DEF 14A 1 a2197850zdef14a.htm DEF 14A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

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Preliminary Proxy Statement

 

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

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Definitive Proxy Statement

 

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Definitive Additional Materials

 

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Soliciting Material Pursuant to §240.14a-12


Vertex Pharmaceuticals Incorporated

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
         
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GRAPHIC

April 14, 2010

Dear Fellow Shareholder:

        You are cordially invited to attend the 2010 annual meeting of shareholders of Vertex Pharmaceuticals Incorporated to be held on Thursday, May 13, 2010, at 9:30 a.m. at our headquarters at 130 Waverly Street, Cambridge, Massachusetts.

        As described in the accompanying notice of annual meeting of shareholders and proxy statement, this year we will ask you and our other shareholders to:

    elect three directors to the class of directors whose term will expire in 2013;

    approve an amendment to our Amended and Restated 2006 Stock and Option Plan that increases the number of shares of common stock authorized for issuance under the plan by 12,000,000 shares, from 21,602,380 shares to 33,602,380 shares; and

    ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2010.

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

        Thank you for giving these materials your careful consideration.

    Sincerely,

 

 

GRAPHIC

 

 

Matthew W. Emmens
Chairman, President and CEO

VERTEX PHARMACEUTICALS INCORPORATED
130 Waverly Street
Cambridge, Massachusetts 02139-4242
Telephone: (617) 444-6100
www.vrtx.com



NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

May 13, 2010

        Notice hereby is given that the 2010 annual meeting of shareholders of Vertex Pharmaceuticals Incorporated will be held on Thursday, May 13, 2010, at 9:30 a.m. at our headquarters, located at 130 Waverly Street, Cambridge, Massachusetts, to:

    elect three directors to the class of directors whose term will expire in 2013;

    approve an amendment to our Amended and Restated 2006 Stock and Option Plan that increases the number of shares of common stock authorized for issuance under the plan by 12,000,000 shares, from 21,602,380 shares to 33,602,380 shares;

    ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2010; and

    consider and act upon such other business as may properly come before the annual meeting.

        Please refer to the accompanying proxy statement for more complete information concerning the matters to be acted upon at the annual meeting.

        Holders of record of our common stock at the close of business on March 17, 2010, the record date for the annual meeting, are entitled to vote at the annual meeting and at any postponements or adjournments of the annual meeting. All shareholders are invited to attend the annual meeting in person.

        Your vote matters. Whether or not you plan to attend the annual meeting, please ensure that your shares are represented by voting, signing, dating and returning your proxy in the enclosed envelope, which requires no postage if mailed in the United States. Holders of record of common stock as of the record date who attend the annual meeting and wish to vote in person may revoke their proxies.

    BY ORDER OF THE BOARD OF DIRECTORS

 

 

LOGO

 

 

KENNETH S. BOGER
Secretary
April 14, 2010

VERTEX PHARMACEUTICALS INCORPORATED
130 Waverly Street
Cambridge, Massachusetts 02139-4242
Telephone: (617) 444-6100
www.vrtx.com



PROXY STATEMENT

2010 ANNUAL MEETING OF SHAREHOLDERS

To be held on May 13, 2010

        This proxy statement, with the enclosed proxy card, is being furnished to shareholders of Vertex Pharmaceuticals Incorporated in connection with the solicitation by our board of directors of proxies to be voted at our 2010 annual meeting of shareholders and at any postponements or adjournments thereof. The annual meeting will be held on Thursday, May 13, 2010, at 9:30 a.m. at our headquarters, located at 130 Waverly Street, Cambridge, Massachusetts.

        This proxy statement and the enclosed proxy card are first being mailed or otherwise furnished to our shareholders on or about April 16, 2010. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and materials regarding our company are being mailed to the shareholders with this proxy statement, but are not part of the proxy statement.


VOTING PROCEDURES

        Your Vote is Important.    Whether or not you plan to attend the annual meeting, please take the time to vote by completing and mailing the enclosed proxy card as soon as possible. We have included a postage-prepaid envelope for your convenience.

        Who Can Vote?    In order to vote, you must have been a shareholder of record at the close of business on the record date, which is March 17, 2010. Shareholders whose shares are owned of record by brokers and other nominees should follow the voting instructions provided by the institution that holds their shares. As of the record date, there were 202,011,502 shares of our common stock issued, outstanding and entitled to vote. Each share of common stock is entitled to one vote on each matter to be voted upon.

        How Do I Vote?    If your shares are held of record in your own name, you may vote by completing and returning the enclosed proxy card by mail or by voting in person at the annual meeting. If your shares are held in the name of a bank, broker or other holder of record, the institution that holds your shares will send you instructions that you must follow in order for your shares to be voted. If your shares are not registered in your own name and you plan to attend the annual meeting and vote your shares in person, you should contact the institution that holds your shares to obtain a broker's proxy card, and bring it to the annual meeting in order to vote.

        Voting By Mail and Revocation of Your Proxy.    You may vote by mail by completing and returning the enclosed proxy card. Your proxy will be voted in accordance with your instructions. If you do not specify a choice on a proposal described in this proxy statement, your proxy will be voted in favor of that proposal.

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You may revoke your proxy at any time before it is voted by delivering a subsequently dated written revocation or proxy to our corporate secretary or by voting in person at the annual meeting.

        Voting in Person at the Annual Meeting.    If you attend the annual meeting, you may deliver your completed proxy card in person or you may vote by completing a ballot that will be available at the annual meeting.

        What Constitutes a Quorum?    In order for business to be conducted at the annual meeting, a quorum must be present. A quorum is present if the holders of a majority of the shares of common stock issued and outstanding as of the record date are present at the annual meeting in person or by proxy. Shares of common stock held by a person who is present at the annual meeting in person or by proxy but who abstains or does not vote with respect to one or more of the matters to be voted upon will nonetheless be counted for purposes of determining if a quorum exists. If a quorum is not present, it is expected that the annual meeting will be adjourned until a quorum is obtained.

    What Vote is Required to Approve Each Proposal and How are Votes Counted?

    Proposal 1: Election of Directors       The nominees for director who receive the most votes, also known as a "plurality" of the votes, will be elected. Abstentions are not counted for purposes of electing directors. You may vote either FOR or WITHHOLD your vote from any one or more of the nominees. Votes that are withheld will not be included in the vote tally for the election of directors. For this proposal, brokerage firms do not have authority to vote shares of their customers that are held in "street name." Therefore, any shares not voted by a customer will be treated as broker non-votes, and broker non-votes will have no effect on the results of the election of directors.    
    Proposal 2: Amendment to our Amended and Restated 2006 Stock and Option Plan       To be approved, this proposed amendment to our Amended and Restated 2006 Stock and Option Plan must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposed amendment. Abstentions will have no effect on the results of this vote. For this proposal, brokerage firms do not have authority to vote shares of their customers that are held in "street name." Therefore, any shares not voted by a customer will be treated as broker non-votes, and broker non-votes will have no effect on the outcome of this proposal.    
    Proposal 3: Ratification of Independent Registered Public Accounting Firm       To be approved, this proposal to ratify our selection of an independent registered public accounting firm must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote. For this proposal, brokerage firms have authority to vote shares of their customers that are held in "street name." If a broker does not exercise this authority, the resulting broker non-votes will have no effect on the outcome of this proposal.    


IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON MAY 13, 2010

This proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2009 are available to holders of record of our common stock at www.envisionreports.com/vrtx and to beneficial holders of our common stock at www.edocumentview.com/vrtx.

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PROPOSAL 1:
ELECTION OF DIRECTORS

        Our board of directors is divided into three classes, the Class I Directors, Class II Directors and Class III Directors, with one class elected each year. Members of each class hold office for a three-year term. Our board currently consists of ten members. Our by-laws provide that our board shall consist of at least three and not more than eleven members, as may be fixed from time to time by our board. The terms of the Class III Directors will expire at the 2010 annual meeting. Dr. Joshua Boger, Dr. Charles A. Sanders and Elaine S. Ullian are current Class III Directors and have been nominated by our board for re-election at the 2010 annual meeting for a three-year term that will expire at the 2013 annual meeting. The terms of the Class I Directors and Class II Directors will expire at the 2011 and 2012 annual meetings, respectively. If any of the nominees for election to our board should, for any reason, be unavailable to serve, proxies will be voted for such other candidate as may be designated by our board, unless our board reduces the number of directors. Our board has no reason to believe that Dr. Boger, Dr. Sanders and Ms. Ullian will be unable to serve if elected.

        The corporate governance and nominating committee of our board of directors is responsible for recommending to our board of directors the composition, structure and procedures of our board and for developing criteria for board membership. This committee engages in a regular practice of reviewing director competencies, qualities and experiences, with the goal of ensuring that our board is comprised of an effective team of directors who are able to apply their experience toward meaningful contributions to general corporate strategy and oversight of corporate performance, risk management, organizational development and succession planning.

        Accordingly, the corporate governance and nominating committee seeks to recommend for nomination directors of stature who have a substantive knowledge of our business and industry or who can bring to the board specific and valuable strategic or management capabilities acquired in other industries. The corporate governance and nominating committee also seeks personal qualities that foster a respectful environment in which each director can speak with a strong voice and be engaged, constructive and rational. These goals for our board composition presuppose a diverse range of viewpoints, experiences and specific expertise. The corporate governance and nominating committee considers a nominee's personal and business characteristics relative to those of our existing board members, including the type of prior management experience, levels of expertise relevant to our business and its growth stage, prior board service, reputation in the business community, personal characteristics such as gender and race and other factors that the committee believes to be important at the specific point in time when choices for board membership are being made.

        The key experience, qualifications, attributes and skills brought by our directors to our board that are important in light of Vertex's business and structure include:

    Leadership experience.  We believe that directors who have held significant leadership positions over extended periods of time provide our company with special insights. These people generally have a practical understanding of organizations, processes and strategy to drive constructive change and growth in organizations.

    Industry knowledge.  We seek to have directors with substantive knowledge of the biotechnology, pharmaceutical or related industries. We believe that having a substantial portion of our board of directors comprised of individuals with experience as executives or directors in these industries

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      provides our board with the background necessary to provide counsel to our management regarding the particular issues facing our company.

    Financial expertise.  We believe that an understanding of finance is important for our board of directors, and our budgeting processes and financial and strategic transactions require our directors to be financially knowledgeable. In addition, we seek to have a number of directors qualified to serve on our audit and finance committee and at least one director with in-depth knowledge of financial statements and the financial reporting processes sufficient to qualify as an audit committee financial expert under relevant regulatory standards.

    Scientific experience.  As a biopharmaceutical company that seeks to be a leading innovator, we also look for directors with backgrounds in science and technology and in particular the research and development of pharmaceutical products.

    Commitment to company values and goals.  We seek directors who are committed to our company and its values and goals and who value the contributions that can be provided by individuals who believe in the company and its prospects for success.

        In each of the director nominee and director biographies that follow, we highlight the specific experience, qualifications, attributes and skills that led the board of directors to conclude that the director nominee or director should serve on our board of directors at this time.


Nominees

Class III Directors—Present Terms Expiring In 2010 And Proposed Terms To Expire In 2013

Joshua Boger, Ph.D.   Age: 59
Director since 1989    

Dr. Joshua Boger is the founder of Vertex. He was our Chief Executive Officer from 1992 through May 2009. He was our Chair of the Board from 1997 until May 2006 and our President from our inception until December 2000, and from 2005 through February 2009. He was our Chief Scientific Officer from 1989 until May 1992. Prior to founding Vertex in 1989, Dr. Boger held the position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research Laboratories in Rahway, New Jersey, where he headed both the Department of Medicinal Chemistry of Immunology & Inflammation and the Department of Biophysical Chemistry. Dr. Boger served as the chairman of the Biotechnology Industry Organization (BIO) from May 2007 to May 2009. Dr. Boger holds a B.A. in chemistry and philosophy from Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard University. Dr. Boger is the brother of Mr. Kenneth S. Boger, our Senior Vice President and General Counsel.


Dr. Boger's qualifications for our board include his extensive industry knowledge and leadership experience. In addition to his experience leading our company as CEO for 20 years and his distinguished scientific career, Dr. Boger brings an in-depth knowledge of issues facing our company and our industry as a result of both his experience and continued active participation in various industry-related organizations, including BIO.

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Charles A. Sanders, M.D.

 

Age: 78
Director since 1996    

Dr. Sanders has been our lead independent director since May 2009 and also served in that capacity from 2003 through May 2006. He served as our Chair from May 2006 through May 2009. Dr. Sanders retired in 1994 as Chief Executive Officer and in 1995 as Chairman of Glaxo Inc. From 1990 to 1995, he served as a member of the board of Glaxo plc. From 1981 to 1989, Dr. Sanders held a number of positions at Squibb Corporation, including that of Vice Chairman. He is currently a director of Biodel Inc., Biocryst Pharmaceuticals Inc., Cephalon, Inc., and Icagen, Inc. Dr. Sanders was a member of the Board of Directors of: Genentech,  Inc. from 1999 through its acquisition by F. Hoffmann-La Roche Ltd in March 2009; Fisher Scientific International from 2004 through its merger with Thermo Electron Corporation in November 2006; BioPure Corporation from 1997 through 2007; and Trimeris, Inc. from 1996 through 2006. Dr. Sanders also served in the past on the Board of Directors of Merrill Lynch, Reynolds Metals Co. and Morton International Inc. He had his undergraduate education at the University of Texas, and earned an M.D. from the University of Texas Southwestern Medical School.

Dr. Sanders' qualifications for our board include his extensive industry knowledge, as well as the leadership experience and financial expertise he acquired in his role as Chief Executive Officer of Glaxo Inc. Dr. Sanders provides strong board leadership based on judgment and collaborative skills informed by experience at high executive levels in the pharmaceutical industry, and by his experience as a board member of significant companies in the pharmaceutical and biotechnology community.

Elaine S. Ullian

 

Age: 62
Director since 1997    

From 1996 through January 2010, Ms. Ullian served as President and Chief Executive Officer of Boston Medical Center, a private, not-for-profit, 626-bed academic medical center with a community-based focus. From 1994 to 1996, she served as President and Chief Executive Officer of Boston University Medical Center Hospital. From 1987 to 1994, Ms. Ullian served as President and Chief Executive Officer of Faulkner Hospital. She also serves as a director of Thermo Fisher Scientific Inc. and Hologic, Inc. In addition, Ms. Ullian was a member of the Board of Directors of Valeant Pharmaceuticals, Inc. from 2005 through 2007. Ms. Ullian holds a B.A. in political science from Tufts University and an M.P.H. from the University of Michigan.


