation programs and our ability to continue to develop transformative medicines while delivering
sustained company performance, with approximately 90% of our NEO compensation linked to performance. Our board of directors and
MDCC reviewed our compensation programs and made the following key decisions with respect to 2017 compensation:
|
We maintained the same compensation program that we implemented in 2016, which we believe
closely ties pay with performance and has contributed to our short- and long-term successes
|
|
|
|
The company’s exceptional performance in 2017, resulted in a leading rating (a company
rating of 148 out of a potential 150) for 2017 and annual cash bonuses near the high end of the range for 2017, commensurate
with this performance
|
|
|
|
Our CEO’s salary has been unchanged at $1.3 million since 2014 and is aligned with the
median CEO pay of our peer companies
|
|
|
|
We continued utilization of a mix of equity that consists of performance stock units that
vest solely upon achievement of rigorous performance goals, stock options that only have value if our stock price appreciates
and time-vesting restricted stock units that reward stock price appreciation but also serve as a retention tool
|
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 Analysis
section beginning on page 45 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 2017, 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 programs and our ability to continue to develop transformative medicines while delivering sustained
revenues and earnings growth.
Based upon a vote of shareholders at the 2017
annual meeting of shareholders, following our board’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 2017 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.
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 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.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
41
Item 6
|
Shareholder Proposal Regarding Report on Drug Pricing
|
We expect the following shareholder
proposal will be presented for consideration at the 2018 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
Trinity Health, 766 Brady Avenue, Apartment 635,
Bronx, NY 10462, the owner of at least $2,000 worth of shares of our common stock as of December 5, 2017 and the Sisters of the
Humility of Mary, Villa Maria Community Center, Villa Maria, Pennsylvania 16155, the owner of 190 shares of our common stock as
of December 27, 2017, have given notice that one or both of them intends to present for action at the 2018 annual meeting of shareholders
the following resolution:
RESOLVED
that shareholders of Vertex Pharmaceuticals
(“Vertex”) ask the Board of Directors to report to shareholders by December 31, 2018, at reasonable cost and omitting
confidential or proprietary information, on the risks to Vertex from rising pressure to contain U.S. prescription drug prices,
including the likelihood and potential impact of those risks as applied to Vertex, the steps Vertex is taking to mitigate or manage
those risks and the Board’s oversight role. The report should address risks created by payer cost-effectiveness analysis,
patient access concerns, outcomes-based pricing, and price sensitivity of prescribers, payers and patients.
SUPPORTING STATEMENT
Prescription drug pricing is an urgent and high-visibility
public policy issue. National media outlets tell stories of patients delaying treatment or ending up homeless due to drug costs.
(E.g., http://www.npr.org/sections/health-shots/2017/03/15/520110742/as-drug-costs-soar-people-delay-or-skip-cancer-treatments;
https://www.consumerreports.org/drugs/cure-for-high-drug-prices/) Outrage greeted Turing Pharmaceuticals’ massive increase
in the price of an older AIDS drug and Mylan’s skyrocketing EpiPen price tag. (http://money.cnn.com/2016/08/25/news/economy/daraprim-aids-drug-high-price/index.html)
In a 2017 Kaiser Family Foundation poll, “lowering the cost of prescription drugs”
was identified as a top health care priority for the President and Congress by over 60% of Democrats and Republicans, and 58% of
independents. (https://www.kff.org/report-section/kaiser-health-tracking-poll-late-april-2017-the-future-of-the-aca-and-health-care-the-budget-rx-drugs/)
In October 2017, California began requiring companies to notify regulators when they intend to raise the price of a drug by 16%
or more over two years and explain why the increase is necessary. (http://www.npr.org/sections/health-shots/2017/10/04/551013546/california-bill-would-compel-drugmakers-to-justify-price-hikes)
In July, Vertex increased the price of its combination drug Orkambi by five percent, costing $273,000 before discounts. (https://www.bizjournals.com/boston/news/2017/07/13/vertex-inks-another-reimbursement-deal-in-europe.html) Some business analysts have noted that the pricing practices of rare disease
drug manufacturers may be facing more pushback as some payers are limiting coverage of high-cost medicines from other pharmaceutical
companies.
As an example, the
Toronto Globe and Mail
reported that the “Canadian Agency for Drugs and Technologies has recommended, on two occasions, against public funding
for Orkambi, saying there is not enough evidence of a significant clinical benefit weighed against the cost of the twice-a-day
tablet regime”. (https://www.theglobeandmail.com/news/british-columbia/provinces-reject-price-negotiations-for-orkambi-cystic-fibrosis-drug/article37069868/)
The disclosure requested by this Proposal will allow shareholders to better assess the risks created by Vertex’s
pricing strategy in the current environment. We urge shareholders to vote for this proposal.
YOUR COMPANY’S RESPONSE
Our board of directors recommends a vote AGAINST
the shareholder proposal requesting a report on the risks to our company from rising pressure to contain U.S. prescription drug
prices.
We are committed to creating transformative drugs
for patients with serious diseases, and we believe that each of our approved products is an excellent example of the benefit that
we can deliver to patients, providers and families of those affected by CF. Our goal is to ensure access to our medicines, return
value to our shareholders and fuel the development of additional transformative medicines for the future.
KALYDECO, ORKAMBI and SYMDEKO are the only medicines
that address the underlying cause of CF and KALYDECO and ORKAMBI have shown broad and sustained systemic benefits to patients
with CF. The price of our products reflects many factors, including the relative benefit it provides to patients, the substantial
time and cost it took to develop, the small number of patients eligible for treatment with each product and our ongoing commitment
to invest in additional medicines for patients with CF and other diseases. The price balances the need for patient access, while
garnering a fair return for our shareholders and ensuring sufficient investment in the discovery and development of future transformative
medicines.
As part of our commitment to providing patients
with access to our medicines, we have a comprehensive product support program that includes financial assistance for eligible patients.
We provide one-on-one support to help patients with health insurance understand and navigate their health plans and the majority
of our patients incur low out of pockets costs. Additionally, we provide co-pay assistance for eligible commercially insured patients
that enroll in our product support program. For patients without health insurance who meet certain income and other eligibility
criteria, we provide products for no charge.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
42
We are in a high risk/high return industry. A
very small percentage of the potential medicines investigated by biotechnology companies make it through the arduous research,
development and regulatory process to be approved for patient use by the FDA, and only a small percentage of these approved medicines
bring in enough revenue to recoup the average cost of development. As a result, the very few drug candidates that receive FDA approval
and become commercially successful must support the entire research and development enterprise. Since our incorporation in 1989,
the vast majority of our expenses have been related to our research and development efforts, with a small portion of our expenses
allocated to sales and marketing. We have spent approximately $11 billion for research and development for drug candidates for
the treatment of CF, as well as several other disease areas, including HCV infection and HIV infection.
With respect to specific disclosure of the risks
intended to be captured in the report requested by the proponent, we believe we have made adequate reference in our periodic reports
under the Securities Exchange Act of 1934, as amended. For example, our annual report on Form 10-K, filed with the SEC on February
15, 2018, includes prominent risk factors referencing these risks, including a risk factor entitled “Government and other
third-party payors seek to contain costs of health care through legislative and other means. If they fail to provide coverage and
adequate reimbursement rates for our products, our revenues will be harmed.”
As such, we believe proponent’s requested
report will not benefit our shareholders and will divert the time and attention of management and the board from our strategic
initiatives and operations.
For all of the above reasons our board of directors
recommends that you vote
AGAINST
the shareholder proposal regarding a report on drug pricing. 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
-
2018 Proxy Statement
43
Item 7
|
Shareholder Proposal Regarding Lobbying
|
We expect the following shareholder
proposal will be presented for consideration at the 2018 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
Friends Fiduciary Corporation, 1650 Arch Street,
Suite 1904, Philadelphia, Pennsylvania 19103, an owner of at least 600 shares of our common stock as of December 13, 2017 has given
notice that it intends to present for action at the 2018 annual meeting of shareholders the following resolution:
WHEREAS
, 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 best interests of shareholders.
RESOLVED
, the shareholders of Vertex
Pharmaceuticals Incorporated (“Vertex”) request the preparation of a 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 proposal, 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 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 Vertex 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 presented 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 $2.7 million in 2015 and 2016 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 120 lobbyists in 35 states in 2016 (http://www.followthemoney.org/),
and spent $306,346 on lobbying in California in 2015 and 2016. Vertex’s lobbying on drug prices in Canada has attracted media
attention (“Why One Expensive Drug Could Get B.C. OK, But Not Another,”
Times Colonist
, November 24, 2017),
as has its federal lobbying (“Drugmakers Dramatically Boosted Lobbying Spending in Trump’s First Quarter,”
Salon
,
April 22, 2017).
Vertex is listed as a member of the Biotechnology
Innovation Organization, which spent $17.58 million on lobbying in 2015 and 2016. Vertex does 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 Vertex’s long-term interests. We are concerned that Vertex’s lack
of lobbying disclosures, including lobbying done indirectly by trade associations and other organizations, and any potential negative
publicity for opposing drug price initiatives, may present reputational risks for Vertex.
YOUR COMPANY’ RESPONSE
Our board of directors recommends a vote AGAINST
the shareholder proposal to prepare a report on our policies and activities with respect to lobbying.
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 board believes that additional disclosures regarding payments to these trade associations would not necessarily
present an accurate reflection of our positions on certain public policy issues.
Our board acknowledges the interests of shareholders
in information about our participation in the political process. However, our board believes that the proposal’s additional
detailed reporting obligation would be duplicative of existing disclosures and that it would impose an unnecessary administrative
burden and expense on the company when sufficient disclosure already exists.
For all of the above reasons our board of directors
recommends that you vote
AGAINST
the shareholder proposal regarding a 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 approval of this proposal.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
44
COMPENSATION DISCUSSION AND ANALYSIS
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 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 accomplishments
over the last several years as it has increased its revenues significantly each year, built its financial strength, advanced its
pipeline and continued to execute its business strategy. These accomplishments have been recognized by the company’s shareholders
and have been reflected in the increasing value that the company’s shareholders have attributed to the company. Vertex’s
market capitalization has increased by more than 400% from approximately $7 billion in early 2012 to more than $40 billion in early
2018. In 2017, Vertex was the number three performing stock on the S&P 500.
We take seriously our role in the
governance of compensation programs and the importance of attracting and retaining critical executive talent as the company
continues to expand and operate in an increasingly complex industry. The success of the company and the execution of
Vertex’s business strategy over the last several years has depended upon the stability and operational excellence of
our senior executive team. We also carefully consider and incorporate the views expressed by the company’s shareholders
into our thinking, transitioning Vertex’s equity program from a share-based program to a value-based approach in 2016,
based on the progression of the company and input from shareholders.
In 2017, Vertex had a remarkable year as it
became profitable, continued to increase revenues, managed operating expenses and advanced numerous programs as potential treatments
for both CF and non-CF diseases, positioning itself for continued growth. This success in 2017 reflects both the company’s
exceptional execution in 2017 and the overall corporate strategy that the company’s core management team has championed since
2012.
As a result of these exceptional accomplishments,
our executives received higher cash bonuses for 2017 performance than they received for 2016 performance. In addition, our executives
received above target payouts on the performance stock unit awards granted in early 2017 that were tied to Vertex CF product revenues.
We believe 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 and continuing to develop transformative medicines to treat serious diseases while delivering sustained
revenues and earnings growth is our ability to attract and retain a stable and highly-functioning senior executive team.
Sincerely,
Bruce I. Sachs
(Chair)
Terrence C. Kearney
Elaine S. Ullian
William D. Young
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
45
Executive Summary
By any measure, 2017 was a remarkable year
for Vertex as we continue to execute on our strategy of investing in cystic fibrosis scientific innovation to create
transformative medicines for people with serious diseases. With near-30 percent growth in revenues and disciplined management
of our operating expenses, we have established a foundation of financial strength to fuel our innovation engine and growth
for the future. In CF, we continue to develop new and better medicines to treat more people with this devastating disease,
and, with the announcement of the start of our triple combination regimen trials, are more confident than ever that we will
be able to treat up to 90 percent of people with CF in the near future. Outside of CF, we have made significant progress in
advancing our research and development efforts in other serious diseases, including pain, alpha-1 anti-trypsin deficiency
and, with our partner CRISPR, sickle cell disease. With these advances, we have enhanced our proven track record of serially
innovating for patients waiting for new therapies. As we enter 2018, we are financially strong and well positioned to grow
revenues, deliver expanding operating margins, and deliver long-term shareholder value.
Financial Performance
Our CF medicines, KALYDECO, ORKAMBI and
SYMDEKO, which took more than 15 years to discover and develop, are now transforming the lives of eligible patients around
the globe and driving our financial performance. In 2017, we increased our revenues, managed our operating expenses and
established sustainable profitability on a GAAP and Non-GAAP basis for the first time.
|
We exceeded our CF net product revenue guidance by $265 million, or 14% ($2.17 billion
as compared to the mid-point of our CF net product revenue guidance of $1.9 billion)
|
|
|
|
Our CF net product revenues increased to $2.17 billion, up 29% as compared to 2016, and we
are positioned to further increase CF net product revenues by an additional 25% in 2018
|
|
|
|
We increased our net cash position by approximately $950 million, or 84%, to approximately
$2.1 billion, and we expect to continue generating substantial cash flows in 2018
|
|
|
|
We went from a GAAP net loss of $112 million in 2016 to GAAP net income of $263 million in
2017
|
|
|
|
Our non-GAAP net income increased to $495 million, up $283 million, or 134%, from 2016,
driven by our increased net product revenues (a reconciliation of non-GAAP net income is provided in Appendix D)
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
46
CF Pipeline
Advances in our pipeline and our
strategic execution have moved us closer to our goal of delivering highly-effective treatments to all patients with CF. In
January 2012, KALYDECO was first approved to treat approximately 1,000 patients with the G551D mutation. Since then, we have
followed a focused strategy of developing new medicines for CF and expanding the number of patients eligible for our
medicines, and today 34,000 patients around the world are eligible to receive one of our approved CF medicines.
Since the beginning of 2017, we:
|
Obtained positive Phase 3 data for SYMDEKO (tezacaftor in combination with ivacaftor) in early
2017
|
|
|
|
Achieved approval for SYMDEKO in the United States in February 2018
|
|
|
|
Applied for European regulatory approval of tezacaftor in combination with ivacaftor in July
2017 with approval expected in the second half of 2018
|
|
|
|
Obtained authorization to market ORKAMBI in the European Union for patients 6-11 years of
age in January 2018
|
|
|
|
Received approvals to market KALYDECO for approximately 1,500 additional CF patients in the
United States with residual function mutations in May 2017 and August 2017
|
|
|
|
Obtained positive Phase 3 data for KALYDECO for patients 1 to 2 years of age in December 2017
|
|
|
|
Obtained highly-positive Phase 2 data for four triple combination regimens, each of which
contained different next-generation correctors in combination with tezacaftor and ivacaftor, from mid-2017 through early 2018
|
|
|
|
Accelerated initiation of the Phase 3 development program for VX-659 in combination with tezacaftor
and ivacaftor, which started in February 2018
|
|
|
|
Positioned ourselves to initiate a Phase 3 clinical development program for VX-445 in a triple
combination regimen in mid-2018
|
With the start of our triple combination regimen
Phase 3 clinical trials, we believe we are well-positioned to treat up to 90% of CF patients with medicines that target the underlying
cause of their disease.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
47
Non-CF Pipeline
Over the last decade, we have
demonstrated an ability to serially discover and develop multiple groundbreaking medicines in different diseases. In 2017, we
and our collaborators have continued our serial innovation, advancing promising non-CF programs for important diseases,
including pain, sickle cell disease, alpha-1 anti-trypsin deficiency, polycystic kidney disease and influenza. Specifically,
since the beginning of 2017, we have:
|
Obtained the first clinical proof-of-concept from a Phase 2 clinical trial evaluating a NaV1.8
inhibitor as a potential treatment for chronic pain in January 2017 (VX-150 is our lead non-opioid NaV1.8 inhibitor)
|
|
|
|
Obtained clinical proof-of-concept from a second Phase 2 clinical trial of VX-150 as a potential
treatment for acute pain in February 2018
|
|
|
|
Initiated a Phase 1 clinical trial of VX-128, a second non-opioid sodium channel inhibitor,
in December 2017
|
|
|
|
Executed a co-development and co-commercialization agreement with CRISPR Therapeutics AG for
beta-thalassemia and sickle cell disease
|
|
|
|
Advanced through pre-clinical development CTX001 for beta-thalassemia and sickle cell disease
pursuant to our collaboration with CRISPR Therapeutics AG. We expect to initiate Phase 1/2 clinical trials in 2018 to evaluate
CTX001, which will be the first, or one of the first, clinical trials to evaluate a potential CRISPR/Cas9 drug candidate.
|
|
|
|
Advanced our research program for alpha-1 anti-trypsin deficiency into late-stage pre-clinical
development
|
|
|
|
Janssen Pharmaceuticals, our collaborator, initiated Phase 3 development of pimodivir as a
potential treatment for influenza
|
|
|
|
Successfully outlicensed our oncology programs to Merck KGaA, Darmstadt, Germany
|
Increased Shareholder Value
Driven by our exceptional financial performance
and our pipeline success in 2017:
|
Our stock price increased by more than 100% from $73.67 per share to $149.86 per share
|
|
|
|
We were the third best performing stock among the approximately 500 mid- and large-cap companies
that make up the S&P 500 index
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
48
Although our performance in 2017 was remarkable,
biotechnology companies are best measured over the longer-term, as opposed to in one year increments. As result of executing on
a clear and focused vision that balanced short-term and long-term goals, we have taken Vertex from a market capitalization of less
than $10 billion in early 2012 when KALYDECO was first approved to over $40 billion in early 2018, creating significant value for
our shareholders.
