VERTEX PHARMACEUTICALS INC / MA, PRE 14A, 1997-03-21

VERTEX PHARMACEUTICALS INC / MA
PRE 14A, 1997-03-21
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]

- - --------------------------------------------------------------------------------

Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

VERTEX PHARMACEUTICALS INCORPORATED
(Name of Registrant as Specified In Its Charter)

VERTEX PHARMACEUTICALS INCORPORATED
(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

- - --------------------------------------------------------------------------------
<PAGE> 2

[VERTEX LOGO]

APRIL 7, 1997

Dear Fellow Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Vertex Pharmaceuticals Incorporated to be held on Thursday, May 8, 1997, at 9:30
a.m. at the Company's headquarters at 130 Waverly Street, Cambridge,
Massachusetts.

The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe the matters that will be presented at the meeting. This year,
in addition to the election of three directors and approval of the Company's
accountants, stockholders are being asked to approve amendments to the Company's
Restated Articles of Organization to increase the number of authorized shares of
common stock, $.01 par value, from 50,000,000 to 100,000,000 and to increase the
number of authorized shares of preferred stock, $.01 par value, from 1,000,000
to 5,000,000, and to approve the Company's 1996 Stock and Option Plan, a copy of
which is attached to the Proxy Statement.

Regardless of the number of shares of Common Stock you may own, your votes
are important. YOU ARE URGED TO VOTE, SIGN, DATE AND MAIL THE ENCLOSED PROXY
CARD PROMPTLY, whether or not you plan to attend the meeting in person. This
will ensure your proper representation at the meeting.

Thank you for giving these materials your careful consideration.

Sincerely,

/s/ Joshua Boger
-----------------------------------
JOSHUA BOGER
President and Chief Executive Officer

VERTEX PHARMACEUTICALS INCORPORATED, 130 WAVERLY STREET, CAMBRIDGE,
MASSACHUSETTS 02139-4242
TELEPHONE (617) 577-6000, FAX (617) 577-6680
<PAGE> 3

VERTEX PHARMACEUTICALS INCORPORATED
130 WAVERLY STREET
CAMBRIDGE, MA 02139-4242
(617) 577-6000

------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 8, 1997

Notice is hereby given that the 1997 Annual Meeting of Stockholders of
Vertex Pharmaceuticals Incorporated (hereinafter referred to as the "Company")
will be held on Thursday, May 8, 1997, at 9:30 a.m. at the Company's
headquarters, 130 Waverly Street, Cambridge, Massachusetts, for the following
purposes:

(1) To elect one (1) director to the class of directors whose term expires in
1998;

(2) To elect two (2) directors to the class of directors whose term expires in
2000;

(3) To approve an amendment to the Company's Restated Articles of Organization
to increase the number of authorized shares of common stock, $.01 par value
per share (the "Common Stock"), of the Company from 50,000,000 to
100,000,000;

(4) To approve an amendment to the Company's Restated Articles of Organization
to increase the number of authorized shares of preferred stock, $.01 par
value per share (the "Preferred Stock"), of the Company from 1,000,000 to
5,000,000;

(5) To approve the 1996 Stock and Option Plan;

(6) To approve the appointment of independent accountants for the year ending
December 31, 1997; and

(7) To consider and act upon such other business as may properly come before the
meeting.

Reference is hereby made to the accompanying Proxy Statement for more
complete information concerning the matters to be acted upon at the meeting.

Holders of record of the Company's Common Stock at the close of business on
March 14, 1997 (the "Record Date") are entitled to vote at the Annual Meeting or
at any adjournments thereof. All stockholders are invited to attend the meeting
in person.

HOLDERS OF RECORD OF COMMON STOCK AS OF THE RECORD DATE ARE URGED TO VOTE, SIGN,
DATE, AND RETURN THEIR PROXIES IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES. HOLDERS OF RECORD OF THE COMMON STOCK AS
OF THE RECORD DATE WHO DO ATTEND THE MEETING AND WISH TO VOTE IN PERSON MAY
REVOKE THEIR PROXIES.

By Order of the Board of Directors

RICHARD H. ALDRICH
Clerk

April 7, 1997
<PAGE> 4

VERTEX PHARMACEUTICALS INCORPORATED

130 WAVERLY STREET
CAMBRIDGE, MA 02139-4242
(617) 577-6000

PROXY STATEMENT

FOR 1996 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 8, 1996

This Proxy Statement, with the enclosed proxy card, is being furnished to
stockholders of Vertex Pharmaceuticals Incorporated ("Vertex" or the "Company"),
a Massachusetts corporation, in connection with the solicitation by the
Company's Board of Directors (the "Board") of proxies to be voted at the
Company's 1997 Annual Meeting of Stockholders to be held on May 8, 1997 at 9:30
a.m. at the Company's headquarters, 130 Waverly Street, Cambridge,
Massachusetts, and at any adjournments thereof (the "Meeting").

This Proxy Statement and the enclosed proxy card are first being mailed or
otherwise furnished to stockholders of the Company on or about April 7, 1997.
The Annual Report to Stockholders for the fiscal year ended December 31, 1996 is
being mailed to the stockholders with this Proxy Statement, but does not
constitute a part hereof.

The Company has retained D. F. King & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of approximately $3,000. Proxies
may also be solicited by regular employees of the Company by mail, by telephone,
in person, or otherwise. No such person will receive additional compensation for
such solicitation. In addition, the Company 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 such
beneficial owners. The Company will reimburse such firms for their reasonable
expenses in forwarding proxy materials and obtaining voting instructions.

When the proxy card of a stockholder is duly executed and returned, the
shares represented thereby will be voted in accordance with the voting
instructions given on the proxy by the stockholder. If no such voting
instructions are given on a proxy card with respect to one or more proposals,
the shares represented by that proxy card will be voted, in the election of
directors, for the nominees named herein, and with respect to other proposals,
in accordance with the recommendations of the Board. Stockholders may revoke
their proxies at any time prior to any vote at the Meeting by written notice to
the Clerk of the Company at or before the Meeting, by submission of a duly
executed proxy card bearing a later date, or by voting in person by ballot at
the Meeting.

VOTING SECURITIES

Holders of Common Stock of record on the books of the Company at the close
of business on March 14, 1997 (the "Record Date") are entitled to notice of and
to vote at the Meeting. At the Record Date, there were issued and outstanding
24,680,649 shares of Common Stock, each of which entitles the holder to one vote
on each matter submitted to a vote at the Meeting.

1
<PAGE> 5

The proxy card provides space for a stockholder to withhold voting for any
or all nominees for the Board of Directors or to abstain from voting for any
proposal if the stockholder chooses to do so. The holders of a majority of all
shares of Common Stock issued and outstanding and entitled to vote at the
Meeting shall constitute a quorum for the transaction of business. Other than
the election of directors, which requires a plurality of the votes cast in
person or by proxy, and the approval of the amendments to the Company's Restated
Articles of Organization, which require a vote of a majority of the shares
outstanding, each matter to be submitted to the stockholders requires the
affirmative vote of a majority of the votes cast in person or by proxy at the
Meeting. Abstentions and broker non-votes are not counted in determining the
number of votes cast in connection with any voting matter.

PROPOSALS 1 AND 2:
ELECTION OF DIRECTORS

NOMINEES FOR DIRECTOR AND DIRECTORS CONTINUING IN OFFICE

The By-Laws of the Company provide for a Board consisting of such number of
directors, not less than three nor more than nine, as may be fixed from time to
time by the Board. The Board is divided into three classes, with each class
holding office for a term of three years and the term of office of one class
expiring each year. The Board has fixed the number of directors to constitute
the full Board for the ensuing year at six, two of whom are to be elected at the
Meeting for a term expiring at the 2000 Annual Meeting, two whose terms expire
at the 1999 Annual Meeting, and two whose terms expire at the 1998 Annual
Meeting, one of whom is to be elected at the Meeting.

Barry M. Bloom, a director of the Company since 1994, William W. Helman IV,
a director since 1989, and Charles A. Sanders, a director since December 1996,
represent the class of directors whose term expires at the Meeting. The Board
has nominated Dr. Sanders for election to the class of directors whose term will
expire in 1998 and has nominated Dr. Bloom and Mr. Helman for election to the
class of directors whose term will expire in 2000. Benno C. Schmidt, a Director
of the Company since 1989, retired from the Board in March, 1997 and became
Director Emeritus.

Shares represented by proxies will be voted for the election as directors
of Dr. Bloom, Mr. Helman and Dr. Sanders unless otherwise specified in the
proxy. If any of the nominees for election to the Board should, for any reason
not now anticipated, not be available to serve as such, proxies will be voted
for such other candidate as may be designated by the Board unless the Board
reduces the number of directors. The Board has no reason to believe that Dr.
Boom, Mr. Helman or Dr. Sanders will be unable to serve if elected.

2
<PAGE> 6

The table below sets forth certain information with respect to the nominees
for election to the Board of Directors and those directors whose terms of office
will continue after the Meeting.