Our board has concluded that Ms. Ullian is a valuable contributor to our board due to the leadership and management skills she has acquired through her experience as the Chief Executive Officer of a number of large health care providers. This experience also has given her insight into the health care industry from the perspective of providers, payers and patients, who make up the target markets for our drug candidates.

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Continuing Members of Our Board of Directors

Class I Directors—Terms Expiring In 2011

Stuart J. M. Collinson, Ph.D.   Age: 50
Director since 2001    

Dr. Collinson currently serves as a Partner at Forward Ventures, a venture capital firm. Prior to our acquisition of Aurora Biosciences Corporation in 2001, Dr. Collinson served as the President, Chief Executive Officer and Chairman of the Board of Aurora Biosciences. Dr. Collinson held senior management positions with Glaxo Wellcome from December 1994 to June 1998, most recently serving as Co-Chairman, Hospital and Critical Care Therapy Management Team and Director of Hospital and Critical Care. Dr. Collinson received his Ph.D. in physical chemistry from the University of Oxford, England and his M.B.A. from Harvard University.

Dr. Collinson's prior experience building Aurora Biosciences, along with service as a pharmaceutical executive and in venture capital, provided him with specific biotechnology industry knowledge and strong financial skills, all of which led our board to conclude that he should serve on our board of directors.

Eugene H. Cordes, Ph.D.

 

Age: 73
Director since 2005    

Dr. Cordes has been a scientific advisor to us since 1996. He was the Chairman of Vitae Pharmaceuticals, Inc., a position he held from January 2002 to March 2006. Prior to joining Vitae Pharmaceuticals, Dr. Cordes was a professor of pharmacy at the University of Michigan. Dr. Cordes received a B.S. degree in chemistry from the California Institute of Technology and a Ph.D. in biochemistry from Brandeis University.

Our board believes that Dr. Cordes is a valuable member of our board in his role as a distinguished scientist who brings an in-depth understanding of our research and development programs—allowing him to effectively contribute to the science and technology committee of the board—as well as a strong passion for and commitment to our science.

Matthew W. Emmens

 

Age: 58
Director since 2004    

Mr. Emmens has been our Chairman, President and CEO since May 2009. He became our President in February 2009. Mr. Emmens also serves as the Chairman of the Board of Directors of Shire plc, a specialty biopharmaceutical company, and has been a member of Shire's board since March 2003. From March 2003 to June 2008, Mr. Emmens was the Chief Executive Officer of Shire, which had more than 3,400 employees and revenues of $2.4 billion in 2007. Before joining Shire in 2003, Mr. Emmens served as President of Merck KGaA's global prescription pharmaceuticals business in Darmstadt, Germany. In 1999, he joined Merck KGaA and established EMD Pharmaceuticals, Inc., its United States prescription pharmaceutical business. Mr. Emmens held the position of President and Chief Executive Officer at EMD Pharmaceuticals from 1999 to 2001. Prior to this, Mr. Emmens held various positions, including Chief Executive Officer, at Astra Merck, Inc. as well as several positions at Merck & Co., Inc. Mr. Emmens was a member of the Board of Directors of Incyte Corporation from 2006 through February 2009. He received a B.S. degree in business management from Farleigh Dickinson University.

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Mr. Emmens is a valuable member of our board because he provides in-depth knowledge of our company through his day-to-day leadership of our executive team, and because of the strong leadership qualities he developed through his service as the CEO of a number of pharmaceutical and biotechnology organizations including Shire. He also has substantial financial expertise and industry knowledge applicable to the current stage of our business, including significant experience leading commercial organizations.

Class II Directors—Terms Expiring in 2012

Roger W. Brimblecombe, Ph.D., D.Sc.   Age: 80
Director since 1993    

Dr. Brimblecombe has been a member of the Board of Vertex Pharmaceuticals (Europe) Ltd. since 2005. He served as Chairman of Vanguard Medica plc from 1991 to 2000, of Core Group plc from 1997 to 1999, of Oxford Asymmetry International plc from 1997 to 2000 and of pSivida Ltd. from 2002 to 2007. From 1979 to 1990, he held various Vice Presidential posts in SmithKline & French Laboratories' research and development organization, including Vice President R&D for Europe and Japan. He is currently an advisor to MVM Life Science Partners LLP, a venture capital firm. He holds Ph.D. and D.Sc. degrees in pharmacology from the University of Bristol, England.

Our board believes that Dr. Brimblecombe provides valuable insights to the board through his combined backgrounds in basic science, pharmacology and drug development. His extensive experience with non-U.S. based companies also allows him to bring an international perspective as we evaluate our current and potential future international operations.

Jeffrey M. Leiden, M.D., Ph.D

 

Age: 54
Director since 2009    

Dr. Leiden has more than 20 years of experience in the biomedical and pharmaceutical sectors. Dr. Leiden was President and Chief Operating Officer of Abbott Laboratories, Pharmaceuticals Products Group and a member of the Board of Directors of Abbott Laboratories from 2001 to 2006. From 1987 to 2000, Dr. Leiden held several academic appointments, including as Rawson Professor of Medicine and Pathology and Chief of Cardiology and Director of the Cardiovascular Research Institute at the University of Chicago, the Elkan R. Blout Professor of Biological Sciences at the Harvard School of Public Health, and Professor of Medicine at Harvard Medical School. He is an elected member of both the American Academy of Arts and Sciences and the Institute of Medicine of the National Academy of Sciences. Dr. Leiden is a Managing Director at Clarus Ventures, a life sciences venture capital firm he joined in 2006. Dr. Leiden also is a director and the non-executive Vice Chairman of the Board of Shire, and a director of several private biotechnology companies. Dr. Leiden was a member of the Board of Directors of Millennium Pharmaceuticals, Inc. from October 2007 until it was acquired in June 2008. He received both his M.D. and Ph.D. degrees from the University of Chicago.

Our board determined that Dr. Leiden should serve as a director because he is a distinguished physician, scientist and teacher with a strong background as an executive in the pharmaceutical industry and as a life sciences venture capitalist. Dr. Leiden has significant strategic and biotech investment experience and, as a newer board member, brings a fresh perspective regarding our company.

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Bruce I. Sachs

 

Age: 50
Director since 1998    

Mr. Sachs is a General Partner at Charles River Ventures, a venture capital firm he joined in 1999. From 1998 to 1999, he served as Executive Vice President and General Manager of Ascend Communications,  Inc. From 1997 until 1998, Mr. Sachs served as President and Chief Executive Officer of Stratus Computer, Inc. From 1995 to 1997, he served as Executive Vice President and General Manager of the Internet Telecom Business Group at Bay Networks, Inc. From 1993 to 1995, he served as President and Chief Executive Officer at Xylogics, Inc. Mr. Sachs was a director of BigBand Networks, Inc. from 2005 through June 2009. Mr. Sachs holds a B.S.E.E. in electrical engineering from Bucknell University, an M.E.E. in electrical engineering from Cornell University, and an M.B.A. from Northeastern University.

Our board believes that Mr. Sachs should serve as a director because of his strong business judgment and financial analytical skills, which are evidenced by his experience developing business strategy at a senior management level and his success in building companies and in venture capital. In addition, Mr. Sachs has extensive business leadership experience including as a former CEO at a high technology company.

Dennis L. Winger

 

Age: 62
Director since 2009    

Mr. Winger has over 30 years of experience as a financial executive, the majority of which has focused on the life sciences industry. He retired in 2008 from Applera Corporation, a life sciences company, where he had been Senior Vice President and Chief Financial Officer since 1997. He was previously Senior Vice President of Finance and Administration and Chief Financial Officer at Chiron Corporation. Before joining Chiron, Mr. Winger held various financial executive positions, including Chief Financial Officer of The Cooper Companies, Inc. Mr. Winger is currently a director of the following public companies: Accuray Incorporated; Cephalon Inc.; and Nektar Therapeutics. In addition, Mr. Winger was a member of the Board of Directors of A.P. Pharma, Inc. during 2005 and 2006 and a member of the Board of Directors of Cell Genesys, Inc. from 2004 until its merger with BioSante Pharmaceuticals in October 2009. He holds an M.B.A. from Columbia University Graduate School of Business and he earned his undergraduate degree from Siena College.

Our board of directors determined that Mr. Winger should serve as a director based on his extensive experience as a financial executive in the life sciences industry and his experience as a productive member of the board of directors of several public biopharmaceutical companies. Mr. Winger brings financial expertise to his role as our audit committee financial expert, and as a newer board member brings a fresh perspective on strategic matters facing our company.

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Information Regarding Our Board

Our Board

        Our board of directors is our company's ultimate decision-making body except with respect to those matters reserved to the shareholders. Our board selects our senior management team, which is charged with the conduct of our business. Having selected our senior management team, our board acts as an advisor and counselor to senior management and oversees its performance. Our board of directors met ten times during 2009. Each of our director nominees and continuing directors attended 75% or more of the board meetings during 2009 that occurred while the director served on our board. Each member of our board is encouraged to attend each annual meeting of our shareholders. All of the directors who were members of the board on the date of our 2009 annual shareholder meeting attended the 2009 annual shareholder meeting.

Independence, Chairman and Lead Independent Director

        Our board has determined that eight of our ten directors qualify as "independent" under the definition of that term adopted by The NASDAQ Stock Market LLC. The directors who qualify as independent are Dr. Brimblecombe, Dr. Collinson, Dr. Cordes, Dr. Leiden, Mr. Sachs, Dr. Sanders, Ms. Ullian and Mr. Winger.

        Our chief executive officer, Mr. Emmens, also serves as the chair of our board of directors. The chair is elected from time to time by majority vote of the directors then in office. It is our board's policy that any member of the board, including our executives, may serve as the chair of the board. Our board of directors believes at this time that the most effective leadership structure for Vertex is for Mr. Emmens to serve as both chair of the board and chief executive officer.

        When the chair of the board is not an independent director, as is the case at the present, our independent directors elect a lead independent director. Our former chair of the board of directors, Dr. Sanders, currently is serving as the lead independent director. In addition to his other responsibilities in calling and leading meetings of the independent directors, which occur on a regular basis, Dr. Sanders in his role as lead independent director serves as a liaison between our management and the independent directors. Dr. Sanders reviews the planned dates for regularly scheduled board meetings and the primary agenda items for each meeting. Mr. Emmens and Dr. Sanders work in tandem to ensure that items pertinent to the advisory and monitoring functions of the board are addressed on meeting agendas and are therefore brought to the board on a regular basis for review and/or decision. Dr. Sanders reviews with the chair of each board committee agenda items that fall within the scope of the responsibilities of that committee. The board believes that this structure allows Vertex to benefit from Mr. Emmens' strong leadership of the board of directors and in-depth knowledge of Vertex while ensuring that the board, through its lead independent director and majority of independent directors, provides effective and independent oversight of our senior management team, business and affairs.

Board Committees

        Our board of directors has four standing committees: the corporate governance and nominating committee, the audit and finance committee, the management development and compensation committee, which we refer to as the MDCC, and the science and technology committee. Each of the committees has the authority to engage legal counsel or other experts or consultants, as its members deem appropriate, to carry out the committee's responsibilities. Pursuant to our Statement of Corporate Governance Principles,

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our board has determined that each of the corporate governance and nominating committee, the audit and finance committee and the MDCC must consist solely of "independent directors," as that term is defined by the Securities and Exchange Commission and The NASDAQ Stock Market LLC. Each director who served on these committees during 2009 met this independence criteria. We select independent directors as members of these committees with the expectation that they will be free of relationships that might interfere with their exercise of independent judgment. Participation in the science and technology committee is not limited to independent directors.

Corporate Governance and Nominating Committee

        Our corporate governance and nominating committee is comprised of Dr. Sanders (Chair), Dr. Cordes and Dr. Leiden. In March 2010, our corporate governance and nominating committee recommended to the board of directors, and the board of directors approved, that effective in May 2010 the members of the corporate governance and nominating committee will be Ms. Ullian (Chair), Dr. Cordes and Mr. Winger.

        Pursuant to its charter, the corporate governance and nominating committee:

    assists our board of directors in developing and implementing our corporate governance principles;

    determines the size and composition of our board and its committees;

    monitors a process to assess the effectiveness of our board;

    recommends director compensation;

    identifies qualified individuals to become members of our board; and

    recommends director nominations to the full board.

        In 2009, the corporate governance and nominating committee met five times, and each of the members attended at least 75% of the committee meetings that occurred while the member was on the corporate governance and nominating committee.

        The corporate governance and nominating committee may consider director candidates recommended by shareholders, as well as recommendations from other sources, such as other directors or officers, third-party search firms or other appropriate sources. Generally, if a shareholder wishes to propose a candidate for consideration as a nominee by the corporate governance and nominating committee, the shareholder should submit any pertinent information regarding the candidate, including biographical information and a statement by the proposed candidate that he or she is willing to serve if nominated and elected, by mail to our corporate secretary at our offices at 130 Waverly Street, Cambridge, Massachusetts 02139. If a shareholder wishes to nominate a candidate to be considered for election as a director at the 2011 annual meeting of shareholders using the procedures set forth in our by-laws, the shareholder must follow the procedures described in "Shareholder Proposals for the 2011 Annual Meeting and Nominations for Director" beginning on page 70 of this proxy statement. In general, persons recommended to the corporate governance and nominating committee by shareholders will be considered on the same basis as candidates from other sources.

Audit and Finance Committee

        Our audit and finance committee is comprised of Mr. Winger (Chair), Dr. Collinson and Mr. Sachs. Our board has determined that Mr. Winger, an independent director who serves as the chair of our audit

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and finance committee, is an "audit committee financial expert," as that term is defined in applicable regulations of the Securities and Exchange Commission.

        Pursuant to its charter, the primary purposes of the audit and finance committee are to:

    assist our board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and reporting practices; and

    review and make recommendations to our board concerning our financial structure and financing strategy.

In addition, our audit and finance committee focuses on the qualitative aspects of our financial reporting to shareholders, on our processes to manage business and financial risk and on compliance with significant applicable legal, ethical and regulatory requirements relating to our financial operations. Our independent registered public accounting firm reports directly and is held accountable to the audit and finance committee in connection with the audit of our annual financial statements and related services. Our audit and finance committee has sole authority over the appointment, compensation and oversight of the work of the independent registered public accounting firm, and where appropriate, the replacement of the independent registered public accounting firm.

