Exhibit 10.3
Executed on
February 5, 2009
Joshua S. Boger
243 Old Pickard Road
Concord, MA 01742
Re: Transition
Agreement
Dear Dr. Boger:
This letter follows up on the
discussions we have had concerning your separation from employment
with Vertex Pharmaceuticals Incorporated (“ Vertex
” or the “ Company ”). The purpose
of our discussions and our agreement upon terms is to establish an
amicable arrangement for ending our employment relationship, to
provide for a smooth transition of your responsibilities, to
release the Company from certain claims and to permit you to
receive certain severance pay and related benefits. With this
understanding, and in exchange for your promises and those of the
Company as set forth below, you and the Company agree as follows
(this “ Agreement ”).
1.
Employment Status and Final
Payments :
(a)
The Employment Agreement between you
and the Company dated November 1, 1994, as amended
May 12, 1995, November 8, 2004 and December 30, 2008
(as amended, the “ Employment Agreement ”) is
acknowledged to be in full force and effect as of the date
hereof. The Employment Agreement is hereby amended to
terminate on May 23, 2009 unless terminated earlier in
accordance with the terms of the Employment Agreement (the “
Term ”). Except as provided in this Agreement,
the provisions of the Employment Agreement shall apply and be in
full force during the Term. All capitalized terms used herein
without specific definition shall have the meanings set forth in
the Employment Agreement.
(b)
On February 5, 2009, you will
resign your position as the President of Vertex. You will
continue to serve as the Chief Executive Officer of the Company
from February 5, 2009 until the end of the Term. All
executive team members will report directly to the new President,
who shall report to you.
(c)
You will devote your full time to
the business of the Company and faithfully perform such duties and
responsibilities as the Board of Directors, or any of its
designees, may reasonably assign to you from time to time,
including but not limited to assisting the new
President with his transition to the Company and
his preparation to become the Chief Executive Officer of the
Company on May 23, 2009.
(d)
You will continue to receive the
same level of compensation and other benefits under the Employment
Agreement until the expiration of the Term except that the Company
shall increase your base salary to the rate of $950,151 per annum
effective February 5, 2009.
(e)
Provided that you remain employed
with the Company until May 23, 2009, you agree and acknowledge
that (i) your employment shall immediately terminate on
May 23, 2009, (ii) the Company thereafter shall have no
further obligations to you under the Employment Agreement except as
provided below in Section 5 of this Agreement, and
(iii) your compensation and payments in connection with such
termination and for all future periods shall be governed solely by
this Agreement. In the event that you die or become
disabled (within the meaning of the Employment Agreement) prior to
May 23, 2009, whether or not there has then been a Change in
Control, your employment shall be deemed to have terminated under
this Section 1(e), and you agree and acknowledge that the
Company thereafter shall have no further obligations to you under
the Employment Agreement except as provided below in Section 5
of this Agreement, and your compensation and payments in connection
with such termination and for all future periods shall be governed
solely by this Agreement.
(f)
If (i) (A) the Company
terminates your employment without Cause prior to May 23,
2009, or (B) you terminate your employment for Good Reason in
compliance with the Employment Agreement prior to May 23,
2009, and (ii) a Change in Control (as defined in
Section 7(f) below) has not yet occurred, then you shall
be eligible to receive the payments and benefits set forth in this
Agreement after any such employment termination, and not under the
Employment Agreement except as provided in Section 5 of this
Agreement.
(g)
If your employment with the Company
terminates prior to May 23, 2009, for any reason not described
in Section 1(e) or 1(f) above, then your rights to
any payments or compensation following any such employment
termination shall be governed solely by the terms of the Employment
Agreement.
(h)
Other than your position as a member
of Class III of the Board of Directors of the Company or any
committee of the Board of Directors of the Company, you shall not
hold any positions or offices with the Company or any of its
subsidiaries upon the earlier of your employment termination or
May 23, 2009 (the “ Termination Date ”),
and all of your duties and obligations associated with such
positions or offices immediately shall cease on the Termination
Date. Notwithstanding the foregoing, for purposes of
determining when payments and benefits shall be provided to you
under either Section 2 or Section 7 of this Agreement,
the Termination Date shall in no event be earlier than your
“separation from service” as determined under
Section 409A of the Code and after applying the presumptions
set forth in Treasury Regulation
Section 1.409A-1(h).
