<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
VERTEX PHARMACEUTICALS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 20, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Vertex Pharmaceuticals Incorporated to be held on Wednesday, May 19, 1999, 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 two directors and approval of the Company's
accountants, stockholders are being asked to approve an amendment to the
Company's 1996 Stock and Option Plan to increase the number of shares of Common
Stock authorized for issuance under that plan by 1,250,000 and to approve an
amendment to the Company's Employee Stock Purchase Plan, to increase the number
of shares of common stock authorized for issuance under that plan by 200,000.
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,
[LOGO]
JOSHUA BOGER
Chairman, President and
Chief Executive Officer
VERTEX PHARMACEUTICALS INCORPORATED, 130 WAVERLY STREET,
CAMBRIDGE, MASSACHUSETTS 02139-4242
TELEPHONE (617) 577-6000, FAX (617) 577-6680
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
130 WAVERLY STREET
CAMBRIDGE, MA 02139-4242
(617) 577-6000
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1999
Notice is hereby given that the 1999 Annual Meeting of Stockholders of
Vertex Pharmaceuticals Incorporated (the "Company") will be held on Wednesday,
May 19, 1999, at 9:30 a.m. at the Company's headquarters, 130 Waverly Street,
Cambridge, Massachusetts, for the following purposes:
(1) To elect two (2) directors to the class of directors whose term expires in
2002;
(2) To approve an amendment to the 1996 Stock and Option Plan (the "Plan") to
increase the number of shares of common stock, $.01 par value per share
("Common Stock"), authorized for issuance under the Plan by 1,250,000;
(3) To approve an amendment to the Vertex Pharmaceuticals Incorporated Employee
Stock Purchase Plan (the "ESPP") to increase the number of shares of Common
Stock of the Company authorized for issuance under the ESPP by 200,000;
(4) To approve the appointment of independent accountants for the year ending
December 31, 1999; and
(5) To consider and act upon such other business as may properly come before the
meeting.
Please refer 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 22, 1999, the record date for the meeting, are entitled to vote at the
Annual Meeting and at any adjournments of the Annual Meeting. 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 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 20, 1999
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
130 Waverly Street
Cambridge, MA 02139-4242
(617) 577-6000
PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
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 1999 Annual Meeting of Stockholders to be held on May 19, 1999 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 20, 1999.
The Annual Report to Stockholders for the fiscal year ended December 31, 1998 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. Employees will not receive additional compensation for
their solicitation efforts. 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 beneficial owners. The Company will reimburse those firms for
their reasonable expenses in forwarding proxy materials and obtaining voting
instructions.
When a stockholder's proxy card 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 22, 1999 (the "Record Date") are entitled to notice of and
to vote at the Meeting. At the Record Date, there were issued and outstanding
25,400,241 shares of Common Stock, each of which entitles the holder to one vote
on each matter submitted to a vote at the Meeting.
The proxy card provides space for a stockholder to withhold voting for
either or both 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
1
<PAGE>
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, 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.
PROPOSAL 1:
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 eight, two of whom are to be elected at
the Meeting for a term expiring at the 2002 Annual Meeting, three whose terms
expire at the 2001 Annual Meeting, and three whose terms expire at the 2000
Annual Meeting.
Roger W. Brimblecombe, a director of the Company since 1993, and Donald R.
Conklin, a director since 1994, represent the class of directors whose term
expires at the Meeting. The Board has nominated Dr. Brimblecombe and Mr. Conklin
for election to the class of directors whose term will expire in 2002.
Shares represented by proxies will be voted for the election as directors of
Dr. Brimblecombe and Mr. Conklin unless otherwise specified in the proxy. If
either 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. Brimblecombe or
Mr. Conklin will be unable to serve if elected.