        In 2009, the audit and finance committee met six times, and each member of the audit and finance committee attended at least 75% of the committee meetings that occurred while the member was on the audit and finance committee. The report of the audit and finance committee appears beginning on page 21 of this proxy statement.

MDCC

        The MDCC is comprised of Dr. Brimblecombe (Chair), Mr. Sachs and Ms. Ullian. In March 2010, our corporate governance and nominating committee recommended, and the board of directors approved, that effective in May 2010 the members of the MDCC will be Dr. Leiden (Chair), Mr. Sachs and Dr. Sanders.

        Pursuant to its charter, our MDCC:

    recommends to our full board the amount, character and method of payment of compensation of all of our executive officers;

    plans for the succession of our executives; and

    administers our stock and option plans and employee stock purchase plan.

See Executive Compensation—Compensation Discussion and Analysis below for a discussion of the MDCC's role in recommending executive compensation.

        In 2009, the MDCC met nine times, and each member of the MDCC attended at least 75% of the committee meetings that occurred while the member was on the MDCC. The report of the MDCC appears at page 38 of this proxy statement.

Science and Technology Committee

        The science and technology committee is comprised of Dr. Cordes (Chair), Dr. Boger, Dr. Brimblecombe and Dr. Collinson. Dr. Leiden will join the committee in May 2010. The science and technology committee discharges our board's responsibilities relating to the oversight of our investment in

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pharmaceutical research and development. In furtherance of that oversight function, the science and technology committee:

    reviews and assesses our current and planned research and development programs and technology initiatives from a scientific perspective;

    assesses the capabilities of our key scientific personnel and the depth and breadth of our scientific resources;

    provides strategic advice to our board regarding emerging science and technology issues and trends; and

    periodically reviews our patent portfolio and strategy.

        In 2009, the science and technology committee met four times, and each member of the science and technology committee attended at least 75% of the committee meetings that occurred while the member was on the science and technology committee.

Corporate Governance Principles

        Our governance practices are documented in our Statement of Corporate Governance Principles, which addresses the role and composition of our board and the functioning of the board and committees of our board. You can learn more about our current corporate governance principles and review our Statement of Corporate Governance Principles, committee charters, and Code of Conduct and Ethics at www.vrtx.com under "Finances/Investor Info—Corporate Governance—Governance Documents."

Risk Management

        Our board of directors discharges its overall responsibility to oversee risk management with a focus on our most significant risks. With respect to each of our drug development and commercialization programs, we face considerable risk that the program will not ultimately result in a commercially successful pharmaceutical product. While our top priority is to successfully complete the development and commercialization of telaprevir, we continue to invest significant resources in research programs and early-stage and mid-stage clinical development programs as part of our strategy to develop drug candidates in therapeutic areas with significant unmet need. The strategic and operational risks related to our research and development programs are regularly presented to the board and discussed with management at board meetings, through presentations to the board and its committees by our executive officers as well as during in-depth short- and long-term strategic reviews held at least annually.

        For certain specific risk types, our board of directors has delegated oversight responsibility to board committees as follows:

    Our audit and finance committee oversees our risk policies and processes related to quality and integrity of our accounting, auditing and reporting practices, including our audited and unaudited financial statements and internal controls. The audit and finance committee focuses on our financial structure and financing strategy and reviews and makes recommendations to our board with respect to liquidity risks. The audit and finance committee also is responsible for addressing risks arising from related party transactions.

    Our MDCC monitors the risks associated with our compensation policies and management resources, structure, succession planning, development and selection processes.

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    Our corporate governance and nominating committee oversees risks related to the company's governance structure and litigation exposure.

Policy with Respect to the Election of Directors

        Our board's policy with respect to the election of directors by shareholders is that any nominee for director in an uncontested election who receives a greater number of votes "withheld" than votes "for" the nominee's election should promptly tender his or her resignation to the chair of our board following certification of the shareholder vote. Our corporate governance and nominating committee will promptly consider the tendered resignation. Based on all factors it deems in its discretion to be relevant, the committee will recommend that our board either accept or reject the resignation or take some other action. Our board will act on the corporate governance and nominating committee's recommendation, and may either accept or reject the tendered resignation and may also adopt measures designed to address any issues perceived to underlie the election results. Following our board's decision on the corporate governance and nominating committee's recommendation, we will promptly disclose our board's decision, including, if applicable, the reasons for rejecting the tendered resignation. Any director whose resignation is being considered under this policy will not participate in the corporate governance and nominating committee or board considerations, recommendations or actions with respect to the tendered resignation.

Board Recommendation

        Our board of directors recommends that our shareholders vote FOR the election of each of the nominees to the board. A plurality of the votes cast in person or by proxy at the annual meeting is required to elect each nominee as director.

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PROPOSAL 2:
AMENDMENT TO AMENDED AND RESTATED 2006 STOCK AND OPTION PLAN

        In 2006, our board of directors adopted and our shareholders approved our 2006 Stock and Option Plan, or 2006 Plan, which was amended and restated in 2008 and further amended in 2009. In February 2010, our board approved an amendment to the 2006 Plan increasing the number of shares authorized for issuance under the 2006 Plan by 12,000,000 shares to 33,602,380 shares, subject to shareholder approval.

        The purpose of the 2006 Plan is to provide opportunities for ownership of shares of our common stock by our employees, directors, consultants and advisors in order to attract and induce them to work for our benefit and to provide additional incentive for them to promote our success. Our board of directors believes that our equity compensation program is an essential tool to attract, retain and motivate individuals with the requisite experience and ability to advance our company's interests.

        We are submitting this amendment to increase the number of shares authorized for issuance under the 2006 Plan by 12,000,000 shares to our shareholders at the 2010 annual meeting as required under applicable rules of The NASDAQ Stock Market LLC. In addition, this amendment to the 2006 Plan is being submitted to our shareholders to ensure (i) favorable federal income tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended, or the Code, for any grants of incentive stock options that we may make under the 2006 Plan and (ii) continued eligibility under Rule 162(m) of the Code to receive a federal income tax deduction with respect to compensation earned upon exercise of options under our 2006 Plan.

        As of March 17, 2010, there were 3,837,016 shares remaining available for award under our 2006 Plan. No additional awards may be granted under our other stock and option plans. We believe that we need the additional 12,000,000 shares in order to support our equity incentive programs. We believe these programs are necessary to retain and motivate current employees and to attract qualified employees to work for us in a projected high growth environment.

        As of March 17, 2010, options to purchase an aggregate of 14,371,864 shares having a weighted-average exercise price of $32.77 and a weighted-average term before expiration of 8.33 years were outstanding under our 2006 Plan, and options to purchase an aggregate of 6,754,490 shares having a weighted-average exercise price of $30.73 and a weighted-average term before expiration of 3.22 years were outstanding under our other stock and option plans. Also on March 17, 2010, there were outstanding an aggregate of 1,901,800 unvested shares of restricted stock and shares subject to restricted stock units granted under the 2006 Plan, and an additional 2,461 unvested shares of restricted stock granted under our other stock and option plans.

        On April 13, 2010, the last sales price for our common stock on the Nasdaq Global Select Market was $40.01 per share.

        The principal features of the 2006 Plan are set forth below. A copy of the Amended and Restated 2006 Plan, including Amendment No. 3, which would become effective upon shareholder approval of this proposal, is attached to this proxy statement as Appendix A.

Summary Description of the 2006 Plan

    Administration by the MDCC and Eligibility for Participation

        The 2006 Plan is administered by our board of directors or any committee to which it delegates all or a part of its administrative responsibilities under the 2006 Plan. Our board of directors has delegated the

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administration of the 2006 Plan to the MDCC. Subject to the provisions of the 2006 Plan, the MDCC has the authority to determine the persons to whom awards under the 2006 Plan will be granted, the number of shares to be covered by each award, the exercise price per share and the manner of exercise, and the terms and conditions upon which awards are granted, to accelerate the vesting or extend the date of exercise of any installment of any award, and to interpret the provisions of the 2006 Plan. Awards may be granted under the 2006 Plan to our employees, including officers and directors who are employees, and to our consultants, advisors and non-employee directors. As of March 17, 2010, we and our subsidiaries had 1,425 employees eligible to participate in the 2006 Plan.

    Description of Awards

        The 2006 Plan provides for the award of stock options, stock grants, and other stock-based awards. The 2006 Plan also provides that on or after May 15, 2008 only 20% of shares available—including shares that become available through the cancellation of outstanding options or through the repurchase of restricted stock at cost—may be granted as any type of award other than a stock option award.

    Stock Options

        Stock options granted under the 2006 Plan may be awarded as either incentive stock options within the meaning of Section 422 of the Code, referred to as ISOs, or as non-qualified options. Stock options provide award recipients with the right, subject to the terms and conditions that are specified in connection with the option grant, to purchase a specified number of shares of our common stock at a specified exercise price. Only our employees are eligible to receive ISOs. The maximum value of shares of common stock—determined at the time of grant—that may be subject to ISOs that become exercisable by an employee in any one year is limited to $100,000. Stock options granted under the 2006 Plan may not be granted with an exercise price that is less than the fair market value of our common stock on the date of grant. ISOs may not be granted with an exercise price that is less than 110% of fair market value in the case of employees or officers holding 10% or more of our voting stock. ISOs granted under the 2006 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 our voting stock. No participant may be granted options and stock-based awards in any calendar year for more than 700,000 shares, subject to adjustment for stock splits and similar recapitalizations.

        Options granted under the 2006 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.

        The 2006 Plan provides specifically for option grants to non-employee directors under our director compensation program. On the date of initial election to our board of directors, each newly elected non-employee director will automatically be granted a non-qualified stock option to purchase a specified number of shares of common stock determined from time to time by our board of directors at an exercise price equal to 100% of the fair market value per share of our common stock on the date of grant, vesting in equal quarterly installments over a period of four years from the date of grant. Currently, a newly elected non-employee director receives an option to purchase 30,000 shares of our common stock. In addition, each non-employee director serving in office on June 1 of any year is granted a fully vested non-qualified stock option to purchase a specified number of shares determined from time to time by our board of directors. The chair of our board, if the chair is an independent director, or the lead independent director, if the chair is not an independent director, receives an additional grant on June 1, in each case at an

15



exercise price equal to 100% of the fair market value per share of our common stock on the date of grant. Currently, the June 1 annual grant for each director is for 20,000 shares of common stock, and the additional grant to the chair or lead independent director is for 20,000 shares of common stock. These options are fully exercisable immediately and have a term of ten years.

        The 2006 Plan permits the MDCC to determine the manner of payment of the exercise price of options. Such methods include payment by cash, by check, by means of a broker-assisted "cashless exercise," by surrender to us of shares of our common stock, by any combination of such methods, or by any other lawful means, other than delivery of a promissory note, approved by the MDCC.

    Stock Grants

        A stock grant is an award of shares of common stock. Stock grants may be issued subject to restrictions on transfer and vesting requirements, as determined by the MDCC. Vesting requirements may take the form of our lapsing right to repurchase the stock from the award recipient, based on either continued employment for specified time periods or on the attainment of specified business performance goals set by our board of directors or the MDCC. Subject to the transfer restrictions and our repurchase rights, if any, the grantee will have all rights with respect to unvested shares of common stock issued under a stock grant as are possessed by our other shareholders, including all voting and dividend rights.

    Stock-Based Awards

        The 2006 Plan provides that the MDCC may grant other stock-based awards, including share grants based upon specified conditions, the grant of securities convertible into shares, or the grant of stock appreciation rights, phantom stock awards or stock units, in each case upon terms and conditions established by the MDCC.

    Adjustments in the Event of Stock Dividends, Stock Splits, Recapitalizations or Reorganizations

        The number of shares subject to stock rights and other terms applicable to such rights will be equitably adjusted if we issue a stock dividend, or in the event of a stock split, recapitalization or reorganization. In addition, in the event of certain consolidations or acquisitions or a sale of substantially all of our assets, either (i) the MDCC or the entity assuming our obligations under the 2006 Plan shall make appropriate provision for the continuation of all outstanding stock rights under the 2006 Plan or grant replacement stock rights on an equitable basis as determined by the MDCC or the relevant entity, or (ii) the vesting of all outstanding and unvested stock rights under the 2006 Plan will be accelerated and such stock rights will become fully exercisable immediately prior to such consolidation, acquisition or sale.

    Effective Date, Amendment and Expiration

        The 2006 Plan originally was adopted by our board of directors on March 29, 2006 and will terminate on March 28, 2016. Our board of directors may terminate or amend the 2006 Plan at any time, subject to shareholder approval under certain circumstances as provided in the 2006 Plan. No amendment or termination of the 2006 Plan will adversely affect the rights provided in any award made under the 2006 Plan prior to the plan amendment or termination. No award may be made under the 2006 Plan after the plan expiration date. Awards made prior to expiration of the plan may extend beyond the plan expiration date.

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    U.S. Federal Income Tax Consequences

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

        Non-Qualified Stock Options.    Options that are designated as non-qualified options are not intended to qualify for treatment under Section 422 of the Code. Options otherwise qualifying as ISOs, to the extent the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar year exceeds $100,000, also will be treated as options that are not ISOs.

        A non-qualified option ordinarily will not result in income to the optionee or a deduction for us for tax purposes at the time of grant. Instead, the optionee will recognize compensation income at the time of exercise of a non-qualified option in an amount equal to the excess of the fair market value of the shares at the time of exercise over the option exercise price. Any compensation income may be subject to withholding taxes, and a deduction may then be allowable to us in an amount equal to the optionee's compensation income.

        An optionee's initial basis in shares so acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income. Any gain or loss as a result of a subsequent disposition of the shares so acquired will be capital gain or loss.

        Incentive Stock Options.    ISOs are intended to qualify for treatment under Section 422 of the Code. An ISO does not result in taxable income to the optionee or a deduction for us at the time it is granted or exercised, provided that the optionee does not dispose of the shares acquired pursuant to the option either within two years after the date of grant of the option or within one year after the shares are issued, referred to as the ISO holding period. However, the difference between the fair market value of the shares on the date of exercise and the option price will be an item of tax preference that is included in alternative minimum taxable income. Upon disposition of the shares after the expiration of the ISO holding period, the optionee generally will recognize long-term capital gain or loss based on the difference between the disposition proceeds and the option price paid for the shares. If the shares are disposed of prior to the expiration of the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction, in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option over the option price. Any additional gain realized on the disposition normally will constitute capital gain. If the amount realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount of compensation income will be limited to the excess of the amount realized over the optionee's adjusted basis in the shares.