(i)
Regardless of the reason for your
employment termination with the Company, upon the Termination Date
you shall in all events be entitled to (i) all earned but
unpaid wages and all accrued but unused vacation time, subject to
standard payroll deductions and withholding,
(ii) reimbursement for all reasonable, business-related
expenses incurred by you up
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to and through the Termination Date, in
accordance with the Company’s expense reimbursement policy,
provided that such reimbursement shall be made no later than the
calendar year following the calendar year in which such expenses
are incurred, and (iii) any rights you have under the
provisions of a Company-provided benefit plan, program, contract or
practice based on your employment up until the Termination
Date.
2.
Consideration
:
Provided that (i) your
employment is terminated under the circumstances set forth in
either Section 1(e) or 1(f) of this Agreement,
(ii) you execute an update to the release provided in
Section 6 below in substantially the form attached hereto as
Exhibit A (the “ Supplemental Release
”) within twenty-one (21) days after the Termination Date,
and (iii) you do not subsequently revoke such updated release
as permitted under Section 16 below, the Company will provide
the following payments and benefits in exchange for, and in
consideration of, your full execution of this Agreement:
(a)
On the date that is six
(6) months and one (1) day following the Termination
Date, the Company shall pay you a one-time, lump sum payment in the
amount of $2,850,453.
(b)
Upon the Termination Date, you and
your dependents may be eligible to continue your group medical plan
coverage under Company-sponsored plans pursuant to the federal law
known as COBRA. If you are eligible, and in the event you and
your dependents elect COBRA continuation coverage, the Company
shall provide you a cash subsidy to pay the cost of COBRA coverage
properly and timely elected by you and your dependents for a period
of up to eighteen (18) months from the Termination Date. This
subsidy shall be paid monthly on your behalf in an amount equal to
the then current monthly charge for this COBRA coverage; provided,
however, that no amount shall be paid in excess of $16,500 during
the first six months after your Termination Date. Any monthly
COBRA payment that cannot be paid under the immediately preceding
sentence shall be paid in a single lump sum payment during the
first payroll period immediately following such six month
period. For purposes of COBRA,
Section 4980B(f)(3)(B) of the Code, the qualifying event
associated with the termination of your employment with the Company
shall be the Termination Date. You understand and acknowledge
that it is solely your responsibility to elect COBRA continuation
coverage if you desire such coverage, and that the cash payment
under this Section 2(b) is taxable to you. You
further understand and acknowledge that the Company’s cash
subsidy towards your COBRA coverage is a taxable event to you, and
that you shall be solely responsible for all taxes on this
benefit. Your rights and obligations under the
Company’s group medical plans shall be governed by the
specific terms of the plans and COBRA. Information concerning
COBRA rights, coverage and election will be sent to you under
separate cover. In the event you obtain comparable health
insurance coverage through other employment prior to the expiration
of the eighteen-month period, the Company’s obligation to
continue to provide cash payments under this
Section 2(b) shall cease as of the effective date of such
coverage. Should you obtain such coverage, you agree to
promptly notify Director – Compensation and Benefits in
writing, including the effective date of such coverage.
(c)
The Company will reimburse you for
your reasonable fees and expenses of legal counsel incurred in
connection with negotiating this Agreement up to $80,000, subject
to the presentation of such documentation as Vertex may reasonably
require, provided that such
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reimbursement shall be made no later than the
calendar year following the calendar year in which such fees and
expenses are incurred.
(d)
Except as otherwise specifically
provided in this Agreement or, as applicable, the Employment
Agreement, you acknowledge and agree that you will not receive nor
are entitled to receive any additional compensation or benefits and
that no additional benefits are otherwise due or owing to you under
any Company employment agreement or policy or practice.
3.