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 OF
FIRST PRESENT OR
PRINCIPAL OCCUPATION, ELECTED PROPOSED TERM
NAME AND AGE BUSINESS EXPERIENCE AND OTHER BUSINESS AFFILIATIONS DIRECTOR OF OFFICE
- --------------------------------- -------------------------------------------------------- ----------- -------------
<S> <C> <C> <C>
Roger W. Brimblecombe, Ph.D.,
D.Sc., 69(1)................... Chairman of Vanguard Medica Ltd. since 1991, of Core 1993 2002
Group plc since 1997, and Non-Executive Chairman of
Oxford Asymmetry International plc since 1997. Various
Vice Presidential posts in SmithKline & French
Laboratories research and development organization
between 1979 and 1990. Also a Director of Ontogeny, Inc.
and several other companies located in the United
Kingdom.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION OF
FIRST PRESENT OR
PRINCIPAL OCCUPATION, ELECTED PROPOSED TERM
NAME AND AGE BUSINESS EXPERIENCE AND OTHER BUSINESS AFFILIATIONS DIRECTOR OF OFFICE
- --------------------------------- -------------------------------------------------------- ----------- -------------
<S> <C> <C> <C>
Donald R. Conklin, 62(2)(3)...... Executive Vice President of Schering-Plough Corp. from 1994 2002
1986 to 1996; retired from Schering-Plough at the end of
1996. Also a Director of AlfaCell Inc. and BioTransplant
Inc.
Joshua S. Boger, Ph.D., 48....... A founder of the Company and its President and Chief 1989 2001
Scientific Officer from its inception in 1989 until May
1992, when he became President and Chief Executive
Officer. In 1997 Dr. Boger became Chairman, President
and Chief Executive Officer. From 1987 to 1989, Senior
Director of Basic Chemistry at Merck Sharp & Dohme
Research Laboratories. Also a Director of Millennium
Pharmaceuticals, Inc.
Charles A. Sanders, M.D., 67..... Retired in 1994 as Chief Executive Officer and in 1995 1996 2001
as Chairman of Glaxo Inc. From 1990 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 Kendle
International Inc., Magainin Pharmaceuticals Inc.,
Pharmacopeia Inc., Scios, Inc., Staffmark Inc., and
Trimeris Inc.
Elaine S. Ullian, 51(1).......... President and Chief Executive Officer of Boston Medical 1997 2001
Center since 1996. From 1994 to 1996, President and
Chief Executive Officer of Boston University Medical
Center Hospital. From 1987 to 1994, President and Chief
Executive Officer of Faulkner Hospital. Also a Director
of Hologics Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION OF
FIRST PRESENT OR
PRINCIPAL OCCUPATION, ELECTED PROPOSED TERM
NAME AND AGE BUSINESS EXPERIENCE AND OTHER BUSINESS AFFILIATIONS DIRECTOR OF OFFICE
- --------------------------------- -------------------------------------------------------- ----------- -------------
<S> <C> <C> <C>
Barry M. Bloom, Ph.D.,
70(1)(3)....................... Formerly with Pfizer Inc., as Executive Vice President 1994 2000
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 Pharmaceuticals, Cubist Pharmaceuticals,
Inc., Incyte Pharmaceuticals Inc., Neurogen Corp. and
MICROBIA, Inc.
William W. Helman IV, 40(2)...... A General Partner of Greylock, a venture capital firm 1989 2000
and an original investor in the Company. Also a Director
of Millennium Pharmaceuticals, Inc., Media Metrix, Inc.,
and several private companies.
Bruce I. Sachs, 39(2)............ Executive Vice President and General Manager, Ascend 1998 2000
Communications, Inc. From 1997 until 1998, President and
CEO of Stratus Computer, Inc. From 1995 to 1997,
Executive Vice President/ General Manager of the
Internet Telecom Business Group at Bay Networks, Inc.
From 1993 to 1995, President and Chief Executive Officer
at Xylogics, Inc. Also a Director of Media 100 Inc.
</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, 1998, the Board held five meetings. Each
of the incumbent directors attended at least 75% of the Board meetings and
meetings of committees of the Board of which he was a member.
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, Roger W. Brimblecombe and Elaine S. Ullian are the members
of the Compensation Committee, which held two meetings during 1998.
The Audit Committee, which included Donald R. Conklin and William W. Helman
IV during 1998, met twice during that year, to discuss the adequacy of internal
accounting controls and procedures, and to
4
<PAGE>
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 results of the annual audit. Mr. Sachs was elected
to the Audit Committee in March 1999.
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.