        Stock Grants.    With respect to stock grants that result in the issuance of shares that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of shares received. Thus, deferral of the time of issuance generally will result in the deferral of the time the grantee will be liable for income taxes with respect to such issuance. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.

        With respect to stock grants involving the issuance of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee generally must recognize ordinary income equal to the fair market value of the shares received at the time the shares become transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. A grantee may elect to be taxed at the time of

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receipt of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the shares on which the grantee previously paid tax. The grantee must file any such election with the Internal Revenue Service within 30 days of the receipt of the shares. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.

    New Plan Benefits

        Amounts of future grants under the 2006 Plan are not currently determinable because awards under the 2006 Plan will be granted at the sole discretion of the MDCC, or other delegated persons, and we cannot determine at this time either the persons who will receive future awards under the 2006 Plan or the amount or types of any such awards.

Board Recommendation

        Our board of directors recommends a vote FOR the approval of the amendment to our Amended and Restated 2006 Stock and Option Plan to increase the number of shares of common stock authorized for issuance by 12,000,000. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the approval of this proposal.


EQUITY COMPENSATION PLAN INFORMATION

        The following table provides aggregate information with respect to all of our equity compensation plans in effect as of December 31, 2009.

Plan Category
  Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
  Weighted-Average
Exercise Price of
Outstanding Options
  Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in first column)
 

Equity Compensation Plans Approved by Shareholders (1)

    17,448,840   $ 32.54     7,976,534  

Equity Compensation Plans Not Approved by Shareholders (2)

    1,489,144   $ 12.23     0  
                 

Total (3)

    18,937,984   $ 30.94     7,976,534  
                 

(1)
These plans consist of our 1991 Stock Option Plan, our 1994 Stock and Option Plan, the 2006 Plan and our Employee Stock Purchase Plan, and awards granted under our 1996 Stock and Option Plan for which we obtained shareholder approval.

(2)
This category consists of certain options issued under our 1996 Stock and Option Plan for which we were not required to and did not obtain shareholder approval.

(3)
This table does not include options outstanding on December 31, 2009 to purchase an aggregate of 293,741 shares of our common stock at a weighted-average exercise price of $59.40 that were assumed by us in connection with our acquisition of Aurora Biosciences Corporation on July 18, 2001.

        Please refer to Note C, "Common and Preferred Stock," to the consolidated financial statements included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 19, 2010, for a description of the material features of the 1996 Stock and Option Plan.

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PROPOSAL 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

        Our audit and finance committee is responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Our audit and finance committee appointed Ernst & Young LLP to perform the independent audit, review and attestation services with respect to our financial statements for the fiscal year ended December 31, 2009 and has appointed Ernst & Young LLP to perform these services for the fiscal year ending December 31, 2010.

        If this proposal is not approved at the annual meeting, our audit and finance committee will reconsider the selection of Ernst & Young LLP for the ensuing fiscal year, but may determine that continued retention of Ernst & Young LLP is in our company's and our shareholders' best interests. Even if the appointment is ratified, the audit and finance committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our company's and our shareholders' best interests.

        We expect representatives of Ernst & Young LLP to be present at the annual meeting. They will have the opportunity to make a statement if they desire to do so and will also be available to respond to appropriate questions from shareholders.

Board Recommendation

        Our board of directors recommends that our shareholders vote FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2010. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the approval of this proposal.


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Policy on Audit and Finance Committee Pre-approval of Audit and Permissible Non-audit Services of Independent Registered Public Accounting Firm

        Our audit and finance committee has established a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. Prior to the engagement of the firm for each year's audit, management submits to our audit and finance committee for approval a description of services expected to be rendered during that year for each of the following four categories of services and a budget for those services in the aggregate.

    Audit services include audit work performed in the preparation of financial statements, as well as work that generally only our independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, consents and attestation services.

    Audit-related services are for assurance and related services that traditionally are performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, special procedures required to meet certain regulatory requirements and consultation regarding financial accounting and/or reporting standards.

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    Tax services include all services performed by the independent registered public accounting firm's tax personnel except those services specifically related to the audit of the financial statements, and include fees in the areas of tax compliance, tax planning and tax advice.

    All other fees are those associated with services not captured in the other categories.

        Prior to engagement, our audit and finance committee pre-approves these services by category of service. The fees are budgeted and our audit and finance committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, our audit and finance committee requires that we obtain specific pre-approval for these services.

        The audit and finance committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report any pre-approval decisions to our audit and finance committee at its next scheduled meeting for informational purposes.

Independent Registered Public Accounting Firm Fees

        Aggregate fees billed to us for the fiscal years ended December 31, 2009 and 2008 by our independent registered public accounting firm Ernst & Young LLP were as follows:

 
  2009   2008  

Audit fees:

  $ 1,080,499   $ 940,093  

Audit-related fees:

    285,569     175,000  

Tax fees:

    43,145     95,810  

All other fees:

    945      
           
 

Total

  $ 1,410,158   $ 1,210,903  
           

        "Audit fees" represented the aggregate fees billed to us for professional services rendered for the audit of our annual consolidated financial statements, and our internal controls over financial reporting, for the reviews of the consolidated financial statements included in our Form 10-Q filings for each fiscal quarter, for statutory audits of our international operations, consents, preparation of comfort letters and providing consents with respect to registration statements.

        "Audit-related fees" consisted principally of fees for accounting consultations, including consultations regarding our acquisition of ViroChem Pharma Inc.

        "Tax fees" consisted of fees related to tax compliance and tax advice.

        "All other fees" consisted of licensing fees paid to Ernst & Young LLP for access to its proprietary accounting research database.

        None of the services set forth above in the categories "audit-related fees," "tax fees" and "all other fees" were approved by our audit and finance committee pursuant to Rule 2-01(c)(7)(i)(C), which relates to the approval of a de minimis amount of non-audit services after the fact but before completion of the audit.

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AUDIT AND FINANCE COMMITTEE REPORT

        The Audit and Finance Committee of the Board of Directors (the "Audit Committee") of Vertex Pharmaceuticals Incorporated (the "Company"), which consists entirely of directors who meet the independence and experience requirements of the Securities and Exchange Commission and The NASDAQ Stock Market LLC, has furnished the following report:

        The Audit Committee assists the Company's Board of Directors in overseeing and monitoring the integrity of the Company's financial reporting process, compliance with legal and regulatory requirements related to financial reporting and the quality of internal and external audit processes. The committee's roles and responsibilities are set forth in a written charter, which is available on the Company's website www.vrtx.com under "Finances/Investor Info—Corporate Governance—Governance Documents." Among its duties, the Audit Committee is responsible for recommending to the Company's Board of Directors that the Company's financial statements be included in the Company's Annual Report on Form 10-K. As a basis for that recommendation, the Audit Committee engaged in the following activities. First, the Audit Committee discussed with Ernst & Young LLP ("Ernst & Young"), the Company's independent registered public accounting firm for 2009, those matters that Ernst & Young is required to communicate to and discuss with the Audit Committee by the Public Company Accounting Oversight Board (United States) Auditing Standard AU Section 380 (The Auditor's Communication With Those Charged With Governance), which included information regarding the scope and results of the audit. These communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. Second, the Audit Committee discussed with Ernst & Young the firm's independence, and received from Ernst & Young the written disclosures and the letter concerning independence as required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526 (Communication with Audit Committees Concerning Independence). This discussion and disclosure informed the Audit Committee of Ernst & Young's relationships with the Company and was designed to assist the Audit Committee in considering Ernst & Young's independence. Finally, the Audit Committee reviewed and discussed, with Ernst & Young and with the Company's management, the Company's audited consolidated balance sheet at December 31, 2009, and the Company's consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for the year ended December 31, 2009, including the notes thereto.

        Management of the Company is responsible for the consolidated financial statements and reporting process, including establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. The independent registered public accounting firm is responsible for expressing an opinion on the conformity of these consolidated financial statements with accounting principles generally accepted in the United States, as well as expressing an opinion on the effectiveness of internal control over financial reporting.

        During 2009, management tested and evaluated the Company's system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. At the conclusion of the process, management provided the Audit Committee with a report on the effectiveness of the Company's internal control over financial reporting, which the Audit Committee reviewed. The Audit Committee also reviewed the report of management

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contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission, as well as Ernst & Young's Reports of Independent Registered Public Accounting Firm included in the Company's Annual Report on Form 10-K. The latter reports relate to Ernst & Young's audit of (i) the consolidated financial statements and (ii) the effectiveness of internal control over financial reporting.

        Based on the discussions with Ernst & Young concerning the audit, the independence discussions, and the discussions with the Company's management and Ernst & Young concerning the financial statement review and discussions, and such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Company's Board of Directors that the consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. This report is provided by the following independent directors, who comprise the Audit Committee:

Dennis L. Winger (Chair)
Stuart J. M. Collinson
Bruce I. Sachs

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview

        We are in the business of discovering, developing and commercializing small molecule drugs for the treatment of serious diseases. Our core purpose is to innovate to transform lives with new medicines, which we believe will create long-term value for our shareholders. We are in a period of rapid expansion because we are preparing for the possible launch and commercialization of telaprevir, our lead drug candidate for the treatment of hepatitis C virus, or HCV, infection. Our goal is to become a fully-capable biopharmaceutical company with industry-leading capabilities in research, development and commercialization of innovative drugs.

        We have built, and expect to continue to build, an executive leadership team with the expertise and experience that we need as we expand our capabilities in late-stage drug development, drug supply, registration and commercialization of pharmaceuticals. The market for these individuals is very competitive, particularly at this stage in our growth. Many of the companies with which we compete for executive talent are much larger and better financed than we are, with longer corporate histories, and thus may appear to potential executives to present a lower risk than we do. In order to attract and retain talented executives, we provide shorter-term compensation elements that rival those of our competitors, such as base salary, a performance-based annual cash bonus opportunity, and a generous benefits program. However, we also try to conserve our cash resources, because we require significant amounts of capital to fund our operations and are not yet profitable. We do not fund expensive perquisites for our executives. Our compensation program anticipates that a significant portion of each executive's annual compensation will be in the form of stock option grants and restricted stock grants that vest over time, or upon achievement of pre-determined goals. This program is designed to provide a significant return to our employees if we are successful, in part to balance the perception of higher risk. We expect the value of these grants to reflect our performance over the longer term. We believe that including equity-based awards in our compensation program attracts and motivates executives to set and achieve goals that drive us to long-term success.

Executive Summary

        Compensation Objective and Philosophy:    The objective of our executive compensation program is to attract, retain and motivate talented, experienced leaders who will be responsible for executing our business plan. We regularly review our compensation philosophy, elements and amounts, and make adjustments as changing circumstances require. Our philosophy is that the compensation paid to executives should:

    reward desired performance and behaviors;

    be competitive in amount relative to compensation paid by the companies that compete with us for executive talent; and

    reflect a balance of elements so that a significant portion is bonus or equity-based and therefore "at-risk," to better align the executives' financial interests with the interests of our shareholders.

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        Compensation Elements:    The elements of our annual executive compensation program are:

    base salary;

    annual cash bonus;

    stock option grants;

    restricted stock grants; and

    health insurance and other benefits available to all our employees, including matching payments under our 401(k) plan and payment of life insurance premiums.

        We set target levels for cash bonuses and equity awards at amounts designed to make us competitive for talent. Each executive's annual cash bonus and equity awards are then adjusted from target levels, as appropriate, on the basis of company and individual performance for the prior year. The application of these "performance-multipliers" can result in compensation that is significantly lower or higher than target levels, which we believe provides a meaningful performance incentive.

        We also occasionally make supplemental grants of restricted stock or stock options to our executive officers, as business needs dictate. When we hire new executives, we typically pay sign-on cash bonuses, award new-hire grants of restricted stock and stock options and reimburse moving expenses. We also have entered into employment contracts providing for severance and change-of-control payments with each of the members of our executive team, including all of the named executive officers, because we believe that they are a fair and effective way to maintain focus on our business in the face of market and other volatility in our industry.

        Compensation Decision-Making Process:    The MDCC oversees the design, development and implementation of the compensation program for all of our executive officers. Compensation decisions generally are made on an annual basis, in all cases by our board of directors on the basis of recommendations from the MDCC. The board of directors sets performance goals for the company and salaries for the executives early each year. Then, shortly after the end of that year the board of directors assigns performance ratings and awards bonuses and equity grants, in each case at a regularly-scheduled meeting. In formulating its recommendations, the MDCC consults with members of our human resources department, particularly our vice president of compensation and benefits, and engages independent consultants to advise it on specific matters when it deems it appropriate. The MDCC reviews and may recommend that the board of directors adjust compensation elements or amounts throughout the year. In 2009, the MDCC engaged Hewitt Associates to conduct a review of available compensation data from comparator group companies to consider whether or not adjustments to the salaries, target levels of cash and equity compensation, or performance-based adjustment factors used in our compensation program were warranted. In early 2009, the MDCC also engaged Hewitt to advise generally with respect to an employment arrangement with Matthew W. Emmens. Mr. Emmens began employment with us as our president in February 2009, and became our president, chairman and chief executive officer on May 23, 2009. Hewitt's engagement included advice with respect to CEO compensation generally, as well as proposed revisions to the composition of our comparator company group, as discussed more fully under the heading Compensation Decision-Making Process—Analysis of Compensation Practices of Comparator Companies.

        The materials that management provides to the MDCC often include recommendations with respect to compensation levels and performance ratings, which the MDCC considers but does not view as

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determinative. Final compensation decisions are approved by our full board of directors, after discussion of the MDCC's recommendations. Mr. Emmens, our chief executive officer, discusses his performance with the MDCC, but does not participate in board decisions regarding his own compensation.

Detailed Analysis and Discussion

Elements of Compensation

        The elements of our annual executive compensation program are base salary, annual cash bonus, stock option grants, restricted stock grants, and health and other benefits available to all our employees, including matching payments under our 401(k) plan and payment of life insurance premiums. Each year we review the balance of the elements of our executive compensation program to ensure that we have appropriately designed each element in light of our goals of aligning the program with our shareholders' interests, the competitive environment and our business strategy. We expect that we may adjust our approach to some or all of these elements over time as our company and our business evolve.