<TABLE>
<CAPTION>
EXPIRATION
FIRST OF PRESENT
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE ELECTED OR PROPOSED
NAME AND AGE AND OTHER BUSINESS AFFILIATIONS DIRECTOR TERM OF OFFICE
- - ------------------------ ----------------------------------------- -------- --------------
<S> <C> <C> <C>
Barry M. Bloom, Ph.D., Formerly with Pfizer Inc., as Executive 1994 2000
68(1)(3) Vice President of Research and
Development from 1992 to 1993, Senior
Vice President from 1990 to 1992, Vice
President from 1971 to 1990, and a
director since 1973. Also a director of
Catalytica Fine Chemicals, Cubist
Pharmaceuticals, Inc., Incyte
Pharmaceuticals Inc., Neurogen Corp. and
Southern New England Telecommunications
Corp.

William W. Helman IV, A General Partner of Greylock Equity 1989 2000
38(2) Limited Partnership, Greylock Limited
Partnership and Greylock Capital Limited
Partnership, an original investor in the
Company. Also a director of Millenium
Pharmaceuticals, Inc. and several private
companies.

Roger W. Brimblecombe, Chairman of Vanguard Medica Ltd. since 1993 1999
Ph.D., D.Sc., 67(1) 1991. Vice President, Collaborative
Research & Development and Compound
Acquisition (Worldwide), Smith Kline &
French Laboratories from 1988 until 1990.
Also a director of Intercardia, Inc. and
Ontogeny, Inc. and several companies
located in the United Kingdom.

Donald R. Conklin, Executive Vice President of 1994 1999
60(2)(3) Schering-Plough Corp. from 1986 to 1996;
retired from Schering-Plough at the end
of 1996. Also a director of BioTransplant
Inc. and Cytotherapeutics, Inc.

Joshua S. Boger, Ph.D., A founder of the Company and its 1989 1998
45 President and Chief Scientific Officer
from its inception in 1989 until May
1992, when he became President and Chief
Executive Officer. From 1987 to 1989,
Senior Director of Basic Chemistry at
Merck Sharp & Dohme Research
Laboratories. Also a director of
Millennium Pharmaceuticals, Inc.
</TABLE>

3
<PAGE> 7

<TABLE>
<CAPTION>
EXPIRATION
FIRST OF PRESENT
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE ELECTED OR PROPOSED
NAME AND AGE AND OTHER BUSINESS AFFILIATIONS DIRECTOR TERM OF OFFICE
- - ------------------------ ----------------------------------------- -------- --------------
<S> <C> <C> <C>
Charles A. Sanders, Retired in 1995 as Chairman and Chief 1996 1998
M.D., 65 Executive Officer of Glaxo Inc. From 1989
to 1995 a member of the Board of Glaxo
plc. From 1981 to 1989, held a number of
positions at the Squibb Corporation,
including that of Vice Chairman. Has
served on the Boards of Merrill Lynch and
Co., Reynolds Metals Co. and Morton
International Inc.; currently a director
of Staffmark, Inc. and Magainin
Pharmaceuticals.
</TABLE>

- - ---------------

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

(3) Member of the Nominating Committee.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During the year ended December 31, 1996, the Board held four meetings. Each
of the incumbent directors attended all of the Board meetings and meetings of
committees of the Board of which he was a member, except for Benno C. Schmidt,
who attended one of the Board meetings.

The Compensation Committee's functions are to recommend to the full Board
the amount, character, and method of payment of compensation of all executive
officers and certain other key employees and consultants of the Company and to
administer the Company's stock and option plans and Employee Stock Purchase
Plan. Barry M. Bloom and Roger W. Brimblecombe are the members of the
Compensation Committee, which held two meetings during 1996.

The Audit Committee, which consists of Donald R. Conklin and William W.
Helman IV, met twice during 1996, to discuss the adequacy of internal accounting
controls and procedures, and to perform general oversight with respect to the
accounting principles applied in the financial reporting of the Company. It also
reviewed with the Company's independent accountants the scope of the annual
audit.

The members of the Nominating Committee, Barry M. Bloom and Donald R.
Conklin met informally from time to time during the year to discuss and meet
with candidates for membership on the Board.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS. A PLURALITY OF THE VOTES
CAST IN PERSON OR BY PROXY AT THE MEETING IS REQUIRED TO ELECT EACH NOMINEE AS
DIRECTOR.

4
<PAGE> 8

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership
of the Company's Common Stock as of March 14, 1997, by (i) each person known to
the Company to be the beneficial owner of more than 5% of the Company's Common
Stock on that date, (ii) each director, (iii) each executive officer listed in
the Summary Compensation Table below, and (iv) all directors and current
executive officers as a group.

<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF TOTAL
---------------- --------------------- ----------
<S> <C> <C>
Trimark Investment Management Inc. ........................ 1,974,500(2) 8.00%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5
Canada
Biotech Target S.A. ....................................... 1,550,000 6.28%
c/o BB Biotech AG, Vordergasse 3
8200 Schaffhousen
Switzerland
Barry M. Bloom............................................. 15,625(3) *
Joshua S. Boger............................................ 718,059(4) 2.88%
Roger W. Brimblecombe...................................... 11,500(3) *
Donald R. Conklin.......................................... 16,625(5) *
William W. Helman IV....................................... 30,642(6) *
Charles A. Sanders......................................... 1,625(7) *
Benno C. Schmidt........................................... 298,266(8) 1.21%
Richard H. Aldrich......................................... 169,115(9) *
Thomas G. Auchincloss, Jr. ................................ 19,696(10) *
Iain P.M. Buchanan......................................... 35,826(11) *
Vicki L. Sato.............................................. 185,362(12) *
All directors and executive officers as a group (11 1,502,341(13) 5.94%
persons).................................................
</TABLE>

- - ---------------

* Less than 1%

(1) Beneficial ownership of shares for purposes hereof, as determined in
accordance with applicable Securities and Exchange Commission rules,
includes shares of Common Stock as to which a person has or shares voting
power and/or investment power.

(2) Information based solely upon Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1996, which Schedule states that
Trimark Financial Corporation owns 100% of the voting securities of Trimark
Investment Management Inc. and, consequently, may be deemed to have
beneficial ownership of such shares.

(3) Represents shares which may be acquired upon the exercise of options
exercisable on or within 60 days after March 14, 1997.

(4) Includes 100,000 shares held in trust for the benefit of Dr. Boger's
children. Dr. Boger disclaims beneficial ownership of such shares. Also
includes 220,750 shares which Dr. Boger may acquire upon the exercise of
options exercisable on or within 60 days after March 14, 1997, and 2,659
shares held in the Company's 401(k) Plan.

(5) Includes 12,375 shares which may be acquired by Mr. Conklin upon the
exercise of options exercisable within 60 days after March 14, 1997.

5
<PAGE> 9

(6) Includes 17,500 shares which may be acquired by Mr. Helman upon the
exercise of options exercisable within 60 days after March 14, 1997.

(7) Includes 625 shares which may be acquired by Dr. Sanders upon the exercise
of options exercisable within 60 days after March 14, 1997.

(8) Includes 17,500 shares which may be acquired by Mr. Schmidt upon the
exercise of options exercisable within 60 days after March 14, 1997, and
50,600 shares held by Mr. Schmidt's wife.

(9) Includes 92,000 shares which may be acquired by Mr. Aldrich upon the
exercise of options exercisable on or within 60 days after March 14, 1997,
and 1,915 shares held in the Company's 401(k) Plan.

(10) Represents 19,250 shares which may be acquired by Mr. Auchincloss upon the
exercise of options exercisable on or within 60 days after March 14, 1997,
and 301 shares held in the Company's 401(k) Plan.

(11) Includes 35,250 shares which may be acquired by Mr. Buchanan upon the
exercise of options exercisable on or within 60 days after March 14, 1997.

(12) Includes 180,250 shares which may be acquired by Dr. Sato upon the exercise
of options exercisable on or within 60 days after March 14, 1997, and 1,492
shares held in the Company's 401(k) Plan.

(13) Includes an aggregate of 622,625 shares which may be acquired upon the
exercise of options exercisable on or within 60 days after March 14, 1997.

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 ten percent of the Company's Common Stock
to file with the Securities and Exchange Commission (the "Commission") reports
of their ownership of the Company's securities and of changes in that ownership.
To the Company's knowledge, based upon a review of copies of reports filed with
the Commission with respect to the fiscal year ended December 31, 1996, all
reports required to be filed under Section 16(a) by the Company's directors and
officers and persons who were beneficial owners of more than ten percent of the
Company's Common Stock were timely filed.