The following chart shows our total
shareholder return during the 1-year, 3-year and 5-year periods ending December 31, 2017 compared to the following members of
our peer group: Alexion, Regeneron, Biomarin, Gilead, Celgene and Biogen. These peers are the companies we consider most
similar to our company based on their business model (see page 54).
The following chart shows our total shareholder
return from the beginning of 2012 when KALYDECO was first approved through February 2018.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
49
Value Creation and Business Model
We are committed to creating value while
utilizing a business model that focuses our investment on research and development and limits our operating expenses. As a result
of this strategy, over the last six years the number of our employees has grown by approximately 15% from 2,000 to 2,300,
while our market capitalization has increased more than five fold. The following chart shows our market capitalization per employee
compared to our Peer Group.
Key Compensation Decisions
Our focus has been and continues to be on
maintaining the strong link between our compensation programs and our ability to continue to develop transformative medicines
while delivering sustained company performance.
Our compensation program is highly performance-based with approximately 90%
of our NEO compensation tied to performance
. Retention of our talented core of executives is likewise critical, as their outstanding
performance over the last six years has led to the advancement of the company and the significant shareholder value that has been
created.
The key recent decisions that our MDCC and board of directors
made are as follows:
|
Program Design:
We maintained
the same compensation program that we implemented in 2016, which we believe closely ties pay with performance and has contributed
to our short- and long-term successes.
|
|
|
|
Base Salary:
Our CEO’s salary
has been unchanged at $1.3 million since 2014. His annual salary is aligned with the median CEO pay of our Peer Group. In
2017, we evaluated and increased the base salary of two of our other executive officers by 7% to 9% based on a review of base
salaries of peers and in recognition of their roles and contributions to the company.
|
|
|
|
Annual Cash Bonus:
The company’s
exceptional performance in 2017, as described above, resulted in a leading rating (a company rating of 148 out of a potential 150) for 2017 and annual cash
bonuses near the high end of the range for 2017, commensurate with this performance.
|
|
Long-Term Equity Program:
|
|
|
|
–
|
We continued utilization of a mix of equity that consists of performance stock units that vest solely upon achievement of rigorous performance goals, stock options that only have value if our stock price appreciates and time-vesting restricted stock units that reward stock price appreciation but also serve as a retention tool.
|
|
|
|
|
–
|
In early 2017, the MDCC established financial and non-financial metrics for the PSUs, with payout earned based on achievement of these metrics. 50% of the PSUs were tied to CF net product revenues in 2017, while the remaining 50% are tied to specific clinical and research milestones over a three-year period.
|
|
|
|
|
–
|
In February 2018, the MDCC certified our 2017 CF net product revenue (which exceeded the mid-point of our CF net product revenue guidance by more than $250 million) at the maximum level of performance established at the beginning of 2017, resulting in 200% of the target shares for our 2017 financial PSU being earned, with vesting in three equal installments in February 2018, 2019 and 2020. By comparison, in February 2017, the MDCC certified a payout of 66.5% of the target shares for our 2016 financial PSUs.
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
50
2016 Program Changes
In 2016, we substantially changed our equity
compensation program, which decreased the value of compensation provided in the form of stock options, reduced the value of compensation
delivered in the form of time-vested restricted stock, and introduced PSUs. As a result of these changes, the grant date fair-value
of our named executive officers’ total equity compensation under the annual program decreased by approximately 40% in each
of 2018, 2017 and 2016 as compared to 2015 as set forth in the chart below, which sets forth the fair value of equity compensation
received by Dr. Leiden, our chief executive officer and president, and Mr. Smith, our chief operating officer. The values
provided for 2018 are based on equity grants made in February 2018 based on 2017 performance.
|
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 2017 Annual Report on Form 10-K.
|
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 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 41% fewer shares of common stock in 2017 as compared to 2012 and reduced our “burn rate”
by approximately 50% from 3.6% in 2012 to 1.8% in 2017.
|
|
2012
Equity
Awards
|
|
2013
Equity
Awards
|
|
2014
Equity
Awards
|
|
2015
Equity
Awards
|
|
2016
Equity
Awards
|
|
2017
Equity
Awards
|
|
% Change
2012 v 2017
|
Total Shares Subject to Equity Awards
|
|
7,525,000
|
|
6,276,000
|
|
5,629,000
|
|
5,035,000
|
|
4,887,000
|
|
4,470,000
|
|
(41)%
|
Burn Rate
(1)
|
|
3.6%
|
|
2.8%
|
|
2.4%
|
|
2.1%
|
|
2.0%
|
|
1.8%
|
|
|
Awards Canceled, Forfeited or Expired
|
|
1,644,000
|
|
2,622,000
|
|
1,628,000
|
|
1,573,000
|
|
928,000
|
|
1,107,000
|
|
|
Net Dilution
|
|
5,881,000
|
|
3,654,000
|
|
4,001,000
|
|
3,462,000
|
|
3,959,000
|
|
3,363,000
|
|
|
Net Burn Rate
|
|
2.8%
|
|
1.6%
|
|
1.7%
|
|
1.4%
|
|
1.6%
|
|
1.3%
|
|
|
(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.
|
Say-on-Pay
In 2017, we received support from 83% of
our shareholders on our say-on-pay proposal, and we believe all of our ten largest shareholders supported this proposal. We believe
this support is consistent with our long-term shareholders’ understanding of our business model and the long-term value we are creating.
We maintain a high level of engagement and plan on continuing a high level of engagement with our shareholders regarding executive
compensation. In 2017, we held discussions regarding executive compensation with shareholders representing approximately 75% of
our outstanding stock.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
51
Compensation Governance Practices
We continue to implement and maintain leading
practices in our compensation program, shareholder outreach and related areas.
What We Do
|
|
What We Don’t Do
|
Caps on awards
|
|
No executive perquisites
|
Multiple performance factors
|
|
No supplemental pension benefits for executives
|
Range of awards; not all or nothing
|
|
No single-trigger vesting in connection with a change-in-control for equity awards
|
Compensation recoupment (clawback) policy
|
|
No hedging or pledging or speculative transactions in our securities by directors and executive officers
|
Balance of Short- and Long-term Incentives (through annual cash bonuses and equity awards)
|
|
No re-pricing of equity awards without shareholder approval
|
Anti-hedging policy
|
|
No payment of dividends on unvested performance shares or units
|
Executive and Non-Employee Director Stock Ownership Guidelines
|
|
|
Policy against gross-ups
|
|
|
Independent compensation consultant
|
|
|
Robust shareholder outreach
|
|
|
Compensation Philosophy and Compensation Decision-Making Process
This section discusses the principles underlying
our policies and decisions with respect to the compensation of our “named executive officers” and all material factors
we believe are relevant to an analysis of these policies and decisions. Our named executive officers for 2017 consist of: (i) our
president and chief executive officer; (ii) our chief financial officer; (iii) our chief operating officer, who was our chief financial
officer for a portion of 2017; and (iv) our other three most highly compensated employees who were serving as executive officers
on December 31, 2017.
Detailed Discussion and Analysis
Our named executive officers, or NEOs, for 2017 were:
Name
|
|
Position
|
Jeffrey M. Leiden
|
|
Chairman, Chief Executive Officer and President
|
David M. Altshuler
|
|
Executive Vice President, Global Research and Chief Scientific Officer
|
Thomas Graney
|
|
Senior Vice President and Chief Financial Officer
|
Michael Parini
|
|
Executive Vice President and Chief Legal and Administrative Officer
|
Amit Sachdev
|
|
Executive Vice President and Chief Regulatory Officer
|
Ian F. Smith
|
|
Executive Vice President and Chief Operating Officer
|
Compensation Philosophy
Our MDCC regularly reviews the elements of
the individual compensation packages for our CEO and executive officers to achieve the following primary objectives:
|
attract, retain and motivate talented and experienced individuals across all areas of our business;
|
|
|
|
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; and
|
|
|
|
ensure that the vast majority of compensation is performance-based.
|
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,
a CF pipeline and non-CF pipeline that have been significantly advanced over the last several years, increasing revenues, and an
established strong financial profile, all of which positions Vertex to achieve its strategic objectives in future years.
Our MDCC and our board of directors seek
to connect the achievement of our strategic objectives with our compensation program in a number of ways, including through detailed
and measurable company goals that underlie our annual cash bonuses and the performance goals that are included in our equity awards.
Our company goals involve a mix of goals relating to revenues from our current products, achievement
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
52
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 significant
revenue growth and sustain and increase profitability. Our MDCC and board 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 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 of directors
when his compensation is discussed and 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 2017, the MDCC selected Pearl Meyer to conduct and present
this analysis to the MDCC.
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:
|
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.
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. Selecting 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 establish our peers, including
the following:
Factor Considered
|
|
What We 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 $1B or 25% 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
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
53
We 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, companies with similar revenues may not focus on innovative therapies such as those designated
as Breakthrough Therapies by the FDA, a designation which can expedite the development and review of medicines that are intended
to treat serious conditions where preliminary clinical evidence indicates that the medicine may demonstrate substantial improvement
over available 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 a better indicator of the complexity of a company’s business
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 2017, which were the same comparator
companies that were used in 2016.
The Core Peers are the peers we consider
most similar to us in terms of business model.
2017 Peer Companies
|
Core Peers
|
Alexion Pharmaceuticals, Inc.
Biogen Inc.
Biomarin Pharmaceuticals Inc.
Celgene Corporation
Gilead Sciences, Inc.
Regeneron Pharmaceuticals, Inc.
|
Other Peers
|
Abbvie Inc.
Alkermes plc
Amgen Inc.
Jazz Pharmaceuticals plc
Incyte Corporation
Shire plc
United Therapeutics Corporation
|
We believe, based on our discussions with
major shareholders, that the Peer Group identified by our MDCC is consistent with our shareholders’ views of our relevant
peers in the biotechnology 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
|
|
|
|
|
|
|
|
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
7 Years
(3)
|
|
Vertex
as Peer
|
|
Nasdaq 100
|
|
S&P
500
|
|
AbbVie
|
|
Biotech
|
|
$
|
4,982
|
|
18%
|
|
|
|
|
|
|
|
4
|
|
4
|
|
|
|
|
|
|
|
Alexion
|
|
Biotech
|
|
$
|
878
|
|
25%
|
|
|
|
|
|
|
|
1
|
|
2
|
|
|
|
|
|
|
|
Alkermes
|
|
Biotech
|
|
$
|
413
|
|
46%
|
|
|
|
|
|
|
|
0
|
|
1
|
|
|
|
|
|
|
|
Amgen
|
|
Biotech
|
|
$
|
3,562
|
|
16%
|
|
|
|
|
|
|
|
1
|
|
5
|
|
|
|
|
|
|
|
Biogen
|
|
Biotech
|
|
$
|
2,254
|
|
22%
|
|
|
|
|
|
|
|
0
|
|
4
|
|
|
|
|
|
|
|
BioMarin
|
|
Biotech
|
|
$
|
611
|
|
46%
|
|
|
|
|
|
|
|
1
|
|
2
|
|
|
|
|
|
|
|
Celgene
|
|
Biotech
|
|
$
|
4,295
|
|
33%
|
|
|
|
|
|
|
|
0
|
|
4
|
|
|
|
|
|
|
|
Gilead
|
|
Biotech
|
|
$
|
3,512
|
|
13%
|
|
|
|
|
|
|
|
4
|
|
7
|
|
|
|
|
|
|
|
Incyte
|
|
Biotech
|
|
$
|
1,345
|
|
88%
|
|
|
|
|
|
|
|
0
|
|
2
|
|
|
|
|
|
|
|
Jazz
|
|
Biotech
|
|
$
|
198
|
|
12%
|
|
|
|
|
|
|
|
0
|
|
2
|
|
|
|
|
|
|
|
Regeneron
|
|
Biotech
|
|
$
|
2,075
|
|
38%
|
|
|
|
|
|
|
|
2
|
|
4
|
|
|
|
|
|
|
|
Shire
|
|
Pharma
|
|
$
|
1,743
|
|
11%
|
|
|
|
|
|
|
|
0
|
|
4
|
|
|
|
|
|
|
|
United Therapeutics
|
|
Biotech
|
|
$
|
265
|
|
15%
|
|
|
|
|
|
|
|
0
|
|
3
|
|
|
|
|
|
|
|
Vertex
|
|
Biotech
|
|
$
|
1,327
|
|
53%
|
|
|
|
|
|
|
|
5
|
|
4
|
|
|
|
|
|
|
|
(1)
|
R&D
Expense and R&D Expense as a % of Revenue reflects the trailing data for the most recent four quarters as of 12/31/2017
per the S&P Capital IQ database.
|
(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 seven years include: VIEKIRA PAK, IMBRUVICA, VENCLEXTA and MAVYRET (Abbvie), STRENSIQ and KANUMA (Alexion), ARISTADA (Alkermes), BLINCYTO, XGEVA, PROLIA, KYPROLIS and PARSABIV (Amgen), TECFIDERA, ALPROLIX, SPINRAZA and ELOCTATE (Biogen), BRINEURA and VIMIZIM (BioMarin),IDHIFA, POMALYST, ABRAXANE and OTEZLA (Celgene), YESCARTA, SOVALDI, HARVONI, VEMLIDY, CAYSTON, ZYDELIG and BIKTARVY (Gilead), JAKAFI and OLUMIANT (Incyte), VYXEOS and DEFITELIO (Jazz), DUPIXENT, PRALUENT, EYLEA and ZALTRAP (Regeneron), MYDAYIS, FIRAZYR, NATPARA and GATTEX (Shire) and REMODULIN, ORENITRAM and UNITUXIN (United Therapeutics).
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
54
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 Willis Towers Watson, but does not make any material compensation decisions
based on any particular company participants in such surveys.
Elements of Annual Compensation
Our practice is to target total direct compensation
including base salary, annual cash incentives targets, and long-term incentive targets at market competitive levels depending upon
the NEOs responsibilities, expertise and experience. Our executive compensation program uses a mix of long-term equity compensation
awards in the form of stock options and 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.
Each year we review the balance of 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.
Compensation Program
As shown in the following charts, our compensation program places
an emphasis on performance-linked compensation.
The charts above represent the actual values,
and exclude the compensation of Mr. Graney, who joined the company in mid-2017.
Performance-Linked Value-Based Program
We have a performance-linked program that
is consistent with programs implemented by our peers and allows us to attract, retain and motivate talented and experienced individuals
across all areas of our business. We 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
|
|
|
|
Performance Restricted Stock Unit Awards
|
|
50%
of PSUs with range of shares issued
0% to 200%
of target based on one year financial 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 are fixed as percentage of target at grant and realized value varies based on increases or decreases in stock price
|
|
|
|
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
|
|
|
|
Time-Based Restricted Stock Unit Awards
|
|
Value
of shares granted based on individual performance from
0% to 150%
|
|
|
|
|
|
Value of awards increases or decreases based on increases or decreases in stock price
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
55
More specifically:
|
Performance Stock
Units.
Our NEOs receive 35% of their annual target equity compensation in the form of PSUs. The PSUs vest, if at all,
based half on financial goals 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 made
over the last three years, fifty percent of PSUs that could be earned have a one-year performance period with the amount 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. During the last three years, the remaining 50% of PSUs that
could be earned have a three-year performance period with the amount 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 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.
|
|
|
|
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. We
use stock option awards because we believe stock options are performance-based and provide alignment with shareholders as
executives are rewarded for corporate performance only if the stock price appreciates.
|
|
|
|
Time-based Stock Units.
Our NEOs receive 35% of their annual target equity compensation in the form of restricted stock units that vest over a
three-year period. We believe that with a majority of the annual long-term incentive award at risk based on our successful
execution of our strategic objectives and on stock price appreciation, 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.
|
Base Salary
The MDCC recommends base salaries for each
of our executive officers based on multiple factors, including a competitive 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 Values Into Practice 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 peer counterparts
at companies in our Peer Group.
In July 2017, our board of directors increased
Dr. Altshuler’s base salary from $575,000 to $625,000 and Mr. Parini’s base salary from $675,000 to $725,000
after a review of the base salaries of peers and in recognition of their role and contributions to the company. In mid-2017, Mr. Graney
joined our organization and his compensation arrangement was the result of negotiations between us and Mr. Graney.
Name
|
|
2017
Base Salary
|
|
2018
Base Salary
|
|
Peer Ranking
(Percentile)
|
|
% Change
2017 v 2018
|
Jeffrey M. Leiden
|
|
$
|
1,300,000
|
|
$
|
1,300,000
|
|
65th
|
|
0%
|
David Altshuler
|
|
$
|
575,000
|
|
$
|
625,000
|
|
40th
|
|
9%
|
Thomas Graney
|
|
$
|
550,000
|
|
$
|
550,000
|
|
25th
|
|
0%
|
Michael Parini
|
|
$
|
675,000
|
|
$
|
725,000
|
|
45th
|
|
7%
|
Amit Sachdev
|
|
$
|
540,750
|
|
$
|
540,750
|
|
70th
|
|
0%
|
Ian F. Smith
|
|
$
|
850,000
|
|
$
|
850,000
|
|
55th
|
|
0%
|
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.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
56
Overview of Company Performance Rating &
Achievement in 2017
At 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 our board in assessing our corporate performance, but our board considers additional accomplishments
and shortcomings and may increase or decrease the performance scores (although the company score may not exceed 150). 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 2017, the board 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 revenue growth and increasing profitability. Our 2017 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 2017
Performance Score
|
Marketed and Approval-Stage Products
|
|
60
|
|
50
|
Increase ORKAMBI net product revenues through compliant marketing practices
|
|
|
|
|
Increase KALYDECO net product revenues through compliant marketing practices
|
|
|
|
|
Pipeline Growth
|
|
55
|
|
55
|
Achieve proof of concept data for one or more triple combination therapies in F508del/Min patients
|
|
|
|
|
File regulatory applications for the approval of tezacaftor in combination with ivacaftor
|
|
|
|
|
Advance next-generation CFTR correctors
|
|
|
|
|
Advance multiple non-CF development and research programs
|
|
|
|
|
Organizational Development and Capability
|
|
20
|
|
20
|
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
|
|
15
|
|
15
|
Increase revenues and manage operating expenses
|
|
|
|
|
Additional
Accomplishments and Shortcomings (see page 58 of this proxy statement)
|
|
|
|
8
|
TOTAL
|
|
150
|
|
148
|
Our 2017 company performance score was
148 out of a potential of 150. Our 2018 company performance will be evaluated against the broad categories set forth above
putting slightly more emphasis on Financial Strength (20 points in 2018 compared to 15 points in 2017) and slightly less on
Organizational Development and Capability (15 points in 2018 compared to 20 points in 2017). These changes were made to align
our annual incentive plan with our business goals for 2018.