Base Salary

        The MDCC reviews the executive officers' base salary levels each calendar year in conjunction with our annual performance review process, which is described more fully below under the heading Performance-Based Elements of Compensation—Annual Cash Bonus and Equity Awards.

        The MDCC currently recommends base salaries for each of our executive officers on the basis of a market analysis, on a position-by-position basis. Annually, the MDCC reviews tables showing a comparison of each executive's prior year base salary and bonus opportunity, at the target level, to salaries and bonuses reported for executives with similar responsibilities at specified comparator companies. For a discussion of our practices in selecting comparator companies, the identity of our comparator companies, and our use of comparative compensation data, see the discussion below at Compensation Decision-Making Process—Analysis of Compensation Practices of Comparator Companies. We do not benchmark to a particular level of compensation relative to compensation levels at the comparator companies. Instead, we make a subjective judgment about where each executive should fall in comparison with executives with similar responsibilities at the comparator companies, taking into account the executive's general level of experience and capability, the significance of his or her job responsibilities to achievement of our business strategy and company goals, and general performance over time, including demonstration of the values and desirable behaviors under our core values program. On the basis of that information, and taking into consideration the executive's base salary for the previous year, the MDCC independently determines an appropriate salary for each named executive officer.

        In each year from 2008 to 2010, the MDCC has recommended that the named executives' base salaries be increased early in the year by 3%, to roughly account for any increases in the cost-of-living, with the intention of further reviewing base salary levels later in each year when relevant executive compensation data from comparator companies for the prior year becomes available. In January 2009, the MDCC increased Dr. Boger's base salary for the period from February 2009, when Mr. Emmens joined us as president, until May 2009, when Dr. Boger was to step down as CEO, to $950,151, which was the midpoint of the range for CEOs in our comparator company group, because the MDCC believed it was appropriate to set Dr. Boger's salary with reference to the comparator group company CEOs, as it did when establishing Mr. Emmens' salary, and that it would be inappropriate, given Dr. Boger's experience and performance in 2009, as well as during the life of the company, to set his salary lower than the

25



midpoint. Believing as a result of ongoing negotiations that a higher base salary would be required to attract Mr. Emmens to join Vertex, the MDCC agreed to a base salary of $1,100,000 for Mr. Emmens, putting his total cash compensation near the top of the range for comparator company CEOs. At its regularly scheduled July 2009 meeting, the MDCC also conducted a review of the base salaries for the named executive officers but made no changes, except that the MDCC recommended an increase in Dr. Mueller's base salary to $550,000 in connection with his taking on additional responsibility for our drug development organization as well as early research and drug discovery. In making this determination, the MDCC was provided and considered comparator group proxy data, industry survey data, the levels of named executives' salaries relative to one another, and management's recommendation, as prepared by our vice president of compensation and benefits. In December 2009, when we hired Nancy J. Wysenski to join us as executive vice president and chief commercial officer, the board of directors approved her starting base salary of $460,000, which was negotiated as part of her initial employment agreement. In February 2010, a 3% pay raise for the named executives resulted in establishment of base salaries for the other named executives as follows: Mr. Emmens, $1,133,000; Mr. Smith, $477,405; Dr. Mueller, $566,500; and Mr. Sachdev, $376,884.

Performance-Based Elements of Compensation—Annual Cash Bonus and Equity Awards

        Two of the principal elements of our executive compensation program—annual cash bonus and annual equity grants—are awarded in amounts determined on the basis of performance, which is evaluated annually. The annual cash bonus is determined based on a formula that incorporates the executive's base salary, target bonus and separate company-wide and individual performance ratings for the completed year. Annual equity award amounts are adjusted to reflect the executive's individual performance rating for the preceding year.

        At the beginning of each calendar year, our board of directors, in consultation with our chief executive officer, establishes company-wide goals for that year. Actual company performance against these goals is the most important factor considered by the board in assessing our corporate performance, but our board also considers all other factors it deems relevant in its evaluation. The performance ratings are intended to reflect performance at one of the following levels:

Company Rating
  Level of Company Performance
Leading   Exceptional performance across our business, including successful execution of our business plan, achievement of a very high proportion of our performance goals, significant additional accomplishments exceeding our original goals, and the absence of significant business setbacks.
Strong   A high level of performance, in which a substantial majority of performance goals were met and our business plan for the year was achieved.
Building   Failure to successfully implement a substantial portion of the annual performance goals for any reason, including a failure by management to execute our business plan, whether or not due to events outside our control.
Not Building   Unacceptable and disappointing performance. Significant improvement required and expected.

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        The MDCC evaluates executives' individual performances on a "results-based, values-tempered" basis, which takes into account not only "what" was accomplished, but "how" it was accomplished. The results-based component evaluates the executive officer's performance in his or her individual role and as a leader of our company in achieving our objectives. The possible individual results-based performance ratings are "leading," "strong," "building" or "not building," with standards comparable to the company ratings set forth in the table above. The values-tempered component of the individual evaluations builds upon our three company core values: "innovation is our lifeblood;" "fearless pursuit of excellence;" and "we wins." Under our Values Into Practice program, we expect all employees to demonstrate our company core values in all aspects of job performance. We further expect that our executives will be stewards of our core values, and the performance ratings assigned to them incorporate our board's assessment of the strength of their leadership with respect to, and demonstration of, values-based behavior. This evaluation results in ratings of "not demonstrating," "living the values" or "exemplary demonstration." The "results" and "values" components of the individual rating combine for an overall individual rating of "leading/exemplary," "leading," "strong," "building" or "not building" as set forth in the following table.

 
  Results Evaluation
Values Evaluation
  Not Building   Building   Strong   Leading

Exemplary Demonstration

  [Not Possible]   Strong   Leading   Leading/Exemplary

Living the Values

  Not Building   Building   Strong   Leading

Not Demonstrating

  Not Building   Not Building   Building   [Not Possible]

        The company-wide and individual performance ratings, along with other factors as described below, are applied to determine the size of awards made to the executives under our annual cash bonus program and stock and option plan.

    Annual Cash Bonus

        Our annual cash bonus program is designed to reward our employees, including the named executive officers, for accomplishment of the previous year's annual performance objectives. The amount to be paid to each of the named executive officers under the annual cash bonus program is determined on the basis of the following formula:

Target Bonus    
  Performance Factors    
   
Base Salary   ×   Individual
Incentive
Target
(expressed as
a percentage
of base
salary)
  ×   Company
Performance
Factor
(expressed as
a percentage
of the target
bonus)
  ×   Individual
Performance
Factor
(expressed as
a percentage
of the target
bonus)
  =   Annual
Cash
Bonus
Award

        Target Bonus:    The amount calculated by multiplying an employee's base salary by his or her individual incentive target is referred to as the target bonus. Individual incentive targets are established solely on the basis of responsibility level, and are higher for positions of greater responsibility. Thus, a greater portion of annual cash compensation—salary plus bonus—is at-risk for our executives than for our non-executive employees, which is consistent with our policy that a significant portion of executive compensation should be performance-based and at-risk.

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        The individual incentive targets assigned to each level were determined in 2005 using available information about comparator group companies at that time. In 2007, 2008 and 2009, the MDCC engaged Hewitt Associates to conduct a review of available data about comparator company compensation. As a result of its analysis of these data, the MDCC concluded that the aggregate cash compensation—base salary plus target bonus—using the incentive targets set in 2005 was in the appropriate range.

        In early 2009, in conjunction with planning for our leadership transition, our board decided to increase the individual incentive target for the CEO to 115% of base salary. The MDCC, in making this recommendation to the board, reviewed comparator company data and concluded that the aggregate cash compensation proposed for Mr. Emmens—base salary plus target bonus—was on the upper end of but within the appropriate range, and that this was desirable and necessary to recruit Mr. Emmens. At the same time, the MDCC set Dr. Boger's incentive target for 2009 to the midpoint of the range for comparator company CEOs (similar to Dr. Boger's base salary as discussed above), which is 100% of base salary. Because Dr. Boger's employment terminated in May 2009, he was not eligible for and did not receive a bonus on account of 2009 performance, although his target bonus was factored into calculations of payments under his transition agreement. Accordingly, for 2009, the target bonuses were:

 
  Individual Incentive Target
(expressed as a percentage
of base salary)
 

Chief Executive Officer

    115 %

Executive Vice President

    40 %

Senior Vice President and Member of Executive Team

    35 %

        We expect that the MDCC will review available data about comparator company compensation during 2010 once it becomes available, and that this analysis could lead to recommended further adjustments to the 2010 individual incentive targets.

        Performance Factors:    The target bonus is subject to adjustment on the basis of performance factors for the applicable year, including factors based on both the individual and company performance ratings. These adjustments allow for payouts significantly above the target bonus in a year where both the individual executive and Vertex significantly exceed performance expectations. It also provides for awards significantly below the target bonus in years in which Vertex and/or the executive falls short of performance expectations.

        Company Performance Factors.    When our board of directors assigns a performance rating for the completed year, it also assigns two company performance factors—one for our executives and one for all other employees. The possible company ratings and corresponding company performance factor ranges for our executive officers are set forth in the table below.

Company Rating
  Company Performance
Factor

Not Building

  0%-25%

Building

  0%-80%

Strong

  80%-120%

Leading

  120%-150%

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        Individual Performance Factors.    The possible individual ratings and corresponding individual performance factor ranges for our executive officers are set forth in the table below:

Individual Rating
  Individual Performance Factor

Not Building

  0%

Building

  50%-80%

Strong

  80%-120%

Leading

  120%-150%

Leading/Exemplary

  150%

    Annual Equity Awards

        Stock awards made under our 2006 Plan are granted to all eligible employees, including the named executive officers, for the purpose of creating a link between compensation and shareholder return, and to provide the named executive officers and employees with the opportunity to develop and maintain a significant stock ownership position in our company that will act through delayed vesting as an incentive for the employee to remain employed by us. The number of shares awarded increases with increased responsibility and with higher year-end individual performance ratings.

        Each of the named executive officers is eligible for a combined grant of stock options and restricted stock, in amounts finally determined by the board of directors during the annual performance review process. Grants to employees are made under a shareholder-approved stock and option plan. All annual performance-based stock option awards are granted with an exercise price determined by averaging the high and low price of our common stock on the date of grant, and vest quarterly over four years. Accordingly, the intrinsic value of any stock option grant is proportional to both the increase in fair market value of the stock between grant and exercise, and to the increasing number of vested shares over time. We grant stock options as a retention tool, progressively rewarding an executive for time-in-service. Stock options also serve to motivate executives to achieve company financial success, because stock options have realizable value only if the value of our common stock increases after the grant date.

        All restricted stock awards made to our named executive officers under our annual program are issued at par value, or $0.01, and vest on the fourth anniversary of the grant date, subject to accelerated vesting for certain performance-based factors. Shares that are vested may be sold by the holder without transfer restrictions, but unvested shares may not be sold. For annual restricted stock grants made to executive officers in 2007 and 2008, half of the shares vest earlier than the fourth anniversary if the market price of our stock achieves and maintains $60.00 per share, and the other half of the shares vest earlier than the fourth anniversary if our common stock price outperforms the Amex Biotechnology Index, or BTK Index, for two consecutive years. The 2007 grant vested with respect to 50% of the shares on January 24, 2010 because our common stock price outperformed the BTK Index for years ending on the anniversary date of the grant in each of 2009 and 2010.

        In February 2009, the MDCC recommended to our board that we change the performance-based acceleration factors to better reflect advancement toward possible regulatory approval and commercial launch of our first drug product, telaprevir. Accordingly, for the restricted stock grants made to executive officers in February 2009, the shares vest on the fourth anniversary of the grant date, subject to accelerated vesting of half of the shares upon acceptance by the United States Food and Drug Administration, or FDA, of a New Drug Application, or NDA, for telaprevir. The other half would vest earlier than the fourth anniversary upon FDA approval of the NDA for telaprevir. The restricted stock grants made to executive

29



officers in February 2010, on account of 2009 performance, also vest on the fourth anniversary of the grant date, subject to accelerated vesting. Half of the shares will vest early upon approval of the NDA for telaprevir, and half of the shares will vest early upon achieving specified sales levels of telaprevir in the first 18 months after product launch or the launch of any additional drug beyond telaprevir prior to December 31, 2012.

        Restricted stock grants serve principally as a retention tool, because they have value that is not limited, as is the case with stock options, to any increase over the prevailing stock price on the date of grant. Restricted stock grants also are linked to performance, however, in the sense that they are more valuable if the stock price increases, and because they vest sooner if the performance-based accelerators are achieved. Additional information regarding our equity grant practices is set forth under the heading Compensation Decision-Making Process—Equity Grant Practices.

        For 2009 performance, the executive officers were eligible for equity grants in the amounts set forth in the following table:

 
  Rating  
 
  Building   Strong   Leading   Leading and Exemplary  
 
  Restricted
Stock
  Stock
Options
  Restricted
Stock
  Stock
Options
  Restricted
Stock
  Stock
Options
  Restricted
Stock
  Stock
Options
 

Chief Executive Officer

    22,027     165,200     31,467     236,000     39,334     295,000     47,201     354,000  

Executive Vice President

    6,767     50,750     9,667     72,500     12,084     90,625     14,501     108,750  

Senior Vice President and Member of Executive Team

    5,693     42,700     8,133     61,000     10,166     76,250     12,200     91,500  

        In each year beginning in 2003, our board of directors at its regularly scheduled summer meeting has awarded a mid-year stock option grant. Ordinarily, our board grants stock options to all eligible employees, including the named executive officers, in an amount that is 50% of the number of shares for which the employee would be eligible assuming a "strong" performance. This grant is considered part of the annual equity award related to performance in that year. Upon completion of the individual's annual performance evaluation early in the following year each employee typically receives a second option award. At that time, we determine the aggregate number of shares to be awarded for the entire year on the basis of the table above, and award the balance after adjusting on the basis of the executive officer's individual performance rating and subtracting the amount granted in the mid-year award.

    2009 Compensation Decisions for Performance-Based Elements.

        Company Rating—Our board of directors evaluated overall 2009 company performance against four goals that it established early in 2009:

    meet or exceed mission critical milestones toward a successful launch of telaprevir, and strengthen our HCV franchise;

    maintain financial strength;

    build organizational strength; and

    demonstrate increase in portfolio value beyond HCV.