6
<PAGE> 10

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table provides certain summary information concerning
compensation earned during the fiscal years ended December 31, 1996, 1995, and
1994 by the Company's Chief Executive Officer, and each other executive officer
of the Company whose salary and bonus for the fiscal year ended December 31,
1996 exceeded $100,000 (the Chief Executive Officer together with such other
wpersons being hereinafter referred to as the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS
--------------------- (# OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SHARES) COMPENSATION
- - --------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Joshua S. Boger, 1996 $316,524 $125,000 100,000 $ 8,693(1)
President and 1995 $300,014 $ 90,004 100,000 $ 8,795
Chief Executive Officer 1994 $285,532 $ 85,000 85,000 $ 8,333
Vicki L. Sato, 1996 $252,278 $ 88,297 75,000 $ 7,074(2)
Senior Vice President of 1995 $239,122 $ 71,737 80,000 $ 6,924
Research and Development and 1994 $213,388 $ 65,000 65,000 $ 6,910
Chief Scientific Officer
Richard H. Aldrich, 1996 $210,028 $ 84,011 75,000 $ 7,109(2)
Senior Vice President and 1995 $186,186 $ 55,856 80,000 $ 6,904
Chief Business Officer 1994 $177,320 $ 50,000 65,000 $ 4,463
Iain P. M. Buchanan, 1996 $170,951 -0- 15,000 -0-
Vice President of European 1995 $163,578 $ 7,968 15,000 -0-
Operations 1994(3) $116,458 $ 3,201 55,000 $10,352
Thomas G. Auchincloss, Jr., 1996 $116,376 $ 11,638 15,000 $ 5,720(2)
Vice President of Finance and 1995 $110,292 $ 5,515 12,500 $22,256
Treasurer 1994(3) $ 23,271 $ 11,001 37,500 -0-
</TABLE>

- - ---------------

(1) Includes $7,109 representing the value of the Company's matching
contributions under the Company's 401(k) Savings Plan and $1,584
representing certain insurance premiums paid by the Company on Dr. Boger's
behalf during 1996.

(2) Represents the value of the Company's matching contributions under the
Company's 401(k) Savings Plan.

(3) Messrs. Buchanan and Auchincloss first joined the Company during 1994.

7
<PAGE> 11

OPTION GRANTS IN THE LAST FISCAL YEAR

The following table provides certain information with respect to options
under the Company's 1994 Stock and Option Plan granted to each of the Named
Executive Officers during the fiscal year ended December 31, 1996.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
---- - ---------- ------------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joshua S. Boger............... 100,000 9.47% $31.125 12/11/06 $1,957,435 $4,960,523

Vicki L. Sato................. 75,000 7.10% $31.125 12/11/06 $1,468,075 $3,720,393

Richard H. Aldrich............ 75,000 7.10% $31.125 12/11/06 $1,468,075 $3,720,393

Iain P. M. Buchanan........... 15,000 1.42% $31.125 12/11/06 $ 293,615 $ 744,079

Thomas G. Auchincloss, Jr. ... 15,000 1.42% $31.125 12/11/06 $ 293,615 $ 744,079

</TABLE>
- - ---------------

(1) Options vest in twenty equal quarterly installments from the date of grant.

(2) As required by rules of the Securities and Exchange Commission, potential
values stated are on the prescribed assumption that the Company's Common
Stock will appreciate in value from the date of grant to the end of the
option term at annualized rates of 5% and 10%. These hypothesized values are
not intended to forecast possible future appreciation, if any, in the
Company's Common Stock.

FISCAL YEAR-END OPTION VALUES

The following table provides certain information with respect to the
options to purchase Common Stock held by the Named Executive Officers at
December 31, 1996. No options were exercised by such persons during 1996.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joshua S. Boger............................. 199,291 291,000 $5,151,500 $5,596,000

Vicki L. Sato............................... 166,000 204,000 $4,625,250 $3,834,125

Richard H. Aldrich.......................... 120,000 202,000 $3,146,000 $3,784,625

Iain P. M. Buchanan......................... 29,000 56,000 $ 775,500 $1,195,125

Thomas G. Auchincloss, Jr................... 17,500 47,500 $ 460,250 $ 965,375
</TABLE>

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

The Company has employment agreements with Dr. Boger, Dr. Sato, Mr. Aldrich
and Mr. Buchanan pursuant to which they are entitled to receive compensation as
determined by the Compensation Committee of the Board of Directors and will be
eligible to receive the benefits generally made available to executives of the
Company. The agreements with Dr. Boger, Dr. Sato and Mr. Aldrich require 18
months' notice in the event of termination by the Company without cause, and may
be terminated upon six months notice by the executive. Mr. Buchanan's agreement
requires six months' notice for termination by either the Company or Mr.
Buchanan. In the event of certain terminations after a change in control of the
Company, the agreements also provide for a lump sum payment of three years'
salary and bonus, payable within ten days after the date of

8
<PAGE> 12

termination, acceleration of all outstanding stock options, and continuation of
certain employee benefits for a period of three years after the date of
termination. The agreements also contain noncompetition provisions.

All outstanding options granted under the Company's 1991 Stock Option Plan
and 1994 Stock and Option Plan provide that, in the event of certain changes in
control of the Company, either appropriate provision for the continuation of all
then outstanding options must be made, or the vesting of such options will be
accelerated and they will become fully exercisable immediately prior to such
change in control.

COMPENSATION OF DIRECTORS

During 1996, the Company paid a retainer of $8,000 per year, plus $2,000
for each Board meeting attended and $250 for each Committee meeting attended
(and an additional $250 if the Committee meeting is not held on the same day as
a meeting of the full Board), to non-employee directors. In addition, under the
1994 Stock and Option Plan, each non-employee director, upon initial election or
appointment to the Board, receives a non-qualified option to purchase 10,000
shares of Common Stock at an exercise price equal to 85% of the then fair market
value thereof. Such options vest quarterly over a four-year period from the date
of grant, based on continued service on the Board. Each non-employee director in
office on June 1 of any year also receives a non-qualified option to purchase
2,500 shares of Common Stock under the 1994 Stock and Option Plan, exercisable
immediately at a price equal to 100% of the fair market value per share of the
Company's Common Stock on the date of grant.

REPORT ON EXECUTIVE COMPENSATION

OVERVIEW

The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"). With the
oversight of the Committee, the Company has developed and implemented
compensation policies with the objectives of attracting and retaining top
quality management and encouraging them to contribute to the Company's growth,
while also adhering to a policy of keeping the Company's personnel costs
reasonable in relation to those of comparable companies and in relation to the
Company's other expenditures for its drug discovery and development programs.
For 1996, compensation paid to each of the Named Executive Officers consisted of
base salary, a cash bonus and long-term compensation in the form of stock
options.

The Committee's recommendations as to compensation for all employees of the
Company, including the Named Executive Officers, are subject to approval by the
full Board of Directors of the Company. Vertex's Chief Executive Officer, Dr.
Joshua S. Boger, does not participate in discussions of his compensation between
the Compensation Committee and the full Board, nor does he participate in the
full Board's vote on the Committee's recommendations as to his compensation.

BASE SALARIES

Base salaries for 1996 were determined by the Committee in late 1995.
Salary increases over 1995 salary levels were based on the Committee's
subjective evaluation of the individual Named Executive Officers' performance in
1995 and its estimation of the salaries being offered to senior executives at
companies with which Vertex competes in hiring and retaining qualified
executives and key scientists. The Committee did not perform a comprehensive
survey of salaries at peer companies in 1995, but the Committee believed that
the 1996 salaries approved for Dr. Boger, Mr. Aldrich and Dr. Sato were slightly
lower than the average salary that year for executives of competing companies.
The Committee decided to set the 1996 salaries for these three officers at a
rate lower than the rate it believed to be the industry average, even though the
Committee

9
<PAGE> 13

believed that the Company's over-all performance in 1995 was at least as good as
the performance of such competing companies, to allow for the possibility of
significant additional cash bonuses based on 1996 individual and Company
performance. Salaries for the other two Named Executive Officers, Mr.
Auchincloss and Mr. Buchanan, were set at amounts which the Committee believed
were generally in the middle of the range of estimated 1996 salaries of
executives serving comparable functions in other competing companies. In its
determination of compensation levels, the Committee did not consider the Nasdaq
Pharmaceuticals Stocks Index, included in the Performance Graph below. That
index tracks the stock performance of approximately two hundred companies with
stock quoted on Nasdaq, which are selected according to the broad Standard
Industrial Classification category "Drugs," and which include many categories of
companies with which Vertex does not generally compete for services of
executives.

CASH BONUSES

At the end of 1996, cash bonuses were awarded to four of the Named
Executive Officers, as well as to other Company employees who were deemed to
have made substantial contributions to the attainment of those accomplishments
judged to be most important to the Company in 1996. The amounts of the cash
bonuses awarded to Dr. Boger, Mr. Aldrich and Dr. Sato were approximately 35% to
40% of their respective 1996 base salaries, reflecting the Committee's
determination that a larger proportion of the compensation to those three senior
executives should be performance-based, as discussed above. The amounts of these
bonuses reflected the Committee's determination that the Company made
substantial progress during 1996 -- for example, completion of a patent
licensing arrangement relating to the Company's HIV program, successful
completion of a public stock offering, progress in clinical trials of the
Company's products, scientific advances in its research programs, and successful
completion of the build-out of additional laboratory and office space. It was
the Committee's judgment that each of such officers made significant
contributions within his or her area of responsibility to the Company's
performance during the year.

STOCK OPTIONS

Stock options under the Company's stock and option plans have been granted
to employees, including executive officers, to create a link between
compensation and stockholder return, and to enable executive officers and other
employees to develop and maintain a significant stock ownership position in the
Company which will vest over time and act as an incentive for the employee to
remain with the Company.