Detailed Discussion of Company Performance
Rating Factors and Achievements
Goals - Marketed and Approval-Stage Products
In 2017, total CF net product revenues
of $2.17 billion exceeded the mid-point of our initial total CF net product revenue guidance by $265 million, or 14%
($2.17 billion actual as compared to initial guidance of $1.9 billion). This represented an increase in total CF net product
revenues of 29% compared to total CF net product revenues in 2016. We expect additional increases in CF net product revenues
in 2018.
ORKAMBI.
In 2017, we exceeded the
mid-point of our initial ORKAMBI net product revenue guidance by $121 million ($1.32 billion actual as compared to initial guidance
of $1.1 billion to $1.3 billion) based on the strong performance of ORKAMBI in the United States, which more than offset weaker
performance of ORKAMBI in Europe. ORKAMBI net product revenues increased by 35% from $980 million in 2016 to $1.32 billion in 2017.
KALYDECO.
In 2017, we exceeded
the mid-point of our initial KALYDECO net product revenue guidance by $145 million ($845 million actual as compared
to initial guidance of $690 million to $710 million) as we continued to expand the number of patients eligible for
KALYDECO, including through multiple label expansions providing CF patients in the United States with residual function
mutations access to KALYDECO. KALYDECO net product revenues increased by 20% from $703 million in 2016 to $845 million in
2017.
For marketed and approval-stage products
goals, our board assigned the company a score of 50 out of 60, due to our achieving our goals with respect to total CF net product
revenues including exceeding our goals with respect to both ORKAMBI and KALYDECO net product revenues, which more than offset weaker
than expected performance of ORKAMBI in Europe.
Goals - Pipeline Growth (Late and Early-Stage)
In 2017, we made significant progress that moved us closer to
achieving our goal of delivering highly effective medicines to all patients with CF. Specifically, we:
|
Obtained positive Phase 3 data for tezacaftor in combination with ivacaftor in early 2017
|
|
|
|
Positioned ourselves to achieve approval for SYMDEKO in the United States in February 2018
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
57
|
Applied for European regulatory approval of tezacaftor in combination with ivacaftor in July 2017 with approval expected in the second half of 2018
|
|
|
|
Positioned ourselves to obtain authorization to market ORKAMBI in the European Union for patients 6-11 in January 2018
|
|
|
|
Received approvals to market KALYDECO for approximately 1,500 additional CF patients in the United States with residual function mutations in 2017
|
|
|
|
Obtained positive Phase 3 data for KALYDECO for patients 1 to 2 years of age in December 2017
|
|
|
|
Obtained highly-positive Phase 2 data for four triple combination regimens, each of which contained different next-generation correctors, in combination with tezacaftor and ivacaftor
|
|
|
|
Accelerated initiation of Phase 3 development program for VX-659 in combination with tezacaftor and ivacaftor to February 2018
|
|
|
|
Positioned ourselves to initiate a Phase 3 clinical development program for VX-445 in a triple combination regimen in mid-2018
|
In 2017, we advanced promising programs in a variety of disease.
Specifically, we:
|
Obtained the first proof-of-concept from a Phase 2 clinical trial evaluating a NaV1.8 inhibitor as a potential treatment for chronic pain in January 2017 (VX-150 is our lead non-opioid NaV1.8 inhibitor)
|
|
|
|
Initiated a Phase 1 clinical trial of VX-128, a second non-opioid sodium channel inhibitor, in December 2017
|
|
|
|
Executed a co-development and co-commercialization agreement with CRISPR Therapeutics AG
|
|
|
|
Advanced CTX001, which is one of the first gene editing programs to utilize CRISPR/Cas9, and is being developed pursuant to our collaboration with CRISPR Therapeutics AG, through pre-clinical development to enable expected Phase 1/2 clinical trials in 2018
|
|
|
|
Advanced our research program for alpha-1 anti-trypsin deficiency into late-stage pre-clinical development
|
|
|
|
Janssen Pharmaceuticals, our collaborator, initiated Phase 3 development of pimodivir as a potential treatment for influenza
|
|
|
|
Successfully outlicensed our oncology programs to Merck KGaA, Darmstadt, Germany
|
On the basis of the accomplishments
in advancing our research and development programs and, in particular, the advancement of next-generation correctors allowing us
to begin Phase 3 development of our next-generation triple combination regimens in early 2018, our board assigned the company a
score of 55 out of 55 for our pipeline growth goal.
Goals - Organizational Development and Capability
Talent and expertise.
Strengthened our organizational capabilities
by attracting, developing and retaining the key talent necessary to operate our business, including filling 16 of 17 critical hires
with superior talent and expanding our leadership and management training programs. During 2017, we continued to focus on diversity
in our hiring and 63% of our critical hires at the vice president or above level were diverse on a gender/ethnic basis.
Systems.
Continued improvement of infrastructure to support
an increasingly complex organization, including enhancing policies, software platforms and business processes. In 2017, we installed
a financial management platform providing significant improvements in our consolidation and reporting processes, launched a global
customer relationship management platform and selected and began implementation of an enterprise-wide learning management system.
Compliance.
Continued 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 2017, our board assigned the company a score of 20 out of 20 for our organizational development
and capability goals.
Goals - Financial Strength
We exceeded all of our financial strength goals in 2017. We increased
revenues and managed our operating expenses allowing us to strengthen our balance sheet and end 2017 with cash, cash equivalents
and marketable securities of $2.1 billion while decreasing the amount of outstanding debt under our revolving credit agreement
from $300.0 million to zero.
As a result of our success in increasing our financial strength
by managing our operating expenses and securing a strong cash position, our board assigned the company a score of 15 out of 15
for our financial strength goals.
Additional Factors (accomplishments and/or shortcomings)
In connection with determining our 2017 company rating, our board
of directors made positive and negative adjustments based on factors not anticipated in the company’s original goals. The
positive adjustments were primarily related to our success in accelerating the development of our next-generation corrector program
by almost a year, our successful business development activities, including our acquisition of Concert Pharmaceuticals, Inc. and
advancing our collaboration with CRISPR, and the exceptional performance of our U.S. commercial team. These additional
accomplishments were partially offset by delays we experienced in our clinical trial of tezacaftor in combination with ivacaftor
in gating patients and delays in implementing our leadership development program. Overall, the board of directors increased our
company rating by eleven points for positive additional accomplishments, which was offset by a three point downward adjustment
related to additional negative factors, which resulted in an overall positive net eight point adjustment.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
58
2017 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:
The 2017 results-based rating recommendation
for each NEO, other than our CEO, is the combined result of the MDCC members’ observations and a 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 MDCC members’ interactions with the executive. When considering the more subjective values-based rating, the MDCC
also discussed Dr. Leiden’s recommendations, giving Dr. Leiden’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 visibility than the MDCC 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 crucial to achieving the more objective goals discussed above.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
59
2017 Actual Individual Ratings for Named
Executive Officers
Dr. Jeffrey Leiden
|
|
2017 Rating:
|
|
Leading Exemplary
|
Chairman, President and CEO
|
|
2018 Salary:
|
|
$
|
1,300,000
|
|
|
2017 Bonus:
|
|
$
|
3,463,200
|
|
|
LTI Equity Grants (Feb 2018):
|
|
$
|
14,000,000
|
On the basis of the MDCC’s recommendation,
our independent directors rated Dr. Leiden’s overall performance for 2017 as “leading exemplary” with an
individual performance factor of 150%. The performance rating for Dr. Leiden combined a “leading” 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 2017, which included:
|
The over-achievement of our financial goals by significantly increasing total CF net product
revenues, significantly strengthening our balance sheet, expanding our operating margins, and returning us to profitability
|
|
|
|
The advancement of our CF programs, and in particular the acceleration of our next-generation
corrector programs by almost a year, the multiple label expansion for KALYDECO and progress toward approval of SYMDEKO
|
|
|
|
The advancement of our non-CF programs, and in particular our novel pain compounds and our
gene editing programs
|
|
|
|
The excellent performance of our research organization in advancing multiple programs toward
the clinic, including in pain, alpha-1 anti-trypsin deficiency and sickle-cell disease
|
|
|
|
Leadership in determining our corporate strategy and executing our business goals, accelerating
key programs and promptly addressing strategic challenges
|
|
|
|
Mentoring, developing and retaining our outstanding senior leadership team
|
|
|
|
Enhancing Vertex’s corporate reputation through, among other activities, patient engagement,
corporate giving and diversity and inclusion initiatives
|
|
|
|
Coordinating, as the chair of our board, clear, open and constructive communication between
our board and management regarding key business and strategic issues
|
|
|
|
Exhibiting outstanding personal and leadership qualities and embodying Vertex’s core
values in enabling the successful stewardship of our company over the last year
|
Dr. David M. Altshuler
|
|
2017 Rating:
|
|
Leading
|
EVP, Global Research and Chief Scientific Officer
|
|
2018 Salary:
|
|
$
|
625,000
|
|
|
2017 Bonus:
|
|
$
|
638,250
|
|
|
LTI Equity Grants (Feb 2018):
|
|
$
|
3,750,000
|
The MDCC recommended and the board adopted
an overall rating of “leading” for Dr. Altshuler based on a results-based rating of “strong” and
a values-based rating of “exemplary” with an individual performance factor of 138%. Dr. Altshuler’s rating
derived from his leadership of the research organization, including the following:
|
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
|
|
|
|
Advancing multiple research programs, including:
|
|
|
|
–
|
CTX001, an investigational gene editing treatment, that we are co-developing with CRISPR Therapeutics
AG for beta-thalassemia and sickle cell disease
|
|
|
|
–
|
VX-128, a non-opioid sodium channel inhibitor, that entered Phase 1 clinical trials in late
2017
|
|
|
|
–
|
Advancing multiple additional next-generation CFTR correctors into late-stage research
|
|
|
|
Advancing our collaborations in nucleic acid therapies with CRISPR
and Moderna
|
|
|
|
Leading the efforts to identify new medicines by combining transformative
insights into the causal human biology of serious diseases with innovative approaches to therapeutics, including with respect
to our programs in alpha-1 anti-trypsin deficiency and polycystic kidney disease
|
Thomas Graney
|
|
2017 Rating:
|
|
Strong
|
SVP, Chief Financial Officer
|
|
2018 Salary:
|
|
$
|
550,000
|
|
|
2017 Bonus:
|
|
$
|
110,392
|
|
|
LTI Equity Grants (Feb 2018):
|
|
$
|
2,000,000
|
The MDCC recommended and the board adopted
an overall rating of “strong” for Mr. Graney, who joined us in September 2017, 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. Graney’s rating derived from:
|
Assuming responsibility for the finance and accounting
organizations
|
|
|
|
Leading a strategic review of our investments in ex-U.S. markets
|
|
|
|
Leadership roles in various business development projects
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
60
Michael Parini
|
|
2017 Rating:
|
|
Leading
|
EVP, Chief Legal and Administrative Officer
|
|
2018 Salary:
|
|
$
|
725,000
|
|
|
2017 Bonus:
|
|
$
|
788,655
|
|
|
LTI Equity Grants (Feb 2018):
|
|
$
|
3,750,000
|
The MDCC recommended and the board adopted
an overall rating of “leading” for Mr. Parini based on a results-based rating of “strong” and a values-based
rating of “exemplary demonstration” with an individual performance factor of 147%. Mr. Parini’s rating derived
from:
|
Assuming responsibility for several key functions, including the human resources, quality
and corporate communications groups in addition to continuing his stewardship of the legal and compliance department
|
|
|
|
Expanding and enhancing our human resources and corporate
communications functions
|
|
|
|
Leading our recruiting efforts, which resulted in us filling 16 of 17 critical positions
|
|
|
|
Leading the successful communication of numerous key clinical and regulatory milestones
|
|
|
|
Leading several important corporate initiatives, including the establishment of our 10-year,
$500 million corporate giving commitment and the advancement of our diversity and inclusion efforts
|
|
|
|
Overseeing successful efforts to complete the acquisition of VX-561, a deuterated version
of ivacaftor, from Concert Pharmaceuticals following a second request issued by the Federal Trade Commission
|
|
|
|
Resolving several legal cases on terms favorable to the company
|
Amit Sachdev
|
|
2017 Rating:
|
|
Leading/Exemplary
|
EVP, Chief Regulatory Officer
|
|
2018 Salary:
|
|
$
|
540,750
|
|
|
2017 Bonus:
|
|
$
|
600,233
|
|
|
LTI Equity Grants (Feb 2018):
|
|
$
|
4,500,000
|
The MDCC recommended and the board adopted an overall rating of
“leading exemplary” for Mr. Sachdev based on a results-based rating of “leading” and a values-based
rating of “exemplary demonstration” with an individual performance factor of 150%. Mr. Sachdev’s rating
derived principally from his leadership of the regulatory and governmental affairs organizations with respect to the following:
|
Leading the global regulatory group as they efficiently and successfully pursued multiple approvals for our medicines in U.S. and ex-U.S. markets
|
|
|
|
Successfully implementing the U.S. and European regulatory strategies for tezacaftor in combination with ivacaftor resulting in U.S. approval of SYMDEKO in February 2018 and positioning us for approval of tezacaftor in combination with ivacaftor in Europe in the second half of 2018
|
|
|
|
Obtaining approval for KALYDECO as a treatment for patients with residual function mutations in the United States based on a novel approach to broadening the label based on
in vitro
data and supported by more than five years of real-world clinical data that demonstrate KALYDECO’s strong safety and efficacy profile
|
Ian Smith
|
|
2017 Rating:
|
|
Leading
|
EVP, Chief Operating Officer
|
|
2018 Salary:
|
|
$
|
850,000
|
|
|
2017 Bonus:
|
|
$
|
1,339,770
|
|
|
LTI Equity Grants (Feb 2018):
|
|
$
|
3,750,000
|
The MDCC recommended and the board adopted a “leading”
rating for Mr. Smith based on a results-based rating of “strong” and a values-based rating of “exemplary
demonstration” with an individual performance factor of 142%. Mr. Smith’s rating was due to his overall contributions
to the execution of our strategy. More specifically, Mr. Smith was responsible for:
|
Successfully managing many important functions, including our finance/accounting, business development, information
systems and investor relations groups
|
|
|
|
Managing operating expenses, which together with increased CF net product revenues, allowed us to end 2017
with cash, cash equivalents and marketable securities of $2.1 billion while decreasing the amount outstanding on our revolving
credit agreement from $300.0 million to zero
|
|
|
|
Successfully overseeing the construction of our new San Diego research facility
|
|
|
|
Leading our business development group to a successful year, including:
|
|
|
|
–
|
Acquiring VX-561 from Concert Pharmaceuticals, Inc.
|
|
|
|
–
|
Executing a co-development and co-commercialization agreement with CRISPR Therapeutics AG for CTX001
|
|
|
|
–
|
Outlicensing our oncology programs to Merck KGaA for $230 million upfront and potential future royalties
|
|
|
|
Implementing information technology and infrastructure systems to support our rapid growth
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
61
Annual Cash Bonus
The cash bonus for each executive (referred
to in the
Summary Compensation Table
on page 68 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 in 2017:
Target
Cash Bonus
|
x
|
Performance
Factors
|
=
|
Cash
Bonus
|
Base Salary
|
x
|
Individual
Incentive Target
(expressed as
a percentage
of base salary)
|
x
|
Company
Performance
Factor
(expressed as a
percentage of the
target bonus)
|
x
|
Individual
Performance
Factor
(expressed as a
percentage of the
target bonus)
|
=
|
Annual
Cash
Bonus
Award
|
|
|
45%
to 120%
based on role
|
|
0%-150%
|
|
0-150%
|
|
|
The individual incentive targets were established, and are reviewed
annually, by the MDCC based on available data about Peer Group company compensation. Dr. Leiden’s individual incentive
target of 120% has remained unchanged since 2012. Mr. Smith’s individual incentive target was increased from 50% to
75% in 2016 when he was promoted to Chief Operating Officer. The individual incentive targets for Dr. Altshuler, Mr. Parini
and Mr. Sachdev are 50%. The individual incentive target for Mr. Graney is 45%. The resulting target annual bonuses approximate
the median target annual bonuses for comparable executives at 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 2017 are set forth in the table below:
Individual
Rating
|
Individual
Performance Factor
|
Not Building
|
0%
|
Building
|
50%-80%
|
Strong
|
80%-120%
|
Leading
|
120%-150%
|
Leading/Exemplary
|
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 2017 performance, as set forth in the table below.