5
<PAGE>
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 22, 1999, 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 Financial Corporation................................................... 2,554,500(2) 10.1%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5
Canada
Wellington Management Company LLP............................................... 2,249,700(3) 8.9%
75 State Street
Boston, MA 02109
Putnam Investments, Inc......................................................... 1,713,518(4) 6.7%
One Post Office Square
Boston, MA 02109
Vanguard Specialized Funds...................................................... 1,571,300(5) 6.2%
Vanguard Health Care Fund
100 Vanguard Boulevard
Malvern, PA 19355
Barry M. Bloom.................................................................. 27,500(6) *
Joshua S. Boger................................................................. 917,179(6)(7)(8) 3.6%
Roger W. Brimblecombe........................................................... 21,500(6) *
Donald R. Conklin............................................................... 30,500(6) *
William W. Helman IV............................................................ 60,642(6) *
Bruce I. Sachs.................................................................. 5,250(6) *
Charles A. Sanders.............................................................. 18,625(6) *
Elaine S. Ullian................................................................ 11,550(6) *
Richard H. Aldrich.............................................................. 283,148(6)(8) 1.1%
Thomas G. Auchincloss, Jr....................................................... 51,717(6)(8) *
Iain P. M. Buchanan............................................................. 75,887(6)(8) *
Vicki L. Sato................................................................... 319,630(6)(8) 1.2%
All directors and executive officers as a group (12 persons).................... 1,823,128(9) 6.8%
</TABLE>
- ------------------------
* Less than 1%
6
<PAGE>
(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 (including dispositive) power. Information with
respect to persons other than directors and executive officers is based
solely upon Schedules 13G filed with the Securities and Exchange Commission
as of December 31, 1998.
(2) Trimark Financial Corporation has sole voting and dispositive power as to
these shares.
(3) Wellington Management Company LLP has shared dispositive power as to
2,249,700 shares and shared voting power as to 623,500 of those shares.
Includes shares owned of record by Vanguard Health Care Fund (see Note 5
below.)
(4) Putnam Investments, Inc. has no voting power and has shared dispositive
power as to these shares. Includes 1,250,921 shares beneficially owned by
Putnam Voyager Fund, as to which Putnam Voyager Fund has no voting power and
shared dispositive power.
(5) Vanguard Specialized Funds-Vanguard Health Care Fund has sole voting power
and shared dispositive power as to these shares.
(6) Includes shares which may be acquired upon the exercise of options
exercisable within 60 days after March 22, 1999, as follows: Dr. Bloom,
17,500 shares; Dr. Boger, 419,674 shares; Dr. Brimblecombe, 21,500 shares;
Mr. Conklin, 17,500 shares; Mr. Helman, 27,500 shares; Mr. Sachs, 1,250; Dr.
Sanders, 15,625 shares; Ms. Ullian, 11,250 shares, Mr. Aldrich, 220,424
shares; Mr. Auchincloss, 50,645 shares; Mr. Buchanan, 74,804 shares; and Dr.
Sato, 312,174 shares.
(7) Includes 101,500 shares held in trusts for the benefit of Dr. Boger's
children. Dr. Boger disclaims beneficial ownership of such shares.
(8) Includes shares held in the Company's 401(k) Plan, as follows: Dr. Boger,
3,155 shares; Mr. Aldrich, 2,421 shares; Mr. Auchincloss, 744 shares; and
Dr. Sato, 1,992 shares.
(9) Includes an aggregate of 1,823,128 shares which may be acquired upon the
exercise of options exercisable on or within 60 days after March 22, 1999
and an aggregate of 8,312 shares held in the Company's 401(k) Plan.
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, 1998, 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. Hans Van Houte, the Company's
Controller, filed one late report with respect to a charitable contribution in
1997 of shares of the Company's Common Stock.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation earned during the fiscal years ended December 31, 1998, 1997, and
1996 by the Company's Chief Executive Officer and by the Company's other four
most highly compensated executive officers (the Chief Executive Officer together
with such other persons being hereinafter referred to as the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Joshua S. Boger, 1998 $ 371,020 $ 92,800 100,000 $ 8,979(1)
Chairman, President and 1997 $ 350,012 $ 105,000 100,000 $ 8,654
Chief Executive Officer 1996 $ 316,524 $ 125,000 100,000 $ 8,693
Vicki L. Sato, 1998 $ 294,190 $ 88,300 65,000 $ 7,469(2)
Senior Vice President of Research 1997 $ 277,524 $ 70,000 65,000 $ 7,094
and Development and Chief 1996 $ 252,278 $ 88,297 75,000 $ 7,074
Scientific Officer
Richard H. Aldrich, 1998 $ 256,464 $ 64,200 60,000 $ 7,485(2)
Senior Vice President and 1997 $ 231,036 $ 70,000 60,000 $ 7,081
Chief Business Officer 1996 $ 210,028 $ 84,011 75,000 $ 7,109
Iain P. M. Buchanan, 1998 $ 215,426 $ 30,650 17,600 $ 20,547(3)
Vice President of European 1997 $ 191,877 $ 10,020 17,000 $ 19,188
Operations 1996 $ 170,951 0 15,000 $ 17,082
Thomas G. Auchincloss, Jr., 1998 $ 151,242 $ 7,600 14,400 $ 6,538(2)
Vice President of Finance and 1997 $ 130,364 $ 16,500 17,000 $ 6,420
Treasurer 1996 $ 116,376 $ 11,638 15,000 $ 5,720
</TABLE>
- ------------------------
(1) Includes $7,477 representing the value of the Company's matching
contributions under the Company's 401(k) Savings Plan and $1,502
representing certain insurance premiums paid by the Company on Dr. Boger's
behalf during 1998.