At the end of 1996, each of the Named Executive Officers was granted
ten-year options under the 1994 Stock and Option Plan to purchase a significant
number of shares of Common Stock, ranging from 15,000 to 100,000 shares, at
$31.125 per share, the average of the high and low market prices on the date of
grant, vesting in quarterly installments over a five-year period. The amounts of
the awards were based on an evaluation of individual contributions to the
Company's success in 1996 and the importance to the Company's future growth of
retaining each executive. In determining the size of the option grants the
Committee also considered the total percentage of outstanding shares
beneficially owned by the Company's Named Executive Officers, as compared to the
executive ownership reported by other companies. Although the Committee did not
perform any comprehensive survey of peer group companies, the Committee believed
that, compared to the total number of shares outstanding, the total number of
options granted to its employees, including the Named Executive Officers, as a
group, was in the middle of the range of the option grants awarded by other
companies with which the Company competes to attract and retain employees. The
Committee believed that it was important to maintain the size of the executives'
unvested option position in the Company, relative to the Company's total equity,
in order to preserve incentives for the Named Executive Officers to remain with
the Company and continue to devote their best efforts to its progress.

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<PAGE> 14

CHIEF EXECUTIVE OFFICER COMPENSATION

Dr. Boger's 1996 base salary of $316,524 represented an increase of
approximately 5.5% over his 1995 salary. The Committee did not perform a
comprehensive review of the compensation paid to chief executive officers in
other companies in 1995. However, the Committee believed that Dr. Boger's 1996
salary increase was slightly less than the average 1996 salary increase granted
to chief executive officers of the companies with which Vertex competes to
attract and retain senior executives, resulting in a 1996 salary which the
Committee believed to be near the middle of the range of base salaries paid to
chief executive officers of comparable companies. The Committee set the 1996
base salary at this level in order to provide opportunities for significant
incentive cash bonuses based on individual and Company performance.

The Committee's, and the full Board of Directors', subjective view of Dr.
Boger has consistently been that he is an outstanding scientist who has also
demonstrated exceptional ability to guide the Company and to manage well not
only the Company's scientific programs but its strategic business efforts as
well. This subjective view has been supported objectively in Dr. Boger's success
during 1996 in advancing the Company's scientific research and clinical
development, completion of the patent license, and completing the build-out of
additional facilities, as described above. The amounts of Dr. Boger's 1996 cash
bonus (approximately 40% of his 1996 salary) and stock option award, for the
purchase of 100,000 shares of Common Stock, were determined in accordance with
the foregoing factors, among others, none of which was weighted more heavily
than any other. In setting the size of Dr. Boger's option award, the Committee
also considered its judgment that Dr. Boger's scientific and management
leadership is very important to the Company, and that it was therefore
advisable, as discussed above, for him to maintain a substantial unvested option
position, in order to continue his incentive to remain with the Company.

INTERNAL REVENUE CODE LIMITATION ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION

Section 162(m) of the Internal Revenue Code, enacted in 1993, limits to
$1,000,000 per executive the amount of compensation paid in tax years after 1993
to the Company's Chief Executive Officer or any of the Company's other four most
highly compensated executive officers which may be deducted for corporate tax
purposes. Qualified performance-based compensation is not included in the
$1,000,000 limit. The Company believes that the 1994 Stock and Option Plan will
qualify as a performance-based compensation plan and that, if approved by the
stockholders, 1996 Stock and Option Plan will qualify as a performance-based
compensation plan.

Submitted by the Compensation Committee

Barry M. Bloom
Roger W. Brimblecombe

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<PAGE> 15

PERFORMANCE GRAPH

<TABLE>
<CAPTION>
VERTEX
MEASUREMENT PERIOD PHARMACEUTICALS NASDAQ STOCK NASDAQ PHARM.
(FISCAL YEAR COVERED) INC. MARKET (U.S.) STOCKS
<S> <C> <C> <C>
DEC-91 100 100 100
DEC-92 66 116 134
DEC-93 125 134 74
DEC-94 102 131 56
DEC-95 180 185 102
DEC-96 273 227 102
</TABLE>

PROPOSAL 2:
APPROVAL OF AN AMENDMENT TO
THE RESTATED ARTICLES OF ORGANIZATION TO
INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK

The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding. If the amendment is adopted, it will
become effective upon filing of Articles of Amendment of the Company's Restated
Articles of Organization with the Secretary of State of the Commonwealth of
Massachusetts.

12
<PAGE> 16

At March 14, 1997, there were 24,680,649 shares of the Company's Common
Stock outstanding. In addition, at the same date, 6,019,813 shares of Common
Stock were reserved for issuance under the Company's stock, option and 401(k)
plans.

Although at present the Board of Directors has no other plans to issue
additional shares of Common Stock, it believes it is desirable to have such
shares available to provide additional flexibility to use its capital stock for
business and financial purposes in the future. As of March 14, 1997, the Company
has raised approximately $378.4 million through the sale of approximately 24.7
million shares of Common Stock in public and private offerings, including the
exercise of stock options and warrants. The additional shares may be used,
without further stockholder approval, for various purposes including, without
limitation, stock splits and stock dividends, raising capital, providing equity
incentives to employees, directors or consultants, establishing strategic
relationships with other companies and expanding the Company's business or
research and development programs through the acquisition of other businesses
and products.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
OF THE RESTATED ARTICLES OF ORGANIZATION AS DESCRIBED ABOVE. THE AFFIRMATIVE
VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK OUTSTANDING IS REQUIRED FOR
SUCH APPROVAL.

PROPOSAL 3:
APPROVAL OF AN AMENDMENT TO
THE RESTATED ARTICLES OF ORGANIZATION TO
INCREASE THE NUMBER OF
AUTHORIZED SHARES OF PREFERRED STOCK

The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Articles of Organization to increase the
authorized number of shares of Preferred Stock from 1,000,000 to 5,000,000. If
both this amendment and the amendment described in "Proposal 2" above are
approved, the aggregate number of shares of capital stock (including both Common
and Preferred) authorized would increase from 51,000,000 to 105,000,000.

If the amendment is adopted, it will become effective upon filing of
Articles of Amendment of the Company's Restated Articles of Organization with
the Secretary of State of the Commonwealth of Massachusetts.

At March 14, 1997, there were no shares of the Company's Preferred Stock
outstanding. At the same date, 250,000 shares had been designated as Series A
Junior Participating Preferred Stock and were reserved for issuance under the
Company's stockholder rights plan.

Shares of any class of series of Preferred Stock may be issued by the
Company in the future without further stockholder approval and upon such terms
as the Board of Directors may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any class or series of Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of discouraging a third party from acquiring a majority of the
outstanding Common Stock of the Company.

Although at present the Board of Directors has no plans to issue shares of
Preferred Stock, it desires to have such shares available to provide additional
flexibility to use its capital stock for business and financial purposes in the
future. The additional shares may be used, without further stockholder approval,
for various

13
<PAGE> 17

purposes including, without limitation, establishing strategic relationships
with other companies, expanding the Company's business or research and
development programs through the acquisition of other businesses and products,
and/or raising capital.

BOARD RECOMMENDATION

PROPOSAL 4:
APPROVAL OF 1996 STOCK AND OPTION PLAN

GENERAL

In December 1996, the Board of Directors adopted the Company's 1996 Stock
and Option Plan (the "Plan"). Under the Plan, stock rights may be granted which
are either (i) options intended to qualify as "incentive stock options" ("ISOs")
under Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), (ii) non-qualified stock options ("NQSOs"), or (iii)
awards of shares of Common Stock or the opportunity to make a direct purchase of
shares of Common Stock ("Stock Awards") (ISOs, NQSOs and Stock Awards, together,
being hereinafter referred to as "Stock Rights"). Stock Rights may be granted
under the Plan to employees (including officers and directors who are employees)
of the Company and its subsidiaries (196 persons, as of March 1, 1997), and to
consultants, advisors and non-employee directors of the Company and its
subsidiaries (NQSOs and Stock Awards only).

The number of shares of Common Stock subject to the Plan is 2,000,000 plus
the number of shares of Common Stock previously reserved for the granting of
options under the Company's 1991 Stock Option Plan and 1994 Stock and Option
Plan which are not granted under those plans or which are not exercised and
cease to be outstanding by reason of cancellation or otherwise. As of March 1,
1997, 277,102 shares of Common Stock remained available for the granting of
options under the 1991 Stock Option Plan and 1,492,475 shares of Common Stock
were reserved for issuance under outstanding, unexercised options under that
plan, and 179,726 shares of Common Stock remained available for the granting of
options under the 1994 Stock and Option Plan and 1,766,113 shares of Common
Stock were reserved for issuance under outstanding, unexercised options under
that plan. The number of shares subject to the Plan is subject to adjustment in
the case of a stock split, stock dividend, combination, recapitalization or
similar transaction. The full text of the Plan is set forth in Exhibit A.

As of March 1, 1997, ISOs to purchase 453,444 shares of Common Stock were
outstanding under the Plan, with an exercise price of $31.125. NQSOs to purchase
151,006 shares of Common Stock were outstanding under the Plan on that date,
with an exercise price of $31.125. Such options have expiration dates of
December 12, 2006. On March 14, 1997, the last sales price for the Company's
Common Stock reported on the Nasdaq National Market System was $47.50.