Name
|
|
2017
Target
Bonus
|
|
|
Company
Performance
Factor
|
|
|
Individual
Performance
Factor
|
|
|
Proration
Factor
|
|
|
|
2017
Performance
Cash Bonus
|
Jeffrey M. Leiden
|
|
$
|
1,560,000
|
|
|
x
|
|
148%
|
|
|
x
|
150%
|
|
|
x
|
100
|
%
|
|
=
|
|
$
|
3,463,200
|
David Altshuler
|
|
$
|
312,500
|
|
|
x
|
|
148%
|
|
|
x
|
138%
|
|
|
x
|
100
|
%
|
|
=
|
|
$
|
638,250
|
Thomas Graney
|
|
$
|
247,500
|
|
|
x
|
|
148%
|
|
|
x
|
100%
|
|
|
x
|
30
|
%
|
|
=
|
|
$
|
110,392
|
Michael Parini
|
|
$
|
362,500
|
|
|
x
|
|
148%
|
|
|
x
|
147%
|
|
|
x
|
100
|
%
|
|
=
|
|
$
|
788,655
|
Amit Sachdev
|
|
$
|
270,375
|
|
|
x
|
|
148%
|
|
|
x
|
150%
|
|
|
x
|
100
|
%
|
|
=
|
|
$
|
600,233
|
Ian F. Smith
|
|
$
|
637,500
|
|
|
x
|
|
148%
|
|
|
x
|
142%
|
|
|
x
|
100
|
%
|
|
=
|
|
$
|
1,339,770
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
62
Annual Equity 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 2017 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
|
SVP
|
|
|
$
|
—
|
|
|
$
|
1,000,000
|
|
|
$
|
2,000,000
|
|
|
$
|
2,500,000
|
|
|
$
|
3,000,000
|
The number of shares subject to the time-vested restricted stock
units and performance stock units is based on the fair value of our common stock on the date of grant. The number of shares subject
to the stock options is based on an estimate of the fair value of the stock options pursuant to the Black-Scholes option pricing
model based on information available as of the grant date.
February 2018 Grants Based on 2017 Performance
In February 2018, our independent directors approved, upon the
MDCC’s recommendation, individual performance factors and equity awards for 2017 performance for each of the NEOs, 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
|
David Altshuler
|
|
Leading
|
|
$
|
1,312,500
|
|
|
$
|
1,125,000
|
|
|
$
|
1,312,500
|
|
|
$
|
3,750,000
|
Thomas Graney
|
|
Strong
|
|
$
|
700,000
|
|
|
$
|
600,000
|
|
|
$
|
700,000
|
|
|
$
|
2,000,000
|
Michael Parini
|
|
Leading
|
|
$
|
1,312,500
|
|
|
$
|
1,125,000
|
|
|
$
|
1,312,500
|
|
|
$
|
3,750,000
|
Amit Sachdev
|
|
Leading Exemplary
|
|
$
|
1,575,000
|
|
|
$
|
1,350,000
|
|
|
$
|
1,575,000
|
|
|
$
|
4,500,000
|
Ian F. Smith
|
|
Leading
|
|
$
|
1,312,500
|
|
|
$
|
1,125,000
|
|
|
$
|
1,312,500
|
|
|
$
|
3,750,000
|
(1)
|
Estimates for value of equity-based awards granted in February 2018 for 2017 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 2017 Annual Report on Form 10-K and are subject to adjustment.
|
The terms of the equity granted in 2018 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.
|
Performance Units Company Target and Results
Table
We have granted one-year financial based performance restricted
stock unit awards and three-year non-financial based restricted stock unit awards each year since 2016.
The final performance multipliers for the 2016 and 2017 financial-based
performance restricted stock unit awards were 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 and 2017:
Award Year
|
|
Company Goal
|
|
Threshold
|
|
Target
|
|
Max
|
|
Results
|
|
Payout
|
2016
|
|
2016 CF Net Product Revenues
|
|
$
|
1.65 billion
|
|
$
|
1.75 billion
|
|
$
|
1.90 billion
|
|
$
|
1.68 billion
|
|
66.5
|
%
|
2017
|
|
2017 CF Net Product Revenues
|
|
$
|
1.50 billion
|
|
$
|
1.70 to 1.85 billion
|
|
$
|
2.05 billion
|
|
$
|
2.17 billion
|
|
200.0
|
%
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
63
Consistent with our philosophy
of aligning compensation with performance:
|
In 2016, a year in which we achieved or exceeded our goals with respect to KALYDECO
net product revenues, but missed our goals with respect to ORKAMBI net product revenues, the payouts on our one-year financial
restricted stock unit awards were significantly below target and nearly fell below the threshold levels at which point there
would have been no payout on those awards; and
|
|
|
|
In 2017, a year in which we substantially exceeded our KALYDECO net product revenues and ORKAMBI
net product revenues expectations and exceeded the high end of our CF net product revenues guidance by more than $100 million,
the payout on our one-year financial PSU awards achieved the maximum level.
|
The performance multiple for the 2016 and
2017 non-financial based performance restricted stock unit awards will be determined in the first quarter of 2019 and 2020, respectively,
based on performance over the relevant three-year performance period. The non-financial goals contained in our 3-year performance
restricted stock unit awards are not disclosed for competitive reasons and because the relevant performance periods are ongoing.
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. 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/or a restricted stock unit award, 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 our agreements with our named executive officers is set forth below under the heading
Employment Contracts and Change
of Control Arrangements.
Tax Considerations
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.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
64
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 annual equity awards to named executive officers at a board meeting scheduled in advance for 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 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 in 2017. Our MDCC and board do not currently anticipate making
supplemental grants in 2018, but retain the discretion to do so if warranted in their judgment.
Compensation Recoupment (“Clawback”)
Policy
We have adopted a recoupment or clawback 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 repayment 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.
Stock Ownership Guidelines
We have stock ownership guidelines for our chief executive officer
and NEOs and guidelines for our non-employee directors, as discussed in
Non-Employee Director Stock Ownership Guidelines
on
page 28 of this proxy statement. The guidelines for our CEO and Executive Vice Presidents are set
forth in the following table:
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. Our chief executive officer and our executive vice presidents currently
satisfy 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.
Risk Mitigation
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.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
65
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:
What
We Do
|
What
We Don’t Do
|
Caps on awards
|
No executive perquisites
|
Multiple performance factors
|
No supplemental pension benefits for executives
|
Range of awards;
not all or nothing
|
No single-trigger
vesting in connection with a change-in-control for equity awards
|
Compensation recoupment (clawback) policy
|
No hedging or pledging or speculative transactions in
our securities
|
|
by directors and executive officers
|
Balance of Short-
and Long-term Incentives (through annual cash bonuses and equity awards)
|
No re-pricing of
equity awards without shareholder approval
|
Anti-hedging policy
|
No payment of dividends on unvested performance
shares or units
|
Executive and Non-Employee Director Stock Ownership Guidelines
|
|
Policy against gross-ups
|
|
Independent compensation
consultant
|
|
Robust shareholder
outreach
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
66
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 2018 annual meeting of shareholders and incorporated
by reference into Vertex’s Annual Report on Form 10-K for the year ended December 31, 2017. This report is provided by the
following directors who comprise the Management Development and Compensation Committee:
Bruce I. Sachs (Chair)
Terrence C. Kearney
Elaine S. Ullian
William D. Young
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
67
COMPENSATION AND EQUITY TABLES
Summary Compensation Table
The following table provides summary information
concerning compensation earned by: (i) our president and chief executive officer; (ii) our chief financial officer; (iii) our chief
operating officer, who was our chief financial officer for a portion of 2017; and (iv) our other three most highly compensated
employees who were serving as executive officers on December 31, 2017. 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
|
|
|
2017
|
|
|
$
|
1,300,000
|
|
|
$
|
—
|
|
|
$
|
8,750,114
|
|
|
$
|
3,700,877
|
|
|
$
|
3,463,200
|
|
|
$
|
13,110
|
|
|
$
|
17,227,301
|
|
Chairman, President & CEO
|
|
|
2016
|
|
|
$
|
1,300,000
|
|
|
$
|
—
|
|
|
$
|
9,800,076
|
|
|
$
|
4,060,397
|
|
|
$
|
2,246,400
|
|
|
$
|
12,885
|
|
|
$
|
17,419,758
|
|
|
|
|
2015
|
|
|
$
|
1,297,692
|
|
|
$
|
—
|
|
|
$
|
7,038,885
|
|
|
$
|
16,286,939
|
|
|
$
|
3,463,200
|
|
|
$
|
13,110
|
|
|
$
|
28,099,826
|
|
David Altshuler
|
|
|
2017
|
|
|
$
|
596,731
|
|
|
$
|
—
|
|
|
$
|
3,150,020
|
|
|
$
|
1,332,316
|
|
|
$
|
638,250
|
|
|
$
|
13,110
|
|
|
$
|
5,730,427
|
|
EVP & Chief Scientific Officer
|
|
|
2016
|
|
|
$
|
561,442
|
|
|
$
|
—
|
|
|
$
|
2,625,152
|
|
|
$
|
1,087,620
|
|
|
$
|
500,250
|
|
|
$
|
12,885
|
|
|
$
|
4,787,349
|
|
|
|
2015
|
|
|
$
|
528,846
|
|
|
$
|
250,000
|
|
|
$
|
9,078,750
|
|
|
$
|
1,964,534
|
|
|
$
|
552,628
|
|
|
$
|
13,110
|
|
|
$
|
12,387,868
|
|
Thomas Graney
|
|
|
2017
|
|
|
$
|
154,423
|
|
|
$
|
150,000
|
|
|
$
|
1,500,140
|
|
|
$
|
—
|
|
|
$
|
110,392
|
|
|
$
|
12,445
|
|
|
$
|
1,927,400
|
|
SVP & Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Parini
|
|
|
2017
|
|
|
$
|
694,519
|
|
|
$
|
—
|
|
|
$
|
3,150,020
|
|
|
$
|
1,332,316
|
|
|
$
|
788,655
|
|
|
$
|
13,110
|
|
|
$
|
5,978,620
|
|
EVP & Chief Legal and
|
|
|
2016
|
|
|
$
|
517,846
|
|
|
$
|
250,000
|
|
|
$
|
1,689,672
|
|
|
$
|
4,731,100
|
|
|
$
|
499,867
|
|
|
$
|
41,779
|
|
|
$
|
7,730,264
|
|
Administrative Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amit Sachdev
|
|
|
2017
|
|
|
$
|
540,750
|
|
|
$
|
—
|
|
|
$
|
2,625,016
|
|
|
$
|
1,110,263
|
|
|
$
|
600,233
|
|
|
$
|
10,001
|
|
|
$
|
4,886,263
|
|
EVP & Chief Regulatory Officer
|
|
|
2016
|
|
|
$
|
540,750
|
|
|
$
|
—
|
|
|
$
|
3,150,148
|
|
|
$
|
1,305,144
|
|
|
$
|
438,007
|
|
|
$
|
960
|
|
|
$
|
5,435,009
|
|
Ian F. Smith
|
|
|
2017
|
|
|
$
|
848,077
|
|
|
$
|
—
|
|
|
$
|
2,625,016
|
|
|
$
|
1,110,263
|
|
|
$
|
1,339,770
|
|
|
$
|
13,110
|
|
|
$
|
5,936,236
|
|
EVP & Chief Operating Officer
|
|
|
2016
|
|
|
$
|
750,000
|
|
|
$
|
—
|
|
|
$
|
3,150,148
|
|
|
$
|
1,305,144
|
|
|
$
|
562,500
|
|
|
$
|
12,885
|
|
|
$
|
5,780,677
|
|
|
|
2015
|
|
|
$
|
701,796
|
|
|
$
|
—
|
|
|
$
|
2,258,991
|
|
|
$
|
5,199,586
|
|
|
$
|
832,500
|
|
|
$
|
13,110
|
|
|
$
|
9,005,983
|
|
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 2017 for 2016 performance are included in 2017 compensation. Equity awards
granted in February 2018 for 2017 performance are not reflected in the
Summary Compensation Table
above and will be included
as 2018 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 2017 Annual Report on Form 10-K filed
with the SEC on February 15, 2018.
The “Stock Awards” for 2017 consist
of performance stock unit, or PSU, awards and time-vested restricted stock unit awards granted in February 2017 and a sign-on equity
grant for Mr. Graney in September 2017. The “Stock Awards” for 2016 consist of 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” 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.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
68
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 2017, 2016 and 2015 performance, each of
which was paid in the first quarter of the subsequent year. The cash bonus awards to the named executive officers for 2017 performance
were determined as follows:
Name
|
|
Base Salary
|
|
Individual
Incentive
Target
|
|
|
|
2017
Target
Bonus
|
|
Company
Performance
Factor
|
|
Individual
Performance
Factor
|
|
Proration
Factor
|
|
|
|
2017
Performance
Cash Bonus
|
|
Jeffrey M. Leiden
|
|
$
|
1,300,000
|
|
x
|
120%
|
|
=
|
|
$
|
1,560,000
|
|
x
|
148%
|
|
x
|
150%
|
|
x
|
100%
|
|
=
|
|
$
|
3,463,200
|
|
David Altshuler
|
|
$
|
625,000
|
|
x
|
50%
|
|
=
|
|
$
|
312,500
|
|
x
|
148%
|
|
x
|
138%
|
|
x
|
100%
|
|
=
|
|
$
|
638,250
|
|
Thomas Graney
|
|
$
|
550,000
|
|
x
|
45%
|
|
=
|
|
$
|
247,500
|
|
x
|
148%
|
|
x
|
100%
|
|
x
|
30%
|
|
=
|
|
$
|
110,392
|
|
Michael Parini
|
|
$
|
725,000
|
|
x
|
50%
|
|
=
|
|
$
|
362,500
|
|
x
|
148%
|
|
x
|
147%
|
|
x
|
100%
|
|
=
|
|
$
|
788,655
|
|
Amit Sachdev
|
|
$
|
540,750
|
|
x
|
50%
|
|
=
|
|
$
|
270,375
|
|
x
|
148%
|
|
x
|
150%
|
|
x
|
100%
|
|
=
|
|
$
|
600,233
|
|
Ian F. Smith
|
|
$
|
850,000
|
|
x
|
75%
|
|
=
|
|
$
|
637,500
|
|
x
|
148%
|
|
x
|
142%
|
|
x
|
100%
|
|
=
|
|
$
|
1,339,770
|
|
All Other Compensation
The amounts set forth under the caption “All Other Compensation”
in the table for 2017 consist of:
Name
|
|
401(k)
Match
|
|
|
Life Insurance
Premiums
|
|
|
Total
|
|
Jeffrey M. Leiden
|
|
$
|
12,150
|
|
|
$
|
960
|
|
|
$
|
13,110
|
|
David Altshuler
|
|
$
|
12,150
|
|
|
$
|
960
|
|
|
$
|
13,110
|
|
Thomas Graney
|
|
$
|
12,150
|
|
|
$
|
295
|
|
|
$
|
12,445
|
|
Michael Parini
|
|
$
|
12,150
|
|
|
$
|
960
|
|
|
$
|
13,110
|
|
Amit Sachdev
|
|
$
|
9,041
|
|
|
$
|
960
|
|
|
$
|
10,001
|
|
Ian F. Smith
|
|
$
|
12,150
|
|
|
$
|
960
|
|
|
$
|
13,110
|
|
CEO Pay Ratio
The overall structure of our compensation and
benefits programs are broadly similar across our organization, including a broad-based equity program pursuant to which all full-time
employees receive equity, with differences reflecting the level of responsibility of the employees.
In 2017:
|
The ratio of our CEO total compensation for Dr. Leiden to our median employee’s total compensation was 81:1
|
|
|
|
Dr. Leiden’s total compensation equaled $17.2 million
|
|
|
|
The total compensation for Vertex’s median employee equaled $211,511
|
The 2017 compensation for our CEO and median
employee were calculated using the same methodology required by the SEC for reporting named executive officer compensation in the
Summary Compensation Table.
Methodology
Our measure of compensation for the median employee
was consistently applied and includes:
|
Base salary (including any local allowances)
|
|
|
|
Incentive pay (including cash bonuses, sales incentives and other variable pay programs)
|
|
|
|
Grant date fair value of equity awards
|
|
|
|
Any other cash awards or payments
|
We included all Vertex employees on October 1,
2017 located in five countries for the purposes of determining the median employee, which represented 95% of our employees globally
(2,208 of our 2,323 employees global employees). As of October 1, 2017, we had 1,882 U.S. employees. We excluded 115 employees
from 13 countries (Canada, France, Italy, Netherlands, Spain, Ireland, Sweden, Austria, Brazil, Denmark, Greece, Belgium and Portugal)
under the SEC’s
de minimis
exception.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
69
We used the following material assumptions in applying our methodology:
|
Annualized Pay.
Base pay was annualized for employees who worked a partial year.
|
|
|
|
Reasonable Estimates.
Variable pay programs are a significant component of our pay for performance philosophy. Reasonable estimates were used for employees whose participation in our annual cash incentives/bonuses and long-term incentives/equity awards were limited by their date of hire; provided that (i) no estimate was used for annual cash incentives/bonuses if an employee received any form of cash award upon hire and (ii) no estimate was used for long-term incentives/equity awards if an employee received an equity award upon hire.
|
|
|
|
Foreign Exchange Rates.