(2) Represents the value of the Company's matching contributions under the
Company's 401(k) Savings Plan.
(3) Represents the Company's contribution to Mr. Buchanan's personal pension
scheme account.
8
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table provides certain information with respect to options
under the Company's 1996 Stock and Option Plan granted to each of the Named
Executive Officers during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------ AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED (1) FISCAL YEAR PRICES DATES 5% 10%
- ---------------------------------------- ----------- --------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joshua S. Boger......................... 48,500 3.62% $ 20.37 9/16/08 $ 621,708 $ 1,575,159
51,500 3.84% $ 27.25 12/9/08 $ 883,414 $ 2,237,954
----------- ---
100,000 7.46%
Vicki L. Sato........................... 33,500 2.50% $ 20.37 9/16/08 $ 429,427 $ 1,087,996
31,500 2.35% $ 27.25 12/9/08 $ 540,341 $ 1,368,846
----------- ---
65,000 4.85%
Richard H. Aldrich...................... 28,500 2.13% $ 20.37 9/16/08 $ 365,334 $ 925,609
31,500 2.35% $ 27.25 12/9/08 $ 540,341 $ 1,368,846
----------- ---
60,000 4.48%
Iain P. M. Buchanan..................... 8,500 0.63% $ 20.37 9/16/08 $ 108,959 $ 276,059
9,100 0.68% $ 27.25 12/9/08 $ 156,098 $ 395,444
----------- ---
17,600 1.31%
Thomas G. Auchincloss, Jr. ............. 8,500 0.63% $ 20.37 9/16/08 $ 108,959 $ 276,059
5,900 0.44% $ 27.25 12/9/08 $ 101,207 $ 256,387
----------- ---
14,400 1.07%
</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.
9
<PAGE>
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,
1998. No options were exercised by such persons during 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END FISCAL YEAR-END
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Joshua S. Boger.......................................... 395,425 294,575 $ 4,778,984 $ 1,368,196
Vicki L. Sato............................................ 294,675 205,325 $ 3,924,954 $ 997,176
Richard H. Aldrich....................................... 203,425 196,575 $ 2,234,574 $ 947,356
Iain P. M. Buchanan...................................... 66,825 52,775 $ 876,518 $ 292,132
Thomas G. Auchincloss, Jr................................ 44,325 49,075 $ 510,893 $ 279,607
</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 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 and 1996 Stock and Option Plans 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 1998, 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
1996 Stock and Option Plan, each non-employee director, upon initial election or
appointment to the Board, receives a non-qualified option to purchase 20,000
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
5,000 shares of
10
<PAGE>
Common Stock under the 1996 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 1998, 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 1998 were determined by the Committee in late 1997. Salary
increases over 1997 salary levels were based on the Committee's subjective
evaluation of the individual Named Executive Officers' performance in 1997 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. In addition, the Committee considered the results of the 1997
BIOTECHNOLOGY COMPENSATION SURVEY, a survey conducted by Radford Associates (the
"Radford Survey"). The Radford Survey included companies in the biotechnology
industry which voluntarily participated in the survey. 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.