DESCRIPTION OF PLAN

The Compensation Committee of the Board administers the Plan. Subject to
the provisions of the Plan, the Committee has the authority to determine the
persons to whom Stock Rights will be granted, the number of shares to be covered
by each Stock Right, the exercise price per share and the manner of exercise,
and the terms and conditions upon which Stock Rights are granted, to accelerate
the date of exercise of any installment of any Stock Right, and to interpret the
provisions of the Plan.

14
<PAGE> 18

ISOs granted under the Plan may not be granted at a price less than the
fair market value of the Common Stock on the date of grant (or less than 110% of
fair market value in the case of employees or officers holding 10% or more of
the voting stock of the Company). NQSOs may be granted at an exercise price
established by the Committee, which may not be less than the par value of the
Common Stock. ISOs granted under the Plan must expire not more than ten years
from the date of grant, and not more than five years from the date of grant in
the case of ISOs granted to an employee or officer holding 10% or more of the
voting stock of the Company. No participant may be granted options in any
calendar year for the purchase of more than 200,000 shares. Stock Awards may be
granted on such terms and conditions as are approved by the Committee, provided
that the purchase price per share cannot be less than the par value per share of
the Common Stock.

ISOs granted under the Plan are exercisable during the optionholder's
lifetime only by the optionholder and are not transferable except by the laws of
descent and distribution or pursuant to qualified domestic relations orders or
Title I of the Employee Retirement Income Security Act.

If the Plan is approved by the stockholders, each newly elected
non-employee director will automatically be granted a non-qualified stock option
on the date of initial election to the Board to purchase 20,000 shares of Common
Stock, at a purchase price equal to 85% of the fair market value per share of
the Company's Common Stock on the date of grant, vesting in equal quarterly
installments over a period of four years from the date of grant. In addition,
each non-employee director serving in office on June 1 of any year will be
granted a NQSO to purchase 5,000 shares, at an exercise price equal to 100% of
the fair market value per share of the Company's Common Stock on the date of
grant. The options will be fully exercisable immediately and have a term of ten
years. If the Plan is approved by the Stockholders, the Board of Directors will
amend the 1994 Stock and Option Plan to delete the automatic non-employee
directors' stock option grant program from that plan.

In the event of certain consolidations or acquisitions or a sale of
substantially all of the Company's assets, either (i) the Committee or the
entity assuming the Company's obligations under the Plan shall make appropriate
provision for the continuation of all outstanding options under the Plan by
substituting on an equitable basis for the shares then subject to such options
either the consideration payable with respect to the outstanding shares of
Common Stock in connection with such consolidation, acquisition or sale or
securities of any successor or acquiring company, or (ii) the vesting of all
outstanding options under the Plan will be accelerated and such options will
become fully exercisable immediately prior to such consolidation, acquisition or
sale.

The Plan may be amended by the stockholders or by the Board of Directors or
the Committee. Any amendment approved by the Board of Directors or the Committee
which is of a scope that requires stockholder approval in order to ensure
favorable federal income tax treatment for any ISOs or requires stockholder
approval in order to ensure the compliance of the Plan with Rule 16b-3 under the
Exchange Act or Section 162(m) of the Code will be subject to stockholder
approval. No amendment may adversely affect the rights of any participant to
whom Stock Rights have previously been granted without that participant's
consent.

15
<PAGE> 19

FEDERAL INCOME TAX CONSEQUENCES

The discussion of federal income tax consequences that follows is based on
an analysis of the Internal Revenue Code as currently in effect, existing law,
judicial decisions and administrative regulations and rulings, all of which are
subject to change.

Incentive Stock Options. No taxable income is realized by the optionholder
upon the grant or exercise of an ISO under the Plan. If no disposition of shares
issued to an optionholder pursuant to the exercise of an ISO is made by the
optionholder within two years from the date of grant or within one year after
the transfer of such shares to the optionholder, then (a) upon sale of such
shares, any amount realized in excess of the option price (the amount paid for
the shares) will be taxed to the optionholder as a long-term capital gain and
any loss sustained will be a long-term capital loss and (b) no deduction will be
allowed to the Company for Federal income tax purposes. The exercise of ISOs
will give rise to an item of tax preference that may result in alternative
minimum tax liability for the optionholder.

If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), generally (a) the optionholder
will realize ordinary income in the year of disposition in an amount equal to
the excess (if any) of the fair market value of the shares at exercise (or, if
less, the amount realized on a sale of such shares) over the option price
thereof, and (b) the Company will be entitled to deduct such amount, subject to
applicable withholding requirements and subject to certain limits on the
deductibility of compensation set forth in Section 162(m) of the Internal
Revenue Code. Any further gain realized will be taxed as short-term or long-term
capital gain and will not result in any deduction by the Company. Special rules
apply where all or a portion of the exercise price of the ISO is paid by
tendering shares of Common Stock. A disqualifying disposition will eliminate the
item of tax preference associated with the exercise of the ISO.

In order for options granted under the Plan to qualify as ISOs, the Plan
must be approved by the stockholders within twelve months after its adoption by
the Board of Directors. If the Plan is not approved on or before December 12,
1998, all options granted or to be granted under the Plan will be NQSOs.

Non-Qualified Stock Options. No taxable income is realized by the
optionholder at the time the NQSO is granted. Generally, (a) at exercise,
ordinary income is realized by the optionholder in an amount equal to the
difference between the option price and the fair market value of the shares on
the date of exercise, and the Company receives a tax deduction for the same
amount, subject to applicable withholding requirements and subject to certain
limits on the deductibility of compensation set forth in Section 162(m) of the
Internal Revenue Code, and (b) at disposition, appreciation or depreciation
after the date of exercise is treated as either short-term or long-term capital
gain or loss depending on how long the shares have been held.

Stock Awards. The grant of restricted stock should not result in income
for the participant or in a deduction for the Company for federal income tax
purposes if the shares are subject to certain restrictions and conditions of
forfeitability. A participant will generally realize taxable compensation income
when the restrictions lapse. The amount of such income will be the value of the
Common Stock on that date (less any amount paid by the participant). Dividends
paid on the Common Stock and received by the participant, prior to the lapse of
restrictions, will also be taxable compensation income to the participant. If
there are no such restrictions, the participant will recognize compensation
income equal to the fair market value upon receipt, less the amount of the
purchase price paid by the participant. In all cases, the Company will be
entitled to a tax deduction to the extent that, and at the time that, the
participant realizes compensation income. Income tax withholding will be
required.

Limitations on Company Deductions. As a result of Section 162(m) of the
Code, the Company's deduction for NQSOs and Stock Awards granted under the Plan
may be limited to the extent that a "covered

16
<PAGE> 20

employee" (i.e., the chief executive officer or one of the four highest
compensated officers who is employed on the last day of the Company's taxable
year and whose compensation is reported in the summary compensation table in the
Company's proxy statement) receives compensation in excess of $1,000,000 in such
taxable year of the Company. Excluded from this limitation of deductibility is
performance-based compensation that meets specified requirements of Section
162(m) of the Code.

NEW PLAN BENEFITS

As of March 14, 1997, no options had been granted under the Plan to any
executive officers or directors of the Company. If the Plan is approved by the
stockholders, options for 5,000 shares each will be granted under the Plan
during 1997 to all non-employee directors who continue to serve as directors on
June 1, 1997 (currently 5 persons). The number of additional shares or options,
if any, that will be granted to such persons is indeterminable at this time,
since any such grants are subject to the discretion of the Committee.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1996 STOCK
AND OPTION PLAN AS DESCRIBED ABOVE. A MAJORITY OF THE VOTES CAST IN PERSON OR BY
PROXY AT THE MEETING IS REQUIRED FOR SUCH APPROVAL.

PROPOSAL 5:
APPROVAL OF INDEPENDENT ACCOUNTANTS

The Board of Directors has appointed Coopers & Lybrand L.L.P. as the
Company's independent accountants for the 1997 fiscal year. Coopers & Lybrand
L.L.P. has served as the Company's independent accountants since 1989.
Representatives of Coopers & Lybrand L.L.P. will be present at the Meeting to
respond to questions and will be given the opportunity to make a statement
should they desire to do so.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR. A MAJORITY OF THE VOTES CAST IN PERSON
OR BY PROXY AT THE MEETING IS REQUIRED FOR SUCH APPROVAL. IF THE APPOINTMENT IS
NOT APPROVED, THE BOARD WILL SELECT OTHER INDEPENDENT ACCOUNTANTS.

STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING

In order to be considered for inclusion in the Proxy Statement for the
Company's 1998 Annual Meeting of Stockholders, stockholder proposals must be
received by the Company no later than December 10, 1997. Proposals should be
sent to the attention of the Clerk at the Company's offices at 130 Waverly
Street, Cambridge, MA 02139-4242.

Stockholder nominations for election to the Board at the 1998 Annual
Meeting of Stockholders may be submitted to the Clerk of the Company and must
include (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 Company 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

17
<PAGE> 21

as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Commission; and (v) the consent of each nominee to serve as a
director of the Company if so elected.