Foreign currencies were converted into U.S. dollars using the average monthly rates for the 12 month measurement period.
|
Option Exercises and Stock Vested for 2017
The 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 2017 and
shares of stock that vested during 2017. 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 stock awards is based on the fair market value of the shares on the vesting date.
|
|
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
|
|
|
482,572
|
|
|
$
|
48,715,169
|
|
|
|
181,154
|
|
|
$
|
25,009,344
|
|
David Altshuler
|
|
|
45,775
|
|
|
$
|
3,201,515
|
|
|
|
6,403
|
|
|
$
|
568,330
|
|
Thomas Graney
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,391
|
|
|
$
|
360,348
|
|
Michael Parini
|
|
|
17,614
|
|
|
$
|
1,215,588
|
|
|
|
3,450
|
|
|
$
|
290,835
|
|
Amit Sachdev
|
|
|
131,000
|
|
|
$
|
8,996,220
|
|
|
|
56,309
|
|
|
$
|
8,090,519
|
|
Ian F. Smith
|
|
|
239,013
|
|
|
$
|
18,549,751
|
|
|
|
93,034
|
|
|
$
|
13,644,357
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
70
Grants of Plan-Based Awards During 2017
The following table provides information with
respect to grants of awards to each of our named executive officers during 2017. Pursuant to SEC rules, (i) the threshold, target
and maximum amounts payable pursuant to our 2017 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 PSUs granted in 2017 are set forth in columns six through
eight, (iii) the number of shares granted pursuant to other restricted stock unit awards in 2017, including
a sign-on equity grant for Mr. Graney, is set forth in column nine and (iv) the number of shares subject to option awards
granted in 2017 is set forth in column ten.
|
|
|
|
|
Estimated
Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
|
Estimated
Future Payouts
Under Equity Incentive Plan
Awards (shares)
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
|
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
|
|
|
Exercise
or Base
Price of
Option
|
|
|
Closing
Price of
Stock on
|
|
|
Grant-Date
Fair Value
of Stock
and
Option
|
|
Name
|
|
Grant Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
Units
(#)
|
|
|
Options
(#)
|
|
|
Awards
($/Sh)
|
|
|
Grant Date
($/Sh)
|
|
|
Awards
($)
|
|
Jeffrey M. Leiden
|
|
|
|
|
|
$
|
0
|
|
|
$
|
1,560,000
|
|
|
$
|
3,510,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
25,284
|
|
|
|
50,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,187,572
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
25,283
|
|
|
|
50,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,187,485
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,375,057
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,550
|
|
|
$
|
86.52
|
|
|
$
|
86.73
|
|
|
$
|
3,700,877
|
|
David Altshuler
|
|
|
|
|
|
$
|
0
|
|
|
$
|
312,500
|
|
|
$
|
703,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
9,102
|
|
|
|
18,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,505
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
9,102
|
|
|
|
18,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,505
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,575,010
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,278
|
|
|
$
|
86.52
|
|
|
$
|
86.73
|
|
|
$
|
1,332,316
|
|
Thomas Graney
|
|
|
|
|
|
$
|
0
|
|
|
$
|
74,589
|
|
|
$
|
167,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,500,140
|
|
Michael Parini
|
|
|
|
|
|
$
|
0
|
|
|
$
|
362,500
|
|
|
$
|
815,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
9,102
|
|
|
|
18,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,505
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
9,102
|
|
|
|
18,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,505
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,575,010
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,278
|
|
|
$
|
86.52
|
|
|
$
|
86.73
|
|
|
$
|
1,332,316
|
|
Amit Sachdev
|
|
|
|
|
|
$
|
0
|
|
|
$
|
270,375
|
|
|
$
|
608,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
7,585
|
|
|
|
15,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,254
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
7,585
|
|
|
|
15,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,254
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,312,508
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,065
|
|
|
$
|
86.52
|
|
|
$
|
86.73
|
|
|
$
|
1,110,263
|
|
Ian F. Smith
|
|
|
|
|
|
$
|
0
|
|
|
$
|
637,500
|
|
|
$
|
1,434,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
7,585
|
|
|
|
15,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,254
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
7,585
|
|
|
|
15,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,254
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,312,508
|
|
|
|
|
2/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,065
|
|
|
$
|
86.52
|
|
|
$
|
86.73
|
|
|
$
|
1,110,263
|
|
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 2017 annual cash bonus program.
The amounts for Mr. Graney, who joined our company in September 2017, reflect the pro rata portion of the amount of his potential
annual cash bonus in 2017. Actual amounts paid to each of the named executive officers under this program for 2017 performance
are set forth in the
Summary Compensation Table
above.
PSU.
The amounts in the “Estimated
Future Payouts Under Equity Incentive Plan Awards” column represent the minimum threshold, target and maximum amounts that
could vest pursuant to PSUs granted in 2017. 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 2017
below.
Time-Based Restricted Stock Units.
The
amounts in the “All Other Stock Awards: Number of Shares of Stock or Units” column represent the number of time-based
restricted stock units granted to the named executive officers in 2017 and a sign-on equity grant for Mr. Graney in September
2017. The number of time-based restricted stock units to these named executive officers were made in February 2017 on account of
the executives’ performances in 2016.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
71
Options.
In accordance with our
stock and option plans, the exercise prices for the stock options granted to our named executive officers during 2017 were equal
to the average of the high and the low prices of our common stock on the grant date. As a result, in 2017, the exercise prices of
options granted to our named executive officers were lower than the grant-date closing price for the February 3, 2017 grants. 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 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.
Outstanding Equity Awards at Fiscal Year-End for
2017
The following table provides information with
respect to outstanding equity awards held by each of our named executive officers on December 31, 2017, based on the closing
price of $149.86 per share of our common stock on December 29, 2017:
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,250
|
(2)
|
|
$
|
4,832,985
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,878
|
(3)
|
|
$
|
5,376,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,567
|
(4)
|
|
$
|
7,577,971
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,930
|
(5)
|
|
$
|
1,787,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,908
|
(6)
|
|
$
|
4,032,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,284
|
(7)
|
|
$
|
3,789,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,283
|
(8)
|
|
$
|
3,788,910
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,313
|
|
|
|
0
|
|
|
$
|
45.11
|
|
|
2/4/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,250
|
|
|
|
0
|
|
|
$
|
48.74
|
|
|
7/24/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,687
|
|
|
|
13,313
|
|
|
$
|
77.31
|
|
|
2/4/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,500
|
|
|
|
0
|
|
|
$
|
83.36
|
|
|
7/29/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,415
|
|
|
|
84,135
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,933
|
|
|
|
60,343
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,531
|
|
|
|
19,969
|
|
|
$
|
96.87
|
|
|
7/14/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,437
|
|
|
|
66,563
|
|
|
$
|
109.14
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,906
|
|
|
|
46,594
|
|
|
$
|
131.89
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Altshuler
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
(9)
|
|
$
|
11,239,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,611
|
(3)
|
|
$
|
1,440,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,204
|
(4)
|
|
$
|
2,728,051
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,196
|
(5)
|
|
$
|
478,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,208
|
(6)
|
|
$
|
1,080,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,102
|
(7)
|
|
$
|
1,364,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,102
|
(8)
|
|
$
|
1,364,026
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,989
|
|
|
|
30,289
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,796
|
|
|
|
16,164
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,125
|
|
|
|
14,875
|
|
|
$
|
131.89
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Graney
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,175
|
(10)
|
|
$
|
1,075,246
|
|
|
|
|
|
|
|
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
72
|
|
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
|
|
Michael Parini
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,350
|
(11)
|
|
$
|
1,551,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,204
|
(5)
|
|
$
|
2,728,051
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,102
|
(7)
|
|
$
|
1,364,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,102
|
(8)
|
|
$
|
1,364,026
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
30,289
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
23,375
|
|
|
$
|
90.29
|
|
|
7/11/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,750
|
|
|
|
38,250
|
|
|
$
|
122.45
|
|
|
1/3/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amit Sachdev
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,625
|
(2)
|
|
$
|
1,292,543
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,533
|
(3)
|
|
$
|
1,728,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,170
|
(4)
|
|
$
|
2,273,376
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,835
|
(5)
|
|
$
|
574,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,649
|
(6)
|
|
$
|
1,296,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
(7)
|
|
$
|
1,136,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
(8)
|
|
$
|
1,136,688
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,672
|
|
|
|
2,578
|
|
|
$
|
77.31
|
|
|
2/4/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,500
|
|
|
|
0
|
|
|
$
|
83.36
|
|
|
7/29/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,824
|
|
|
|
25,241
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,085
|
|
|
|
19,397
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,343
|
|
|
|
5,157
|
|
|
$
|
96.87
|
|
|
7/14/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,531
|
|
|
|
17,969
|
|
|
$
|
109.14
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,125
|
|
|
|
14,875
|
|
|
$
|
131.89
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ian F. Smith
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,350
|
(2)
|
|
$
|
1,551,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,533
|
(3)
|
|
$
|
1,728,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,170
|
(4)
|
|
$
|
2,273,376
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,835
|
(5)
|
|
$
|
574,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,649
|
(6)
|
|
$
|
1,296,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
(7)
|
|
$
|
1,136,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
(8)
|
|
$
|
1,136,688
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
4,250
|
|
|
$
|
77.31
|
|
|
2/4/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,824
|
|
|
|
25,241
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
19,397
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
6,375
|
|
|
$
|
96.87
|
|
|
7/14/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,750
|
|
|
|
21,250
|
|
|
$
|
109.14
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,125
|
|
|
|
14,875
|
|
|
$
|
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,
90 days after the termination of service.
|
|
|
(2)
|
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 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 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.
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
73
(3)
|
These time-based restricted stock unit awards vested as to one half of the shares on February 10, 2018
and the remaining shares vest on February 10, 2019.
|
|
|
(4)
|
These time-based restricted stock unit awards vested as to one third of the shares on February 10, 2018 and vests in two
remaining annual installments on February 10, 2019 and 2020.
|
|
|
(5)
|
This performance stock unit award was based on the achievement of one-year financial performance metrics tied to our net
product revenue for medicines for the treatment of cystic fibrosis during 2016. The remaining earned shares vest in two equal
installments on each of February 10, 2018 and 2019. On February 3, 2017 our management development and compensation committee
certified as to the level of performance-goal at 66.5% of the number of target shares.
|
|
|
(6)
|
This performance stock unit award is based on the achievement of three-year non-financial performance metrics. The awards
provide for multiple clinical and research milestones, with a payout range of zero to 200%. The specific clinical and research
milestones are not disclosed for competitive reasons. Performance against these goals will be certified by the MDCC in early
2019.
|
|
|
(7)
|
This performance stock unit award was based on the achievement of one-year financial performance metrics tied to our net
product revenue for medicines for the treatment of cystic fibrosis during 2017 and with vesting of the earned shares in three
equal installments on each of February 10, 2018, 2019 and 2020. On February 6, 2018 our management development and compensation
committee certified as to the level of performance-goal at 200% of the number of target shares.
|
|
|
(8)
|
This performance stock unit award is based on the achievement of three-year non-financial performance metrics. The awards
provide for multiple clinical and research milestones, with a payout range of zero to 200%. The specific clinical and research
milestones are not disclosed for competitive reasons. Performance against these goals will be certified by the MDCC in early
2020.
|
|
|
(9)
|
This retention award vested in January 2018 based on achievement of positive EBITDA for the 12-month period ending September
30, 2017.
|
|
|
(10)
|
These time-based restricted stock unit awards comprise a sign-on equity award granted to Mr. Graney and vest in three
remaining annual installments on each of September 30, 2018, 2019 and 2020.
|
|
|
(11)
|
This restricted stock award comprises a sign-on equity award granted to Mr. Parini and vested as to one third of
the shares on January 4, 2018 and vests in two remaining annual installments on January 4, 2019 and 2020.
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
74
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, 2017.
|
|
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
|
|
|
—
|
|
|
|
40,328
|
|
|
|
40,328
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
11,559,710
|
|
|
|
14,449,638
|
|
|
|
7,887,746
|
|
|
|
14,449,638
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
24,948,693
|
|
|
|
31,185,866
|
|
|
|
14,602,533
|
|
|
|
31,185,866
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
40,968,731
|
|
|
$
|
55,787,232
|
|
|
$
|
24,050,279
|
|
|
$
|
47,195,504
|
|
David Altshuler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
937,500
|
|
|
$
|
1,250,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
26,885
|
|
|
|
26,885
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
3,136,414
|
|
|
|
—
|
|
|
|
3,136,414
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
—
|
|
|
|
19,695,051
|
|
|
|
—
|
|
|
|
19,695,051
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
964,385
|
|
|
$
|
24,108,350
|
|
|
$
|
—
|
|
|
$
|
22,831,465
|
|
Thomas Graney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
797,500
|
|
|
$
|
1,045,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
26,885
|
|
|
|
26,885
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
—
|
|
|
|
1,075,246
|
|
|
|
—
|
|
|
|
1,075,246
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
824,385
|
|
|
$
|
2,147,131
|
|
|
$
|
—
|
|
|
$
|
1,075,246
|
|
Michael Parini
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
1,087,500
|
|
|
$
|
1,450,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
26,885
|
|
|
|
26,885
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
4,359,387
|
|
|
|
—
|
|
|
|
4,359,387
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
—
|
|
|
|
7,007,154
|
|
|
|
—
|
|
|
|
7,007,154
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
1,114,385
|
|
|
$
|
12,843,426
|
|
|
$
|
—
|
|
|
$
|
11,366,541
|
|
Amit Sachdev
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
811,125
|
|
|
$
|
1,081,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
26,636
|
|
|
|
26,636
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
2,919,447
|
|
|
|
4,198,807
|
|
|
|
—
|
|
|
|
4,198,807
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
6,923,971
|
|
|
|
9,438,483
|
|
|
|
—
|
|
|
|
9,438,483
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
10,681,179
|
|
|
$
|
14,745,426
|
|
|
$
|
—
|
|
|
$
|
13,637,290
|
|
Ian F. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
2,125,000
|
|
|
$
|
2,125,000
|
|
|
$
|
1,381,250
|
|
|
$
|
1,381,250
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
26,885
|
|
|
|
26,885
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
3,238,895
|
|
|
|
4,518,255
|
|
|
|
2,490,020
|
|
|
|
4,518,255
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
7,182,479
|
|
|
|
9,696,991
|
|
|
|
5,401,123
|
|
|
|
9,696,991
|
|
280G Excise Tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
12,573,259
|
|
|
$
|
16,367,131
|
|
|
$
|
9,272,393
|
|
|
$
|
15,596,496
|
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
75
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 $149.86 per share (the closing price on the last trading day of 2017), 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 $149.86 per share (the closing price on the last trading day of 2017).
|
|
|
|
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 2017 individual and company performance ratings on December 31, 2017 as they assigned in the first quarter of 2018.
|
|
|
|
As of December 31, 2017, 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 Dr. Altshuler had been involuntarily terminated by us as of December 31, 2017, then 20% of his retention award would have vested on January 12, 2018. The value of the shares that would have vested pursuant to this provision was $2,247,900 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.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
76
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 equity awards.
Jeffrey M. Leiden
The terms and conditions of Dr. Leiden’s employment are
governed by a written employment contract, which was amended and restated in November 2016, and expires on March 31, 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, subject to limited exceptions:
Severance Payment:
|
A)
|
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
|
Equity:
|
Outstanding options, restricted stock and restricted stock units unvested on the termination date would receive partial vesting based on his years of service as an employee or non-employee director. This percentage is currently 80% and increases by 10% of each full year of service. Options granted starting in 2014 would remain exercisable for a 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, in each case, 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
|
Equity:
|
Full vesting of all outstanding options, restricted stock 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.”
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
-
2018 Proxy Statement
77
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.
Dr. Leiden is eligible for a company-wide
program that started in 2014 which provides, for eligible employees, upon a voluntary termination with 12 months notice (including
as a result of the expiration of the term of his employment agreement), additional vesting of outstanding equity based on years
of service as an employee and non-employee director. Dr. Leiden currently would receive vesting of 80% of the unvested
shares and this percentage will increase by 10% for each full year of service.
Ian F. Smith
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, in each case, 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.
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.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
78
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
|
Change of Control Agreement
We have a change of control agreement with 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 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. Sachdev in connection with a change
of control may be reduced to increase their value to Mr. Sachdev if such payments would be subject to an excise tax under
Section 4999 of the Code. Mr. Sachdev’s agreements do not provide for a so-called Section 4999 excise tax “gross-up.”
Agreements with Other Named Executive Officers
Employment Agreements
The terms and conditions of Dr. Altshuler’s, Mr.
Parini’s, and Mr. Graney’s employment are governed by written employment contracts that were entered into at
the time the respective officer joined our company. Each of these officer’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, each officer has agreed not to engage in specified competitive activities for a period of one year
after the termination of his employment with us.
Under each employment agreement, (i) if the officer’s employment
is terminated without cause or (ii) the officer 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
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
79
Change of Control Agreements
We have a change of control agreement with each of Dr. Altshuler,
Mr. Parini, and Mr. Graney that were entered into at the time the respective officer joined our company. Under this agreement,
if we terminate the employment of the officer without cause on a date within the 90 days prior to or the 12 months after a change
of control or any of these individuals 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 the officer in connection with a change of control
may be reduced to increase their value to the applicable officer if such payments would be subject to an excise tax under Section
4999 of the Code. The agreements with Dr. Altshuler, Mr. Parini, and Mr. Graney do not provide for a so-called Section
4999 excise tax “gross-up.”
VERTEX
PHARMACEUTICALS INCORPORATED
-
2018 Proxy Statement
80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership
of our common stock as of March 29, 2018, 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)
100 E. Pratt Street
Baltimore, Maryland 21202
|
|
28,338,859
|
|
11.1%
|
BlackRock, Inc.