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        The MDCC recommended and the board determined that our company performance rating for 2009 was "Leading." The board set the company performance factor for the 2009 executive bonus pool at 150%, which is the highest possible performance factor under our program. This rating was based on our having achieved or exceeded all four of the pre-determined goals. In reaching this determination, the board considered the following:

    Telaprevir and HCV Franchise—We advanced toward a successful future launch of telaprevir by successfully completing patient enrollment and telaprevir dosing in all Phase 3 telaprevir clinical trials, demonstrating readiness for commercial supply of telaprevir and building inventory for commercial launch, conducting appropriate value analyses for telaprevir, executing on the telaprevir life-cycle plan through BID dosing and HCV/HIV co-infection clinical trials, and we successfully strengthened our HCV franchise by securing rights to VX-222, consistent with our strategy of investigating "STAT-C" (oral combination) therapy for HCV infection, through the acquisition of ViroChem Pharma Inc.

    Financial Strength—We demonstrated financial strength by finishing the 2009 fiscal year with approximately $1.285 billion in cash, cash equivalents and marketable securities, including cash realized from restructuring our Mitsubishi Tanabe license arrangement and through financial transactions relating to our rights to future milestone payments under our Janssen Pharmaceutica collaboration agreement, and by managing our net cash loss for 2009 to approximately $510 million.

    Organizational Strength—We successfully managed a series of leadership transitions in our executive ranks involving our CEO, chief commercial officer, chief medical officer and head of global research & development; established a 5-year corporate vision and long-range plan, and effectively expanded our capabilities in the areas of research, development and pharmaceutical commercialization.

    Portfolio Value—We demonstrated increased value in our non-HCV programs, including progressing our CF program into a Phase 3 clinical program for VX-770, commencing a Phase 2 clinical trial of VX-809 and defining a regulatory pathway for a CF corrector/potentiator combination; preparing our JAK3 inhibitor, VX-509, for Phase 2 clinical investigation in patients with RA; submitting a satisfactory protocol for Phase 2 clinical trials of VX-765 in epilepsy; and continuing research productivity by producing several early-stage molecules suitable for further study.

Although the directors discuss and analyze our performance as a group, each director makes his or her own judgment about which factors are important, and how to weight those factors in reaching a conclusion.

        Individual Ratings for Named Executive Officers—The MDCC recommends to the board for approval both a results-based and a values-based rating for each of our executives. The results-based rating recommendation for each named executive is the combined result of the committee members' observations and review of the officer's role in the accomplishment of the corporate goals, and factors and recommendations provided to the MDCC by our chief executive officer, Mr. Emmens, made on the basis of Mr. Emmens' independent assessment of each executive officer's performance. The MDCC and Mr. Emmens discussed the recommendations at length, on both an individual-by-individual basis, and on a comparative basis. Upon completion of these discussions, the MDCC finalized its recommendation for the results-based rating for each executive, taking into account Mr. Emmens' recommendations, factors considered in the discussions, and the opinions of committee members based on the executive's contributions and the members' interactions with the executive. When considering the more subjective values-based rating, the MDCC also discussed Mr. Emmens' recommendations, giving them greater weight than for the results-based rating, because the values-based rating is pertinent to the executive's daily

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interactions in carrying out his or her duties, and the MDCC believes that in his role as CEO, Mr. Emmens has greater visibility than the committee members into the quality of these interactions.

        Mr. Emmens also discussed his own performance in 2009 with the MDCC. Mr. Emmens noted that Vertex's performance rating was the highest possible under our system, due to our exceptional performance across all aspects of the business. The board of directors determined that Mr. Emmens' rating similarly should be at the highest possible level, and rated Mr. Emmens' 2009 performance as "leading." For values-based behavior, the board of directors believes that Mr. Emmens is an exceptional leader who exhibits exemplary values-based behavior, and accordingly, assigned Mr. Emmens a values-based rating of "exemplary demonstration."

        The MDCC recommended results-based and values-based ratings for each of Dr. Mueller, Mr. Sachdev and Mr. Smith to the board of directors. Ms. Wysenski joined us in December 2009, and thus was ineligible for year-end bonus or equity awards on account of 2009 performance. The MDCC recommended and the board of directors approved a results-based rating of "leading" for Dr. Mueller, because in addition to consistent and excellent research productivity, Dr. Mueller oversaw a year of extraordinary success for the pharmaceutical operations and the chemistry, manufacturing and controls programs, particularly for the telaprevir Phase 3 clinical trial and launch preparation. He also successfully took on additional responsibility for our development organization mid-year. Dr. Mueller was rated "exemplary" for values-based behavior in his leadership of our entire scientific organization. Similarly, the MDCC's recommendation for Mr. Sachdev's performance rating of "leading," based in part on a number of initiatives in the public sector that have the potential to increase the value of our HCV franchise, was adopted by the board. Mr. Smith's organization, which includes finance and accounting, real estate, operations, information systems and strategic communications, also performed at a high level in supporting achievement of the corporate objectives detailed above, particularly in accessing over $1 billion through debt and equity offerings and other financial transactions, causing the MDCC to recommend and the board to approve a results-based rating of "leading" for Mr. Smith. With respect to values-based evaluation, the MDCC recommended that each of Mr. Smith and Mr. Sachdev be rated "living the values" because they demonstrated strong values-based behavior.

        Based on the foregoing, the named executive officers earned the following performance ratings and individual performance factors on account of 2009 performance.

 
  Results—Based
Rating
  Values—Based
Rating
  2009 Overall
Performance
Rating
  Individual
Performance
Factor
 

Matthew W. Emmens

  Leading   Exemplary Demonstration   Leading/Exemplary     150 %

Ian F. Smith

  Leading   Living the Values   Leading     145 %

Peter Mueller

  Leading   Exemplary Demonstration   Leading/Exemplary     150 %

Amit Sachdev

  Leading   Living the Values   Leading     145 %

        Annual Cash Bonus and Equity Awards—The annual cash bonuses and annual equity awards for 2009 resulting from the company and individual performance ratings are set forth in the tables under the headings Compensation and Equity Tables—Summary Compensation Table—Non-Equity Incentive Plan Compensation—Cash Bonus and Compensation and Equity Tables—Summary Compensation Table—Stock Awards and Options Awards.

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Benefits

        Our executives are eligible to participate in all benefits programs on the terms made generally available to our employees, including medical insurance, dental insurance, payment of life insurance premiums, disability coverage, and participation in our employee stock purchase plan. Our retirement benefits are limited to a defined contribution—a 401(k)—plan, in which our named executive officers are eligible to participate, subject to all applicable limitations under the plan. We make matching contributions to the 401(k) plan, which are made in the form of fully vested unitized interests in a Vertex common stock fund, and are subject to certain limitations. The formula for determining the amount of our matching contributions is the same for our named executive officers as for our other employees (and are subject to the same statutory maximum), but the actual contributions made to the accounts of our named executive officers are at the top end of the range, due generally to the executives' higher salaries and corresponding higher cash contribution levels. We do not provide any other retirement benefits to the named executive officers.

Other-Than-Annual Compensation Arrangements

        Supplemental Grants of Equity Compensation.    On an occasional basis, the MDCC has recommended that our board of directors make an additional, off-cycle equity award to an executive officer or group of officers in order to achieve one or more of the objectives of our executive compensation program. Our board made such an award in October 2009 to Mr. Smith, Dr. Mueller and Mr. Sachdev. The objective of this grant was to provide a retention incentive to our executives to provide stability in the team that will be responsible for bringing our first product, telaprevir, successfully to market. The October 2009 grant was structured as an option award with a "cliff vest" on the fifth anniversary of the grant, with portions of the grant vesting earlier upon the achievement of milestones related to the advancement of the company from a development stage biotechnology company toward a fully-capable biopharmaceutical company, including FDA approval of telaprevir, and, if we obtain FDA approval for telaprevir, having had a sufficient cash balance at the time we filed an NDA for telaprevir, advancement of at least two other product candidates beyond "proof-of-concept," and achieving specified sales levels for telaprevir in the United States during the first eighteen months following marketing approval, if obtained, or launching a second product in the United States. The board of directors awarded a larger number of shares to those executives with direct responsibilities for achieving these objectives, and a lower number of shares to those executives whose functional responsibility provide support for the operational groups. One of Ms. Wysenski's new hire equity grants, awarded when she joined us in December 2009, incorporates similar vesting provisions, so that our executives share incentives and goals for the company during the next critical period in our company life-cycle. The number of shares granted to each of our named executive officers was as follows: 300,000 shares for each of Dr. Mueller, Mr. Smith and Ms. Wysenski, and 60,000 shares for Mr. Sachdev.

        Supplemental grants generally are made on an ad hoc basis, when warranted in the judgment of the MDCC and our board. We cannot predict if the board will make additional supplemental grants in the future, or characterize the likely size and/or terms of any such grants.

        Employment Agreements.    The initial compensation terms for newly hired members of our executive team are the result of negotiations between us, in consultation with the MDCC and our board, and the executive being recruited. Accordingly, the initial employment terms for each of the named executive officers vary significantly because they take into account both our interests and the executive's interests under the circumstances at the time of negotiation, and depend on the level of job responsibility, the market for the executive's services, the value of other opportunities then available to the executive and

33



similar considerations. Executives who join us from other companies may sacrifice potential bonuses and/or equity payouts, and may request compensation elements of similar value. More experienced individuals may seek higher compensation than individuals who are still establishing their careers. We seek to balance the need to be competitive in a competitive market against the need for the executive's compensation to be comparable with the executive's peers at the company. In general, each newly hired executive enters into an employment agreement and change of control agreement and is awarded a stock option and a restricted stock grant, and in some cases a cash sign-on bonus, reimbursement of moving expenses, and other benefits.

        The MDCC, and in some instances, the board of directors (excluding Dr. Boger and Mr. Emmens) took a number of actions in connection with our CEO transition that occurred during 2009. In February 2009, Matthew W. Emmens joined us as our president, and on May 23, 2009, he became our president, chairman and chief executive officer. Dr. Boger's employment as CEO terminated on May 23, 2009. Dr. Boger continues to serve on our board of directors.

        The MDCC sought assistance in structuring and negotiating Mr. Emmens' agreement both from outside compensation consultants and outside attorneys. In general, the terms of Mr. Emmens' employment agreement provide for compensation elements consistent with the executive compensation program we have used in recent years, although in amounts generally at the higher end of the range for most elements, consistent with Mr. Emmens' expertise and experience. To assist in making judgments in this regard, the MDCC engaged Hewitt Associates to conduct a review of CEO compensation, and related data pertinent to the changes in our comparator company group which were adopted in January 2009 and are discussed more fully below under the heading Compensation Decision-Making Process—Analysis of Compensation Practices of Comparator Companies. Additional information regarding Mr. Emmens' employment contract is set forth under the heading Employment Contracts and Change of Control Arrangements. In connection with its decision to hire Mr. Emmens, our board of directors also entered into a transition agreement with Dr. Boger, and the MDCC considered comparator company data in recommending the compensation terms in that agreement.

        In December 2009, we hired Nancy J. Wysenski to serve as executive vice president and chief commercial officer. Ms. Wysenski's employment agreement provided her with an initial base salary of $460,000, a sign-on bonus of $25,000 and reimbursement of relocation costs. In addition to the option to purchase 300,000 shares that is described above under the heading Other-Than-Annual Compensation Arrangements—Supplemental Grants of Equity Compensation, Ms. Wysenski was awarded a stock option grant for 100,000 shares vesting in 16 equal quarterly installments over four years, and a restricted stock grant for 20,000 shares vesting in four equal annual installments. Additional information regarding Ms. Wysenski's employment contract and her change of control agreement is set forth under the heading Employment Contracts and Change of Control Arrangements.

Post-Termination Compensation and Benefits

        Our employment agreements and the plans we maintain will require us under specified circumstances to provide our named executive officers with cash compensation, benefits and/or acceleration of the vesting of equity awards in the event of termination of employment. The terms of these agreements are separately negotiated and vary from executive to executive with respect to the amount of severance payments, provisions for accelerated equity award vesting, continuation of benefits and other terms. In addition, executive candidates differ significantly from each other in terms of their seniority, experience, talents, motivations, areas of expertise and other individual circumstances. In particular, the executives we are recruiting typically have existing job interests, and joining us may require that these executives forgo

34



benefits under equity and bonus programs with their existing employers or leave lucrative private practices. In general, we find that these executives are unlikely to join us unless we provide them sufficient security through severance and change of control benefits.

        A further discussion of the terms and projected payments under each of our agreements with our named executive officers is set forth under the heading Employment Contracts and Change of Control Arrangements. In general, each employment arrangement provides for cash severance and continuation of certain employee benefits in the event that an executive's employment is terminated by us without cause or terminated by the executive for good reason. We use a "double trigger" with respect to benefits that are to be provided in connection with a change of control. A change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability, or by the executive for good reason during a specified period before or after a change of control. We believe a "double trigger" benefit maximizes shareholder value because it prevents a windfall to executives in the event of a change of control in which the executive retains significant responsibility as defined in his or her individual agreement, while still providing our executives appropriate incentives to cooperate in negotiating any change of control in which company executives ultimately believe they may lose their jobs.

        In addition to the benefits that only accrue in connection with a change of control, our agreements with certain of our executive officers provide benefits if we terminate their employment with us without cause or they terminate their employment with us for good reason, as such terms are defined in the applicable agreement with the executive officer. A further discussion of the terms and projected payments under each of these agreements is set forth below under the heading Employment Contracts and Change of Control Arrangements.

Compensation Decision-Making Process

Role of MDCC and Chief Executive Officer in Setting Executive Compensation

        The MDCC has primary responsibility for advising our board of directors with respect to developing and evaluating potential candidates for executive positions, including the chief executive officer, and for overseeing the development of executive succession plans. As part of this responsibility, the MDCC oversees the design, development and implementation of the compensation program for the chief executive officer and the other named executive officers.

        The MDCC evaluates the performance of our chief executive officer and recommends to our board for its approval all compensation elements and amounts to be awarded to our chief executive officer. Our chief executive officer Mr. Emmens does not participate in board decisions relating to his compensation.

        The MDCC also assesses the performance of the other executive officers and recommends their compensation elements and amounts to our board. Our chief executive officer and our senior vice president, human resources, assist the MDCC in reaching compensation recommendations with respect to executive officers, including the named executive officers other than the chief executive officer. The other named executive officers do not play a role in their own compensation determination. Our board makes all final compensation decisions with respect to our executives.