OTHER MATTERS

The Meeting is called for the purposes set forth in the notice. The Board
of Directors does not know of any matter for action by the stockholders at the
Meeting other than the matters described in the notice. However, the enclosed
proxy confers discretionary authority on the persons named therein with respect
to matters which are not known to the directors at the date of printing hereof
and which may properly come before the Meeting. It is the intention of the
persons named in the proxy to vote in accordance with their best judgment on any
such matter.

By order of the Board of Directors

Richard H. Aldrich
Clerk

April 7, 1997

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<PAGE> 22

EXHIBIT A

VERTEX PHARMACEUTICALS INCORPORATED

1996 STOCK AND OPTION PLAN
(AS AMENDED ON FEBRUARY 18, 1997 AND RESTATED)

1. DEFINITIONS

Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Vertex Pharmaceuticals Incorporated 1996 Stock
and Option Plan, have the following meanings:

Affiliate means a corporation which, for purposes of Section 424 of the
Code, is a parent or subsidiary of the Company, direct or indirect.

Board of Directors means the Board of Directors of the Company.

Code means the United States Internal Revenue Code of 1986, as amended.

Committee means the Compensation Committee of the Board of Directors or any
successor thereto appointed by the Board of Directors pursuant to Section 4
hereof to administer this Plan.

Common Stock means shares of the Company's common stock, $.01 par value.

Company means Vertex Pharmaceuticals Incorporated, a Massachusetts
corporation.

Disability or Disabled means permanent and total disability as defined in
Section 22(e)(3) of the Code.

Exchange Act means the Securities Exchange Act of 1934, as amended.

Fair Market Value of a Share of Common Stock on a particular date shall be
the mean between the highest and lowest quoted selling prices on such date (the
"valuation date") on the securities market where the Common Stock of the Company
is traded, or if there were no sales on the valuation date, on the next
preceding date within a reasonable period (as determined in the sole discretion
of the Committee) on which there were sales. In the event that there were no
sales in such a market within a reasonable period, the fair market value shall
be as determined in good faith by the Committee in its sole discretion.

ISO means an option intended to qualify as an incentive stock option under
Code Section 422.

Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an officer or
director of the Company or of an Affiliate), designated by the Committee to be
eligible to be granted one or more Stock Rights under the Plan.

NQSO means an option which is not intended to qualify as an ISO.

Non-Employee Director means a member of the Board of Directors who is not
an employee of the Company or any Affiliate.

Option means an ISO or NQSO granted under the Plan.

Participant means a Key Employee, Non-Employee Director, consultant or
advisor of the Company to whom one or more Stock Rights are granted under the
Plan. As used herein, "Participant" shall include "Participant's Survivors" and
a Participant's permitted transferees where the context requires.

Participant's Survivors means a deceased Participant's legal
representatives and/or any person or persons who acquires the Participant's
rights to a Stock Right by will or by the laws of descent or distribution.

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<PAGE> 23

Plan means this Vertex Pharmaceuticals Incorporated 1996 Stock and Option
Plan, as amended from time to time.

Shares means shares of the Common Stock as to which Stock Rights have been
or may be granted under the Plan or any shares of capital stock into which the
Shares are changed or for which they are exchanged within the provisions of
Section 3 of the Plan. The Shares issued upon exercise of Stock Rights granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both.

Stock Agreement means an agreement between the Company and a Participant
executed and delivered pursuant to the Plan, in such form as the Committee shall
approve.

Stock Award means an award of Shares or the opportunity to make a direct
purchase of Shares of the Company granted under the Plan.

Stock Right means a right to Shares of the Company granted pursuant to the
Plan as an ISO, an NQSO or a Stock Award.

2. PURPOSES OF THE PLAN

The Plan is intended to encourage ownership of Shares by Key Employees,
Non-Employee Directors and certain consultants and advisors to the Company in
order to attract such persons, to induce them to work for the benefit of the
Company or of an Affiliate and to provide additional incentive for them to
promote the success of the Company or of an Affiliate. The Plan provides for the
granting of Stock Rights to Key Employees, Non-Employee Directors, consultants
and advisors of the Company.

3. SHARES SUBJECT TO THE PLAN

The number of Shares subject to this Plan as to which Stock Rights may be
granted from time to time shall be 2,000,000 plus the number of shares of Common
Stock previously reserved for the granting of options under the Vertex
Pharmaceuticals Incorporated 1991 Stock Option Plan and 1994 Stock and Option
Plan but not granted thereunder, or the equivalent of such number of Shares
after the Committee, in its sole discretion, has interpreted the effect of any
stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Section 17 of this Plan.

If an Option granted hereunder or any option granted under the 1991 Stock
Option Plan or 1994 Stock and Option Plan ceases to be "outstanding", in whole
or in part, or if the Company shall reacquire any Shares issued pursuant to
Stock Awards, the Shares which were subject to such Option and any Shares so
reacquired by the Company shall also be available for the granting of other
Stock Rights under the Plan. Any Stock Right shall be treated as "outstanding"
until such Stock Right is exercised in full, or terminates or expires under the
provisions of the Plan, or by agreement of the parties to the pertinent Stock
Agreement, without having been exercised in full.

4. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee is authorized to:

a. Interpret the provisions of the Plan or of any Option, Stock Award or
Stock Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;

b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, Non-Employee
Directors, consultants and advisors of the Company and its Affiliates
shall be granted Stock Rights;

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c. Determine the number of Shares and exercise price for which a Stock
Right or Stock Rights shall be granted;

d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted; and

e. In its discretion, accelerate the date of exercise of any installment of
any Stock Right; provided that the Committee shall not accelerate the
exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into an NQSO pursuant
to Section 20) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in
Section 6.2.3.

provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Code Section 422 of those Options which are designated as ISOs and
shall be in compliance with any applicable provisions of Rule 16b-3 under the
Exchange Act. Subject to the foregoing, the interpretation and construction by
the Committee of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Committee is other than the Board of Directors.

The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all Participants, and
all other interested persons. No member or agent of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to this Plan or grants hereunder. Each member of the
Committee shall be indemnified and held harmless by the Company against any cost
or expense (including counsel fees) reasonably incurred by him or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with this Plan
unless arising out of such member's own fraud or bad faith. Such indemnification
shall be in addition to any rights of indemnification the members of the
Committee may have as directors or otherwise under the by-laws of the Company,
or any agreement, vote of stockholders or disinterested directors, or otherwise.

5. ELIGIBILITY FOR PARTICIPATION

The Committee shall, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee,
Non-Employee Director, consultant or advisor of the Company or of an Affiliate
at the time a Stock Right is granted. Notwithstanding the foregoing, the
Committee may authorize the grant of a Stock Right to a person not then an
employee, Non-Employee Director, consultant or advisor of the Company or of an
Affiliate; provided, however, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of execution of the Stock Agreement evidencing such Stock
Right. The granting of any Stock Right to any individual shall neither entitle
that individual to, nor disqualify him or her from, participation in other grant
of Stock Rights. Notwithstanding anything to the contrary contained in this
Plan, no Stock Rights shall be granted to any director or officer of the Company
except in accordance with the applicable rules of the Nasdaq Stock Market or
other securities market where the Common Stock is traded.

6. TERMS AND CONDITIONS OF OPTIONS

6.1 General. Each Option shall be set forth in writing in a Stock
Agreement, duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. The Committee may provide that
Options be granted subject to such conditions as the Committee may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any

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amendments thereto, provided, however, that the option price per share of the
Shares covered by each Option shall not be less than the par value per share of
the Common Stock. Each Stock Agreement shall state the number of Shares to which
it pertains, the date or dates on which it first is exercisable and the date
after which it may no longer be exercised. Option rights may accrue or become
exercisable in installments over a period of time, or upon the achievement of
certain conditions or the attainment of stated goals or events. Exercise of any
Option may be conditioned upon the Participant's execution of a Share purchase
agreement in form satisfactory to the Committee providing for certain
protections for the Company and its other shareholders, including requirements
that the Participant's or the Participant's Survivors' right to sell or transfer
the Shares may be restricted, and the Participant or the Participant's Survivors
may be required to execute letters of investment intent and to acknowledge that
the Shares will bear legends noting any applicable restrictions.

6.2 ISOs. ISOs shall be issued only to Key Employees. In addition to the
minimum standards set forth in Section 6.1, ISOs shall be subject to the
following terms and conditions, with such additional restrictions or changes as
the Committee determines are appropriate but not in conflict with Code Section
422 and relevant regulations and rulings of the Internal Revenue Service:

6.2.1 ISO Option Price: The Option price per Share of the Shares
subject to an ISO shall not be less than one hundred percent (100%) of the
Fair Market Value per share of the Common Stock on the date of grant of the
ISO; provided, however that the Option price per share of the Shares
subject to an ISO granted to a Participant who owns, directly or by reason
of the applicable attribution rules in Code Section 424(d), more than ten
percent (10%) of the total combined voting power of all classes of share
capital of the Company or an Affiliate, shall not be less than one hundred
ten percent (110%) of the said Fair Market Value on the date of grant.

6.2.2 Term of ISO: Each ISO shall expire not more than ten (10)
years from the date of grant; provided, however, that an ISO granted to a
Participant who owns, directly or by reason of the applicable attribution
rules in Code Section 424(d), more than ten percent (10%) of the total
combined voting power of all classes of share capital of the Company or an
Affiliate, shall expire not more than five (5) years from the date of
grant.