(4)
55 East 52nd Street
New York, New York 10055
|
|
19,409,073
|
|
7.6%
|
The Vanguard Group
(5)
100 Vanguard Blvd.
Malvern, Pennsylvania 19355
|
|
17,934,504
|
|
7.0%
|
FMR LLC
(6)
245 Summer Street
Boston, Massachusetts 02210
|
|
16,923,002
|
|
6.6%
|
Sangeeta N. Bhatia
(7)
|
|
16,932
|
|
*
|
Alan Garber
(7)
|
|
997
|
|
*
|
Terrence C. Kearney
(7)
|
|
77,184
|
|
*
|
Yuchun Lee
(7)
|
|
98,361
|
|
*
|
Jeffrey M. Leiden
(7)
|
|
831,162
|
|
*
|
Margaret G. McGlynn
(7)
|
|
66,492
|
|
*
|
Bruce I. Sachs
(7)
|
|
149,697
|
|
*
|
Elaine S. Ullian
(7)
|
|
88,074
|
|
*
|
William D. Young
(7)
|
|
85,309
|
|
*
|
David Altshuler
(7)
|
|
68,928
|
|
*
|
Thomas Graney
(7)
|
|
2,266
|
|
*
|
Michael Parini
(7)
|
|
51,216
|
|
*
|
Amit Sachdev
(7)
|
|
109,410
|
|
*
|
Ian F. Smith
(7)
|
|
133,692
|
|
*
|
All
directors and executive officers as a group (17 persons)
(7)
|
|
1,922,471
|
|
*
|
* 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 2018.
|
(2)
|
Percentage ownership
is based on 254,879,018 shares of our common stock outstanding on March 29, 2018.
|
(3)
|
Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly affiliated with T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. has sole voting power with respect to 9,764,572 of the shares.
|
(4)
|
Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly owned by BlackRock, Inc. BlackRock, Inc. has sole voting power with respect to 17,212,195 of the shares.
|
(5)
|
Includes 282,502 shares beneficially owned by Vanguard Fiduciary Trust Company and 199,254 shares held by Vanguard Investments Australia, Ltd., each of which are a wholly-owned subsidiaries of The Vanguard Group, Inc. The Vanguard Group, Inc. has sole voting power with respect to 361,741 of the shares and sole dispositive power with respect to 17,530,294 of the shares.
|
(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. FMR LLC has sole voting power with respect to 1,925,680 of the shares.
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
81
(7)
|
Includes shares that may be acquired upon the exercise of options exercisable within 60 days after March 29, 2018, unvested shares of restricted stock as of March 29, 2018, unvested restricted stock units vesting within 60 days of March 29, 2018 and deferred stock units as of March 29, 2018 issued pursuant to our Non-Employee Director Deferred Compensation Plan, as follows:
|
|
|
Stock Options
|
|
Unvested Shares of
|
|
|
|
|
Exercisable
|
|
Restricted Stock
|
|
Deferred Stock
|
|
|
Within 60 Days of
|
|
Awards as of
|
|
Units as of
|
|
|
March 29, 2018
|
|
March 29, 2018
|
|
March 29, 2018
|
Sangeeta N. Bhatia
|
|
15,167
|
|
—
|
|
—
|
Alan Garber
|
|
997
|
|
—
|
|
—
|
Terrence C. Kearney
|
|
72,743
|
|
—
|
|
—
|
Yuchun Lee
|
|
95,702
|
|
—
|
|
—
|
Jeffrey M. Leiden
|
|
762,889
|
|
32,250
|
|
—
|
Margaret G. McGlynn
|
|
62,368
|
|
—
|
|
—
|
Bruce I. Sachs
|
|
132,368
|
|
—
|
|
6,119
|
Elaine S. Ullian
|
|
79,868
|
|
—
|
|
—
|
William D. Young
|
|
82,368
|
|
—
|
|
—
|
David Altshuler
|
|
38,042
|
|
—
|
|
—
|
Thomas Graney
|
|
652
|
|
—
|
|
—
|
Michael Parini
|
|
43,927
|
|
6,900
|
|
—
|
Amit Sachdev
|
|
87,688
|
|
8,625
|
|
—
|
Ian F. Smith
|
|
100,240
|
|
10,350
|
|
—
|
All directors and executive officers as a group (17 persons)
|
|
1,659,186
|
|
80,538
|
|
6,119
|
Section 16(a) Beneficial Ownership Reporting Compliance
Section 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, 2017 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
-
2018 Proxy Statement
82
OTHER INFORMATION
Other
Matters
The 2018 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 2018 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 2019 Annual Meeting and Nominations for Director
In order to be considered for inclusion in the
proxy statement for our 2019 annual meeting of shareholders, shareholder proposals must be received by us no later than December
20, 2018. If we do not receive notice of a matter to be considered for presentation at the 2019 annual meeting of shareholders
by March 4, 2019, 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 2019 annual meeting of shareholders, but is not eligible or does not elect to have
such candidate included in the proxy statement for our 2019 annual meeting of shareholders, such nomination may be submitted to
our corporate secretary no later than February 16, 2019, 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;
|
|
|
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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;
|
|
|
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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 at the 2019 annual meeting of shareholders, and is eligible and elects to have such candidate included
in the proxy statement for our 2019 annual meeting of shareholders pursuant to our proxy access by-law, such nomination must be
submitted to our corporate secretary no later than February 16, 2019 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
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
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2018 Proxy Statement
83
Householding
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 record holder, or you may contact us at the above address
and phone number.
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
Our Annual Report on Form 10-K for the fiscal
year ended December 31, 2017 has been filed with the SEC and provides additional information about us. It is available on
the internet at www.vrtx.com and 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 at www.envisionreports.com/vrtx and to beneficial holders of our common stock
at www.edocumentview.com/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’s potential future financial performance. While we believe
the forward-looking statements contained in this proxy statement are accurate, these forward-looking statements represent 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, 2017 and available through the company’s website at www.vrtx.com. We
disclaim any obligation to update the information contained in this proxy statement as new information becomes available.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
84
Appendix A
|
Amendment to Restated Articles of Organization
|
ARTICLE 6
A.
Amendment of By-Laws
To the extent and the manner provided in the
By-Laws, the Board of Directors may make, amend, or repeal the By-Laws in whole or in part, except with respect to any provision
thereof which by law or by the By-Laws requires action by the stockholders.
B.
Meetings of
Stockholders
To the extent and in the manner provided in the
By-Laws, meetings of the stockholders may be held anywhere within the Commonwealth of Massachusetts or elsewhere in the United
States.
C.
Partnership
Agreements
The Corporation may enter into partnership agreements
(general or limited) and joint ventures with any person, firm, association, or corporation engaged in carrying on any business
in which the Corporation is authorized to engage, or in connection with carrying out all or any of the purposes of the Corporation.
D.
Liability of
Directors
No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however,
that this provision shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any
breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of laws, (iii) under Section 61 or 62 of the Business Corporation
Law, Chapter 156B, of the Commonwealth of Massachusetts, or (iv) for any transactions from which the director derived an improper
personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment
or repeal.
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 Directors currently is classified with respect to the time for which its members
severally hold office by division into three classes, as nearly equal in number 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 qualified, 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. Each 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 of 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.
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
85
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.
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|
|
5.
|
Directors Elected by Holders of Preferred Stock
. Whenever the holders of any class or series of Preferred Stock
or of any other class or series of shares issued by the Corporation shall have the right, voting separately as a class or
series, to elect one or more directors under specified circumstances, the election, term of office, filling of vacancies,
and other features of such directorships shall be governed by the terms of these Articles applicable to such class or series,
and none of the provisions of this Part E shall apply with respect to directors so elected.
|
|
|
6.
|
Amendment, Repeal, etc
. Notwithstanding any other provision of these Articles to the contrary, the affirmative
vote of the holders of at least 80% 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, shall be required to alter, amend,
adopt any provision inconsistent with, or repeal this Part E or any provision thereof.
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VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
86
Appendix B
|
Amended and Restated By-Laws of Vertex Pharmaceuticals Incorporated
|
ARTICLE I
Stockholders
Section 1.
Annual Meeting
. The annual
meeting of the stockholders shall be held on the second Monday of May in each year, or on such other date within six months after
the end of the fiscal year of the Corporation as the Board of Directors shall fix, at such time as shall be fixed by the Board
of Directors in the call of the meeting. Purposes for which an annual meeting is to be held, in addition to those prescribed by
law, by the Articles of Organization, or by these By-Laws, may be specified by the Board of Directors in the notice of the meeting.
Section 2.
Special Meeting in Lieu of Annual
Meeting
. If no annual meeting has been held in accordance with the foregoing provisions, a special meeting of the stockholders
may be held in lieu thereof. Any action taken at such special meeting shall have the same force and effect as if taken at the annual
meeting, and in such case all references in these By-Laws to the annual meeting of the stockholders shall be deemed to refer to
such special meeting. Any such special meeting shall be called as provided in Section 3 of this Article 1.
Section 3.
Special Meetings
. A special
meeting of the stockholders may be called at any time by the Chairman of the Board, the President, or by the Board of Directors.
A special meeting of the stockholders shall also be called by the Clerk (or, in the case of the death, absence, incapacity, or
refusal of the Clerk, by any other officer) upon written application of one or more stockholders who hold at least forty percent
in interest of the capital stock entitled to vote at the meeting. Each call of a meeting shall state the place, date, hour, and
purposes of the meeting.
Section 4.
Place of the Meetings
. All
meetings of the stockholders shall be held at such place, either within or without The Commonwealth of Massachusetts, within the
United States as shall be fixed by the Board of Directors in the notice of the meeting. Any adjourned session of any meeting of
the stockholders shall be held within the United States at the place designated in the vote of adjournment.
Section 5.
Notice of Meeting
. A written
notice of each meeting of stockholders, stating the place, date, hour and purposes of the meeting, shall be given at least seven
days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the Articles of Organization,
or by these By-Laws, is entitled to notice. Such notice shall be given by the Clerk or an Assistant Clerk or by an officer designated
by the Board of Directors. Whenever notice of a meeting is required to be given to a stockholder under any provision of the Business
Corporation Law of the Commonwealth of Massachusetts or of the Articles of Organization or these By-Laws, a written waiver thereof,
executed before or after the meeting by such stockholder or his attorney thereunto authorized and filed with the records of the
meeting, shall be deemed equivalent to such notice.
Section 6.
Quorum of Stockholders
. At
any meeting of the stockholders, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled
to vote at the meeting, except when a larger quorum is required by law, by the Articles of Organization, or by these By-Laws. Stock
owned directly or indirectly by the Corporation, if any, shall not be deemed outstanding for this purpose.
Section 7.
Adjournment of Meetings
. Any
meeting of the stockholders may be adjourned (a) prior to the time the meeting has been convened, by the Board of Directors, or
(b) after the meeting has been convened, by a majority of the votes properly cast upon the question, whether or not a quorum is
present at the meeting, and the meeting may be held as adjourned without further notice.
Section 8.
Action by Vote
. When a quorum
is present at any meeting, (a) upon any question other than an election of a director, a majority of the votes properly cast shall
decide the question, except when a larger vote is required by law, by the Articles of Organization, or by these By-Laws, (b) in
an uncontested election, votes properly cast in favor of election of a director exceeding the votes properly withheld in such election
shall effect the election of a director, and (c) in a contested election, a plurality of the votes properly cast for election shall
effect the election of a director. An election of directors shall be considered contested if, as of the record date for the applicable
meeting, there are more nominees for election than positions on
the board of directors to be filled by election at the meeting. All other elections of directors shall be considered uncontested.
Section 9.
Voting
. Stockholders entitled
to vote shall have one vote for each share of stock held by them of record according to the records of the Corporation, unless
otherwise provided by the Articles of Organization. No ballot shall be required for any vote for election to any office unless
requested by a stockholder present or represented at the meeting and entitled to vote in such election. The Corporation shall not,
directly or indirectly, vote any share of its own stock.
Section 10.
Proxies
. To the extent permitted
by law, stockholders entitled to vote may vote either in person or by written proxy. Unless otherwise specified or limited by their
terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the
final adjournment of such meeting.
Section 11.
Action by Consent
. Any action
required or permitted to be taken at any meeting of the stockholders may be taken without a meeting, but only if all stockholders
entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of meetings
of stockholders. Such consents shall be treated for all purposes as a vote taken at a meeting.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
87
ARTICLE II
Board of Directors
Section 1.
Number and Elections
. 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. The directors shall be elected in the manner provided in the Articles of Organization, by
such stockholders as have the right to vote thereon.
Section 2.
Nominations
. 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 directorships and vacancies on the Board of Directors shall be filled as provided in the Articles
of Organization.
Section 4.
Removal of Directors
. Directors
may be removed from office only as provided in the Articles of Organization.
Section 5.
Directors Elected by Holders of
Preferred Stock
. Whenever the holders of any class or series or Preferred Stock or of any other class or series of shares issued
by the Corporation shall have the right, voting separately as a class or series, to elect one or more directors under specified
circumstances, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by
the terms of the Articles of Organization applicable thereto, and none of the provisions of Sections 1 to 4 of this Article II
shall apply with respect to directors so elected.
Section 6.
Resignations
. Any director,
member of a committee, or officer may resign at any time by delivering his resignation in writing to the Chairman of the Board,
the President, the Clerk, or to a meeting of the Board of Directors. Such resignation shall be effective upon receipt unless specified
to be effective at some other time.
Section 7.
Powers
. Except as reserved
to the stockholders by law, by the Articles of Organization, or by these By-Laws, the business of the Corporation shall be managed
by the Board of Directors who shall have and may exercise all the powers of the Corporation.
Section 8.
Proxy Access for Director Nominations
.
(a)
|
I
nformation to be Included in the Corporation’s Proxy Materials
.
Whenever the Board of Directors solicits proxies with respect to the election of directors at an annual meeting of stockholders
(following the 2016 annual meeting of stockholders), subject to the provisions of this Section 8, the Corporation shall include
in its proxy statement for such annual meeting, in addition to any persons nominated for election by the Board of Directors
or a committee appointed by the Board of Directors, the name, together with the Required Information (as defined below), of
any person to be nominated for election to the Board of Directors by a stockholder pursuant to Section 2 of this Article II
(a “Stockholder Nominee”) if (i) the stockholder of record who intends to make the nomination qualifies as, or
is acting on behalf of, an Eligible Stockholder (as defined in Section 8(c) of this Article II), (ii) the Eligible Stockholder
expressly elects, in a written statement accompanying the notice required by Section 2 of this Article II (a “Nomination
Notice”), to have its Stockholder Nominee included in the Corporation’s proxy materials pursuant to this Section
8 and (iii) all of the other requirements set forth in this Section 8 and in Section 2 of this Article II are satisfied. For
purposes of this Section 8, the “Required Information” that the Corporation will include in its proxy statement
is (A) the information provided to the Clerk of the Corporation concerning the Stockholder Nominee and the Eligible Stockholder
that is required to be disclosed in the Corporation’s proxy statement pursuant to Section 14 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (B) if
the Eligible Stockholder so elects, a Supporting Statement (as defined in Section 8(g) of this Article II). For the avoidance
of doubt, nothing in this Section 8 shall limit the Corporation’s ability to solicit against any Stockholder Nominee
or include in its proxy materials the Corporation’s own statements or other information relating to any Eligible Stockholder
or Stockholder Nominee, including any information provided to the Corporation pursuant to this Section 8. Subject to the provisions
of this Section 8, the name of any Stockholder Nominee included in the Corporation’s proxy statement for an annual meeting
of stockholders shall also be set forth on the form of proxy distributed by the Corporation in connection with such annual
meeting.
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VERTEX PHARMACEUTICALS
INCORPORATED
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2018 Proxy Statement
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(b)
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Permitted Number of Stockholder Nominees
. The maximum number of Stockholder Nominees
that will be included in the Corporation’s proxy materials with respect to an annual meeting of stockholders shall not
exceed the greater of (i) two or (ii) 20% of the number of directors in office as of the last day on which a Nomination Notice may be delivered pursuant
to Section 2 of this Article II (the “Final Proxy Access Date”) or, if such amount is not a whole number, the
closest whole number below 20% (such greater number, as it may be adjusted pursuant to this Section 8(b)), the “Permitted
Number”). In the event that one or more vacancies for any reason occurs on the Board of Directors after the Final Proxy Access
Date but before the date of the annual meeting and the Board of Directors resolves to reduce the size of the Board of Directors
in connection therewith, the Permitted Number shall be calculated based on the number of directors in office as so reduced. In
addition, the Permitted Number shall be reduced by (i) the number of individuals who will be included in the Corporation’s
proxy materials as nominees recommended by the Board of Directors pursuant to an agreement, arrangement or other understanding
with a stockholder or group of stockholders (other than any such agreement, arrangement or understanding entered into in connection
with an acquisition of stock from the Corporation by such stockholder or group of stockholders), together with the number of directors
in office as of the Final Proxy Access Date who were either elected by the Board of Directors to fill a vacancy pursuant to such
an agreement, arrangement or other understanding, or included in the Corporation’s proxy materials as nominees recommended
by the Board of Directors pursuant to such an agreement, arrangement or other understanding for any of the two preceding annual
meetings of stockholders, and whose remaining terms extend beyond the upcoming annual meeting, and (ii) the number of directors
in office as of the Final Proxy Access Date who were included in the Corporation’s proxy materials as Stockholder Nominees
for any of the two preceding annual meetings of stockholders (including any persons counted as Stockholder Nominees pursuant to
the immediately succeeding sentence) and whose remaining terms extend beyond the upcoming annual meeting. For purposes of determining
when the Permitted Number has been reached, any individual requested by an Eligible Stockholder to be included in the Corporation’s
proxy materials pursuant to this Section 8 whose nomination is subsequently withdrawn or whom the Board of Directors decides to
nominate for election to the Board of Directors shall be counted as one of the Stockholder Nominees. Any Eligible Stockholder requesting
that more than one Stockholder Nominee be included in the Corporation’s proxy materials pursuant to this Section 8 shall
rank such Stockholder Nominees based on the order in which the Eligible Stockholder desires such Stockholder Nominees to be selected
for inclusion in the Corporation’s proxy materials in the event that the total number of Stockholder Nominees requested by
Eligible Stockholders to be included in the Corporation’s proxy materials pursuant to this Section 8 exceeds the Permitted
Number. In the event that the number of Stockholder Nominees requested by Eligible Stockholders to be included in the Corporation’s
proxy materials pursuant to this Section 8 exceeds the Permitted Number, the highest ranking Stockholder Nominee who meets the
requirements of this Section 8 from each Eligible Stockholder will be selected for inclusion in the Corporation’s proxy materials
until the Permitted Number is reached, going in order of the amount (largest to smallest) of shares of stock of the Corporation
each Eligible Stockholder disclosed as owned in its Nomination Notice. If the Permitted Number is not reached after the highest
ranking Stockholder Nominee who meets the requirements of this Section 8 from each Eligible Stockholder has been selected, then
the next highest ranking Stockholder Nominee who meets the requirements of this Section 8 from each Eligible Stockholder will be
selected for inclusion in the Corporation’s proxy materials, and this process will continue as many times as necessary, following
the same order each time, until the Permitted Number is reached. Notwithstanding anything to the contrary contained in this Section
8, the Corporation shall not be required to include any Stockholder Nominees in its proxy materials pursuant to this Section 8
for any meeting of stockholders for which the Corporation receives a Nomination Notice (whether or not subsequently withdrawn)
and the stockholder by whom or on whose behalf the nomination is to be made does not expressly elect, in a written statement accompanying
the Nomination Notice, to have its Stockholder Nominee included in the Corporation’s proxy materials pursuant to this Section
8.