The Committee believed that the 1998 raises approved for the Named Executive
Officers were generally comparable to the average raises that year for
executives of competing companies. These raises were intended to reflect the
Committee's judgment that Vertex's performance in 1997 was very good, but not as
strong as it had been in 1996. In addition to performance-based raises, two of
the Named Executive officers received salary adjustments, so that the resulting
1997 salary levels for the Named Executive Officers were generally in the middle
of the range of estimated 1998 salaries of executives serving comparable
functions in other competing companies. The Committee believed that setting
salary levels in the middle range of those offered by competing companies would
allow for the possibility of significant additional cash bonuses based on 1998
individual and Company performance. In determining base salaries for Dr. Boger,
Dr. Sato and Mr. Aldrich, it was the Committee's intention that such incentive
cash bonus
11
<PAGE>
and stock option bonus opportunities represent a larger proportion of their
total compensation, as compared with other Company employees.
CASH BONUSES
At the end of 1998, cash bonuses were awarded to 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 1998. The amounts of the cash bonuses
awarded to Dr. Boger, Mr. Aldrich and Dr. Sato were approximately 25% to 30% of
their respective 1998 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 the Named
Executive Officers' bonuses reflected the Committee's determination that the
Company made substantial progress during 1998, including the filing with the
U.S. Food and Drug Administration of a New Drug Application for marketing
approval of the Company's first product, Agenerase-TM-, and the closing of a
collaboration agreement with Schering AG, Germany for research, development and
commercialization of the Company's neurophilin ligand compounds. 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.
During 1998, each of the Named Executive Officers was granted ten-year
options under the 1996 Stock and Option Plan to purchase a significant number of
shares of Common Stock, ranging from 14,400 to 100,000 shares, vesting in
quarterly installments over a five-year period. A portion of these options,
equal to approximately 50% of the number of options granted to each individual
in 1997, was granted in September 1998. The remaining options were granted in
December 1998. In each case, the option exercise price was the average of the
high and low market prices on the date of grant. The aggregate amounts of these
option awards were based on an evaluation of individual contributions to the
Company's success in 1998. Although the Committee did not perform any
comprehensive survey of equity compensation at 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Boger's 1998 base salary of $371,020 represented an increase of
approximately 6% over his 1997 salary, indicating the Committee's evaluation of
Dr. Boger's performance as very good. The Committee believed that Dr. Boger's
resulting 1998 salary was near the middle of the range of base salaries paid to
chief executive officers of comparable companies. The Committee set the 1998
base salary at this level in order to provide opportunities for significant
incentive cash bonuses based on individual and Company performance.
12
<PAGE>
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 1998 in advancing the Company toward commercialization of its first drug,
as described above. The amounts of Dr. Boger's 1998 cash bonus (approximately
25% of his 1998 salary) and stock option award, for the purchase of a total 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 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 its 1994 and 1996 Stock and Option
Plans will qualify as performance-based compensation plans.
Submitted by the Compensation Committee
Barry M. Bloom
Roger W. Brimblecombe
Elaine S. Ullian
13
<PAGE>
PERFORMANCE GRAPH
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C> <C> <C> <C> <C>
Based upon an initial investment of $100 on December 31,
1993
with dividends reinvested
Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98
Vertex Pharmaceuticals Incorporated $100 $81 $143 $218 $178 $161
NASDAQ Stock Market (U.S.) $100 $98 $138 $170 $209 $293
NASDAQ Pharm. Stocks $100 $75 $138 $138 $143 $183
SOURCE: GEORGESON & COMPANY INC.
</TABLE>
14
<PAGE>
PROPOSAL 2:
APPROVAL OF AMENDMENT TO 1996 STOCK AND OPTION PLAN
GENERAL
The Company's 1996 Stock and Option Plan (the "Plan") was adopted by the
Board of Directors in December 1996. 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 (320 persons, as of March 1,
1999), and to consultants, advisors and non-employee directors of the Company
and its subsidiaries (NQSOs and Stock Awards only).
AMENDMENT
On December 10, 1998, the Company's Board of Directors adopted an amendment
to the Plan to increase the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the Plan by 1,250,000, from
3,250,000 to 4,500,000, plus, in each case, 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, 1999, 310,402 shares of Common Stock remained available for
the granting of options under the 1991 Stock Option Plan and 1,492,004 shares of
Common Stock were reserved for issuance under outstanding, unexercised options
under that plan, and 48,794 shares of Common Stock remained available for the
granting of options under the 1994 Stock and Option Plan and 1,855,724 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.