6.2.3 Limitation on Yearly ISO Exercisability: The aggregate Fair
Market Value (determined at the time each ISO is granted) of the stock with
respect to which ISOs are exercisable for the first time by each
Participant in any calendar year (under this or any other ISO plan of the
Company or an Affiliate) shall not exceed the maximum amount allowable
under Section 422 of the Code.

6.2.4 Limitation on Grant of ISOs: No ISOs shall be granted after
December 8, 2004, the date which is ten (10) years from the earlier of the
date of the adoption of this Plan and the date of the approval of the Plan
by the shareholders of the Company.

6.3 Non-Employee Directors' Options. Each Non-Employee Director, upon
first being elected or appointed to the Board of Directors, shall be granted an
NQSO to purchase 20,000 Shares. Each such Option shall (i) have an exercise
price equal to eighty-five percent (85%) of the Fair Market Value (per share) on
the date of grant of the Option, (ii) have a term of ten (10) years, and (ii)
shall become cumulatively exercisable in sixteen (16) equal quarterly
installments, upon completion of each full quarter of service on the Board of
Directors after the date of grant. In addition, on June 1 of each year, each
Non-Employee Director shall be granted a NQSO to purchase 5,000 shares. Each
such Option shall (i) have an exercise price equal to the Fair Market Value (per
share) on the date of grant of such Option, (ii) have a term of ten (10) years,
and (iii) be exercisable in full immediately on the date of grant. Any director
entitled to receive an Option grant under this Section may elect to decline the
Option. Notwithstanding the provisions of Section 24 concerning amendment of the
Plan, the provisions of this Subsection shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or

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<PAGE> 26

the rules thereunder. Notwithstanding anything to the contrary contained in any
other provisions of this Plan, the Committee shall have no discretion to vary
the terms of Options granted under this Section 6.3 from those set forth herein.
The provisions of Sections 11, 13 and 14 below shall not apply to Options
granted pursuant to this Subsection.

6.4 Limitation on Number of Options Granted. Notwithstanding anything in
this Plan to the contrary, no Participant shall be granted Options in any
calendar year for the purchase of more than 200,000 Shares.

7. TERMS AND CONDITIONS OF STOCK AWARDS

Each Stock Award shall be set forth in a Stock Agreement, duly executed by
the Company and, to the extent required by law or requested by the Company, by
the Participant. The Stock Agreement shall be in the form approved by the
Committee, with such changes and modifications to such form as the Committee, in
its discretion, shall approve with respect to any particular Participant or
Participants. The Stock Agreement shall contain terms and conditions which the
Committee determines to be appropriate and in the best interest of the Company;
provided, however, that the purchase price per share of the Shares covered by
each Stock Award shall not be less than the par value per Share. Each Stock
Agreement shall state the number of Shares to which the Stock Award pertains,
the date prior to which the Stock Award must be exercised by the Participant,
and the terms of any right of the Company to reacquire the Shares subject to the
Stock Award, including the time and events upon which such rights shall accrue
and the purchase price therefor, and any restrictions on the transferability of
such Shares.

8. EXERCISE OF STOCK RIGHTS AND ISSUANCE OF SHARES

A Stock Right (or any part or installment thereof) shall be exercised by
giving written notice to the Company, together with provision for payment of the
full purchase price in accordance with this Section for the Shares as to which
such Stock Right is being exercised, and upon compliance with any other
condition(s) set forth in the Stock Agreement. Such written notice shall be
signed by the person exercising the Stock Right, shall state the number of
Shares with respect to which the Stock Right is being exercised and shall
contain any representation required by the Plan or the Stock Agreement.

Payment of the purchase price for the Shares as to which such Stock Right
is being exercised shall be made (a) in United States dollars in cash or by
check, or (b) at the discretion of the Committee, through delivery of shares of
Common Stock already owned by the Participant not subject to any restriction
under any plan and having a fair market value equal as of the date of exercise
to the cash exercise price of the Stock Right, determined in good faith by the
Committee, or (c) at the discretion of the Committee, by any other means,
including a promissory note of the Participant, which the Committee determines
to be consistent with the purpose of this Plan and applicable law, or (d) at the
discretion of the Committee, in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Committee, or
(e) at the discretion of the Committee, by any combination of (a), (b), (c) and
(d) above. Notwithstanding the foregoing, the Committee shall accept only such
payment on exercise of an ISO as is permitted by Section 422 of the Code.

The Company shall then reasonably promptly deliver the Shares as to which
such Stock Right was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be fully paid, non-assessable
Shares.

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9. RIGHTS AS A SHAREHOLDER

No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise thereof and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.

10. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS

ISOs and, except as otherwise provided in the pertinent Stock Agreement,
NQSOs and Stock Awards shall not be transferable by the Participant other than
by will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder, provided, however, that
the designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Section. Except as provided in the
preceding sentence or as otherwise permitted under an NQSO or Stock Award Stock
Agreement, a Stock Right shall be exercisable, during the Participant's
lifetime, only by such Participant (or by his or her legal representative) and
shall not be assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) and shall not be subject to execution, attachment or
similar process. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of any Stock Right or of any rights granted thereunder
contrary to the provisions of this Plan, or the levy of any attachment or
similar process upon a Stock Right, shall be null and void.

11. EFFECT OF TERMINATION OF SERVICE

11.1 Except as otherwise provided in the pertinent Stock Agreement or as
otherwise provided in Sections 12, 13 or 14, if a Participant ceases to be an
employee, director, consultant or advisor with the Company and its Affiliates (a
"Termination of Service") (for any reason other than termination "for cause",
Disability, or death) before the Participant has exercised all Stock Rights, the
Participant may exercise any Stock Right granted to him or her to the extent
that the Stock Right is exercisable on the date of such Termination of Service,
but only within the originally prescribed term of the Stock Right.
Notwithstanding the foregoing, except as provided in Section 13, in no event may
an ISO be exercised later than three (3) months after the Participant's
termination of employment with the Company and its Affiliates.

11.2 The provisions of this Section, and not the provisions of Section 13
or 14, shall apply to a Participant who subsequently becomes disabled or dies
after the Termination of Service; provided, however, that in the case of a
Participant's death within three (3) months after the Termination of Service,
the Participant's Survivors may exercise the Stock Right within one (1) year
after the date of the Participant's death, but in no event after the date of
expiration of the term of the Stock Right.

11.3 Notwithstanding anything herein to the contrary, if subsequent to a
Participant's Termination of Service, but prior to the exercise of a Stock
Right, the Committee determines that, either prior or subsequent to the
Participant's Termination of Service, the Participant engaged in conduct which
would constitute "cause" (as defined in Section 12), then such Participant shall
forthwith cease to have any right to exercise any Stock Right.

11.4 Absence from work with the Company or an Affiliate because of
temporary disability (any disability other than a permanent and total Disability
as defined in Section 1 hereof), or a leave of absence for any purpose, shall
not, during the period of any such absence, be deemed, by virtue of such absence
alone, a Termination of Service, except as the Committee may otherwise expressly
provide.

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11.5 A change of employment or other service within or among the Company
and its Affiliates shall not be deemed a Termination of Service, so long as the
Participant continues to be an employee, director, consultant or advisor of the
Company or any Affiliate; provided, however, that if a Participant's employment
with the Company or an Affiliate should cease (other than to become an employee
of another Affiliate or of the Company), then Section 11.1 above shall apply as
to any ISOs granted to such Participant.

12. EFFECT OF TERMINATION OF SERVICE FOR "CAUSE"

Except as otherwise provided in the pertinent Stock Agreement, in the event
of a Termination of Service of a Participant "for cause" all outstanding and
unexercised Stock Rights as of the date the Participant is notified his or her
service is terminated "for cause" will immediately be forfeited. For purposes of
this Section 12, "cause" shall include (and is not limited to) dishonesty with
respect to the Company and its Affiliates, insubordination, substantial
malfeasance or non-feasance of duty, unauthorized disclosure of confidential
information, conduct substantially prejudicial to the business of the Company or
any Affiliate, and termination by the Participant in violation of an agreement
by the Participant to remain in the employ of the Company of an Affiliate. The
determination of the Committee as to the existence of cause will be conclusive
on the Participant and the Company. "Cause" is not limited to events which have
occurred prior to a Participant's Termination of Service, nor is it necessary
that the Committee's finding of "cause" occur prior to termination. If the
Committee determines, subsequent to a Participant's Termination of Service but
prior to the exercise of a Stock Right, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which would
constitute "cause," then the right to exercise any Stock Right shall be
forfeited. Any definition in an agreement between a Participant and the Company
or an Affiliate which contains a conflicting definition of "cause" for
termination and which is in effect at the time of such termination shall
supersede the definition in this Plan with respect to that Participant.

13. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY

Except as otherwise provided in the pertinent Stock Agreement, in the event
of a Termination of Service by reason of Disability, the Disabled Participant
may exercise any Stock Right granted to him or her to the extent exercisable but
not exercised on the date of Disability. A Disabled Participant may exercise
such rights only within a period of not more than one (1) year after the date
that the Participant became Disabled or, if earlier, within the originally
prescribed term of the Stock Right.