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(c)
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Eligible Stockholder
. An “Eligible Stockholder” is a stockholder or a group of no
more than 20 stockholders (counting as one stockholder, for this purpose, any two or more funds that are part of the same
Qualifying Fund Group (as defined below)) that (i) has Owned (as defined in Section 8(d) of this Article II) continuously
for at least three years (the “Minimum Holding Period”) a number of shares of stock of the Corporation that represents
at least three percent of the voting power of the outstanding shares of stock as of the date the Nomination Notice is delivered
to or mailed and received by the Clerk of the Corporation in accordance with Section 2 of this Article II (the “Required
Shares”) and (ii) continues to Own the Required Shares through the date of the annual meeting. A “Qualifying
Fund Group” is any two or more funds that are (A) under common management and investment control, (B) under common management
and funded primarily by the same employer or (C) a “group of investment companies” as such term is defined in
Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended. Whenever the Eligible Stockholder consists of a
group of stockholders (including a group of funds that are part of the same Qualifying Fund Group), (1) each provision in
this Section 8 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements
or other instruments or to meet any other conditions shall be deemed to require each stockholder (including each individual
fund within a Qualifying Fund Group) that is a member of such group to provide such statements, representations, undertakings,
agreements or other instruments and to meet such other conditions (except that the members of such group may aggregate the
shares that each member has Owned continuously for the Minimum Holding Period in order to meet the three percent Ownership
requirement of the “Required Shares” definition) and (2) a breach of any obligation, agreement or representation
under this Section 8 by any member of such group shall be deemed a breach by the Eligible Stockholder. No person may be a
member of more than one group of stockholders constituting an Eligible Stockholder with respect to any annual meeting.
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(d)
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Definition of Ownership
. For purposes of this Section 8, a stockholder shall be deemed to “Own” only
those outstanding shares of stock of the Corporation as to which the stockholder possesses both (i) the full voting and investment
rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit from and risk
of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include
any shares (A) sold by such stockholder or any of its affiliates in
any transaction that has not been settled or closed, (B) borrowed by such stockholder or any of its affiliates for any purposes
or purchased by such stockholder or any of its affiliates pursuant to an agreement to resell, or (C) subject to any option,
warrant, forward contract, swap, contract of sale, or other derivative or similar instrument or agreement entered into by such
stockholder or any of its affiliates, whether any such instrument or agreement
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is to be settled with shares or with cash based
on the notional amount or value of shares of outstanding capital stock of the Corporation, in any such case which instrument or
agreement has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the
future, such stockholder’s or its affiliates’ full right to vote or direct the voting of any such shares or (2) hedging,
offsetting or altering to any degree any gain or loss realized or realizable from maintaining the full economic ownership of such
shares by such stockholder or affiliate. For purposes of this Section 8, a beneficial owner shall be considered a “stockholder”
and shall “Own” shares held in the name of a nominee or other intermediary so long as such person retains the right
to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the
shares. A stockholder’s Ownership of shares shall be deemed to continue during any period in which (i) the stockholder has
loaned such shares, provided that the stockholder has the power to recall such loaned shares on five business days’ notice
and includes with its Nomination Notice an agreement that it (A) will promptly recall such loaned shares upon being notified that
any of its Stockholder Nominees will be included in the Corporation’s proxy materials and (B) will continue to hold such
shares through the date of the annual meeting, or (ii) the stockholder has delegated any voting power by means of a proxy, power
of attorney or other instrument or arrangement that is revocable at any time by the stockholder. The terms “Owned,”
“Owning” and other variations of the word “Own” shall have correlative meanings. Whether outstanding shares
of stock of the Corporation are “Owned” for these purposes shall be determined by the Board of Directors. For purposes
of this Section 8, the term “affiliate” or “affiliates” shall have the meaning ascribed thereto under the
General Rules and Regulations under the Exchange Act.
(e)
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Information to be Included with a Nomination Notice
. In addition to containing
the information, representations and other documents required to be set forth in a Nomination Notice pursuant to Section 2
of this Article II, in order for a Stockholder Nominee to be eligible for inclusion in the Corporation’s proxy materials
pursuant to this Section 8, the Nomination Notice must also set forth or be accompanied by the following:
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(i)
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A written statement by the Eligible Stockholder setting forth and certifying as to the number
of shares of stock it Owns and has Owned continuously for the Minimum Holding Period;
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(ii)
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one or more written statements from the record holder of the Required Shares (and from each
intermediary through which the Required Shares are or have been held during the Minimum Holding Period) verifying that, as
of a date within seven calendar days prior to the date the Nomination Notice is delivered to or mailed and received by the
Clerk of the Corporation in accordance with Section 2 of this Article II, the Eligible Stockholder Owns, and has Owned continuously
for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder’s agreement to provide, within five
business days following the later of the record date for the determination of stockholders certified to vote at the annual
meeting and the date notice of the record date is first publicly disclosed, one or more written statements from the record
holder and such intermediaries verifying the Eligible Stockholder’s continuous Ownership of the Required Shares through
the record date;
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(iii)
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a copy of the Schedule 14N that has been or is concurrently being filed with the Securities
and Exchange Commission as required by Rule 14a-18 under the Exchange Act;
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(iv)
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a representation and agreement that the Eligible Stockholder (A) will continue to hold the
Required Shares through the date of the annual meeting, (B) acquired the Required Shares in the ordinary course of business
and not with the intent to change or influence control of the Corporation, and does not presently have such intent, (C) has
not nominated and will not nominate for election to the Board of Directors at the annual meeting any person whom it has not
requested be included in the Corporation’s proxy materials pursuant to this Section 8, (D) has not engaged and will
not engage in, and has not and will not be a “participant” in another person’s, “solicitation”
within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the
annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors, (E) has not distributed and will
not distribute to any stockholder of the Corporation any form of proxy for the annual meeting other than the form distributed
by the Corporation, (F) has complied and will comply with all laws and regulations applicable to solicitations and the use,
if any, of soliciting material in connection with the annual meeting and (G) has provided and will provide facts, statements
and other information in all communications with the Corporation and its stockholders that are or will be true and correct
in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading;
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(v)
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an undertaking that the Eligible Stockholder agrees to (A) assume all liability stemming from any legal or regulatory violation arising out of the Eligible Stockholder’s communications with the stockholders of the Corporation or out of the information provided to the Corporation by or on behalf of the Eligible Stockholder, (B) indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of any nomination of any person for election to the Board of Directors submitted by or on behalf of the Eligible Stockholder or any solicitation or other activity in connection therewith, and (C) file with the Securities and Exchange Commission any solicitation or other communication with the stockholders of the Corporation relating to the meeting at which its Stockholder Nominee(s) will be nominated, regardless of whether any such filing is required under Regulation 14A of the Exchange Act or whether any exemption from filing is available for such solicitation or other communication under Regulation 14A of the Exchange Act;
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(vi)
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a written representation and agreement from each Stockholder Nominee that
such Stockholder Nominee (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and
has not given any commitment or assurance to, any person or entity as to how such Stockholder Nominee, if elected as a director
of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed
to the Corporation in such representation and agreement or (2) any Voting Commitment that could limit or interfere with such
person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under
applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or
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entity
other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection
with such person’s nomination or service or action as a director that has not been disclosed to the Corporation in such
representation and agreement, (C) would be in compliance, if elected as a director of the Corporation, and will comply with
the Corporation’s code of business conduct and ethics, corporate governance guidelines, stock ownership and trading
policies and guidelines and any other policies or guidelines of the Corporation applicable to directors and (D) will make
such other acknowledgments, enter into such agreements and provide such information as the Board of Directors requires of
all directors, including promptly submitting all completed and signed questionnaires required of the Corporation’s directors;
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(vii)
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if the Eligible Stockholder consists of a group of stockholders, the designation
by all group members of one member of the group that is authorized to receive communications, notices and inquiries from the
Corporation and to act on behalf of all members of the group with respect to all matters relating to the request under this
Section 8 (including withdrawal of the nomination); and
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(viii)
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if two or more funds that are part of the same Qualifying Fund Group are
intended to be counted as one stockholder for purposes of qualifying as an Eligible Stockholder, documentation reasonably
satisfactory to the Corporation that demonstrates that the funds are part of the same Qualifying Fund Group.
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(f)
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Additional Required Information
. In addition to the information
required pursuant to Section 8(e) of this Article II or any other provision of these By-Laws, the Corporation may require
(i) any proposed Stockholder Nominee requested to be included in the Corporation’s proxy materials to furnish any other
information (A) that may reasonably be requested by the Corporation to determine whether the Stockholder Nominee would be
independent under the Independence Standards (as defined in Section 8(i) of this Article II), (B) that could be material to
a reasonable stockholder’s understanding of the independence, or lack thereof, of such Stockholder Nominee or (C) that
may reasonably be requested by the Corporation to determine the eligibility of such Stockholder Nominee to be included in
the Corporation’s proxy materials pursuant to this Section 8 or to serve as a director of the Corporation, and (ii)
any Eligible Stockholder to furnish any other information that may reasonably be requested by the Corporation to verify the
Eligible Stockholder’s continuous ownership of the Required Shares for the Minimum Holding Period and through the date
of the annual meeting.
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(g)
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Supporting Statement
. The Eligible Stockholder may, at its option,
provide to the Clerk of the Corporation, at the time the Nomination Notice is provided, a written statement, not to exceed
500 words, in support of its Stockholder Nominee(s)’ candidacy (a “Supporting Statement”). Only one Supporting
Statement may be submitted by an Eligible Stockholder (including any group of stockholders together constituting an Eligible
Stockholder) in support of its Stockholder Nominee(s). Notwithstanding anything to the contrary contained in this Section
8, the Corporation may omit from its proxy materials any information or Supporting Statement (or portion thereof) that it,
in good faith, believes would violate any applicable law, rule or regulation.
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(h)
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Correction of Defects; Updates and Supplements
. In the event that
any information or communications provided by or on behalf of an Eligible Stockholder or a Stockholder Nominee to the Corporation
or its stockholders ceases to be true and correct in all material respects or omits to state a material fact necessary to
make the statements made, in light of the circumstances under which they were made, not misleading, such Eligible Stockholder
or Stockholder Nominee, as the case may be, shall promptly notify the Clerk of the Corporation of any such defect and of the
information that is required to correct any such defect. Without limiting the forgoing, an Eligible Stockholder must provide
immediate notice to the Corporation if the Eligible Stockholder ceases to Own any of the Required Shares prior to the date
of the annual meeting. For the avoidance of doubt, no notification, update or supplement provided pursuant to this Section
8(h) shall be deemed to cure any defect in any previously provided information or communications or limit the remedies available
to the Corporation relating to any such defect (including the right to omit a Stockholder Nominee from its proxy materials
pursuant to this Section 8).
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(i)
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Stockholder Nominee Eligibility
. Notwithstanding anything to the contrary contained
in this Section 8, the Corporation shall not be required to include in its proxy materials, pursuant to this Section 8, a
Stockholder Nominee (i) who would not be an independent director under the rules and listing standards of the United States
securities exchanges upon which the capital stock of the Corporation is listed or traded, any applicable rules of the Securities
and Exchange Commission, or any publicly disclosed standards used by the Board of Directors in determining and disclosing
the independence of the Corporation’s directors (collectively, the “Independence Standards”), (ii) whose
election as a member of the Board of Directors would cause the Corporation to be in violation of these By-Laws, the Articles
of Organization, the rules and listing standards of the United States securities exchanges upon which the capital stock of
the Corporation is listed or traded, or any applicable law, rule or regulation, (iii) who is or has been, within the past
three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (iv) who
is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted
in such a criminal proceeding within the past 10 years, (v) who is subject to any order of the type specified in Rule 506(d)
of Regulation D promulgated under the Securities Act of 1933, as amended, or (vi) who shall have provided any information
to the Corporation or its stockholders that was untrue in any material respect or that omitted to state a material fact necessary to make the statements
made, in light of the circumstances in which they were made, not misleading.
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(j)
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Omission and Removal of Stockholder Nominees
. Notwithstanding anything
to the contrary set forth herein, if (i) a Stockholder Nominee and/or the applicable Eligible Stockholder breaches any of
its representations, agreements or undertakings or fails to comply with any of its obligations under this Section 8 or Section
2 of this Article II, or (ii) a Stockholder Nominee otherwise becomes ineligible for inclusion in the Corporation’s
proxy materials pursuant to this Section 8 or dies, becomes disabled or otherwise becomes ineligible or unavailable for election
at the annual meeting, in each case as determined by the Board of Directors or the presiding officer of the annual meeting,
then (A) the Corporation may omit or, to the extent feasible, remove the information concerning such Stockholder Nominee and
the related Supporting Statement from its proxy materials and otherwise communicate to its stockholders that such Stockholder
Nominee will not be eligible for election at the annual meeting and, (B) the Corporation shall not be required to include
in its proxy materials any successor or replacement nominee proposed by the applicable Eligible Stockholder or any other Eligible
Stockholder.
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(k)
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Restrictions on Re-Nominations
. Any Stockholder Nominee who is included
in the Corporation’s proxy materials for a particular annual meeting of stockholders but either (i) withdraws from or
becomes ineligible or unavailable for election at the annual meeting, or (ii) does not receive at least 10% of the votes cast
in favor of such Stockholder Nominee’s election, will be ineligible to be included in the Corporation’s proxy
materials pursuant to this Section 8 for the next two annual meetings of stockholders.
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(l)
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General
. This Section 8 provides the exclusive method for a stockholder
to include nominees for election to the Board of Directors in the Corporation’s proxy materials.
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Section 9.
Other Committees
. The Board
of Directors may, by vote of a majority of the directors then in office, elect from their number other committees and may delegate
to any such committee or committees some or all of the powers of the Board of Directors except those powers which by law, by the
Articles of Organization, or by these By-Laws they are prohibited from delegating. Except as the Board of Directors may otherwise
determine, each committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors
or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the conduct
of business by the Board of Directors. The Board of Directors shall have the power to rescind any vote, resolution, or other action
of any committee, provided that the rights of third parties shall not be impaired by such rescission.
Section 10.
Regular Meetings
. A regular
meeting of the Board of Directors shall be held without call or notice immediately after and at the same place as the annual meeting
of the stockholders. Other regular meetings of the Board of Directors may be held without call or notice at such places and at
such times as the Board of Directors may, from time to time, determine, provided that notice of the first regular meeting following
any such determination shall be given to absent directors.
Section 11.
Special Meetings
. Special
meetings of the Board of Directors may be held at any time and at any place designated in the call of the meeting, when called
by the Chairman of the Board, the President, or by two or more directors.
Section 12.
Notice of the Meetings
. It
shall be sufficient notice to a director of a meeting of the Board of Directors (i) to send notice by mail at least forty-eight
(48) hours before the meeting, addressed to such directors at his usual or last known business or residence address, (ii) to send
notice by electronic mail (to the electronic mail address designated by such director) at least twenty-four (24) hours before the
meeting, or (iii) to give notice to such director in person or by telephone at least twenty-four (24) hours before the meeting.
A director may waive any notice before or after the date and time of the meeting. The waiver shall be in writing, signed by the
director entitled to the notice, or in the form of an electronic transmission by the director to a representative of the Corporation,
and filed with the minutes or corporate records. A director’s attendance at or participation in a meeting waives any required
notice to him or her of the meeting unless the director at the beginning of the meeting, or promptly upon his or her arrival, objects
to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the
meeting. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting.
Section 13.
Quorum of Directors
. At any
meeting of the Board of Directors, a majority of the directors then in office shall constitute a quorum. Any meeting may be adjourned
from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be
held as adjourned without further notice.
Section 14.
Action by Vote
. When a quorum
is present at any meeting, a majority of the directors present may take any action, except when a larger vote is required by law,
by the Articles of Organization, or by these By-Laws.
Section 15.
Action by Written Consent
.
Unless the Articles of Organization otherwise provide, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting if all the directors or members of the committee as the
case may be, consent to the action. The action must be evidenced by one or more consents describing the action taken, in writing,
signed by each director or delivered to the Corporation by electronic transmission, and included in the minutes or filed with the
corporate records reflecting the action taken. Such consents shall be treated for all purposes as a vote taken at a meeting.
Section 16.