Role of Compensation Consultant

        Neither the company nor the MDCC has a standing contractual arrangement with any compensation consultant who has a role in determining or recommending the amount or form of executive or director compensation. Occasionally, the MDCC has engaged Hewitt Associates to provide information about

35



competitors' compensation practices. In 2009, the MDCC engaged Hewitt on two occasions. The MDCC invited a representative of Hewitt to attend several meetings in January 2009 and February 2009, in connection with negotiating the employment agreement with Mr. Emmens and the transition agreement with Dr. Boger. At those meetings, the Hewitt representative provided information about (i) possible additions to, and subtractions from, our comparator company group and (ii) CEO compensation data from companies selected by the MDCC for the comparator group. In advance of its July 2009 meeting, the MDCC instructed Hewitt to conduct an analysis of all elements of compensation paid to our five most highly compensated executives compared to similar elements paid to similarly-situated executives at companies in our comparator group and to provide a written report and presentation of findings at the July 2009 MDCC meeting. This information was used as described under the headings Executive Summary—Compensation Decision-Making Process, Detailed Analysis and Discussion—Elements of Compensation—Performance-Based Elements of Compensation—Annual Cash Bonus and Equity Awards—Annual Cash Bonus and Compensation Decision-Making Process—Analysis of Compensation Practices of Comparator Companies.

Analysis of Compensation Practices of Comparator Companies

        In order to make judgments about elements of executive compensation on a competitive basis, we consider information about the compensation practices of a representative group of companies with whom we compete for executive talent. We select the companies for this comparator group on the basis of industry, annual operating expenses and market capitalization. We review and revise the list of companies on a regular basis. For 2009, there were nine companies in our comparator group, set forth below.

        The MDCC's practice in recent years has been to evaluate the composition of the comparator company group on an annual basis. In early 2009, the MDCC decided to make a number of changes to the comparator company group. These changes were designed to account for developments affecting a number of the comparator companies, particularly as a result of market dynamics in the last four months of 2008, and to recognize the potential for commercialization of our drug candidates in late-stage development and with reference in particular to our first drug candidate, telaprevir. As a result of this analysis, and on the basis of pre-established criteria for market capitalization and operating expenses, the MDCC selected the comparator companies set forth below, effective beginning in 2009.

 
  Comparator Group—2009    

  Abraxis Bioscience Inc.    

  Amylin Pharmaceuticals, Inc.    

  Celgene Corporation    

  Cephalon, Inc.    

  Elan Corporation plc    

  Endo Pharmaceuticals Holdings Inc.    

  Sepracor Inc.    

  Shire plc    

  Warner Chilcott Ltd.    

        The MDCC does not strictly benchmark executive compensation awards against comparator company compensation. We do look at comparator company information to confirm that our compensation practices and the result of applying our policies and programs in general results in compensation levels that are competitive with those of the comparator companies. In addition, the MDCC reviews broader industry-

36



specific executive compensation surveys published by Radford, Organization Resources Counselors, Inc. and Towers Watson.

Interdependence of Elements and Tally Sheets

        The elements of our compensation program operate independently from one another, except that an adjustment to an executive's base salary level also will result in a corresponding change in the executive's bonus opportunity, and potentially, any severance or change of control payments.

        Any time the MDCC evaluates an amount to award or pay for a specific compensation element, we provide a tally sheet that sets forth all elements of the executive's compensation, including salary, cash bonus, value of equity compensation, the dollar value to the executive and cost to us of all personal benefits, the actual projected payout obligations under potential severance and change of control scenarios, and showing the impact of the proposed award or payment on each compensation element and on the executive's aggregate compensation. The purpose of the tally sheets is to assist the MDCC in establishing and administering an overall executive compensation program that is fair and reasonable both to our executives and to our shareholders. The tally sheets contain categories of information similar to those provided under the caption Compensation and Equity Tables. However, because the tally sheets are used by the MDCC in connection with forward-looking compensation decisions, we often provide different values in the tally sheets than are reported in these tables. In particular, the tally sheets use more current market prices and use different assumptions regarding the timing and circumstances of any event that could result in a severance payment. For example, tally sheets prepared in 2009 incorporated assumptions that any employment termination in connection with a change of control of the company would take place at least three months in the future and that a buyer would pay a premium over the market price of the company's common stock. The MDCC also reviewed tally sheets in February 2009, when reviewing proposed compensation terms for Mr. Emmens' employment contract and Dr. Boger's transition agreement. The purpose of this information was to permit the MDCC to anticipate the potential payouts under various severance and change of control provisions in the contracts, should they be triggered during the year. The review of tally sheets does not result in specific awards. Rather, the tally sheets provide background information for the MDCC to use in considering one or more components of compensation. Each committee member uses the tally sheets as he or she determines when making compensation decisions. The MDCC also uses the tally sheets, together with other resources, to make a determination each year that the aggregate compensation for each named executive is reasonable and not excessive.

        While the tally sheets include information about the current and projected value of each executive's inventory of outstanding vested and unvested equity awards, we believe it is inconsistent with our compensation philosophy to give this "accumulated wealth" weight in setting current executive compensation levels. The value of an executive's equity inventory is largely a function of prior performance, in terms of the size of the grants, the duration of the executive's tenure with us, and the performance of our common stock during that tenure. The inventory can also be significantly affected by whether a particular executive has disposed of equity compensation items in the past or still retains ownership of them. We do not believe that reducing the amount of an executive's current compensation on account of wealth accumulated for prior performance would be consistent with our compensation objectives of retaining, motivating and rewarding our executives.

Tax Considerations

        We would like our compensation program to be reasonably cost and tax effective. To the extent consistent with our other goals, we try to preserve corporate tax deductions, while maintaining the

37



flexibility to approve compensation arrangements that we believe to be in the best interests of the company and our shareholders. The approach may not always result in full tax deductibility. For example, Mr. Emmens' employment agreement provided for the award of an aggregate of 683,129 restricted shares and options in 2009 under our 2006 Stock and Option Plan. These awards may not qualify for full tax deductibility, because the number awarded exceeded the guideline approved by our shareholders for aggregate grants to an individual participant in a calendar year at the time of the grant. The adverse tax impact to us currently is minimal, because at this time we do not have net income subject to federal income tax.

Equity Grant Practices

        The exercise price for each stock option awarded to our executive officers under our equity compensation program is the average of the high and low price for our common stock on the date of grant. As discussed above, our board generally grants employee options two times per year, on the date of its mid-summer meeting, usually in July, and on the date of its first meeting of each new year, usually in late January or early February. Supplemental equity grants are made at scheduled MDCC meetings at the time when the MDCC determines they are appropriate in order to meet the objectives of our compensation program. Board and committee meetings generally are scheduled at least a year in advance, and scheduling decisions are made without regard to anticipated earnings or other major announcements by the company.

        In general, newly hired employees, including executive officers, are granted options and/or restricted stock effective on the first day of employment, with the options having an exercise price set at the average of the high and low price for our common stock on the employment start date. The employees' start dates are scheduled without regard to anticipated earnings or other major announcements by the company.

Report of Management Development and Compensation Committee on Executive Compensation

        The Management Development and Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and its discussions with management, the Management Development and Compensation Committee recommended to Vertex's Board of Directors that the Compensation Discussion and Analysis be included in Vertex's proxy statement for its 2010 annual meeting of shareholders and incorporated by reference into Vertex's Annual Report on Form 10-K for the year ended December 31, 2009. This report is provided by the following directors who comprise the Management Development and Compensation Committee:

Roger W. Brimblecombe (Chair)
Bruce I. Sachs
Elaine S. Ullian

38


COMPENSATION AND EQUITY TABLES

Summary Compensation Table

        The following table provides summary information concerning compensation earned by our chief executive officer, chief financial officer, our three other most highly compensated executive officers in 2009 and Dr. Joshua Boger, who served as our chief executive officer until May 2009, and continued his service as a director thereafter. We refer to these officers collectively as our named executive officers.

 
 
  Name and Principal Position
   
  Year
   
  Salary
   
  Bonus
   
  Stock
Awards

   
  Option
Awards

   
  Non-Equity
Incentive Plan
Compensation

   
  All Other
Compensation

   
  Total
   
    Matthew W. Emmens
    Chairman, President and
    Chief Executive Officer
        2009       $ 1,002,693       $       $ 4,498,687       $ 10,699,406       $ 2,846,251       $ 231,121       $ 19,278,158    
    Ian F. Smith         2009       $ 479,250       $       $ 405,297       $ 7,803,839       $ 403,245       $ 12,405       $ 9,104,036    
        Executive Vice President and         2008       $ 444,234       $       $ 182,900       $ 1,231,888       $ 391,500       $ 11,804       $ 2,262,326    
        Chief Financial Officer         2007       $ 411,595       $       $ 1,164,328       $ 1,641,900       $ 141,907       $ 12,543       $ 3,372,273    
    Peter Mueller, Ph.D.         2009       $ 538,029       $       $ 405,297       $ 7,803,839       $ 495,000       $ 12,421       $ 9,254,586    
        Executive Vice President,         2008       $ 456,664       $       $ 274,359       $ 1,846,554       $ 385,324       $ 11,563       $ 2,974,464    
        Global Research and Development,
    and Chief Scientific Officer
        2007       $ 444,361       $       $ 1,164,328       $ 1,641,900       $ 229,804       $ 12,712       $ 3,493,105    
    Nancy J. Wysenski
    Executive Vice President and
    Chief Commercial Officer
        2009       $ 31,846       $ 25,000         793,800       $ 9,295,540       $       $ 32,028       $ 10,178,214    
    Amit Sachdev         2009       $ 378,341       $       $ 409,188       $ 2,962,371       $ 278,547       $ 1,210       $ 4,029,657    
        Senior Vice President,                                                                                    
        Corporate Affairs and
    Public Policy
                                                                                   
    Joshua Boger, Ph.D.         2009       $ 373,410       $       $ 1,583,122       $ 5,153,206       $       $ 3,038,631       $ 10,148,369    
        Former President and         2008       $ 708,539       $       $ 595,356       $ 4,010,005       $ 978,750       $ 11,835       $ 6,304,485    
        Chief Executive Officer         2007       $ 616,615       $       $ 1,427,431       $ 5,344,669       $ 318,888       $ 12,852       $ 7,720,455    

    Stock Awards and Options Awards

        The amounts set forth under the captions "Stock Awards" and "Option Awards" in the table above represent the grant-date fair value of awards granted during the applicable fiscal year. Our methodology for determining the grant-date fair value, including underlying estimates and assumptions for calculating these values, is set forth in Note D to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on February 19, 2010. The amounts set forth above for Ms. Wysenski and Mr. Emmens for 2009 include the grant-date fair value of new hire equity awards. Mr. Smith, Dr. Mueller and Mr. Sachdev each received supplemental option awards in the fourth quarter of 2009. The amounts set forth above for Dr. Boger for 2009 also include the incremental fair value of option awards that were modified in connection with his transition agreement.

        Pursuant to applicable Securities and Exchange Commission rules the grant-date fair values of the awards granted in February 2010 for 2009 performance will be included as 2010 compensation. Ms. Wysenski commenced employment with us in December 2009 and was not eligible to receive any 2009

39



performance awards. The total equity awards made to each of the named executives on account of 2009 performance are as follows:

 
   
   
 
   
   
  2009
Individual
Performance
Rating

   
  Stock Options
Awarded in
July 2009

   
  Stock Options
Awarded in
February 2010

   
  Total Stock
Options
Awarded for
2009 Performance

   
  Restricted
Stock
Awarded in
February 2010
for 2009
Performance

   

 

  Matthew W. Emmens         Leading/Exemplary         n/a         354,000         354,000         47,201    

 

 

Ian F. Smith

        Leading         36,250         54,375         90,625         12,084    

 

 

Peter Mueller

        Leading/Exemplary         36,250         72,500         108,750         14,501    

 

 

Amit Sachdev

        Leading         30,500         45,750         76,250         10,166    

    Non-Equity Incentive Plan Compensation—Cash Bonus

        The amounts set forth under the caption "Non-Equity Incentive Plan Compensation" represent cash bonuses for 2009, 2008 and 2007 performance, each of which was paid in the first quarter of the next year. The cash bonus awards to the named executive officers for 2009 performance, other than Ms. Wysenski, who was not eligible, were determined as follows:

 
   
   
 
   
   
  2009 Base
Salary
Level

   
  Individual
Incentive
Target

   
  2009
Target
Bonus

   
  Company
Performance
Factor

   
  Individual
Performance
Factor

   
  2009 Bonus
   

 

  Matthew W. Emmens       $ 1,100,000         115 %     $ 1,265,000         150 %       150 %     $ 2,846,251    

 

 

Ian F. Smith

      $ 463,500         40 %     $ 185,400         150 %       145 %     $ 403,245    

 

 

Peter Mueller

      $ 550,000         40 %     $ 220,000         150 %       150 %     $ 495,000    

 

 

Amit Sachdev

      $ 365,907         35 %     $ 128,067         150 %       145 %     $ 278,547    

    All Other Compensation

        The amounts set forth under the caption "All Other Compensation" in the table above consist of:

 
   
   
   
 
   
   
  Year
   
  401(k)
Match

   
  Life
Insurance
Premiums

   
  Relocation and
Transition
Expenses

   
  Cash
Severance

   
  Board
Compensation(1)

   
  Total
   

 

  Matthew W. Emmens         2009       $       $ 1,325       $ 224,969       $       $ 4,827       $ 231,121    

 

 

Ian F. Smith

        2009       $ 11,025       $ 1,380       $       $       $       $ 12,405    

 

            2008       $ 10,350       $ 1,454       $       $       $       $ 11,804    

 

            2007       $ 10,125       $ 2,418       $       $       $       $ 12,543    

 

 

Peter Mueller

        2009       $ 11,025       $ 1,396       $       $       $       $ 12,421    

 

            2008       $ 10,350       $ 1,213       $       $       $       $ 11,563    

 

            2007       $ 10,125       $ 2,587       $       $       $       $ 12,712    

 

 

Nancy J. Wysenski

        2009       $       $ 69       $ 31,959       $       $       $ 32,028    

 

 

Amit Sachdev

        2009       $       $ 1,210       $       $       $       $ 1,210    

 

 

Joshua Boger

        2009       $ 11,025       $ 613       $       $ 3,002,133       $ 24,860       $ 3,038,631    

 

            2008       $ 10,350       $ 1,485       $       $       $       $ 11,835    

 

            2007       $ 10,125       $ 2,727       $       $       $       $ 12,852    
(1)
Board Compensation consists of fees paid for board service while the named executive officer was a non-employee director.