The Committee shall make the determination both of whether Disability has
occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Committee, the cost of which examination shall be paid for by
the Company.

14. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT

Except as otherwise provided in the pertinent Stock Agreement, in the event
of death of a Participant while the Participant is an employee, director,
consultant or advisor of the Company or of an Affiliate, any Stock Rights
granted to such Participant may be exercised by the Participant's Survivors to
the extent exercisable but not exercised on the date of death. Any such Stock
Right must be exercised within one (1) year after the date of death of the
Participant.

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15. PURCHASE FOR INVESTMENT

Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Stock Right shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:

a. The person(s) who exercise such Stock Right shall warrant to the
Company, at the time of such exercise or receipt, as the case may be,
that such person(s) are acquiring such Shares for their own respective
accounts, for investment, and not with a view to, or for sale in
connection with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such grant:

"The shares represented by this certificate have been
taken for investment and they may not be sold or otherwise
transferred by any person, including a pledgee, unless (1)
either (a) a Registration Statement with respect to such
shares shall be effective under the Securities Act of
1933, as amended, or (b) the Company shall have received
an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and
(2) there shall have been compliance with all applicable
state securities laws.

b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.

The Company may delay issuance of the Shares until completion of any action
or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).

16. DISSOLUTION OR LIQUIDATION OF THE COMPANY

Upon the dissolution or liquidation of the Company, all Stock Rights
granted under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant have not otherwise terminated and expired, the Participant will have
the right immediately prior to such dissolution or liquidation to exercise any
Stock Right to the extent that such Stock Right is exercisable as of the date
immediately prior to such dissolution or liquidation.

17. ADJUSTMENTS

Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the written agreement between the
Participant and the Company relating to such Stock Right or in any employment
agreement between a Participant and the Company or an Affiliate:

17.1 Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of such Stock Right shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend. The number
of Shares subject to options to be granted to Non-Employee Directors pursuant to
Section 6.3 shall also be proportionately adjusted upon the occurrence of such
events.

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17.2 Consolidations or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger in which the Company is not the
surviving entity, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), either (i) the Committee or the board of directors
of any entity assuming the obligations of the Company hereunder, shall, as to
outstanding Options, make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the Shares then subject to
such Options either the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition or securities of any
successor or acquiring entity; or (ii) the vesting of all outstanding Options
shall be accelerated and such Options shall become fully exercisable immediately
prior to the Acquisition, notwithstanding any restrictions or vesting conditions
set forth therein.

17.3 Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in Section 17.2 above) pursuant to which securities of the Company or
of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising a Stock Right shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Stock Right prior to such
recapitalization or reorganization.

17.4 Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to Section 17.1, 17.2 or 17.3 with respect to ISOs shall be made
only after the Committee determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holders of such ISOs.
If the Committee determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.

18. ISSUANCES OF SECURITIES

Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.

19. FRACTIONAL SHARES

No fractional share shall be issued under the Plan and the person
exercising any Stock Right shall receive from the Company cash in lieu of any
such fractional share equal to the Fair Market Value thereof determined in good
faith by the Board of Directors of the Company.

20. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOS

Any Options granted under this Plan which do not meet the requirements of
the Code for ISOs shall automatically be deemed to be NQSOs without further
action on the part of the Committee. The Committee, at the written request of
any Participant, may in its discretion take such actions as may be necessary to
convert such Participant's ISOs (or any portion thereof) that have not been
exercised on the date of conversion into NQSOs at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or an Affiliate at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the Participant) may impose
such conditions

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<PAGE> 31

on the exercise of the resulting NQSOs as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any Participant the right to
have such Participant's ISOs converted into NQSOs, and no such conversion shall
occur until and unless the Committee takes appropriate action. The Committee,
with the consent of the Participant, may also terminate any portion of any ISO
that has not been exercised at the time of such termination.

21. WITHHOLDING

In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("FICA") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise of a Stock Right or a Disqualifying Disposition (as defined in
Section 22), the Participant shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Participant, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Committee (and
permitted by law), provided, however, that with respect to persons subject to
Section 16 of the Exchange Act, any such withholding arrangement shall be in
compliance with any applicable provisions of Rule 16b-3 promulgated under
Section 16 of the Exchange Act. For purposes hereof, the Fair Market Value of
any shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Section 1 above, as of the most recent practicable date
prior to the date of exercise. If the Fair Market Value of the shares withheld
is less than the amount of payroll withholdings required, the Participant my be
required to advance the difference in cash to the Company or the Affiliate
employer. The Committee in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding.

22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION

Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a "Disqualifying Disposition"
of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such Shares are sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.

23. EFFECTIVE DATE; TERMINATION OF THE PLAN

The Plan shall be effective on December 12, 1996, the date of its approval
by the Board of Directors. The Plan will terminate on December 12, 2006. The
Plan may be terminated at an earlier date by vote of the Board of Directors;
provided, however, that any such earlier termination will not affect any Stock
Rights granted or Stock Agreements executed prior to the effective date of such
termination.

24. AMENDMENT OF THE PLAN; AMENDMENT OF STOCK RIGHTS

The Plan may be amended by the stockholders of the Company. The Plan may
also be amended by the Board of Directors or the Committee, including, without
limitation, to the extent necessary to qualify any or all outstanding Stock
Rights granted under the Plan or Stock Rights to be granted under the Plan for
favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code, to the extent necessary to ensure that Stock Rights granted or to be
granted under the Plan are in accordance with Rule 16b-3 under the Exchange Act,
and to the extent necessary to qualify the shares issuable upon exercise of any
outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan
for listing on any national securities exchange or quotation in any national

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<PAGE> 32

automated quotation system of securities dealers. No modification or amendment
of the Plan shall adversely affect his or her rights under a Stock Right
previously granted to a Participant without such Participant's consent.

In its discretion, the Committee may amend any term or condition of any
outstanding Stock Right, provided, (i) such term or condition as amended is
permitted by the Plan, (ii) if the amendment is adverse to the Participant, such
amendment shall be made only with the consent of the Participant, (iii) any such
amendment of any ISO shall be made only after the Committee determines whether
such amendment would constitute a "modification" of any Stock Right which is an
ISO (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holder of such ISO, and (iv) with respect to
any Stock Right held by any Participant who is subject to the provisions of
Section 16(a) of the Exchange Act, any such amendment shall be made only after
the Committee determines whether such amendment would constitute the grant of a
new Stock Right.

25. EMPLOYMENT OR OTHER RELATIONSHIP

Nothing in this Plan or any Stock Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or director
status of a Participant, nor to prevent a Participant from terminating his or
her own employment, consultancy or director status or to give any Participant a
right to be retained in employment or other service by the Company or any
Affiliate for any period of time.

26. GOVERNING LAW

This Plan shall be construed and enforced in accordance with the law of The
Commonwealth of Massachusetts.

29
<PAGE> 33
VERTEX PHARMACEUTICALS INCORPORATED

ANNUAL MEETING OF STOCKHOLDERS - MAY 8, 1997

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned does hereby constitute and appoint Joshua S. Boger and
Richard H. Aldrich, or either one of them, the attorney(s) of the undersigned,
with full power of substitution, with all the powers which the undersigned
would possess if personally present, to vote all stock of Vertex
Pharmaceuticals Incorporated which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Vertex Pharmaceuticals Incorporated to be
held at 130 Waverly Street, Cambridge, Massachusetts, on Thursday, May 8, 1997
at 9:30 A.M. and at any adjournment thereof, hereby acknowledging receipt of
the Proxy Statement for such meeting and revoking all previous proxies.

This Proxy, when properly executed, will be voted as directed. If no
direction is made, this Proxy will be voted FOR the proposals listed on the
reverse side and, in the case of other matters that legally come before the
meeting, as said attorney(s) may deem advisable.

(Continued and to be signed on reverse side)
SEE REVERSE SIDE

PLEASE VOTE, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.

1. Election of one (1) director to the class of directors whose term expires in
1998.

Nominee: Charles A. Sanders

[ ] For [ ] Withheld

- - --------------------------------------------------------------
For all nominees except as noted above

2. Election of two (2) directors to the class of directors whose term expires
in 2000.

Nominees: Barry M. Bloom and William W. Helman IV

[ ] For [ ] Withheld

- - ---------------------------------------------------------------
For all nominees except as noted above

3. Authorization of 50,000,000 additional
shares of Common Stock, $.01 par value. [ ] For [ ] Against [ ] Abstain

4. Authorization of 5,000,000 additional
shares of Preferred Stock, $.01 par value. [ ] For [ ] Against [ ] Abstain

5. Approval of 1996 Stock and Option Plan. [ ] For [ ] Against [ ] Abstain

6. Approval of the appointment of
Coopers & Lybrand L.L.P. as Independent
Accountants. [ ] For [ ] Against [ ] Abstain

Mark here for address Mark here if you plan
change and note at left [ ] to attend the meeting [ ]

Please sign name exactly as name appears. When
signing in a fiduciary capacity, please give
full title. Co-fiduciaries and joint owners
should each sign.

Signature: Date:
----------------------- ---------