Participation Through Communications
Equipment
. Unless otherwise provided by law or the Articles of Organization, members of the Board of Directors or of any committee
thereof may participate in a meeting of such Board or committee, as the case may be, through conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by
such means shall constitute presence in person at a meeting.
Section 17.
Compensation of Directors
.
The Board of Directors may provide for the payment to any of the directors, other than officers or employees of the Corporation,
of a specified amount for services as a director or member of a committee of the Board, or of a specified amount for attendance
at each regular or special Board or committee meeting or of both, and all directors shall be reimbursed for expenses of attendance
at any such meeting; provided, however, that nothing herein contained shall be construed to preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
ARTICLE III
Officers and Agents
Section 1. Enumeration; Qualification. The officers of the Corporation shall be a President, a Treasurer, a Secretary, who may also be referred to in these By-Laws as the Clerk, and such other officers, including, without limitation, a Chairman of the Board, one or more Vice Presidents, Assistant Treasurers, and Assistant Clerks as the Board of Directors from time to time may in their discretion elect or appoint. In addition,
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the Corporation shall have such other agents
as may be appointed by management in accordance with these By-Laws. The Chairman of the Board shall be a director. The President
need not be a director. Any two or more offices may be held by the same person.
Section 2.
Powers
. Subject to law, to
the Articles of Organization, and to the other provisions of these By-Laws, each officer shall have, in addition to the duties
and powers herein set forth, such duties and powers as are commonly incident to his office and such duties and powers as the Board
of Directors may from time to time designate.
Section 3.
Election
. The Chairman of the
Board, if any, the President, the Treasurer, and the Clerk shall be elected annually by the Board of Directors at their first meeting
following the annual meeting of the stockholders. Other officers, if any, may be elected or appointed by the Board of Directors
at said meeting or at any other time.
Section 4.
Tenure
. Except as otherwise
provided by law, by the Articles of Organization, or by these By-Laws, the Chairman of the Board, if any, the President, the Treasurer,
and the Clerk shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders
and until their respective successors are chosen and qualified, and each other officer shall hold office for such term as may be
designated in the vote electing or appointing him, or in each case until such officer sooner dies, resigns, is removed, or becomes
disqualified.
Section 5.
Chief Executive Officer
. The
Chief Executive Officer of the Corporation shall be the Chairman of the Board, the President, or such other officer as may from
time to time be designated by the Board of Directors. If no such designation is made, the President shall be the Chief Executive
Officer. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general charge and supervision
of the business of the Corporation and, except as the Board of Directors shall otherwise determine, shall preside at all meetings
of the stockholders and of the Executive Committee. Unless otherwise determined by the Board of Directors, the Chief Executive
Officer shall have the authority to appoint such agents, in addition to those officers enumerated in Section 2 of this Article
III as being elected or appointed by the Board of Directors, as he shall deem appropriate and to define their respective duties
and powers.
Section 6.
Chairman of the Board
. If a
Chairman of the Board of Directors is elected, he shall preside at all meetings of the Board of Directors and shall have the duties
and powers specified in these By-Laws and such other duties and powers as may be determined by the Board of Directors.
Section 7.
President and Vice Presidents
.
The President shall have the duties and powers specified in these By-Laws and shall have such other duties and powers as may be
determined by the Board of Directors.
The Vice Presidents shall have such duties and
powers as shall be designated from time to time by the Board of Directors. Unless the Board of Directors otherwise determines,
one Vice President shall be designated as the Chief Financial officer of the Corporation and, as such, shall be the chief financial
and accounting officer of the Corporation and shall have the duties and powers commonly incident thereto.
Section 8.
Treasurer and Assistant Treasurers
.
The Treasurer shall have general responsibility for the corporate treasury function, shall be in charge of its funds and valuable
papers, books of account, and accounting records, and shall have such other duties and powers as may be designated from time to
time by the Board of Directors.
Any Assistant Treasurer shall have such duties
and powers as shall be designated from time to time by the Board of Directors or the Treasurer.
Section 9.
Clerk and Assistant Clerks
.
The Clerk shall record all proceedings of the stockholders and Board of Directors in a book or series of books to be kept for that
purpose, which book or books shall be kept as the principal office of the Corporation and shall be open at all reasonable times
to the inspection of any stockholder. In the absence of the Clerk from any meeting of the stockholders or Board of Directors, an
Assistant Clerk, or if there be none or he is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof
in the aforesaid book.
Any Assistant Clerks shall have such other duties
and powers as shall be designated from time by the Board of Directors or the Clerk.
ARTICLE IV
Capital Stock
Section 1.
Stock Certificates
. The
Board of Directors may authorize the issue without certificates of some or all of the shares of any or all of the
Corporation’s classes or series of stock. Except to the extent the Board of Directors has determined to issue shares
without certificates, a stockholder shall be entitled to a certificate stating the number and the class and the designation
of the series, if any, of the shares held by him, in such form as shall, in conformity to law, be prescribed from time to
time by the Board of Directors. Such certificate shall be signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar,
other than a director, officer, or employee of the Corporation. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at the time of its issue.
Every certificate for shares of stock which are
subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws, or any agreement to which the Corporation
is a party shall have the existence of the restriction noted conspicuously on the certificate and shall also set forth on the face
or back either a summary of the restriction or a statement of the existence of such restriction and a statement that the Corporation
will, upon written request, furnish a copy thereof to the holder of such certificate without charge.
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Every certificate issued when the Corporation
is authorized to issue more that one class or series of stock shall set forth on its face or back either a summary of the preferences,
voting powers, qualifications, and special and relative rights of the shares of each class and series authorized to be issued or
a statement of the existence of such preferences, powers, qualifications, and rights and a statement that the Corporation will,
upon written request, furnish a copy thereof to the holder of such certificate without charge.
Section 2.
Lost Certificates
. In the case
of the alleged loss, destruction, or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof,
upon such conditions as the Board of Directors may prescribe. When authorizing such issue of a new certificate, the Board may in
its discretion require the owner of such lost, destroyed, or mutilated certificate, or his legal representative, to give the Corporation
a bond, with or without surety, sufficient in the Board’s opinion to indemnify the Corporation against any loss or claim
that may be made against it with request to the certificate alleged to have been lost, destroyed, or mutilated.
Section 3.
Transfer of Shares
. Subject
to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the
Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied
by a written assignment and power of attorney properly executed with necessary transfer stamps affixed, and with such proof of
the authenticity of signature as the Board of Directors or the transfer agent of the Corporation may reasonably require. Except
as may be otherwise required by law, by the Articles of Organization, or by these By-Laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its on its books as the owner of such stock for all purposes, including the payment
of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge, or other disposition
of such stock, until the shares have been transferred on the books of the stock, until the shares have been transferred on the
books of the Corporation in accordance with the requirements of these By-Laws.
Section 4.
Record Date and Closing Transfer
Books
. The Board of Directors may fix in advance a time, which shall not be more than sixty (60) days before the date of any
meeting of stockholders or the date for the payment of any dividend or making of any distribution to stockholders or the last day
on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive
such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such
record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date;
or without fixing such record date the Board of Directors may for any such purposes close the transfer books for all or any part
of such period.
If no record date is fixed and the transfer books
are not closed, the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders
shall be at the close of business on the date next preceding the day on which notice is given, and the record date for determining
stockholders for any other purpose shall be at the close of business on the date on which the Board of Directors acts with respect
thereto.
ARTICLE V
Indemnification
Section 1.
Directors and Officers
. The
Corporation shall indemnify, and advance funds to pay for or reimburse the reasonable expenses incurred by, its directors and the
officers that have been appointed by the Board of Directors (including persons who serve at its request as directors, officers,
or trustees of another organization in which it has any interest, direct or indirect, as a shareholder, creditor, or otherwise
or who serve at its request in any capacity with respect to any employee benefit plan) to the fullest extent permitted by law,
and may indemnify, and advance funds to pay for or reimburse the reasonable expenses incurred by, such other employees and agents
as are identified by the Board of Directors.
The right of indemnification hereby
provided shall not be exclusive of or affect any other rights to which any director or officer may be entitled. As used in
this section, the terms “director” and “officer” include their respective heirs, executors, and
administrators, an “interested” director or officer is one against whom in such capacity the proceedings in
question or another proceeding on the same or similar grounds is then pending or threatened, and a
“disinterested” director is one against whom no such proceeding is then pending or threatened. Nothing contained
in this section shall affect any rights to indemnification to which corporate personnel other than directors and officers may
be entitled by contract or otherwise under law.
The Board of Directors may authorize the purchase
and maintenance of insurance, in such amounts as the Board of Directors may from time to time deem appropriate, on behalf of any
person who is or was a director or officer or agent of the Corporation, or who is or was serving at the request of the Corporation
as a director, officer, or agent of another organization in which it has any interest, direct or indirect, as a shareholder, creditor,
or otherwise, or with respect to any employee benefit plan, against any liability incurred by him in any such capacity, or arising
out of his status as such, whether or not such person is entitled to indemnification by the Corporation pursuant to this Article
V or otherwise and whether or not the Corporation would have the power to indemnify him against such liability.
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ARTICLE VI
Miscellaneous
Section 1.
Corporate Seal
. The seal of
the Corporation shall be in such form as the Board of Directors may from time to time determine.
Section 2.
Fiscal Year
. The fiscal year
of the Corporation shall be such period as shall from time to time be determined by the Board of Directors.
Section 3. [Intentionally Omitted]
Section 4.
Execution of Documents
. Except
as the Board of Directors may generally or in specific instances authorize the execution thereof in some other manner, all deeds,
leases, transfers, contracts, checks, drafts, and other orders for the payment of money out of the funds of the Corporation, and
all bonds, notes, debentures, guarantees, and other obligations or evidences or indebtedness of the Corporation shall be executed
by the Chairman of the Board, the President, any Vice President, or the Treasurer.
Section 5.
Voting of Securities
. Except
as the Board of Directors may generally or in specific instances direct otherwise, the Chairman of the Board, the President, any
Vice President, or the Treasurer shall have the power, in the name and on behalf of the Corporation, to waive notice of, appoint
any person or persons to act as proxy or attorney-in-fact of the Corporation (with or without power of substitution) to vote at,
or attend and act for the Corporation at, any meeting of holders of shares or other securities of any other organization of which
the Corporation holds shares or securities.
Section 6.
Appointment of Auditor
. The
Board of Directors, or a committee thereof, shall each year select independent public accountants to report to the stockholders
on the financial statements of the Corporation for such year. The selection of such accountants shall be presented to the stockholders
for their approval at the annual meeting each year; provided, however, that if the shareholders shall not approve the selection
made by the Board, the Board shall appoint other independent public accountants for such year.
ARTICLE VII
Amendments
Except as provided in the second
paragraph of this Article VII, these
These
By-Laws may be altered, amended, or repealed, and new By-Laws not
inconsistent with any provision of the Articles of organization or applicable statute may be made either by the affirmative
vote 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, at any annual or special meeting of the
stockholders called for the purpose, or (except with respect to any provision hereof which by law, the Articles of
Organization, or these By-Laws requires action by the stockholders) by the affirmative vote of a majority of the Board of
Directors then in office. Not later that the time of giving notice of the meeting of stockholders next following the making,
amending, or repealing by the Board of Directors of any By-Law, notice thereof stating the substance of such change shall be
given to all stockholders entitled to vote on amending the By-Laws. Any By-Law made, amended, or repealed by the Board of
Directors may be altered, amended, repealed, or reinstated by the stockholders.
Notwithstanding anything contained in
these By-Laws to the contrary, the affirmative vote of the holders of 80% 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, shall
be required to alter, amend, adopt any provision inconsistent with, or repeal any provision of Section 1, 2, 3, or 4 of Article
II of these By-Laws or this Article VII.
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Appendix C
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Amended and Restated 2013 Stock and Option Plan
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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), who is 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.
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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.
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.
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SHARES SUBJECT TO THE PLAN
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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.
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35,875,861 shares of Common Stock; and
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b.
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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),
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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.
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4
.
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ADMINISTRATION OF THE PLAN
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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;
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b.
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Determine which Employees, Non-Employee Directors, consultants and advisors of the Company and
its Affiliates shall be granted Stock Rights;
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|
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c.
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Determine the number of Shares and exercise price for which a Stock Right shall be granted;
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|
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d.
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Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted;
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e.
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In its discretion, accelerate:
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(i)
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the date of exercise of any installment of any Option; or
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(ii)
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the date or dates of vesting of Shares, or lapsing of Company repurchase rights with respect
to any Shares, under any Stock Rights; and
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f.
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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 10
th
anniversary of the date the Option was granted);
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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.
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ELIGIBILITY FOR PARTICIPATION
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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.
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TERMS AND CONDITIONS OF OPTIONS
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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:
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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, 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.
6.2.2
Term of ISO
. Each ISO shall expire
not more than ten (10) years from the date of grant;
provided, however
, that an ISO granted to a Participant who owns, directly
or by reason of the applicable attribution rules in 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.
6.2.3
Annual 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, 2018). To the extent that any Option exceeds
this limit, it shall constitute a Non-Qualified Option.
6.3
Non-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.
6.4
Term of Options
. No Option will be
granted with a term in excess of ten (10) years.
7.
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TERMS AND CONDITIONS OF STOCK GRANTS
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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. 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.
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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.
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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,
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however, delivery of a promissory note of the 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.
13.
|
ANNUAL LIMITS ON STOCK RIGHTS; PERFORMANCE
AWARDS
|
13.1
Annual 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
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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.
13.2
Performance 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.
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. Notwithstanding anything to the contrary in the Plan,
except as otherwise determined by the Administrator or as permitted by Internal Revenue Service guidance, the provisions of
this 13.2 that relate to Performance-Based Compensation shall not apply to Stock Rights granted on or after May 17, 2018 (the
“
Amendment Date
”),
provided
,
however
, that the terms of this Section 13.2 and the terms of
the Plan, as in effect on November 2, 2017, which were those same terms in effect as of immediately prior to the Amendment
Date, shall continue to govern the terms of any Performance Awards and Stock Options granted prior to the Amendment Date. It
is the intent of the Company that the amendment and restatement of the Plan on the Amendment Date not constitute a
“material modification” of the Plan or Stock Rights granted under it prior to the Amendment Date within the
meaning of Section 162(m) of the Code (and any Internal Revenue Service guidance issued thereunder) and the Plan shall be
interpreted in accordance with the foregoing intent. In furtherance of the foregoing, the terms of the Plan, as amended and
restated as of the Amendment Date, shall only apply to Stock Rights granted after the Amendment Date. Other than with respect
to the second sentence of this paragraph,
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references to “Section 162(m) of the Code” in this Section 13 shall
refer to Section 162(m) of the Code as in effect prior to December 22, 2017, including the regulations thereunder and other
applicable Internal Revenue Service guidance, whether promulgated or issued before or after December 22, 2017.
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.
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.
17.3
Recapitalization or Reorganization
.
In the event of a recapitalization or reorganization of the Company (other than a transaction described in Section 17.2 above)
pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common
Stock, a Participant upon exercising a Stock Right shall be entitled to receive for the purchase price paid upon such exercise
the securities he or she would have received if he or she had exercised such Stock Right 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
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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.
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 (other than an Option or Stock Appreciation 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 unless and until such Options or Stock Appreciation Rights
have vested and been exercised in accordance with their terms.
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 a 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.
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23.
|
EFFECTIVE DATE; TERMINATION OF THE PLAN
|
This Plan was amended and restated by the Board
on April 13, 2017 and was further amended and restated by the Board on April 2, 2018, in each case subject to the approval of the
Plan by the shareholders of the Company. The Plan, as amended and restated hereby, shall be effective as of the Amendment Date.
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.
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.
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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 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
-
2018 Proxy Statement
105
Appendix D
|
Non-GAAP Financial Measures
|
In this proxy, our financial results are
provided in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP
financial measures. In particular, we include non-GAAP net income, which excludes (i) stock-based compensation expense, (ii)
revenues and expenses related to business development transactions including collaboration agreements and asset acquisitions,
(iii) revenues and expenses related to consolidated variable interest entities, including asset impairment charges and
related income tax benefits and the effects of the deconsolidation of a variable interest entity and (iv) other adjustments.
The use of non-GAAP financial results is provided as a complement to results provided in accordance with GAAP because
management believes certain non-GAAP financial measures, such as non-GAAP net income, help indicate underlying trends in the
company’s business, are important in comparing current results with prior period results and provide additional
information regarding the company’s financial position. Management also uses non-GAAP financial measures to establish
budgets and operational goals that are communicated internally and externally and to manage the company’s business and
to evaluate its performance. The company adjusts, where appropriate, for both revenues and expenses in order to reflect the
company’s operations. A reconciliation of GAAP net income to non-GAAP net income is included below.
|
|
Twelve Months Ended December 31,
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
GAAP net income (loss)
attributable to Vertex
|
|
$
|
263,484
|
|
|
$
|
(112,052
|
)
|
|
$
|
(556,334
|
)
|
Stock-based compensation expense
|
|
|
290,736
|
|
|
|
237,705
|
|
|
|
231,025
|
|
Concert upfront and transaction expenses
|
|
|
165,057
|
|
|
|
—
|
|
|
|
—
|
|
Revenues and expenses related to VIEs
|
|
|
14,083
|
|
|
|
54,850
|
|
|
|
4,530
|
|
Other collaborative and transaction revenue and expenses
|
|
|
(255,747
|
)
|
|
|
33,000
|
|
|
|
75,000
|
|
Other
adjustments
|
|
|
16,947
|
|
|
|
(2,306
|
)
|
|
|
(21,570
|
)
|
NON-GAAP NET INCOME ATTRIBUTABLE TO VERTEX
|
|
$
|
494,560
|
|
|
$
|
211,197
|
|
|
$
|
(267,349
|
)
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2018 Proxy Statement
106
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