Stock Options
:
(a)
Exhibit B
to this Agreement lists each stock
option granted to you during your employment with the Company as of
the date of this Agreement that remains outstanding (collectively,
the “ Stock Options ”). Except as
specifically set forth in this Section 3 and Section 7
below, all of your rights and obligations under each Stock Option,
including without limitation vesting, exercise and expiration,
shall be governed by the terms and conditions of the Equity Plan
(as defined below) under which the Company issued each Stock Option
and the award agreement governing each Stock Option. The
Company represents to you that none of your actual award agreements
contain any materially different terms as compared to the form of
award agreement for each Equity Plan that have been publicly filed
by the Company with the United States Securities and Exchange
Commission (the “SEC”). For purposes of this
Plan, the “Equity Plans” are the Vertex Pharmaceuticals
Incorporated 1994 Stock and Option Plan, as amended, the Vertex
Pharmaceuticals Incorporated 1996 Stock and Option Plan, as amended
and the Vertex Pharmaceuticals Incorporated Amended and Restated
2006 Stock and Option Plan, as amended (collectively, the “
Equity Plans ”). Each of the Stock Options are
listed on Exhibit B.
(b)
Provided that you meet the
requirements to receive payments and benefits as set forth in
Sections 2(i), 2(ii) and 2(iii) above, the Company shall
add an additional eighteen (18) months of service to your period of
employment effective as of May 23, 2009, solely for purposes
of determining the vested percentage under each of the Stock
Options. The number of Stock Options that will become vested
on May 23, 2009 if you meet the requirements to receive
payments and benefits as set forth in Sections 2(i), 2(ii) and
2(iii) above is set forth in Exhibit B
.
(c)
Each of your outstanding and vested
Stock Options shall in all events remain exercisable until
December 31, 2010, provided, however, that if a Qualifying
Change in Control Event (as defined in Section 7(a) of
this Agreement) occurs, and you are entitled to payments and
vesting pursuant to Section 7(a) below, all Stock Options
held by you at the time of such event shall remain exercisable for
the period set forth in the applicable Equity Plan (as if the
termination of service under such Equity Plan took place on the
date of the Qualifying Change in Control Event), subject to the
Company’s right to extinguish the Stock Options under the
Equity Plans on the Change in Control (as defined in
Section 7(f) of this Agreement). Notwithstanding
anything to the contrary, no Stock Option the fair market value (as
determined using the arithmetic mean of the high and low prices on
February 5, 2009)) of which exceeds the exercise price thereof
as of the date hereof shall be exercisable beyond the earlier of
the latest date upon which such Stock Option could have expired by
its original terms under any circumstances or the tenth anniversary
of the original date of grant of the Stock Option.
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(d)
For any period after the Termination
Date that you continue in the service of the Company in any
capacity that provides eligibility under the applicable Equity Plan
and governing Stock Option award agreement, such that there shall
not have been a “termination of service” under the
applicable Equity Plan and such award agreement, each outstanding
Stock Option shall continue to vest after your Termination Date in
accordance with the provisions of the applicable Equity Plan and
such award agreement. Such continued vesting will be in
addition to the eighteen (18) months of additional deemed service
provided for in Section 3(b) above.
(e)
Notwithstanding anything to the
contrary, under Section 12 of each of the Equity Plans and
your award agreement governing each Stock Option,
“cause” shall be limited to events that have occurred
prior to the Termination Date and, after the Termination Date,
“cause” shall be limited solely to your actions in your
capacity as, or as a result of your status as, a Class III
Director of the Company or if you breach the Non-competition
Covenant or the Inventions Agreement (both as defined below);
provided, that you shall not be deemed to have been terminated for
“cause” based on your actions in your capacity as a
Class III Director of the Company if said actions were based
on the advice of counsel to the Company or its Board of Directors
or if you are treated in a discriminatory manner with respect to
your Equity Awards from other Directors who are similarly
situated.
4.