As of March 1, 1999, ISOs to purchase 1,489,059 shares of Common Stock were
outstanding under the Plan, with exercise prices ranging from $15.31 to $37.96.
NQSOs to purchase 1,318,959 shares of Common Stock were outstanding under the
Plan on that date, with exercise prices ranging from $20.37 to $39.56. Such
options have expiration dates ranging from December 12, 2006 to February 28,
2009. On March 22, 1999, the last sales price for the Company's Common Stock
reported on the Nasdaq National Market System was $25.75.
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.
15
<PAGE>
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.
Each newly elected non-employee director is automatically 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 is 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. Those options are fully exercisable immediately and have a
term of ten years.
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.
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
16
<PAGE>
after the transfer of such shares to the optionholder. Upon sale of such shares
thereafter, the amount realized in excess of the option price (the amount paid
for the shares) will be taxed to the option holder as a long-term capital gain
(generally taxed at a 20% Federal rate). Any loss sustained on shares held less
than one year is applied first against any short-term capital gain and then
against any long-term capital gain. Any loss sustained on shares held more than
one year is applied first against any long-term capital gain and then against
any short-term capital gain. 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 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 amendment to the Plan to qualify as
ISOs, the amendment must be approved by the stockholders within twelve months
after its adoption by the Board of Directors. If the amendment is not approved
on or before December 12, 1999, all options granted under the Plan in excess of
the number originally authorized 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 AWARD. The recipient of a stock award under the Plan must include the
fair market value of the awarded stock, less any amount which the recipient pays
for that stock, in his or her income, which will be taxed at ordinary income
rates. Upon disposition of that stock, the award recipient will have capital
gain or loss.
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 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.
17
<PAGE>
NEW PLAN BENEFITS
Options for 5,000 shares each will be granted under the Plan during 1999 to
all non-employee directors who continue to serve as directors on June 1, 1999
(currently 7 persons). The number of additional shares or options, if any, that
will be granted to executive officers and directors under the Plan 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 AMENDMENT
TO 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 3:
APPROVAL OF AN AMENDMENT TO
THE EMPLOYEE STOCK PURCHASE PLAN
INCREASING THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
FOR ISSUANCE UNDER THE ESPP
GENERAL
The Vertex Pharmaceuticals Incorporated Employee Stock Purchase Plan (the
"ESPP") is designed to give employees of the Company an opportunity to purchase
Common Stock through payroll deductions, thereby encouraging employees to share
in the economic growth and success of the Company through stock ownership.
The Company has previously reserved 300,000 shares of Common Stock for
purchase under the ESPP, subject to adjustment for stock splits, stock dividends
and certain other transactions affecting the Company's capital stock. As of
March 22, 1999, a total of 224,272 shares had been issued under the ESPP,
leaving 75,728 shares available for future issuances.
PROPOSED AMENDMENT
The Board of Directors has voted to increase the aggregate number of shares
of Common Stock that may be purchased under the ESPP by 200,000 to a total of
500,000, subject to adjustment for stock splits, stock dividends and certain
other transactions affecting the Company's capital stock. The Board believes
that this increase is necessary in order to continue to provide employees with
the opportunity and incentive to purchase shares of the Company's Common Stock.
ADMINISTRATION AND ELIGIBILITY
The ESPP is administered by the Compensation Committee of the Board of
Directors of the Company.
Each full-time employee of the Company is eligible to participate in the
ESPP on the April 1 or October 1, as the case may be, coinciding with or next
following the date on which such person has been an employee for six months with
the Company. As of March 1, 1999, approximately 220 employees were eligible to
participate in the ESPP.
18
<PAGE>
Participation in the ESPP is voluntary. An eligible employee becomes a
participant in the ESPP by authorizing the Company to deduct up to 10% from the
Compensation (as defined in the ESPP) otherwise payable to the participant
during the six-month periods beginning on April 1 and October 1 each year
("Offering Periods"). The maximum amount that an employee may elect to deduct
may be increased from time to time by the Board of Directors without stockholder
approval to an amount not exceeding 20% of Compensation.
COMMON STOCK PURCHASES
A stock purchase account is established and maintained on the books of the
Company for each participant. The amounts deducted from the participant's
Compensation are credited to the participant's stock purchase account. No
interest accrues or is paid to any participant with respect to amounts credited
to stock purchase accounts.