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Grants of Plan-Based Awards

        The following table provides information with respect to grants of awards to each of our named executive officers during 2009:

 
   
   
   
   
 
   
      
   
  Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards

   
      
   
      
   
      
   
      
   
      
   







   
 






  Grant
Date

 







  Threshold

 







  Target

 







  Maximum

 







  Estimated
Future
Payouts
Under
Equity
Incentive
Plan
Awards
(shares)

 







  All Other
Option
Awards:
Number of
Securities
Underlying
Options
(shares)

 







  Exercise or
Base Price
of Option
Awards
(per share)

 







  Closing Price of Stock on Grant Date (per share)
 







 
Grant-Date Fair Value of Stock and Option Awards

 







 

 

Matthew W. Emmens

                $ 0       $ 1,265,000       $ 2,846,251                                                      

 

            2/5/2009                                       134,129                                     $ 4,498,687    

 

            2/5/2009                                                 549,000       $ 33.55       $ 33.96       $ 10,699,406    

 

 

Ian F. Smith

                $ 0       $ 185,400       $ 417,150                                                      

 

            2/5/2009                                       12,084                                     $ 405,297    

 

            2/5/2009                                                 54,375       $ 33.55       $ 33.96       $ 1,059,709    

 

            7/16/2009                                                 36,250       $ 33.28       $ 33.23       $ 662,201    

 

            10/22/2009                                                 300,000       $ 33.00       $ 32.91       $ 6,081,930    

 

 

Peter Mueller

                $ 0       $ 220,000       $ 495,000                                                      

 

            2/5/2009                                       12,084                                     $ 405,297    

 

            2/5/2009                                                 54,375       $ 33.55       $ 33.96       $ 1,059,709    

 

            7/16/2009                                                 36,250       $ 33.28       $ 33.23       $ 662,201    

 

            10/22/2009                                                 300,000       $ 33.00       $ 32.91       $ 6,081,930    

 

 

Nancy J. Wysenski

        12/9/2009                                       20,000                                     $ 793,800    

 

            12/9/2009                                                 100,000       $ 39.70       $ 40.18       $ 2,095,450    

 

            12/9/2009                                                 300,000       $ 39.70       $ 40.18       $ 7,200,090    

 

 

Amit Sachdev

                $ 0       $ 128,067       $ 288,152                                                      

 

            2/5/2009                                       12,200                                     $ 409,188    

 

            2/5/2009                                                 61,000       $ 33.55       $ 33.96       $ 1,188,823    

 

            7/16/2009                                                 30,500       $ 33.28       $ 33.23       $ 557,162    

 

            10/22/2009                                                 60,000       $ 33.00       $ 32.91       $ 1,216,386    

 

 

Joshua Boger

        2/5/2009                                       47,201                                     $ 1,583,122    

 

            2/5/2009                                                 236,000       $ 33.55       $ 33.96       $ 2,879,200    

 

            6/1/2009                                                 20,000       $ 29.89       $ 30.04       $ 319,466    

        The amounts in the "Estimated Possible Payouts Under Non-Equity Incentive Plan Awards" column represent the minimum, target and maximum amounts that our named executive officers were eligible for pursuant to our 2009 annual cash bonus program. Ms. Wysenski was not eligible for a cash bonus award for 2009. Actual amounts paid to each of the named executive officers under this plan for 2009 performance are set forth in the Summary Compensation Table above.

        The amounts in the "Estimated Future Payouts Under Equity Incentive Plan Awards" column represent the number of shares of restricted stock granted to the named executive officers in 2009. The restricted stock awards to Mr. Emmens and Ms. Wysenski represent new hire awards and the restricted stock awards to Mr. Smith, Dr. Mueller, Mr. Sachdev and Dr. Boger were made in early 2009 on account of the executives' performance during 2008. Mr. Emmens' restricted stock award vests on February 5, 2012. Ms. Wysenski's restricted stock award vests in four annual installments from the date of grant. The restricted stock awards to Mr. Smith, Dr. Mueller, Mr. Sachdev and Dr. Boger are characterized as

41



performance-accelerated restricted stock, or PARS, which is subject to time-based vesting on the fourth anniversary of grant, with half of the shares subject to acceleration upon the FDA's acceptance of the filing of an NDA for telaprevir and the other half of the shares subject to acceleration of vesting upon the approval of the NDA for telaprevir. A portion of Dr. Boger's 2009 PARS award vested on May 23, 2009 under the terms of his transition agreement and the remainder is subject to vesting pursuant to the terms of the award.

        In accordance with our stock and option plans, the exercise prices for the stock options granted to our named executive officers during 2009 were equal to the average of the high and the low prices of our common stock on the grant date. As a result, in 2009 the exercise prices of options granted to our named executive officers were higher than the grant-date closing price of our common stock for our July 16, 2009 and October 22, 2009 grants and lower than the grant-date closing price of our common stock for our February 5, 2009, June 1, 2009 and December 9, 2009 grants. In the future, we expect that options will continue to be granted with exercise prices equal to the average of the high and low prices of our common stock on the grant date, and that as a result the exercise prices are likely be different from the closing price of our common stock on the grant date. Each stock option granted on February 5, 2009 and July 16, 2009 set forth in the table above and the December 9, 2009 grant to Ms. Wysenski for 100,000 shares was granted subject to vesting in 16 quarterly installments during the first four years of its ten-year term. The October 22, 2009 grants set forth in the table above and the December 9, 2009 grant to Ms. Wysenski for 300,000 shares vest on October 22, 2014, subject to acceleration as described on page 33 of this proxy statement. The June 1, 2009 grant to Dr. Boger was a non-employee director grant that vested in full on June 1, 2009.

42


Outstanding Equity Awards at Fiscal Year-End

        The following tables provide information with respect to outstanding equity awards held by each of our named executive officers on December 31, 2009, based on the closing price of $42.85 per share of our common stock on December 31, 2009.

                                                                   
 
   
   
   
   
   
   
   
 
   
  Option Awards
   
  Stock Awards
   
 
   
   
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares) (1)

   
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares) (1)

   
  Option
Exercise
Price
(per share)

   
  Option
Expiration
Date (2)

   
  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(shares)

   
  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

   

 

 

Matthew W. Emmens

        Restricted Stock                                        

 

                                                    134,129 (3)     $ 5,747,428    

 

            Stock Options                                        

 

            20,000         0       $ 9.16         7/22/2014                        

 

            10,000         0       $ 13.32         5/31/2015                        

 

            20,000         0       $ 28.40         5/31/2018                        

 

            20,000         0       $ 29.84         5/31/2017                        

 

            102,937         446,063       $ 33.55         2/4/2019                        

 

            20,000         0       $ 34.32         5/31/2016                        

 

 

Ian F. Smith

        Restricted Stock                                        

 

                                                    12,200 (4)     $ 522,770    

 

                                                    12,084 (5)     $ 517,799    

 

                                                    9,667 (6)     $ 414,231    

 

                                                    15,000 (7)     $ 642,750    

 

                                                    12,084 (8)     $ 517,799    

 

            Stock Options                                        

 

            6,187         0       $ 10.41         2/2/2015                        

 

            7,875         0       $ 17.16         7/19/2015                        

 

            15,860         20,390       $ 18.93         2/6/2018                        

 

            20,391         15,859       $ 28.84         7/11/2017                        

 

            11,328         24,922       $ 32.16         7/23/2018                        

 

            0         300,000       $ 33.00         10/21/2019                        

 

            2,265         33,985       $ 33.28         7/15/2019                        

 

            10,195         44,180       $ 33.55         2/4/2019                        

 

            29,453         6,797       $ 35.35         7/19/2016                        

 

            68,906         4,594       $ 35.64         2/1/2016                        

 

            37,383         16,992       $ 36.30         1/23/2017                        

43


                                                                   
 
   
   
   
   
   
   
   
 
   
  Option Awards
   
  Stock Awards
   
 
   
   
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares) (1)

   
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares) (1)

   
  Option
Exercise
Price
(per share)

   
  Option
Expiration
Date (2)

   
  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(shares)

   
  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

   

 

 

Peter Mueller

        Restricted Stock                                        

 

                                                    12,200 (4)     $ 522,770    

 

                                                    12,084 (5)     $ 517,799    

 

                                                    14,501 (6)     $ 621,368    

 

                                                    15,000 (7)     $ 642,750    

 

                                                    12,084 (8)     $ 517,799    

 

            Stock Options                                        

 

            34,400         0       $ 10.41         2/2/2015                        

 

            18,000         0       $ 11.27         10/6/2014                        

 

            150,000         0       $ 16.32         7/14/2013                        

 

            18,000         0       $ 17.16         7/19/2015                        

 

            31,718         40,782       $ 18.93         2/6/2018                        

 

            20,391         15,859       $ 28.84         7/11/2017                        

 

            11,328         24,922       $ 32.16         7/23/2018                        

 

            0         300,000       $ 33.00         10/21/2019                        

 

            2,265         33,985       $ 33.28         7/15/2019                        

 

            10,195         44,180       $ 33.55         2/4/2019                        

 

            29,453         6,797       $ 35.35         7/19/2016                        

 

            68,906         4,594       $ 35.64         2/1/2016                        

 

            37,383         16,992       $ 36.30         1/23/2017                        

 

 

Nancy J. Wysenski

        Restricted Stock                                        

 

                                                    20,000 (9)     $ 857,000    

 

            Stock Options                                        

 

            0         300,000       $ 39.70         12/8/2019                        

 

            0         100,000       $ 39.70         12/8/2019                        

 

 

Amit Sachdev

        Restricted Stock                                        

 

                                                    10,166 (6)     $ 435,613    

 

                                                    12,200 (8)     $ 522,770    

 

                                                    7,500 (10)     $ 321,375    

 

            Stock Options                                        

 

            33,360         42,890       $ 18.93         2/6/2018                        

 

            42,187         32,813       $ 29.25         7/22/2017                        

 

            9,531         20,969       $ 32.16         7/23/2018                        

 

            0         60,000       $ 33.00         10/21/2019                        

 

            1,906         28,594       $ 33.28         7/15/2019                        

 

            11,437         49,563       $ 33.55         2/4/2019                        

44


                                                                   
 
   
   
   
   
   
   
   
 
   
  Option Awards
   
  Stock Awards
   
 
   
   
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares) (1)

   
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares) (1)

   
  Option
Exercise
Price
(per share)

   
  Option
Expiration
Date (2)

   
  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(shares)

   
  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

   

 

 

Joshua Boger

        Restricted Stock                                        

 

                                                    1,670 (5)     $ 71,560    

 

                                                    9,505 (6)     $ 407,289    

 

                                                    26,025 (8)     $ 1,115,171    

 

            Stock Options                                        

 

            42,000         0       $ 9.07         12/10/2013                        

 

            72,188         0       $ 10.41         2/2/2015                        

 

            52,500         0       $ 11.27         10/6/2014                        

 

            134,951         0       $ 15.60         1/17/2013                        

 

            27,314         0       $ 15.87         7/21/2012                        

 

            52,500         0       $ 17.16         7/19/2015                        

 

            95,875         22,125       $ 18.93         2/6/2018                        

 

            125,000         0       $ 24.66         12/10/2011                        

 

            110,625         7,375       $ 28.84         7/11/2017                        

 

            20,000         0       $ 29.89         5/31/2019                        

 

            81,125         36,875       $ 32.16         7/23/2018                        

 

            132,750         103,250       $ 33.55         2/4/2019                        

 

            118,000         0       $ 35.35         7/19/2016                        

 

            600,000         0       $ 35.64         2/1/2016                        

 

            177,000         0       $ 36.30         1/23/2017                        

 

            175,000         0       $ 70.75         12/5/2010                        

(1)
Unvested stock options are vesting in 16 quarterly installments during the first four years of their ten-year terms subject to the following exceptions. The October 22, 2009 grants to Mr. Smith, Dr. Mueller and Mr. Sachdev and the December 9, 2009 grant to Ms. Wysenski for 300,000 shares vest on October 22, 2014 subject to acceleration as described under the heading "Grants of Plan-Based Awards" above. Dr. Boger's stock options were accelerated in part in connection with his transition agreement and the remaining unvested shares are vesting on a quarterly basis while Dr. Boger continues to serve on our board.

(2)
The option expiration dates listed above reflect the final expiration date for each of the listed options. If the named executive officer's service with us is terminated, the options would expire, subject to certain exceptions, three months after the termination of service. Mr. Emmens' options expiring in 2014 through 2018 and Dr. Boger's option expiring on May 31, 2019, which were granted in connection with their service as non-employee directors, have ten-year terms and will not expire as a result of a termination in service. Pursuant to his transition agreement, Dr. Boger's other options will expire on the earliest of (i) the date set forth in the table above, (ii) if his service with the company terminates on or prior to September 30, 2010, December 31, 2010 and (iii) if his service with the company terminates after September 30, 2010, three months after his termination of service.

(3)
This restricted stock award vests on February 5, 2012.

(4)
Each of these restricted stock awards vested on February 2, 2010, the fourth anniversary of grant.

(5)
Each of these awards is a performance-accelerated restricted stock award, which is subject to time-based vesting on January 24, 2011, the fourth anniversary of grant. The vesting of half of the shares was accelerated on January 24, 2010 because our common stock outperformed the BTK Index for two consecutive years. The vesting of the remaining half of the shares will be accelerated if the market price of our common stock achieves and maintains $60.00 per share.

(6)
Each of these awards is a performance-accelerated restricted stock award, which is subject to time-based vesting on February 7, 2012, the fourth anniversary of grant. The vesting of half of the shares will be accelerated if the market price of our common stock achieves and maintains $60.00 per share.

(7)
Each of these restricted stock awards vests on May 6, 2010.

(8)
Each of these awards is a performance-accelerated restricted stock award, which is subject to time-based vesting on February 5, 2013, the fourth anniversary of grant, subject to acceleration as described under the heading "Grants of Plan-Based Awards" above.

(9)
This restricted stock award vests in four annual installments from December 9, 2009.

(10)
This restricted stock award will vest with respect to 50% of the shares on July 23, 2010 and 50% of the shares on July 23, 2011.

45


Options Exercised and Stock Vested

        The following table provides information with respect to the value realized by our named executive officers related to options to purchase common stock exercised by the named executive officers during 2009 and shares of restricted stock that vested during 2009. The value realized per share for options is based on the difference between the exercise price and the fair market value of the shares of common stock at the time the op