Restricted
Stock :
(a)
Exhibit C
to this Agreement lists each share
of restricted stock granted to you during your employment with the
Company as of the date of this Agreement that remains subject to a
Lapsing Repurchase Right (collectively, the “ Restricted
Stock ”). Except as specifically set forth in this
Section 4 and Section 7 below, all of your rights and
obligations under the Restricted Stock shall be governed by the
terms and conditions of the applicable Equity Plan and your award
agreement governing each share of Restricted Stock (each, a “
Restricted Stock Agreement ”). The Company
represents to you that the none of your actual award agreements
contain any materially different terms as compared to the form of
award agreement for each Equity Plan that have been publicly filed
by the Company with the SEC. A “ Lapsing Repurchase
Right ,” with respect to a share of Restricted Stock,
shall have the meaning set forth in the Restricted Stock Agreement
applicable to such share.
(b)
Provided that you meet the
requirements to receive payments and benefits as set forth in
Section 2(i), 2(ii) and 2(iii) above, the
Company’s Lapsing Repurchase Rights with respect to the
Restricted Stock shall lapse with respect to a “Pro-Rata
Share of Restricted Stock” (as defined in the Second
Amendment to the Employment Agreement dated November 8, 2004)
as of May 23, 2009. The number of shares of Restricted
Stock with respect to which the Lapsing Repurchase Right lapses on
May 23, 2009, pursuant to this Section 4(b) is set
forth on Exhibit C .
(c)
For any period after the Termination
Date that you continue in the service of the Company in any
capacity that provides eligibility under the applicable Equity
Plan, such that there shall not have been a “termination of
service” under the applicable Equity Plan, each outstanding
Restricted Stock award shall continue to vest after your
Termination Date in accordance with the provisions of the
applicable Equity Plan and governing Restricted Stock
Agreement. Such continued vesting will be in addition to the
lapse of a “Pro-Rata Share of
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Restricted Stock” to occur on May 23,
2009 as provided for in Section 4(b) above.
Accordingly such Restricted Stock may also vest after your
Termination Date based on continued service as a Class III
director, other service, if any, that provides for continued
eligibility under the applicable Equity Plan and the
Company’s subsequent performance. Specifically, the
date on which the remaining unvested portion, if any, of the
Restricted Stock (after application of
Section 7(b) above) is scheduled to vest based solely on
providing continued services shall be eighteen (18) months earlier
than such otherwise scheduled date. You shall also be
entitled to accelerated vesting on the remaining unvested portion,
if any, of the Restricted Stock if the Company meets the applicable
performance criteria while you remain in service as a
Class III director or do not otherwise undergo a termination
of service under the applicable Equity Plan. For purposes of
illustration only, if shares subject to a Restricted Stock grant
that is made on May 23, 2009 only vested in four years (on
May 23, 2013) and you qualified for accelerated vesting under
Section 4(b) above, you would be immediately vested in
37.5% of the Restricted Stock on May 23, 2009, (18 months / 48
months) pursuant to Section 7(b) above, and you would
vest in the remaining portion of the Restricted Stock by either
providing services as a Class III director (or otherwise
providing eligible services, if any) for an additional thirty (30)
months or remaining in service as a director (or otherwise
providing eligible services, if any) when the Company meets the
performance criteria applicable to the Restricted Stock.
(d)
Notwithstanding anything to the
contrary, under Section 12 of each of the Equity Plans and
your award agreement governing each share of Restricted Stock,
“cause” shall be limited to events that have occurred
prior to the Termination Date and, after the Termination Date,
“cause” shall be limited solely to your actions in your
capacity as, or as a result of your status as, a Class III
Director of the Company or if you breach the Non-competition
Covenant or the Inventions Agreement (both as defined below);
provided, that you shall not be deemed to have been terminated for
“cause” based on your actions in your capacity as a
Class III Director of the Company if said actions were based
on the advice of counsel to the Company or its Board of Directors
or if you are treated in a discriminatory manner with respect to
your Equity Awards from other Directors who are similarly
situated.
5.
Excise Tax
Gross-Up :
Subject to Section 7 below, you will remain
entitled to the excise tax gross-up contained in Sections 7.1.5 and
7.1.6 of the Employment Agreement, and the Compan