Subject to the limitations discussed below, the amount credited to each
participant's stock purchase account as of the last day of each Offering Period
is used to purchase the largest number of whole shares of Common Stock which can
be purchased at a price equal to 85% of the lesser of:
(a) the Fair Market Value (as defined in the ESPP) of a share of Common Stock as
of the first day of the Offering Period; or
(b) the Fair Market Value of a share of Common Stock as of the last day of the
Offering Period.
The maximum number of shares that may be purchased for a participant during
any one calendar year is limited to that number of shares having a total Fair
Market Value (as determined on the first day of the Offering Period) which would
not exceed $25,000.
FEDERAL INCOME TAX CONSEQUENCES
Under the Internal Revenue Code as currently in effect, participants do not
realize taxable income at the commencement of an Offering Period or at the time
shares are purchased under the Plan.
If no disposition of shares purchased under the ESPP is made by the
participant within two years from the commencement of the Offering Period or
within one year from the purchase date, then (a) upon sale of such shares, 15%
of the fair market value of the shares at the commencement of the Offering
Period (or, if less, the amount realized on sale of such shares in excess of the
purchase price) is taxed to the participant as ordinary income, with any
additional gain taxed as a long-term capital gain and any loss treated as a
long-term capital loss, and (b) no deduction with respect to the capital gain
component is allowed to the Company for Federal income tax purposes.
If shares of Common Stock purchased under the ESPP are disposed of prior to
the expiration of the two-year and one-year holding periods described above,
then (a) the participant realizes ordinary income in the year of disposition in
an amount equal to the excess of the fair market value of the shares on the date
of purchase over the purchase price thereof, and (b) the Company is entitled to
deduct such amount to the extent permitted under Section 162 of the Internal
Revenue Code. Any further gain or loss is treated as a short-term or long-term
capital gain or loss to the participant and will not result in any deduction by
the Company.
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<PAGE>
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE EMPLOYEE STOCK PURCHASE PLAN AS DESCRIBED ABOVE. A MAJORITY OF THE VOTES
CAST IN PERSON OR BY PROXY AT THE MEETING IS REQUIRED FOR SUCH APPROVAL.
PROPOSAL 4:
APPROVAL OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers LLP as the
Company's independent accountants for the 1999 fiscal year.
PricewaterhouseCoopers LLP, is a successor to Coopers & Lybrand L.L.P., which
served as the Company's independent accountants from 1989 to 1998.
Representatives of PricewaterhouseCoopers LLP 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 PRICEWATERHOUSECOOPERS LLP 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.
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.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
In order to be considered for inclusion in the Proxy Statement for the
Company's 2000 Annual Meeting of Stockholders, stockholder proposals must be
received by the Company no later than December 14, 1999. Proposals should be
sent to the attention of the Clerk at the Company's offices at 130 Waverly
Street, Cambridge, MA 02139-4242.
If a shareholder notifies the Company after February 27, 2000 of an intent
to present a proposal at the Company's 2000 Annual Meeting (and for any reason
the proposal is voted upon at that Annual Meeting), the Company's proxy holders
will have the right to exercise discretionary voting authority with respect to
the proposal, if presented at the meeting, without including information
regarding the proposal in its proxy materials.
Stockholder nominations for election to the Board at the 2000 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
20
<PAGE>
notice; (iii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission; and (v) the consent of each
nominee to serve as a director of the Company if so elected.
By order of the Board of Directors
Richard H. Aldrich
Clerk
April 20, 1999
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<PAGE>
1071PS99
<PAGE>
[FOR EDGAR ONLY]
VERTEX PHARMACEUTICALS INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS - MAY 19, 1999
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 Wednesday, May 19,
1999 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
<PAGE>
PLEASE VOTE, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
1. Election of two (2) directors to the class of directors whose term expires
in 2002.
Nominees: Roger W. Brimblecombe and Donald R. Conklin
/ / For / / Withheld
_______________________________________________
For both nominees except as noted above
2. Approval of amendment to the 1996 Stock and Option Plan authorizing
1,250,000 additional shares for that plan.
/ / For / / Against / / Abstain
3. Approval of amendment to the Employee Stock Purchase Plan authorizing
200,000 additional shares for that plan.
/ / For / / Against / / Abstain
4. Approval of the appointment of PricewaterhouseCoopers LLP 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:___________
Signature:_______________________ Date:___________
